INSURANCE [2018]- Judge Escalante

UNIVERSITY OF SANTO TOMAS – FACULTY OF CIVIL LAW Jhoven Paul Tolentino

INSURANCE LAW
RA 10607 dated 23 July 2012
Prof. [Link]-Escalante

I. General Concepts
a. Definitions - Sec 2(a)

Q: What are the elements of an insurance contract?

b. Elements of an Insurance Contract:
1. The insured possesses insurable interest capable of pecuniary estimation
2. The insured is subject to a risk of loss upon the happening of the designated peril
3. The insurer assumes the risk of loss
4. The assumption of risk is part of a general scheme to distribute actual losses among a
large group or substantial number of persons bearing a similar risk.
5. The insured pays a ratable contribution, called premium, to the general insurance fund.

c. Characteristics/Nature of Insurance Contracts

1. Risk-Distributing Device - the risk of economic loss is distributed among a large group or
substantial number of persons bearing the same or similar risk.
2. Uberrimae Fides Contract - The contract of insurance is one of perfect good faith not for
the insured alone, but equally so for the insurer; in fact, it is more so for the latter since
the insurer's dominant bargaining position carries with it stricter responsibilities
(Fieldmen's Insurance Co., Inc. v. Vda. De Songco [1968]).
3. Contract of Indemnity - the insured is entitled to recover only the amount of total loss
sustained, and the burden is upon him to prove the amount of such loss. This applies only
to property insurance, except in the case of creditor insuring the life of his debtor. In the
latter case, the insurable interest of the creditor is limited to the amount of the debt, and
such insurable interest ceases upon full payment of the obligation
4. Contract of Adhesion - A contract of insurance is a ready-made form of contract, which
the other party may accept or reject, but which the latter cannot modify.
Contract of adhesion is valid and should be applied according to its terms and conditions provided that
the contract is 1) clear, 2) unambiguous and 3) not subject to several interpretations.
5. Synallagmatic - Both the insured and insurer have reciprocal obligations of equal value to
each other.
6. Aleatory - The obligation of the insurer to pay the proceeds of the insurance arises only
upon the happening of an event which is uncertain, or which is to occur at an
indeterminate time. (Read Article 2010 of the Civil Code)
7. Voluntary - it is not compulsory
XPN: in case of compulsory motor vehicle insurance which must be procured
before a license to operate a motor may be issued (sec 386-402)

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 INSURANCE [2018]- Judge Escalante
UNIVERSITY OF SANTO TOMAS – FACULTY OF CIVIL LAW Jhoven Paul Tolentino

8. Personal - In agreeing to be bound by the contract of insurance, each party has in mind the
character, credit and conduct of the other. The law presumes that the insurer considered
the personal qualification of the insured in approving the insurance application.
• The insured cannot assign, before the happening of the loss, his rights under a
property policy without the consent of the insurer.
• Life insurance policy is generally assignable or transferrable as it is in the nature of
property and does not represent a personal agreement between the insured and the
insurer. (See Sec 185)

d. Kinds/Types of Insurance Contracts:

1. Life Insurance Contracts (Sec 181), which may be:
a. Individual Life
b. Group Life
c. Industrial Life (sec 235)
2. Non-Life insurance Contracts, which may be:
a. Marine (sec 101)
b. Fire (sec 169)
c. Casualty (sec 176)
3. Contracts of Suretyship (sec 2; 177)

e. Perfection of Contract of Insurance

What governs insurance contracts is the cognition theory, whereby the contract is
perfected only when the applicant-insured has knowledge of the acceptance and approval by the
insurer of his application.

Theory of Manifestation - contract is perfected at the moment acceptance is declared or made

by the offeree.

Cases:
1. Phillipine Health Care Providers Inc. v. CIR
600 SCRA 413, 18 September 2009
Principal object and purpose test

Section 2 (2) of P.D. 1460, otherwise known as the Insurance Code enumerates what
constitutes “doing insurance business” or “transacting an insurance business”. Applying the
"principal object and purpose test," there is significant American case law supporting the
argument that a corporation (such as an HMO, whether or not organized for profit), whose main
object is to provide the members of a group with health services, is not engaged in the insurance
business.

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 INSURANCE [2018]- Judge Escalante
UNIVERSITY OF SANTO TOMAS – FACULTY OF CIVIL LAW Jhoven Paul Tolentino

Facts:
Philippine Health Care Providers, Inc. (PHCP) is a domestic corporation engaged in the
business of providing medical services to individuals who enter into health agreements with it.
Individuals enrolled in its health care programs pay an annual membership fee and are entitled to
various medical services provided by its duly licensed physicians, specialists and other
professional technical staff participating in the group practice health delivery system at a hospital
or clinic owned, operated or accredited by it.

Subsequently, the CIR sent PHCP a formal demand letter and the corresponding
assessment notices demanding the payment of deficiency documentary stamp tax for the taxable
years 1996 and 1997. The deficiency assessment was imposed on PHCP’s health care agreement
with the members of its health care program pursuant to Section 185 of the 1997 Tax Code.

PHCP protested the assessment alleging that being a health maintenance organization
(HMO) and not an insurance company, it is not liable to pay DST. It contended that under the
NIRC of 1997 only companies engaged in the business of fidelity bonds and other insurance
policies are liable to pay DST.

The SC in its decision dated June 12, 2008 ruled that the health care agreement offered by
PHCP is in the nature of a non-life insurance which is a contract of indemnity. Moreover, the fact
that PHCP is an HMO and not an insurance company is irrelevant because the contracts between
an HMO and its beneficiaries are treated as insurance contracts. Hence the present motion for
reconsideration.

Issue: Whether or not PHCP, as an HMO, is engaged in the business of insurance

Ruling:
No, it is not. Section 2 (2) of P.D. 1460, otherwise known as the Insurance Code
enumerates what constitutes “doing insurance business” or “transacting an insurance business”.

Applying the "principal object and purpose test," there is significant American case law
supporting the argument that a corporation (such as an HMO, whether or not organized for
profit), whose main object is to provide the members of a group with health services, is not
engaged in the insurance business.

xxxx Although Group Health’s activities may be considered in one aspect as creating
security against loss from illness or accident more truly they constitute the quantity purchase of
well-rounded, continuous medical service by its members. xxx The functions of such an
organization are not identical with those of insurance or indemnity companies. The latter are
concerned primarily, if not exclusively, with risk and the consequences of its descent, not with
service, or its extension in kind, quantity or distribution; with the unusual occurrence, not the
daily routine of living. Hazard is predominant.

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UNIVERSITY OF SANTO TOMAS – FACULTY OF CIVIL LAW Jhoven Paul Tolentino

On the other hand, the cooperative

1. is concerned principally with getting service rendered to its members and doing so at lower
prices made possible by quantity purchasing and economies in operation.
2. Its primary purpose is to reduce the cost rather than the risk of medical care; to broaden the
service to the individual in kind and quantity; to enlarge the number receiving it; to
regularize it as an everyday incident of living, like purchasing food and clothing or oil and
gas, rather than merely protecting against the financial loss caused by extraordinary and
unusual occurrences, such as death, disaster at sea, fire and tornado.
3. It is, in this instance, to take care of colds, ordinary aches and pains, minor ills and all the
temporary bodily discomforts as well as the more serious and unusual illness.

To summarize, the distinctive features of the cooperative are the rendering of service, its
extension, the bringing of physician and patient together, the preventive features, the
regularization of service as well as payment, the substantial reduction in cost by quantity
purchasing in short, getting the medical job done and paid for; not, except incidentally to these
features, the indemnification for cost after the services is rendered. Except the last, these are not
distinctive or generally characteristic of the insurance arrangement. There is, therefore, a
substantial difference between contracting in this way for the rendering of service, even on the
contingency that it be needed, and contracting merely to stand its cost when or after it is
rendered.

Lastly, it is significant that PHCP, as an HMO, is not part of the insurance industry. This
is evident from the fact that it is not supervised by the Insurance Commission but by the
Department of Health.

2. Enriquez v. Sun Life Assurance Co. of Canada

41 Phil 269
29 November 1920
Facts:
September 24, 1917 - Joaquin Herrer made application to the Sun Life Assurance Company of
Canada through its office in Manila for a life annuity. Two days later he paid the sum of
P6,000 to the manager of the company's Manila office and was given a provisional receipt
(in spanish). The application was immediately forwarded to the head office of the Company
at Montreal, Canada.

November 26, 1917 - The head office gave notice of acceptance by cable to Manila.

December 4, 1917 - the policy was issued at Montreal

December 18, 1917 - Herrer desired to withdraw his application, thus Atty Torres wrote to the
Manila office of the company. The following day the local office replied to Mr. Torres,
stating that the policy had been issued, and called attention to the notification of November
26, 1917.

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 INSURANCE [2018]- Judge Escalante
UNIVERSITY OF SANTO TOMAS – FACULTY OF CIVIL LAW Jhoven Paul Tolentino

December 21, 1917 - this letter was received by Mr. Torres

However on December 20, 1917 - Mr. Herrer died.

Issue: Whether or not there was a perfected contract of life insurance (life annuity???)

Ruling:
No. Insurance Act (law effective during this time) deals with life insurance, it is silent as
to the methods to be followed in order that there may be a contract of insurance On the other
hand, the Civil Code, in article 1802, not only describes a contract of life annuity markedly
similar to the one we are considering, but in two other articles gives strong clues as to the proper
disposition of the case For instance, article 16 of the Civil Code provides that "In matters which
are governed by special laws, any deficiency of the latter shall be supplied by the provisions of
this Code." On the supposition, therefore, which. is incontestable, that the special law on the
subject of insurance is deficient in enunciating the principles governing acceptance, the subject-
matter of the Civil Code, if there be any, would be controlling. In the Civil Code is found article
1262 providing that "Consent is shown by the concurrence of offer and acceptance with respect
to the thing and the consideration which are to constitute the contract. An acceptance made by
letter shall not bind the person making the offer except from the time it came to his knowledge.

The Court ruled that the applicable law to the case second paragraph of article 1262 of
the Civil Code providing that an acceptance made by letter shall not bind the person making the
offer except from the time it came to his knowledge.

The pertinent fact is, that according to the provisional receipt, three things had to be
accomplished by the insurance company before there was a contract: (1) There had to be a
medical examination of the applicant; (2) there had to be approval of the application by the head
office of the company; and (3) this approval had in some way to be communicated by the
company to the applicant.

Consequently, no contract for life annuity was perfected. Therefore the plaintiff shall
have the right to recover from the defendant the sum of P6,000 with legal interest from Nov. 20,
1918 until paid, without special finding as to costs in either instance.

3. Fieldmen's Insurance Co. v. Vda De Songco

25 SCRA 70
Uberrimae Fides Contract

The contract of insurance is one of perfect good faith (uberrimae fides) not for the
insured alone, but equally so for the insurer; in fact, it is more so for the latter, since its dominant
bargaining position carries with it stricter responsibility."

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UNIVERSITY OF SANTO TOMAS – FACULTY OF CIVIL LAW Jhoven Paul Tolentino

Facts:
Federico Songco of Floridablanca, Pampanga, a man of scant education, being only a first
grader, owned a private jeepney. As such private vehicle owner, he was induced by Fieldmen's
Insurance Company Pampanga agent Benjamin Sambat to apply for a Common Carrier's
Liability Insurance Policy covering his motor vehicle. Common Carriers Accident Insurance
Policy issued to Federico will be effective for 1 year. This policy was later renewed extending
another year.

During the effectivity of the renewed policy, the insured vehicle while being driven by
Rodolfo Songco, a duly licensed driver and son of Federico collided with a car in the
municipality of Calumpit, Bulacan, as a result of which mishap, Federico, and Rodolfo, together
with other family members died because of the incident and the other family friend sustained
physical injuries.

Amor Songco, son of Federico, tried to claim the proceeds of the insurance policy.
However, the insurance company tried to escape liability by saying that Common Carrier's
Liability Insurance Policy covers only common carriers and not privately owned vehicle.

RTC and CA rendered a judgement against the insurance company, hence, this petition.

Issue: Whether or not Fieldmen's Insurance Co., Inc. is liable

Ruling:
Yes. In the case of Qua Chee Gan v. Law Union and Rock Insurance Co., Ltd., 98 Phil 85
[1995], it was held that where inequitable conduct is shown by an insurance firm, it is "estopped
from enforcing forfeitures in its favor, in order to forestall fraud or imposition on the insured.

The insurer knew all along that the insured owned a private vehicle and not a common
carrier. Its agents even discounted the fears of the latter, not once but twice, that his privately
owned vehicle might not fall within the terms of the common carrier insurance policy.

This is a case where the doctrine of estoppel undeniably calls for application. It is now
beyond question that where inequitable conduct is shown by an insurance firm, it is "estopped
from enforcing forfeitures in its favor, in order to forestall fraud or imposition on the insured."
After petitioner had led the insured to believe that he could qualify under the common carrier
liability insurance policy, and to enter into contract of insurance paying the premiums due, it
could not, thereafter, in any litigation arising out of such representation, be permitted to change
its stand to the detriment of the heirs of the insured. As estoppel is primarily based on the
doctrine of good faith and the avoidance of harm that will befall the innocent party due to its
injurious reliance, the failure to apply it in this case would result in a gross travesty of justice.

To borrow once again from the language of the Qua Chee Gan opinion: "The contract of
insurance is one of perfect good faith (uberrima fides) not for the insured alone, but equally so

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for the insurer; in fact, it is more so for the latter, since its dominant bargaining position carries
with it stricter responsibility."

4. Philam vs. Ansaldo -jurisdiction

234 SCRA 509

Since the contract of agency entered into between Philamlife and its agents is not
included within the meaning of an insurance business, Section 2 of the Insurance Code cannot be
invoked to give jurisdiction over the same to the Insurance Commissioner. Expressio unius est
exclusio alterius. The Insurance Code does not have provisions governing the relations between
insurance companies and their agents. The relationship between the insurance company and its
agents who are salaried employees is governed by the Contract of Employment and the
provisions of the Labor Code, while the relationship of the former and its registered
representatives who work on commission basis is governed by the Contract of Agency and the
provisions of the Civil Code on the Agency. Disputes involving the latter are cognizable by the
regular courts.

Facts:
Ramon Paterno filed a letter-complaint against Philippine American Life Insurance
Company (Philamlife) to the Insurance Commissioner alleging certain problems encountered by
agents, supervisors, managers and public consumers as a result of certain practices by said
company.

Manuel Ortega, Philamlife's Senior Assistant Vice-President and Executive Assistant to

the President filed a motion to quash raising as one of the grounds that the Insurance
Commission has no jurisdiction over the subject or nature of the action and over the parties
involved. The Insurance Commissioner denied the motion to quash. Hence, this petition.

Issue: Whether or not the resolution of the legality of the contract of agency falls within the
jurisdiction of the Insurance Commissioner.

Ruling:
No. The general regulatory authority of the Insurance Commissioner is described in
Section 414 of the Insurance Code which shows that the Insurance Commissioner has the
authority to regulate the business of insurance. Section 2 of the said law defines the term "doing
an insurance business" or "transacting an insurance business.” Since the contract of agency
entered into between Philamlife and its agents is not included within the meaning of an insurance
business, Section 2 of the Insurance Code cannot be invoked to give jurisdiction over the same to
the Insurance Commissioner. Expressio unius est exclusio alterius.

A reading of Section 416 shows that the quasi-judicial power of the Insurance
Commissioner is limited by law "to claims and complaints involving any loss, damage or

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liability for which an insurer may be answerable under any kind of policy or contract of
insurance, . . ."

Hence, this power does not cover the relationship affecting the insurance company and its
agents but is limited to adjudicating claims and complaints filed by the insured against the
insurance company. The Insurance Code does not have provisions governing the relations
between insurance companies and their agents. It follows that the Insurance Commissioner
cannot, in the exercise of its quasi-judicial powers, assume jurisdiction over controversies
between the insurance companies and their agents.

An insurance company may have two classes of agents who sell its insurance policies: (1)
salaried employees who keep definite hours and work under the control and supervision of the
company; and (2) registered representatives, who work on commission basis. Under the first
category, the relationship between the insurance company and its agents is governed by the
Contract of Employment and the provisions of the Labor Code, while under the second category,
the same is governed by the Contract of Agency and the provisions of the Civil Code on the
Agency. Disputes involving the latter are cognizable by the regular courts.

5. American Home Assurance v. Tantuco Enterprises

366 SCRA 740 (2001)

In construing the words used descriptive of a building insured, the greatest liberality is
shown by the courts in giving effect to the insurance.

Facts:
Tantuco Enterprises, Inc. (Respondent) is engaged in the coconut oil milling and refining
industry and it owns two oil mills. The 2 mills were separately covered by insurance policies
issued by American Home Assurance Co., Ph Branch (Petitioner). (the first oil mill - insured for
3M; 2nd oil mill - insured for 6M)

On September 30, 1991, a fire broke out and consumed the new mill. Respondent
immediately notified the petitioner of the incident to claim the insurance proceeds. However,
petitioner desperately tried to escape its liability by raising the following arguments:
1. That the burned oil mill was not covered by the Fire insurance since the description of the
insured establishment referred to another building.
2. The respondent is barred by estoppel because the respondent apparently did not call
petitioner's attention with respect to the misdescription after reading and examining the
policy upon receipt.
3. that respondent forfeited the renewal policy for its failure to pay the full amount of the
premium. The petitioner cited, the Respondent only paid it P75,147.00, leaving a difference
of P14,623.20. The deficiency, petitioner argues, suffices to invalidate the policy, in
accordance with Section 77 of the Insurance Code.; and

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4. Lastly, that the respondent committed breach of the Fire Extinguishing Appliances Warranty.
Petitioner argues that the warranty clearly obligates the insured to maintain all the appliances
specified therein
A) Portable Extinguisher
B) Internal Hydrants
C) External Hydrants
D) Fire Pump
E) 24 hr security services

Ruling:
1. With respect to the first argument, the Court ruled that in construing the words used
descriptive of a building insured, the greatest liberality is shown by the courts in giving effect to
the insurance. In view of the custom of insurance agents to examine buildings before writing
policies upon them, and since a mistake as to the identity and character of the building is
extremely unlikely, the courts are inclined to consider that the policy of insurance covers any
building which the parties manifestly intended to insure, however inaccurate the description may
be.

Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our

mind, that what the parties manifestly intended to insure was the new oil mill. This is obvious
from the categorical statement embodied in the policy, extending its protection:

"On machineries and equipment with complete accessories usual to a coconut oil
mill including stocks of copra, copra cake and copra mills whilst contained in the
new oil mill building, situated at UNNO. ALONG NATIONAL HIGH WAY, BO.
IYAM, LUCENA CITY UNBLOCKED." (emphasis supplied.)

If the parties really intended to protect the first oil mill, then there is no need to specify it
as new.

2. Mr. Edison Tantuco, notified Mr. Borja (the petitioner's agent with whom respondent
negotiated for the contract) about the inaccurate description in the policy. However, Mr. Borja
assured Mr. Tantuco that the use of the adjective new will distinguish the insured property. The
assurance convinced respondent that, despite the impreciseness in the specification of the
boundaries, the insurance will cover the new oil mill.

3. The Court of Appeals refused to consider this contention of the petitioner. It held that this
issue was raised for the first time on appeal, hence, beyond its jurisdiction to resolve, pursuant to
Rule 46, Section 18 of the Rules of Court. Petitioner adds that the issue was the subject of the
cross-examination of Mr. Borja, who acknowledged that the paid amount was lacking by
P14,623.20 by reason of a discount or rebate, which rebate under Sec. 361 of the Insurance Code
is illegal.

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While, it is true that the asseverations petitioner made in paragraph 24 of its Answer
ostensibly spoke of the policy's condition for payment of the renewal premium on time and
respondent's non-compliance with it. Yet, it did not contain any specific and definite allegation
that respondent did not pay the premium, or that it did not pay the full amount, or that it did not
pay the amount on time.

4. What the warranty mandates is that respondent should maintain in efficient working
condition within the premises of the insured property, fire fighting equipments such as, but not
limited to, those identified in the list, which will serve as the oil mill's first line of defense in case
any part of it bursts into flame.

Here, we find that there is no more need for an internal hydrant considering that inside
the burned building were: (1) numerous portable fire extinguishers, (2) an emergency fire engine,
and (3) a fire hose which has a connection to one of the external hydrants.

PETITION DENIED.

6. Perez v. CA
January 28, 2000
Facts:
Primitivo B. Perez had been insured with the BF Lifeman Insurance Corporation since
1980 for P20,000.00. Sometime in October 1987, an agent of the insurance corporation, Rodolfo
Lalog, visited Perez in Guinayangan, Quezon and convinced him to apply for additional
insurance coverage of P50,000.00, to avail of the ongoing promotional discount of P400.00 if the
premium were paid annually.

On October 20, 1987, Primitivo B. Perez accomplished an application form for the
additional insurance coverage of P50,000.00. On the same day, petitioner Virginia A. Perez,
Primitivo’s wife, paid P2,075.00 to Lalog. The receipt issued by Lalog indicated the amount
received was a "deposit". However, Lalog lost the application form and requested Perez to
accomplish another form.

On November 25, 1987, Perez died in an accident. He was riding in a banca which
capsized during a storm. At the time of his death, his application papers for the additional
insurance of P50,000.00 were still with the Gumaca office.

Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance
Corporation approved the application and issued the corresponding policy for the P50,000.00 on
December 2, 1987.

Viriginia (wife of Primitivo) went to Manila to claim the benefits under the insurance
policies. She was paid P40,000.00 under the first insurance policy for P20,000.00 (double

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indemnity in case of accident) But the insurance company refused to pay the claim under the
additional policy of P50k (proceeds of which amount to P150,000.00 in view of a triple
indemnity rider on the insurance policy) on the ground that no contract of insurance was
perfected. This made Viriginia to file a case in court

Arguments of Virginia:
1. the deceased had fulfilled all his prestations under the contract and all the elements of a valid
contract are present since the deceased already made a deposit of 2k
2. the condition imposed by respondent corporation that a policy must have been delivered to
and accepted by the proposed insured in good health is potestative being dependent upon the
will of the corporation and is therefore null and void - "that the policy must have been
delivered to and accepted by the applicant while he is in good health."

RTC ruled in favor of Virginia

CA reversed RTC's decision, Hence this petition

Issue: Whether or not a Contract of Insurance was perfected

Ruling:
No. The perfection of the contract of insurance is subject to a condition provided by the
application form, to wit:

"there shall be no contract of insurance unless and until a policy is issued on this
application and that the said policy shall not take effect until the premium has been
paid and the policy delivered to and accepted by me/us in person while I/We, am/are
in good health"

In this case, Primitivo died before the issuance of the policy in his favor. There was
absolutely no way the acceptance of the application could have been communicated to the
applicant for the latter to accept inasmuch as the applicant at the time was already dead.

Therefore, no new Contract of Insurance was perfected.

Other discussions:
1. The condition imposed by the corporation that the policy must have been delivered to
and accepted by the applicant while he is in good health can hardly be considered as a
potestative or facultative condition. On the contrary, the health of the applicant at the
time of the delivery of the policy is beyond the control or will of the insurance
company. Rather, the condition is a suspensive one whereby the acquisition of rights
depends upon the happening of an event which constitutes the condition.
2. Prescinding from the foregoing, respondent corporation cannot be held liable for gross
negligence. It should be noted that an application is a mere offer which requires the
overt act of the insurer for it to ripen into a contract. Delay in acting on the application

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does not constitute acceptance even though the insured has forwarded his first
premium with his application. The corporation may not be penalized for the delay in
the processing of the application papers. Moreover, while it may have taken some time
for the application papers to reach the main office, in the case at bar, the same was
acted upon less than a week after it was received. The processing of applications by
respondent corporation normally takes two to three weeks, the longest being a month.
3. The company said that they rescinded the contract, but there is actually no need for
rescission since there is no existing valid contract between the parties, there is nothing
to rescind.

7. Mitsubishi Motors Philippines Salaried Employees Union v. Mitsubishi Motors

Corporation
GR No. 175773, June 17, 2013

Facts:
Petitioners in this case are union members of Mitsubishi Motors Philippines Salaried
Employees Union (Union). They are covered by a CBA which provides that the company will
shoulder the hospitalization expenses of the dependents of covered employees subject to certain
limitations and restrictions. Accordingly, covered employees pay part of the hospitalization
insurance premium(P100/month) through monthly salary deduction while the company, upon
hospitalization of the covered employees’ dependents, shall pay the hospitalization expenses
incurred for the same. Moreover, under the said CBA, payment shall be direct to the hospital and
doctor and must be covered by actual billings.

The conflict arose when a portion of the hospitalization expenses of the covered
employees’ dependents were paid/shouldered by the dependent’s own health insurance. (By
medicard; by Prosper Insurance Co.) The petitioners are seeking reimbursement from their
employer for the expenses paid by their insurances. The employer-company refused, hence, this
suit.

Voluntary Arbitrator held that MMPC is liable to pay or reimburse the amount of
hospitalization expenses already paid by other health insurance companies.
CA reversed VA's decision. Hence, this petition.

Issue: Whether or not the employees in this case may seek reimbursement for the expenses paid
by other insurance from their employer pursuant to their CBA.

Ruling:
No. The CBA has provided for MMPC’s limited liability which extends only up to the
amount to be paid to the hospital and doctor by the employees’ dependents, excluding those paid
by other insurers.

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The condition that payment, as provided under the CBA, should be direct to the hospital
and doctor implies that MMPC is only liable to pay medical expenses actually shouldered by the
employees’ dependents. It follows that MMPC’s liability is limited, that is, it does not include the
amounts paid by other health insurance providers. This condition is obviously intended to thwart
not only fraudulent claims but also double claims for the same loss of the dependents of covered
employees.

Other discussion:
Collateral Source Rule
According to this rule ‘a tortfeasor has no right to any mitigation of damages because of
payments or compensation received by the injured person from an independent source.’ The
rationale for the collateral source rule is based upon the quasi-punitive nature of tort law liability.
It has been explained as follows:

The collateral source rule is designed to strike a balance between two

competing principles of tort law: (1) a plaintiff is entitled to compensation sufficient
to make him whole, but no more; and (2) a defendant is liable for all damages that
proximately result from his wrong. A plaintiff who receives a double recovery for a
single tort enjoys a windfall; a defendant who escapes, in whole or in part, liability
for his wrong enjoys a windfall. Because the law must sanction one windfall and
deny the other, it favors the victim of the wrong rather than the wrongdoer.

Its application is justified so that "'the wrongdoer should not benefit from the
expenditures made by the injured party or take advantage of contracts or other relations that may
exist between the injured party and third persons." Thus, it finds no application to cases
involving no-fault insurances under which the insured is indemnified for losses by insurance
companies, regardless of who was at fault in the incident generating the losses. Here, it is clear
that MMPC is a no-fault insurer. Hence, it cannot be obliged to pay the hospitalization expenses
of the dependents of its employees which had already been paid by separate health insurance
providers of said dependents.

Insurance Contract - CBA

Since the subject CBA provision is an insurance contract, the rights and obligations of the
parties must be determined in accordance with the general principles of insurance law. Being in
the nature of a non-life insurance contract and essentially a contract of indemnity, the CBA
provision obligates MMPC to indemnify the covered employees’ medical expenses incurred by
their dependents but only up to the extent of the expenses actually incurred. This is consistent
with the principle of indemnity which proscribes the insured from recovering greater than the
loss. Indeed, to profit from a loss will lead to unjust enrichment and therefore should not be
countenanced.

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8. Sweet Lines Inc. v. Teves

GR L-37750, May 19, 1978

Clearly, Condition No. 14, if enforced, will be subversive of the public good or interest,
since it will frustrate in meritorious cases, actions of passenger cants outside of Cebu City, thus
placing petitioner company at a decided advantage over said persons, who may have perfectly
legitimate claims against it. The said condition should, therefore, be declared void and
unenforceable, as contrary to public policy — to make the courts accessible to all who may have
need of their services.

Facts:
Atty. Tandog and Tiro bought tickets to board a vessel going to Tagbilaran City via port
in Cebu. They were supposed to board M/S Sweet Hope bound for Tagbilaran but since many
passengers were for Surigao, they were relocated to M/S Sweet Town. Unfortunately, the latter
vessel was already filled capacity, and that they were forced to hide their cargo, their ticket were
not honored so they are forced to pay for another ticket. They were exposed to scorching heat of
the sun and dust from the ship's cargo. Thus, they filed a suit for damages against Sweet Lines,
Inc. before CFI of Misamis Oriental

Sweet Lines Inc. moved to dismiss on the ground of improper venue based on the
condition printed at the back of the tickets, to wit:

"It is hereby agreed and understood that any and all actions arising out of the
conditions and provisions of this ticket, irrespective of where it is issued, shall be filed
in the competent courts in the City of Cebu."

CFI denied the motion and the MR of the order of denial. Hence, this petition.

Ruling:
The Court ruled that such condition should not be given any effect for it is contrary to
public policy.

Public policy is "... that principle of the law which holds that no subject or citizen can
lawfully do that which has a tendency to be injurious to the public or against the public good..."

The said condition should, therefore, be declared void and unenforceable, as contrary to
public policy - to make the courts accessible to all who may have need of their services.

The court discussed in this case what is a contract of adhesion and its effect.

PETITION DISMISSED.

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9. Sun Life Office, Ltd., v. CA

GR No. 92383, July 17, 1992

An accident is an event which happens without any human agency or, if happening
through human agency, an event which, under the circumstances, is unusual to and not expected
by the person to whom it happens. It has also been defined as an injury which happens by reason
of some violence or casualty to the injured without his design, consent, or voluntary co-
operation. There is nothing in the policy that relieves the insurer of the responsibility to pay the
indemnity agreed upon if the insured is shown to have contributed to his own accident. Indeed,
most accidents are caused by negligence.

Facts:
Sun Life issued Personal Accident Policy to Felix Lim with a face value of P200k. Two
months later, Lim was in a happy mood (but not drunk) and was playing with his handgun and
accidentally killed himself. Nerissa, the wife of Felix and as a beneficiary, sought payment on the
policy but her claim was rejected.

The insurance contract provides that the company shall not be liable in respect of Bodily
injury consequent upon The insured person attempting to commit suicide or willfully exposing
himself to needless peril except in an attempt to save human life. Sun Life agreed that there was
no suicide, but there was no accident either.

Arguments:
Sun Life - it is true that Lim did not commit suicide however, he willfully exposed himself to
needless peril by pointing his gun to his head and thus removed himself from the coverage of the
insurance policy. The theory is that a gun is per se dangerous and should therefore be handled
cautiously in every case.
Nerissa - Lim did not willfully expose himself to needless peril when he pointed the gun to his
temple because the fact is that he thought it was not unsafe to do so. The act was precisely
intended to assure Nalagon that the gun was indeed harmless because the same was not loaded.

According to the Insurance Company, Accident insurance policies were never intended to
reward the insured for his tendency to show off or for his miscalculations. They were intended to
provide for contingencies, Hence, when I miscalculate and jump from the Quezon Bridge into
the Pasig River in the belief that I can overcome the current. I have wilfully exposed myself to
peril and must accept the consequences of my act. If I drown I cannot go to the insurance
company to ask them to compensate me for my failure to swim as well as I thought I could. The
insured in the case at bar deliberately put the gun to his head and pulled the trigger. He wilfully
exposed himself to peril.

Nerissa sued Sun Life in RTC to pay her the insurance proceeds. RTC ruled in her favor
which was affirmed by the CA. Hence, this petition.

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Issue: Whether or not the act of Lim pointing his gun to his head under belief that the gun was
not loaded is considered as an accident, thus making the Insurance company liable to pay the
beneficiary of Lim the proceeds of the insurance policy.

Ruling:
Yes. The words “accident” and “accidental” have never acquired any technical
signification in law, and when used in an insurance contract are to be construed and considered
according to the ordinary understanding and common usage and speech of people generally. In
substance, the courts are practically agreed that the words “accident” and “accidental” mean
that which happens by chance or fortuitously, without intention or design, and which is
unexpected, unusual, and unforeseen. The definition that has usually been adopted by the courts
is that an accident is an event that takes place without one's foresight or expectation - an event
that proceeds from an unknown cause, or is an unusual effect of a known case, and therefore not
expected.

An accident is an event which happens without any human agency or, if happening
through human agency, an event which, under the circumstances, is unusual to and not expected
by the person to whom it happens. It has also been defined as an injury which happens by reason
of some violence or casualty to the insured without his design, consent, or voluntary co-operation

In this case, Lim did not know that the gun he put to his head was loaded was
unquestionably negligent and that negligence cost him his own life. But it should not prevent his
widow from recovering from the insurance policy he obtained precisely against accident. There
is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed
upon if the insured is shown to have contributed to his own accident. Indeed, most accidents are
caused by negligence. There are only four exceptions expressly made in the contract to relieve
the insurer from liability, and none of these exceptions is applicable in the case at bar.

It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in
favor of the assured. There is no reason to deviate from this rule, especially in view of the
circumstances of this case as above analyzed.

CA's decision is affirmed.

Other discussions:
1. Suicide and willful exposure to needless peril are in pari materia because they both signify a
disregard for one's life. The only difference is in degree, as suicide imports a positive act of
ending such life whereas the second act indicates a reckless risking of it that is almost suicidal in
intent. To illustrate, a person who walks a tightrope one thousand meters above the ground and
without any safety device may not actually be intending to commit suicide, but his act is
nonetheless suicidal. He would thus be considered as “willfully exposing himself to needless
peril” within the meaning of the exception in question.

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10. ALPHA INSURANCE AND SURETY CO. vs. ARSENIA SONIA CASTOR
G.R. No. 198174, September 02, 2013 J. Peralta

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.
Accordingly, in interpreting the exclusions in an insurance contract, the terms used specifying
the excluded classes therein are to be given their meaning as understood in common speech.

A contract of insurance is a contract of adhesion. So, when the terms of the insurance
contract contain limitations on liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation.

Facts:
Castor entered into a contract of insurance (Motor Car Policy) with Alpha Insurance
(company), involving her motor vehicle (Toyota Revo).

Sec III - Loss or Damage - Of the Insurance policy provides that the company will pay
Castor the amount of P630K in case of loss or damage to said vehicle during the period covered,
which is from Feb 26, 2007-Feb 26 2008.

Castor instructed her driver, Jose, to bring the said vehicle to a nearby auto-shop for a
tune-up but Jose no longer returned the vehicle. Castor immediately reported the incident to the
police and later notified Company of said loss and demanded payment of the insurance proceeds.

The company denied the claim of Castor, because according to the former, the incident in
this case falls within the exceptions provided to Sec III of the Policy which provides that The
Company shall not be liable for Any malicious damage caused by the Insured, any member of his
family or by “A PERSON IN THE INSURED’S SERVICE.”

Arguments:
Castor - the exception refers to damage of the motor vehicle and not to its loss
Company - the word "damage" under paragraph 4 of "exceptions to Section III" means loss due
to injury or harm to person, property, or reputation and should be construed to cover
malicious loss as in theft.

RTC and CA ruled in favor of Castor, hence this petition.

Issue: Whether or not Alpha Insurance is liable to Castor for the loss of the latter's motor vehicle
due to theft committed by her driver.

Ruling:

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Yes. Theft perpetrated by a driver of the insured is not an exception to the coverage from
the insurance policy subject of this case. This is evident from the very provision of Section III –
“Loss or Damage.” The insurance company, subject to the limits of liability, is obligated to
indemnify the insured against theft. Said provision does not qualify as to who would commit the
theft. Thus, even if the same is committed by the driver of the insured, there being no categorical
declaration of exception, the same must be covered.

As correctly pointed out by the plaintiff, “An insurance contract should be interpreted as
to carry out the purpose for which the parties entered into the contract which is to insure against
risks of loss or damage to the goods. Such interpretation should result from the natural and
reasonable meaning of language in the policy. Where restrictive provisions are open to two
interpretations, that which is most favorable to the insured is adopted.

The Company would argue that if the person employed by the insured would commit the
theft and the insurer would be held liable, then this would result to an absurd situation where the
insurer would also be held liable if the insured would commit the theft. This argument is
certainly flawed. Of course, if the theft would be committed by the insured himself, the same
would be an exception to the coverage since in that case there would be fraud on the part of the
insured or breach of material warranty under Section 69 of the Insurance Code.

Moreover, 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. Adverse to
petitioner’s claim, the words “loss” and “damage” mean different things in common ordinary
usage. The word “loss” refers to the act or fact of losing, or failure to keep possession, while the
word “damage” means deterioration or injury to property.

Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance
policy under paragraph 4 of “Exceptions to Section III,” since the same refers only to “malicious
damage,” or more specifically, “injury” to the motor vehicle caused by a person under the
insured’s service. Paragraph 4 clearly does not contemplate “loss of property,” as what happened
in the instant case. "malicious damage,” as provided for in the subject policy as one of the
exceptions from coverage, is the damage that is the direct result from the deliberate or willful act

The policy excludes malicious damage which is the direct result of the deliberate or
willful act of the insured, members of his family, and any person in the insured's service, whose
clear plan or purpose was to cause damage to the insured vehicle for purposes of defrauding the
insurer. This is not a case of malicious damage but of theft. 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 obligations

If the intention of the defendant-appellant was to include the term “loss” within the term
“damage” then logic dictates that it should have used the term “damage” alone in the entire

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policy or otherwise included a clear definition of the said term as part of the provisions of the
said insurance contract

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the
insurance contract contain limitations on liability, courts should construe them in such a way as
to preclude the insurer from non-compliance with his obligation.

The burden to prove that the loss was caused by an excepted peril lies with the insurer.
The theft perpetrated by the driver of the insured is not an exception to the coverage. The policy
does not qualify as to who would commit the theft. Thus, even if the same is committed by the
driver of the insured, there being no categorical declaration of exception, the same must be
covered.

PETITION DENIED


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II. Risk That May Be Insured (sec 3)

GR: only future events may be covered by an insurance contract
XPN: In marine insurance where a past event may be insured, if loss of the vessel in the past
could have been known by ordinary means of communication.

III. Parties to an Insurance Contract

1. Insurer - the one who assumes the risk of loss and undertakes for a consideration to
indemnify the insured upon the happening of the designated peril
Any person, natural or juridical, may be an insurer provided he obtains a
certificate of authority to transact business from the Insurance Commission.
Q: May anyone be an insurer?
A: no, sec 197
2. Insured - He is the person whose loss is the occasion for the payment of the insurance
proceeds by the insurer.
• The insured must:
a. Have the capacity to enter into a contract and
b. He must not be a public enemy (sec 7)
Q: who is a public enemy?
Public Enemy - is a nation, including its citizens or subjects, with whom the Philippines
is at war.
Q: who declares war?
A: The Congress, by a vote of two-thirds (2/3) of both Houses in join session assembled,
voting separately, shall have the sole power to declare the existence of a state of war
(Art VI, Sec 23(1), Constitution)
3. Assured - The insured is also the assured when the proceeds are payable to him. The assured
must have insurable interest over the property he insures/ someone else's life insures.
4. Beneficiary - a third person designated by the insured to receive the proceeds.

Q: beneficiary vs. assured

A: both the beneficiary and the assured are persons entitled to receive the proceeds of an
insurance policy. The difference lies as to who procured the policy. The beneficiary is the person
designated by another person to receive the proceeds of an insurance policy; on the other hand,
the assured procured the insurance policy himself over another and designates himself as the
person entitled to receive the proceeds.
The beneficiary need not have insurable interest, unless disqualified by law; whereas the
assured must have insurable interest over the object of an insurance policy.

IV. Insurable Interest (Section 10-25)

Q: What is an insurable interest?
Insurable Interest - it is that interest which the law requires the owner of an insurance policy to
have in the person or thing insured.
A person is deemed to have an insurable interest in the subject matter insured where he
has a relation or connection with or concern in it that he will derive pecuniary benefit or

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advantage from its preservation and will suffer pecuniary loss or damage from its destruction,
termination, or injury by the happening of the event insured against.
The Test, in general, is whether or not the person is interested in the preservation of the
property or the life insured despite insurance.

Types/Kinds:
a. In Life/Health (Sec 10)
Sec 10(c) - The insurable interest of a person over the life of another ceased upon full
payment of the debt.
b. In Property (Section 13-14; 18)
Test in determining insurable interest in property
The insured is so situated with reference to the property that he would suffer a
loss should it be injured or destroyed by the peril against which it is insured. Anyone has
an insurable interest in property if he derives benefit from its existence or would suffer
loss from its destruction. (Gaisano Cagayan, Inc. v. Insurance Company of North
America, 490 SCRA 286, 8 June 2006). Pecuniary interest over the insured property is
always necessary.

Q: Who may be insured?

A: Sec 10

Q: Can creditor insure the property of his debtor?

A: Yes, applying the test, the creditor is interested in the preservation of the property of his
debtor for the satisfaction of the obligation of the latter. Also, there is a legal contract from which
the creditor can base his rights such as mortgage or pledge; or a right under the law such lien or
attachment

Q: What is the insurable interest of the mortgagor?

A: Mortgage does not divest ownership, and as owner of the property, he has an existing interest
(Sec 10)
Q: How about the mortgagee?
A: an inchoate interest founded on an existing interest

Q: May an employer insure the life of his employee?

A: Yes, an employer has insurable interest over the life and health of his employees respecting
the services to be rendered by the latter, of which death or illness might delay or prevent the
performance of such service.

Q: when must insurable interest exist?

A: Sec 19

Q: What is an example of Sec 14(c)

A: the interest of stockholder over the property held by the corporation.

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Properties registered in the name of the corporation are owned by it as an entity

separate and distinct from its members. While shares of stock constitute personal
property, they do not represent property of the corporation. (Boyer-Roxas v. CA, G.R.
No. 100866, July 4, 1992). The interest of a stockholder over the property of a
corporation is merely an expectancy, couple with an existing interest in that out of which
the expectancy arises.

Q:Distinguish insurable interest in life from insurable interest in property

Property Insurance Life Insurance

As to when must it exist the insurable interest must it must exist at the time the
exist at the time the insurance insurance is taken, and need
is taken, and when the loss not exist at the time of the loss
occurs, but need not exist in
the meantime.
As to extent Insurable interest is limited to Insurable interest in life is
the actual value of the insured's unlimited, except in the case of
interest in the property a creditor insuring the life of
his debtor.
As to beneficiary's interest The beneficiary in property If it is the insured himself
insurance must have insurable procures the insurance, he may
interest over the thing insured designate any beneficiary
whether or not the latter has
insurable interest. However, if
the life insurance was obtained
by the beneficiary, the latter
must have insurable interest
over the life of the person he
insured
As to basis In property insurance, there In life, expectation of benefit
must be a legal basis founded to be derived need not have
upon a valid contract or on an any legal basis
actual right to the thing
insured. (Read also Sec 16)

- automatic assignment of the policy is void for being contrary to public policy.
- Transfer of property to another does not automatically transfer the policy to the said person
because transfer of policy requires the insurer's consent. (Person not privy to the contract of
Insurance cannot collect proceeds.)

V. Designation of Beneficiaries
GR: Beneficiaries designated by the insured to receive the proceeds of the policy are not required
to have any insurable interest in his life.

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Article 2012 of the Civil Code provides that "any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a life insurance policy by the person
who cannot make any donation to him, according to said article

Article 739 of the Civil Code : The following donations shall be void:
(1) Those made between persons who were guilty of adultery or concubinage at the
time of the donation;
(2) Those made between persons found guilty of the same criminal offense, in
consideration thereof;
(3) Those made to a public officer or his wife, descedants and ascendants, by reason
of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought
by the spouse of the donor or donee; and the guilt of the donor and donee may be
proved by preponderance of evidence in the same action.

Reason for the prohibition; Article 739 of the Civil Code

- Life insurance policy is no different from donation insofar as the beneficiary is concerned.
Both are founded on liberality. A beneficiary is like a donee because from the premiums of the
policy which the insured pays out of liberality, the beneficiary will receive the proceeds of the
insurance. As a consequence, the proscription in Article 739 of the Civil Code should equally
operate in life insurance contracts. (The Insular Life Assurance Co. v. Ebrado, 80 SCRA 181,
28 October 1977)

*Note :There is no prohibition in naming the illegitimate children as beneficiaries

(Read Sec 53)

Change of Beneficiary (Sec 11)

GR: The insured shall have the right to change the beneficiary he designated in the policy (may
only be changed during the lifetime of the insured)
XPN: he has expressly waived his right in said policy.

Q: What are the effects of an irrevocable designation of beneficiary?

Irrevocable designation
Irrevocable designation gives the beneficiary a vested property right over the policy of
which he could not be deprived without his consent.
- The beneficiary designated in a life insurance contract cannot be changed without the consent
of the beneficiary (Gercio v. Sun Life Assurance of Canada, 48 Phil 53, 28 September 1925)
- The irrevocably designated beneficiary may obtain a policy loan to the extent stated in the
schedule of values attached to the policy (Ibid.)
- A new beneficiary cannot be added to the irrevocably designated beneficiary for this would in
effect reduce the latter's vested rights. (Go v. Redfern, 72 Phil. 71, April 25, 1941).

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- The insured cannot take the cash surrender value, assign or even borrow on said policy
without the consent of the beneficiary.

Forfeiture of the interest of a beneficiary ->(Sec 12)

Void designation of beneficiary

The policy remains valid and binding. It is the designation of beneficiary which is
rendered void The proceeds of the policy shall then be given to the estate of the insured.

Cases:
1. Great Pacific Life v. CA
316 SCRA 677

Facts:
A contract of group life insurance was executed between petitioner Great Pacific Life
Assurance Corporation (hereinafter Grepalife) and Development Bank of the Philippines
(hereinafter DBP). Grepalife agreed to insure the lives of eligible housing loan mortgagors of
DBP.

On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP
applied for membership in the group life insurance plan. He answered in his insurance
application that he was in good health, thus, Grepalife issued a certificate as insurance coverage
to Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to P86.2k.

On August 5, 1984, Dr. Leuterio died due to massive cerebral hemorrhage. Consequently,
DBP submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio
was not physically healthy when he applied for an insurance coverage on November 15, 1983.
Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from hypertension,
which caused his death. Allegedly, such non-disclosure constituted concealment that justified the
denial of the claim.

Thereafter, the wife of Dr. Leuterio, Medarda, filed a complaint with RTC against
Grepalife for specific performances with damages. The RTC rendered a decision in favor of
Medarda and against Grepalife. CA affirmed RTC's decision. Hence, this appeal.

Arguments:
----xxx----

1. Grepalife alleged that the complaint instituted by the widow of Dr. Leuterio is not a real
party in interest, hence the trial court acquired no jurisdiction of the case and that DBP must be
joined in the suit, being an indispensable party.

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Ruling:
To resolve the issue, we must consider the insurable interest in mortgaged properties and
the parties to this type of contract.

The rationale of a group insurance policy of mortgagors, otherwise known as the

“mortgage redemption insurance,” is a device for the protection of both the mortgagee and the
mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the
event of the unexpected demise of the mortgagor during the subsistence of the mortgage
contract, the proceeds from such insurance will be applied to the payment of the mortgage debt,
thereby relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample
protection is given to the mortgagor under such a concept so that in the event of death; the
mortgage obligation will be extinguished by the application of the insurance proceeds to the
mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium under
the group insurance policy, making the loss payable to the mortgagee, the insurance is on the
mortgagor’s interest, and the mortgagor continues to be a party to the contract. In this type of
policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable
clause does not make the mortgagee a party to the contract.

Section 8 of the Insurance Code provides:

“Unless the policy otherwise provides, where a mortgagor of property
effects insurance in his own name providing that the loss shall be payable to the
mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed
to be upon the interest of the mortgagor, who does not cease to be a party to the
original contract, and any act of his, prior to the loss, which would otherwise avoid
the insurance, will have the same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of insurance, is to be performed by
the mortgagor, may be performed by the mortgagee therein named, with the same
effect as if it had been performed by the mortgagor.”

Insured may be regarded as the real party in interest, although he has assigned the policy
for the purpose of collection, or has assigned as collateral security any judgment he may obtain.
And since a policy of insurance upon life or health may pass by transfer, will or succession to
any person, whether he has an insurable interest or not, and such person may recover it whatever
the insured might have recovered, the widow of the decedent Dr. Leuterio may file the suit
against the insurer, Grepalife. (see sec 3, last paragraph and Sec 184)

----xxx----

2. When DBP submitted the insurance claim against Grepalife, the latter denied payment
thereof because of the concealment committed by the insured because the latter failed to disclose
that he had hypertension, which might have caused his death. (So DBP opted to foreclose the
residential lot of Dr. Leuterio)

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Ruling:
Concealment exists where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it to the assured, but he
designedly and intentionally withholds the same.

In this case, there was no sufficient proof that the insured had suffered from hypertension.
Aside from the statement of the insured’s widow who was not even sure if the medicines taken
by Dr. Leuterio were for hypertension, the appellant had not proven nor produced any witness
who could attest to Dr. Leuterio’s medical history. Grepalife had failed to establish that there was
concealment made by the insured, hence, it cannot refuse payment of the claim.

The fraudulent intent on the part of the insured must be established to entitle the insurer
to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer.

In the case at bar, the petitioner failed to clearly and satisfactorily establish its defense,
and is therefore liable to pay the proceeds of the insurance.

----xxx----

3. Grepalife claims that there was no evidence as to the amount of Dr. Leuterio’s
outstanding indebtedness to DBP at the time of the mortgagor’s death. Hence, for private
respondent’s failure to establish the same, the action for specific performance should be
dismissed.

Ruling:
Grepalife's claim is without merit. A life insurance policy is a valued policy. Unless the
interest of a person insured is susceptible of exact pecuniary measurement, the measure of
indemnity under a policy of insurance upon life or health is the sum fixed in the policy.(Sec 186)
The mortgagor paid the premium according to the coverage of his insurance, which states that:

"The policy states that upon receipt of due proof of the Debtor’s death
during the terms of this insurance, a death benefit in the amount of P86,200.00 shall
be paid. In the event of the debtor’s death before his indebtedness with the creditor
shall have been fully paid, an amount to pay the outstanding indebtedness shall first
be paid to the Creditor and the balance of the Sum Assured, if there is any shall then
be paid to the beneficiary/ies designated by the debtor.”

However, considering that DBP foreclosed the property in this case in satisfaction of
mortgagor's outstanding loan, the insurance proceeds shall inure to the benefit of the heirs of the
deceased person or his beneficiaries. Equity dictates that DBP should not unjustly enrich itself at
the expense of another (Nemo cum alterius detrimenio protest). Hence, it cannot collect the

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insurance proceeds, after it already foreclosed on the mortgage. The proceeds now rightly belong
to Dr. Leuterio’s heirs represented by his widow, herein private respondent Medarda Leuterio.
----xxx----
PETITION DENIED.

2. Sps. Cha and United Insurance Co., Inc. .v CA

277 SCRA 69/ GR NO. 124520

No contract or policy of insurance on property shall be enforceable except for the benefit
of some person having an insurable interest in the property insured. Insurable interest in the
property insured must exist at the time the insurance takes effect and at the time the loss occurs.
The basis of such requirement of insurable interest in property insured is based on sound public
policy: to prevent a person from taking out an insurance policy on property upon which he has
no insurable interest and collecting the proceeds of said policy in case of loss of the property.

Facts:
Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract
with private respondent CKS Development Corporation (hereinafter CKS), as lessor. One of the
stipulations of the one (1) year lease contract states: “The LESSEE shall not insure against fire
the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the
leased premises without first obtaining the written consent and approval of the LESSOR. If the
LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is
deemed assigned and transferred to the LESSOR for its own benefit”.

Notwithstanding the above stipulation in the lease contract, the Cha spouses insured
against loss by fire their merchandise inside the leased premises with the United Insurance Co.,
Inc. (hereinafter United) without the written consent of private respondents CKS.

On the day that the lease contract was to expire, fire broke out inside the leased premises.
When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it
wrote the insurer (United) a demand letter asking that the proceeds of the insurance contract
(between the Cha spouses and United) be paid directly to CKS, based on its lease contract with
Cha spouses. United refused to pay CKS. Hence, the latter filed a complaint against the Cha
spouses and United. RTC ruled in favor of CKS. On appeal, respondent Court of Appeals
affirmed the RTC decision. A motion for reconsideration by United was denied; hence, the
present petition.

Issue: Whether or not CKS has an insurable interest over the merchandise insured.

Ruling:
No. Sec. 18 of the Insurance Code provides that no contract or policy of insurance on
property shall be enforceable except for the benefit of some person having an insurable interest

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in the property insured. Insurable interest in the property insured must exist at the time the
insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable
interest in property insured is based on sound public policy: to prevent a person from taking out
an insurance policy on property upon which he has no insurable interest and collecting the
proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is
a mere wager which is void under Section 25 of the Insurance Code.

Therefore, CKS cannot be validly a beneficiary of the fire insurance policy since the
insurable interest over said merchandise remains with the insured, the Cha spouses. The
automatic assignment of the policy to CKS under the provision of the lease contract previously
quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance
policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha.

3. The Insular Life Assurance Co. v. Ebrado

80 SCRA 181, 28 October 1977

Under Article 2012 of the Civil Code, "any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a life insurance policy by the person
who cannot make a donation to him." Common-law spouses are, definitely, barred from receiving
donations from each other.

Facts:
Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., policy on a
whole-life for P5,882.00 with a, rider for Accidental Death for the same amount. Buenaventura
designated Carponia as the revocable beneficiary in his policy. He referred to her as his wife.
Buenaventura died and so Carponia filed a claim for the proceeds, although she admits that they
were merely living as husband and wife without the benefit of marriage. Pascuala Vda. de
Ebrado also filed her claim as the widow of the deceased insured. The Insular Life Assurance
Co., Ltd. commenced an action for Interpleader before the CFI.

The trial court rendered judgment declaring Carponia disqualified from becoming
beneficiary of the insured and directing the payment of the insurance proceeds to the estate of the
deceased insured. Carponia appealed before the CA, but if was certified to the SC as involving
purely question of law.

Issue: Whether or not a common-law wife named as beneficiary in the life insurance policy of a
legally married man can claim the proceeds thereof in case of death of the latter.

Ruling:
No. The general rules of civil law should be applied to resolve this void in the Insurance
Law. Article 2011 of the New Civil Code states: "The contract of insurance is governed by
special laws. Matters not expressly provided for in such special laws shall be regulated by this

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Code." When not otherwise specifically provided for by the Insurance Law, the contract of life
insurance is governed by the general rules of the civil law regulating contracts. And under Article
2012 of the same Code, "any person who is forbidden from receiving any donation under Article
739 cannot be named beneficiary of a life insurance policy by the person who cannot make a
donation to him." Common-law spouses are, definitely, barred from receiving donations from
each other.

In essence, a life insurance policy is no different from a civil donation insofar as the
beneficiary is concerned. Both are founded upon the same consideration: liberality. A beneficiary
is like a donee, because from the premiums of the policy which the insured pays out of liberality,
the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the
proscription in Article 739 of the new Civil Code should equally operate in life insurance
contracts. The mandate of Article 2012 cannot be laid aside: any person who cannot receive a
donation cannot be named as beneficiary in the life insurance policy of the person who cannot
make the donation. Under American law, a policy of life insurance is considered as a testament
and in construing it, the courts will, so far as possible treat it as a will and determine the effect of
a clause designating the beneficiary by rules under which wins are interpreted.

4. Heirs of Loreto C. Maramag vs. Maramag

G.R. No. 181132, June 5, 2009, Nachura J.

The only persons entitled to claim the insurance proceeds are either the insured, if still
alive; or the beneficiary, if the insured is already deceased, upon the maturity of the policy. The
exception to this rule is a situation where the insurance contract was intended to benefit third
persons who are not parties to the same in the form of favourable stipulations or indemnity. In
such a case, third parties may directly sue and claim from the insurer.

Facts:
Loreto Maramag (Loreto), deceased, was the lawful spouse of Vicenta Maramag
(Vicenta) herein petitioner. While the following are the illegitimate children of Loreto from Eva
Verna Maramag (Eva), his concubine who is also the suspect of Loreto’s murder:
1. Odessa Maramag (Odessa),
2. Karl Maramag (Karl),
3. Trisha Maramag (Trisha)

During the life of Loreto, he contracted insurance contracts with Insular Life Assurance
Company Ltd (Insular) and Great Pacific Life Assurance Corporation (Grepalife) insuring his life
and appointing Eva, Odessa, Karl, and Trisha as beneficiaries.(Loreto mispresented Eva as his
lawful wife).

Thereafter upon Loreto’s death, Vicenta filed a petition for revocation of insurance
proceeds executed by Loreto with Insular and Grepalife on the ground that it is void and

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inofficious. Vicenta, citing the law on successions, alleged that she and her family are entitled to
a part of the proceeds of the insurance since they are compulsory heirs of Loreto and that Eva is
a concubine of Loreto and therefore disqualified from receiving proceeds from the insurance.

On their part, Insular argued that Eva was already disqualified from receiving the
proceeds of the insurance since she was a concubine of Loreto. Furthermore, her share with the
proceeds was divided among Odessa, Karl, and Trisha. On the other hand, Grepalife, alleged that
Eva was never designated as an insurance policy beneficiary and that the law on succession does
not apply where the designation of the insurance beneficiaries is clear.

The Trial Court and CA denied the petition of Vicenta, thus prompting Vicenta to elevate
the case to the SC, hence this petition.

Issues:
[Link] or not Odessa, Karl, and Trisha (illegitimate children of Loreto from Eva) are entitled
to the whole insurance proceeds.
2. Whether or not the Eva’s share in the proceeds should be forfeited in favor of the Heirs of
Loreto

Ruling:
1. Yes. SECTION 53 of the Insurance Code provides that "The insurance proceeds shall be
applied exclusively to the proper interest of the person in whose name or for whose benefit it is
made unless otherwise specified in the policy" except when the law prohibits a person from
being named as beneficiary in an insurance policy or those under Article 739 of the Civil Code.
The law does not prohibit naming illegitimate children as beneficiaries in an insurance policy.

Therefore, Odessa, Karl, and Trisha are entitled to receive the Insurance proceeds from
Insular and Grepalife.

2. No. It is only in cases where the insured has not designated any beneficiary, or when the
designated beneficiary is disqualified by law to receive the proceeds, that the insurance policy
proceeds shall redound to the benefit of the estate of the insured. Consequently, the law on
succession under the Civil Code is not applicable.

Hence, they are not entitled to receive any proceeds from the insurance policy.

Other Discussion:
1. The court also discussed that Petitioners are third parties to the insurance contracts with
Insular and Grepalife and, thus, are not entitled to the proceeds thereof.

2. The beneficiary in a contract of insurance is not the donee spoken in the law of donation. The
rules on testamentary succession cannot apply here, for the insurance indemnity does not

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partake of a donation. As such, the insurance indemnity cannot be considered as an advance

of the inheritance which can be subject to collation.

5. Gercio v. Sun Life Assurance of Canada

48 Phil 53
28 September 1925

The beneficiary designated in a life insurance contract cannot be changed without the
consent of the beneficiary.

In the absence of a statute to the contrary, if a policy is taken out upon a husband's life
and the wife is named as beneficiary therein, a subsequent divorce does not destroy her rights
under the policy.

Facts:
Hilario Gercio, the insured, is the plaintiff. The Sun Life Assurance Co. of Canada, the
insurer, and Andrea Zialcita, the beneficiary, are the defendants.

Hilario applied for a life insurance from Sun Life Assurance Co. designating Andrea, his
lawful wife was as designated beneficiary. Unfortunately, in the year 1919, the latter was
convicted of the crime of adultery so Hilario decided to divorce his wife. He was granted a
decree of divorce on September 4, 1920.

Thereafter, he ask Sun Life Assurance Co. to revoke designation of Andrea as beneficiary
and designate Adela, his present wife, as beneficiary of the Life insurance he applied. The
insurance company refused to do so. Thus, a complaint, in the nature of a mandamus, was filed
by Hilario to compel the Insurance company to make the said changes.

Issue: Whether or not Beneficiary may be changed without its consent

Ruling:
No. The beneficiary designated in a life insurance contract cannot be changed without the
consent of the beneficiary. The insured - husband has no power to change the beneficiary -the
former wife and to name instead his actual wife, where the insured and the beneficiary have been
divorced, and where the policy of insurance does not expressly reserve to the insured the right to
change the beneficiary.

In the absence of a statute to the contrary, if a policy is taken out upon a husband's life
and the wife is named as beneficiary therein, a subsequent divorce does not destroy her rights
under the policy.

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6. Gaisano Cagayan, Inc. v. Insurance Company of North America

490 SCRA 286
8 June 2006

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

The test to determine insurable interest in property is if the insured derives a benefit from
its existence or would suffer loss from its destruction

Facts:
Intercapitol Marketing Corp (IMC) is the maker of Wrangler Blue Jeans
while Levi Strauss(Phils) Inc.(LSPI) is the local distributor of products bearing
trademarks owned by Levi Strauss & Co.

IMC and LSPI separately obtained from Insurance Company of North America fire
insurance policies with book debt endorsements. The policies provide for coverage on book
debts in connection with ready-made clothing materials which have been sold or delivered to
various customers and dealers of the insured anywhere in the Philippines.

The policy defines book debts as “unpaid account still appearing in the Book of Account
of the Insured 45 days after the time of the loss covered under this policy.

Gaisano Cagayan Inc. is a customer and dealer of products of IMC and LSPI. On 25
February 1991, the Gaisano Superstore Complex was consumed by fire. It contained the ready-
made clothing materials sold and delivered by IMC and LSPI.

Respondent then paid the claims of IMC(P2.1M) and LSPI(535k) and now files for
damages against Gaisano claiming that it has been subrogated to the rights of the insured.
As for Gaisano’s defense, it claimed that the event was force majeure and therefore no breach of
contract was committed since Gaisano could not have foreseen such fortuitous event.

RTC dismissed the insurance company’s claim. It held that fire was purely accidental and
it was not established that Gaisano is a debtor of IMC and LSPI. Also RTC held that since the
sales invoices state that “it is further agreed that merely for purpose of securing the payment of
the purchase price, the merchandise remains the property of the vendor until purchase price is
fully paid”

Upon appeal to CA, it reversed the decision as it held that the sales invoices are proofs of
sale and the loss of goods shall be borne by Gaisano since the proviso in the sales invoices is an
exception to the rule that if the thing is lost by a fortuitous event, the risk is borne by the owner
of the thing under res perit domino. Hence, the appeal

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Issue: Whether the fire insurance policy on book debts covers the unpaid accounts of IMC and
LSPI and not the goods only

Ruling:
[Link] policies clearly provide coverage “book debts in connection with ready-made
clothing materials which have been sold or delivered to various customers and dealers of the
Insured anywhere in the Philippines”.

By application of Article 1504 of NCC(as a matter of exception), the rule is that when the
seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by
the buyer. Hence Gaisano shall bear the loss.

With this, IMC and LSPI did not lose complete interest over the goods. They have an
insurable interest until full payment. In property insurance, one’s interest is not determined by
concept of title, but whether the insured has substantial economic interest in the property.

It is sufficient that the insured is so situated with reference to the property that he would
be liable to loss should it be injured or destroyed by the peril against which it is insured. Anyone
has an insurable interest in property who derives a benefit from its existence or would suffer loss
from its destruction.

In this case, IMC and LSPI’s insurable interest lies on the unpaid accounts appearing in
their Books of Account 45 days after the time of the loss covered by the policies. Therefore, it is
stressed that the insurance is not for loss of goods by fire but for the said accounts.

Wherefore, The respondent has subrogated to the rights of IMC. However, the said
insurance company failed to establish the same with respect to LSPI thus cannot recover the
P535K.

An insurable interest in property does not necessarily imply a property interest in, or a
lien upon, or possession of, the subject matter of the insurance, and neither the title nor a
beneficial interest is requisite to the existence of such an interest, it is sufficient that the insured
is so situated with reference to the property that he would be liable to loss should it be injured or
destroyed by the peril against which it is insured. Anyone has an insurable interest in property
who derives a benefit from its existence or would suffer loss from its destruction. Indeed, a
vendor or seller retains an insurable interest in the property sold so long as he has any interest
therein, in other words, so long as he would suffer by its destruction, as where he has a vendorÊs
lien

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VI. Rights of Mortgagor and Mortgagee to Insure

Mortgagor's insurable interest is limited to the value of the property; while the
mortgagee's insurable interest extends only to the amount of the mortgagor's debt.

A mortgagor insures the property as an owner; while the mortgagee insures, not the
property, but his interest or lien thereon.

Standard or union mortgage clause -

If the policy contains this clause, the acts of the mortgagor do not affect the mortgagee.
The purpose of the clause is to make a separate and distinct contract of insurance on the
interest of the mortgagee. Consequently, a mortgagee may procure a policy as a contracting
party in accordance with the terms of and agreement by which the mortgagor is to pay upon
such insurance. (Geagonia v. CA [1995]).

Open or loss-payable clause -

If the policy contains this clause, the insurer pays the loss, if any, to the mortgagee as his
interest may appear. With this provision, the acts of the mortgagor affect the mortgagee.

The mortgagee is only a beneficiary under this contract and recognized as such by the
insurer but is not made a party to the contract itself. Thus, any act of the mortgagor which
defeats his right will also defeat the right of the mortgagee.

Read also : Sec 8 and 9

Mortgage redemption Insurance

A “mortgage redemption insurance” is simply a kind of life insurance procured by the
mortgagor with the mortgagee as beneficiary up to the extent of the mortgage indebtedness. Its
rationale is to give protection to both the mortgagee and the mortgagor. In case the mortgagor-
insured dies, the proceeds of such insurance will be applied to the payment of the mortgage
debt to the mortgagee, thereby relieving the heirs of the mortgagor of the burden of paying the
debt (Great Pacific Assur. Corp. v. Court of Appeals, et. al., G.R. No. 113899, October 13,
1999).

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VII. Change of Interest in Thing Insured: General Rule and Exceptions

GR: The mere transfer of a thing insured before the loss does not transfer the policy but
suspends it until the same person becomes the owner of both the policy and the thing insured.
(Sec 20).
XPN:
a. In life, health, and accident insurance (Sec 20)
b. A change of interest in the thing insured after the occurrence of an injury which results in
a loss (Sec 21)
c. A change of interest in one or more of several things, separately insured by one policy
(Sec 22)
d. A change of interest by will or succession on the death of the insured (Sec 23)
e. A transfer of interest by one of several partners, joint owners, or owners in common who
are jointly insured, to the others. (Sec 24)
f. When a policy is so framed that it will inure to the benefit of whomsoever, during the
continuance of the risk, may become the owner of the interest insured (Sec 57)
*** A mere transfer of thing insured before the loss, unaccompanied by a corresponding change
of interest in the insurance does not transfer the policy but suspends it to an equivalent extent.

VIII. Policy (Sec 49-66)

Kinds of Property insurance policy
a. Open Policy - (Sec 60)
The insured is entitled to full recovery as long as it does not exceed the face value of the
policy.
b. Valued Policy - (Sec 61)
c. Running Policy (Sec 62)

Form (Read also: 232-237

GR: The policy shall be in printed form
Last par of Sec 50 provides that the policy may be in electronic form subject to
pertinent provisions of RA No. 8792 (Electronic Commerce Act) and to such rules and
regulations as may be prescribed by the Commissioner.

Interpretation
The policy is the main repository of the agreement between the parties. If the terms of the
contract are clear, the parties are bound to adhere to the contract. Courts cannot make a new
contract for the parties where they themselves have employed clear and unambiguous words.

However, doubts in the interpretation of the provisions in the policy are strictly construed
against the insurer, the insurance contract being a contract of adhesion. Contracts of adhesion
have been consistently upheld as valid per se, as binding as an ordinary contract. But any
ambiguity therein should be resolved against the insurer; in other words, it should be considered
construed liberally in favor of the insured and strictly against the insurer.

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Q: What is a cover note? Why issue a cover note if you can simply issue a policy?
Cover Notes - (Read Sec 52)
Under Insurance Memo Circular No. 3-75, the approval of the Insurance Commission for
the extension or renewal of the cover note may be dispensed with upon the certification of the
President, Vice President or General Manager of the insurer that the risk involved, the values of
such risks and premium therefor have not as yet been determined or established, the extension or
renewal is not contrary to or is not for the purpose of violating the Insurance Code or any rule.

A cover note is a temporary insurance coverage. It is intended to afford

protection pending the investigation of the risk and formal issuance of the policy. The
fact that no payment of premium was paid on the cover note before the loss insured
against occurred will not hinder the insured from recovering the proceeds. This is
how the cover note as a “binder” should legally operate. Otherwise, it would serve no
practical purpose in the realm of commerce. It is supported by the doctrine that
where a policy is delivered without requiring payment of the premium, the
presumption is that a credit was intended and policy is valid. (Pacific Timber Export
Corporation v. Court of Appeals, 112 SCRA 199, 25 February 1982).

A cover note is not a mere application but it is in a real sense a contract. No

separate premium is intended or required to be paid on a cover note.

Binding Slip/Binding receipt

In life insurance, a binding slip or binding receipt does not insure by itself. It is
merely an acknowledgement, on behalf of the insurer company, that the latter's branch
office had received from the applicant the insurance premium and had accepted the
application subject for processing by the insurance company; and that the latter will
either approve or reject the same on the basis of whether or not the applicant is
"insurable on standard rates."

The binding deposit receipt is merely conditional and does not insure outright.
Where an agreement is made between the applicant and the agent, no liability shall
attach until the principal approves the risk and a receipt is given by the agent. (Great
Pacific Life Assurance Company v. CA, 89 SCRA 543 [1979]).

Q: what is a rider?
Rider
Rider is an attachment to an insurance policy that modifies the conditions of the policy by
expanding or restricting its benefits or excluding certain conditions from the coverage (Black's
Law Dictionary).

Binding effect - Sec 50, par 2.

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When the requirements for a rider a complied with, it is considered part of the policy. It is
not a separate contract. (Commissioner of Internal Revenue v. Lincoln Philippine Life Insurance
Company, Inc., 379 SCRA 423 [2002]).

Cancellation of Policy - Sec 64-66

Grounds - Sec 64

Requisites for a valid cancellation of the Policy:

1. Prior notice of cancellation, in writing, is given to the insured;
2. Notice must be based on any of the grounds mentioned in Sec 64; and
3. Upon request of the insured, the insurer must furnish facts on which cancellation is
based (Sec 65).

Cases:
Lalican v. Insular Life Assurance Company, Ltd.
GR No. 183526 August 25, 2009

Facts:
Violeta is the widow of Eulogio C. Lalican. During his lifetime, Eulogio applied for an
insurance policy with Insular Life. Insular Life, through Josephine Malaluan its agent in Gapan
City, issued in favor of Eulogio Policy No. 9011992 -- it contained a 20-Year Endowment
Variable Income Package Flexi Plan worth P500,000.00, with two riders valued at P500,000.00
each. Thus, the value of the policy amounted to P1,500,000.00. Violeta was named as the
primary beneficiary.

The ff. are the terms under the Policy Contract:

• Eulogio was to pay the premiums on a quarterly basis in the amount of P8,062.00 for 20 years
(payable every 24 April, 24 July, 24 October and 24 January of each year)
• There was a grace period of 31 days for the payment of each premium subsequent to the first
• If any premium was not paid on or before the due date, the policy would be in default, and if
the premium remained unpaid until the end of the grace period, the policy would automatically
lapse and become void

Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he failed
to pay the premium due on 24 January 1998, even after the lapse of the grace period of 31
days. Policy No. 9011992, therefore, lapsed and became void.

Eulogio submitted, through Malaluan, an Application for Reinstatement of Policy

No. 9011992, together with the amount of P8,062.00 to pay for the premium due on 24 January
1998. In a letter, Insular Life notified Eulogio that his Application for Reinstatement could not be
fully processed because he left unpaid the overdue interest amounting to P322.48. Thus, Insular
Life instructed Eulogio to pay the amount of interest and to file another application for
reinstatement.

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On 17 September 1998, Eulogio went to Malaluan’s house and submitted a second

Application for Reinstatement, including the amount of P17,500.00 (overdue interest and
premium) As Malaluan was away that time, her husband received Eulogio’s second Application
for Reinstatement and issued a receipt for the amount Eulogio deposited. On the same day,
Eulogio died of cardio-respiratory arrest secondary to electrocution.

Without knowing of Eulogio’s death, Malaluan forwarded to the Insular Life Regional
Office in the San Fernando, on 18 September 1998, Eulogio’s second Application for
Reinstatement and P17,500.00 deposit. However, Insular Life no longer acted upon Eulogio’s
second Application for Reinstatement, as the former was informed that Eulogio had already
passed away.

Violeta filed with Insular Life a claim for payment of the full proceeds of Policy No.
9011992. However, Insular Life informed Violeta that her claim could not be granted since, at the
time of Eulogios death, Policy No. 9011992 had already lapsed, and Eulogio failed to reinstate
the same. According to the Application for Reinstatement, the policy would only be considered
reinstated upon approval of the application by Insular Life during the applicant’s lifetime and
good health, and whatever amount the applicant paid in connection thereto was considered to be
a deposit only until approval of said application. (Enclosed with the letter was a check for
P25,417.00 representing the full refund of the payments made by Eulogio on Policy No.
9011992)

Violeta requested a reconsideration but Insular Life denied the request. However, she
returned the check and still demanded the full payment of the policy. Insular Life responded by
agreeing to conduct a re-evaluation of her claim.

Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the
RTC, a Complaint for Death Claim Benefit. She alleged that Insular Life engaged in unfair claim
settlement practice and deliberately failed to act with reasonable promptness on her insurance
claim. On the other hand, Insular Life asserted that the complaint has no legal or factual
bases. RTC rendered a decision in favor of Insular Life.

Issue: Whether or not Eulogio still had insurable interest in his own life when he
reinstated Policy No. 9011992 just before he passed away on 17 September 1998.

Ruling:
No. An insurable interest is one of the most basic and essential requirements in an
insurance contract. In general, an insurable interest is that interest which a person is deemed to
have in the subject matter insured, where he has a relation or connection with or concern in it,
such that the person will derive pecuniary benefit or advantage from the preservation of the
subject matter insured and will suffer pecuniary loss or damage from its destruction, termination,
or injury by the happening of the event insured against. The existence of an insurable interest

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gives a person the legal right to insure the subject matter of the policy of insurance. Section 10 of
the Insurance Code indeed provides that every person has an insurable interest in his own life.
Section 19 of the same code also states that an interest in the life or health of a person insured
must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.

In the instant case, Eulogio’s death rendered impossible full compliance with the
conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to
file his Application for Reinstatement and deposit the amount for payment of his overdue
premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be considered
reinstated after the Application for Reinstatement had been processed and approved by Insular
Life during Eulogio’s lifetime and good health.

The stipulation in a life insurance policy giving the insured the privilege to reinstate it
upon written application does not give the insured absolute right to such reinstatement by the
mere filing of an application. The insurer has the right to deny the reinstatement if it is not
satisfied as to the insurability of the insured and if the latter does not pay all overdue premium
and all other indebtedness to the insurer. After the death of the insured the insurance Company
cannot be compelled to entertain an application for reinstatement of the policy because the
conditions precedent to reinstatement can no longer be determined and satisfied.

Malaluan did not have the authority to approve Eulogio’s Application for Reinstatement.
Malaluan still had to turn over to Insular Life Eulogio’s Application for Reinstatement and
accompanying deposits, for processing and approval by the latter.

Violeta did not adduce any evidence that Eulogio might have failed to fully understand
the import and meaning of the provisions of his Policy Contract and/or Application for
Reinstatement, both of which he voluntarily signed. While it is a cardinal principle of insurance
law that a policy or contract of insurance is to be construed liberally in favor of the insured and
strictly as against the insurer company, yet, contracts of insurance, like other contracts, are to be
construed according to the sense and meaning of the terms, which the parties themselves have
used. If such terms are clear and unambiguous, they must be taken and understood in their plain,
ordinary and popular sense.

WHEREFORE, premises considered, the Court DENIES the instant Petition for Review
on Certiorari under Rule 45 of the Rules of Court. The Court AFFIRMS the Orders dated 10
April 2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No. 2177,
denying petitioner Violeta R. Lalicans Notice of Appeal, on the ground that the Decision
dated 30 August 2007 subject thereof, was already final and executory. No costs.

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IX. Premium Payment (Sec 77-84)

Definition: Concept
Premium is the consideration paid to an insurer for undertaking to indemnify the insured
against a specified peril.

Q: Effect of Non-Payment of Premium

GR: No policy or contract of insurance is valid and binding unless and until the premium
thereof has been paid. This is the cash and carry rule under the Insurance Code. (Sec 77).
The payment of premium is imperative for the validity of the policy. It is a condition
precedent to, and essential for, the efficaciousness of the contract. (South Sea Surety and
Insurance Company v. Court of Appeals [1995]).

XPN to the Cash and Carry Rule:

a. In case of a life or an industrial policy whenever the grace period provision applies (Sec
77)
b. When there is an agreement to grant the insured credit extension for the payment of the
premium and loss occurs before the expiration of the credit term. No credit extension shall
exceed 90 days from issuance of the policy (Sec 77) (UCPB General Insurance, Inc. v.
Masagana Telemart [2001]).
***Credit extension must be expressly stipulated. There must be an agreement
c. When there is an acknowledgement in a policy of the receipt of premium even if there is a
stipulation that it shall not be binding until the premium is actually paid (Sec 79)
d. When there is an agreement allowing the insured to pay the premium in installments and
partial payment has been made at the time of loss. (Makati Tuscany Condominium
Corporation vs. Court of Appeals [1992])
When insured and insurer agreed that payment of premium shall be made
by installments and partial payment has been made at the time of loss, the
policy is valid and binding. The insurer will be held liable to pay the proceeds.
The insurer on the other hand has the right to deduct the amount of unpaid
premium from the insurance proceeds. (Ibid.)
e. When parties are barred by estoppel.

Q: Rule on Payment through Post-Dated Check

A postdated check bearing a date prior to the loss, which remains unencashed at the time
of loss, constitutes valid payment of premium. The insured may claim the proceeds of the policy.
(American Home Assurance Co. v. Chua [1999]).

But payment of premium by a postdated check with a date subsequent to the loss is
insufficient to put the insurance into effect.
***C.w Article 1249, par 2 of the Civil Code.

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Dishonored Check
The rule is no policy or contract of insurance is valid and binding unless and until
the premium thereof has been paid. The payment of premium is imperative for the
validity of the policy. It is a condition precedent to, and essential for the
efficaciousness of the contract.

The fact the postdated check was dishonored for insufficiency of funds clearly
shows that no payment was made by the supposed-insured. The insurer cannot be
compelled to redeposit another check and thereafter insist that he paid the premium.

Partial Payment; installment

When there is an agreement allowing the insured to pay the premium in
installments and partial payment has been made at the time of loss, the policy is valid
and binding. The insurer must be held liable to pay the proceeds. (Makati Tuscany
Condominium Corporation vs. Court of Appeals, 215 SCRA 463 [1992]).

Payment through Agent

When the agent of the insurer received check payment of the premium prior to the
occurrence of the risk, even when in fact the insurer received tender of the check only after the
loss, the insurer is nevertheless bound to pay on the coverage.

Any insurance company which delivers to the insurance agent or insurance broker a
policy or contract of insurance shall be deem to have authorized such agent or broker to receive
on its behalf payment of any premium due. (South Sea Surety and Insurance Company v. Court
of Appeals).

Return of Premiums
The insured is entitled to the return of premium–
a. If the thing insured was never exposed to the risk insured against (Sec 80);
b. When the insurance is for a definite period and the insured surrenders his policy before the
termination thereof (Sec 80)
He is entitled to a return of premium equivalent to such portion of the premium as
corresponds with the unexpired time, at a pro rata rate, unless a short period rate has
been agreed upon and appears on the face of the policy, after deducting from the whole
premium any claim for loss or damage under the policy which has previously accrued.
c. Contract is voidable due to the fraud of misrepresentation of insurer (Sec 82);
d. Insurer never incurred liability (Sec 82);
e. Contract is voidable because of the existence of facts of which the insured was ignorant
without his fault (82);
f. Where there is over insurance (83)

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Cases:
1. Jaime T. Gaisano v. Development Insurance And Surety Corporation
G.R. No. 190702, February 27, 2017

An insurer is entitled to payment of the premium as soon as the thing insured is exposed
to the peril insured against. Notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is valid and binding unless and until the
premium thereof has been paid, except in the case of a life or an industrial life policy whenever
the grace period provision applies.

Facts:
Gaisano was the registered owner of a 1992 Mitsubishi Montero with plate number
GTJ-777 while respondent is a domestic corporation engaged in the insurance business. On
September 27, 1996, respondent issued a comprehensive commercial vehicle policy to petitioner
in the amount of P1,500,000.00 over the vehicle for a period of one year commencing on
September 27, 1996 up to September 27, 1997. Respondent also issued two other commercial
vehicle policies to petitioner covering two other motor vehicles for the same period.

To collect the premiums and other charges on the policies, respondent's agent, Trans-
Pacific Underwriters Agency (Trans-Pacific), issued a statement of account to petitioner's
company, Noah's Ark Merchandising (Noah's Ark). The latter immediately processed the
payments and issued FEBTC checks amounting to P 140, 893.50 for the payment of the
insurance policies, with P55,620.60 for the premium and other charges over the vehicle.
However, nobody from Trans-Pacific picked up the check that day (September 27) because its
president and general manager, Rolando Herradura, was celebrating his birthday. Trans-Pacific
informed Noah's Ark that its messenger would get the check the next day, September 28.

In the evening of September 27, 1996, while under the official custody of Noah's Ark
marketing manager Achilles Pacquing (Pacquing) as a service company vehicle, the vehicle was
stolen in the vicinity of SM Megamall. Pacquing reported the loss to the Philippine National
Police Traffic Management Command. Despite search and retrieval efforts, the vehicle was not
recovered. Trans-Pacific picked up the check the next day, September 28. It issued an official
receipt dated September 28, 1996, acknowledging the receipt of P55,620.60 for the premium and
other charges over the vehicle.

On October 1, 1996, Pacquing informed petitioner of the vehicle's loss. Thereafter,

petitioner reported the loss and filed a claim with respondent for the insurance proceeds of
P1,500,000.00. On October 1, 1996, Pacquing informed petitioner of the vehicle's loss.
Thereafter, petitioner reported the loss and filed a claim with respondent for the insurance
proceeds of P1,500,000.00. Respondent refused and asserted that the non-payment of the
premium rendered the policy ineffective. The premium was received by the respondent only on
October 2, 1996, and there was no known loss covered by the policy to which the payment could
be applied

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Petitioner filed a complaint for collection of sum of money and damages21 with the RTC
where it sought to collect the insurance proceeds from respondent. The CA upheld respondent's
position that an insurance contract becomes valid and binding only after the premium is paid
pursuant to Section 77 of the Insurance Code

Issue Whether or not the petitioner is entitled to claim insurance proceeds for the loss of vehicle.

Ruling:
No. The check was delivered to and was accepted by respondent's agent, Trans-Pacific,
only on September 28, 1996. No payment of premium had thus been made at the time of the loss
of the vehicle on September 27, 1996. While petitioner claims that Trans-Pacific was informed
that the check was ready for pick-up on September 27, 1996, the notice of the availability of the
check, by itself, does not produce the effect of payment of the premium. Trans-Pacific could not
be considered in delay in accepting the check because when it informed petitioner that it will
only be able to pick-up the check the next day, petitioner did not protest to this, but instead
allowed Trans-Pacific to do so. Thus, at the time of loss, there was no payment of premium yet to
make the insurance policy effective.

Other discussion:
Petitioner's claim cannot be sustained that the parties agreed that the insurance contract is
immediately effective upon issuance despite non payment of the premiums. Even if there is a
waiver of pre-payment of premiums, that in itself does not become an exception to Section 77,
unless the insured clearly gave a credit term or extension. This is the clear import of the fourth
exception in the UCPB General Insurance Co., Inc. To rule otherwise would render nugatory the
requirement in Section 77 that "notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is valid and binding unless and until the
premium thereof has been paid, x x x.

The policy states that the insured's application for the insurance is subject to the payment
of the premium. There is no waiver of pre-payment, in full or in installment, of the premiums
under the policy. Consequently, respondent cannot be placed in estoppel.

2. Makati Tuscany Condominium Corporation vs. Court of Appeals

215 SCRA 463 [1992]
When there is an agreement allowing the insured to pay the premium in installments and
partial payment has been made at the time of loss, the policy is valid and binding. The insurer
must be held liable to pay the proceeds.

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Facts:
Private respondent American Home Assurance Co. (AHAC) issued in favor of petitioner
Makati Tuscany Condominium Corporation (TUSCANY) three insurance polices:
1) In 1982, on the latter's building and premises. The premium of P466,103.05 was paid on
installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of
which were accepted by private respondent.
2) On 10 February 1983, replaced and renewed the previous policy. The premium of
P466,103.05 was again paid on installments on 13 April 1983, 13 July 1983, 3 August
1983, 9 September 1983, and 21 November 1983. All payments were likewise accepted by
private respondent.
3) On 20 January 1984, the policy was again renewed. Petitioner made two installment
payments, both accepted by private respondent, the first on 6 February 1984 for P52,000.00
and the second, on 6 June 1984 for P100,000.00. Thereafter, petitioner refused to pay the
balance of the premium.

AHAC filed an action to recover the unpaid balance for the 3rd insurance policy
(P314,103.05). Petitioner claimed that it discontinued the payment of premiums because the
policy did not contain a credit clause in its favor and that the policy was never binding and valid,
and no risk attached to the policy. It sought the refund of P924,206.10 representing the premiums
paid for 1982-85.

The trial court dismissed the complaint, providing that defendant's counterclaim for
refund is not justified. CA ordered petitioner to pay the balance of the premiums due plus legal
interest until fully paid.

Issue: Whether or not the policies are valid even if the premiums were paid on installments

Ruling: (from the book)

Yes. It has been held that insurance policies are valid even if the premium were paid on
installments.

1. The record clearly show that the petitioner and private respondent intended subject policies
to be binding and effective notwithstanding the staggered payment of the premiums. Such
acceptance of payment speaks loudly of the insurer's intention to honor the policies it issued
to petitioner.
2. Certainly, basic principles of equity and fairness would not allow the insurer to continue
collecting and accepting the premiums, although paid on installments, and later deny liability
on the lame excuse that the premiums were not pre-paid in full.
3. While the import of Sec 77 is that pre-payment of premiums is strictly required as a
condition to the validity of the contract, the said that It cannot rule that the request to make
installment payments duly approved by the insurer, would prevent the entire contract of
insurance from going into effect despite payment and acceptance of the initial premium or
first [Link] Sec 77 merely precludes the parties from stipulating that the policy is

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valid even if premiums are not paid, but does not expressly prohibit an agreement granting
credit extension, and such an agreement is not contrary to morals, good customs, public
order or public policy.
4. At the very least, both parties is estopped in questioning the arrangement they have
voluntarily entered.

3. South Sea Surety and Insurance Co., Inc. vs. Court of Appeals
G.R. No. 102253, June 2, 1995, Vitug J.

Section 306 of the Insurance Code provides that any insurance company which delivers
to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to
have authorized such agent or broker to receive on its behalf payment of any premium which is
due on such policy of contract of insurance at the time of its issuance or delivery or which
becomes due thereon. When the appellant South Sea Surety and Insurance Co., Inc. delivered to
Mr. Chua the marine cargo insurance policy for the logs of Hardwood, he is deemed to have
been authorized by the South Sea Surety and Insurance Co., Inc. to receive the premium which is
due on its behalf.

Facts:
Valenzuela Hardwood and Industrial Supply, Inc. insured with South Sea Surety and
Insurance Company, Inc. the logs to be shipped to Manila on board the vessel owned by Seven
Brothers. On January 20, 1984, Marine Cargo Insurance Policy No. 84/24229 was issued by
South Sea. On January 24, Hardwood gave the check in payment of the premium on the
insurance policy to Mr. Victorio Chua, an agent of Columbia Insurance Brokers, Ltd. On January
25, the said vessel sank resulting in the loss of the insured logs. Payment of the proceeds of the
policy was demanded from South Sea but the latter denied liability under the policy. Seven
Brothers Shipping Corporation also denied the claim filed by Hardwood.

Hardwood filed with the RTC a complaint for the recovery of the value of lost logs and freight
charges from Seven Brothers Shipping Corporation or, to the extent of its alleged insurance
cover, from South Sea Surety and Insurance Company. The trial court rendered judgment in
favor of Hardwood. The CA absolved the shipping entity from liability holding only South Sea
liable. South Sea Surety and Insurance Co., Inc. faults the appellate court for holding Victorio
Chua to have been an authorized representative of the insurer.

Issue: Whether or not Victorio Chua, in receiving the check for the insurance premium prior to
the occurrence of the risk insured against has so acted as an agent of petitioner.

Ruling:
Yes. The Court adopts the findings of the CA. Section 306 of the Insurance Code
provides that any insurance company which delivers to an insurance agent or insurance broker a
policy or contract of insurance shall be deemed to have authorized such agent or broker to

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receive on its behalf payment of any premium which is due on such policy of contract of
insurance at the time of its issuance or delivery or which becomes due thereon. When the
appellant South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine cargo
insurance policy for the logs of Hardwood, he is deemed to have been authorized by the South
Sea Surety and Insurance Co., Inc. to receive the premium which is due on its behalf. When
therefore the insured logs were lost, the insured had already paid the premium to an agent of the
South Sea Surety and Insurance Co., Inc., which is consequently liable to pay the insurance
proceeds under the policy it issued to the insured.

4. UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

G.R. No. 137172, April 4, 2001, Davide, Jr., C.J.

When there is an agreement to grant the insured credit extension for the payment of the
premium and loss occurs before the expiration of the credit term. No credit extension shall
exceed 90 days from issuance of the policy.

Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums
are not paid, but does not expressly prohibit an agreement granting credit extension. Such an
agreement is not contrary to morals, good customs, public order or public policy.

Facts:
Masagana Telemart obtained from UCPB General Insurance 5 insurance policies with an
effectivity term from May 22, 1991 to May 22, 1992. On June 13, 1992, Masagana’s properties
were razed by fire. Masagana tendered 5 manager’s checks amounting to P225,753.45 as renewal
premium payments on July 13, 1992. Masagana made its formal demand for indemnification for
the burned insured properties the next day.

UCPB returned the 5 manager's checks stating in its letter that it was rejecting
Masagana's claim on the following grounds: "
a) Said policies expired last May 22, 1992 and were not renewed for another term;
b) Masagana had put UCPB and its alleged broker on notice of non-renewal earlier; and
c) The properties covered by the said policies were burned in a fire that took place last June 13,
1992, or before tender of premium payment."

Both the Court of Appeals and the trial court found that sufficient proof exists that
Masagana, which had procured insurance coverage from UCPB for a number of years, had been
granted a 60-90 day credit term for the renewal of the policies. Such a practice had existed up to
the time the claims were filed.

Issue: Whether or not Sec. 77 of the Insurance Code stating that “An insurer is entitled to
payment of the premium as soon as the thing insured is exposed to the peril insured against”

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must be strictly applied despite its practice of granting a 60-90 day credit term for the payment of
premiums

Ruling:
No, Sec. 77 of the Insurance Code must not be strictly applied. There are exceptions to
the application of Sec. 77. The first exception is in case of a life or industrial life policy
whenever the grace period provision applies. The second is covered by Section 78 which
provides: Any acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until premium is actually paid. A third exception
was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals, wherein we
ruled that Section 77 may not apply if the parties have agreed to the payment in installments of
the premium and partial payment has been made at the time of loss. Tuscany has provided a
fourth exception to Section 77, that the insurer may grant credit extension for the payment of the
premium. This simply means that if the insurer has granted the insured a credit term for the
payment of the premium and loss occurs before the expiration of the term, recovery on the policy
should be allowed even though the premium is paid after the loss but within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to
provide a credit term within which to pay the premiums. That agreement is not against the law,
morals, good customs, public order or public policy.

It would be unjust and inequitable if recovery on the policy would not be permitted
against UCPB, which had consistently granted a 60-90 day credit term for the payment of
premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge under said
Section, since Masagana relied in good faith on such practice. Estoppel then is the fifth exception
to Section 77.

Book example :
Estoppel bars it from taking refuge under the rule that non-payment of
the premium is a condition precedent to the efficaciousness of the policy.
SPMC relied in good faith on the long standing practice between them
and SIC cannot conveniently renege on its obligation as SPMC has
clearly suffered a loss covered by the Policy.

5. American Home Assurance Company vs. Chua

G.R. No. 130421 June 28, 1999, J. Davide

Section 306 of the Insurance Code provides that any insurance company which delivers a
policy or contract of insurance to an insurance agent or insurance broker shall be deemed to
have authorized such agent or broker to receive on its behalf payment of any premium which is
due on such policy or contract of insurance at the time of its issuance or delivery or which

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becomes due thereon. In the instant case, the best evidence of such authority is the fact that
petitioner accepted the check and issued the official receipt for the payment. It is, as well, bound
by its agent's acknowledgment of receipt of payment.

A postdated check bearing a date prior to the loss, which remains unencashed at the time
of loss, constitutes valid payment of premium. The insured may claim the proceeds of the policy.

Facts:
Antonio Chua (Chua) obtained from Home American Home Assurance Company
(AHAC) a fire insurance covering the stock-in-trade of his business, Moonlight Enterprises.
Before its expiration, Chua issued PCIBank. AHAC’s agent, James Uy, as payment for the
renewal of the policy. In turn, the latter delivered Renewal Certificate to Chua. Subsequently, a
new insurance policy was issued. Later, Moonlight Enterprises was completely razed by fire. It
appears however that the check was cashed only a day after the fire accident.

Chua filed an insurance claim with petitioner and four other co-insurers. AHAC refused
to honor the claim notwithstanding several demands by Chua, thus, the latter filed an action
against petitioner before the trial court.

In its defense, AHAC claimed there was no existing insurance contract when the fire
occurred since respondent did not pay the premium.

Issue: Whether or not there was a valid payment of premium, considering that respondent's check
was cashed after the occurrence of the fire.

Ruling:
Yes. There was valid premium payment. The trial court found, as affirmed by the Court
of Appeals, that there was a valid check payment by respondent to petitioner. According to the
trial court the renewal certificate issued to respondent contained the acknowledgment that
premium had been paid.

It is not disputed that the check drawn by respondent in favor of petitioner and delivered
to its agent was honored when presented and petitioner forthwith issued its official receipt to
respondent on 10 April 1990. Section 306 of the Insurance Code provides that any insurance
company which delivers a policy or contract of insurance to an insurance agent or insurance
broker shall be deemed to have authorized such agent or broker to receive on its behalf payment
of any premium which is due on such policy or contract of insurance at the time of its issuance or
delivery or which becomes due thereon. In the instant case, the best evidence of such authority is
the fact that petitioner accepted the check and issued the official receipt for the payment. It is, as
well, bound by its agent's acknowledgment of receipt of payment.

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X. Devices to Ascertain and Control Risk and Loss

Q: what is concealment?
a. Concealment (sec 26-35)
Codal Definition Sec 26
Concealment exists where the assured had knowledge of a fact material to the risk, and
honesty, good faith, fair dealing require that he should communicate it to the assurer. (Ng Gan
Zee v. Asian Crusader Life Assurance Corp., 122 SCRA 461 [1983]).

Materiality - Sec 31
The matter concealed or misrepresented is material when it would have definitely
affected the insurer's action on the application, either by approving it with the
corresponding adjustment for a higher premium or rejecting the same. (Sunlife Assurance
Company of Canada v. Court of Appeals [1995]).

The waiver of the medical examination in a non-medical insurance contract

renders even more material the information required of the applicant concerning previous
condition of health and diseases suffered, for such information necessarily constitutes an
important fact which the insurer takes into consideration in deciding whether to issue the
policy or not. (Ibid.)
*The insured may not raise the defense that the insurer is barred from raising
concealment because it did not require medical examination on the health and
condition of the insured.
(See also : Florendo v. Philam Plans, Inc. [2012])

The fact that the matter concealed had no bearing on the cause of death of the insured is
not important because it is well-settled that the insured need not die of the disease he had
failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in
forming his estimates of the risks of the proposed insurance policy or in making inquiries.
(Henson v. The Philippine American Life Insurance Company, 56 O.G. No. 48 [1960]).

The materiality of the facts concealed does not depend on the state of mind of the
insured but rather on the probable and reasonable influence of the facts upon the party to
whom communication should have been made. (Vda. De Canilang v. CA [1993]).

b. Representation (sec 36-48)

The factual statement made by the insured at the time of or prior to the issuance of the
policy to give information to the insurer and otherwise induce him to enter into the insurance
contract.

c. Warranty (Sec 67-76)

This is a statement or promise by the insured set forth in the policy itself or incorporated
in it by proper reference, the untruth or non-fulfillment of which in any respect, and without

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reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment renders
the policy voidable by the insurer.

A warranty may be:

1. Express - those that are specifically mentioned in the contract;
2. Implied - warranties that are deemed included mentioned therein. These apply only
only in marine insurance;
3. Affirmative - asserts the existence of fact or condition at the time it is made; or
4. Promissory - the insured stipulates that certain facts or conditions shall exist.

d. Conditions
This is intended to secure for the insurer the best obtainable evidence of the fact of loss
and the amount of any loss.

e. Exceptions
The policy is made subject to excluded specified risk that otherwise would be included
under the general language describing the risk assumed.

The burden to prove that the loss was caused by an excepted peril lies with the insurer.

Q: what is the effect of concealment or misrepresentation or breach of warranty or

condition?
A: The injured party is entitled to rescind the policy in case of concealment or
misrepresentation or breach of a warranty or condition.

f. Incontestability Clause - Sec 48

The incontestability clause precludes the insurer from raising the defense of false
representation or concealment of material facts insofar as health and previous diseases are
concerned if the insurance has been in force for at least two years during the insured's lifetime. In
short, after two years, the defenses of concealment or misrepresentation, no matter how patent or
well-founded, no longer lie. (Tan v. CA [1989]).

After the two-year period from the effectivity of a life insurance contract lapses, or when
the insured dies within said period, the insurer must make good on the policy, even though the
policy was obtained by fraud, concealment, or misrepresentation. (Sunlife of Canada
(Philippines), Inc. v. Sibya [2016], Reyes, J.)

The requisites for the application of the incontestability clause are as follows:
1. The insurance is a life insurance policy payable on the death of the insured.
2. It has been in force during the lifetime of the insured for at least 2 years from its date of
issue or of its last reinstatement.

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The two-year period in incontestability clause may be shortened but it cannot be extended
by stipulation. To lengthen it beyond the two-year period would defeat the very purpose of
the incontestability clause which aims to bar the insurer from raising the defenses and deny
the claim of the insured.

The two-fold purpose of Incontestability clause:

A) First, it compels the insurers to solicit business from or provide insurance coverage
only to legitimate and bona fide clients by requiring them to thoroughly investigate
those they insure within two years from effectivity of the policy and while the insured
is still alive. If they do not, they will be obligated to honor claims on the policies they
issue, regardless of fraud, concealment or misrepresentation.
B) Second, it forewarns prospective takers of life insurance that their attempts at
insurance fraud would be timely uncovered–thus deterring them from venturing into
such nefarious enterprise. At the same time, legitimate policy holders are absolutely
protected from unwarranted denial of their claims or delay in the collection of
insurance proceeds occasioned by the allegations of fraud, concealment, or
misrepresentation by insurers, claims which may no longer be set up after the two-year
period expires as ordained under the law. (Manila Bankers Life Insurance Corporation
v. Aban [2013]).

Defenses not barred by Incontestability Clause:

a. that the person taking the insurance lacked insurable interest as required by law;
b. that the cause of the death of the insured is an excepted risk;
c. that the premiums have not been paid
d. that the conditions of the policy relating to military or naval service have been
violated;
e. that the fraud is of particularly vicious type;
f. that the beneficiary failed to furnish proof of death or to comply with any
condition imposed by the policy after the loss has happened;
g. that the action was not brought within the time specified

In short, if any of these circumstances is present, the insurer may still rescind the
policy even after the two-year period had already lapsed.

Cases:
CONCEALMENT

12. Saturnino vs. Philam

7 SCRA 316

A concealment, whether intentional or unintentional, entitles the insurer to rescind the

contract of insurance, concealment being defined as "negligence to communicate that which a
party knows and ought to communicate".

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Facts:
Estefania A Saturnino did not make a disclosure thereof in her application for insurance
that Saturnino was operated on for cancer, involving complete removal of the right breast. The
policy sued upon is one for 20-year endowment non-medical insurance. Saturnino died of
pneumonia, secondly to influenza. Her surviving husband and minor child, respectively,
demanded payment of the face value of the policy. The claim was rejected and this suit was
subsequently instituted. The trial court ruled in favor of Philippine American Life Insurance
Company.

Issue: Whether or not the insured made such false representations of material facts as to avoid
the policy.

Ruling:
Yes, in the first place the concealment of the fact of the operation itself was fraudulent, as
there could not have been any mistake about it, no matter what the ailment. Secondly, in order to
avoid a policy it is not necessary to show actual fraud on the part of the insured. If it were the
law that an insurance company could not defend a policy on the ground of misrepresentation,
unless it could show actual knowledge on the part of the applicant that the statements were false,
then it is plain that it would be impossible for it to protect itself and its honest policyholders
against fraudulent and improper claims. It would he wholly at the mercy of any one who wished
to apply for insurance, as it would be impossible to show actual fraud except in the extremist
cases. It could not rely on an application as containing information on which it could act. There
would be no incentive to an applicant to tell the truth."

In this jurisdiction, a concealment, whether intentional or unintentional, entitles the

insurer to rescind the contract of insurance, concealment being defined as "negligence to
communicate that which a party knows and ought to communicate" (Sections 25 & 26, Act No.
2427).

The basis of the rule vitiating the contract in cases of concealment is that it misleads or
deceives the insurer into accepting the risk, or accepting it at the rate of premium agreed upon.
The insurer, relying upon the belief that the assured will disclose every material fact within his
actual or presumed knowledge, is misled into a belief that the circumstance withheld does not
exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist."

8. Ng Gan Zee v. Asian Crusader Life Assurance Corp.

122 SCRA 461, 30 May 1983

Concealment exists where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it to the assurer, but he
designedly and intentionally withholds the same.

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Facts:
Kwong Nam applied for a 20-year endowment insurance on his life with his wife, Ng
Gan Zee, as beneficiary. Asian Crusader, upon receipt of the required premium from the insured,
approved the application and issued the policy. Kwong Nam died of cancer of the liver with
metastasis. Ng Gan Zee presented a claim in due form to Asian Crusader for payment of the face
value of the policy and submitted the required proof of death of the insured. Asian Crusader
denied the claim on the ground that the answers given by the insured to the questions appearing
in his application for life insurance were untrue when the insured was examined and he gave the
Asian Crusader's medical examiner false and misleading information as to his ailment and
previous operation.

Issue: Whether or not Asian Crusader was deceived into accepting the risk at the rate of premium
agreed upon because of Kwong Nam’s representation?

Ruling:
No. Concealment exists where the assured had knowledge of a fact material to the risk,
and honesty, good faith, and fair dealing requires that he should communicate it to the assurer,
but he designedly and intentionally withholds the same. It has also been held that the
concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact
must have been intentionally withheld.

Kwong Nam had informed the appellant's medical examiner that the tumor for which he
was operated on was "associated with ulcer of the stomach." In the absence of evidence that the
insured had sufficient medical knowledge as to enable him to distinguish between "peptic ulcer"
and "a tumor", his statement that said tumor was "associated with ulcer of the stomach," should
be construed as an expression made in good faith of his belief as to the nature of his ailment and
operation. Indeed, such statement must be presumed to have been made by him without
knowledge of its incorrectness and without any deliberate intent on his part to mislead the
appellant. While it may be conceded that, from the viewpoint of a medical expert, the
information communicated was imperfect, the same was nevertheless sufficient to have induced
appellant to make further inquiries about the ailment and operation of the insured.

It has been held that where, "upon the face of the application, a question appears to be not
answered at all or to be imperfectly answered, and the insurers issue a policy without any further
inquiry, they waive the imperfection of the answer and render the omission to answer more fully
immaterial." The fact of the matter is that the defendant was too eager to accept the application
and receive the insured's premium. It would be inequitable now to allow the defendant to avoid
liability under the circumstances.

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9. Vda. De Canilang v. Court of Appeals

223 SCRA 443, 17 June 1993
The materiality of the information does not depend upon the state of mind. A man's state
of mind or subjective belief is not capable of proof in our judicial process, except through proof
of external acts or failure to act from which inferences as to his subjective belief may be
reasonably drawn.

Facts:
Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering from
"sinus tachycardia." On the next day, Jaime Canilang applied for a "non-medical" insurance
policy with respondent Great Pacific Life Assurance Company ("Great Pacific") naming his wife,
Thelma Canilang, as his beneficiary. A year after, Jaime Canilang died of congestive heart
failure, anemia, and chronic anemia. Petitioner, widow and beneficiary of the insured, filed a
claim with Great Pacific which the insurer denied upon the ground that the insured had
concealed material information from it. Petitioner then filed a complaint with the Insurance
Commission.

The Insurance Commisioner ordered Grepalife to pay the petitioner. On appeal by Great Pacific,
the Court of Appeals reversed.

Issue: Whether or not the concealment of the insured that he was suffering from sinus
trachycardia and acute bronchitis would bar the insurance claim of the beneficiaries.

Ruling:
Yes, we agree with the Court of Appeals that the information which Jaime Canilang failed
to disclose was material to the ability of Great Pacific to estimate the probable risk he presented
as a subject of life insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made
and the medicines prescribed by such doctor, in the insurance application, it may be reasonably
assumed that Great Pacific would have made further inquiries and would have probably refused
to issue a non-medical insurance policy or, at the very least, required a higher premium for the
same coverage. The materiality of the information withheld by Great Pacific did not depend upon
the state of mind of Jaime Canilang. A man's state of mind or subjective belief is not capable of
proof in our judicial process, except through proof of external acts or failure to act from which
inferences as to his subjective belief may be reasonably drawn. Neither does materiality depend
upon the actual or physical events which ensue. Materiality relates rather to the "probable and
reasonable influence of the facts" upon the party to whom the communication should have been
made, in assessing the risk involved in making or omitting to make further inquiries and in
accepting the application for insurance; that "probable and reasonable influence of the facts"
concealed must, of course, be determined objectively, by the judge ultimately.

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7. Sunlife Assurance Company of Canada v. Court of Appeals

246 SCRA 268, 22 June 1995

Materiality of the information withheld does not depend on the state of mind of the
insured. Neither does it depend on the actual or physical events which ensue. Thus, "good faith"
is no defense in concealment. It is well settled that the insured need not die of the disease he had
failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in
forming his estimates of the risks of the proposed insurance policy or in making inquiries

Facts:
Robert John B. Bacani procured a life insurance contract for himself from Sunlife
Assurance Company of Canada. The designated beneficiary was his mother Bernarda Bacani.
The insured died in a plane crash. Bernarda Bacani filed a claim with petitioner. Petitioner
conducted an investigation and its findings showed that the insured did not disclose material
facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable
which prompted it to reject the claim. Petitioner failed to disclose that the two weeks prior to his
application for insurance, the insured was examined and confined at the Lung Center of the
Philippines, where he was diagnosed for renal failure. Bernarda Bacani and her husband,
respondent Rolando Bacani, filed an action for specific performance against petitioner with the
Regional Trial Court. The RTC ruled in favor of Sunlife because the concealment was made in
good faith. On appeal, it was affirmed by CA because the concealment was unrelated with the
cause of death..

Issue: Whether or not the concealment of the insured will bar recovery of the beneficiaries?

Ruling:
Yes. Yes, in Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that
materiality of the information withheld does not depend on the state of mind of the insured.
Neither does it depend on the actual or physical events which ensue.

Thus, "good faith" is no defense in concealment. The insured's failure to disclose the fact
that he was hospitalized for two weeks prior to filing his application for insurance, raises grave
doubts about his bonafides. It appears that such concealment was deliberate on his part.

Anent the finding that the facts concealed had no bearing to the cause of death of the
insured, it is well settled that the insured need not die of the disease he had failed to disclose to
the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of
the risks of the proposed insurance policy or in making inquiries (Henson v. The Philippine
American Life Insurance Co., 56 O.G. No. 48 [1960]).

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5. Florendo v. 5. Philam Plans, Inc.

666 SCRA 618, 22 February 2012

Assuming that it was the insurance agent Perla who filled up the application form,
Manuel is still bound by what it contains since he certified that he authorized her action.
Therefore, any concealment made by the insurance agent binds him and therefore, the insurer, in
the case at bar has every right to deny liability.

Facts:
Manuel Florendo, a civil engineer, filed an application for comprehensive pension plan
with respondent Philam Plans, Inc. after some convincing by Perla, the agent. The plan had a
pre-need price of P997K+, payable in 10 years, and had a maturity value of P2.8+m after 20
years.

Ma. Lourdes S. Florendo, his wife, was stated as beneficiary. On October 30, 1997
Philam Plans issued Pension Plan Agreement. Eleven months later or on September 15, 1998,
Manuel died of blood poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the
payment of the benefits under her husband’s plan. Because Manuel died before his pension plan
matured and his wife was to get only the benefits of his life insurance, Philam Plans forwarded
her claim to Philam Life. Philam Life declined the claim and found that Manuel was on
maintenance medicine for his heart and had an implanted pacemaker. Further, he suffered from
diabetes mellitus and was taking insulin.

Lourdes contends that Manuel had concealed nothing since Perla, the soliciting agent,
knew that Manuel had a pacemaker implanted on his chest in the 70s or about 20 years before he
signed up for the pension plan and that it is the soliciting agent who filled up the form.

Issues
1. Whether or not there was concealment on the part of Manuel
2. Whether or not Manuel is bound by the failure of Perla to declare the condition of his health in
the application?
3. May Lourdes raise that the failure of the insured to read the contents is not negligence per se.

Ruling:
1. Yes. Philam Plans waived medical examination for Manuel, it had to rely largely on his
stating the truth regarding his health in his application. For, after all, he knew more than anyone
that he had been under treatment for heart condition and diabetes for more than five years
preceding his submission of that application. But he kept those crucial facts from Philam Plans.

Since Manuel signed the application without filling in the details regarding his continuing
treatments for heart condition and diabetes, the assumption is that he has never been treated for
the said illnesses in the last five years preceding his application. This is implicit from the phrase
“If your answer to any of the statements above (specifically, the statement: I have never been

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treated for heart condition or diabetes) reveal otherwise, please give details in the space provided
for.” But this is untrue since he had been on "Coumadin,” a treatment for venous thrombosis, and
insulin, a drug used in the treatment of diabetes mellitus, at that time.

2. Yes. Manuel is bound by the acts of Perla. The responsibility for preparing the application
belonged to Manuel. Nothing in it implies that someone else may provide the information that
Philam Plans needed. Manuel cannot sign the application and disown the responsibility for
having it filled up. If he furnished Perla the needed information and delegated to her the filling
up of the application, then she acted on his instruction, not on Philam Plans’ instruction.

3. No. In the case of New Life Enterprises v. Court of Appeal, the Court said that:
It may be true that x x x insured persons may accept policies without reading
them, and that this is not negligence per se. But, this is not without any exception. It
is and was incumbent upon petitioner Sy to read the insurance contracts, and this can
be reasonably expected of him considering that he has been a businessman since
1965 and the contract concerns indemnity in case of loss in his money-making trade
of which important consideration he could not have been unaware as it was precisely
the reason for his procuring the same.

The same may be said of Manuel, a civil engineer and manager of a construction
company. He could be expected to know that one must read every document, especially if it
creates rights and obligations affecting him, before signing the same. Manuel is not unschooled
that the Court must come to his succor. It could reasonably be expected that he would not trifle
with something that would provide additional financial security to him and to his wife in his
twilight years.

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MISREPRESENTATION

3. Manulife Philippines v. Ybanez

GR No. 204736 November 28, 2016 - I suggest reading the FULL TEXT
compare with the ruling of Saturnino vs. Philam, 7 SCRA 316
This case involves misrepresentation(fraudulent intent must be established) while Saturnino v.
Philam involves concealment(which may be intentional or unintentional)

The fraudulent intent on the part of the insured must be established to entitle the insurer
to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer. For failure of Manulife to prove intent to defraud on the part of
the insured, it cannot validly sue for rescission of insurance contracts.

Facts:
Before the RTC of Makati City, Manulife Philippines, Inc. (Manulife) instituted a
Complaint for Rescission of Insurance Contracts against Hermenegilda Ybanez (Hermenegilda).

It is alleged in the Complaint that 2 subject insurance policies which Manulife issued on
October 25, 2002 and on July 25, 2003, respectively, both in favor of Dr. Gumersindo Solidum
Ybafiez (insured), were void due to concealment or misrepresentation of material facts in the
latter's applications for life insurance, particularly the forms entitled Non-Medical Evidence
(NME), Medical Evidence Exam (MEE), and the Declaration of Insurability in the Application
for Life Insurance (DOI); that He1menegilda, wife of the said insured, was revocably designated
as beneficiary in the subject insurance policies; that on November 17, 2003, when one of the
subject insurance policies had been in force for only one year and three months, while the other
for only four months, the insured died; that Hermenegilda, now widow to the said insured, filed a
Claimant's Statement-Death Claim with respect to the subject insurance policies; that the Death
Certificate stated that the insured had "Hepatocellular CA., Crd Stage 4, secondary to Uric Acid
Nephropathy; SAM Nephropathy recurrent malignant pleural effusion; NASCVC"; that Manulife
conducted an investigation into the circumstances leading to the said insured's death, in view of
the aforementioned entries in the said insured's Death Certificate; that Manulife thereafter
concluded that the insured misrepresented or concealed material facts at the time the subject
insurance policies were applied for; and that for this reason Manulife accordingly denied
Hermenegilda's death claims and refunded the premiums that the insured paid on the subject
insurance policies.

The RTC found no merit at all in Manulife's Complaint for rescission of the subject
insurance policies because it utterly failed to prove that the insured had committed the alleged
misrepresentation/s or concealment/s. The RTC stressed that the medical records that might or
could have established the insured's misrepresentation/s or concealment/s were inadmissible for
being hearsay, because Manulife did not present the physician or doctor, or any responsible

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official of the CDH, who could confirm the due execution and authenticity of its medical records.
CA affirmed the decision of RTC.

Issue: Whether the CA committed any reversible error in affirming the RTC Decision dismissing
Manulife's Complaint for rescission of insurance contracts for failure to prove concealment on
the part of the insured.

Ruling:
No. The Court must defer to the findings of fact of the RTC - as affirmed or confirmed by
the CA - that Manulife' s Complaint for rescission of the insurance policies in question was
totally bereft of factual and legal bases because it had utterly failed to prove that the insured had
committed the alleged misrepresentation/s or concealment/s of material facts imputed against
him. The RTC correctly held that the medical records that might have established the insured's
purported misrepresentation/s or concealment/s was inadmissible for being hearsay, given the
fact that Manulife failed to present the physician or any responsible official of the CDH who
could confirm or attest to the due execution and authenticity of the alleged medical records.

Manulife's sole witness gave no evidence at all relative to the particulars of the purported
concealment or misrepresentation allegedly perpetrated by the insured. In fact, Victoriano merely
perfunctorily identified the documentary exhibits adduced by Manulife; she never testified in
regard to the circumstances attending the execution of these documentary exhibits much less in
regard to its contents. Of course, the mere mechanical act of identifying these documentary
exhibits, without the testimonies of the actual participating parties thereto, adds up to nothing.
These documentary exhibits did not automatically validate or explain themselves. The fraudulent
intent on the part of the insured must be established to entitle the insurer to rescind the contract.
Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. For
failure of Manulife to prove intent to defraud on the part of the insured, it cannot validly sue for
rescission of insurance contracts.

PETITION DENIED.

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WARRANTIES

11. Qua Chee Gan v. Law Union

98 Phil 85 (1955)

Insurer is barred by waiver (or rather estoppel) to claim violation of warranties for the
reason that knowing fully all that the number of hydrants demanded therein never existed from
the very beginning, respondent nevertheless issued the policies in question subject to such
warranty, and received the corresponding premiums. It is a well settled rule of law that an
insurer which with knowledge of facts entitling it to treat a policy as no longer in force, receives
and accepts a premium on the policy, estopped to take advantage of the forfeiture.

Facts:
Qua Chee Gan obtained fire insurance policies from Law Union and Rock Insurance for
his four warehouses used for storing copra and hemp. Under the policies, Qua Chee Gan should
install fire hydrants every 150 feet or 11 hydrants in the warehouse premises, however, he
installed only 2 hydrants. Nevertheless, Law Union proceeded with the insurance and collected
premiums from Qua Chee Gan. In the 1940s, three of the warehouses were razed by fire
prompting Qua Chee Gan to demand insurance payment from Law Union. The insurance
company refused, alleging that the policies should have been avoided for breach of warranties.

Issue: Whether or not the insurance company may avoid liability and void the policies it issued
due to insured’s breach of warranty.

Ruling:
NO. Respondent insurance company is now barred by waiver (or rather estoppel) to claim
violation of the so-called fire hydrants warranty, for the reason that knowing fully all that the
number of hydrants demanded therein never existed from the very beginning, respondent
nevertheless issued the policies in question subject to such warranty, and received the
corresponding premiums. It would be perilously close to conniving at fraud upon the insured to
allow respondent to claim now as void ab initio the policies that it had issued to the plaintiff
without warning of their fatal defect, of which it was informed, and after it had misled it into
believing that the policies were effective.

American jurisprudence provides the reason for this rule: To allow a company to accept
one’s money for a policy of insurance which it knows to be void and of no effect, though it
knows as it must that the insured believes it to be valid and binding is so contrary to the dictates
of honesty and fair dealing, as so closely related to positive fraud, as to be abhorrent to fair-
minded men. It would be to allow the company to treat the policy as valid long enough to get the
premium on it, and leave it at liberty to repudiate it the next moment.

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It is a well settled rule of law that an insurer which with knowledge of facts entitling it to
treat a policy as no longer in force, receives and accepts a premium on the policy, estopped to
take advantage of the forfeiture.

INCONTESTABILITY CLAUSE

10. Tan v. Court of Appeals

174 SCRA 403, 29 June 1989

The insurer has two years from the date of issuance of the insurance contract or of its last
reinstatement within which to contest the policy, whether or not, the insured still lives within
such period. After two years, the defenses of concealment or misrepresentation, no matter how
patent or well founded, no longer lie.
- ruling in this case is no longer controlling. Read the case of Sunlife of Canada v. Sibya

Facts:
Tan Lee Siong applied for life insurance in the amount of P80,000.00 with Philam Life.
Said application was approved and Policy No. 1082467 was issued effective November 6, 1973
with the petitioners as beneficiaries. On April 26, 1975, Tan Lee Siong died of hepatoma.
Petitioners then filed with Philam Life their claim. However, respondent company denied
petitioners' claim and rescinded the policy by reason of the alleged misrepresentation and
concealment of material facts made by the deceased Tan Lee Siong in his application for
insurance. The premiums paid on the policy were thereupon refunded. Petitioners filed a
complaint before the Insurance Commissioner. The latter dismissed their claim of procees. On
appeal before the Court of Appeals, it was also dismissed.

Issue: Whether or not Philam Life no longer had the right to rescind the contract of insurance
based on misrepresentation as rescission must allegedly be done during the lifetime of the
insured within two years and prior to the commencement of action.

Ruling:
No, as noted by the Court of Appeals, to wit: "The policy was issued on November 6,
1973 and the insured died on April 26, 1975. The policy was thus in force for a period of only
one year and five months. Considering that the insured died before the two-year period had
lapsed, respondent company is not, therefore, barred from proving that the policy is void ab initio
by reason of the insured's fraudulent concealment or misrepresentation. Moreover, respondent
company rescinded the contract of insurance and refunded the premiums paid on September 11,
1975, previous to the commencement of this action on November 27, 1975."

The insurer has two years from the date of issuance of the insurance contract or of its last
reinstatement within which to contest the policy, whether or not, the insured still lives within
such period. After two years, the defenses of concealment or misrepresentation, no matter how

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patent or well founded, no longer lie. Congress felt this was a sufficient answer to the various
tactics employed by insurance companies to avoid liability. The petitioners' interpretation would
give rise to the incongruous situation where the beneficiaries of an insured who dies right after
taking out and paying for a life insurance policy, would be allowed to collect on the policy even
if the insured fraudulently concealed material facts.

2. Manila Bankers Life Insurance Corporation v. Aban

702 SCRA 417, 29 July 2013

The so-called "incontestability clause" precludes the insurer from raising the defenses of
false representations or concealment of material facts insofar as health and previous diseases
are concerned if the insurance has been in force for at least two years during the insured’s
lifetime. The phrase "during the lifetime" found in Section 48 simply means that the policy is no
longer considered in force after the insured has died. The key phrase in the second paragraph of
Section 48 is "for a period of two years."

Facts:
Delia Sotero took out a life insurance policy from Manila Bankers Life Insurance
Corporation,designating respondent Cresencia P. Aban, her niece, as her beneficiary. Petitioner
issued Insurance Policy No. 747411 (the policy), with a face value of P100,000.00, in Sotero's
favor on August 30, 1993, after the requisite medical examination and payment of the insurance
premium. On April 10, 1996, when the insurance policy had been in force for more than two
years and seven months, Sotero died. Respondent filed a claim for the insurance proceeds on
July 9, 1996. Petitioner conducted an investigation into the claim and found that Sotero did not
personally apply for insurance coverage, as she was illiterate. Petitioner filed a civil case for
rescission and/or annulment of the policy and alleged that the policy was obtained by fraud,
concealment and/or misrepresentation. Respondent filed a Motion to Dismiss claiming that
petitioner's cause of action was barred by prescription pursuant to Section 48.

The trial court granted the motion to dismiss by Aban. CA affirmed the trial court's
decision, hence, this petition

Issue: Whether or not the insurer may refused to pay the insurance proceeds to the beneficiary on
the ground that there was misrepresentation on the part of the insured.

Ruling:
No. The so-called "incontestability clause" precludes the insurer from raising the
defenses of false representations or concealment of material facts insofar as health and previous
diseases are concerned if the insurance has been in force for at least two years during the
insured’s lifetime. The phrase "during the lifetime" found in Section 48 simply means that the
policy is no longer considered in force after the insured has died. The key phrase in the second
paragraph of Section 48 is "for a period of two years."

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The "incontestability clause" is a provision in law that after a policy of life insurance
made payable on the death of the insured shall have been in force during the lifetime of the
insured for a period of two (2) years from the date of its issue or of its last reinstatement, the
insurer cannot prove that the policy is void ab initio or is rescissible by reason of fraudulent
concealment or misrepresentation of the insured or his agent.

As borne by the records, the policy was issued on August 30, 1993, the insured died on
April 10, 1996, and the claim was denied on April 16, 1997. The insurance policy was thus in
force for a period of 3 years, 7 months, and 24 days. Considering that the insured died after the
two-year period, the plaintiff-appellant is, therefore, barred from proving that the policy is void
ab initio by reason of the insured’s fraudulent concealment or misrepresentation or want of
insurable interest on the part of the beneficiary, herein defendant-appellee.

PETITION DENIED

1. Insular Life Assurance v. Khu

GR No. 195276 April 18,2016

The date of last reinstatement mentioned in Section 48 of the Insurance Code pertains to
the date that the insurer approved' the application for reinstatement. However, in light of the
ambiguity in the insurance documents to this case, this Court adopts the interpretation favorable
to the insured in determining the date when the reinstatement was approved.

Facts:
Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular. Felipe
accomplished the required medical questionnaire wherein he did not declare any illness or
adverse medical condition. Insular Life thereafter issued him Policy Number A000015683 with a
face value of P1 million. This took effect on June 22, 1997.

Felipe's policy lapsed due to non-payment of the premium covering the period from June
22, 1999 to June 23, 2000.

On September 7, 1999, Felipe applied for the reinstatement of his policy. Insular Life
advised Felipe that his application for reinstatement may only be considered if he agreed to
certain conditions such as payment of additional premium and the cancellation of the riders
pertaining to premium waiver and accidental death benefits. Felipe agreed to these conditions
and paid the agreed additional premium on December 27, 1999. Insular Life issued Endorsement
No. PN-A000015683 reinstating the policy of Felipe.

On September 22, 2001, Felipe died.

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Paz Y. Khu, Felipe Y. Khu, Jr. .and Frederick Y. Khu (collectively, Felipe's beneficiaries
or respondents) filed with Insular Life a claim for benefit under the reinstated policy. This claim
was denied. Instead, Insular Life advised Felipe's beneficiaries that it had decided to rescind the
reinstated policy on the grounds of concealment and misrepresentation by Felipe. Hence,
respondents instituted a complaint for specific performance with damages.

In its Answer, Insular Life countered that Felipe did not disclose the ailments that he
already had prior to his application for reinstatement of his insurance policy; and that it would
not have reinstated the insurance policy had Felipe disclosed the material information on his
adverse health condition.

RTC ruled in favor of herein respondents and ordered Insular life to pay the beneficiaries. CA
dismissed the appeal of Insular life.

In praying for the reversal of the CA Decision, Insular Life basically argues that
respondents should not be allowed to recover on the reinstated insurance policy because the two-
year contestability period had not yet lapsed inasmuch as the insurance policy was reinstated
only on December 27, 1999, whereas Felipe died on September 22, 2001.

Respondents maintain that the insurance policy was reinstated effective June 22, 1999
and hence, the two-year contestability period had already lapsed.

Issue: Whether Felipe's reinstated life insurance policy is already incontestable at the time of his
death.

Ruling:
Yes. the reinstated policy is already incontestable. The insurance policy was reinstated
effective June 22, 1999 whereas Felipe died on September 22, 2001 and therefore, the two year
contestability period had already lapsed.

Sec 48, 2nd par of the IC provides that:

After a policy of life insurance made payable on the death of the insured
shall have been in force during the lifetime of the insured for a period of two
years from the date of its issue or of its last reinstatement, the insurer cannot
prove that the policy is void ab initio or is rescindible by reason of the
fraudulent concealment or misrepresentation of the insured or his agent.

Thus, it is settled that the reinstatement of an insurance policy should be reckoned from
the date when the same was approved by the insurer.

In this case, the parties differ as to when the reinstatement was actually approved. Insular
Life claims that it approved the reinstatement only on December 27, 1999. On the other hand,
respondents contend that it was on June 22, 1999 that the reinstatement took effect. The

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resolution of this issue hinges on the following documents: 1) Letter of Acceptance; and 2) the
Endorsement.

The Letter of Acceptance wherein Felipe affixed his signature was actually drafted and
prepared by Insular Life. This pro-forma document reads as follows:

LETTER OF ACCEPTANCE
Place: Cag. De Oro City
The Insular Life Assurance Co., Ltd.
P.O. Box 128, MANILA

Policy No. A000015683

Gentlemen:
Thru your Reinstatement Section, I/WE learned that this policy may be reinstated
provided I/we agree to the following condition/s indicated with a check mark:

[xx] Accept the imposition of an extra/additional extra premium of [P]5.00 a year per
thousand of insurance; effective June 22, 1999

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

After Felipe accomplished this form, Insular Life, through its Regional Administrative
Manager issued an Endorsement dated January 7, 2000. For emphasis, the Endorsement is again
quoted as follows:

ENDORSEMENT
PN-A000015683

This certifies that as agreed to by the Insured, the reinstatement of this policy has been
approved by the Company on the understanding that the following changes are made on
the policy effective June 22, 1999:

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Respondents argue that the phrase "effective June 22, 1999" found in both the Letter of
Acceptance and in the Endorsement is unclear whether it refers to the subject of the sentence,
i.e., the "reinstatement of this policy" or to the subsequent phrase "changes are made on the
policy;" that granting that there was any obscurity or ambiguity in the insurance policy, the same,
should be laid at the door of Insular Life as it was this insurance company that prepared the
necessary documents that make up the same.

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Based on the foregoing, we find that the CA did not commit any error in holding that the
subject insurance policy be considered as reinstated on June 22, 1999. This finding must be
upheld not only because it accords with the evidence, but also because this is favorable to the
insured who was not responsible for causing the ambiguity or obscurity in the insurance contract.
A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein
should be resolved against the insurer.

Indeed, more than two years had lapsed from the time the subject insurance policy was
reinstated on June 22, 1999 vis-a-vis Felipe’s death on September 22, 2001. As such, the subject
insurance policy has already become incontestable at the time of Felipe’s death.

policy effective June 22, 1999:

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Respondents argue that the phrase "effective June 22, 1999" found in both the Letter of
Acceptance and in the Endorsement is unclear whether it refers to the subject of the sentence,
i.e., the "reinstatement of this policy" or to the subsequent phrase "changes are made on the
policy;" that granting that there was any obscurity or ambiguity in the insurance policy, the same,
should be laid at the door of Insular Life as it was this insurance company that prepared the
necessary documents that make up the same.

Based on the foregoing, we find that the CA did not commit any error in holding that the
subject insurance policy be considered as reinstated on June 22, 1999. This finding must be
upheld not only because it accords with the evidence, but also because this is favorable to the
insured who was not responsible for causing the ambiguity or obscurity in the insurance contract.
A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein
should be resolved against the insurer. Indeed, more than two years had lapsed from the time the
subject insurance policy was reinstated on June 22, 1999 vis-a-vis Felipe’s death on September
22, 2001. As such, the subject insurance policy has already become incontestable at the time of
Felipe’s death.

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Sun Life of Canada (Philippines), Inc. vs. Sibya

G.R. No. 211212, June 08, 2016, REYES, J.

After the two-year period from the effectivity of a life insurance contract lapses, or when
the insured dies within said period, the insurer must make good on the policy, even though the
policy was obtained by fraud, concealment, or misrepresentation.

Facts:
Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun Life. In his
Application for Insurance, he indicated that he had sought advice for kidney problems. On
February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued Insurance Policy.

On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin,
Iloilo. As such, Ma. Daisy filed a Claimant's Statement with Sun Life to seek the death benefits
indicated in his insurance policy. Sun Life denied the claim on the ground that the details on Atty.
Jesus Jr.'s medical history were not disclosed in his application.

Sun Life filed a Complaint for Rescission before the RTC and prayed for judicial
confirmation of Atty. Jesus Jr.'s rescission of insurance policy. In its Complaint, Sun Life alleged
that Atty. Jesus Jr. did not disclose in his insurance application his previous medical treatment at
the National Kidney Transplant Institute in May and August of 1994. According to Sun Life, the
undisclosed fact suggested that the insured was in "renal failure" and at a high risk medical
condition. For their defense, the respondents claimed that Atty. Jesus Jr. did not commit
misrepresentation in his application for insurance. They averred that Atty. Jesus Jr. was in good
faith when he signed the insurance application and even authorized Sun Life to inquire further
into his medical history for verification purposes.

The RTC held that Atty. Jesus Jr. did not commit material concealment and
misrepresentation when he applied for life insurance and ordered Sun Life to pay the death
benefits. CA affirmed the decision of RTC.

ISSUE:

Whether or not the CA erred when it affirmed the RTC decision finding that there was no
concealment

or misrepresentation when Atty. Jesus Jr. submitted his insurance application with Sun Life.

RULING:

The petition has no merit.

In Manila Bankers Life Insurance Corporation v. Aban, the Court held:

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Section 48 serves a noble purpose, as it regulates the actions of both the insurer and
the insured. Under the provision, an insurer is given two years - from the effectivity
of a life insurance contract and while the insured is alive - to discover or prove that
the policy is void ab initio or is rescindible by reason of the fraudulent concealment
or misrepresentation of the insured or his agent. After the two-year period lapses, or
when the insured dies within the period, the insurer must make good on the policy,
even though the policy was obtained by fraud, concealment, or misrepresentation.

In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Upon the
death of Atty. Jesus Jr., however, on May 11, 2001, or a mere three months from the issuance of
the policy, Sun Life loses its right to rescind the policy. As discussed in Manila Bankers, the
death of the insured within the two-year period will render the right of the insurer to rescind the
policy nugatory. As such, the incontestability period will now set in.

Assuming, however, for the sake of argument, that the incontestability period has not yet
set in, the Court agrees that there is no concealment and misrepresentation. As correctly observed
by the CA, Atty. Jesus Jr. admitted in his application his medical treatment for kidney ailment.
Moreover, he executed an authorization in favor of Sun Life to conduct investigation in reference
with his medical history.

EXCEPTED PERIL

4. Alpha Insurance and Surety Co. v. Castor

704 SCRA 550, 2 September 2013

The burden to prove that the loss was caused by an excepted peril lies with the insurer.
The theft perpetrated by the driver of the insured is not an exception to the coverage. The policy
does not qualify as to who would commit the theft. Thus, even if the same is committed by the
driver of the insured, there being no categorical declaration of exception, the same must be
covered.

Facts: - Click here

6. Fortune Medicare, Inc. v. Amorin

G.R. No. 195872, March 12, 2014

For purposes of determining the liability of a health care provider to its members, a
health care agreement is in the nature of non-life insurance, which is primarily a contract of
indemnity. Once the member incurs hospital, medical or any other expense arising from sickness,
injury or other stipulated contingent, the health care provider must pay for the same to the extent
agreed upon under the contract. Limitations as to liability must be distinctly specified and

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clearly reflected in the extent of coverage which the company voluntary assume, otherwise, any
ambiguity arising therein shall be construed in favor of the member.

Facts:
David Robert Amorin was a cardholder/member of Fortune Medicare, Inc. (Fortune
Care). While on vacation in Hawaii, Amorin underwent an emergency surgery, specifically
appendectomy, at St. Francis Medical Center, causing him to incur professional and
hospitalization expenses of $7,242.35 and $1,777.79, respectively. He attempted to recover from
Fortune Care the full amount thereof upon his return to Manila, but the company merely
approved a reimbursement of P12, 151, an amount that was based on the average cost of
appendectomy if the procedure were performed in an accredited hospital in Metro Manila.
Amorin received the said amount under protest, but asked for its adjustment to cover the total
amount of professional fees which he had paid, and 80% of the approved standard charges based
on “American standard” considering that the emergency procedure occurred in the US. To
support his claim, Amorin cited Section 3, Art. V on Benefits and Coverages of the Health Care
Contract.

Fortune Care denied the request thereby prompting Amorin to file a complaint for breach
of contract with damages. For its part, Fortune Care argued that the Health Care Contract did not
cover hospitalization costs and professional fees incurred in foreign countries, as the contract’s
operation was confined to Philippine territory. The RTC dismissed Amorin’s complaint.
Dissatisfied, Amorin appealed the RTC decision to the CA. Subsequently, the CA rendered its
decision granting the appeal, thereby reversing and setting aside the trial court decision. Hence,
the appeal. Fortune Care argues that the phase “approved standard charges” did not automatically
mean “Philippine Standard”

Issue: Whether Fortune Care is liable to the member for the amount demanded by the latter.

Ruling:
Yes. For purposes of determining the liability of a health care provider to its members,
jurisprudence holds that a health care agreement is in the nature of non-life insurance, which is
primarily a contract of indemnity. Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent, the health care provider
must pay for the same to the extent agreed upon under the contract.

In the instant case, the extent of Fortune Care’s liability to Amorin under the attendant
circumstances was governed by Section 3(B), Article V of the subject Health Care Contract,
considering that the appendectomy which the member had to undergo qualified as an emergency
care, but the treatment was performed at St. Francis Medical Center in Honolulu, Hawaii,
U.S.A., a non-accredited hospital. We restate the pertinent portions of Section 3(B):
B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL
1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total
hospitalization cost including the professional fee (based on the total approved charges) to

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a member who receives emergency care in a non- accredited hospital. The above coverage
applies only to Emergency confinement within Philippine Territory. However, if the
emergency confinement occurs in foreign territory, Fortune Care will be obligated to
reimburse or pay eighty (80%) percent of the approved standard charges which shall
cover the hospitalization costs and professional fees.

The point of dispute now concerns the proper interpretation of the phrase “approved
standard charges”, which shall be the base for the allowable 80% benefit. The trial court ruled
that the phrase should be interpreted in light of the provisions of Section 3(A), i.e., to the extent
that may be allowed for treatments performed by accredited physicians in accredited hospitals.
As the appellate court however held, this must be interpreted in its literal sense, guided by the
rule that any ambiguity shall be strictly construed against Fortune Care, and liberally in favor of
Amorin.

As may be gleaned from the Health Care Contract, the parties thereto contemplated the
possibility of emergency care in a foreign country. As the contract recognized Fortune Care’s
liability for emergency treatments even in foreign territories, it expressly limited its liability only
insofar as the percentage of hospitalization and professional fees that must be paid or reimbursed
was concerned, pegged at a mere 80% of the approved standard charges.

In the absence of any qualifying word that clearly limited Fortune Care’s liability to costs
that are applicable in the Philippines, the amount payable by Fortune Care should not be limited
to the cost of treatment in the Philippines, as to do so would result in the clear disadvantage of its
member. If, as Fortune Care argued, the premium and other charges in the Health Care Contract
were merely computed on assumption and risk under Philippine cost and, that the American cost
standard or any foreign country’s cost was never considered, such limitations should have been
distinctly specified and clearly reflected in the extent of coverage which the company voluntarily
assumed.

PETITION DENIED

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Additional or other insurance clause

A clause in the policy that provides that the policy shall be void if the insured procures
additional insurance without the consent of the insurer (Pioneer Insurance and Surety Corp vs.
Yap, G.R. No. L-36232, December 19, 1974). The purpose thereof is to prevent over insurance
and to avert the possibility of perpetration of fraud. It is a warranty that entitles the insurer to
rescind in case of breach.

It is lawful and specifically allowed under Sec. 75 of the Insurance Code which provides
that “a policy may declare that a violation or a specified provision thereof shall avoid it,
otherwise the breach of an immaterial provision does not avoid it.”

Waiver of violation
When the insurer, with the knowledge of the existence of other insurances, which
the insurer deemed a violation of the contract, preferred to continue the policy, its action
amounted to a waiver of annulment of the contract (Perez, 2006 citing Gonzales Lao v.
Yek Tong Lin Fire & Marine Ins. Co., G.R. No. L-33131, December 13, 1930).

Double Insurance - Sec 95-96

Requisites:
1. The person insured is the same;
2. there are two or more insurers insuring separately
3. There is identity of subject matter
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.

There is no double insurance even though two policies were both issued over the same
subject matter and both covered the same peril insured against if the two policies were issued to
two different entities (Malayan Insurance Co. vs. Philippine First Insurance Co., G.R. No.
184300, July 11, 2012).

Q: is double insurance prohibited?

Double Insurance is not prohibited
It is not contrary to law and hence, in case of double insurance, the insurers may still be
made liable up to the extent of the value of the thing insured but not to exceed the amount of
the policies issued (Perez, 2006).

A provision in the policy that prohibits double insurance is valid. However, in the
absence of such prohibition, double insurance is allowed (ibid).

Nature of liability
In double insurance, the insurers are considered as co-insurers. Each one is bound to
contribute ratably to the loss in proportion to the amount for which he is liable under his

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contract. This is known as the “principle of contribution” or “contribution clause” (IC, Sec.
96 [e]).

Over insurance - Sec 83

There is overinsurance whenever the insured obtains a policy in an amount exceeding the
value of his insurable interest (Perez, 2006).

Q: How much may the insured claim if there is double insurance and over insurance?
A: When there is double insurance and over insurance results, the insured can claim
only up to the agreed valuation or up to the full insurable value from any, some or all
insurers, without prejudice to the insurers ratably apportioning the payments. Insured
can also recover before or after the loss, from both insurers the excess premium he has
paid (Sec 96)

Double Insurance vs. Over Insurance

Double Insurance Over Insurance

There may be no over insurance as when the sum When the amount of the insurance is beyond the
total of the amounts of the policies issued does value of the insured's insurable interest
not exceed the insurable interest of the insured

Two or more insurers There may be only one insurer, with whom the
insured takes insurance beyond the value of his
insurable interest

Sec 96 of the Insurance Code presupposes over insurance due to double insurance. Given that
there is no double insurance in this case, over insurance cannot exist. (Malayan Insurance Co.,
Inc. v. Philippine First Insurance Co. Inc. [2012]).

- In case of double insurance, the insured has the option to go after any one of the insurers
unless the policy itself provides that insurers contribute ratably to the loss. In either case, he
cannot recover more than the value of his insurable interest.

Q: What is the remedy of the insurer?

- In can case of over insurance due to double insurance, one of the insurers may require
the other insurers to contribute ratably to the loss, considering that they separately
insured the same interest against the same peril.
- The nature of the liability of several insurers in double insurance is that each insurer is
bound to contribute ratably to the loss in proportion to the amount for which he is
liable under his contract as provided for under Sec 96 (e) of the Insurance Code.

Reinsurance (97-100; 222-228)

It is a contract through which the insurer procures a third person to insure him against
loss or liability by reason of the original insurance. Reinsurance is relevant as it protects the

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original insurer against large claims, and it increases his capacity to pay the claim that may arise
from the first insurance

The original contract of insurance and the contract of reinsurance are separate and
distinct from each other and are covered by separate policies.

Double insurance vs Reinsurance

Double Insurance Reinsurance

There is double insurance when the insured In reinsurance, the insurer obtains a second
procures two or more insurance policies involving insurance to protect himself from a risk that he
the same risk and the same interest. may be held liable under the first insurance

Double insurance involves the same interest over Reinsurance contemplates different interests as
a property the subject in the latter is the original insurer's risk

In double insurance, the insurer remains in such In reinsurance, the insurer becomes the insured in
capacity, while the insured in the first contract is a relation to the reinsurer, while the original insured
party-in-interest in the second contract so that he for which reason his consent therein is not
must give his consent thereto. necessary.

Bancassurance - Sec 375

Geagonia [Link]
241 SCRA 152

Since the insurable interests of a mortgagor and a mortgagee on the mortgaged property
are distinct and separate; the two policies of the PFIC do not cover the same interest as that
covered by the policy of the private respondent, no double insurance exists. The mortgagor's
insurable interest covers the full value of the mortgaged property, even though the mortgage debt
is equivalent to the full value of the property. The mortgagee's insurable interest is to the extent
of the debt, since the property is relied upon as security thereof, and in insuring he is not
insuring the property but his interest or lien thereon.

Facts:
Geagonia, owner of Norman's Mart located in the public market of San Francisco,
Agusan del Sur, obtained from the private respondent fire insurance policy for P100,000.00. The
policy noted the requirement on the policy: 3. The insured shall give notice to the Company of
any insurance or insurances already affected, or which may subsequently be effected, covering
any of the property or properties consisting of stocks in trade, goods in process and/or
inventories only hereby insured, and unless such notice be given and the particulars of such
insurance or insurances be stated therein or endorsed in this policy pursuant to Section 50 of the
Insurance Code, by or on behalf of the Company before the occurrence of any loss or damage, all
benefits under this policy shall be deemed forfeited, provided however, that this condition shall

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not apply when the total insurance or insurances in force at the time of the loss or damage is not
more than P200,000.00.

When the petitioners’ stock were destroyed by fire, He filed a claim with the insurer
which was denied due to the alleged violation of the policy for being covered by two other fire
insurance policies issued by Philippines First Insurance Co., Inc. (PFIC). He then filed a
complaint. The Insurance Commission found that petitioner did not violate the said provision as
he had no knowledge of the existence of the other two policies and that it was Cebu Texting Tiles
which procured the PFIC policies without informing the petitioner and that Cebu Texting Tiles,
as his creditor, had insurable interest on the stocks. These findings were based on the petitioner's
testimony that he came to know of the PFIC policies only when he filed his claim with the
private respondent and that Cebu Texting Tiles obtained them and paid for their premiums
without informing him thereof. The Insurance Commission held in favor of petitioner but the CA
reversed it because it found that the petitioner knew of the existence of the two other policies
issued by the PFIC.

Issue: Whether or not Petitioner is precluded from recovering therefrom since there are multiple
interests on same property.

Ruling:
No. Condition 3 of the private respondent's Policy is a condition which is not proscribed
by law. Its incorporation in the policy is allowed by Section 75 of the Insurance Code which
provides that "[a] policy may declare that a violation of specified provisions thereof shall avoid
it, otherwise the breach of an immaterial provision does not avoid the policy." Such a condition
is a provision which invariably appears in fire insurance policies and is intended to prevent an
increase in the moral hazard. It is commonly known as the additional or "other insurance" clause
and has been upheld as valid and as a warranty that no other insurance exists. Its violation would
thus avoid the policy. However, in order to constitute a violation, the other insurance must be
upon same subject matter, the same interest therein, and the same risk.

As to a mortgaged property, the mortgagor and the mortgagee have each an independent
insurable interest therein and both interests may be one policy, or each may take out a separate
policy covering his interest, either at the same or at separate times. The mortgagor's insurable
interest covers the full value of the mortgaged property, even though the mortgage debt is
equivalent to the full value of the property. The mortgagee's insurable interest is to the extent of
the debt, since the property is relied upon as security thereof, and in insuring he is not insuring
the property but his interest or lien thereon.

Since the insurable interests of a mortgagor and a mortgagee on the mortgaged property
are distinct and separate; the two policies of the PFIC do not cover the same interest as that
covered by the policy of the private respondent, no double insurance exists. The non-disclosure
then of the former policies was not fatal to the petitioner's right to recover on the private
respondent's policy.

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XI. Loss(85-94) and Claims Settlement (247-251)

The insurer is liable for:

a. Loss the proximate cause of which is the peril insured against (Sec 86)
b. Loss the immediate cause of which is the peril insured against except where proximate cause
is an excepted peril;
c. loss through negligence of insured except where there was gross negligence amounting to
willful act; and
d. Loss by efforts to rescue the thing from peril insured against – if during the course of rescue,
the thing is exposed to a peril not insured against, which permanently deprived the insured of
its possession, in whole or in part (Sec 87)

The insurer is not liable for:

a. Loss by insured's willful act or gross negligence (Sec 89)
b. Loss due to connivance of the insured (Sec 89)
c. Loss where the excepted peril is the proximate cause. (Sec 88)

b. Notice and Proof of Loss (Sec 90-94)

c. Guidelines on Claims Settlement

Subrogation:
Subrogation is the substitution of one person in the place of another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation
to a debt or claim, including its remedies or securities. (Loadmaster Customs Services Inc. v.
Gloderl Brokerage Corp [2011]).

The right of subrogation attaches upon payment by the insurer of the insurance claims of
the assured. As subrogee, the insurer steps into the shoes of the assured and may exercise only
those rights that the assured may have against the wrongdoer who cause the damage. (Aboitiz
Shipping Corporation v. Insurance Company of North America [2008]).

Payment by the insurer to the assured operates as an equitable assignment of all

remedies the assured may have against the third party who cause the damage. Subrogation is not
dependent upon, nor does it grow out of, any privity of contract or upon written assignment of
claim. It accrues simply upon payment of the insurance claim by the insurer. (Malayan Insurance
Corporation v. CA [1990]).

The right of subrogation springs from Article 2207 of the Civil Code:
If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who

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has violated the contract. If the amount paid by the insurance company does
not fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury.

Note: When the insurer pays the insured for a loss excepted from the policy, there is no
subrogation (Loadstar Shipping Company, Inc. v. Malayan Insurance Company, 742 SCRA 627).

GR: As a rule, the non-presentation of the policy is fatal to the subrogee's cause. This rule was
applied in Home Insurance Corporation v. CA [1993], where the shipment (hydraulic
engines) passed through several stages and with different parties involved in each stage;
and in Wallem Philippines, Inc. v. Prudential Guarantee & Assurance [2003], where the
insurance contract was necessary to determine the extent of the coverage.
XPN: The presentation in evidence of marine insurance policy is not indispensable before the
insurer may recover from the common carrier the insured value of the lost cargo in the
exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish
not only the relationship of the insurer and the assured shipper, but also the amount paid to
settle the insurance claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim. (Asian Terminals, Inc. v. Malayang Insurance
Co., Inc. [2011]).

Period of Prescription:
As the action arises from a written contract, it prescribes in 10 years (Article 1144 CC).
The parties, however, may validly stipulate on a shorter period provided it is not les than 1 year
from the time the cause of action accrues.

The prescriptive period commence to run from the final reject of the claim.

The pendency of the motion for reconsideration does not toll the running thereof.
Otherwise, this can be used by the insured as a scheme or devise to waste time until the evidence
which may be used against him is destroyed. (Sun Insurance Office Ltd. vs. CA [1991])

Cases:
[Link] Insurance Co., Inc. vs. Pamana Island Resort Hotel
G.R. No. 174838, June 01, 2016

Given the provisions of the Insurance Code, which is a special law, the applicable rate of
interest shall be that imposed in a loan or forbearance of money as imposed by the Bangko
Sentral ng Pilipinas (BSP), even irrespective of the nature of insurer's liability. In the past years,
this rate was at 12% per annum. However, in light of Circular No. 799 issued by the BSP on June
21, 2013 decreasing interest on loans or forbearance of money, the CA's declared rate of 12%
per annum shall be reduced to 6% per annum from the time of the circular's effectivity on July 1,
2013. The Court explained in Nacar v. Gallery Frames that the new rate imposed under the
circular could only be applied prospectively, and not retroactively.

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Facts:
The case stems from an action for sum of money filed by Pamana Island Resort Hotel and
Marina Club, Inc. (Pamana) and Flowtech Construction Corporation (Flowtech) against
Stronghold on the basis of a Contractor's All Risk Bond of P9,047,960.14 obtained by Flowtech
in relation to the construction of Pamana's project in Pamana Island, Subic Bay. On January 27,
1992, a fire in the project burned down cottages being built by Flowtech, resulting in losses to
Pamana.

The Regional Trial Court (RTC) of Makati City, Branch 135 declared Stronghold liable
for the claim. Besides the award of insurance proceeds, exemplary damages and attorney's fees,
the trial court ordered the payment of interest at double the applicable rate, following Section
243 of the Insurance Code which Stronghold was declared to have violated , and reads:

Sec. 243. xxxxxx Refusal or failure to pay the loss or damage within the time
prescribed herein will entitle the assured to collect interest on the proceeds of the
policy for the duration of the delay at the rate of twice the ceiling prescribed by the
Monetary Board, unless such failure or refusal to pay is based on the ground that the
claim is fraudulent.

Stronghold's appeal seeking the reversal of the RTC judgment was denied by the CA and
thereafter, by the SC. On March 4, 2005, Flowtech filed with the RTC a motion for execution,
which was granted.

A Writ of Execution was issued on May 12, 2005. Thereafter, Stronghold filed an Urgent
Motion to Suspend Execution contending that the interest penalty being demanded from it
through the Sheriff was unconscionable and iniquitous.

The RTC rendered its Order granting Stronghold's motion and reducing substantially the
interest due from Stronghold. CA reversed the order of RTC explaining that the decision in the
original case has become final and executory, and thus immutable and unalterable.

Issue: Whether CA erred in reversing the RTC’s order of reduction of interest.

Ruling:
The Court denies the petition. As correctly pointed out by the CA, the RTC's order to
implement carried substantial changes in a judgment that had become final and executory.
Instead of "double the rate of interest [on the proceeds of insurance] from the date of demand
until fully paid," the RTC's computation for purposes of execution was limited to an interest rate
of 6% per annum, resulting in a double rate of only 12% per annum, to be reckoned from the
date of the trial court's judgment until it became final and executory.

While exceptions to the rule on immutability of final judgments are applied in some
cases, these are limited to the following instances: (1) the correction of clerical errors; (2) the so-

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called nunc pro tuncentries which cause no prejudice to any party; and (3) void judgments. None
of these exceptions attend Stronghold's case.

Applicable Rate of Interest

A disagreement, however, concerns the question of whether an interest rate of 6% or 12%
per annum should apply in the computation, as this subject was not specifically defined in the
RTC judgment in the main case. The RTC, in the Order dated November 22, 2005, pegged the
interest rate at 6% per annum by explaining that Stronghold's obligation did not equate to a loan
or forbearance of money.

On the other hand, the CA explained that the double rate should be based on 12% per
annum, as the Insurance Code pertained to a rate "twice the ceiling prescribed by the Monetary
Board" and thus could only refer to the rate applicable to obligations constituting a loan or
forbearance of money.

The Court agrees with the CA that given the provisions of the Insurance Code, which is a
special law, the applicable rate of interest shall be that imposed in a loan or forbearance of
money as imposed by the Bangko Sentral ng Pilipinas (BSP), even irrespective of the nature of
Stronghold's liability. In the past years, this rate was at 12% per annum. However, in light of
Circular No. 799 issued by the BSP on June 21, 2013 decreasing interest on loans or forbearance
of money, the CA's declared rate of 12% per annum shall be reduced to 6% per annum from the
time of the circular's effectivity on July 1, 2013. The Court explained in Nacar v. Gallery Frames
that the new rate imposed under the circular could only be applied prospectively, and not
retroactively.

2. Pioneer Insurance And Surety Corporation v. APL Co. Pte. Ltd.

G.R. No. 226345, August 02, 2017
Parties:
1. Shipper - Chillies Export House Ltd. (Shipper)
2. Common Carrier - APL Co Pte. Ltd (APL)
3. Consignee - BSFIL Technologies, Inc. (BSFIL)
4. Insurance company - Pioneer Insurance and Surety Corporation (pioneer)

Facts:
Shipper turned over to APL 250 bags of chili pepper worth $12,272.50 for transport from
Chennai, India to Manila. BSFIL in turn insured the cargo with Pioneer.

Clause 8 of the Bill of Lading provides that the carrier shall be absolved from any
liability unless a case is filed within nine (9) months after the delivery of the goods.

On February 2, 2012, the shipment arrived at the port of Manila and was temporarily
stored at North Harbor, Manila. On February 6, 2012, the bags of chili were withdrawn and

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delivered to BSFIL. Upon receipt thereof, it discovered that 76 bags were wet and heavily
infested with molds. The shipment was declared unfit for human consumption and was
eventually declared as a total loss.

BSFIL made a formal claim against APL and Pioneer Insurance. Pioneer Insurance paid
BSFIL P195,505.65 after evaluating the claim. Having been subrogated to all the rights and
cause of action of BSFIL, Pioneer Insurance sought payment from APL, but the latter refused.

Feb 1, 2013 - This prompted Pioneer Insurance to file a complaint for sum of money against APL

MTC - ordered APL to pay Pioneer

RTC - Affirmed the ruling of MTC
CA - reversed the ruling of MTC and RTC because the present action was barred by prescription.
It noted that under Clause 8 of the Bill of Lading, the carrier shall be absolved from any liability
unless a case is filed within nine (9) months after the delivery of the goods. It explained that a
shorter prescriptive period may be stipulated upon, provided it is reasonable applying the case
Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc. (Philippine American)
[1992].

Argument of Pioneer : the nine-month period provided under the Bill of Lading was inapplicable
because the Bill of Lading itself states that in the event that such time period is found to be
contrary to any law compulsorily applicable, then the period prescribed by such law shall then
apply.

Issue: Whether the present action is barred by prescription

Ruling:
No. It is true that in Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc.
(Philippine American), 14 the Court recognized that stipulated prescriptive periods shorter than
their statutory counterparts are generally valid because they do not affect the liability of the
carrier but merely affects the shipperÊs remedy. The CA, nevertheless, erred in applying
Philippine American in the case at bench as it does not fall squarely with the present
circumstances.

The cardinal rule in the interpretation of contracts is embodied in the first paragraph of
Article 1370 of the Civil Code: „[i]f the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall control.

After a closer perusal of the Bill of Lading, the Court finds that its provisions are clear
and unequivocal leaving no room for interpretation.

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In the Bill of Lading, it was categorically stated that the carrier shall in any event be
discharged from all liability whatsoever in respect of the goods, unless suit is brought in the
proper forum within nine (9) months after delivery of the goods or the date when they should
have been delivered. The same, however, is qualified in that when the said nine-month period is
contrary to any law compulsory applicable, the period prescribed by the said law shall apply.

The present case involves lost or damaged cargo. It has long been settled that in case of
loss or damage of cargoes, the one-year prescriptive period under the COGSA applies.

A reading of the Bill of Lading between the parties reveals that the nine-month
prescriptive period is not applicable in all actions or claims. As an exception, the nine-month
period is inapplicable when there is a different period provided by a law for a particular claim or
action · unlike in Philippine American where the Bill of Lading stipulated a prescriptive period
for actions without exceptions. Thus, it is readily apparent that the exception under the Bill of
Lading became operative because there was a compulsory law applicable which provides for a
different prescriptive period. Hence, strictly applying the terms of the Bill of Lading, the one-
year prescriptive period under the COGSA should govern because the present case involves loss
of goods or cargo. In finding so, the Court does not construe the Bill of Lading any further but
merely applies its terms according to its plain and literal meaning.

PETITION GRANTED - MTC and RTC ruling reinstated.

3. Alpha Insurance and Surety Co. v. Castor

2 September 2013
Facts: - Click here

4. Prudential Guarantee and Assurance Inc. vs. Trans-Asia Shipping Lines, Inc
GR No. 151890, June 20, 2006

Facts:
Trans Asia is the owner of M/V Asia Korea. Prudential Guarantee and Assurance Inc.
insured the vessel for loss and damage of the hull and machinery arising from perils of fire and
explosion beginning July 1,1993 until July 1,1994. October 25,1993 a fire broke out. Trans Asia
filed its notice of claim for damages sustained by the vessel. It also reserved its right to
subsequently notify Prudential as to the full amount of the claim upon final survey and
determination by the average adjuster Richard Hogg International of the damage sustained by
reason of the fire.

Trans Asia executed a document denominated “Loan and Trust Receipt” amounting to
P3,000. Prudential Guarantee denied the claim and requested for the return of the said amount,

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they contend that there was a breach in the policy condition ; specifically the Warranted Vessel
Classed and Class Maintained.

Trial Court held that Trans Asia failed to prove its compliance with the terms of the
warranty and that the concealment made by Trans Asia is sufficient to avoid the policy.
Prudential Guarantee is entitled to rescind the contract.

Court of Appeals reversed the decision as it contended that Prudential had the burden to
show that there was a breach in the warranty and it had failed to do so. The appellate court
considered Prudential’s admission that at the time the insurance contract was entered into, the
vessel was classed by the Bureau Veritas, a classification society recognized by the industry. It
further contended that the then subject warranty was in a form of a rider, hence such contract
should be construed against Prudential Guarantee. It also construed the transaction between both
parties as one of subrogation instead of a loan.

Issue: Whether or not there was a breach in the warranty

Ruling:
NO. As found by the Court of Appeals and as supported by the records, Bureau Veritas is
a classification society recognized in the marine industry. As it is undisputed that TRANS-ASIA
was properly classed at the time the contract of insurance was entered into, thus, it becomes
incumbent upon PRUDENTIAL to show evidence that the status of TRANS-ASIA as being
properly CLASSED by Bureau Veritas had shifted in violation of the warranty. Unfortunately,
PRUDENTIAL failed to support the allegation.

The lack of a certification in PRUDENTIAL’s records to the effect that TRANS-ASIA’s

"M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at the time of the occurrence of
the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact breached the warranty
contained in the policy.

It was likewise the responsibility of the average adjuster, Richards Hogg International
(Phils.), Inc., to secure a copy of such certification, and the alleged breach of TRANS-ASIA
cannot be gleaned from the average adjuster’s survey report, or adjustment of particular average
per "M/V Asia Korea" of the 25 October 1993 fire on board.

The Supreme Court are not unmindful of the clear language of Sec. 74 of the Insurance
Code which provides that, "the violation of a material warranty, or other material provision of a
policy on the part of either party thereto, entitles the other to rescind." It is generally accepted
that "[a] warranty is a statement or promise set forth in the policy, or by reference incorporated
therein, the untruth or non-fulfillment of which in any respect, and without reference to whether
the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable
by the insurer.”

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However, it is similarly indubitable that for the breach of a warranty to avoid a policy, the
same must be duly shown by the party alleging the same. We cannot sustain an allegation that is
unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the
warranty condition, CLASSED AND CLASS MAINTAINED, it remains that TRANS-ASIA
must be allowed to recover its rightful claims on the policy.

Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED

VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the
same.

Prudential can be deemed to have made a valid waiver of Trans Asia’s breach of
warranty, because after the loss it had renewed the insurance policy for two consecutive years.
Such renewal is deemed a waiver of any breach of warranty. Breach of a warranty or of a
condition renders the contract defeasible at the option of the insurer; but if he so elects, he may
waive his privilege and power to rescind by the mere expression of an intention so to do. In that
event his liability under the policy continues as before. There can be no clearer intention of the
waiver of the alleged breach than the renewal of the policy insurance granted by PRUDENTIAL
to TRANS-ASIA in MH94/1595 and MH95/1788, issued in the years 1994 and 1995,
respectively

5. New World Int'l Development Phils., Inc. vs. NYK-FILJAPAN Shipping Corp.
GR No. 171468, August 24, 2011

Facts:
New World International Development (Phils.) Inc. (New World) bought 3 emergency
generator sets worth $721,500.00 from DMT Corporation (DMT) through its agent, Advatech
Industries Inc. (Advatech). New world Insured the same with Seaboard-Eastern Insurance
Company (Seaboard).

The generator sets were shipped from United States to Hongkong and supposedly be
delivered by NYK Fil-Japan Shipping Corporation (NYK) (the common carrier) to Philippines.
However, during its transit, it encountered typhoon Kadiang so the captain filed a sea protest on
arrival at the Manila South Harbor on Oct 5, 1993 respecting the loss and damage that the goods
on board his vessel suffered.

The shipment was found to be irreparable because of the extensive damage it suffered, so
New World filed a claim against DMT, Advatech, NYK and Seaboard, etc.

NYK denied its liability by claiming that the loss was due to a fortuitous event. Seaboard
on the other hand required New world an itemized list of the damage units and their
corresponding value. But New World did not submit what was required of it, insisting that the
insurance policy did not include the submission of such a list in connection with an insurance

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claim. Reacting to this, Seaboard refused to process the claim. Thus, on October 11, 1994, New
World filed an action for specific performance against Seaboard and claim for damages against
NYK.

RTC ruled that Seaboard cannot be faulted for denying the claim against it since New
World refused to submit the itemized list that Seaboard needed for assessing the damage to the
shipment. Likewise, the belated filing of the complaint prejudiced Seaboard’s right to pursue a
claim against NYK in the event of subrogation. It absolved NYK from liability since the claim
was not filed the 1 year prescriptive period as provided by Carriage of Goods by Sea Act.

CA affirmed RTC's ruling except with respect to Seaboard's liability. It ruled that the
submission of the itemized list is an unreasonable imposition and that that the one-year
prescriptive period under the COGSA did not affect New World’s right under the insurance
policy since it was the Insurance Code that governed the relation between the insurer and the
insured. However, CA completely changed its mind upon the MR of Seaboard, ruling that the
submission of the said list is reasonable and that the one-year prescriptive period for maritime
claims applied to Seaboard, as insurer and subrogee of New World’s right against the vessel
owner.

Hence, this petition by New world.

Issue:
1)Whether or not NYK (Common Carrier) should be held liable for the loss
2)Whether or not Seaboard is liable for the loss in this case

Ruling:
1) No. while it true that the generator sets were totally damaged during the typhoon which
beset the vessel’s voyage from Hong Kong to Manila and that it was her negligence in continuing
with that journey despite the adverse condition which caused petitioner New World’s loss, the
claim was not filed within the prescriptive period provided by COGSA thereby completely
releasing and absolving NYK from liability

2) Yes. The marine open policy that Seaboard issued to New World was an all-risk policy.
Such a policy insured against all causes of conceivable loss or damage except when otherwise
excluded or when the loss or damage was due to fraud or intentional misconduct committed by
the insured. The policy covered all losses during the voyage whether or not arising from a marine
peril. Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice,
delay in voyage, or vessels unseaworthiness, among others. But Seaboard had been unable to
show that petitioner New World’s loss or damage fell within some or one of the enumerated
exceptions.

Moreover, Seaboard made an inspection of the goods and should have determined
whether the claim of New World is genuine. It should have examined the same, found it

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unsubstantiated by documents if that was the case, and formally rejected it but it failed to do so
to the prejudice of New World.

The record shows that petitioner New World filed its formal claim for its loss with
Seaboard, its insurer, a remedy it had the right to take, as early as November 16, 1993 or about
11 months before the suit against NYK would have fallen due. The Court also ruled that the
submission of itemized list is an unreasonable demand because the policy does not require for it.

Ultimately, the fault for the delayed court suit could be brought to Seaboard’s doorstep.

Section 241 of the Insurance Code provides that no insurance company doing business in
the Philippines shall refuse without just cause to pay or settle claims arising under coverages
provided by its policies. And, under Section 243, the insurer has 30 days after proof of loss is
received and ascertainment of the loss or damage within which to pay the claim. If such
ascertainment is not had within 60 days from receipt of evidence of loss, the insurer has 90 days
to pay or settle the claim. And, in case the insurer refuses or fails to pay within the prescribed
time, the insured shall be entitled to interest on the proceeds of the policy for the duration of
delay at the rate of twice the ceiling prescribed by the Monetary Board.

Notably, Seaboard already incurred delay when it failed to settle petitioner New World’s
claim as Section 243 required. Under Section 244, a prima facie evidence of unreasonable delay
in payment of the claim is created by the failure of the insurer to pay the claim within the time
fixed in Section 243.

Consequently, Seaboard should pay interest on the proceeds of the policy for the duration
of the delay until the claim is fully satisfied at the rate of twice the ceiling prescribed by the
Monetary Board. The term “ceiling prescribed by the Monetary Board” means the legal rate of
interest of 12% per annum provided in Central Bank Circular 416, pursuant to Presidential
Decree 116. Section 244 of the Insurance Code also provides for an award of attorney’s fees and
other expenses incurred by the assured due to the unreasonable withholding of payment of his
claim.

6. Sun Insurance Office Ltd. vs. CA

195 SCRA 193

The cause of action in an insurance contract does not accrue until the insured's claim is
finally rejected by the insurer. But rejection referred to should be construed as the rejection, in
the first instance and not rejection of a petition for reconsideration. To uphold the latter view will
runs counter to the declared purpose for requiting that an action or suit be filed in the Insurance
Commission or in a court of competent jurisdiction from the denial of the claim.

Facts:

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Emilio Tan took from Sun Insurance a property insurance policy to cover his interest in
the electrical supply store of his brother housed in a building. Four (4) days after the issuance of
the policy, the building was burned including the insured store. Tan filed his claim for fire loss
with petitioner, but on February 29, 1984, petitioner denied his claim. Tan wrote petitioner,
seeking reconsideration of the denial of his claim but petitioner answered on October 11, 1985,
advising that the Insurer's denial of claim remained unchanged.

On November 20, 1985, Tan filed Civil Case with the RTC but petitioner filed a motion
to dismiss on the alleged ground that the action had already prescribed. The said motion was
denied which was thereafter affirmed by the CA. Hence, the instant petition. The contention of
Sun Life Insurance is that the complaint of Emilio Tan was filed beyond the one year prescriptive
period counting from the denial of his claim on February 29, 1984 and not from the denial of his
motion for reconsideration.

Issue: Whether or not the filing of a motion for reconsideration interrupts the one year
prescriptive period to contest the denial of the insurance claim.

Ruling:
No. The right of the insured to the payment of his loss accrues from the happening of the
loss. However, the cause of action in an insurance contract does not accrue until the insured's
claim is finally rejected by the insurer. This is because before such final rejection there is no real
necessity for bringing suit. But rejection referred to should be construed as the rejection, in the
first instance, for if what is being referred to is a reiterated rejection conveyed in a resolution of a
petition for reconsideration, such should have been expressly stipulated.

The contention of the respondents that the one-year prescriptive period does not start to
run until the petition for reconsideration had been resolved by the insurer, runs counter to the
declared purpose for requiting that an action or suit be filed in the Insurance Commission or in a
court of competent jurisdiction from the denial of the claim. To uphold respondents' contention
would contradict and defeat the very principle which this Court had laid down. Therefore, the
final rejection cannot be taken to mean the rejection of a petition for reconsideration as insisted
by Emilio Tan instead, it should be the rejection in the first instance as in this case, on February
29, 1984.

7. Panlilio v. Cosio
97 Phil 919

Facts:
On December 18, 1951, Palileo obtained from Cosio a loan in the sum of P12,000 subject
to the following conditions:
(a) Palileo shall pay to defendant an interest in the amount of P250 a month;

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(b) that Cosio shall deduct from the loan certain obligations of Palileo to third persons
amounting to P4,550, plus the sum of P250 as interest for the first month; and
(c) that after making the above deductions, defendant shall deliver to Palileo only the
balance of the loan of P12,000.

Pursuant to their agreement, Palileo paid to Cosio as interest on the loan a total of
P2,250.00 corresponding to nine months from December 18, 1951, on the basis of P250.00 a
month, which is more than the maximum interest authorized by law. To secure the payment of
the aforesaid loan, Cosio required Palileo to sign a document known as "Conditional Sale of
Residential Building", purporting to convey to Cosio, with right to repurchase, a two-story
building of strong materials belonging to plaintiff. This document did not express the true
intention of the parties which was merely to place said property as security for the payment of
the loan.

After execution, Cosio insured the building against fire for P15,000. The building was
then partly destroyed and thus, Cosio collected P13,107.00 from AISCO

Cherie Palileo filed a complaint against Beatriz Cosio praying that their transaction be
declared as loan and the document executed covering it to be as equitable mortgage. Palileo also
prayed that Cosio be ordered to credit to Palileo the amount received by Cosio to Associated
Insurance & Surety Co., Inc. as payment of the alleged loan.

In Cosio’s defense, she contended that the transaction is a sale with option to repurchase
but Palileo failed to exercise it. Thus, ownership was consolidated in Cosio’s name.

On 7 April1953, the case was set for trial, but was postponed and was finally set on 12
January 1954. The defendant and her counsel did not appear on the said date despite notice sent a
month before the trial. Thus, on January 18, the court rendered judgment holding that the
insurance proceeds collected by Cosio be applied to Palileo’s debt to Cosio and the excess
thereof to be refunded to Palileo.

On 2 February 1954, the counsel for defendant was substituted and the new counsel
immediately moved for the judgment to be set aside due to mistake and excusable negligence
resulting in Cosio’s failure to present evidence. The motion was denied. Hence, the present
appeal.

Issue: Whether or not the lower court erred in considering the obligation of Palileo fully
compensated by the insurance amount and in ordering Cosio to refund to Palileo the excess of
the insurance amount less the loan owed by Palileo

Ruling:
YES. Lower court’s ruling runs counter to the rule governing an insurance taken by a
mortgagee independently of the mortgagor.

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The rule is that "where a mortgagee, independently of the mortgagor, insures the
mortgaged property in his own name and for his own interest, he is entitled to the insurance
proceeds in case of loss, but in such case, he is not allowed to retain his claim against the
mortgagor, but is passed by subrogation to the insurer to the extent of the money paid."

"If a mortgagee procures insurance on his separate interest at his own expense and for his
own benefit, without any agreement with the mortgagor with respect thereto, the mortgagor has
no interest in the policy, and is not entitled to have the insurance proceeds applied in reduction of
the mortgage debt". Further, the mortgagee "has still a right to recover his whole debt of the
mortgagor."

Considering the foregoing rules, it would appear that the lower court erred in declaring
that the proceeds of the insurance taken out by the defendant on the property mortgaged inured to
the benefit of the plaintiff and in ordering said defendant to deliver to the plaintiff the difference
between her indebtedness and the amount of insurance received by the defendant, for, in the light
of the majority rule we have above enunciated, the correct solution should be that the proceeds of
the insurance should be delivered to the defendant but that her claim against the plaintiff should
be considered assigned to the insurance company who is deemed subrogated to the rights of the
defendant to the extent of the money paid as indemnity.

8. Loadmaster Customs Services Inc. v. Gloderl Brokerage Corp

GR No. , January 10, 2011

Facts:

On August 28, 2001, R&B Insurance issued a Marine Policy in favor of Columbia to
insure the shipment of 132 bundles of electric copper cathodes against All Risks. On August 28,
2001, the cargoes were shipped on board the vessel Richard Rey from Isabela, Leyte, to Pier 10,
North Harbor, Manila. They arrived on the same date.



Columbia engaged the services of Glodel for the release and withdrawal of the cargoes
from the pier and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the
services of Loadmasters for the use of its delivery trucks to transport the cargoes to Columbias
warehouses/plants in Bulacan and Valenzuela City.



The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its
employed drivers and accompanied by its employed truck helpers. Six (6) truckloads of copper
cathodes were to be delivered to Balagtas, Bulacan, while the other six (6) truckloads were
destined for Lawang Bato, Valenzuela City. The cargoes in six truckloads for Lawang Bato were
duly delivered in Columbias warehouses there. Of the six (6) trucks en route to Balagtas,
Bulacan, however, only five (5) reached the destination. One (1) truck, loaded with 11 bundles or
232 pieces of copper cathodes, failed to deliver its cargo.




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Later on, the said truck was recovered but without the copper cathodes. Because of this
incident, Columbia filed with R&B Insurance a claim for insurance indemnity in the amount of
P1,903,335.39. After the requisite investigation and adjustment, R&B Insurance paid Columbia
the amount of P1,896,789.62 as insurance indemnity.



R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and
Glodel before the Regional Trial Court of Manila (RTC). It sought reimbursement of the amount
it had paid to Columbia for the loss of the subject cargo. It claimed that it had been subrogated to
the right of the consignee to recover from the party/parties who may be held legally liable for the
loss. RTC rendered a decision holding Glodel liable for damages for the loss of the subject cargo
and dismissing Loadmasters counterclaim for damages and attorneys fees against R&B
Insurance.

Both R&B Insurance and Glodel appealed the RTC decision to the CA. The CA rendered
the appeal is PARTLY GRANTED in that the appellee Loadmasters is likewise held liable to
appellant Glodel in the amount of P1,896,789.62 representing the insurance indemnity appellant
Glodel has been held liable to appellant R&B Insurance Corporation.

Issues:
1. Does R&B Insurance has the right to seek reimbursement from either Loadmasters or Glodel
or both for breach of contract and/or tort?
2. Under the set of facts established and undisputed in the case, can petitioner Loadmasters be
legally considered as an Agent of respondent Glodel?
3. What then is the extent of the respective liabilities of Loadmasters and Glodel?
4. Can Petitioner Loadmasters be held liable to Respondent Glodel in spite of the fact that the
latter respondent Glodel did not file a cross-claim against it (Loadmasters)?

ARGUMENTS

Loadmasters argues that it cannot be considered an agent of Glodel because it never represented
the latter in its dealings with the consignee. At any rate, it further contends that Glodel has no
recourse against it for its (Glodels) failure to file a cross-claim pursuant to Section 2, Rule 9 of
the 1997 Rules of Civil Procedure.



Glodel counters that Loadmasters is liable to it under its cross-claim because the latter was
grossly negligent in the transportation of the subject cargo. With respect to Loadmasters claim
that it is already estopped from filing a cross-claim, Glodel insists that it can still do so even for
the first time on appeal because there is no rule that provides otherwise. Finally, Glodel argues
that its relationship with Loadmasters is that of Charter wherein the transporter (Loadmasters) is
only hired for the specific job of delivering the merchandise. Thus, the diligence required in this
case is merely ordinary diligence or that of a good father of the family, not the extraordinary
diligence required of common carriers.



R&B Insurance claims that Glodel is deemed to have interposed a cross-claim against

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Loadmasters because it was not prevented from presenting evidence to prove its position even
without amending its Answer. As to the relationship between Loadmasters and Glodel, it
contends that a contract of agency existed between the two corporations.



Ruling:
1. YES. As subrogee of the rights and interest of the consignee, R&B Insurance has the
right to seek reimbursement from either Loadmasters or Glodel or both for breach of contract
and/or tort. Subrogation is the substitution of one person in the place of another with reference to
a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation
to a debt or claim, including its remedies or securities. Doubtless, R&B Insurance is subrogated
to the rights of the insured to the extent of the amount it paid the consignee under the marine
insurance.

The issue now is who, between Glodel and Loadmasters, is liable to pay R&B Insurance
for the amount of the indemnity it paid Columbia.



At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are
common carriers to determine their liability for the loss of the subject cargo. Under Article 1732
of the Civil Code, common carriers are persons, corporations, firms, or associations engaged in
the business of carrying or transporting passenger or goods, or both by land, water or air for
compensation, offering their services to the public.
Loadmasters is a common carrier because it is engaged in the business of transporting goods
by land, through its trucking service. It is a common carrier as distinguished from a private
carrier wherein the carriage is generally undertaken by special agreement and it does not hold
itself out to carry goods for the general public. The distinction is significant in the sense that the
rights and obligations of the parties to a contract of private carriage are governed principally by
their stipulations, not by the law on common carriers. In the present case, there is no indication
that the undertaking in the contract between Loadmasters and Glodel was private in character.
There is no showing that Loadmasters solely and exclusively rendered services to Glodel. In fact,
Loadmasters admitted that it is a common carrier.



Glodel is also considered a common carrier .In its Memorandum, it states that it is a
corporation duly organized and existing under the laws of the Republic of the Philippines and is
engaged in the business of customs brokering. It cannot be considered otherwise because as held
by this Court in Schmitz Transport & Brokerage Corporation v. Transport Venture, Inc., a
customs broker is also regarded as a common carrier, the transportation of goods being an
integral part of its business.



Loadmasters and Glodel, being both common carriers, are mandated from the
nature of their business and for reasons of public policy, to observe the extraordinary
diligence in the vigilance over the goods transported by them.

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When the Court speaks of extraordinary diligence, it is that extreme measure of care and
caution which persons of unusual prudence and circumspection observe for securing and
preserving their own property or rights. This exacting standard imposed on common
carriers in a contract of carriage of goods is intended to tilt the scales in favor of the
shipper who is at the mercy of the common carrier once the goods have been lodged for
[Link], in case of loss of the goods, the common carrier is presumed to have been
at fault or to have acted [Link] presumption of fault or negligence, however,
may be rebutted by proof that the common carrier has observed extraordinary diligence
over the goods.



With respect to the time frame of this extraordinary responsibility, the Civil Code
provides that the exercise of extraordinary diligence lasts from the time the goods are
unconditionally placed in the possession of, and received by, the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to
the consignee, or to the person who has a right to receive them.

Premises considered, the Court is of the view that both Loadmasters and Glodel are
jointly and severally liable to R & B Insurance for the loss of the subject cargo. Under
Article 2194 of the New Civil Code, the responsibility of two or more persons who are liable for
a quasi-delict is solidary.



Loadmasters claim that it was never privy to the contract entered into by Glodel with the
consignee Columbia or R&B Insurance as subrogee, is not a valid defense. It may not have a
direct contractual relation with Columbia, but it is liable for tort under the provisions of Article
2176 of the Civil Code on quasi-delicts which expressly provide that whoever by act or omission
causes damage to another, there being fault or negligence, is obliged to pay for the damage done.
Such fault or negligence, if there is no pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of this Chapter.



A tort may arise despite the absence of a contractual relationship

Even assuming that both Phoenix and McGee have only been subrogated in the rights of Del
Monte Produce, who is not a party to the contract of service between Mindanao Terminal
and Del Monte, still the insurance carriers may have a cause of action in light of the
Courts consistent ruling that the act that breaks the contract may be also a tort. In fine, a
liability for tort may arise even under a contract, where tort is that which breaches the
contract. In the present case, Phoenix and McGee are not suing for damages for
injuries arising from the breach of the contract of service but from the alleged
negligent manner by which Mindanao Terminal handled the cargoes belonging to Del
Monte Produce. Despite the absence of contractual relationship between Del Monte
Produce and Mindanao Terminal, the allegation of negligence on the part of the defendant
should be sufficient to establish a cause of action arising from quasi-delict. (Mindanao
Terminal and Brokerage Service, Inc. v. Phoenix Assurance Company of New York,/

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McGee & Co., Inc)




ART. 2180. The obligation imposed by Article 2176 is demandable not only for one’s
own acts or omissions, but also for those of persons for whom one is responsible.


Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not engaged in
any business or industry. It is not disputed that the subject cargo was lost while in the custody of
Loadmasters whose employees (truck driver and helper) were instrumental in the hijacking or
robbery of the shipment. As employer, Loadmasters should be made answerable for the damages
caused by its employees who acted within the scope of their assigned task of delivering the
goods safely to the warehouse.



Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to
ensure that Loadmasters would fully comply with the undertaking to safely transport the subject
cargo to the designated destination. It should have been more prudent in entrusting the goods to
Loadmasters by taking precautionary measures, such as providing escorts to accompany the
trucks in delivering the cargoes. Glodel should, therefore, be held liable with Loadmasters. Its
defense of force majeure is unavailing.



2. NO. There exists no principal-agent relationship between Glodel and Loadmasters,
as erroneously found by the CA. Article 1868 of the Civil Code provides: By the contract of
agency a person binds himself to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter.

The elements of a contract of agency are:

(1) consent, express or implied, of the parties to establish the relationship;
(2) the object is the execution of a juridical act in relation to a third person;
(3) the agent acts as a representative and not for himself;\
(4) he agent acts within the scope of his authority.

Accordingly, there can be no contract of agency between the parties. Loadmasters never
represented Glodel. Neither was it ever authorized to make such representation. It is a settled
rule that the basis for agency is representation, that is, the agent acts for and on behalf of
the principal on matters within the scope of his authority and said acts have the same legal
effect as if they were personally executed by the principal. On the part of the principal, there
must be an actual intention to appoint or an intention naturally inferable from his words or
actions, while on the part of the agent, there must be an intention to accept the appointment and
act on it Such mutual intent is not obtaining in this case.



3. Each wrongdoer is liable for the total damage suffered by R&B Insurance. Where there
are several causes for the resulting damages, a party is not relieved from liability, even partially.

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It is sufficient that the negligence of a party is an efficient cause without which the damage
would not have resulted. It is no defense to one of the concurrent tortfeasors that the damage
would not have resulted from his negligence alone, without the negligence or wrongful acts of
the other concurrent tortfeasor.


There is no contribution between joint tortfeasors whose liability is solidary since both of
them are liable for the total damage. Where the concurrent or successive negligent acts or
omissions of two or more persons, although acting independently, are in combination the direct
and proximate cause of a single injury to a third person, it is impossible to determine in what
proportion each contributed to the injury and either of them is responsible for the whole
injury. Where their concurring negligence resulted in injury or damage to a third party, they
become joint tortfeasors and are solidarily liable for the resulting damage under Article 2194 of
the Civil Code. (Far Eastern Shipping v . CA)



4. NO. Glodel has a definite cause of action against Loadmasters for breach of contract of
service as the latter is primarily liable for the loss of the subject cargo. In this case, however, it
cannot succeed in seeking judicial sanction against Loadmasters because the records disclose that
it did not properly interpose a cross-claim against the latter. Glodel did not even pray that
Loadmasters be liable for any and all claims that it may be adjudged liable in favor of R&B
Insurance. Under the Rules, a compulsory counterclaim, or a cross-claim, not set up shall be
[Link], a cross-claim cannot be set up for the first time on appeal. For the consequence,
Glodel has no one to blame but itself. The Court cannot come to its aid on equitable grounds.
Equity, which has been aptly described as a justice outside legality, is applied only in the absence
of, and never against, statutory law or judicial rules of procedure. The Court cannot be a lawyer
and take the cudgels for a party who has been at fault or negligent.

9. Malayan Insurance Co., Inc. vs. Alberto

GR No. 194320, Feb 1, 2012

Consistent with the ruling in Keppel Cebu Shipyard v. Pioneer Insurance “payment by
the insurer to the insured operates as an equitable assignment to the insurer of all the remedies
that the insured may have against the third party whose negligence or wrongful act caused the
loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of
contract. It accrues simply upon payment by the insurance company of the insurance claim.”

Facts:
A vehicular accident occurred involving 4 vehicles, a Nissan Bus operated by Aladdin
transit, an Isuzu Tanker, a Fuzo Cargo Truck, and a Mitsubishi Galant. Malayan Insurance
insured the Mitsubishi Galant against third party liability, own damage and theft, among others in
favor of First Malayan Leasing and Finance Corporation (assured).

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Having insured the vehicle against such risks, Malayan Insurance claimed in its
Complaint that it paid the damages sustained by the assured amounting to PhP 700,000.
Maintaining that it has been subrogated to the rights and interests of the assured by operation of
law upon its payment to the latter, Malayan Insurance sent several demand letters to respondents
Rodelio Alberto and Enrico Alberto Reyes, the registered owner and the driver, respectively, of
the Fuzo Cargo Truck, requiring them to pay the amount it had paid to the assured. Respondents
refused to settle their liability. Respondents claim that the documents presented by Malayan
Insurance do not indicate certain important details that would show proper subrogation.

RTC declared respondents liable for damages

CA reversed RTC's decision because the evidence on record has failed to establish not only
negligence on the part of respondents, but also compliance with the other requisites and the
consequent right of Malayan Insurance to subrogation.
MR - denied. Hence this petition

Issue: Whether or not the subrogation of Malayan Insurance is impaired and/or deficient.

Ruling:
NO, Malayan Insurance has been properly subrogated to the rights of the assured.
Malayan Insurance contends that there was a valid subrogation in the instant case, as evidenced
by the claim check voucher and the Release of Claim and Subrogation Receipt presented by it
before the trial court.

Subrogation is the substitution of one person by another with reference to a lawful claim
or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or
claim, including its remedies or securities. The principle covers a situation wherein an insurer
has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to
the insured against a third party with respect to any loss covered by the policy. It contemplates
full substitution such that it places the party subrogated in the shoes of the creditor, and he may
use all means that the creditor could employ to enforce payment. (Keppel Cebu Shipyard, Inc. v.
Pioneer Insurance and Surety Corporation)

Payment by the insurer to the insured operates as an equitable assignment to the insurer
of all the remedies that the insured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow
out of, any privity of contract. It accrues simply upon payment by the insurance company of the
insurance claim.

Other discussion:
Admissibility of the Police Report
Sec 44, Rule 130 provides that "Entries in official records made in the performance of his
duty by a public officer of the Philippines, or by a person in the performance of a duty specially
enjoined by law are prima facie evidence of the facts therein stated."

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Thus, the presentation of the police report itself is admissible as an exception to the
hearsay rule even if the police investigator who prepared it was not presented in court, as long as
the above requisites could be adequately proved

Sufficiency of Evidence
Even if the Court will not consider the admissibility of the police report in evidence, still,
respondents cannot evade liability by virtue of the res ipsa loquitur doctrine.

Res ipsa loquitur is a rule of necessity and it applies where evidence is absent or not
readily available, provided the following requisites are present: (1) the accident was of a kind
which does not ordinarily occur unless someone is negligent; (2) the instrumentality or agency
which caused the injury was under the exclusive control of the person charged with negligence;
and (3) the injury suffered must not have been due to any voluntary action or contribution on the
part of the person injured.

In the instant case, the Fuzo Cargo Truck would not have had hit the rear end of the
Mitsubishi Galant unless someone is negligent. Also, the Fuzo Cargo Truck was under the
exclusive control of its driver, Reyes. Even if respondents avert liability by putting the blame on
the Nissan Bus driver, still, this allegation was self-serving and totally unfounded. Finally, no
contributory negligence was attributed to the driver of the Mitsubishi Galant. Consequently, all
the requisites for the application of the doctrine of res ipsa loquitur are present, thereby creating
a reasonable presumption of negligence on the part of respondents.

It is worth mentioning that just like any other disputable presumptions or inferences, the
presumption of negligence may be rebutted or overcome by other evidence to the contrary. It is
unfortunate, however, that respondents failed to present any evidence before the trial court. Thus,
the presumption of negligence remains. Consequently, the CA erred in dismissing the complaint
for Malayan InsuranceÊs adverted failure to prove negligence on the part of respondents.

PETITION GRANTED.

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CLASSES OF INSURANCE

I. Marine - 101-168
Insurable Interest
1) Owner of the Ship - He has insurable of the vessel, unless:
a. the vessel has been chartered and the charterer agreed to pay the shipowner the value of
the vessel in case Of loss, in which case the shipowner’s insurable interest is only up to
the amount not recoverable from the charterer (sec 102); and
b. the vessel is hypothecated by a bottomry loan, the insurable interest of the shipowner is
only up to the excess of the value of the vessel over the loan. (Sec 103)

The shipowner likewise has insurable interest over expected freightage.

2) Shipper or Cargo Owner - He has insurable interest over the cargo and expected profits.

3) Charterer - He has insurable interest over–

• the vessel up to the extent of the amount he is liable to the shipowner, if the ship is lost or
damaged during the voyage;
• expected profits or freightage if he accepts cargoes from other persons for a fee; and
• his own cargo or his client’s cargo. (Secs. 102, 106 and 108, IC)

Perils of the Sea

Perils of the sea or perils of navigation pertain to casualties arising from the unusual
violence or extraordinary causes connected with navigation. It includes such losses as are of
extraordinary nature which cannot be guarded against by the ordinary exertion of human skill or
prudence, as distinguished from the ordinary wear and tear of the voyage and from injuries
suffered by the vessel in consequence of her not being unseaworthy. (Roque v. Intermediate
Appellate Court, 139 SCRA 596, 11 November 1985)

Perils of the Ship

Perils of the ship refer to losses which in the ordinary course of events result from the
ordinary, natural and inevitable action of the sea, or from ordinary wear and tear of the ship, or
from the negligent failure of the ship’s owner to provide the vessel with the proper equipment to
convey the cargo under ordinary conditions. (Roque v. Intermediate Appellate Court, 139 SCRA
596, 11 November 1985)

As a rule, only perils of the sea may be insured against. However, if the parties
agreed on an all risk policy, all losses connected with the voyage may be covered unless
expressly excepted. The burden lies on the insurer to prove that the loss
is caused by an excluded risk.

An “all risk policy” insures against all causes of conceivable loss or damage
except when otherwise excluded or when the loss or damage was due to fraud or
intentional misconduct committed by the insured. The policy covers all losses during the

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voyage whether or not arising from a marine peril. (New world International
Development Phils. Inc. v. NYK-FilJapan Shipping Corporation [2011]).

Implied Warranties
a. The ship is seaworthy at the inception of the insurance.
b. The ship will not deviate from the agreed voyage, unless deviation is proper.
c. The ship will not engage in illegal venture.
d. The ship will carry the requisite documents of nationality or neutrality of the ship or cargo,
where such nationality or neutrality is expressly required.
e. The presence of insurable interest.

Since the law provides for an implied warranty of seaworthiness in every contract
of ordinary marine insurance, it becomes the obligation of a cargo owner to look for a
reliable common carrier which keeps its vessel in seaworthy condition. (Roque v.
Intermediate Appellate Court, 139 SCRA 596, 11 November 1985)

Seaworthiness
A vessel is seaworthy if it is fit to perform the service and to encounter the ordinary perils
of the sea with respect to the voyage contemplated by the parties. There should be due
consideration to the nature of the ship, the voyage and the service to be performed. (Caltex Phil.,
Inc. v. Sulpicio Lines [1999])

Barratry
Barratry is the willful misconduct on the part of the master or crew in pursuance of some
unlawful or fraudulent purpose without the consent of the shipowner, and to the prejudice of the
latter’s interest.

Losses arising from barratry may be expressly covered by the policy. Proof of willful and
intentional act is necessary.

Honest error of judgment or mere negligence, unless criminally gross, cannot be

considered barratry (Roque v. IAC, 139 SCRA 596, 11 November 1985).
Ex:
Cargo negligently handled by ship's crew cannot be considered barratry. (Roque v.
IAC, 139 SCRA 596, 11 November 1985).

General Average Loss v. Particular Average Loss

General average includes damages and expenses which are deliberately caused by the
master of the vessel or upon his authority, in order to save the vessel, her cargo, or both at the
same time from real or known risk.

General Average loss is borne equally by all of the interest concerned in the venture. The
requisites to claim general average contribute are:

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a. There must be a common danger to the vessel or cargo;

b. Part of the vessel or cargo was deliberately sacrificed;
c. The sacrifice must be for the common safety or for the benefit of all;
d. It must be made by the master or upon his authority; and,
e. It must be successful.

Particular average includes all damages and expenses caused to the vessel or to her cargo
which have not inured to the common benefit and profit of all persons interested in the vessel
and her cargo. It refers to those losses which occur under such circumstances as do not entitle the
unfortunate owners to receive contribution from other owners concerned in the venture as where
a vessel accidentally runs aground.

Deviation
Deviation is the departure of the vessel from the course of the voyage, or an unreasonable
delay in pursuing the voyage, or the commencement of an entirely different voyage.
It is proper when:
a. It is due to circumstances outside the control of the ship captain or ship owner.
b. It is done to comply with a warranty.
c. It is made in good faith to avoid a peril.
d. It is made to save human life or another vessel in distress.

Loss
The loss is deemed actual in the following circumstances:
a. Total destruction
b. Loss by sinking
c. Damage rendering the thing valueless, or
d. Total deprivation by the owner of possession of thing insured.

There is constructive total loss when:

a. There is actual loss of more than 3/4 of the value of the object,
b. Damage reducing value by more than 3/4 of the value of the vessel and of cargo, and
c. Expense of shipment exceed 3/4 of value of cargo

In case of constructive total loss, the insured may abandon the goods or the vessel to the
insurer and claim the whole insured value, or he may, without abandoning the vessel, claim for
partial actual loss.

Abandonment can only be availed of when, in a marine insurance contract, the amount to
be expended to recover the vessel would have been more than three-fourths of its value

Abandonment
Abandonment is the act of the insured of relinquishing his insurable interest, or the
proceeds of the policy, or the claims arising from it.

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The requisites for valid abandonment (Secs. 140-146, IC):

a. There must be actual relinquishment by the insured of his interest in the thing insured;
b. There must be a constructive total loss;
c. The abandonment be neither partial nor conditional;
d. It must be made within a reasonable time after receipt of reliable information of the loss;
e. It must be factual;
f. It must be made by giving notice thereof to the insurer which may be done orally or in
writing; and,
g. The notice of abandonment must be explicit and must specify the particular cause of the
abandonment.

CASES:
1. Cathay Insurance Co. v CA & Remington Industrial Sales Corporation
GR 76145, June 30, 1987

The rusting of steel pipes in the course of a voyage is a "peril of the sea" in view of the
toll on the cargo of wind, water, and salt conditions which are a ground for payment of proceeds
from the marine insurance executed between Petitioner and Private Respondent.

Facts:
Remington Industrial Sales Corporation (Remington) entered into a marine insurance
policy with Cathay Insurance Corporation (Cathay) over the shipment of seamless steel pipes
(worth P2.8M) whereby Remington was the appointed insured and beneficiary thereof. Said
shipment was to be delivered from Japan to the Philippines.

Upon delivery, Remington discovered that the pipes were already starting to develop rust.
Thus, Remington demanded from Cathay payment for the damaged pipes pursuant to the marine
insurance policy. Cathay denied the demand on the ground that rust is not considered a peril of
the sea and hence therefore not a ground for the claim of the proceeds of the marine insurance.
This prompted Remington to sue Cathay for payment pursuant to the marine insurance as well as
damages.

RTC and CA held Cathay liable. MR - Denied. Hence, this petition.

Issue: Whether or not Cathay is liable for payment of proceeds under the marine insurance
policy.

Ruling:
Yes, Cathay is liable for payment of proceeds under the marine insurance policy. There is
no question that the rusting of steel pipes in the course of a voyage is a "peril of the sea" in view
of the toll on the cargo of wind, water, and salt conditions. (The Court did not explain how they
come up with this this ruling; See Full text)

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2. Roque v. IAC
GR No. 66935, Nov. 11, 1985

Facts:
Isabela Roque, doing business under the name and style of Isabela Roque Timber
Enterprises and Ong Chiong (Petitioners), entered into a contract with Manila Bay Lighterage
Corporation (Manila Bay), a common carrier–["Marble 10"-Vessel], for the transportation of
422.18 cubic meters of logs (811 pcs) from Malapaya Sound, Palawan to North Harbor, Manila.

Petitioners insured the logs against loss for P100k with Pioneer Insurance and Surety
Corporation (Pioneer). The shipment never reached its destination because Marble 10 sank on its
way to Manila.

Petitioners wrote a letter to Manila Bay demanding payment of P150,000.00 for the loss
of the shipment plus P100,000.00 as unrealized profits but the latter ignored the demand.
Another letter was sent to respondent Pioneer claiming the full amount of P100,000.00 under the
insurance policy but Pioneer refused to pay on the ground that its liability depended upon the
'Total loss by Total Loss of Vessel only"

RTC ruled in favor of the petitioners, however, the Appellate court modified the decision of the
trail court and absolved Pioneer from liability after finding that there was a breach of implied
warranty of seaworthiness on the part of the petitioners and that the loss of the insured cargo was
caused by the "perils of the ship" and not by the "perils of the sea". It ruled that the loss is not
covered by the marine insurance policy.

Argument:
Petitioner - a mere shipper of cargo, having no control over the ship, has nothing to do with its
seaworthiness. They argue that a cargo owner has no control over the structure of the ship, its
cables, anchors, fuel and provisions, the manner of loading his cargo and the cargo of other
shippers, and the hiring of a sufficient number of competent officers and seamen.

Issue: Whether Pioneer is liable to the petitioners.

Ruling:
No. The petitioners' arguments have no merit.

In the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40 Phil. 40),
this Court has ruled that the implied warranty of seaworthiness immediately attaches to whoever
is insuring the cargo whether he be the shipowner or not.

Moreoever, it is universally accepted that in every contract of insurance upon anything

which is the subject of marine insurance, a warranty is implied that the ship shall be seaworthy at

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the time of the inception of the voyage, This rule is accepted in our own Insurance Law (Act No.
2427, sec. 106).

The fact that the unseaworthiness of the ship was unknown to the insured is immaterial in
ordinary marine insurance and may not be used by him as a defense in order to recover on the
marine insurance policy. (Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S.
406))

Since the law provides for an implied warranty of seaworthiness in every contract of
ordinary marine insurance, it becomes the obligation of a cargo owner to look for a reliable
common carrier which keeps its vessels in seaworthy condition. The shipper of cargo may have
no control over the vessel but he has full control in the choice of the common carrier that will
transport his goods. Or the cargo owner may enter into a contract of insurance which specifically
provides that the insurer answers not only for the perils of the sea but also provides f or coverage
of perils of the ship.

In this case, as stated in the complaint of the petitioners, the barge Mable 10 of defendant
carrier developed a leak which allowed water to come in and that one of the hatches of said barge
was negligently left open by the person in charge thereof causing more water to come in", and
that "the loss of said plaintiffs' cargo was due to the fault, negligence, and/or lack of skill of
defendant carrier and/or defendant carrier's representatives on barge Mable 10.

It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather
than the perils of the sea.

Therefore, Pioneer is not liable to the Petitioners due to breach of implied warranty of
seaworthiness.

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II. Fire - 169-180

Friendly v. Hostile Fire
Friendly fire is fire that is deliberate and remains within the limits intended for it.
Hostile fire is fire that goes out of control and beyond the limits intended for it. To be covered by
fire insurance, the fire must be hostile.
b. Effect of Negligence

Alteration - Sec 170

Under this provision, the insurer can exercise its right to rescind an insurance contract
when the following conditions are present:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insured’s control; and
5) the alteration increases the risk of loss.

1. Malayan Insurance Company, Inc. v. PAP Co., Ltd. (Phil. Branch)

703 SCRA 314 7 August 2013
Change of location - considered as change of condition in this case

An alteration in the use or condition of a thing insured from that to which it is limited by
the policy made without the consent of the insurer, by means within the control of the insured,
and increasing the risks, entitles an insurer to rescind a contract of fire insurance.

Facts:
On May 13, 1996, Malayan Insurance Company (Malayan) issued a Fire Insurance Policy
to PAP Co., Ltd. (PAP Co.) for the latter’s machineries and equipment located at Sanyo Precision
Phils. Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo Building). The insurance,
which was for Fifteen Million Pesos (₱15,000,000.00) and effective for a period of one (1) year,
was procured by PAP Co. for Rizal Commercial Banking Corporation (RCBC), the mortgagee of
the insured machineries and equipment.

After the passage of almost a year but prior to the expiration of the insurance coverage,
PAP Co. renewed the policy on an “as is” basis. Pursuant thereto, a renewal policy was issued by
Malayan to PAP Co. for the period May 13, 1997 to May 13, 1998.

On October 12, 1997 and during the subsistence of the renewal policy, the insured
machineries and equipment were totally lost by fire. Hence, PAP Co. filed a fire insurance claim
with Malayan in the amount insured.

In a letter, dated December 15, 1997, Malayan denied the claim upon the ground that, at
the time of the loss, the insured machineries and equipment were transferred by PAP Co. to a
location different from that indicated in the policy. Specifically, that the insured machineries

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were transferred in September 1996 from the Sanyo Building to the Pace Pacific Bldg., Lot 14,
Block 14, Phase III, PEZA, Rosario, Cavite (Pace Pacific). Contesting the denial, PAP Co.
argued that Malayan cannot avoid liability as it was informed of the transfer by RCBC, the party
duty-bound to relay such information. However, Malayan reiterated its denial of PAP Co.’s
claim. Distraught, PAP Co. filed the complaint below against Malayan.

The RTC handed down its decision, ordering Malayan to pay PAP Company Ltd (PAP)
an indemnity for the loss under the fire insurance policy. The CA affirmed the RTC decision.
Hence, this petition.

Issue: Whether or not Malayan should be held liable under the fire insurance policy

Ruling:
No. The Court agrees with the position of Malayan that it cannot be held liable for the
loss of the insured properties under the fire insurance policy.

The policy forbade the removal of the insured properties unless sanctioned by Malayan
Condition No. 9(c) of the renewal policy provides:

9. Under any of the following circumstances the insurance ceases to attach as regards
the property affected unless the insured, before the occurrence of any loss or damage,
obtains the sanction of the company signified by endorsement upon the policy, by or on
behalf of the Company:

xxxxxxxxxxxx

(c) If property insured be removed to any building or place other than in that
which is herein stated to be insured.

The transfer from the Sanyo Factory to the PACE Factory increased the risk
The Court agrees with Malayan that the transfer to the Pace Factory exposed the
properties to a hazardous environment and negatively affected the fire rating stated in the
renewal policy. The increase in tariff rate from 0.449% to 0.657% put the subject properties at a
greater risk of loss. Such increase in risk would necessarily entail an increase in the premium
payment on the fire policy.

Unfortunately, PAP chose to remain completely silent on this very crucial point. Despite
the importance of the issue, PAP failed to refute Malayan’s argument on the increased risk.

Malayan is entitled to rescind the insurance contract

Considering that the original policy was renewed on an “as is basis,” it follows that the
renewal policy carried with it the same stipulations and limitations. The terms and conditions in
the renewal policy provided, among others, that the location of the risk insured against is at the

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Sanyo factory in PEZA. The subject insured properties, however, were totally burned at the Pace
Factory. Although it was also located in PEZA, Pace Factory was not the location stipulated in
the renewal policy. There being an unconsented removal, the transfer was at PAP’s own risk.
Consequently, it must suffer the consequences of the fire.

It can also be said that with the transfer of the location of the subject properties, without
notice and without Malayan’s consent, after the renewal of the policy, PAP clearly committed
concealment, misrepresentation and a breach of a material warranty. Section 26 of the Insurance
Code provides:

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

and under Section 27 of the Insurance Code, “a concealment entitles the injured party to rescind
a contract of insurance.”

Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the
insurance contract in case of an alteration in the use or condition of the thing insured. Section
168 of the Insurance Code provides, as follows:

Section 168. An alteration in the use or condition of a thing insured from

that to which it is limited by the policy made without the consent of the
insurer, by means within the control of the insured, and increasing the risks,
entitles an insurer to rescind a contract of fire insurance.

Accordingly, an insurer can exercise its right to rescind an insurance contract when the
following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insured's control; and
5) the alteration increases the risk of loss

In the case at bench, all these circumstances are present. It was clearly established that
the renewal policy stipulated that the insured properties were located at the Sanyo factory; that
PAP removed the properties without the consent of Malayan; and that the alteration of the
location increased the risk of loss.

Evidently, by the clear and express condition in the renewal policy, the removal of the
insured property to any building or place required the consent of Malayan. Any transfer effected
by the insured, without the insurer’s consent, would free the latter from any liability.

PETITION GRANTED

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III. Compulsory Third Party Liability (CTPL)

The CTPL is primarily intended to provide compensation for the death or bodily injuries
suffered by innocent third parties or passengers as a result of negligent operation and use of
motor vehicles. The victims and/or their dependents are assured of immediate financial
assistance, regardless of the financial capacity of the motor vehicle owners. (First Integrated
Bonding and Ins. Co., Inc. v. Hernandez, July 31, 1991, SCRA 746)

"No Fault Indemnity" Provision

The “No Fault Indemnity" provision of the Insurance Code refers to third party liability
in motor vehicle insurances, under which the insurer of the vehicle where the injured or deceased
person was boarding, was a passenger of, or was disembarking from, becomes liable for physical
injuries or death up P15,000.00 (Memo. Cir. 4—2006, effective 1 January 2007), without regard
to whether or not the vehicle was negligent or at fault at the time of the accident and without the
necessity of proving fault or negligence of any kind under the following rules:

a. The suit or claim of recovery is directed at one vehicle only;

b. The suit is directed against the insurer of the vehicle where the victim was a passenger of, or
if not a passenger, claim shall lie against the insurer of the vehicle which bumped the victim.
c. The total indemnity in respect of any person shall not exceed 915,000.00. (Memo. Cir.
4-2006, effective 1 January 2007)
d. The insurer who pays can claim against the vehicle at fault.
e. The claim shall be under oath and shall be accompanied by proof of the following: (1) police
report of the accident; (2) death certificate and evidence sufficient to establish the proper
payee, or medical report and evidence of medical or hospital disbursement in respect of
which refund is claimed. (Sec. 391, IC)

The occurrence of the injury to third party immediately gave rise to the liability of the
insurer under its policy. In other words, where an insurance policy insures directly against
liability, the insurer’s liability accrues immediately upon the occurrence of the injury or event
upon which the liability depends. There is no need to wait for the decision of the court
determining the driver's liability before the third party liability could be sued.

The claim under the "no-fault indemnity" provision lies against the insurer of the vehicle
where the occupant is riding; Claimant is not free to choose from which insurer he will claim the
"no fault indemnity". (Perla Compania de Seguros, Inc. vs. Ancheta No. L-49699. August 8,
1988)

Liability
The insurer cannot be held solidarily liable with the owner/operator. The liability
of the insurer is based on contract while that of owner/operator is based on tort. If the
insurer were solidarily liable with owner/operator, it could be made to pay more than the

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amount stated in the policy. This would, however, be contrary to the principle
underlying insurance contracts.

On the other hand, if the insurer were solidarily liable with owner/operator and it
is made to pay only up to the amount stated in the insurance policy, the principle
underlying solidary obligations would be violated.

Authorized Driver's Clause

It is a stipulation in a motor vehicle insurance which provides that a person other than the
insured owner, who drives the car on the insured’s order, such as his regular driver, or with his
permission, such as a friend or member of the family or the employees of a car service or repair
shop, must be duly licensed drivers and have no disqualification to drive a motor vehicle.
(Villacorta v. Insurance Commission, 100 SCRA 467, 28 October 1980)

While the Motor Vehicle Law prohibits a person from operating a motor vehicle on the
high-way without a license or with an expired license, an infraction of the Motor Vehicle Law on
the part of the insured, is not a bar to recovery under the insurance contract. It however renders
him subject to the penal sanctions of the Motor Vehicle Law. (Palermo v. Pyramid Insurance
Co., Inc., 677 SCRA 161 [1988])

The authorized driver requirement in car insurance applies to persons other than the
insured himself. If it was the owner of the car (the insured) was the one who was driving the
vehicle at the time of the accident, the authorized driver clause does not apply. Thus, the insured
may recover the damage within the limit of her policy.

In the case of Tanco, Jr. Jr. vs. Philippine Guaranty Co., No. L-17312, November 29,
1965, the Court held that where a person allowed to drive a motor vehicle, who at the time of
collision, does not have a valid license because the one he had obtained had already expired and
had not been renewed as required by Section 31 of the Motor Vehicle Law will not cure the
delinquency or revalidate the license which had already expired even if he had renewed the same
subsequently.

Theft Clause
It is a provision in motor vehicle insurance which provides that the insurer shall be liable
when the vehicle is unlawfully and wrongly taken without the knowledge and consent of the
owner.
When one takes the motor vehicle of another without the Iatter’s consent even if the
motor vehicle is later returned, there is theft. (People v. Bustinera, 431 SCRA 284, 8 June 2004)

When the employee of a car shop took the car that is being repaired for a “joy ride”, the
theft clause operates. (Villacorta v. Insurance Commission [1980]).

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Under the theft clause, the insurer is liable even if the thief has no driver’s license. The
authorized driver’s clause does not apply. (Perla Compania de Seguros, Inc. v. CA [1992]).

The principal distinction between the theft and estafa is that in theft the thing is taken
while in estafa the accused receives the property and converts it to his own use or benefit.
However, there may be theft even if the accused has possession of the property. If he was
entrusted only with the material or physical (natural) or de facto possession of the thing, his
misappropriation of the same constitutes theft, but if he has the juridical possession of the thing,
his conversion of the same constitutes embezzlement or estafa. In the instant case, Sales did not
have juridical possession over the vehicle. Here, it is apparent that the taking of respondent's
vehicle by Sales is without any consent or authority from the former. (Paramount Insurance
Corporation vs. Remondeulaz, G.R. No. 173773. November 28, 2012)

CASES
1. Paramount Insurance Corporation v. Remondeulaz
GR No. 173773, November 28, 2012
Facts:
Sps Yves and Maria Teresa Remondeulaz (Respondents) insured with Paramount
Insurance Corporation (Paramount) their 1994 Toyota Corolla sedan under a comprehensive
motor vehicle insurance policy for one year. (from 26 May 1994 to 26 May 1995) for for Own
Damage, Theft, Third-Party Property Damage and Third-Party Personal Injury

During the effectivity of said insurance, respondents' car was unlawfully taken. Hence,
they immediately reported the theft to the Traffic Management Command of the PNP who made
them accomplish a complaint sheet. In said complaint sheet, respondents alleged that a certain
Ricardo Sales (Sales) took possession of the subject vehicle to add accessories and
improvements thereon, however, Sales failed to return the subject vehicle within the agreed
three-day period.

As a result, respondents notified petitioner to claim for the reimbursement of their lost
vehicle. However, petitioner refused to pay because the loss was not due to theft.

It appears, however, that plaintiff had successfully prosecuted and had been awarded the
amount claimed in this action, in another action (Civil Case No. 95-1524 entitled Sps. Yves and
Maria Teresa Remondeulaz versus Standard Insurance Company, Inc.), which involved the loss
of the same vehicle under the same circumstances although under a different policy and
insurance company. This, considered with the principle that an insured may not recover more
than its interest in any property subject of an insurance, leads the court to dismiss this action.

On appeal, the CA reversed and set aside the order issued by the Trial court because the
subject car is different from the one insured with another insurance company, the Standard
Insurance Company.

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Paramount argues that the loss of respondents' vehicle is not a peril covered by the policy. It
maintains that it is not liable for the loss, since the car cannot be classified as stolen as
respondents entrusted the possession thereof to another person.

Issue: her or not Paramount is liable under the insurance policy for the loss of respondents'
vehicle.

Ruling:
Yes.

In People v. Bustinera, this Court had the occasion to interpret the "theft claus" of an
insurance policy. In this case, the Court explained that when one takes the motor vehicle of
another without the latterÊs consent even if the motor vehicle is later returned, there is theft·there
being intent to gain as the use of the thing unlawfully taken constitutes gain.

Also, in Malayan Insurance Co., Inc. v. Court of Appeals, this Court held that the taking
of a vehicle by another person without the permission or authority from the owner thereof is
sufficient to place it within the ambit of the word theft as contemplated in the policy, and is
therefore, compensable.

Moreover, the case of Santos v. People, G.R. No. 77429, January 29, 1990 is worthy of
note. Similarly in Santos, the owner of a car entrusted his vehicle to therein petitioner Lauro
Santos who owns a repair shop for carburetor repair and repainting. However, when the owner
tried to retrieve her car, she was not able to do so since Santos had abandoned his shop. In the
said case, the crime that was actually committed was Qualified Theft. However, the Court held
that because of the fact that it was not alleged in the information that the object of the crime was
a car, which is a qualifying circumstance, the Court found that Santos was only guilty of the
crime of Theft and merely considered the qualifying circumstance as an aggravating
circumstance in the imposition of the appropriate penalty. The Court therein clarified the
distinction between the crime of Estafa and Theft, to wit:

The principal distinction between the two crimes is that in theft the
thing is taken while in estafa the accused receives the property and converts
it to his own use or benefit. However, there may be theft even if the accused
has possession of the property. If he was entrusted only with the material or
physical (natural) or de facto possession of the thing,his misappropriation of
the same constitutes theft, but if he has the juridical possession of the thing,
his conversion of the same constitutes embezzlement or estafa.

In the instant case, Sales did not have juridical possession over the vehicle. Here, it is
apparent that the taking of respondents' vehicle by Sales is without any consent or authority from
the former.

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Therefore, Paramount is liable to respondents under the Theft clause of the insurance
policy.

2. Alpha Insurance and Surety v. Castor

GR No. 198174, September 2, 2013
Facts: - Click here

3. Tanco, Jr. Philippine Guaranty Co.

150 SCRA 313, November 29, 1965
Facts:
Arturo Tanco insured his automobile with Philippine Guaranty Co., up to a certain limit,
loss or damage to the insured vehicle as well as damage to property of third persons as a
consequence of or incident to the operation of said vehicle. There is an exception clause,
however, which provides that "the company shall not be liable in respect of any accident, loss,
damage or liability caused, sustained or incurred x x x whilst (the insured vehicle) is x x x being
driven by or is for the purpose of being driven by him in the charge of any person other than an
Authorized Driver."

The policy defined the term "Authorized Driver" to be the insured himself and "(b) any
person driving on the Insured's order or with his permission, provided that the person driving is
permitted in accordance with the licensing or other laws or regulations to drive the Motor Vehicle
or has been permitted and is not disqualified by order of a court of law or by reason of any
enactment or regulation in that behalf from driving such Motor Vehicle."

Arturo's automobile, while being driven at the southern approach of the Jones bridge by
his brother Manuel Tanco on September 1, 1959, figured in a collision with a pick-up delivery
van, as a result of which both vehicles were damaged. Arturo paid for repairs the total sum of
P2,536.99 and then filed his claim with defendant company under a car insurance policy issued
by the latter.

Municipal Court rejected the claim

CFI - rendered a judgment for plaintiff in the amount stated, plus interest at 8% and P500.00 as
attorney's fees.

Issue: Whether Philippine Guaranty Co. is liable to plaintiff

Ruling:
No. The automobile insurance policy sued upon in the instant case exempts the insurer
company from liability for any accident, loss, damage or liability caused, sustained or incurred
while the vehicle is being driven by any person other than an authorized driver. The policy

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defines the term "authorized driver" to be the insured himself or any person driving on the
insured's order or with his permission provided he is permitted to drive under the licensing laws.

In the case at bar, plaintiff's brother, who was at the wheel at the time of the collision, did
not have a valid license because the one he had obtained had already expired and had not been
renewed as required by Section 31 of the Motor Vehicle Law. That he had renewed his license
one week after the accident, did not cure the delinquency or revalidate the license which had
already expired.

4. Peza vs. Alikpala

160 SCRA 31
No. L-29749. April 15, 1988.

Facts:
The vehicle, a Chevrolet "Cany-AU," belonged to a partnership known as Diman &
Company, and was then being driven by its driver, Perfecto Amar. It was insured with the Empire
Insurance Co., Inc. (Empire) under a so-called "comprehensive coverage" policy, loss by theft
excluded.

During the effectivity of the policy, an unfortunate vehicular accident took place. Two (2)
children ran across the path of a vehicle as it was running along the national highway at barrio
Makiling, Calamba, Laguna. They were killed.

Placida Peza, the managing partner of Diman & Co. filed a claim with the insurance
company, hereafter simply, Empire, for payment of compensation to the family of the two (2)
children who died as a result of the accident.

Empire refused to pay on the ground that the driver had no authority to operate the
vehicle, a fact which expressly excepted it from liability under the policy. What Peza did was to
negotiate directly with the deceased childrenÊs father for an out-of-court settlement. The father
agreed to accept P6,200,00 in full settlement of the liability of the vehicleÊs owner and driver,
and Peza paid him this sum.

Thereafter, Peza sued Empire.

Empire's basic defense to the suit was anchored on the explicit requirement in the policy
limiting the operation of the insured vehicle to the "authorized driver" therein defined, namely,
(a) the insured, or (b) any person driving on the insuredÊs order or with his permission, provided
that:

"x x x that the person driving is permitted in accordance with the licensing or
other laws or regulations to drive the Motor Vehicle or has been so permitted

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and is not disqualified by order of the Court of Law of by reason of any

enactment or regulation in that behalf from driving such Motor Vehicle."

The fact of Amar's having only an expired temporary operator's permit (TVR) at the time
of the accident was duly established during the trial.

Plaintiff's counsel offered rebuttal testimony (1) to explain the circumstances attending
the issuance of the TVR by the Land Transportation Commission (LTC) officer to Amarin proof
of the proposition that there was no reason for confiscation of Amar's license and the issuance to
him of a TVR, and the LTC agent was wrong in doing so, and also, to (2) prove that, "contrary to
the implication" of one of EmpireÊs exhibits, Amar's license had not expired, but had been
renewed. However, Judge Alikpala sustained the objection of Empire's counsel to the 2 evidence
on the ground that it was irrelevant to the issue.

MR - denied. Hence, this petition for certiorari.

Issue: Whether Empire is liable to the plaintiff.

Ruling:
No. It would seem fairly obvious that whether the LTC agent was correct or not in his
opinion that driver Amar had violated some traffic regulation warranting confiscation of his
license and issuance of a TVR in lieu thereof, this would not alter the undisputed fact that Amar's
license had indeed been confiscated and a TVR issued to him, and the TVR had already expired
at the time that the vehicle being operated by him killed two children by accident. Neither would
proof of the renewal of Amar's license change the fact that it had really been earlier confiscated
by the LTC agent.

Therefore, Empire is not liable to plaintiff pursuant to the "authorized driver" clause.

5. Perla Compania de Seguros, Inc. vs. Ancheta

164 SCRA 144
No. L-49699. August 8, 1988.

Facts:
IH Scout in which private respondents were riding and a Superlines bus along the
national highway in Sta. Elena, Camarines Norte collided. Private respondents sustained physical
injuries in varying degrees of gravity.

Thus, they filed with the Court of First Instance of Camarines Norte on February 23,
1978 a complaint for damages against Superlines, the bus driver and Insurance Company, Perla
Compania de Seguros, Inc. (petitioner), the insurer of the bus. The bus was insured with
petitioner for the amount of P50,000.00 as and for passenger liability and P50,000.00 as and for

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third party liability. The vehicle in which private respondents were riding was insured with
Malayan Insurance Co.

Petitioner denied its alleged liability under the "no fault indemnity" provision.

The trial court, through Judge Ancheta held petitioner liable to private respondents. 2 Mrs
was filed by the petitioner and both were denied by Judge Ancheta. Hence, the instant petition
praying principally for the annulment and setting aside of respondent judgeÊs orders

Issue: Whether Petitioner Perla Compania de Seguros, Inc. is liable to private respondents.

Ruling:
No. Sec 378 of the Insurance Code provides:
Any claim for death or injury to any passenger or third party pursuant to
the provisions of this chapter shall be paid without the necessity of proving
fault or negligence of any kind. Provided, That for purposes of this section·
(i) The indemnity in respect of any one person shall not exceed five thousand
pesos;
(ii) The following proofs of loss, when submitted under oath, shall be sufficient
evidence to substantiate the claim:
(a) Police report of accident, and
(b) Death certificate and evidence sufficient to establish the proper payee,
or
(c) Medical report and evidence of medical or hospital disbursement in
respect of which refund is claimed;|
(iii) Claim may be made against one motor vehicle only. In the case of an
occupant of a vehicle, claim shall lie against the insurer of the vehicle in which
the occupant is riding, mounting or dismounting from. In any other case, claim
shall lie against the insurer of the directly offending vehicle. In all cases, the
right of the party paying the claim to recover against the owner of the vehicle
responsible for the accident shall be maintained.

The law is very clear·the claim shall lie against the insurer of the vehicle in which the
"occupant" is riding, and no other. The claimant is not free to choose from which insurer he will
claim the "no fault indemnity", as the law, by using the word "shall", makes it mandatory that the
claim be made against the insurer of the vehicle in which the occupant is riding, mounting or
dismounting from.

That said vehicle might not be the one that caused the accident is of no moment since the
law itself provides that the party paving the claim under Sec. 378 may recover against the owner
of the vehicle responsible for the accident. This is precisely the essence of "no fault indemnity"
insurance which was introduced to and made part of our laws in order to provide victims of
vehicular accidents or their heirs immediate compensation, although in a limited amount,

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pending final determination of who is responsible for the accident and liable for the victims'
injuries or death. In turn, the "no fault indemnity" provision is part and parcel of the Insurance
Code provisions on compulsory motor vehicle liability insurance [Sec. 373389] and should be
read together with the requirement for compulsory passenger and/or third party liability
insurance [Sec. 377] which was mandated in order to ensure ready compensation for victims of
vehicular accidents.

PETITION GRANTED.

Casualty Insurance - Sec 176

"Accident" and "Accidental"
The terms "accident" and "accidental", as used in insurance contracts, have not acquired
any technical meaning. They are construed by the courts in their ordinary and common
acceptation. Thus, the terms have been taken to mean that which happens by chance or
fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An
accident is an event that takes place without one's foresight or expectation–an event that proceeds
from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected.
(29A Am. Jur., pp. 308–309.)

The generally accepted rule is that death or injury does not result from accident or
accidental means within the terms of an accident-policy if it is the natural result of the insured's
voluntary act, unaccompanied by anything unforeseen except the death or injury. (Landress vs.
Phoenix Mutual Life Insurance Co., 291 U.S. 291, 78 L. ed. 934, 54 S. Ct 461, 90 ALR 1382;
Davis vs. Jefferson Standard Life Ins. Co:, 73 F. [2d] 330, 96 ALR 599.) There is no accident
when a deliberate act is performed unless some additional, unexpected, independent and
unforeseen happening occurs which produces or brings about the result of injury or death. (Evans
vs, Metropolitan Life Insurance Co., 26 Wash. [2d] 594, 174 P. [2d] 1961.) In other words,
where the death or injury is not the natural or probable result of the insured's voluntary act, or if
something unforeseen occurs in the doing of the act which produces the injury, the resulting
death is within the protection of policies insuring against death or injury from accident.

In the case of De la Cruz vs. Capital Ins. & Surety Co., Inc. No. L-21574. June 30, 1966.,
the Court held that where the participation of the insured in the boxing contest was voluntary, but
the injury was sustained when he slid, giving occasion to the infliction by his opponent of the
blow that threw him to the ropes of the ring and without this unfortunate incident, perhaps he
could not have received that blow in the head and would not have died, then his death may be
regarded as accidental, although boxing is attended with some risks of external injuries.

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De la Cruz v. Capital Ins. & Surety Co., Inc.

GR No. 21574, June 30, 1966

Facts:
Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc. in Baguio,
was the holder of an accident insurance policy (No. ITO-BFE-170) underwritten by the Capital
Insurance & Surety Co., Inc., for the period beginning November 13, 1956 to November 12,
1957.

On January 1, 1957, in connection with the celebration of the New Year, the Itogon-
Suyoc Mines, Inc. sponsored a boxing contest f or general entertainment wherein the insured
Eduardo de la Cruz, a non-professional boxer, participated. In the course of his bout with another
person, likewise a non-professional, of the same height, weight, and size, Eduardo slipped and
was hit by his opponent on the left part of the back of the head, causing Eduardo to fall, with his
head hitting the rope of the ring. He was brought to the Baguio General Hospital unconscious,
where the insured expired on the following day. The cause of death was reported as hemorrhage,
intracranial, left.

Simon de la Cruz, the father of the insured and who was named beneficiary under the
policy, thereupon filed a claim with the insurance company for payment of the indemnity under
the insurance policy.

Insurance company denied the claim and set up the defense that the death of the insured,
caused by his participation in a boxing contest, was not accidental and, therefore, not covered by
insurance.

The trial court ruled in favor of the plaintiff. Hence, this appeal.
Argument of the insurance company - Eduardo's inclusion in the boxing card was voluntary on
the part of the insured, he cannot be considered to have met his death by "accidental means".

Issue: Whether Capital Ins. & Surety Co., Inc. is liable to the petitioner

Ruling:
Yes. The generally accepted rule is that death or injury does not result from accident or
accidental means within the terms of an accident-policy if it is the natural result of the insuredÊs
voluntary act, unaccompanied by anything unforeseen except the death or injury. (Landress vs.
Phoenix Mutual Life Insurance Co., 291 U.S. 291, 78 L. ed. 934, 54 S. Ct 461, 90 ALR 1382;
Davis vs. Jefferson Standard Life Ins. Co:, 73 F. [2d] 330, 96 ALR 599.) There is no accident
when a deliberate act is performed unless some additional, unexpected, independent and
unforeseen happening occurs which produces or brings about the result of injury or death. (Evans
vs, Metropolitan Life Insurance Co., 26 Wash. [2d] 594, 174 P. [2d] 1961.) In other words,
where the death or injury is not the natural or probable result of the insured's voluntary act, or if

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something unforeseen occurs in the doing of the act which produces the injury, the resulting
death is within the protection of policies insuring against death or injury from accident.

Where the participation. of the insured in the boxing contest was voluntary, but the injury
was sustained when he slid, giving occasion to the infliction by his opponent of the blow that
threw him to the ropes of the ring and without this unfortunate incident, perhaps he could not
have received that blow in the head and would not have died, and his death may be regarded as
accidental, although boxing is attended with some risks of external injuries.

The failure of the defendant insurance company to include death resulting from a boxing
match or other sports among the prohibitive risks leads to the conclusion that it did not intend to
limit or exempt itself from liability for such death. (Brams vs. New York Life Ins. Co., 299 Pa. 11,
148 Atl. 855; Jolley vs. Jefferson Standard Life Ins. Co., 95 Wash. 683, 294 Pac. 585.)

Other discussion:
Insurance company, however, would like to make a distinction between "accident or
accidental" and "accidental means", which is the term used in the insurance policy involved here.
It is argued that to be considered within the protection of the policy, what is required to be
accidental is the means that caused or brought the death and not the death itself.

Ruling:
The terms "accident" and "accidental", as used in insurance contracts, have not acquired
any technical meaning. They are construed by the courts in their ordinary and common
acceptation. Thus, the terms have been taken to mean that which happens by chance or
fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An
accident is an event that takes place without one's foresight or expectation–an event that proceeds
from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected.
(29A Am. Jur., pp. 308–309.)

The generally accepted rule is that death or injury does not result from accident or
accidental means within the terms of an accident-policy if it is the natural result of the insured's
voluntary act, unaccompanied by anything unforeseen except the death or injury. (Landress vs.
Phoenix Mutual Life Insurance Co., 291 U.S. 291, 78 L. ed. 934, 54 S. Ct 461, 90 ALR 1382;
Davis vs. Jefferson Standard Life Ins. Co:, 73 F. [2d] 330, 96 ALR 599.) There is no accident
when a deliberate act is performed unless some additional, unexpected, independent and
unforeseen happening occurs which produces or brings about the result of injury or death. (Evans
vs, Metropolitan Life Insurance Co., 26 Wash. [2d] 594, 174 P. [2d] 1961.) In other words,
where the death or injury is not the natural or probable result of the insured's voluntary act, or if
something unforeseen occurs in the doing of the act which produces the injury, the resulting
death is within the protection of policies insuring against death or injury from accident.

PETITION GRANTED

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UNIVERSITY OF SANTO TOMAS – FACULTY OF CIVIL LAW Jhoven Paul Tolentino

Suretyship - Sec 177

Life Insurance - Sec 181-186

Kinds
A) Individual Life
B) Group Life
C) Industrial Life

Suicide Clause - Sec 183

Claims Settlement - Sec 247-251

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