Applicable Laws

G.R. No. L-15895 November 29, 1920

RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma. Herrer, plaintiff-
appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.
Jose A. Espiritu for appellant.
Cohn, Fisher and DeWitt for appellee.

MALCOLM, J.:
This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin Ma.
Herrer to recover from the defendant life insurance company the sum of pesos 6,000 paid by the
deceased for a life annuity. The trial court gave judgment for the defendant. Plaintiff appeals.
The undisputed facts are these: On 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
receipt reading as follows:
MANILA, I. F., 26 de septiembre, 1917.
PROVISIONAL RECEIPT Pesos 6,000
Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como prima dela Renta Vitalicia
solicitada por dicho Don Joaquin Herrer hoy, sujeta al examen medico y aprobacion de la Oficina
Central de la Compaia.
The application was immediately forwarded to the head office of the company at Montreal, Canada.
On November 26, 1917, the head office gave notice of acceptance by cable to Manila. (Whether on
the same day the cable was received notice was sent by the Manila office of Herrer that the
application had been accepted, is a disputed point, which will be discussed later.) On December 4,
1917, the policy was issued at Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote to
the Manila office of the company stating that Herrer desired to withdraw his application. 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. This letter was received by Mr. Torres on
the morning of December 21, 1917. Mr. Herrer died on December 20, 1917.
As above suggested, the issue of fact raised by the evidence is whether Herrer received notice of
acceptance of his application. To resolve this question, we propose to go directly to the evidence of
record.
The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time of the
trial testified that he prepared the letter introduced in evidence as Exhibit 3, of date November 26,
1917, and handed it to the local manager, Mr. E. E. White, for signature. The witness admitted on
cross-examination that after preparing the letter and giving it to he manager, he new nothing of
what became of it. The local manager, Mr. White, testified to having received the cablegram
accepting the application of Mr. Herrer from the home office on November 26, 1917. He said that on
the same day he signed a letter notifying Mr. Herrer of this acceptance. The witness further said
that letters, after being signed, were sent to the chief clerk and placed on the mailing desk for
transmission. The witness could not tell if the letter had every actually been placed in the mails. Mr.
Tuason, who was the chief clerk, on November 26, 1917, was not called as a witness. For the
defense, attorney Manuel Torres testified to having prepared the will of Joaquin Ma. Herrer, that on
this occasion, Mr. Herrer mentioned his application for a life annuity, and that he said that the only
document relating to the transaction in his possession was the provisional receipt. Rafael Enriquez,
the administrator of the estate, testified that he had gone through the effects of the deceased and
had found no letter of notification from the insurance company to Mr. Herrer.
Our deduction from the evidence on this issue must be that the letter of November 26, 1917,
notifying Mr. Herrer that his application had been accepted, was prepared and signed in the local
office of the insurance company, was placed in the ordinary channels for transmission, but as far as
we know, was never actually mailed and thus was never received by the applicant.
Not forgetting our conclusion of fact, it next becomes necessary to determine the law which should
be applied to the facts. In order to reach our legal goal, the obvious signposts along the way must be
noticed.
Until quite recently, all of the provisions concerning life insurance in the Philippines were found in
the Code of Commerce and the Civil Code. In the Code of the Commerce, there formerly existed Title
VIII of Book III and Section III of Title III of Book III, which dealt with insurance contracts. In the
Civil Code there formerly existed and presumably still exist, Chapters II and IV, entitled insurance
contracts and life annuities, respectively, of Title XII of Book IV. On the after July 1, 1915, there
was, however, in force the Insurance Act. No. 2427. Chapter IV of this Act concerns life and health
insurance. The Act expressly repealed Title VIII of Book II and Section III of Title III of Book III of the
code of Commerce. The law of insurance is consequently now found in the Insurance Act and the
Civil Code.
While, as just noticed, the Insurance Act 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 contact 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 contract, in such case, is presumed to have
been entered into at the place where the offer was made." This latter article is in opposition to the
provisions of article 54 of the Code of Commerce.
If no mistake has been made in announcing the successive steps by which we reach a conclusion,
then the only duty remaining is for the court to apply the law as it is found. The legislature in its
wisdom having enacted a new law on insurance, and expressly repealed the provisions in the Code
of Commerce on the same subject, and having thus left a void in the commercial law, it would seem
logical to make use of the only pertinent provision of law found in the Civil code, closely related to
the chapter concerning life annuities.
The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only
from the date it came to his knowledge, may not be the best expression of modern commercial
usage. Still it must be admitted that its enforcement avoids uncertainty and tends to security. Not
only this, but in order that the principle may not be taken too lightly, let it be noticed that it is
identical with the principles announced by a considerable number of respectable courts in the
United States. The courts who take this view have expressly held that an acceptance of an offer of
insurance not actually or constructively communicated to the proposer does not make a contract.
Only the mailing of acceptance, it has been said, completes the contract of insurance, as the locus
poenitentiae is ended when the acceptance has passed beyond the control of the party. (I Joyce, The
Law of Insurance, pp. 235, 244.)
In resume, therefore, the law applicable to the case is found to be the 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. The further admitted facts are that the head
office in Montreal did accept the application, did cable the Manila office to that effect, did actually
issue the policy and did, through its agent in Manila, actually write the letter of notification and
place it in the usual channels for transmission to the addressee. The fact as to the letter of
notification thus fails to concur with the essential elements of the general rule pertaining to the
mailing and delivery of mail matter as announced by the American courts, namely, when a letter or
other mail matter is addressed and mailed with postage prepaid there is a rebuttable presumption
of fact that it was received by the addressee as soon as it could have been transmitted to him in the
ordinary course of the mails. But if any one of these elemental facts fails to appear, it is fatal to the
presumption. For instance, a letter will not be presumed to have been received by the addressee
unless it is shown that it was deposited in the post-office, properly addressed and stamped. (See 22
C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)
We hold that the contract for a life annuity in the case at bar was not perfected because it has not
been proved satisfactorily that the acceptance of the application ever came to the knowledge of the
applicant.lawph!l.net
Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of
P6,000 with legal interest from November 20, 1918, until paid, without special finding as to costs in
either instance. So ordered.
Mapa, C.J., Araullo, Avancea and Villamor, JJ., concur.
Johnson, J., dissents.
G.R. No. L-44059 October 28, 1977
THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.

MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life
insurance policy of a legally married man claim the proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd.,
Policy No. 009929 on a whole-life for P5,882.00 with a, rider for Accidental Death for the same
amount Buenaventura C. Ebrado designated T. Ebrado as the revocable beneficiary in his policy. He
to her as his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing
branch of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the
coverage in the total amount of P11,745.73, representing the face value of the policy in the amount
of P5,882.00 plus the additional benefits for accidental death also in the amount of P5,882.00 and
the refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums and
interest thereon due for January and February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated
beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado 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. She asserts that
she is the one entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance
Co., Ltd. commenced an action for Interpleader before the Court of First Instance of Rizal on April
29, 1970.
After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a
pre-trial order was entered reading as follows: +.wph!1
During the pre-trial conference, the parties manifested to the court. that there is no
possibility of amicable settlement. Hence, the Court proceeded to have the parties
submit their evidence for the purpose of the pre-trial and make admissions for the
purpose of pretrial. During this conference, parties Carponia T. Ebrado and Pascuala
Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was married
to Pascuala Ebrado with whom she has six (legitimate) namely; Hernando, Cresencio,
Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the lifetime of
the deceased, he was insured with Insular Life Assurance Co. Under Policy No.
009929 whole life plan, dated September 1, 1968 for the sum of P5,882.00 with the
rider for accidental death benefit as evidenced by Exhibits A for plaintiffs and Exhibit
1 for the defendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the
lifetime of Buenaventura Ebrado, he was living with his common-wife, Carponia Ebrado,
with whom she had 2 children although he was not legally separated from his legal
wife; 4) that Buenaventura in accident on October 21, 1969 as evidenced by the death
Exhibit 3 and affidavit of the police report of his death Exhibit 5; 5) that complainant
Carponia Ebrado filed claim with the Insular Life Assurance Co. which was contested
by Pascuala Ebrado who also filed claim for the proceeds of said policy 6) that in view
ofthe adverse claims the insurance company filed this action against the two herein
claimants Carponia and Pascuala Ebrado; 7) that there is now due from the Insular
Life Assurance Co. as proceeds of the policy P11,745.73; 8) that the beneficiary
designated by the insured in the policy is Carponia Ebrado and the insured made
reservation to change the beneficiary but although the insured made the option to
change the beneficiary, same was never changed up to the time of his death and the
wife did not have any opportunity to write the company that there was reservation to
change the designation of the parties agreed that a decision be rendered based on and
stipulation of facts as to who among the two claimants is entitled to the policy.
Upon motion of the parties, they are given ten (10) days to file their simultaneous
memoranda from the receipt of this order.
SO ORDERED.
On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T.
Ebrado disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and
directing the payment of the insurance proceeds to the estate of the deceased insured. The trial
court held: +.wph!1
It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal
conviction for adultery or concubinage is not essential in order to establish the
disqualification mentioned therein. Neither is it also necessary that a finding of such
guilt or commission of those acts be made in a separate independent action brought
for the purpose. The guilt of the donee (beneficiary) may be proved by preponderance
of evidence in the same proceeding (the action brought to declare the nullity of the
donation).
It is, however, essential that such adultery or concubinage exists at the time
defendant Carponia T. Ebrado was made beneficiary in the policy in question for the
disqualification and incapacity to exist and that it is only necessary that such fact be
established by preponderance of evidence in the trial. Since it is agreed in their
stipulation above-quoted that the deceased insured and defendant Carponia T. Ebrado
were living together as husband and wife without being legally married and that the
marriage of the insured with the other defendant Pascuala Vda. de Ebrado was valid
and still existing at the time the insurance in question was purchased there is no
question that defendant Carponia T. Ebrado is disqualified from becoming the
beneficiary of the policy in question and as such she is not entitled to the proceeds of
the insurance upon the death of the insured.
From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976,
the Appellate Court certified the case to Us as involving only questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance
Code (PD No. 612, as amended) does not contain any specific provision grossly resolutory of the
prime question at hand. Section 50 of the Insurance Act which provides that "(t)he insurance shag
be applied exclusively to the proper interest of the person in whose name it is made"
1
cannot be
validly seized upon to hold that the mm includes the beneficiary. The word "interest" highly
suggests that the provision refers only to the "insured" and not to the beneficiary, since a contract
of insurance is personal in character.
2
Otherwise, the prohibitory laws against illicit relationships
especially on property and descent will be rendered nugatory, as the same could easily be
circumvented by modes of insurance. Rather, 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 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.
3
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 fife insurance policy by the person who cannot
make a donation to him.
4
Common-law spouses are, definitely, barred from receiving donations
from each other. Article 739 of the new Civil Code provides: +.wph!1
The following donations shall be void:
1. Those made between persons who were guilty of adultery or concubinage at the time
of donation;
Those made between persons found guilty of the same criminal offense, in
consideration thereof;
3. Those made to a public officer or his wife, descendants or 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 donee may be proved by
preponderance of evidence in the same action.
2. 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.
5
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.
6

3. Policy considerations and dictates of morality rightly justify the institution of a barrier between
common law spouses in record to Property relations since such hip ultimately encroaches upon the
nuptial and filial rights of the legitimate family There is every reason to hold that the bar in
donations between legitimate spouses and those between illegitimate ones should be enforced in life
insurance policies since the same are based on similar consideration As above pointed out, a
beneficiary in a fife insurance policy is no different from a donee. Both are recipients of pure
beneficence. So long as manage remains the threshold of family laws, reason and morality dictate
that the impediments imposed upon married couple should likewise be imposed upon extra-marital
relationship. If legitimate relationship is circumscribed by these legal disabilities, with more reason
should an illicit relationship be restricted by these disabilities. Thus, in Matabuena v.
Cervantes,
7
this Court, through Justice Fernando, said: +.wph!1
If the policy of the law is, in the language of the opinion of the then Justice J.B.L.
Reyes of that court (Court of Appeals), 'to prohibit donations in favor of the other
consort and his descendants because of and undue and improper pressure and
influence upon the donor, a prejudice deeply rooted in our ancient law;" por-que no se
enganen desponjandose el uno al otro por amor que han de consuno' (According to)
the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore
invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem);
then there is very reason to apply the same prohibitive policy to persons living together
as husband and wife without the benefit of nuptials. For it is not to be doubted that
assent to such irregular connection for thirty years bespeaks greater influence of one
party over the other, so that the danger that the law seeks to avoid is correspondingly
increased. Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr.
1), 'it would not be just that such donations should subsist, lest the condition 6f those
who incurred guilt should turn out to be better.' So long as marriage remains the
cornerstone of our family law, reason and morality alike demand that the disabilities
attached to marriage should likewise attach to concubinage.
It is hardly necessary to add that even in the absence of the above pronouncement,
any other conclusion cannot stand the test of scrutiny. It would be to indict the frame
of the Civil Code for a failure to apply a laudable rule to a situation which in its
essentials cannot be distinguished. Moreover, if it is at all to be differentiated the
policy of the law which embodies a deeply rooted notion of what is just and what is
right would be nullified if such irregular relationship instead of being visited with
disabilities would be attended with benefits. Certainly a legal norm should not be
susceptible to such a reproach. If there is every any occasion where the principle of
statutory construction that what is within the spirit of the law is as much a part of it
as what is written, this is it. Otherwise the basic purpose discernible in such codal
provision would not be attained. Whatever omission may be apparent in an
interpretation purely literal of the language used must be remedied by an adherence to
its avowed objective.
4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities
mentioned in Article 739 may effectuate. More specifically, with record to the disability on "persons
who were guilty of adultery or concubinage at the time of the donation," Article 739 itself
provides: +.wph!1
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 guilty of the donee may be proved by
preponderance of evidence in the same action.
The underscored clause neatly conveys that no criminal conviction for the offense is a condition
precedent. In fact, it cannot even be from the aforequoted provision that a prosecution is needed.
On the contrary, the law plainly states that the guilt of the party may be proved "in the same acting
for declaration of nullity of donation. And, it would be sufficient if evidence preponderates upon the
guilt of the consort for the offense indicated. The quantum of proof in criminal cases is not
demanded.
In the caw before Us, the requisite proof of common-law relationship between the insured and the
beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial
conference of the case. It case agreed upon and stipulated therein that the deceased insured
Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate
children; that during his lifetime, the deceased insured was living with his common-law wife,
Carponia Ebrado, with whom he has two children. These stipulations are nothing less thanjudicial
admissions which, as a consequence, no longer require proof and cannot be
contradicted.
8
A fortiori, on the basis of these admissions, a judgment may be validly rendered
without going through the rigors of a trial for the sole purpose of proving the illicit liaison between
the insured and the beneficiary. In fact, in that pretrial, the parties even agreed "that a decision be
rendered based on this agreement and stipulation of facts as to who among the two claimants is
entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is
hereby declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life
insurance policy. As a consequence, the proceeds of the policy are hereby held payable to the estate
of the deceased insured. Costs against Carponia T. Ebrado.
SO ORDERED.
Teehankee (Chairman), Makasiar, Mu;oz Palma, Fernandez and Guerrero, JJ., concur.1





G.R. No. 124050. June 19, 1997]
MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES
DEPARTMENT, petitioners, vs. COURT OF APPEALS, SOUTH SEA SURETY AND
INSURANCE CO., INC. and the CHARTER INSURANCE CORPORATION, respondents.
D E C I S I O N
PUNO, J.:
This is a petition for review on certiorari to annul and set aside the Decision of respondent Court
of Appeals dated December 14, 1995
[1]
and its Resolution dated February 22, 1996
[2]
in CA-G.R. CV
No. 45805 entitled Mayer Steel Pipe Corporation and Hongkong Government Supplies Department
v. South Sea Surety Insurance Co., Inc. and The Charter Insurance Corporation.
[3]

In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted
petitioner Mayer Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and
fittings. From August to October, 1983, Mayer shipped the pipes and fittings to Hongkong as
evidenced by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and
MSPC-1022.
[4]

Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with
private respondents South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance
Corp. (Charter). The pipes and fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a
total amount of US$212,772.09 were insured with respondent South Sea, while those covered by
Invoice Nos. 1020, 1017 and 1022 with a total amount of US$149,470.00 were insured with
respondent Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as
third-party inspector to examine whether the pipes and fittings are manufactured in accordance
with the specifications in the contract. Industrial Inspection certified all the pipes and fittings to be
in good order condition before they were loaded in the vessel. Nonetheless, when the goods reached
Hongkong, it was discovered that a substantial portion thereof was damaged.
Petitioners filed a claim against private respondents for indemnity under the insurance
contract. Respondent Charter paid petitioner Hongkong the amount of HK$64,904.75. Petitioners
demanded payment of the balance of HK$299,345.30 representing the cost of repair of the damaged
pipes. Private respondents refused to pay because the insurance surveyor's report allegedly showed
that the damage is a factory defect.
On April 17, 1986, petitioners filed an action against private respondents to recover the sum of
HK$299,345.30. For their defense, private respondents averred that they have no obligation to pay
the amount claimed by petitioners because the damage to the goods is due to factory defects which
are not covered by the insurance policies.
The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to
manufacturing defects. It also noted that the insurance contracts executed by petitioner Mayer and
private respondents are "all risks" policies which insure against all causes of conceivable loss or
damage. The only exceptions are those excluded in the policy, or those sustained due to fraud or
intentional misconduct on the part of the insured. The dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered ordering the defendants jointly and severally, to
pay the plaintiffs the following:
1. the sum equivalent in Philippine currency of HK$299,345.30 with legal
rate of interest as of the filing of the complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.
SO ORDERED.
[5]

Private respondents elevated the case to respondent Court of Appeals.
Respondent court affirmed the finding of the trial court that the damage is not due to factory
defect and that it was covered by the "all risks" insurance policies issued by private respondents to
petitioner Mayer. However, it set aside the decision of the trial court and dismissed the complaint
on the ground of prescription. It held that the action is barred under Section 3(6) of the Carriage of
Goods by Sea Act since it was filed only on April 17, 1986, more than two years from the time the
goods were unloaded from the vessel. Section 3(6) of the Carriage of Goods by Sea Act provides that
"the carrier and the ship shall be discharged from all liability in respect of loss or damage unless
suit is brought within one year after delivery of the goods or the date when the goods should have
been delivered." Respondent court ruled that this provision applies not only to the carrier but also
to the insurer, citing Filipino Merchants Insurance Co., Inc. vs. Alejandro.
[6]

Hence this petition with the following assignments of error:
1. The respondent Court of Appeals erred in holding that petitioners' cause of action had
already prescribed on the mistaken application of the Carriage of Goods by Sea Act and
the doctrine of Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42); and
2. The respondent Court of Appeals committed an error in dismissing the complaint.
[7]

The petition is impressed with merit. Respondent court erred in applying Section 3(6) of the
Carriage of Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be
discharged from all liability for loss or damage to the goods if no suit is filed within one year after
delivery of the goods or the date when they should have been delivered. Under this provision, only
the carrier's liability is extinguished if no suit is brought within one year. But the liability of the
insurer is not extinguished because the insurer's liability is based not on the contract of carriage
but on the contract of insurance. A close reading of the law reveals that the Carriage of Goods by
Sea Act governs the relationship between the carrier on the one hand and the shipper, the
consignee and/or the insurer on the other hand. It defines the obligations of the carrier under the
contract of carriage. It does not, however, affect the relationship between the shipper and the
insurer. The latter case is governed by the Insurance Code.
Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro
[8]
and the other cases
[9]
cited
therein does not support respondent court's view that the insurer's liability prescribes after one
year if no action for indemnity is filed against the carrier or the insurer. In that case, the shipper
filed a complaint against the insurer for recovery of a sum of money as indemnity for the loss and
damage sustained by the insured goods. The insurer, in turn, filed a third-party complaint against
the carrier for reimbursement of the amount it paid to the shipper. The insurer filed the third-party
complaint on January 9, 1978, more than one year after delivery of the goods on December 17,
1977. The court held that the Insurer was already barred from filing a claim against the carrier
because under the Carriage of Goods by Sea Act, the suit against the carrier must be filed within
one year after delivery of the goods or the date when the goods should have been delivered. The
court said that "the coverage of the Act includes the insurer of the goods."
[10]

The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the
insurer which filed a claim against the carrier for reimbursement of the amount it paid to the
shipper. In the case at bar, it was the shipper which filed a claim against the insurer. The basis of
the shipper's claim is the "all risks" insurance policies issued by private respondents to petitioner
Mayer.
The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the
shipper, the consignee or the insurer. When the court said in Filipino Merchants that Section 3(6)
of the Carriage of Goods by Sea Act applies to the insurer, it meant that the insurer, like the
shipper, may no longer file a claim against the carrier beyond the one-year period provided in the
law. But it does not mean that the shipper may no longer file a claim against the insurer because
the basis of the insurer's liability is the insurance contract. An insurance contract is a contract
whereby one party, for a consideration known as the premium, agrees to indemnify another for loss
or damage which he may suffer from a specified peril.
[11]
An "all risks" insurance policy covers all
kinds of loss other than those due to willful and fraudulent act of the insured.
[12]
Thus, when
private respondents issued the "all risks" policies to petitioner Mayer, they bound themselves to
indemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes in
ten years, in accordance with Article 1144 of the New Civil Code.
[13]

IN VIEW WHEREOF, the petition is GRANTED. The Decision of respondent Court of Appeals
dated December 14, 1995 and its Resolution dated February 22, 1996 are hereby SET ASIDE and
the Decision of the Regional Trial Court is hereby REINSTATED. No costs.
SO ORDERED.
Regalado, (Chairman), Romero, Mendoza, and Torres, Jr., JJ., concur.

[G.R. No. 113899. October 13, 1999]
GREAT PACIFIC LIFE ASSURANCE CORP., petitioner vs. COURT OF APPEALS AND MEDARDA
V. LEUTERIO, respondents.
D E C I S I O N
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court, assails the Decision
[1]
dated May
17, 1993, of the Court of Appeals and its Resolution
[2]
dated January 4, 1994 in CA-G.R. CV No.
18341. The appellate court affirmed in toto the judgment of the Misamis Oriental Regional Trial
Court, Branch 18, in an insurance claim filed by private respondent against Great Pacific Life
Assurance Co. The dispositive portion of the trial courts decision reads:
WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC LIFE ASSURANCE
CORPORATION as insurer under its Group policy No. G-1907, in relation to Certification B-18558
liable and ordered to pay to the DEVELOPMENT BANK OF THE PHILIPPINES as creditor of the
insured Dr. Wilfredo Leuterio, the amount of EIGHTY SIX THOUSAND TWO HUNDRED PESOS
(P86,200.00); dismissing the claims for damages, attorneys fees and litigation expenses in the
complaint and counterclaim, with costs against the defendant and dismissing the complaint in
respect to the plaintiffs, other than the widow-beneficiary, for lack of cause of action.
[3]

The facts, as found by the Court of Appeals, are as follows:
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. In an application form, Dr. Leuterio answered
questions concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure,
cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment?
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No.
[4]

On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr.
Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two
hundred (P86,200.00) pesos.
On August 6, 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.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed
a complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for
Specific Performance with Damages.
[5]
During the trial, Dr. Hernando Mejia, who issued the death
certificate, was called to testify. Dr. Mejias findings, based partly from the information given by the
respondent widow, stated that Dr. Leuterio complained of headaches presumably due to high blood
pressure. The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other
causes were not ruled out.
On February 22, 1988, the trial court rendered a decision in favor of respondent widow and
against Grepalife. On May 17, 1993, the Court of Appeals sustained the trial courts
decision. Hence, the present petition. Petitioners interposed the following assigned errors:
"1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE TO THE
DEVELOPMENT BANK OF THE PHILIPPINES (DBP) WHICH IS NOT A PARTY TO THE
CASE FOR PAYMENT OF THE PROCEEDS OF A MORTGAGE REDEMPTION INSURANCE
ON THE LIFE OF PLAINTIFFS HUSBAND WILFREDO LEUTERIO ONE OF ITS LOAN
BORROWERS, INSTEAD OF DISMISSING THE CASE AGAINST DEFENDANT-
APPELLANT [Petitioner Grepalife] FOR LACK OF CAUSE OF ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR WANT OF
JURISDICTION OVER THE SUBJECT OR NATURE OF THE ACTION AND OVER THE
PERSON OF THE DEFENDANT.
3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-APPELLANT TO PAY TO DBP
THE AMOUNT OF P86,200.00 IN THE ABSENCE OF ANY EVIDENCE TO SHOW HOW
MUCH WAS THE ACTUAL AMOUNT PAYABLE TO DBP IN ACCORDANCE WITH ITS
GROUP INSURANCE CONTRACT WITH DEFENDANT-APPELLANT.
4. THE LOWER COURT ERRED IN - HOLDING THAT THERE WAS NO CONCEALMENT OF
MATERIAL INFORMATION ON THE PART OF WILFREDO LEUTERIO IN HIS
APPLICATION FOR MEMBERSHIP IN THE GROUP LIFE INSURANCE PLAN BETWEEN
DEFENDANT-APPELLANT OF THE INSURANCE CLAIM ARISING FROM THE DEATH OF
WILFREDO LEUTERIO.
[6]

Synthesized below are the assigned errors for our resolution:
1. Whether the Court of Appeals erred in holding petitioner liable to DBP as beneficiary in a
group life insurance contract from a complaint filed by the widow of the
decedent/mortgagor?
2. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he
had hypertension, which would vitiate the insurance contract?
3. Whether the Court of Appeals erred in holding Grepalife liable in the amount of eighty six
thousand, two hundred (P86,200.00) pesos without proof of the actual outstanding
mortgage payable by the mortgagor to DBP.
Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real
party in interest, hence the trial court acquired no jurisdiction over the case. It argues that when
the Court of Appeals affirmed the trial courts judgment, Grepalife was held liable to pay the
proceeds of insurance contract in favor of DBP, the indispensable party who was not joined in the
suit.
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.
[7]
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.
[8]
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
mortgagors 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.
[9]

Section 8 of the Insurance Code provides:
Unless the policy 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.
The insured private respondent did not cede to the mortgagee all his rights or interests in the
insurance, the policy stating that: In the event of the debtors death before his indebtedness with
the Creditor [DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall
first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the
beneficiary/ies designated by the debtor.
[10]
When DBP submitted the insurance claim against
petitioner, the latter denied payment thereof, interposing the defense of concealment committed by
the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action
of foreclosure on the residential lot of private respondent.
[11]
In Gonzales La O vs. Yek Tong Lin Fire
& Marine Ins. Co.
[12]
we held:
Insured, being the person with whom the contract was made, is primarily the proper person to
bring suit thereon. * * * Subject to some exceptions, insured may thus sue, although the policy is
taken wholly or in part for the benefit of another person named or unnamed, and although it is
expressly made payable to another as his interest may appear or otherwise. * * * Although a policy
issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable to him, yet
the mortgagor may sue thereon in his own name, especially where the mortgagees interest is less
than the full amount recoverable under the policy, * * *.
And in volume 33, page 82, of the same work, we read the following:
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.
[13]

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,
[14]
the widow of the decedent Dr. Leuterio may file the suit
against the insurer, Grepalife.
The second assigned error refers to an alleged concealment that the petitioner interposed as its
defense to annul the insurance contract. Petitioner contends that Dr. Leuterio failed to disclose
that he had hypertension, which might have caused his death. 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.
[15]

Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as
supported by the information given by the widow of the decedent. Grepalife asserts that Dr. Mejias
technical diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital record,
and that the widows declaration that her husband had possible hypertension several years ago
should not be considered as hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an
autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated that he had no
knowledge of Dr. Leuterios any previous hospital confinement.
[16]
Dr. Leuterios death certificate
stated that hypertension was only the possible cause of death. The private respondents
statement, as to the medical history of her husband, was due to her unreliable recollection of
events. Hence, the statement of the physician was properly considered by the trial court as
hearsay.
The question of whether there was concealment was aptly answered by the appellate court,
thus:
The insured, Dr. Leuterio, had answered in his insurance application that he was in good health
and that he had not consulted a doctor or any of the enumerated ailments, including hypertension;
when he died the attending physician had certified in the death certificate that the former died of
cerebral hemorrhage, probably secondary to hypertension. From this report, the appellant
insurance company refused to pay the insurance claim. Appellant alleged that the insured had
concealed the fact that he had hypertension.
Contrary to appellants allegations, there was no sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the insureds 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. Leuterios medical history...
x x x
Appellant insurance company had failed to establish that there was concealment made by the
insured, hence, it cannot refuse payment of the claim.
[17]

The fraudulent intent on the part of the insured must be established to entitle the insurer to
rescind the contract.
[18]
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.
[19]
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.
And that brings us to the last point in the review of the case at bar. Petitioner claims that there
was no evidence as to the amount of Dr. Leuterios outstanding indebtedness to DBP at the time of
the mortgagors death. Hence, for private respondents failure to establish the same, the action for
specific performance should be dismissed. Petitioners claim is without merit. A life insurance
policy is a valued policy.
[20]
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.
[21]
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 Debtors 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 debtors 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.
[22]
(Emphasis omitted)
However, we noted that the Court of Appeals decision was promulgated on May 17, 1993. In
private respondents memorandum, she states that DBP foreclosed in 1995 their residential lot, in
satisfaction of mortgagors outstanding loan. Considering this supervening event, 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 insurance proceeds, after it already foreclosed on
the mortgage. The proceeds now rightly belong to Dr. Leuterios heirs represented by his widow,
herein private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court of
Appeals in CA-G.R. CV 18341 is AFFIRMED with MODIFICATION that the petitioner is ORDERED
to pay the insurance proceeds amounting to Eighty-six thousand, two hundred (P86,200.00) pesos
to the heirs of the insured, Dr. Wilfredo Leuterio (deceased), upon presentation of proof of prior
settlement of mortgagors indebtedness to Development Bank of the Philippines. Costs against
petitioner.
SO ORDERED.
Mendoza, Buena, and De Leon Jr., JJ., concur.
Bellosillo, (Chairman), J., on official leave.
[G.R. No. 125678. March 18, 2002]
PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA
TRINOS, respondents.
D E C I S I O N
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care
coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he
answered no to the following question:
Have you or any of your family members ever consulted or been treated for high blood pressure,
heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).
[1]

The application was approved for a period of one year from March 1, 1988 to March 1,
1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement,
respondents husband was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of out-patient benefits such as annual
physical examinations, preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year from March 1,
1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was
increased to a maximum sum of P75,000.00 per disability.
[2]

During the period of his coverage, Ernani suffered a heart attack and was confined at the
Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in
the hospital, respondent tried to claim the benefits under the health care agreement. However,
petitioner denied her claim saying that the Health Care Agreement was void. According to
petitioner, there was a concealment regarding Ernanis medical history. Doctors at the MMC
allegedly discovered at the time of Ernanis confinement that he was hypertensive, diabetic and
asthmatic, contrary to his answer in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical therapist at
home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties,
however, respondent brought her husband home again. In the morning of April 13, 1990, Ernani
had fever and was feeling very weak. Respondent was constrained to bring him back to the Chinese
General Hospital where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an
action for damages against petitioner and its president, Dr. Benito Reverente, which was docketed
as Civil Case No. 90-53795. She asked for reimbursement of her expenses plus moral damages and
attorneys fees. After trial, the lower court ruled against petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita
Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos
in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the
same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of

P10,000.00 as exemplary damages to plaintiff;
4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.
SO ORDERED.
[3]

On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards
for damages and absolved petitioner Reverente.
[4]
Petitioners motion for reconsideration was
denied.
[5]
Hence, petitioner brought the instant petition for review, raising the primary argument that
a health care agreement is not an insurance contract; hence the incontestability clause under the
Insurance Code
[6]
does not apply.
Petitioner argues that the agreement grants living benefits, such as medical check-ups and
hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the
agreement until its expiration one-year thereafter. Petitioner also points out that only medical and
hospitalization benefits are given under the agreement without any indemnification, unlike in an
insurance contract where the insured is indemnified for his loss. Moreover, since Health Care
Agreements are only for a period of one year, as compared to insurance contracts which last
longer,
[7]
petitioner argues that the incontestability clause does not apply, as the same requires an
effectivity period of at least two years. Petitioner further argues that it is not an insurance
company, which is governed by the Insurance Commission, but a Health Maintenance Organization
under the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby
one undertakes for a consideration to indemnify another against loss, damage or liability arising
from an unknown or contingent event. An insurance contract exists where the following elements
concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a premium.
[8]

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or
future, which may damnify a person having an insurable interest against him, may be insured
against. Every person has an insurable interest in the life and health of himself. Section 10
provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting
property or service, of which death or illness might delay or prevent the performance;
and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondents husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity.
[9]
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.
Petitioner argues that respondents husband concealed a material fact in his application. It
appears that in the application for health coverage, petitioners required respondents husband to
sign an express authorization for any person, organization or entity that has any record or
knowledge of his health to furnish any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or examination.
[10]
Specifically, the Health Care
Agreement signed by respondents husband states:
We hereby declare and agree that all statement and answers contained herein and in any
addendum annexed to this application are full, complete and true and bind all parties in interest
under the Agreement herein applied for, that there shall be no contract of health care coverage
unless and until an Agreement is issued on this application and the full Membership Fee according
to the mode of payment applied for is actually paid during the lifetime and good health of proposed
Members; that no information acquired by any Representative of PhilamCare shall be binding upon
PhilamCare unless set out in writing in the application; that any physician is, by these presents,
expressly authorized to disclose or give testimony at anytime relative to any information acquired by
him in his professional capacity upon any question affecting the eligibility for health care coverage
of the Proposed Members and that the acceptance of any Agreement issued on this application shall
be a ratification of any correction in or addition to this application as stated in the space for Home
Office Endorsement.
[11]
(Underscoring ours)
In addition to the above condition, petitioner additionally required the applicant for
authorization to inquire about the applicants medical history, thus:
I hereby authorize any person, organization, or entity that has any record or knowledge of my
health and/or that of __________ to give to the PhilamCare Health Systems, Inc. any and all
information relative to any hospitalization, consultation, treatment or any other medical advice or
examination. This authorization is in connection with the application for health care coverage
only. A photographic copy of this authorization shall be as valid as the original.
[12]
(Underscoring
ours)
Petitioner cannot rely on the stipulation regarding Invalidation of agreement which reads:
Failure to disclose or misrepresentation of any material information by the member in the
application or medical examination, whether intentional or unintentional, shall automatically
invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to
return of all Membership Fees paid. An undisclosed or misrepresented information is deemed
material if its revelation would have resulted in the declination of the applicant by Philamcare or the
assessment of a higher Membership Fee for the benefit or benefits applied for.
[13]

The answer assailed by petitioner was in response to the question relating to the medical
history of the applicant. This largely depends on opinion rather than fact, especially coming from
respondents husband who was not a medical doctor. Where matters of opinion or judgment are
called for, answers made in good faith and without intent to deceive will not avoid a policy even
though they are untrue.
[14]
Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the
insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or
its acceptance at a lower rate of premium, and this is likewise the rule although the statement is
material to the risk, if the statement is obviously of the foregoing character, since in such case the
insurer is not justified in relying upon such statement, but is obligated to make further
inquiry. There is a clear distinction between such a case and one in which the insured is
fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he
then knows, to be actually untrue, or the impossibility of which is shown by the facts within his
knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual
fraud.
[15]
(Underscoring ours)
The fraudulent intent on the part of the insured must be established to warrant rescission of
the insurance contract.
[16]
Concealment as a defense for the health care provider or insurer to avoid
liability is an affirmative defense and the duty to establish such defense by satisfactory and
convincing evidence rests upon the provider or insurer. In any case, with or without the authority
to investigate, petitioner is liable for claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound to answer the same to the extent agreed
upon. In the end, the liability of the health care provider attaches once the member is hospitalized
for the disease or injury covered by the agreement or whenever he avails of the covered benefits
which he has prepaid.
Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind a
contract of insurance. The right to rescind should be exercised previous to the commencement of
an action on the contract.
[17]
In this case, no rescission was made. Besides, the cancellation of
health care agreements as in insurance policies require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more of the
grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation is based.
[18]

None of the above pre-conditions was fulfilled in this case. When the terms of insurance
contract contain limitations on liability, courts should construe them in such a way as to preclude
the insurer from non-compliance with his obligation.
[19]
Being a contract of adhesion, the terms of
an insurance contract are to be construed strictly against the party which prepared the contract
the insurer.
[20]
By reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer
and liberally in favor of the insured, especially to avoid forfeiture.
[21]
This is equally applicable to
Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the
one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably
susceptible of two interpretations the construction conferring coverage is to be adopted, and
exclusionary clauses of doubtful import should be strictly construed against the provider.
[22]

Anent the incontestability of the membership of respondents husband, we quote with approval
the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had
twelve months from the date of issuance of the Agreement within which to contest the membership
of the patient if he had previous ailment of asthma, and six months from the issuance of the
agreement if the patient was sick of diabetes or hypertension. The periods having expired, the
defense of concealment or misrepresentation no longer lie.
[23]

Finally, petitioner alleges that respondent was not the legal wife of the deceased member
considering that at the time of their marriage, the deceased was previously married to another
woman who was still alive. The health care agreement is in the nature of a contract of
indemnity. Hence, payment should be made to the party who incurred the expenses. It is not
controverted that respondent paid all the hospital and medical expenses. She is therefore entitled
to reimbursement. The records adequately prove the expenses incurred by respondent for the
deceaseds hospitalization, medication and the professional fees of the attending physicians.
[24]

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the
Court of Appeals dated December 14, 1995 is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.




[G.R. No. 138941. October 8, 2001]
AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. TANTUCO ENTERPRISES,
INC., respondent.
D E C I S I O N
PUNO, J.:
Before us is a Petition for Review on Certiorari assailing the Decision of the Court of Appeals in
CA-G.R. CV No. 52221 promulgated on January 14, 1999, which affirmed in toto the Decision of the
Regional Trial Court, Branch 53, Lucena City in Civil Case No. 92-51 dated October 16, 1995.
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining
industry. It owns two oil mills. Both are located at its factory compound at Iyam, Lucena City. It
appears that respondent commenced its business operations with only one oil mill. In 1988, it
started operating its second oil mill. The latter came to be commonly referred to as the new oil mill.
The two oil mills were separately covered by fire insurance policies issued by petitioner
American Home Assurance Co., Philippine Branch.
[1]
The first oil mill was insured for three million
pesos (P3,000,000.00) under Policy No. 306-7432324-3 for the period March 1, 1991 to 1992.
[2]
The
new oil mill was insured for six million pesos (P6,000,000.00) under Policy No. 306-7432321-9 for
the same term.
[3]
Official receipts indicating payment for the full amount of the premium were
issued by the petitioner's agent.
[4]

A fire that broke out in the early morning of September 30,1991 gutted and consumed the new
oil mill. Respondent immediately notified the petitioner of the incident. The latter then sent its
appraisers who inspected the burned premises and the properties destroyed. Thereafter, in a letter
dated October 15, 1991, petitioner rejected respondents claim for the insurance proceeds on the
ground that no policy was issued by it covering the burned oil mill. It stated that the description of
the insured establishment referred to another building thus: Our policy nos. 306-7432321-9 (Ps
6M) and 306-7432324-4 (Ps 3M) extend insurance coverage to your oil mill under Building No. 5,
whilst the affected oil mill was under Building No. 14.
[5]

A complaint for specific performance and damages was consequently instituted by the
respondent with the RTC, Branch 53 of Lucena City. On October 16, 1995, after trial, the lower
court rendered a Decision finding the petitioner liable on the insurance policy thus:
WHEREFORE, judgment is rendered in favor of the plaintiff ordering defendant to pay plaintiff:
(a) P4,406,536.40 representing damages for loss by fire of its insured property with interest at the
legal rate;
(b) P80,000.00 for litigation expenses;
(c) P300,000.00 for and as attorneys fees; and
(d) Pay the costs.
SO ORDERED.
[6]

Petitioner assailed this judgment before the Court of Appeals. The appellate court upheld the
same in a Decision promulgated on January 14, 1999, the pertinent portion of which states:
WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit and the trial courts
Decision dated October 16, 1995 is hereby AFFIRMED in toto.
SO ORDERED.
[7]

Petitioner moved for reconsideration. The motion, however, was denied for lack of merit in a
Resolution promulgated on June 10, 1999.
Hence, the present course of action, where petitioner ascribes to the appellate court the
following errors:
(1) The Court of Appeals erred in its conclusion that the issue of non-payment of the premium
was beyond its jurisdiction because it was raised for the first time on appeal.
[8]

(2) The Court of Appeals erred in its legal interpretation of 'Fire Extinguishing Appliances
Warranty' of the policy.
[9]

(3) With due respect, the conclusion of the Court of Appeals giving no regard to the parole
evidence rule and the principle of estoppel is erroneous.
[10]

The petition is devoid of merit.
The primary reason advanced by the petitioner in resisting the claim of the respondent is that
the burned oil mill is not covered by any insurance policy. According to it, the oil mill insured is
specifically described in the policy by its boundaries in the following manner:
Front: by a driveway thence at 18 meters distance by Bldg. No. 2.
Right: by an open space thence by Bldg. No. 4.
Left: Adjoining thence an imperfect wall by Bldg. No. 4.
Rear: by an open space thence at 8 meters distance.
However, it argues that this specific boundary description clearly pertains, not to the burned oil
mill, but to the other mill. In other words, the oil mill gutted by fire was not the one described by
the specific boundaries in the contested policy.
What exacerbates respondents predicament, petitioner posits, is that it did not have the
supposed wrong description or mistake corrected. Despite the fact that the policy in question was
issued way back in 1988, or about three years before the fire, and despite the Important Notice in
the policy that Please read and examine the policy and if incorrect, return it immediately for
alteration, respondent apparently did not call petitioners attention with respect to the
misdescription.
By way of conclusion, petitioner argues that respondent is barred by the parole evidence rule
from presenting evidence (other than the policy in question) of its self-serving intention (sic) that it
intended really to insure the burned oil mill, just as it is barred by estoppel from claiming that the
description of the insured oil mill in the policy was wrong, because it retained the policy without
having the same corrected before the fire by an endorsement in accordance with its Condition No.
28.
These contentions can not pass judicial muster.
In construing the words used descriptive of a building insured, the greatest liberality is shown
by the courts in giving effect to the insurance.
[11]
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.
[12]

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, situate
(sic) at UNNO. ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY UNBLOCKED.
[13]
(emphasis
supplied.)
If the parties really intended to protect the first oil mill, then there is no need to specify it as
new.
Indeed, it would be absurd to assume that respondent would protect its first oil mill for different
amounts and leave uncovered its second one. As mentioned earlier, the first oil mill is already
covered under Policy No. 306-7432324-4 issued by the petitioner. It is unthinkable for respondent
to obtain the other policy from the very same company. The latter ought to know that a second
agreement over that same realty results in its overinsurance.
The imperfection in the description of the insured oil mills boundaries can be attributed to a
misunderstanding between the petitioners general agent, Mr. Alfredo Borja, and its policy issuing
clerk, who made the error of copying the boundaries of the first oil mill when typing the policy to be
issued for the new one. As testified to by Mr.Borja:
Atty. G. Camaligan:
Q: What did you do when you received the report?
A: I told them as will be shown by the map the intention really of Mr. Edison Tantuco is to
cover the new oil mill that is why when I presented the existing policy of the old policy, the
policy issuing clerk just merely (sic) copied the wording from the old policy and what she
typed is that the description of the boundaries from the old policy was copied but she
inserted covering the new oil mill and to me at that time the important thing is that it
covered the new oil mill because it is just within one compound and there are only two
oil mill[s] and so just enough, I had the policy prepared. In fact, two policies were prepared
having the same date one for the old one and the other for the new oil mill and exactly the
same policy period, sir.
[14]
(emphasis supplied)
It is thus clear that the source of the discrepancy happened during the preparation of the written
contract.
These facts lead us to hold that the present case falls within one of the recognized exceptions to
the parole evidence rule. Under the Rules of Court, a party may present evidence to modify, explain
or add to the terms of the written agreement if he puts in issue in his pleading, among others, its
failure to express the true intent and agreement of the parties thereto.
[15]
Here, the contractual
intention of the parties cannot be understood from a mere reading of the instrument. Thus, while
the contract explicitly stipulated that it was for the insurance of the new oil mill, the boundary
description written on the policy concededly pertains to the first oil mill. This irreconcilable
difference can only be clarified by admitting evidence aliunde, which will explain the imperfection
and clarify the intent of the parties.
Anent petitioners argument that the respondent is barred by estoppel from claiming that the
description of the insured oil mill in the policy was wrong, we find that the same proceeds from a
wrong assumption. Evidence on record reveals that respondents operating manager, Mr. Edison
Tantuco, notified Mr. Borja (the petitioners 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. This can be seen from the testimony on cross of Mr. Tantuco:
"ATTY. SALONGA:
Q: You mentioned, sir, that at least in so far as Exhibit A is concern you have read what the
policy contents.(sic)
Kindly take a look in the page of Exhibit A which was marked as Exhibit A-2 particularly
the boundaries of the property insured by the insurance policy Exhibit A, will you tell us as
the manager of the company whether the boundaries stated in Exhibit A-2 are the
boundaries of the old (sic) mill that was burned or not.
A: It was not, I called up Mr. Borja regarding this matter and he told me that what is
important is the word new oil mill. Mr. Borja said, as a matter of fact, you can never
insured (sic) one property with two (2) policies, you will only do that if you will make to
increase the amount and it is by indorsement not by another policy, sir."
[16]

We again stress that the object of the court in construing a contract is to ascertain the intent of
the parties to the contract and to enforce the agreement which the parties have entered into. In
determining what the parties intended, the courts will read and construe the policy as a whole and
if possible, give effect to all the parts of the contract, keeping in mind always, however, the prime
rule that in the event of doubt, this doubt is to be resolved against the insurer. In determining the
intent of the parties to the contract, the courts will consider the purpose and object of the
contract.
[17]

In a further attempt to avoid liability, petitioner claims that respondent forfeited the renewal
policy for its failure to pay the full amount of the premium and breach of the Fire Extinguishing
Appliances Warranty.
The amount of the premium stated on the face of the policy was P89,770.20. From the
admission of respondents own witness, Mr. Borja, which the petitioner cited, the former 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.
[18]

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.
[19]

Petitioner, however, contests this finding of the appellate court. It insists that the issue was
raised in paragraph 24 of its Answer, viz.:
24. Plaintiff has not complied with the condition of the policy and renewal certificate that the
renewal premium should be paid on or before renewal date.
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.
The argument fails to impress. It is true that the asseverations petitioner made in paragraph
24 of its Answer ostensibly spoke of the policys condition for payment of the renewal premium on
time and respondents 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.
Likewise, when the issues to be resolved in the trial court were formulated at the pre-trial
proceedings, the question of the supposed inadequate payment was never raised. Most significant
to point, petitioner fatally neglected to present, during the whole course of the trial, any witness to
testify that respondent indeed failed to pay the full amount of the premium. The thrust of the
cross-examination of Mr. Borja, on the other hand, was not for the purpose of proving this
fact. Though it briefly touched on the alleged deficiency, such was made in the course of discussing
a discount or rebate, which the agent apparently gave the respondent. Certainly, the whole tenor of
Mr. Borjas testimony, both during direct and cross examinations, implicitly assumed a valid and
subsisting insurance policy. It must be remembered that he was called to the stand basically to
demonstrate that an existing policy issued by the petitioner covers the burned building.
Finally, petitioner contends that respondent violated the express terms of the Fire Extinguishing
Appliances Warranty. The said warranty provides:
WARRANTED that during the currency of this Policy, Fire Extinguishing Appliances as
mentioned below shall be maintained in efficient working order on the premises to which
insurance applies:
- PORTABLE EXTINGUISHERS
- INTERNAL HYDRANTS
- EXTERNAL HYDRANTS
- FIRE PUMP
- 24-HOUR SECURITY SERVICES
BREACH of this warranty shall render this policy null and void and the Company shall no
longer be liable for any loss which may occur.
[20]

Petitioner argues that the warranty clearly obligates the insured to maintain all the appliances
specified therein. The breach occurred when the respondent failed to install internal fire hydrants
inside the burned building as warranted. This fact was admitted by the oil mills expeller operator,
Gerardo Zarsuela.
Again, the argument lacks merit. We agree with the appellate courts conclusion that the
aforementioned warranty did not require respondent to provide for all the fire extinguishing
appliances enumerated therein. Additionally, we find that neither did it require that the appliances
are restricted to those mentioned in the warranty. In other words, 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 mills first line of defense in case any part of it bursts into flame.
To be sure, respondent was able to comply with the warranty. Within the vicinity of the new oil
mill can be found the following devices: numerous portable fire extinguishers, two fire hoses,
[21]
fire
hydrant,
[22]
and an emergency fire engine.
[23]
All of these equipments were in efficient working order
when the fire occurred.
It ought to be remembered that not only are warranties strictly construed against the insurer,
but they should, likewise, by themselves be reasonably interpreted.
[24]
That reasonableness is to be
ascertained in light of the factual conditions prevailing in each case. 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.
IN VIEW WHEREOF, finding no reversible error in the impugned Decision, the instant petition
is hereby DISMISSED.
SO ORDERED.
[G.R. No. 112360. July 18, 2000]
RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS and
TRANSWORLD KNITTING MILLS, INC., respondents.
D E C I S I O N
PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to
annul and set aside the July 15, 1993 Decision
[1]
and October 22, 1993 Resolution
[2]
of the
Court of Appeals
[3]
in CA-G.R. CV NO. 28779, which modified the Ruling
[4]
of the Regional
Trial Court of Pasig, Branch 161, in Civil Case No. 46106.
The antecedent facts that matter are as follows:
On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued Fire
Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc. (Transworld), initially
for One Million (P1,000,000.00) Pesos and eventually increased to One Million Five Hundred
Thousand (P1,500,000.00) Pesos, covering the period from August 14, 1980 to March 13,
1981.
Pertinent portions of subject policy on the buildings insured, and location thereof, read:
"On stocks of finished and/or unfinished products, raw materials and supplies of
every kind and description, the properties of the Insureds and/or held by them in
trust, on commission or on joint account with others and/or for which they (sic)
responsible in case of loss whilst contained and/or stored during the currency of this
Policy in the premises occupied by them forming part of the buildings situate (sic)
within own Compound at MAGDALO STREET, BARRIO UGONG, PASIG, METRO
MANILA, PHILIPPINES, BLOCK NO. 601.
xxx...............xxx...............xxx
Said building of four-span lofty one storey in height with mezzanine portions is
constructed of reinforced concrete and hollow blocks and/or concrete under
galvanized iron roof and occupied as hosiery mills, garment and lingerie factory,
transistor-stereo assembly plant, offices, warehouse and caretaker's quarters.
'Bounds in front partly by one-storey concrete building under galvanized iron roof
occupied as canteen and guardhouse, partly by building of two and partly one storey
constructed of concrete below, timber above undergalvanized iron roof occupied as
garage and quarters and partly by open space and/or tracking/ packing, beyond which
is the aforementioned Magdalo Street; on its right and left by driveway, thence open
spaces, and at the rear by open spaces.'"
[5]

The same pieces of property insured with the petitioner were also insured with New India
Assurance Company, Ltd., (New India).
On January 12, 1981, fire broke out in the compound of Transworld, razing the middle
portion of its four-span building and partly gutting the left and right sections thereof. A two-
storey building (behind said four-span building) where fun and amusement machines and
spare parts were stored, was also destroyed by the fire.
Transworld filed its insurance claims with Rizal Surety & Insurance Company and New India
Assurance Company but to no avail.
On May 26, 1982, private respondent brought against the said insurance companies an
action for collection of sum of money and damages, docketed as Civil Case No. 46106 before
Branch 161 of the then Court of First Instance of Rizal; praying for judgment ordering Rizal
Insurance and New India to pay the amount of P2,747, 867.00 plus legal
interest, P400,000.00 as attorney's fees, exemplary damages, expenses of litigation
of P50,000.00 and costs of suit.
[6]

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

On January 4, 1990, the trial court rendered its decision; disposing as follows:
"ACCORDINGLY, judgment is hereby rendered as follows:
(1)Dismissing the case as against The New India Assurance Co., Ltd.;
(2) Ordering defendant Rizal Surety And Insurance Company to pay Transwrold (sic)
Knitting Mills, Inc. the amount of P826, 500.00 representing the actual value of the
losses suffered by it; and
(3) Cost against defendant Rizal Surety and Insurance Company.
SO ORDERED."
[8]

Both the petitioner, Rizal Insurance Company, and private respondent, Transworld Knitting
Mills, Inc., went to the Court of Appeals, which came out with its decision of July 15, 1993
under attack, the decretal portion of which reads:
"WHEREFORE, and upon all the foregoing, the decision of the court below is
MODIFIED in that defendant New India Assurance Company has and is hereby
required to pay plaintiff-appellant the amount of P1,818,604.19 while the other Rizal
Surety has to pay the plaintiff-appellant P470,328.67, based on the actual losses
sustained by plaintiff Transworld in the fire, totalling P2,790,376.00 as against the
amounts of fire insurance coverages respectively extended by New India in the amount
of P5,800,000.00 and Rizal Surety and Insurance Company in the amount of
P1,500,000.00.
No costs.
SO ORDERED."
[9]

On August 20, 1993, from the aforesaid judgment of the Court of Appeals New India
appealed to this Court theorizing inter alia that the private respondent could not be
compensated for the loss of the fun and amusement machines and spare parts stored at the
two-storey building because it (Transworld) had no insurable interest in said goods or items.
On February 2, 1994, the Court denied the appeal with finality in G.R. No. L-111118 (New
India Assurance Company Ltd. vs. Court of Appeals).
Petitioner Rizal Insurance and private respondent Transworld, interposed a Motion for
Reconsideration before the Court of Appeals, and on October 22, 1993, the Court of Appeals
reconsidered its decision of July 15, 1993, as regards the imposition of interest, ruling thus:
"WHEREFORE, the Decision of July 15, 1993 is amended but only insofar as the
imposition of legal interest is concerned, that, on the assessment against New India
Assurance Company on the amount of P1,818,604.19 and that against Rizal Surety &
Insurance Company on the amount of P470,328.67, from May 26, 1982 when the
complaint was filed until payment is made. The rest of the said decision is retained in
all other respects.
SO ORDERED."
[10]

Undaunted, petitioner Rizal Surety & Insurance Company found its way to this Court via the
present Petition, contending that:
I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT THE ANNEX BUILDING
WHERE THE BULK OF THE BURNED PROPERTIES WERE STORED, WAS INCLUDED
IN THE COVERAGE OF THE INSURANCE POLICY ISSUED BY RIZAL SURETY TO
TRANSWORLD.
II.....SAID DECISION AND RESOLUTION (ANNEXES A AND B) ERRED IN NOT
CONSIDERING THE PICTURES (EXHS. 3 TO 7-C-RIZAL SURETY), TAKEN
IMMEDIATELY AFTER THE FIRE, WHICH CLEARLY SHOW THAT THE PREMISES
OCCUPIED BY TRANSWORLD, WHERE THE INSURED PROPERTIES WERE
LOCATED, SUSTAINED PARTIAL DAMAGE ONLY.
III. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING THAT TRANSWORLD HAD
ACTED IN PALPABLE BAD FAITH AND WITH MALICE IN FILING ITS CLEARLY
UNFOUNDED CIVIL ACTION, AND IN NOT ORDERING TRANSWORLD TO PAY TO
RIZAL SURETY MORAL AND PUNITIVE DAMAGES (ART. 2205, CIVIL CODE), PLUS
ATTORNEY'S FEES AND EXPENSES OF LITIGATION (ART. 2208 PARS. 4 and 11,
CIVIL CODE).
[11]

The Petition is not impressed with merit.
It is petitioner's submission that the fire insurance policy litigated upon protected only the
contents of the main building (four-span),
[12]
and did not include those stored in the two-
storey annex building. On the other hand, the private respondent theorized that the so called
"annex" was not an annex but was actually an integral part of the four-span building
[13]
and
therefore, the goods and items stored therein were covered by the same fire insurance policy.
Resolution of the issues posited here hinges on the proper interpretation of the stipulation in
subject fire insurance policy regarding its coverage, which reads:
"xxx contained and/or stored during the currency of this Policy in the premises
occupied by them forming part of the buildings situate (sic) within own Compound
xxx"
Therefrom, it can be gleaned unerringly that the fire insurance policy in question did not
limit its coverage to what were stored in the four-span building. As opined by the trial court
of origin, two requirements must concur in order that the said fun and amusement machines
and spare parts would be deemed protected by the fire insurance policy under scrutiny, to
wit:
"First, said properties must be contained and/or stored in the areas occupied by
Transworld and second, said areas must form part of the building described in the
policy xxx"
[14]

'Said building of four-span lofty one storey in height with mezzanine
portions is constructed of reinforced concrete and hollow blocks and/or
concrete under galvanized iron roof and occupied as hosiery mills,
garment and lingerie factory, transistor-stereo assembly plant, offices,
ware house and caretaker's quarter.'
The Court is mindful of the well-entrenched doctrine that factual findings by the Court of
Appeals are conclusive on the parties and not reviewable by this Court, and the same carry
even more weight when the Court of Appeals has affirmed the findings of fact arrived at by
the lower court.
[15]

In the case under consideration, both the trial court and the Court of Appeals found that the
so called "annex " was not an annex building but an integral and inseparable part of the
four-span building described in the policy and consequently, the machines and spare parts
stored therein were covered by the fire insurance in dispute. The letter-report of the Manila
Adjusters and Surveyor's Company, which petitioner itself cited and invoked, describes the
"annex" building as follows:
"Two-storey building constructed of partly timber and partly concrete hollow blocks
under g.i. roof which is adjoining and intercommunicating with the repair of the first
right span of the lofty storey building and thence by property fence wall."
[16]

Verily, the two-storey building involved, a permanent structure which adjoins and
intercommunicates with the "first right span of the lofty storey building",
[17]
formed part
thereof, and meets the requisites for compensability under the fire insurance policy sued
upon.
So also, considering that the two-storey building aforementioned was already existing when
subject fire insurance policy contract was entered into on January 12, 1981, having been
constructed sometime in 1978,
[18]
petitioner should have specifically excluded the said two-
storey building from the coverage of the fire insurance if minded to exclude the same but if
did not, and instead, went on to provide that such fire insurance policy covers the products,
raw materials and supplies stored within the premises of respondent Transworld which was
an integral part of the four-span building occupied by Transworld, knowing fully well the
existence of such building adjoining and intercommunicating with the right section of the
four-span building.
After a careful study, the Court does not find any basis for disturbing what the lower courts
found and arrived at.
Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has
created a doubt regarding the portions of the building insured thereby. Article 1377 of the
New Civil Code provides:
"Art.1377. The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity"
Conformably, it stands to reason that the doubt should be resolved against the petitioner,
Rizal Surety Insurance Company, whose lawyer or managers drafted the fire insurance policy
contract under scrutiny. Citing the aforecited provision of law in point, the Court in Landicho
vs. Government Service Insurance System,
[19]
ruled:
"This is particularly true as regards insurance policies, in respect of which it is settled
that the 'terms in an insurance policy, which are ambiguous, equivocal, or uncertain x x
x are to be construed strictly and most strongly against the insurer, and liberally in favor
of the insured so as to effect the dominant purpose of indemnity or payment to the
insured, especially where forfeiture is involved' (29 Am. Jur., 181), and the reason for
this is that the 'insured usually has no voice in the selection or arrangement of the
words employed and that the language of the contract is selected with great care and
deliberation by experts and legal advisers employed by, and acting exclusively in the
interest of, the insurance company.' (44 C.J.S., p. 1174).""
[20]

Equally relevant is the following disquisition of the Court in Fieldmen's Insurance Company,
Inc. vs. Vda. De Songco,
[21]
to wit:
"'This rigid application of the rule on ambiguities has become necessary in view of
current business practices. The courts cannot ignore that nowadays monopolies, cartels
and concentration of capital, endowed with overwhelming economic power, manage to
impose upon parties dealing with them cunningly prepared 'agreements' that the weaker
party may not change one whit, his participation in the 'agreement' being reduced to the
alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by
adherence' (contrats [sic] d'adhesion), in contrast to these entered into by parties
bargaining on an equal footing, such contracts (of which policies of insurance and
international bills of lading are prime example) obviously call for greater strictness and
vigilance on the part of courts of justice with a view to protecting the weaker party from
abuses and imposition, and prevent their becoming traps for the unwary (New Civil
Code, Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942.)'"
[22]

The issue of whether or not Transworld has an insurable interest in the fun and amusement
machines and spare parts, which entitles it to be indemnified for the loss thereof, had been
settled in G.R. No. L-111118, entitled New India Assurance Company, Ltd., vs. Court of
Appeals, where the appeal of New India from the decision of the Court of Appeals under
review, was denied with finality by this Court on February 2, 1994.
The rule on conclusiveness of judgment, which obtains under the premises, precludes the
relitigation of a particular fact or issue in another action between the same parties based on
a different claim or cause of action. "xxx the judgment in the prior action operates as
estoppel only as to those matters in issue or points controverted, upon the determination of
which the finding or judgment was rendered. In fine, the previous judgment is conclusive in
the second case, only as those matters actually and directly controverted and determined
and not as to matters merely involved therein."
[23]

Applying the abovecited pronouncement, the Court, in Smith Bell and Company (Phils.), Inc.
vs. Court of Appeals,
[24]
held that the issue of negligence of the shipping line, which issue had
already been passed upon in a case filed by one of the insurers, is conclusive and can no
longer be relitigated in a similar case filed by another insurer against the same shipping line
on the basis of the same factual circumstances. Ratiocinating further, the Court opined:
"In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai Maru') had been
negligent, or so negligent as to have proximately caused the collision between them, was
an issue that was actually, directly and expressly raised, controverted and litigated in
C.A.-G.R. No. 61320-R. Reyes, L.B., J., resolved that issue in his Decision and held the
'Don Carlos' to have been negligent rather than the 'Yotai Maru' and, as already noted,
that Decision was affirmed by this Court in G.R. No. L-48839 in a Resolution dated 6
December 1987. The Reyes Decision thus became final and executory approximately two
(2) years before the Sison Decision, which is assailed in the case at bar, was
promulgated. Applying the rule of conclusiveness of judgment, the question of which
vessel had been negligent in the collision between the two (2) vessels, had long been
settled by this Court and could no longer be relitigated in C.A.-G.R. No. 61206-R. Private
respondent Go Thong was certainly bound by the ruling or judgment of Reyes, L.B., J.
and that of this Court. The Court of Appeals fell into clear and reversible error when it
disregarded the Decision of this Court affirming the Reyes Decision."
[25]

The controversy at bar is on all fours with the aforecited case. Considering that private
respondent's insurable interest in, and compensability for the loss of subject fun and
amusement machines and spare parts, had been adjudicated, settled and sustained by the
Court of Appeals in CA-G.R. CV NO. 28779, and by this Court in G.R. No. L-111118, in a
Resolution, dated February 2, 1994, the same can no longer be relitigated and passed upon
in the present case. Ineluctably, the petitioner, Rizal Surety Insurance Company, is bound by
the ruling of the Court of Appeals and of this Court that the private respondent has an
insurable interest in the aforesaid fun and amusement machines and spare parts; and
should be indemnified for the loss of the same.
So also, the Court of Appeals correctly adjudged petitioner liable for the amount of
P470,328.67, it being the total loss and damage suffered by Transworld for which petitioner
Rizal Insurance is liable.
[26]

All things studiedly considered and viewed in proper perspective, the Court is of the
irresistible conclusion, and so finds, that the Court of Appeals erred not in holding the
petitioner, Rizal Surety Insurance Company, liable for the destruction and loss of the insured
buildings and articles of the private respondent.
WHEREFORE, the Decision, dated July 15, 1993, and the Resolution, dated October 22,
1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are AFFIRMED in toto. No
pronouncement as to costs.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.
G.R. No. 166245 April 9, 2008
ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.
D E C I S I O N
VELASCO, JR., J.:
The Case
Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside
the November 26, 2004 Decision
1
of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the
query: May the inaction of the insurer on the insurance application be considered as approval of the
application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife)
entered into an agreement denominated as Creditor Group Life Policy No. P-1920
2
with petitioner
Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who
purchased burial lots from it on installment basis would be insured by Philamlife. The amount of
insurance coverage depended upon the existing balance of the purchased burial lots. The policy was
to be effective for a period of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is
indebted to the Assured for the unpaid balance of his loan with the Assured, and is accepted
for Life Insurance coverage by the Company on its effective date is eligible for insurance
under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to P50,000.00.
However, a declaration of good health shall be required for all Lot Purchasers as part of the
application. The Company reserves the right to require further evidence of insurability
satisfactory to the Company in respect of the following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the
unpaid balance of his loan (including arrears up to but not exceeding 2 months) as reported
by the Assured to the Company or the sum of P100,000.00, whichever is smaller. Such
benefit shall be paid to the Assured if the Lot Purchaser dies while insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan
with the Assured. However, there shall be no insurance if the application of the Lot
Purchaser is not approved by the Company.
3

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers,
together with a copy of the application of each purchaser, and the amounts of the respective unpaid
balances of all insured lot purchasers. In relation to the instant petition, Eternal complied by
submitting a letter dated December 29, 1982,
4
containing a list of insurable balances of its lot
buyers for October 1982. One of those included in the list as "new business" was a certain John
Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 1984
5
to Philamlife, which served as an insurance claim for
Chuangs death. Attached to the claim were the following documents: (1) Chuangs Certificate of
Death; (2) Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3)
Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assureds Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984,
6
requiring Eternal to submit the
following documents relative to its insurance claim for Chuangs death: (1) Certificate of Claimant
(with form attached); (2) Assureds Certificate (with form attached); (3) Application for Insurance
accomplished and signed by the insured, Chuang, while still living; and (4) Statement of Account
showing the unpaid balance of Chuang before his death.
Eternal transmitted the required documents through a letter dated November 14, 1984,
7
which was
received by Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to the latters insurance
claim. This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000
on April 25, 1986.
8

In response to Eternals demand, Philamlife denied Eternals insurance claim in a letter dated May
20, 1986,
9
a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal
Gardens Memorial Park in October 1982 for the total maximum insurable amount of
P100,000.00 each. No application for Group Insurance was submitted in our office prior to
his death on August 2, 1984.
In accordance with our Creditors Group Life Policy No. P-1920, under Evidence of
Insurability provision, "a declaration of good health shall be required for all Lot Purchasers
as party of the application." We cite further the provision on Effective Date of Coverage under
the policy which states that "there shall be no insurance if the application is not approved by
the Company." Since no application had been submitted by the Insured/Assured, prior to his
death, for our approval but was submitted instead on November 15, 1984, after his death,
Mr. John Uy Chuang was not covered under the Policy. We wish to point out that Eternal
Gardens being the Assured was a party to the Contract and was therefore aware of these
pertinent provisions.
With regard to our acceptance of premiums, these do not connote our approval per se of the
insurance coverage but are held by us in trust for the payor until the prerequisites for
insurance coverage shall have been met. We will however, return all the premiums which
have been paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of
money against Philamlife, docketed as Civil Case No. 14736. The trial court decided in favor of
Eternal, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff
ETERNAL, against Defendant PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the
sum of P100,000.00, representing the proceeds of the Policy of John Uy Chuang, plus legal
rate of interest, until fully paid; and, to pay the sum of P10,000.00 as attorneys fees.
SO ORDERED.
The RTC found that Eternal submitted Chuangs application for insurance which he accomplished
before his death, as testified to by Eternals witness and evidenced by the letter dated December 29,
1982, stating, among others: "Encl: Phil-Am Life Insurance Application Forms & Cert."
10
It further
ruled that due to Philamlifes inaction from the submission of the requirements of the group
insurance on December 29, 1982 to Chuangs death on August 2, 1984, as well as Philamlifes
acceptance of the premiums during the same period, Philamlife was deemed to have approved
Chuangs application. The RTC said that since the contract is a group life insurance, once proof of
death is submitted, payment must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810
is REVERSED and SET ASIDE, and the complaint is DISMISSED. No costs.
SO ORDERED.
11

The CA based its Decision on the factual finding that Chuangs application was not enclosed in
Eternals letter dated December 29, 1982. It further ruled that the non-accomplishment of the
submitted application form violated Section 26 of the Insurance Code. Thus, the CA concluded,
there being no application form, Chuang was not covered by Philamlifes insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of substance, not therefore
determined by this Honorable Court, or has decided it in a way not in accord with law or with
the applicable jurisprudence, in holding that:
I. The application for insurance was not duly submitted to respondent PhilamLife
before the death of John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29,
1996.
The Courts Ruling
As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised
before the CA and first level courts, considering their findings of facts are conclusive and binding on
this Court. However, such rule is subject to exceptions, as enunciated in Sampayan v. Court of
Appeals:
(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when
the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave
abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when
the findings of facts are conflicting; (6) when in making its findings the [CA] went beyond the
issues of the case, or its findings are contrary to the admissions of both the appellant and
the appellee; (7) when the findings [of the CA] are contrary to the trial court; (8) when the
findings are conclusions without citation of specific evidence on which they are based; (9)
when the facts set forth in the petition as well as in the petitioners main and reply briefs are
not disputed by the respondent; (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record; and (11) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion.
12
(Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may
review them.
Eternal claims that the evidence that it presented before the trial court supports its contention that
it submitted a copy of the insurance application of Chuang before his death. In Eternals letter
dated December 29, 1982, a list of insurable interests of buyers for October 1982 was attached,
including Chuang in the list of new businesses. Eternal added it was noted at the bottom of said
letter that the corresponding "Phil-Am Life Insurance Application Forms & Cert." were enclosed in
the letter that was apparently received by Philamlife on January 15, 1983. Finally, Eternal alleged
that it provided a copy of the insurance application which was signed by Chuang himself and
executed before his death.
On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing
that Eternal must present evidence showing that Philamlife received a copy of Chuangs insurance
application.
The evidence on record supports Eternals position.
The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received,
states that the insurance forms for the attached list of burial lot buyers were attached to the letter.
Such stamp of receipt has the effect of acknowledging receipt of the letter together with the
attachments. Such receipt is an admission by Philamlife against its own interest.
13
The burden of
evidence has shifted to Philamlife, which must prove that the letter did not contain Chuangs
insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed to have
received Chuangs insurance application.
To reiterate, it was Philamlifes bounden duty to make sure that before a transmittal letter is
stamped as received, the contents of the letter are correct and accounted for.
Philamlifes allegation that Eternals witnesses ran out of credibility and reliability due to
inconsistencies is groundless. The trial court is in the best position to determine the reliability and
credibility of the witnesses, because it has the opportunity to observe firsthand the witnesses
demeanor, conduct, and attitude. Findings of the trial court on such matters are binding and
conclusive on the appellate court, unless some facts or circumstances of weight and substance have
been overlooked, misapprehended, or misinterpreted,
14
that, if considered, might affect the result of
the case.
15

An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no
overlooked facts of substance and value.
Philamlife primarily claims that Eternal did not even know where the original insurance application
of Chuang was, as shown by the testimony of Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in case of new coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up two copies of this form
and the original of this is submitted to Philamlife together with the monthly remittances and
the second copy is remained or retained with the marketing department of Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as counsel is merely asking for the
location and does not [ask] for the number of copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but when I submitted with that
payment together with the new clients all the originals I see to it before I sign the transmittal
letter the originals are attached therein.
16

In other words, the witness admitted not knowing where the original insurance application was, but
believed that the application was transmitted to Philamlife as an attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two
insurance application forms were accomplished and the testimony of Mendoza on who actually filled
out the application form, these are minor inconsistencies that do not affect the credibility of the
witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies are too trivial to affect the
credibility of witnesses, and these may even serve to strengthen their credibility as these negate any
suspicion that the testimonies have been rehearsed.
17

We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential integrity of the
prosecutions evidence as a whole or reflect on the witnesses honesty. The test is whether the
testimonies agree on essential facts and whether the respective versions corroborate and
substantially coincide with each other so as to make a consistent and coherent whole.
18

In the present case, the number of copies of the insurance application that Chuang executed is not
at issue, neither is whether the insurance application presented by Eternal has been falsified. Thus,
the inconsistencies pointed out by Philamlife are minor and do not affect the credibility of Eternals
witnesses.
However, the question arises as to whether Philamlife assumed the risk of loss without approving
the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group
Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan
with the Assured. However, there shall be no insurance if the application of the Lot
Purchaser is not approved by the Company.
An examination of the above provision would show ambiguity between its two sentences. The first
sentence appears to state that the insurance coverage of the clients of Eternal already became
effective upon contracting a loan with Eternal while the second sentence appears to require
Philamlife to approve the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to safeguard the
latters interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule
of resolving any ambiguity therein in favor of the insured, where the contract or policy is
prepared by the insurer. A contract of insurance, being a contract of adhesion, par
excellence, any ambiguity therein should be resolved against the insurer; in other
words, it should be construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be construed in
such a way as to preclude the insurer from noncompliance with its obligations.
19
(Emphasis
supplied.)
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the
above ruling, stating that:
When the terms of insurance contract contain limitations on liability, courts should construe
them in such a way as to preclude the insurer from non-compliance with his obligation.
Being a contract of adhesion, the terms of an insurance contract are to be construed strictly
against the party which prepared the contract, the insurer. By reason of the exclusive control
of the insurance company over the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer and liberally in favor of the
insured, especially to avoid forfeiture.
20

Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December
10, 1980, must be construed in favor of the insured and in favor of the effectivity of the insurance
contract.
On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a
partys purchase of a memorial lot on installment from Eternal, an insurance contract covering the
lot purchaser is created and the same is effective, valid, and binding until terminated by Philamlife
by disapproving the insurance application. The second sentence of Creditor Group Life Policy No. P-
1920 on the Effective Date of Benefit is in the nature of a resolutory condition which would lead to
the cessation of the insurance contract. Moreover, the mere inaction of the insurer on the insurance
application must not work to prejudice the insured; it cannot be interpreted as a termination of the
insurance contract. The termination of the insurance contract by the insurer must be explicit and
unambiguous.
As a final note, to characterize the insurer and the insured as contracting parties on equal footing is
inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of
experience in the industry purposefully used to its advantage. More often than not, insurance
contracts are contracts of adhesion containing technical terms and conditions of the industry,
confusing if at all understandable to laypersons, that are imposed on those who wish to avail of
insurance. As such, insurance contracts are imbued with public interest that must be considered
whenever the rights and obligations of the insurer and the insured are to be delineated. Hence, in
order to protect the interest of insurance applicants, insurance companies must be obligated to act
with haste upon insurance applications, to either deny or approve the same, or otherwise be bound
to honor the application as a valid, binding, and effective insurance contract.
21

WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No.
57810 isREVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch
138 is MODIFIED. Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life
Insurance Policy of Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000
from the time of extra-judicial demand by Eternal until Philamlifes receipt of the May 29,
1996 RTC Decision on June 17, 1996;
(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000
from June 17, 1996 until full payment of this award; and
(4) To pay Eternal attorneys fees in the amount of PhP 10,000.
No costs.
SO ORDERED.
G.R. NO. 147039 January 27, 2006
DBP POOL OF ACCREDITED INSURANCE COMPANIES, Petitioner,
vs.
RADIO MINDANAO NETWORK, INC., Respondent.
D E C I S I O N
AUSTRIA-MARTINEZ, J.:
This refers to the petition for certiorari under Rule 45 of the Rules of Court seeking the review of the
Decision
1
dated November 16, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 56351, the
dispositive portion of which reads:
Wherefore, premises considered, the appealed Decision of the Regional Trial Court of Makati City,
Branch 138 in Civil Case No. 90-602 is hereby AFFIRMED with MODIFICATION in that the interest
rate is hereby reduced to 6% per annum.
Costs against the defendants-appellants.
SO ORDERED.
2

The assailed decision originated from Civil Case No. 90-602 filed by Radio Mindanao Network, Inc.
(respondent) against DBP Pool of Accredited Insurance Companies (petitioner) and Provident
Insurance Corporation (Provident) for recovery of insurance benefits. Respondent owns several
broadcasting stations all over the country. Provident covered respondents transmitter equipment
and generating set for the amount ofP13,550,000.00 under Fire Insurance Policy No. 30354, while
petitioner covered respondents transmitter, furniture, fixture and other transmitter facilities for the
amount of P5,883,650.00 under Fire Insurance Policy No. F-66860.
In the evening of July 27, 1988, respondents radio station located in SSS Building, Bacolod City,
was razed by fire causing damage in the amount of P1,044,040.00. Respondent sought recovery
under the two insurance policies but the claims were denied on the ground that the cause of loss
was an excepted risk excluded under condition no. 6 (c) and (d), to wit:
6. This insurance does not cover any loss or damage occasioned by or through or in consequence,
directly or indirectly, of any of the following consequences, namely:
(c) War, invasion, act of foreign enemy, hostilities, or warlike operations (whether war be declared or
not), civil war.
(d) Mutiny, riot, military or popular rising, insurrection, rebellion, revolution, military or usurped
power.
3

The insurance companies maintained that the evidence showed that the fire was caused by
members of the Communist Party of the Philippines/New Peoples Army (CPP/NPA); and
consequently, denied the claims. Hence, respondent was constrained to file Civil Case No. 90-602
against petitioner and Provident.
After trial on the merits, the Regional Trial Court of Makati, Branch 138, rendered a decision in
favor of respondent. The dispositive portion of the decision reads:
IN VIEW THEREOF, judgment is rendered in favor of plaintiff. Defendant Provident Insurance
Corporation is directed to pay plaintiff the amount of P450,000.00 representing the value of the
destroyed property insured under its Fire Insurance Policy plus 12% legal interest from March 2,
1990 the date of the filing of the Complaint. Defendant DBP Pool Accredited Insurance Companies
is likewise ordered to pay plaintiff the sum of P602,600.00 representing the value of the destroyed
property under its Fire Insurance Policy plus 12% legal interest from March 2, 1990.
SO ORDERED.
4

Both insurance companies appealed from the trial courts decision but the CA affirmed the decision,
with the modification that the applicable interest rate was reduced to 6% per annum. A motion for
reconsideration was filed by petitioner DBP which was denied by the CA per its Resolution dated
January 30, 2001.
5

Hence, herein petition by DBP Pool of Accredited Insurance Companies,
6
with the following
assignment of errors:
Assignment of Errors
THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THERE WERE NO
SUFFICIENT EVIDENCE SHOWING THAT THE APPROXIMATELY TENTY [sic] (20) ARMED MEN
WHO CUSED [sic] THE FIRE AT RESPONDENTS RMN PROPERTY AT BACOLOD CITY WERE
MEMBERS OF THE CPP-NPA.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED THAT RESPONDENT RMN
CANNOT BEHELD [sic] FOR DAMAGES AND ATTORNEYS FEES FOR INSTITUTING THE PRESENT
ACTION AGAINST THE PETITIONER UNDER ARTICLES 21, 2208, 2229 AND 2232 OF THE CIVIL
CODE OF THE PHILIPPINES.
7

Petitioner assails the factual finding of both the trial court and the CA that its evidence failed to
support its allegation that the loss was caused by an excepted risk, i.e., members of the CPP/NPA
caused the fire. In upholding respondents claim for indemnity, the trial court found that:
The only evidence which the Court can consider to determine if the fire was due to the intentional
act committed by the members of the New Peoples Army (NPA), are the testimony [sic] of witnesses
Lt. Col. Nicolas Torres and SPO3 Leonardo Rochar who were admittedly not present when the fire
occurred. Their testimony [sic] was [sic] limited to the fact that an investigation was conducted and
in the course of the investigation they were informed by bystanders that "heavily armed men
entered the transmitter house, poured gasoline in (sic) it and then lighted it. After that, they went
out shouting "Mabuhay ang NPA" (TSN, p. 12., August 2, 1995). The persons whom they
investigated and actually saw the burning of the station were not presented as witnesses. The
documentary evidence particularly Exhibits "5" and "5-C" do not satisfactorily prove that the author
of the burning were members of the NPA. Exhibit "5-B" which is a letter released by the NPA merely
mentions some dissatisfaction with the activities of some people in the media in Bacolod. There was
no mention there of any threat on media facilities.
8

The CA went over the evidence on record and sustained the findings of the trial court, to wit:
To recapitulate, defendants-appellants presented the following to support its claim, to wit: police
blotter of the burning of DYHB, certification of the Negros Occidental Integrated National Police,
Bacolod City regarding the incident, letter of alleged NPA members Celso Magsilang claiming
responsibility for the burning of DYHB, fire investigation report dated July 29, 1988, and the
testimonies of Lt. Col. Nicolas Torres and SFO III Leonardo Rochas. We examined carefully the
report on the police blotter of the burning of DYHB, the certification issued by the Integrated
National Police of Bacolod City and the fire investigation report prepared by SFO III Rochas and
there We found that none of them categorically stated that the twenty (20) armed men which
burned DYHB were members of the CPP/NPA. The said documents simply stated that the said
armed men were believed to be or suspected of being members of the said group. Even SFO III
Rochas admitted that he was not sure that the said armed men were members of the CPP-NPA,
thus:

In fact the only person who seems to be so sure that that the CPP-NPA had a hand in the burning of
DYHB was Lt. Col. Nicolas Torres. However, though We found him to be persuasive in his testimony
regarding how he came to arrive at his opinion, We cannot nevertheless admit his testimony as
conclusive proof that the CPP-NPA was really involved in the incident considering that he admitted
that he did not personally see the armed men even as he tried to pursue them. Note that when Lt.
Col. Torres was presented as witness, he was presented as an ordinary witness only and not an
expert witness. Hence, his opinion on the identity or membership of the armed men with the CPP-
NPA is not admissible in evidence.
Anent the letter of a certain Celso Magsilang, who claims to be a member of NPA-NIROC, being an
admission of person which is not a party to the present action, is likewise inadmissible in evidence
under Section 22, Rule 130 of the Rules of Court. The reason being that an admission is competent
only when the declarant, or someone identified in legal interest with him, is a party to the action.
9

The Court will not disturb these factual findings absent compelling or exceptional reasons. It should
be stressed that a review by certiorari under Rule 45 is a matter of discretion. Under this mode of
review, the jurisdiction of the Court is limited to reviewing only errors of law, not of fact.
10

Moreover, when supported by substantial evidence, findings of fact of the trial court as affirmed by
the CA are conclusive and binding on the parties,
11
which this Court will not review unless there are
exceptional circumstances. There are no exceptional circumstances in this case that would have
impelled the Court to depart from the factual findings of both the trial court and the CA.
Both the trial court and the CA were correct in ruling that petitioner failed to prove that the loss
was caused by an excepted risk.
Petitioner argues that private respondent is responsible for proving that the cause of the
damage/loss is covered by the insurance policy, as stipulated in the insurance policy, to wit:

Any loss or damage happening during the existence of abnormal conditions (whether physical or
otherwise) which are occasioned by or through in consequence directly or indirectly, of any of the
said occurrences shall be deemed to be loss or damage which is not covered by the insurance,
except to the extent that the Insured shall prove that such loss or damage happened independently
of the existence of such abnormal conditions.
In any action, suit or other proceeding where the Companies allege that by reason of the provisions
of this condition any loss or damage is not covered by this insurance, the burden of proving that
such loss or damage is covered shall be upon the Insured.
12

An insurance contract, being a contract of adhesion, should be so interpreted as to carry out the
purpose for which the parties entered into the contract which is to insure against risks of loss or
damage to the goods. Limitations of liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from noncompliance with its obligations.
13

The "burden of proof" contemplated by the aforesaid provision actually refers to the "burden of
evidence" (burden of going forward).
14
As applied in this case, it refers to the duty of the insured to
show that the loss or damage is covered by the policy. The foregoing clause notwithstanding, the
burden of proof still rests upon petitioner to prove that the damage or loss was caused by an
excepted risk in order to escape any liability under the contract.
Burden of proof is the duty of any party to present evidence to establish his claim or defense by the
amount of evidence required by law, which is preponderance of evidence in civil cases. The party,
whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof to
obtain a favorable judgment. For the plaintiff, the burden of proof never parts.
15
For the defendant,
an affirmative defense is one which is not a denial of an essential ingredient in the plaintiffs cause
of action, but one which, if established, will be a good defense i.e. an "avoidance" of the claim.
16

Particularly, in insurance cases, where a risk is excepted by the terms of a policy which insures
against other perils or hazards, loss from such a risk constitutes a defense which the insurer may
urge, since it has not assumed that risk, and from this it follows that an insurer seeking to defeat
a claim because of an exception or limitation in the policy has the burden of proving that the
loss comes within the purview of the exception or limitation set up. If a proof is made of a loss
apparently within a contract of insurance, the burden is upon the insurer to prove that the loss
arose from a cause of loss which is excepted or for which it is not liable, or from a cause which
limits its liability.
17

Consequently, it is sufficient for private respondent to prove the fact of damage or loss. Once
respondent makes out a prima facie case in its favor, the duty or the burden of evidence shifts to
petitioner to controvert respondents prima facie case.
18
In this case, since petitioner alleged an
excepted risk, then the burden of evidence shifted to petitioner to prove such exception. It is only
when petitioner has sufficiently proven that the damage or loss was caused by an excepted risk
does the burden of evidence shift back to respondent who is then under a duty of producing
evidence to show why such excepted risk does not release petitioner from any liability.
Unfortunately for petitioner, it failed to discharge its primordial burden of proving that the damage
or loss was caused by an excepted risk.
Petitioner however, insists that the evidence on record established the identity of the author of the
damage. It argues that the trial court and the CA erred in not appreciating the reports of witnesses
Lt. Col Torres and SFO II Rochar that the bystanders they interviewed claimed that the perpetrators
were members of the CPP/NPA as an exception to the hearsay rule as part of res gestae.
A witness can testify only to those facts which he knows of his personal knowledge, which means
those facts which are derived from his perception.
19
A witness may not testify as to what he merely
learned from others either because he was told or read or heard the same. Such testimony is
considered hearsay and may not be received as proof of the truth of what he has learned. The
hearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsay
evidence inasmuch as such evidence are not given under oath or solemn affirmation and, more
importantly, have not been subjected to cross-examination by opposing counsel to test the
perception, memory, veracity and articulateness of the out-of-court declarant or actor upon whose
reliability on which the worth of the out-of-court statement depends.
20

Res gestae, as an exception to the hearsay rule, refers to those exclamations and statements made
by either the participants, victims, or spectators to a crime immediately before, during, or after the
commission of the crime, when the circumstances are such that the statements were made as a
spontaneous reaction or utterance inspired by the excitement of the occasion and there was no
opportunity for the declarant to deliberate and to fabricate a false statement. The rule in res gestae
applies when the declarant himself did not testify and provided that the testimony of the witness
who heard the declarant complies with the following requisites: (1) that the principal act, the res
gestae, be a startling occurrence; (2) the statements were made before the declarant had the time to
contrive or devise a falsehood; and (3) that the statements must concern the occurrence in question
and its immediate attending circumstances.
21

The Court is not convinced to accept the declarations as part of res gestae. While it may concede
that these statements were made by the bystanders during a startling occurrence, it cannot be said
however, that these utterances were made spontaneously by the bystanders and before they had
the time to contrive or devise a falsehood. Both SFO III Rochar and Lt. Col. Torres received the
bystanders statements while they were making their investigations during and after the fire. It is
reasonable to assume that when these statements were noted down, the bystanders already had
enough time and opportunity to mill around, talk to one another and exchange information, not to
mention theories and speculations, as is the usual experience in disquieting situations where
hysteria is likely to take place. It cannot therefore be ascertained whether these utterances were the
products of truth. That the utterances may be mere idle talk is not remote.
At best, the testimonies of SFO III Rochar and Lt. Col. Torres that these statements were made may
be considered as independently relevant statements gathered in the course of their investigation,
and are admissible not as to the veracity thereof but to the fact that they had been thus uttered.
22

Furthermore, admissibility of evidence should not be equated with its weight and
sufficiency.
23
Admissibility of evidence depends on its relevance and competence, while the weight of
evidence pertains to evidence already admitted and its tendency to convince and persuade.
24
Even
assuming that the declaration of the bystanders that it was the members of the CPP/NPA who
caused the fire may be admitted as evidence, it does not follow that such declarations are sufficient
proof. These declarations should be calibrated vis--vis the other evidence on record. And the trial
court aptly noted that there is a need for additional convincing proof, viz.:
The Court finds the foregoing to be insufficient to establish that the cause of the fire was the
intentional burning of the radio facilities by the rebels or an act of insurrection, rebellion or
usurped power. Evidence that persons who burned the radio facilities shouted "Mabuhay ang NPA"
does not furnish logical conclusion that they are member [sic] of the NPA or that their act was an
act of rebellion or insurrection. Additional convincing proof need be submitted. Defendants failed to
discharge their responsibility to present adequate proof that the loss was due to a risk excluded.
25

While the documentary evidence presented by petitioner, i.e., (1) the police blotter; (2) the
certification from the Bacolod Police Station; and (3) the Fire Investigation Report may be
considered exceptions to the hearsay rule, being entries in official records, nevertheless, as noted by
the CA, none of these documents categorically stated that the perpetrators were members of the
CPP/NPA.
26
Rather, it was stated in the police blotter that: "a group of persons accompanied by one
(1) woman all believed to be CPP/NPA more or less 20 persons suspected to be
CPP/NPA,"
27
while the certification from the Bacolod Police station stated that " some 20 or more
armed menbelieved to be members of the New Peoples Army NPA,"
28
and the fire investigation
report concluded that "(I)t is therefore believed by this Investigating Team that the cause of the fire
is intentional, and the armed mensuspected to be members of the CPP/NPA where (sic) the ones
responsible "
29
All these documents show that indeed, the "suspected" executor of the fire were
believed to be members of the CPP/NPA. But suspicion alone is not sufficient, preponderance of
evidence being the quantum of proof.
All told, the Court finds no reason to grant the present petition.
WHEREFORE, the petition is DISMISSED. The Court of Appeals Decision dated November 16, 2000
and Resolution dated January 30, 2001 rendered in CA-G.R. CV No. 56351 are AFFIRMED in toto.
SO ORDERED.
[G.R. No. 156167. May 16, 2005]
GULF RESORTS, INC., petitioner, vs. PHILIPPINE CHARTER INSURANCE
CORPORATION, respondent.
D E C I S I O N
PUNO, J.:
Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court by
petitioner GULF RESORTS, INC., against respondent PHILIPPINE CHARTER INSURANCE
CORPORATION. Petitioner assails the appellate court decision
[1]
which dismissed its two appeals
and affirmed the judgment of the trial court.
For review are the warring interpretations of petitioner and respondent on the scope of the
insurance companys liability for earthquake damage to petitioners properties. Petitioner avers
that, pursuant to its earthquake shock endorsement rider, Insurance Policy No. 31944 covers all
damages to the properties within its resort caused by earthquake. Respondent contends that the
rider limits its liability for loss to the two swimming pools of petitioner.
The facts as established by the court a quo, and affirmed by the appellate court are as follows:
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said
resort insured originally with the American Home Assurance Company (AHAC-AIU). In the first four
insurance policies issued by AHAC-AIU from 1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs.
C, D, E and F; also Exhs. 1, 2, 3 and 4 respectively), the risk of loss from earthquake
shock was extended only to plaintiffs two swimming pools, thus, earthquake shock endt. (Item 5
only) (Exhs. C-1; D-1, and E and two (2) swimming pools only (Exhs. C-1; D-1, E and F-
1). Item 5 in those policies referred to the two (2) swimming pools only (Exhs. 1-B, 2-B, 3-B
and F-2); that subsequently AHAC(AIU) issued in plaintiffs favor Policy No. 206-4182383-0
covering the period March 14, 1988 to March 14, 1989 (Exhs. G also G-1) and in said policy the
earthquake endorsement clause as indicated in Exhibits C-1, D-1, Exhibits E and F-1 was
deleted and the entry under Endorsements/Warranties at the time of issue read that plaintiff
renewed its policy with AHAC (AIU) for the period of March 14, 1989 to March 14, 1990 under
Policy No. 206-4568061-9 (Exh. H) which carried the entry under Endorsement/Warranties at
Time of Issue, which read Endorsement to Include Earthquake Shock (Exh. 6-B-1) in the
amount of P10,700.00 and paidP42,658.14 (Exhs. 6-A and 6-B) as premium thereof, computed
as follows:
Item -P7,691,000.00 - on the Clubhouse only
@ .392%;
1,500,000.00 - on the furniture, etc.
contained in the building
above-mentioned@ .490%;
393,000.00- on the two swimming
pools, only (against the
peril of earthquake
shock only) @ 0.100%
116,600.00- other buildings include
as follows:
a) Tilter House- P19,800.00- 0.551%
b) Power House- P41,000.00- 0.551%
c) House Shed- P55,000.00 -0.540%
P100,000.00 for furniture, fixtures,
lines air-con and
operating equipment
that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU) Policy No. 206-
4568061-9 (Exh. H) provided that the policy wording and rates in said policy be copied in the
policy to be issued by defendant; that defendant issued Policy No. 31944 to plaintiff covering the
period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92
(Exh. I); that in the computation of the premium, defendants Policy No. 31944 (Exh. I), which is
the policy in question, contained on the right-hand upper portion of page 7 thereof, the following:
Rate-Various
Premium - P37,420.60 F/L
2,061.52 Typhoon
1,030.76 EC
393.00 ES
Doc. Stamps 3,068.10
F.S.T. 776.89
Prem. Tax 409.05
TOTAL 45,159.92;
that the above break-down of premiums shows that plaintiff paid only P393.00 as premium against
earthquake shock (ES); that in all the six insurance policies (Exhs. C, D, E, F, G and H),
the premium against the peril of earthquake shock is the same, that is P393.00 (Exhs. C and 1-
B; 2-B and 3-B-1 and 3-B-2; F-02 and 4-A-1; G-2 and 5-C-1; 6-C-1; issued by AHAC
(Exhs. C, D, E, F, G and H) and in Policy No. 31944 issued by defendant, the shock
endorsement provide(sic):
In consideration of the payment by the insured to the company of the sum included additional
premium the Company agrees, notwithstanding what is stated in the printed conditions of this
policy due to the contrary, that this insurance covers loss or damage to shock to any of the property
insured by this Policy occasioned by or through or in consequence of earthquake (Exhs. 1-D, 2-
D, 3-A, 4-B, 5-A, 6-D and 7-C);
that in Exhibit 7-C the word included above the underlined portion was deleted; that on July 16,
1990 an earthquake struck Central Luzon and Northern Luzon and plaintiffs properties covered by
Policy No. 31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort
were damaged.
[2]

After the earthquake, petitioner advised respondent that it would be making a claim under its
Insurance Policy No. 31944 for damages on its properties. Respondent instructed petitioner to file a
formal claim, then assigned the investigation of the claim to an independent claims adjuster,
Bayne Adjusters and Surveyors, Inc.
[3]
On July 30, 1990, respondent, through its adjuster,
requested petitioner to submit various documents in support of its claim. On August 7, 1990,
Bayne Adjusters and Surveyors, Inc., through its Vice-President A.R. de Leon,
[4]
rendered a
preliminary report
[5]
finding extensive damage caused by the earthquake to the clubhouse and to
the two swimming pools. Mr. de Leon stated that except for the swimming pools, all affected items
have no coverage for earthquake shocks.
[6]
On August 11, 1990, petitioner filed its formal
demand
[7]
for settlement of the damage to all its properties in the Agoo Playa Resort. On August 23,
1990, respondent denied petitioners claim on the ground that its insurance policy only afforded
earthquake shock coverage to the two swimming pools of the resort.
[8]
Petitioner and respondent
failed to arrive at a settlement.
[9]
Thus, on January 24, 1991, petitioner filed a complaint
[10]
with the
regional trial court of Pasig praying for the payment of the following:
1.) The sum of P5,427,779.00, representing losses sustained by the insured properties,
with interest thereon, as computed under par. 29 of the policy (Annex B) until fully
paid;
2.) The sum of P428,842.00 per month, representing continuing losses sustained by
plaintiff on account of defendants refusal to pay the claims;
3.) The sum of P500,000.00, by way of exemplary damages;
4.) The sum of P500,000.00 by way of attorneys fees and expenses of litigation;
5.) Costs.
[11]

Respondent filed its Answer with Special and Affirmative Defenses with Compulsory
Counterclaims.
[12]

On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:
The above schedule clearly shows that plaintiff paid only a premium of P393.00 against the peril of
earthquake shock, the same premium it paid against earthquake shock only on the two swimming
pools in all the policies issued by AHAC(AIU) (Exhibits C, D, E, F and G). From this fact the
Court must consequently agree with the position of defendant that the endorsement rider (Exhibit
7-C) means that only the two swimming pools were insured against earthquake shock.
Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, where the
language used in an insurance contract or application is such as to create ambiguity the same
should be resolved against the party responsible therefor, i.e., the insurance company which
prepared the contract. To the mind of [the] Court, the language used in the policy in litigation is
clear and unambiguous hence there is no need for interpretation or construction but only
application of the provisions therein.
From the above observations the Court finds that only the two (2) swimming pools had earthquake
shock coverage and were heavily damaged by the earthquake which struck on July 16, 1990.
Defendant having admitted that the damage to the swimming pools was appraised by defendants
adjuster at P386,000.00, defendant must, by virtue of the contract of insurance, pay plaintiff said
amount.
Because it is the finding of the Court as stated in the immediately preceding paragraph that
defendant is liable only for the damage caused to the two (2) swimming pools and that defendant
has made known to plaintiff its willingness and readiness to settle said liability, there is no basis for
the grant of the other damages prayed for by plaintiff. As to the counterclaims of defendant, the
Court does not agree that the action filed by plaintiff is baseless and highly speculative since such
action is a lawful exercise of the plaintiffs right to come to Court in the honest belief that their
Complaint is meritorious. The prayer, therefore, of defendant for damages is likewise denied.
WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of THREE
HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00) representing damage to the two (2)
swimming pools, with interest at 6% per annum from the date of the filing of the Complaint until
defendants obligation to plaintiff is fully paid.
No pronouncement as to costs.
[13]

Petitioners Motion for Reconsideration was denied. Thus, petitioner filed an appeal with the
Court of Appeals based on the following assigned errors:
[14]

A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY RECOVER
FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS FIRE POLICY NO. 31944,
CONSIDERING ITS PROVISIONS, THE CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID
POLICY AND THE ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE OF JULY
16, 1990.
B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANTS RIGHT TO RECOVER
UNDER DEFENDANT-APPELLEES POLICY (NO. 31944; EXH I) BY LIMITING ITSELF TO A
CONSIDERATION OF THE SAID POLICY ISOLATED FROM THE CIRCUMSTANCES SURROUNDING
ITS ISSUANCE AND THE ACTUATIONS OF THE PARTIES AFTER THE EARTHQUAKE OF JULY 16,
1990.
C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS ENTITLED TO
THE DAMAGES CLAIMED, WITH INTEREST COMPUTED AT 24% PER ANNUM ON CLAIMS ON
PROCEEDS OF POLICY.
On the other hand, respondent filed a partial appeal, assailing the lower courts failure to award
it attorneys fees and damages on its compulsory counterclaim.
After review, the appellate court affirmed the decision of the trial court and ruled, thus:
However, after carefully perusing the documentary evidence of both parties, We are not convinced
that the last two (2) insurance contracts (Exhs. G and H), which the plaintiff-appellant had with
AHAC (AIU) and upon which the subject insurance contract with Philippine Charter Insurance
Corporation is said to have been based and copied (Exh. I), covered an extended earthquake shock
insurance on all the insured properties.
x x x
We also find that the Court a quo was correct in not granting the plaintiff-appellants prayer for the
imposition of interest 24% on the insurance claim and 6% on loss of income allegedly amounting
toP4,280,000.00. Since the defendant-appellant has expressed its willingness to pay the damage
caused on the two (2) swimming pools, as the Court a quo and this Court correctly found it to be
liable only, it then cannot be said that it was in default and therefore liable for interest.
Coming to the defendant-appellants prayer for an attorneys fees, long-standing is the rule that the
award thereof is subject to the sound discretion of the court. Thus, if such discretion is well-
exercised, it will not be disturbed on appeal (Castro et al. v. CA, et al., G.R. No. 115838, July 18,
2002). Moreover, being the award thereof an exception rather than a rule, it is necessary for the
court to make findings of facts and law that would bring the case within the exception and justify
the grant of such award (Country Bankers Insurance Corp. v. Lianga Bay and Community Multi-
Purpose Coop., Inc., G.R. No. 136914, January 25, 2002). Therefore, holding that the plaintiff-
appellants action is not baseless and highly speculative, We find that the Court a quo did not err in
granting the same.
WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and judgment of the
Trial Court hereby AFFIRMED in toto. No costs.
[15]

Petitioner filed the present petition raising the following issues:
[16]

A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER RESPONDENTS
INSURANCE POLICY NO. 31944, ONLY THE TWO (2) SWIMMING POOLS, RATHER THAN
ALL THE PROPERTIES COVERED THEREUNDER, ARE INSURED AGAINST THE RISK OF
EARTHQUAKE SHOCK.
B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONERS PRAYER FOR
DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED, ATTORNEYS FEES AND
EXPENSES OF LITIGATION.
Petitioner contends:
First, that the policys earthquake shock endorsement clearly covers all of the properties
insured and not only the swimming pools. It used the words any property insured by this policy,
and it should be interpreted as all inclusive.
Second, the unqualified and unrestricted nature of the earthquake shock endorsement is
confirmed in the body of the insurance policy itself, which states that it is [s]ubject to: Other
Insurance Clause, Typhoon Endorsement, Earthquake Shock Endt., Extended Coverage Endt.,
FEA Warranty & Annual Payment Agreement On Long Term Policies.
[17]

Third, that the qualification referring to the two swimming pools had already been deleted in
the earthquake shock endorsement.
Fourth, it is unbelievable for respondent to claim that it only made an inadvertent omission
when it deleted the said qualification.
Fifth, that the earthquake shock endorsement rider should be given precedence over the
wording of the insurance policy, because the rider is the more deliberate expression of the
agreement of the contracting parties.
Sixth, that in their previous insurance policies, limits were placed on the
endorsements/warranties enumerated at the time of issue.
Seventh, any ambiguity in the earthquake shock endorsement should be resolved in favor of
petitioner and against respondent. It was respondent which caused the ambiguity when it made
the policy in issue.
Eighth, the qualification of the endorsement limiting the earthquake shock endorsement should
be interpreted as a caveat on the standard fire insurance policy, such as to remove the two
swimming pools from the coverage for the risk of fire. It should not be used to limit the
respondents liability for earthquake shock to the two swimming pools only.
Ninth, there is no basis for the appellate court to hold that the additional premium was not
paid under the extended coverage. The premium for the earthquake shock coverage was already
included in the premium paid for the policy.
Tenth, the parties contemporaneous and subsequent acts show that they intended to extend
earthquake shock coverage to all insured properties. When it secured an insurance policy from
respondent, petitioner told respondent that it wanted an exact replica of its latest insurance policy
from American Home Assurance Company (AHAC-AIU), which covered all the resorts properties for
earthquake shock damage and respondent agreed. After the July 16, 1990 earthquake, respondent
assured petitioner that it was covered for earthquake shock. Respondents insurance adjuster,
Bayne Adjusters and Surveyors, Inc., likewise requested petitioner to submit the necessary
documents for its building claims and other repair costs. Thus, under the doctrine of equitable
estoppel, it cannot deny that the insurance policy it issued to petitioner covered all of the properties
within the resort.
Eleventh, that it is proper for it to avail of a petition for review by certiorari under Rule 45 of the
Revised Rules of Court as its remedy, and there is no need for calibration of the evidence in order to
establish the facts upon which this petition is based.
On the other hand, respondent made the following counter arguments:
[18]

First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended
coverage against earthquake shock to petitioners insured properties other than on the two
swimming pools. Petitioner admitted that from 1984 to 1988, only the two swimming pools were
insured against earthquake shock. From 1988 until 1990, the provisions in its policy were
practically identical to its earlier policies, and there was no increase in the premium paid. AHAC-
AIU, in a letter
[19]
by its representative Manuel C. Quijano, categorically stated that its previous
policy, from which respondents policy was copied, covered only earthquake shock for the two
swimming pools.
Second, petitioners payment of additional premium in the amount of P393.00 shows that the
policy only covered earthquake shock damage on the two swimming pools. The amount was the
same amount paid by petitioner for earthquake shock coverage on the two swimming pools from
1990-1991. No additional premium was paid to warrant coverage of the other properties in the
resort.
Third, the deletion of the phrase pertaining to the limitation of the earthquake shock
endorsement to the two swimming pools in the policy schedule did not expand the earthquake
shock coverage to all of petitioners properties. As per its agreement with petitioner, respondent
copied its policy from the AHAC-AIU policy provided by petitioner. Although the first five policies
contained the said qualification in their riders title, in the last two policies, this qualification in the
title was deleted. AHAC-AIU, through Mr. J. Baranda III, stated that such deletion was a mere
inadvertence. This inadvertence did not make the policy incomplete, nor did it broaden the scope of
the endorsement whose descriptive title was merely enumerated. Any ambiguity in the policy can
be easily resolved by looking at the other provisions, specially the enumeration of the items insured,
where only the two swimming pools were noted as covered for earthquake shock damage.
Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, the
phrase Item 5 P393,000.00 on the two swimming pools only (against the peril of earthquake
shock only) meant that only the swimming pools were insured for earthquake damage. The same
phrase is used in toto in the policies from 1989 to 1990, the only difference being the designation of
the two swimming pools as Item 3.
Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid
for all the properties covered. In all of its seven insurance policies, petitioner only paid P393.00 as
premium for coverage of the swimming pools against earthquake shock. No other premium was paid
for earthquake shock coverage on the other properties. In addition, the use of the qualifier ANY
instead of ALL to describe the property covered was done deliberately to enable the parties to
specify the properties included for earthquake coverage.
Sixth, petitioner did not inform respondent of its requirement that all of its properties must be
included in the earthquake shock coverage. Petitioners own evidence shows that it only required
respondent to follow the exact provisions of its previous policy from AHAC-AIU. Respondent
complied with this requirement. Respondents only deviation from the agreement was when it
modified the provisions regarding the replacement cost endorsement. With regard to the issue
under litigation, the riders of the old policy and the policy in issue are identical.
Seventh, respondent did not do any act or give any assurance to petitioner as would estop it
from maintaining that only the two swimming pools were covered for earthquake shock. The
adjusters letter notifying petitioner to present certain documents for its building claims and repair
costs was given to petitioner before the adjuster knew the full coverage of its policy.
Petitioner anchors its claims on AHAC-AIUs inadvertent deletion of the phrase Item 5 Only
after the descriptive name or title of the Earthquake Shock Endorsement. However, the words of
the policy reflect the parties clear intention to limit earthquake shock coverage to the two
swimming pools.
Before petitioner accepted the policy, it had the opportunity to read its conditions. It did not
object to any deficiency nor did it institute any action to reform the policy. The policy binds the
petitioner.
Eighth, there is no basis for petitioner to claim damages, attorneys fees and litigation
expenses. Since respondent was willing and able to pay for the damage caused on the two
swimming pools, it cannot be considered to be in default, and therefore, it is not liable for interest.
We hold that the petition is devoid of merit.
In Insurance Policy No. 31944, four key items are important in the resolution of the case at bar.
First, in the designation of location of risk, only the two swimming pools were specified as
included, viz:
ITEM 3 393,000.00 On the two (2) swimming pools only (against the peril of earthquake shock
only)
[20]

Second, under the breakdown for premium payments,
[21]
it was stated that:
PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM
x x x
3 393,000.00 0.100%-E/S 393.00
[22]

Third, Policy Condition No. 6 stated:
6. This insurance does not cover any loss or damage occasioned by or through or in consequence,
directly or indirectly of any of the following occurrences, namely:--
(a) Earthquake, volcanic eruption or other convulsion of nature.
[23]

Fourth, the rider attached to the policy, titled Extended Coverage Endorsement (To Include the
Perils of Explosion, Aircraft, Vehicle and Smoke), stated, viz:
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES
THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS INSURED IN
EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A DISCOUNT OF 5% OR 7 % OF
THE NET PREMIUM x x x POLICY HEREBY UNDERTAKES TO CONTINUE THE INSURANCE
UNDER THE ABOVE NAMED x x x AND TO PAY THE PREMIUM.
Earthquake Endorsement
In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . . . . . . . . .
. additional premium the Company agrees, notwithstanding what is stated in the printed conditions
of this Policy to the contrary, that this insurance covers loss or damage (including loss or damage
by fire) to any of the property insured by this Policy occasioned by or through or in consequence of
Earthquake.
Provided always that all the conditions of this Policy shall apply (except in so far as they may be
hereby expressly varied) and that any reference therein to loss or damage by fire should be deemed
to apply also to loss or damage occasioned by or through or in consequence of Earthquake.
[24]

Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the
earthquake shock coverage. Thus, the policy extended earthquake shock coverage to all of the
insured properties.
It is basic that all the provisions of the insurance policy should be examined and interpreted in
consonance with each other.
[25]
All its parts are reflective of the true intent of the parties. The policy
cannot be construed piecemeal. Certain stipulations cannot be segregated and then made to
control; neither do particular words or phrases necessarily determine its character. Petitioner
cannot focus on the earthquake shock endorsement to the exclusion of the other provisions. All the
provisions and riders, taken and interpreted together, indubitably show the intention of the parties
to extend earthquake shock coverage to the two swimming pools only.
A careful examination of the premium recapitulation will show that it is the clear intent of the
parties to extend earthquake shock coverage only to the two swimming pools. Section 2(1) of the
Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or
contingent event. Thus, an insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a
premium.
[26]
(Emphasis ours)
An insurance premium is the consideration paid an insurer for undertaking to indemnify the
insured against a specified peril.
[27]
In fire, casualty, and marine insurance, the premium payable
becomes a debt as soon as the risk attaches.
[28]
In the subject policy, no premium payments were
made with regard to earthquake shock coverage, except on the two swimming pools. There is no
mention of any premium payable for the other resort properties with regard to earthquake shock.
This is consistent with the history of petitioners previous insurance policies from AHAC-AIU. As
borne out by petitioners witnesses:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policy
during the period from March 4, 1984 to March 4, 1985 the coverage on earthquake
shock was limited to the two swimming pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty,
there is a provision here that it was only for item 5.
Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two
swimming pools only?
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange
for the procurement of this policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your company?
A. No, sir. They are our insurance agency.
Q. And they are independent of your company insofar as operations are concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is concerned they are of course
subject to your instruction, is that not correct?
A. Yes, sir. The final action is still with us although they can recommend what insurance
to take.
Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14,
1989, did you give written instruction to Forte Insurance Agency advising it that the
earthquake shock coverage must extend to all properties of Agoo Playa Resort in La
Union?
A. No, sir. We did not make any written instruction, although we made an oral instruction
to that effect of extending the coverage on (sic) the other properties of the company.
Q. And that instruction, according to you, was very important because in April 1987 there
was an earthquake tremor in La Union?
A. Yes, sir.
Q. And you wanted to protect all your properties against similar tremors in the [future], is
that correct?
A. Yes, sir.
Q. Now, after this policy was delivered to you did you bother to check the provisions with
respect to your instructions that all properties must be covered again by earthquake
shock endorsement?
A. Are you referring to the insurance policy issued by American Home Assurance
Company marked Exhibit G?
Atty. Mejia: Yes.
Witness:
A. I examined the policy and seeing that the warranty on the earthquake shock
endorsement has no more limitation referring to the two swimming pools only, I was
contented already that the previous limitation pertaining to the two swimming pools
was already removed.
Petitioner also cited and relies on the attachment of the phrase Subject to: Other Insurance
Clause, Typhoon Endorsement, Earthquake Shock Endorsement, Extended Coverage
Endorsement, FEA Warranty & Annual Payment Agreement on Long Term Policies
[29]
to the
insurance policy as proof of the intent of the parties to extend the coverage for earthquake shock.
However, this phrase is merely an enumeration of the descriptive titles of the riders, clauses,
warranties or endorsements to which the policy is subject, as required under Section 50, paragraph
2 of the Insurance Code.
We also hold that no significance can be placed on the deletion of the qualification limiting the
coverage to the two swimming pools. The earthquake shock endorsement cannot stand alone. As
explained by the testimony of Juan Baranda III, underwriter for AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III
[30]

TSN, August 11, 1992
pp. 9-12
Atty. Mejia:
We respectfully manifest that the same exhibits C to H inclusive have been previously
marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to
review of (sic) these six (6) policies issued by your company [in favor] of Agoo Playa
Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one point of time, sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H
respectively carries an earthquake shock endorsement[?] My question to you is, on the
basis on (sic) the wordings indicated in Exhibits C to H respectively what was the extent
of the coverage [against] the peril of earthquake shock as provided for in each of the six
(6) policies?
x x x
WITNESS:
The extent of the coverage is only up to the two (2) swimming pools, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?
A. Yes, sir.
ATTY. MEJIA:
What is your basis for stating that the coverage against earthquake shock as provided
for in each of the six (6) policies extend to the two (2) swimming pools only?
WITNESS:
Because it says here in the policies, in the enumeration Earthquake Shock
Endorsement, in the Clauses and Warranties: Item 5 only (Earthquake Shock
Endorsement), sir.
ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor.
WITNESS:
We do not normally cover earthquake shock endorsement on stand alone basis. For
swimming pools we do cover earthquake shock. For building we covered it for full
earthquake coverage which includes earthquake shock
COURT:
As far as earthquake shock endorsement you do not have a specific coverage for other
things other than swimming pool? You are covering building? They are covered by a
general insurance?
WITNESS:
Earthquake shock coverage could not stand alone. If we are covering building or
another we can issue earthquake shock solely but that the moment I see this, the thing
that comes to my mind is either insuring a swimming pool, foundations, they are
normally affected by earthquake but not by fire, sir.
DIRECT EXAMINATION OF JUAN BARANDA III
TSN, August 11, 1992
pp. 23-25
Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E and
F inclusive [remained] its coverage against earthquake shock to two (2) swimming pools
only but that Exhibits G and H respectively entend the coverage against earthquake
shock to all the properties indicated in the respective schedules attached to said
policies, what can you say about that testimony of plaintiffs witness?
WITNESS:
As I have mentioned earlier, earthquake shock cannot stand alone without the other
half of it. I assure you that this one covers the two swimming pools with respect to
earthquake shock endorsement. Based on it, if we are going to look at the premium
there has been no change with respect to the rates. Everytime (sic) there is a renewal if
the intention of the insurer was to include the earthquake shock, I think there is a
substantial increase in the premium. We are not only going to consider the two (2)
swimming pools of the other as stated in the policy. As I see, there is no increase in the
amount of the premium. I must say that the coverage was not broaden (sic) to include
the other items.
COURT:
They are the same, the premium rates?
WITNESS:
They are the same in the sence (sic), in the amount of the coverage. If you are going to
do some computation based on the rates you will arrive at the same premiums, your
Honor.
CROSS-EXAMINATION OF JUAN BARANDA III
TSN, September 7, 1992
pp. 4-6
ATTY. ANDRES:
Would you as a matter of practice [insure] swimming pools for fire insurance?
WITNESS:
No, we dont, sir.
Q. That is why the phrase earthquake shock to the two (2) swimming pools only was
placed, is it not?
A. Yes, sir.
ATTY. ANDRES:
Will you not also agree with me that these exhibits, Exhibits G and H which you have
pointed to during your direct-examination, the phrase Item no. 5 only meaning to (sic)
the two (2) swimming pools was deleted from the policies issued by AIU, is it not?
x x x
ATTY. ANDRES:
As an insurance executive will you not attach any significance to the deletion of the
qualifying phrase for the policies?
WITNESS:
My answer to that would be, the deletion of that particular phrase is inadvertent. Being
a company underwriter, we do not cover. . it was inadvertent because of the previous
policies that we have issued with no specific attachments, premium rates and so on. It
was inadvertent, sir.
The Court also rejects petitioners contention that respondents contemporaneous and
subsequent acts to the issuance of the insurance policy falsely gave the petitioner assurance that
the coverage of the earthquake shock endorsement included all its properties in the resort.
Respondent only insured the properties as intended by the petitioner. Petitioners own witness
testified to this agreement, viz:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 4-5
Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did you
tell Atty. Omlas (sic) to copy from Exhibit H for purposes of procuring the policy from
Philippine Charter Insurance Corporation?
A. I told him that the insurance that they will have to get will have the same provisions as
this American Home Insurance Policy No. 206-4568061-9.
Q. You are referring to Exhibit H of course?
A. Yes, sir, to Exhibit H.
Q. So, all the provisions here will be the same except that of the premium rates?
A. Yes, sir. He assured me that with regards to the insurance premium rates that they
will be charging will be limited to this one. I (sic) can even be lesser.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 12-14
Atty. Mejia:
Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the provisions
and scope of coverage of Exhibits I and H sometime in the third week of March, 1990
or thereabout?
A. Yes, sir, about that time.
Q. And at that time did you notice any discrepancy or difference between the policy
wordings as well as scope of coverage of Exhibits I and H respectively?
A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that
the policy wordings and rates were copied from the insurance policy I sent them but it
was only when this case erupted that we discovered some discrepancies.
Q. With respect to the items declared for insurance coverage did you notice any
discrepancy at any time between those indicated in Exhibit I and those indicated in
Exhibit H respectively?
A. With regard to the wordings I did not notice any difference because it was exactly the
same P393,000.00 on the two (2) swimming pools only against the peril of earthquake
shock which I understood before that this provision will have to be placed here because
this particular provision under the peril of earthquake shock only is requested because
this is an insurance policy and therefore cannot be insured against fire, so this has to
be placed.
The verbal assurances allegedly given by respondents representative Atty. Umlas were not
proved. Atty. Umlas categorically denied having given such assurances.
Finally, petitioner puts much stress on the letter of respondents independent claims adjuster,
Bayne Adjusters and Surveyors, Inc. But as testified to by the representative of Bayne Adjusters
and Surveyors, Inc., respondent never meant to lead petitioner to believe that the endorsement for
earthquake shock covered properties other than the two swimming pools, viz:
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne
Adjusters and Surveyors, Inc.)
TSN, January 26, 1993
pp. 22-26
Q. Do you recall the circumstances that led to your discussion regarding the extent of
coverage of the policy issued by Philippine Charter Insurance Corporation?
A. I remember that when I returned to the office after the inspection, I got a photocopy of
the insurance coverage policy and it was indicated under Item 3 specifically that the
coverage is only for earthquake shock. Then, I remember I had a talk with Atty. Umlas
(sic), and I relayed to him what I had found out in the policy and he confirmed to me
indeed only Item 3 which were the two swimming pools have coverage for earthquake
shock.
x x x
Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except for
the swimming pools all affected items have no coverage for earthquake shock?
x x x
A. I based my statement on my findings, because upon my examination of the policy I
found out that under Item 3 it was specific on the wordings that on the two swimming
pools only, then enclosed in parenthesis (against the peril[s] of earthquake shock only),
and secondly, when I examined the summary of premium payment only Item 3 which
refers to the swimming pools have a computation for premium payment for earthquake
shock and all the other items have no computation for payment of premiums.
In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely
on the general rule that insurance contracts are contracts of adhesion which should be liberally
construed in favor of the insured and strictly against the insurer company which usually prepares
it.
[31]
A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations
in the contract, while the other party merely affixes his signature or his "adhesion" thereto. Through
the years, the courts have held that in these type of contracts, the parties do not bargain on equal
footing, the weaker party's participation being reduced to the alternative to take it or leave it. Thus,
these contracts are viewed as traps for the weaker party whom the courts of justice must
protect.
[32]
Consequently, any ambiguity therein is resolved against the insurer, or construed
liberally in favor of the insured.
[33]

The case law will show that this Court will only rule out blind adherence to terms where facts
and circumstances will show that they are basically one-sided.
[34]
Thus, we have called on lower
courts to remain careful in scrutinizing the factual circumstances behind each case to determine
the efficacy of the claims of contending parties. In Development Bank of the Philippines v.
National Merchandising Corporation, et al.,
[35]
the parties, who were acute businessmen of
experience, were presumed to have assented to the assailed documents with full knowledge.
We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot
claim it did not know the provisions of the policy. From the inception of the policy, petitioner had
required the respondent to copy verbatim the provisions and terms of its latest insurance policy
from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct participant in securing the
insurance policy of petitioner, is reflective of petitioners knowledge, viz:
DIRECT EXAMINATION OF LEOPOLDO MANTOHAC
[36]

TSN, September 23, 1991
pp. 20-21
Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those
facilities in Agoo Playa?
A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine
Charter Insurance Corporation as long as it will follow the same or exact provisions of
the previous insurance policy we had with American Home Assurance Corporation.
Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in
the American Home Insurance policy are to be incorporated in the PCIC policy?
A. Yes, sir.
Q. What steps did you take?
A. When I examined the policy of the Philippine Charter Insurance Corporation I
specifically told him that the policy and wordings shall be copied from the AIU Policy
No. 206-4568061-9.
Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-
4568061-9 in drafting its Insurance Policy No. 31944. It is true that there was variance in some
terms, specifically in the replacement cost endorsement, but the principal provisions of the policy
remained essentially similar to AHAC-AIUs policy. Consequently, we cannot apply the "fine print"
or "contract of adhesion" rule in this case as the parties intent to limit the coverage of the policy to
the two swimming pools only is not ambiguous.
[37]

IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition
for certiorari is dismissed. No costs.
SO ORDERED.
Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.


[G.R. No. 119599. March 20, 1997]
MALAYAN INSURANCE CORPORATION, petitioner, vs. THE HON. COURT OF APPEALS and
TKC MARKETING CORPORATION,respondents.
D E C I S I O N
ROMERO, J.:
Assailed in this petition for review on certiorari is the decision of the Court of Appeals in CA-
G.R. No. 43023
[1]
which affirmed, with slight modification, the decision of the Regional Trial Court of
Cebu, Branch 15.
Private respondent TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric
tons of soya bean meal which was loaded on board the ship MV Al Kaziemah on or about September
8, 1989 for carriage from the port of Rio del Grande, Brazil, to the port of Manila. Said cargo was
insured against the risk of loss by petitioner Malayan Insurance Corporation for which it issued two
(2) Marine Cargo Policy Nos. M/LP 97800305 amounting to P18,986,902.45 and M/LP 97800306
amounting to P1,195,005.45, both dated September 1989.
While the vessel was docked in Durban, South Africa on September 11, 1989 enroute to Manila,
the civil authorities arrested and detained it because of a lawsuit on a question of ownership and
possession. As a result, private respondent notified petitioner on October 4, 1989 of the arrest of
the vessel and made a formal claim for the amount of US$916,886.66, representing the dollar
equivalent on the policies, for non-delivery of the cargo. Private respondent likewise sought the
assistance of petitioner on what to do with the cargo.
Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the
policies. Private respondent, accordingly, advised petitioner that it might tranship the cargo and
requested an extension of the insurance coverage until actual transhipment, which extension was
approved upon payment of additional premium. The insurance coverage was extended under the
same terms and conditions embodied in the original policies while in the process of making
arrangements for the transhipment of the cargo from Durban to Manila, covering the period October
4-December 19, 1989.
However, on December 11, 1989, the cargo was sold in Durban, South Africa, for US$154.40
per metric ton or a total of P10,304,231.75 due to its perishable nature which could no longer stand
a voyage of twenty days to Manila and another twenty days for the discharge thereof. On January 5,
1990, private respondent forthwith reduced its claim to US$448,806.09 (or its peso equivalent
of P9,879,928.89 at the exchange rate of P22.0138 per $1.00) representing private respondent's loss
after the proceeds of the sale were deducted from the original claim of $916,886.66
or P20,184,159.55.
Petitioner maintained its position that the arrest of the vessel by civil authorities on a question
of ownership was an excepted risk under the marine insurance policies. This prompted private
respondent to file a complaint for damages praying that aside from its claim, it be reimbursed the
amount of P128,770.88 as legal expenses and the interest it paid for the loan it obtained to finance
the shipment totalling P942,269.30. In addition, private respondent asked for moral damages
amounting to P200,000.00, exemplary damages amounting to P200,000.00 and attorney's fees
equivalent to 30% of what will be awarded by the court.
The lower court decided in favor of private respondent and required petitioner to pay, aside from
the insurance claim, consequential and liquidated damages amounting toP1,024,233.88, exemplary
damages amounting to P100,000.00, reimbursement in the amount equivalent to 10% of whatever
is recovered as attorney's fees as well as the costs of the suit. On private respondent's motion for
reconsideration, petitioner was also required to further pay interest at the rate of 12% per annum
on all amounts due and owing to the private respondent by virtue of the lower court decision
counted from the inception of this case until the same is paid.
On appeal, the Court of Appeals affirmed the decision of the lower court stating that with the
deletion of Clause 12 of the policies issued to private respondent, the same became automatically
covered under subsection 1.1 of Section 1 of the Institute War Clauses. The arrests, restraints or
detainments contemplated in the former clause were those effected by political or executive acts.
Losses occasioned by riot or ordinary judicial processes were not covered therein. In other words,
arrest, restraint or detainment within the meaning of Clause 12 (or F.C. & S. Clause) rules out
detention by ordinary legal processes. Hence, arrests by civil authorities, such as what happened in
the instant case, is an excepted risk under Clause 12 of the Institute Cargo Clause or the F.C. & S.
Clause. However, with the deletion of Clause 12 of the Institute Cargo Clause and the consequent
adoption or institution of the Institute War Clauses (Cargo), the arrest and seizure by judicial
processes which were excluded under the former policy became one of the covered risks.
The appellate court added that the failure to deliver the consigned goods in the port of
destination is a loss compensable, not only under the Institute War Clause but also under the
Theft, Pilferage, and Non-delivery Clause (TNPD) of the insurance policies, as read in relation to
Section 130 of the Insurance Code and as held in Williams v. Cole.
[2]

Furthermore, the appellate court contended that since the vessel was prevented at an
intermediate port from completing the voyage due to its seizure by civil authorities, a peril insured
against, the liability of petitioner continued until the goods could have been transhipped. But due to
the perishable nature of the goods, it had to be promptly sold to minimize loss. Accordingly, the sale
of the goods being reasonable and justified, it should not operate to discharge petitioner from its
contractual liability.
Hence this petition, claiming that the Court of Appeals erred:
1. In ruling that the arrest of the vessel was a risk covered under the subject insurance policies.
2. In ruling that there was constructive total loss over the cargo.
3. In ruling that petitioner was in bad faith in declining private respondent's claim.
4. In giving undue reliance to the doctrine that insurance policies are strictly construed against the
insurer.
In assigning the first error, petitioner submits the following: (a) an arrest by civil authority is
not compensable since the term "arrest" refers to "political or executive acts" and does not include a
loss caused by riot or by ordinary judicial process as in this case; (b) the deletion of the Free from
Capture or Seizure Clause would leave the assured covered solely for the perils specified by the
wording of the policy itself; (c) the rationale for the exclusion of an arrest pursuant to judicial
authorities is to eliminate collusion between unscrupulous assured and civil authorities.
As to the second assigned error, petitioner submits that any loss which private respondent may
have incurred was in the nature and form of unrecovered acquisition value brought about by a
voluntary sacrifice sale and not by arrest, detention or seizure of the ship.
As to the third issue, petitioner alleges that its act of rejecting the claim was a result of its
honest belief that the arrest of the vessel was not a compensable risk under the policies issued. In
fact, petitioner supported private respondent by accommodating the latter's request for an
extension of the insurance coverage, notwithstanding that it was then under no legal obligation to
do so.
Private respondent, on the other hand, argued that when it appealed its case to the Court of
Appeals, petitioner did not raise as an issue the award of exemplary damages. It cannot now, for the
first time, raise the same before this Court. Likewise, petitioner cannot submit for the first time on
appeal its argument that it was wrong for the Court of Appeals to have ruled the way it did based on
facts that would need inquiry into the evidence. Even if inquiry into the facts were possible, such
was not necessary because the coverage as ruled upon by the Court of Appeals is evident from the
very terms of the policies.
It also argued that petitioner, being the sole author of the policies, "arrests" should be strictly
interpreted against it because the rule is that any ambiguity is to be taken contra proferentum. Risk
policies should be construed reasonably and in a manner as to make effective the intentions and
expectations of the parties. It added that the policies clearly stipulate that they cover the risks of
non-delivery of an entire package and that it was petitioner itself that invited and granted the
extensions and collected premiums thereon.
The resolution of this controversy hinges on the interpretation of the "Perils" clause of the
subject policies in relation to the excluded risks or warranty specifically stated therein.
By way of a historical background, marine insurance developed as an all-risk coverage, using
the phrase "perils of the sea" to encompass the wide and varied range of risks that were
covered.
[3]
The subject policies contain the "Perils" clause which is a standard form in any marine
insurance policy. Said clause reads:
"Touching the adventures which the said MALAYAN INSURANCE CO., are content to bear, and to
take upon them in this voyage; they are of the Seas; Men-of-War, Fire, Enemies, Pirates, Rovers,
Thieves, Jettisons, Letters of Mart and Counter Mart, Suprisals, Takings of the Sea, Arrests,
Restraints and Detainments of all Kings, Princess and Peoples, of what Nation, condition, or quality
soever, Barratry of the Master and Mariners, and of all other Perils, Losses, and Misfortunes, that
have come to hurt, detriment, or damage of the said goods and merchandise or any part thereof .
AND in case of any loss or misfortune it shall be lawful to the ASSURED, their factors, servants and
assigns, to sue, labour, and travel for, in and about the defence, safeguards, and recovery of the
said goods and merchandises, and ship, & c., or any part thereof, without prejudice to this
INSURANCE; to the charges whereof the said COMPANY, will contribute according to the rate and
quantity of the sum herein INSURED. AND it is expressly declared and agreed that no acts of the
Insurer or Insured in recovering, saving, or preserving the Property insured shall be considered as a
Waiver, or Acceptance of Abandonment. And it is agreed by the said COMPANY, that this writing or
Policy of INSURANCE shall be of as much Force and Effect as the surest Writing or Policy of
INSURANCE made in LONDON. And so the said MALAYAN INSURANCE COMPANY, INC., are
contented, and do hereby promise and bind themselves, their Heirs, Executors, Goods and Chattel,
to the ASSURED, his or their Executors, Administrators, or Assigns, for the true Performance of the
Premises; confessing themselves paid the Consideration due unto them for this INSURANCE at and
after the rate arranged." (Underscoring supplied)
The exception or limitation to the "Perils" clause and the "All other perils" clause in the subject
policies is specifically referred to as Clause 12 called the "Free from Capture & Seizure Clause" or
the F.C. & S. Clause which reads, thus:
"Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof
or of any attempt thereat; also from the consequences of hostilities and warlike operations, whether
there be a declaration of war or not; but this warranty shall not exclude collision, contact with any
fixed or floating object (other than a mine or torpedo), stranding, heavy weather or fire unless
caused directly (and independently of the nature of the voyage or service which the vessel concerned
or, in the case of a collision, any other vessel involved therein is performing) by a hostile act by or
against a belligerent power and for the purpose of this warranty 'power' includes any authorities
maintaining naval, military or air forces in association with power.
Further warranted free from the consequences of civil war, revolution, insurrection, or civil strike
arising therefrom or piracy.
Should Clause 12 be deleted, the relevant current institute war clauses shall be deemed to form
part of this insurance." (Underscoring supplied)
However, the F. C. & S. Clause was deleted from the policies. Consequently, the Institute War
Clauses (Cargo) was deemed incorporated which, in subsection 1.1 of Section 1, provides:
"1. This insurance covers:
1.1 The risks excluded from the standard form of English Marine Policy by the clause warranted
free of capture, seizure, arrest, restraint or detainment, and the consequences thereof of hostilities
or warlike operations, whether there be a declaration of war or not; but this warranty shall not
exclude collision, contact with any fixed or floating object (other than a mine or torpedo), stranding,
heavy weather or fire unless caused directly (and independently of the nature on voyage or service
which the vessel concerned or, in the case of a collision any other vessel involved therein is
performing) by a hostile act by or against a belligerent power; and for the purpose of this warranty
'power' includes any authority maintaining naval, military or air forces in association with a power.
Further warranted free from the consequences of civil war, revolution, rebellion, insurrection, or
civil strike arising therefrom, or piracy."
According to petitioner, the automatic incorporation of subsection 1.1 of section 1 of the
Institute War Clauses (Cargo), among others, means that any "capture, arrest, detention, etc."
pertained exclusively to warlike operations if this Court strictly construes the heading of the said
Clauses. However, it also claims that the parties intended to include arrests, etc. even if it were not
the result of hostilities or warlike operations. It further claims that on the strength of jurisprudence
on the matter, the term "arrests" would only cover those arising from political or executive acts,
concluding that whether private respondent's claim is anchored on subsection 1.1 of Section 1 of
the Institute War Clauses (Cargo) or the F.C. & S. Clause, the arrest of the vessel by judicial
authorities is an excluded risk.
[4]

This Court cannot agree with petitioner's assertions, particularly when it alleges that in the
"Perils" Clause, it assumed the risk of arrest caused solely by executive or political acts of the
government of the seizing state and thereby excludes "arrests" caused by ordinary legal processes,
such as in the instant case.
With the incorporation of subsection 1.1 of Section 1 of the Institute War Clauses, however, this
Court agrees with the Court of Appeals and the private respondent that "arrest" caused by ordinary
judicial process is deemed included among the covered risks. This interpretation becomes inevitable
when subsection 1.1 of Section 1 of the Institute War Clauses provided that "this insurance covers
the risks excluded from the Standard Form of English Marine Policy by the clause 'Warranted free
of capture, seizure, arrest, etc. x x x'" or the F.C. & S. Clause. Jurisprudentially, "arrests" caused by
ordinary judicial process is also a risk excluded from the Standard Form of English Marine Policy by
the F.C. & S. Clause.
Petitioner cannot adopt the argument that the "arrest" caused by ordinary judicial process is
not included in the covered risk simply because the F.C. & S. Clause under the Institute War
Clauses can only be operative in case of hostilities or warlike operations on account of its heading
"Institute War Clauses." This Court agrees with the Court of Appeals when it held that ". . .
Although the F.C. & S. Clause may have originally been inserted in marine policies to protect
against risks of war, (see generally G. Gilmore & C. Black, The Law of Admiralty Section 2-9, at 71-
73 [2d Ed. 1975]), its interpretation in recent years to include seizure or detention by civil
authorities seems consistent with the general purposes of the clause, x x x"
[5]
In fact, petitioner itself
averred that subsection 1.1 of Section 1 of the Institute War Clauses included "arrest" even if it
were not a result of hostilities or warlike operations.
[6]
In this regard, since what was also excluded
in the deleted F.C. & S. Clause was "arrest" occasioned by ordinary judicial process, logically, such
"arrest" would now become a covered risk under subsection 1.1 of Section 1 of the Institute War
Clauses, regardless of whether or not said "arrest" by civil authorities occurred in a state of war.
Petitioner itself seems to be confused about the application of the F.C. & S. Clause as well as
that of subsection 1.1 of Section 1 of the Institute War Clauses (Cargo). It stated that "the F.C. & S.
Clause was "originally incorporated in insurance policies to eliminate the risks of warlike
operations". It also averred that the F.C. & S. Clause applies even if there be no war or warlike
operations x x x"
[7]
In the same vein, it contended that subsection 1.1 of Section 1 of the Institute
War Clauses (Cargo) "pertained exclusively to warlike operations" and yet it also stated that "the
deletion of the F.C. & S. Clause and the consequent incorporation of subsection 1.1 of Section 1 of
the Institute War Clauses (Cargo) was to include "arrest, etc. even if it were not a result of hostilities
or warlike operations."
[8]

This Court cannot help the impression that petitioner is overly straining its interpretation of the
provisions of the policy in order to avoid being liable for private respondent's claim.
This Court finds it pointless for petitioner to maintain its position that it only insures risks of
"arrest" occasioned by executive or political acts of government which is interpreted as not referring
to those caused by ordinary legal processes as contained in the "Perils" Clause; deletes the F.C. & S.
Clause which excludes risks of arrest occasioned by executive or political acts of the government
and naturally, also those caused by ordinary legal processes; and, thereafter incorporates
subsection 1.1 of Section 1 of the Institute War Clauses which now includes in the coverage risks of
arrest due to executive or political acts of a government but then still excludes "arrests" occasioned
by ordinary legal processes when subsection 1.1 of Section 1 of said Clauses should also have
included "arrests" previously excluded from the coverage of the F.C. & S. Clause.
It has been held that a strained interpretation which is unnatural and forced, as to lead to an
absurd conclusion or to render the policy nonsensical, should, by all means, be avoided.
[9]
Likewise,
it must be borne in mind that such contracts are invariably prepared by the companies and must
be accepted by the insured in the form in which they are written.
[10]
Any construction of a marine
policy rendering it void should be avoided.
[11]
Such policies will, therefore, be construed strictly
against the company in order to avoid a forfeiture, unless no other result is possible from the
language used.
[12]

If a marine insurance company desires to limit or restrict the operation of the general provisions
of its contract by special proviso, exception, or exemption, it should express such limitation in clear
and unmistakable language.
[13]
Obviously, the deletion of the F.C. & S. Clause and the consequent
incorporation of subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) gave rise to
ambiguity. If the risk of arrest occasioned by ordinary judicial process was expressly indicated as an
exception in the subject policies, there would have been no controversy with respect to the
interpretation of the subject clauses.
Be that as it may, exceptions to the general coverage are construed most strongly against the
company.
[14]
Even an express exception in a policy is to be construed against the underwriters by
whom the policy is framed, and for whose benefit the exception is introduced.
[15]

An insurance contract should be so interpreted as to carry out the purpose for which the
parties entered into the contract which is, to insure against risks of loss or damage to the goods.
Such interpretation should result from the natural and reasonable meaning of language in the
policy.
[16]
Where restrictive provisions are open to two interpretations, that which is most favorable
to the insured is adopted.
[17]

Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by
the insurer.
[18]
A contract of insurance, being a contract of adhesion, par excellence, any ambiguity
therein should be resolved against the insurer; in other words, it should be construed liberally in
favor of the insured and strictly against the insurer. Limitations of liability should be regarded with
extreme jealousy and must be construed in such a way as to preclude the insurer from
noncompliance with its obligations.
[19]

In view of the foregoing, this Court sees no need to discuss the other issues presented.
WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.