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G.R. No.

167330
September 18, 2009
PHILIPPINE HEALTH CARE PROVIDERS, INC. vs. COMMISSIONER OF INTERNAL REVENUE, 3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;
(see tax cases on tax as a power )
4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.
SO ORDERED.3
G.R. No. 125678
March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards
TRINOS, respondents.
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
YNARES-SANTIAGO, J.:
argument that a health care agreement is not an insurance contract; hence the
"incontestability clause" under the Insurance Code6 does not apply.1wphi1.nt
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, Petitioner argues that the agreement grants "living benefits," such as medical check-ups and
he answered no to the following question:
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
Have you or any of your family members ever consulted or been treated for high blood medical and hospitalization benefits are given under the agreement without any
pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give indemnification, unlike in an insurance contract where the insured is indemnified for his loss.
details).1
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
The application was approved for a period of one year from March 1, 1988 to March 1, 1989. does not apply, as the same requires an effectivity period of at least two years. Petitioner
Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement, further argues that it is not an insurance company, which is governed by the Insurance
respondents husband was entitled to avail of hospitalization benefits, whether ordinary or Commission, but a Health Maintenance Organization under the authority of the Department
emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as of Health.
annual physical examinations, preventive health care and other out-patient services.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby
Upon the termination of the agreement, the same was extended for another year from March one undertakes for a consideration to indemnify another against loss, damage or liability
1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage arising from an unknown or contingent event. An insurance contract exists where the
was increased to a maximum sum of P75,000.00 per disability.2
following elements concur:
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.

1. The insured has an insurable interest;

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.

5. In consideration of the insurers promise, the insured pays a premium.8

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

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:

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 Every person has an insurable interest in the life and health:
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: (1) of himself, of his spouse and of his children;

insurance cases: general provisions

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1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani (3) of any person under a legal obligation to him for the payment of money, respecting
Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who property or service, of which death or illness might delay or prevent the performance; and
paid the same;
(4) of any person upon whose life any estate or interest vested in him depends.
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita (2) of any person on whom he depends wholly or in part for education or support, or in whom
Trinos, ordering:
he has a pecuniary interest;

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.

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
We hereby declare and agree that all statement and answers contained herein and in any once the member is hospitalized for the disease or injury covered by the agreement or
addendum annexed to this application are full, complete and true and bind all parties in whenever he avails of the covered benefits which he has prepaid.
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 Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind
Fee according to the mode of payment applied for is actually paid during the lifetime and good a contract of insurance." The right to rescind should be exercised previous to the
health of proposed Members; that no information acquired by any Representative of commencement of an action on the contract.17 In this case, no rescission was made.
PhilamCare shall be binding upon PhilamCare unless set out in writing in the application; that Besides, the cancellation of health care agreements as in insurance policies require the
any physician is, by these presents, expressly authorized to disclose or give testimony at concurrence of the following conditions:
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 1. Prior notice of cancellation to insured;
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 2. Notice must be based on the occurrence after effective date of the policy of one or more of
Endorsement.11 (Underscoring ours)
the grounds mentioned;

insurance cases: general provisions

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In addition to the above condition, petitioner additionally required the applicant for 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
authorization to inquire about the applicants medical history, thus:
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
I hereby authorize any person, organization, or entity that has any record or knowledge of my request of insured, to furnish facts on which cancellation is based.18
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 None of the above pre-conditions was fulfilled in this case. When the terms of insurance
advice or examination. This authorization is in connection with the application for health care contract contain limitations on liability, courts should construe them in such a way as to
coverage only. A photographic copy of this authorization shall be as valid as the original.12 preclude the insurer from non-compliance with his obligation.19 Being a contract of
(Underscoring ours)
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
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads: 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
Failure to disclose or misrepresentation of any material information by the member in the to avoid forfeiture.21 This is equally applicable to Health Care Agreements. The phraseology
application or medical examination, whether intentional or unintentional, shall automatically used in medical or hospital service contracts, such as the one at bar, must be liberally
invalidate the Agreement from the very beginning and liability of Philamcare shall be limited construed in favor of the subscriber, and if doubtful or reasonably susceptible of two
to return of all Membership Fees paid. An undisclosed or misrepresented information is interpretations the construction conferring coverage is to be adopted, and exclusionary
deemed material if its revelation would have resulted in the declination of the applicant by clauses of doubtful import should be strictly construed against the provider.22
Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied
for.13
Anent the incontestability of the membership of respondents husband, we quote with
approval the following findings of the trial court:
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 (U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems
from respondents husband who was not a medical doctor. Where matters of opinion or Inc. had twelve months from the date of issuance of the Agreement within which to contest
judgment are called for, answers made in good faith and without intent to deceive will not the membership of the patient if he had previous ailment of asthma, and six months from the
avoid a policy even though they are untrue.14 Thus,
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
(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 Finally, petitioner alleges that respondent was not the legal wife of the deceased member
of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although considering that at the time of their marriage, the deceased was previously married to
the statement is material to the risk, if the statement is obviously of the foregoing character, another woman who was still alive. The health care agreement is in the nature of a contract
since in such case the insurer is not justified in relying upon such statement, but is obligated of indemnity. Hence, payment should be made to the party who incurred the expenses. It is

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:

not controverted that respondent paid all the hospital and medical expenses. She is therefore G.R. No. 112360
July 18, 2000
entitled to reimbursement. The records adequately prove the expenses incurred by RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS and
respondent for the deceaseds hospitalization, medication and the professional fees of the TRANSWORLD KNITTING MILLS, INC., respondents.
attending physicians.24
DECISION
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the
Court of Appeals dated December 14, 1995 is AFFIRMED.
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 Decision1 and October 22, 1993 Resolution2 of the Court
of Appeals3 in CA-G.R. CV NO. 28779, which modified the Ruling4 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.

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
insurance cases: general provisions

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

Page

SO ORDERED.

and New India to pay the amount of P2,747, 867.00 plus legal interest, P400,000.00 as Undaunted, petitioner Rizal Surety & Insurance Company found its way to this Court via the
attorney's fees, exemplary damages, expenses of litigation of P50,000.00 and costs of suit.6 present Petition, contending that:
Petitioner Rizal Insurance countered that its fire insurance policy sued upon covered only the I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT THE ANNEX BUILDING WHERE
contents of the four-span building, which was partly burned, and not the damage caused by THE BULK OF THE BURNED PROPERTIES WERE STORED, WAS INCLUDED IN THE
the fire on the two-storey annex building.7
COVERAGE OF THE INSURANCE POLICY ISSUED BY RIZAL SURETY TO TRANSWORLD.
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.;

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
(2) Ordering defendant Rizal Surety And Insurance Company to pay Transwrold (sic) Knitting IN PALPABLE BAD FAITH AND WITH MALICE IN FILING ITS CLEARLY UNFOUNDED CIVIL
Mills, Inc. the amount of P826, 500.00 representing the actual value of the losses suffered by ACTION, AND IN NOT ORDERING TRANSWORLD TO PAY TO RIZAL SURETY MORAL AND
it; and
PUNITIVE DAMAGES (ART. 2205, CIVIL CODE), PLUS ATTORNEY'S FEES AND EXPENSES OF
LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL CODE).11
(3) Cost against defendant Rizal Surety and Insurance Company.
The Petition is not impressed with merit.
SO ORDERED."8
It is petitioner's submission that the fire insurance policy litigated upon protected only the
Both the petitioner, Rizal Insurance Company, and private respondent, Transworld Knitting contents of the main building (four-span),12 and did not include those stored in the two-storey
Mills, Inc., went to the Court of Appeals, which came out with its decision of July 15, 1993 annex building. On the other hand, the private respondent theorized that the so called
under attack, the decretal portion of which reads:
"annex" was not an annex but was actually an integral part of the four-span building13 and
therefore, the goods and items stored therein were covered by the same fire insurance
"WHEREFORE, and upon all the foregoing, the decision of the court below is MODIFIED in that policy.
defendant New India Assurance Company has and is hereby required to pay plaintiffappellant the amount of P1,818,604.19 while the other Rizal Surety has to pay the plaintiff- Resolution of the issues posited here hinges on the proper interpretation of the stipulation in
appellant P470,328.67, based on the actual losses sustained by plaintiff Transworld in the subject fire insurance policy regarding its coverage, which reads:
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 "xxx contained and/or stored during the currency of this Policy in the premises occupied by
Company in the amount of P1,500,000.00.
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
SO ORDERED."9
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
On August 20, 1993, from the aforesaid judgment of the Court of Appeals New India appealed wit:
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 "First, said properties must be contained and/or stored in the areas occupied by Transworld
because it (Transworld) had no insurable interest in said goods or items.
and second, said areas must form part of the building described in the policy xxx"14

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On February 2, 1994, the Court denied the appeal with finality in G.R. No. L-111118 (New India 'Said building of four-span lofty one storey in height with mezzanine portions is constructed
Assurance Company Ltd. vs. Court of Appeals).
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,
Petitioner Rizal Insurance and private respondent Transworld, interposed a Motion for offices, ware house and caretaker's quarter.'
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: 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
"WHEREFORE, the Decision of July 15, 1993 is amended but only insofar as the imposition of even more weight when the Court of Appeals has affirmed the findings of fact arrived at by
legal interest is concerned, that, on the assessment against New India Assurance Company the lower court.15
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 In the case under consideration, both the trial court and the Court of Appeals found that the
made. The rest of the said decision is retained in all other respects.
so called "annex " was not an annex building but an integral and inseparable part of the fourspan building described in the policy and consequently, the machines and spare parts stored
SO ORDERED."10
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:

No costs.

insurance cases: general provisions

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Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has "In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai Maru') had been negligent,
created a doubt regarding the portions of the building insured thereby. Article 1377 of the or so negligent as to have proximately caused the collision between them, was an issue that
New Civil Code provides:
was actually, directly and expressly raised, controverted and litigated in C.A.-G.R. No. 61320R. Reyes, L.B., J., resolved that issue in his Decision and held the 'Don Carlos' to have been
"Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor the negligent rather than the 'Yotai Maru' and, as already noted, that Decision was affirmed by
party who caused the obscurity"
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,
Conformably, it stands to reason that the doubt should be resolved against the petitioner, which is assailed in the case at bar, was promulgated. Applying the rule of conclusiveness of
Rizal Surety Insurance Company, whose lawyer or managers drafted the fire insurance policy judgment, the question of which vessel had been negligent in the collision between the two
contract under scrutiny. Citing the aforecited provision of law in point, the Court in Landicho (2) vessels, had long been settled by this Court and could no longer be relitigated in C.A.-G.R.
vs. Government Service Insurance System,19 ruled:
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
"This is particularly true as regards insurance policies, in respect of which it is settled that when it disregarded the Decision of this Court affirming the Reyes Decision."25
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 The controversy at bar is on all fours with the aforecited case. Considering that private
insured so as to effect the dominant purpose of indemnity or payment to the insured, respondent's insurable interest in, and compensability for the loss of subject fun and
especially where forfeiture is involved' (29 Am. Jur., 181), and the reason for this is that the amusement machines and spare parts, had been adjudicated, settled and sustained by the
'insured usually has no voice in the selection or arrangement of the words employed and that Court of Appeals in CA-G.R. CV NO. 28779, and by this Court in G.R. No. L-111118, in a
the language of the contract is selected with great care and deliberation by experts and legal Resolution, dated February 2, 1994, the same can no longer be relitigated and passed upon
advisers employed by, and acting exclusively in the interest of, the insurance company.' (44 in the present case. Ineluctably, the petitioner, Rizal Surety Insurance Company, is bound by
C.J.S., p. 1174).""20
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
Equally relevant is the following disquisition of the Court in Fieldmen's Insurance Company, be indemnified for the loss of the same.
Inc. vs. Vda. De Songco,21 to wit:
So also, the Court of Appeals correctly adjudged petitioner liable for the amount of
"'This rigid application of the rule on ambiguities has become necessary in view of current P470,328.67, it being the total loss and damage suffered by Transworld for which petitioner
business practices.1wphi1 The courts cannot ignore that nowadays monopolies, cartels Rizal Insurance is liable.26
and concentration of capital, endowed with overwhelming economic power, manage to
impose upon parties dealing with them cunningly prepared 'agreements' that the weaker All things studiedly considered and viewed in proper perspective, the Court is of the
party may not change one whit, his participation in the 'agreement' being reduced to the irresistible conclusion, and so finds, that the Court of Appeals erred not in holding the
alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence' petitioner, Rizal Surety Insurance Company, liable for the destruction and loss of the insured
(contrats [sic] d'adhesion), in contrast to these entered into by parties bargaining on an equal buildings and articles of the private respondent.
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
"Two-storey building constructed of partly timber and partly concrete hollow blocks under Spain, 13 Dec. 1934, 27 February 1942.)'"22
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
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
Verily, the two-storey building involved, a permanent structure which adjoins and settled in G.R. No. L-111118, entitled New India Assurance Company, Ltd., vs. Court of
intercommunicates with the "first right span of the lofty storey building",17 formed part Appeals, where the appeal of New India from the decision of the Court of Appeals under
thereof, and meets the requisites for compensability under the fire insurance policy sued review, was denied with finality by this Court on February 2, 1994.
upon.
The rule on conclusiveness of judgment, which obtains under the premises, precludes the
So also, considering that the two-storey building aforementioned was already existing when relitigation of a particular fact or issue in another action between the same parties based on
subject fire insurance policy contract was entered into on January 12, 1981, having been a different claim or cause of action. "xxx the judgment in the prior action operates as estoppel
constructed sometime in 1978,18 petitioner should have specifically excluded the said two- only as to those matters in issue or points controverted, upon the determination of which the
storey building from the coverage of the fire insurance if minded to exclude the same but if finding or judgment was rendered. In fine, the previous judgment is conclusive in the second
did not, and instead, went on to provide that such fire insurance policy covers the products, case, only as those matters actually and directly controverted and determined and not as to
raw materials and supplies stored within the premises of respondent Transworld which was matters merely involved therein."23
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 Applying the abovecited pronouncement, the Court, in Smith Bell and Company (Phils.), Inc.
four-span building.
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
After a careful study, the Court does not find any basis for disturbing what the lower courts longer be relitigated in a similar case filed by another insurer against the same shipping line
found and arrived at.
on the basis of the same factual circumstances. Ratiocinating further, the Court opined:

WHEREFORE, the Decision, dated July 15, 1993, and the Resolution, dated October 22, 1993, G.R. No. 138941
October 8, 2001
of the Court of Appeals in CA-G.R. CV NO. 28779 are AFFIRMED in toto. No pronouncement AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. TANTUCO ENTERPRISES, INC.,
as to costs.
respondent.
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 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 respondent's 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 attorney's fees; and

(d)

Pay the costs.

SO ORDERED."6

"WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit and the trial court's
Decision dated October 16, 1995 is hereby AFFIRMED in toto.
insurance cases: general provisions

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:

Page

SO ORDERED.

SO ORDERED."7

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
Petitioner moved for reconsideration. The motion, however, was denied for lack of merit in a the categorical statement embodied in the policy, extending its protection:
Resolution promulgated on June 10, 1999.
"On machineries and equipment with complete accessories usual to a coconut oil mill
Hence, the present course of action, where petitioner ascribes to the appellate court the including stocks of copra, copra cake and copra mills whilst contained in the new oil mill
following errors:
building, situate (sic) at UNNO. ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY
UNBLOCKED.''13 (emphasis supplied.)
"(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
If the parties really intended to protect the first oil mill, then there is no need to specify it as
new.
"(2) The Court of Appeals erred in its legal interpretation of 'Fire Extinguishing Appliances
Warranty' of the policy."9
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
"(3) With due respect, the conclusion of the Court of Appeals giving no regard to the parole is already covered under Policy No. 306-7432324-4 issued by the petitioner. It is unthinkable
evidence rule and the principle of estoppel is erroneous."10
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 over insurance.
The petition is devoid of merit.
The imperfection in the description of the insured oil mill's boundaries can be attributed to a
The primary reason advanced by the petitioner in resisting the claim of the respondent is that misunderstanding between the petitioner's general agent, Mr. Alfredo Borja, and its policy
the burned oil mill is not covered by any insurance policy. According to it, the oil mill insured issuing clerk, who made the error of copying the boundaries of the first oil mill when typing
is specifically described in the policy by its boundaries in the following manner:
the policy to be issued for the new one. As testified to by Mr. Borja:
"Front: by a driveway thence at 18 meters distance by Bldg. No. 2.

"Atty. G. Camaligan:

Right: by an open space thence by Bldg. No. 4.

Q:

What did you do when you received the report?

insurance cases: general provisions

Page

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
Rear: by an open space thence at 8 meters distance."
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
However, it argues that this specific boundary description clearly pertains, not to the burned covering the new oil mill and to me at that time the important thing is that it covered the new
oil mill, but to the other mill. In other words, the oil mill gutted by fire was not the one oil mill because it is just within one compound and there are only two oil mill[s] and so just
described by the specific boundaries in the contested policy.
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
What exacerbates respondent's predicament, petitioner posits, is that it did not have the (emphasis supplied)
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 It is thus clear that the source of the discrepancy happened during the preparation of the
Notice" in the policy that "Please read and examine the policy and if incorrect, return it written contract.
immediately for alteration," respondent apparently did not call petitioner's attention with
respect to the misdescription.
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,
By way of conclusion, petitioner argues that respondent is "barred by the parole evidence explain or add to the terms of the written agreement if he puts in issue in his pleading, among
rule from presenting evidence (other than the policy in question) of its self-serving intention others, its failure to express the true intent and agreement of the parties thereto.15 Here, the
(sic) that it intended really to insure the burned oil mill," just as it is "barred by estoppel from contractual intention of the parties cannot be understood from a mere reading of the
claiming that the description of the insured oil mill in the policy was wrong, because it instrument. Thus, while the contract explicitly stipulated that it was for the insurance of the
retained the policy without having the same corrected before the fire by an endorsement in new oil mill, the boundary description written on the policy concededly pertains to the first oil
accordance with its Condition No. 28."
mill. This irreconcilable difference can only be clarified by admitting evidence aliunde, which
will explain the imperfection and clarify the intent of the parties.
These contentions can not pass judicial muster.
Anent petitioner's argument that the respondent is barred by estoppel from claiming that the
In construing the words used descriptive of a building insured, the greatest liberality is shown description of the insured oil mill in the policy was wrong, we find that the same proceeds
by the courts in giving effect to the insurance.11 In view of the custom of insurance agents to from a wrong assumption. Evidence on record reveals that respondent's operating manager,
examine buildings before writing policies upon them, and since a mistake as to the identity Mr. Edison Tantuco, notified Mr. Borja (the petitioner's agent with whom respondent
and character of the building is extremely unlikely, the courts are inclined to consider that negotiated for the contract) about the inaccurate description in the policy. However, Mr.
the policy of insurance covers any building which the parties manifestly intended to insure, Borja assured Mr. Tantuco that the use of the adjective new will distinguish the insured
however inaccurate the description may be.12
property. The assurance convinced respondent, despite the impreciseness in the

Left: Adjoining thence an imperfect wall by Bldg. No. 4.

specification of the boundaries, the insurance will cover the new oil mill. This can be seen trial, any witness to testify that respondent indeed failed to pay the full amount of the
from the testimony on cross of Mr. Tantuco:
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
"ATTY. SALONGA:
made in the course of discussing a discount or rebate, which the agent apparently gave the
respondent. Certainly, the whole tenor of Mr. Borja's testimony, both during direct and cross
Q:
You mentioned, sir, that at least in so far as Exhibit A is concern you have read what examinations, implicitly assumed a valid and subsisting insurance policy. It must be
the policy contents. (sic)
remembered that he was called to the stand basically to demonstrate that an existing policy
issued by the petitioner covers the burned building.
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 Finally, petitioner contends that respondent violated the express terms of the Fire
manager of the company whether the boundaries stated in Exhibit A-2 are the boundaries of Extinguishing Appliances Warranty. The said warranty provides:
the old (sic) mill that was burned or not.
"WARRANTED that during the currency of this Policy, Fire Extinguishing Appliances as
A:
It was not, I called up Mr. Borja regarding this matter and he told me that what is mentioned below shall be maintained in efficient working order on the premises to which
important is the word new oil mill. Mr. Borja said, as a matter of fact, you can never insured insurance applies:
(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
PORTABLE EXTINGUISHERS
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

INTERNAL HYDRANTS

EXTERNAL HYDRANTS

FIRE PUMP

24-HOUR SECURITY SERVICES

insurance cases: general provisions

Page

Likewise, when the issues to be resolved in the trial court were formulated at the pre-trial IN VIEW WHEREOF, finding no reversible error in the impugned Decision, the instant petition
proceedings, the question of the supposed inadequate payment was never raised. Most is hereby DISMISSED. SO ORDERED.
significant to point, petitioner fatally neglected to present, during the whole course of the

In a further attempt to avoid liability, petitioner claims that respondent forfeited the renewal BREACH of this warranty shall render this policy null and void and the Company shall no
policy for its failure to pay the full amount of the premium and breach of the Fire Extinguishing longer be liable for any loss which may occur."20
Appliances Warranty.
Petitioner argues that the warranty clearly obligates the insured to maintain all the
The amount of the premium stated on the face of the policy was P89,770.20. From the appliances specified therein. The breach occurred when the respondent failed to install
admission of respondent's own witness, Mr. Borja, which the petitioner cited, the former only internal fire hydrants inside the burned building as warranted. This fact was admitted by the
paid it P75,147.00, leaving a difference of P14,623.20. The deficiency, petitioner argues, oil mill's expeller operator, Gerardo Zarsuela.
suffices to invalidate the policy, in accordance with Section 77 of the Insurance Code.18
Again, the argument lacks merit. We agree with the appellate court's conclusion that the
The Court of Appeals refused to consider this contention of the petitioner. It held that this aforementioned warranty did not require respondent to provide for all the fire extinguishing
issue was raised for the first time on appeal, hence, beyond its jurisdiction to resolve, appliances enumerated therein. Additionally, we find that neither did it require that the
pursuant to Rule 46, Section 18 of the Rules of Court.19
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
Petitioner, however, contests this finding of the appellate court. It insists that the issue was the premises of the insured property, fire fighting equipments such as, but not limited to,
raised in paragraph 24 of its Answer, viz.:
those identified in the list, which will serve as the oil mill's first line of defense in case any part
of it bursts into flame.
"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."
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
Petitioner adds that the issue was the subject of the cross-examination of Mr. Borja, who hoses,21 fire hydrant,22 and an emergency fire engine.23 All of these equipments were in
acknowledged that the paid amount was lacking by P14,623.20 by reason of a discount or efficient working order when the fire occurred.
rebate, which rebate under Sec. 361 of the Insurance Code is illegal.
It ought to be remembered that not only are warranties strictly construed against the insurer,
The argument fails to impress. It is true that the asseverations petitioner made in paragraph but they should, likewise, by themselves be reasonably interpreted.24 That reasonableness
24 of its Answer ostensibly spoke of the policy's condition for payment of the renewal is to be ascertained in light of the factual conditions prevailing in each case. Here, we find
premium on time and respondent's non-compliance with it. Yet, it did not contain any specific that there is no more need for an internal hydrant considering that inside the burned building
and definite allegation that respondent did not pay the premium, or that it did not pay the full were: (1) numerous portable fire extinguishers, (2) an emergency fire engine, and (3) a fire
amount, or that it did not pay the amount on time.
hose which has a connection to one of the external hydrants.

G.R. No. L-16138


April 29, 1961
DIOSDADO C. TY, plaintiff-appellant, vs. FIRST NATIONAL SURETY & ASSURANCE CO., INC., Either hand ............................................................................ P650.00
defendant-appellee.
xxx
xxx
xxx
x---------------------------------------------------------x
... The loss of a hand shall mean the loss by amputation through the bones of the wrist....
LABRADOR, J.:

Defendants rejected plaintiff's claim for indemnity for the reason that there being no
severance of amputation of the left hand, the disability suffered by him was not covered by
Appeal from a judgment of the Court of First Instance of Manila, Hon. Gregorio S. Narvasa, his policy. Hence, plaintiff sued the defendants in the Municipal Court of this City, and from
presiding, dismissing the actions filed in the above-entitled cases.
the decision of said Court dismissing his complaints, plaintiff appealed to this Court.
(Decision of the Court of First Instance of Manila, pp. 223-226, Records).
The facts found by the trial court, which are not disputed in this appeal, are as follows:
In view of its finding, the court absolved the defendants from the complaints. Hence this
At different times within a period of two months prior to December 24, 1953, the plaintiff appeal.
herein Diosdado C. Ty, employed as operator mechanic foreman in the Broadway Cotton
Factory, in Grace Park, Caloocan, Rizal, at a monthly salary of P185.00, insured himself in 18 The main contention of appellant in these cases is that in order that he may recover on the
local insurance companies, among which being the eight above named defendants, which insurance policies issued him for the loss of his left hand, it is not necessary that there should
issued to him personal accident policies, upon payment of the premium of P8.12 for each be an amputation thereof, but that it is sufficient if the injuries prevent him from performing
policy. Plaintiff's beneficiary was his employer, Broadway Cotton Factory, which paid the his work or labor necessary in the pursuance of his occupation or business. Authorities are
insurance premiums.
cited to the effect that "total disability" in relation to one's occupation means that the
condition of the insurance is such that common prudence requires him to desist from
On December 24, 1953, a fire broke out which totally destroyed the Broadway Cotton Factory. transacting his business or renders him incapable of working. (46 C.J.S., 970). It is also
Fighting his way out of the factory, plaintiff was injured on the left hand by a heavy object. He argued that obscure words or stipulations should be interpreted against the person who
was brought to the Manila Central University hospital, and after receiving first aid there, he caused the obscurity, and the ones which caused the obscurity in the cases at bar are the
went to the National Orthopedic Hospital for treatment of his injuries which were as follows: defendant insurance companies.
1. Fracture, simple, proximal phalanx index finger, left;

While we sympathize with the plaintiff or his employer, for whose benefit the policies were
issued, we can not go beyond the clear and express conditions of the insurance policies, all
2. Fracture, compound, comminuted, proximal phalanx, middle finger, left and 2nd phalanx, of which define partial disability as loss of either hand by amputation through the bones of the
simple;
wrist." There was no such amputation in the case at bar. All that was found by the trial court,
which is not disputed on appeal, was that the physical injuries "caused temporary total
3. Fracture, compound, comminute phalanx, 4th finger, left;
disability of plaintiff's left hand." Note that the disability of plaintiff's hand was merely
temporary, having been caused by fracture of the index, the middle and the fourth fingers of
4. Fracture, simple, middle phalanx, middle finger, left;
the left hand.
5. Lacerated wound, sutured, volar aspect, small finger, left;

We might add that the agreement contained in the insurance policies is the law between the
parties. As the terms of the policies are clear, express and specific that only amputation of
6. Fracture, simple, chip, head, 1st phalanx, 5th digit, left. He underwent medical treatment the left hand should be considered as a loss thereof, an interpretation that would include the
in the Orthopedic Hospital from December 26, 1953 to February 8, 1954. The above- mere fracture or other temporary disability not covered by the policies would certainly be
described physical injuries have caused temporary total disability of plaintiff's left hand. unwarranted.
Plaintiff filed the corresponding notice of accident and notice of claim with all of the
abovenamed defendants to recover indemnity under Part II of the policy, which is similarly WHEREFORE, the decision appealed from is hereby affirmed, with costs against the plaintiffworded in all of the policies, and which reads pertinently as follows:
appellant.
INDEMNITY FOR TOTAL OR PARTIAL DISABILITY
If the Insured sustains any Bodily Injury which is effected solely through violent, external,
visible and accidental means, and which shall not prove fatal but shall result, independently
of all other causes and within sixty (60) days from the occurrence thereof, in Total or Partial
Disability of the Insured, the Company shall pay, subject to the exceptions as provided for
hereinafter, the amount set opposite such injury:
PARTIAL DISABILITY

xxx

xxx

Page

LOSS OF:
xxx
insurance cases: general provisions

this connection, that the tendency of court decisions in the United States in recent years is to
eliminate the fine distinction between the terms "accidental" and "accidental means" and to
G.R. No. L-21574
June 30, 1966
consider them as legally synonymous.2 But, even if we take appellant's theory, the death of
SIMON DE LA CRUZ, plaintiff and appellee, vs. THE CAPITAL INSURANCE and SURETY CO., the insured in the case at bar would still be entitled to indemnification under the policy. The
INC., defendant and appellant.
generally accepted rule is that, death or injury does not result from accident or accidental
means within the terms of an
Achacoso, Nera and Ocampo for defendant and appellant.
accident-policy if it is the natural result of the insured's voluntary act, unaccompanied by
Agustin M. Gramata for plaintiff and appellee.
anything unforeseen except the death or injury.3 There is no accident when a deliberate act
is performed unless some additional, unexpected, independent, and unforeseen happening
BARRERA, J.:
occurs which produces or brings about the result of injury or death.4 In other words, where
the death or injury is not the natural or probable result of the insured's voluntary act, or if
This is an appeal by the Capital Insurance & Surety Company, Inc., from the decision of the something unforeseen occurs in the doing of the act which produces the injury, the resulting
Court of First Instance of Pangasinan (in Civ Case No. U-265), ordering it to indemnify therein death is within the protection of policies insuring against death or injury from accident.
plaintiff Simon de la Cruz for the death of the latter's son, to pay the burial expenses, and
attorney's fees.
In the present case, while the participation of the insured in the boxing contest is voluntary,
the injury was sustained when he slid, giving occasion to the infliction by his opponent of the
Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc. in Baguio, was the blow that threw him to the ropes of the ring. Without this unfortunate incident, that is, the
holder of an accident insurance policy (No. ITO-BFE-170) underwritten by the Capital unintentional slipping of the deceased, perhaps he could not have received that blow in the
Insurance & Surety Co., Inc., for the period beginning November 13, 1956 to November 12, head and would not have died. The fact that boxing is attended with some risks of external
1957. On January 1, 1957, in connection with the celebration of the New Year, the Itogon- injuries does not make any injuries received in the course of the game not accidental. In
Suyoc Mines, Inc. sponsored a boxing contest for general entertainment wherein the insured boxing as in other equally physically rigorous sports, such as basketball or baseball, death is
Eduardo de la Cruz, a non-professional boxer participated. In the course of his bout with not ordinarily anticipated to result. If, therefore, it ever does, the injury or death can only be
another person, likewise a non-professional, of the same height, weight, and size, Eduardo accidental or produced by some unforeseen happening or event as what occurred in this
slipped and was hit by his opponent on the left part of the back of the head, causing Eduardo case.
to fall, with his head hitting the rope of the ring. He was brought to the Baguio General
Hospital the following day. The cause of death was reported as hemorrhage, intracranial, left. Furthermore, the policy involved herein specifically excluded from its coverage
Simon de la Cruz, the father of the insured and who was named beneficiary under the policy,
thereupon filed a claim with the insurance company for payment of the indemnity under the
insurance policy. As the claim was denied, De la Cruz instituted the action in the Court of First
Instance of Pangasinan for specific performance. Defendant insurer set up the defense that
the death of the insured, caused by his participation in a boxing contest, was not accidental
and, therefore, not covered by insurance. After due hearing the court rendered the decision
in favor of the plaintiff which is the subject of the present appeal.

(e) Death or disablement consequent upon the Insured engaging in football, hunting,
pigsticking, steeplechasing, polo-playing, racing of any kind, mountaineering, or
motorcycling.

Death or disablement resulting from engagement in boxing contests was not declared outside
of the protection of the insurance contract. Failure of the defendant insurance company to
include death resulting from a boxing match or other sports among the prohibitive risks leads
inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such
It is not disputed that during the ring fight with another non-professional boxer, Eduardo death.5
slipped, which was unintentional. At this opportunity, his opponent landed on Eduardo's head
a blow, which sent the latter to the ropes. That must have caused the cranial injury that led to Wherefore, in view of the foregoing considerations, the decision appealed from is hereby
his death. Eduardo was insured "against death or disability caused by accidental means". affirmed, with costs against appellant. so ordered.
Appellant insurer now contends that while the death of the insured was due to head injury,
said injury was sustained because of his voluntary participation in the contest. It is claimed
that the participation in the boxing contest was the "means" that produced the injury which,
in turn, caused the death of the insured. And, since his inclusion in the boxing card was
voluntary on the part of the insured, he cannot be considered to have met his death by
"accidental means".1wph1.t

insurance cases: general provisions

Page

Appellant however, would like to make a distinction between "accident or accidental" and
"accidental means", which is the term used in the insurance policy involved here. It is argued
that to be considered within the protection of the policy, what is required to be accidental is
the means that caused or brought the death and not the death itself. It may be mentioned in

10

The terms "accident" and "accidental", as used in insurance contracts, have not acquired
any technical meaning, and are construed by the courts in their ordinary and common
acceptation. Thus, the terms have been taken to mean that which happen by chance or
fortuitously, without intention and design, and which is unexpected, unusual, and unforeseen.
An accident is an event that takes place without one's foresight or expectation an event
that proceeds from an unknown cause, or is an unusual effect of a known cause and,
therefore, not expected.1

G.R. No. 115278 May 23, 1995


The company shall not be liable under this policy in report of
FORTUNE INSURANCE AND SURETY CO., INC., petitioner, vs. COURT OF APPEALS and
PRODUCERS BANK OF THE PHILIPPINES, respondents.
xxx
xxx
xxx
DAVIDE, JR., J.:

(b)
any loss caused by any dishonest, fraudulent or criminal act of the insured or any
officer, employee, partner, director, trustee or authorized representative of the Insured
The fundamental legal issue raised in this petition for review on certiorari is whether the whether acting alone or in conjunction with others. . . .
petitioner is liable under the Money, Security, and Payroll Robbery policy it issued to the
private respondent or whether recovery thereunder is precluded under the general 8.
The plaintiff opposes the contention of the defendant and contends that Atiga and
exceptions clause thereof. Both the trial court and the Court of Appeals held that there should Magalong are not its "officer, employee, . . . trustee or authorized representative . . . at the
be recovery. The petitioner contends otherwise.
time of the robbery. 1
This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by
private respondent Producers Bank of the Philippines (hereinafter Producers) against
petitioner Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for
recovery of the sum of P725,000.00 under the policy issued by Fortune. The sum was
allegedly lost during a robbery of Producer's armored vehicle while it was in transit to transfer
the money from its Pasay City Branch to its head office in Makati. The case was docketed as
Civil Case No. 1817 and assigned to Branch 146 thereof.

On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive
portion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and against defendant, and

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

After joinder of issues, the parties asked the trial court to render judgment based on the
following stipulation of facts:
(b)
and
1.
The plaintiff was insured by the defendants and an insurance policy was issued, the
duplicate original of which is hereto attached as Exhibit "A";
(c)

orders defendant to pay plaintiff the sum of P30,000.00 as and for attorney's fees;
orders defendant to pay costs of suit.

insurance cases: general provisions

Page

6.
The Fiscal of Pasay City then filed an information charging the aforesaid persons Neither is the Court prepared to accept the proposition that driver Magalong and guard Atiga
with the said crime before Branch 112 of the Regional Trial Court of Pasay City. A copy of the were the "authorized representatives" of plaintiff. They were merely an assigned armored
said information is hereto attached as Exhibit "E." The case is still being tried as of this date; car driver and security guard, respectively, for the June 29, 1987 money transfer from
plaintiff's Pasay Branch to its Makati Head Office. Quite plainly it was teller Maribeth
7.
Demands were made by the plaintiff upon the defendant to pay the amount of the Alampay who had "custody" of the P725,000.00 cash being transferred along a specified
loss of P725,000.00, but the latter refused to pay as the loss is excluded from the coverage of money route, and hence plaintiff's then designated "messenger" adverted to in the policy. 3
the insurance policy, attached hereto as Exhibit "A," specifically under page 1 thereof,
"General Exceptions" Section (b), which is marked as Exhibit "A-1," and which reads as Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R.
follows:
CV No. 32946. In its decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed
decision.
GENERAL EXCEPTIONS

11

2.
An armored car of the plaintiff, while in the process of transferring cash in the sum All other claims and counterclaims are accordingly dismissed forthwith.
of P725,000.00 under the custody of its teller, Maribeth Alampay, from its Pasay Branch to its
Head Office at 8737 Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was robbed of SO ORDERED. 2
the said cash. The robbery took place while the armored car was traveling along Taft Avenue
in Pasay City;
The trial court ruled that Magalong and Atiga were not employees or representatives of
Producers. It Said:
3.
The said armored car was driven by Benjamin Magalong Y de Vera, escorted by
Security Guard Saturnino Atiga Y Rosete. Driver Magalong was assigned by PRC The Court is satisfied that plaintiff may not be said to have selected and engaged Magalong
Management Systems with the plaintiff by virtue of an Agreement executed on August 7, 1983, and Atiga, their services as armored car driver and as security guard having been merely
a duplicate original copy of which is hereto attached as Exhibit "B";
offered by PRC Management and by Unicorn Security and which latter firms assigned them
to plaintiff. The wages and salaries of both Magalong and Atiga are presumably paid by their
4.
The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with the respective firms, which alone wields the power to dismiss them. Magalong and Atiga are
plaintiff by virtue of a contract of Security Service executed on October 25, 1982, a duplicate assigned to plaintiff in fulfillment of agreements to provide driving services and property
original copy of which is hereto attached as Exhibit "C";
protection as such in a context which does not impress the Court as translating into
plaintiff's power to control the conduct of any assigned driver or security guard, beyond
5.
After an investigation conducted by the Pasay police authorities, the driver perhaps entitling plaintiff to request are replacement for such driver guard. The finding is
Magalong and guard Atiga were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo accordingly compelled that neither Magalong nor Atiga were plaintiff's "employees" in
Aquino and John Doe, with violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal avoidance of defendant's liability under the policy, particularly the general exceptions therein
of Pasay City. A copy of the complaint is hereto attached as Exhibit "D";
embodied.

The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga and placed by such persons are performing activities which are directly related to the
were neither employees nor authorized representatives of Producers and ratiocinated as principal business of such employer. In such cases, the person or intermediary shall be
follows:
considered merely as an agent of the employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly employed by him.
A policy or contract of insurance is to be construed liberally in favor of the insured and strictly
against the insurance company (New Life Enterprises vs. Court of Appeals, 207 SCRA 669; Fortune thus contends that Magalong and Atiga were employees of Producers, following the
Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA 554). Contracts of insurance, like ruling in International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "laborother contracts, are to be construed according to the sense and meaning of the terms which only" contractor is equivalent to a finding that there is an employer-employee relationship
the parties themselves have used. If such terms are clear and unambiguous, they must be between the owner of the project and the employees of the "labor-only" contractor.
taken and understood in their plain, ordinary and popular sense (New Life Enterprises Case,
supra, p. 676; Sun Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193).
On the other hand, Producers contends that Magalong and Atiga were not its employees
since it had nothing to do with their selection and engagement, the payment of their wages,
The language used by defendant-appellant in the above quoted stipulation is plain, ordinary their dismissal, and the control of their conduct. Producers argued that the rule in
and simple. No other interpretation is necessary. The word "employee" must be taken to International Timber Corp. is not applicable to all cases but only when it becomes necessary
mean in the ordinary sense.
to prevent any violation or circumvention of the Labor Code, a social legislation whose
provisions may set aside contracts entered into by parties in order to give protection to the
The Labor Code is a special law specifically dealing with/and specifically designed to protect working man.
labor and therefore its definition as to employer-employee relationships insofar as the
application/enforcement of said Code is concerned must necessarily be inapplicable to an Producers further asseverates that what should be applied is the rule in American President
insurance contract which defendant-appellant itself had formulated. Had it intended to apply Lines vs. Clave, 8 to wit:
the Labor Code in defining what the word "employee" refers to, it must/should have so stated
expressly in the insurance policy.
In determining the existence of employer-employee relationship, the following elements are
generally considered, namely: (1) the selection and engagement of the employee; (2) the
Said driver and security guard cannot be considered as employees of plaintiff-appellee bank payment of wages; (3) the power of dismissal; and (4) the power to control the employee's
because it has no power to hire or to dismiss said driver and security guard under the conduct.
contracts (Exhs. 8 and C) except only to ask for their replacements from the contractors. 5
Since under Producers' contract with PRC Management Systems it is the latter which
On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial assigned Magalong as the driver of Producers' armored car and was responsible for his
court and the Court of Appeals erred in holding it liable under the insurance policy because faithful discharge of his duties and responsibilities, and since Producers paid the monthly
the loss falls within the general exceptions clause considering that driver Magalong and compensation of P1,400.00 per driver to PRC Management Systems and not to Magalong, it
security guard Atiga were Producers' authorized representatives or employees in the is clear that Magalong was not Producers' employee. As to Atiga, Producers relies on the
transfer of the money and payroll from its branch office in Pasay City to its head office in provision of its contract with Unicorn Security Services which provides that the guards of the
Makati.
latter "are in no sense employees of the CLIENT."
According to Fortune, when Producers commissioned a guard and a driver to transfer its
funds from one branch to another, they effectively and necessarily became its authorized
representatives in the care and custody of the money. Assuming that they could not be
considered authorized representatives, they were, nevertheless, employees of Producers. It
asserts that the existence of an employer-employee relationship "is determined by law and
being such, it cannot be the subject of agreement." Thus, if there was in reality an employeremployee relationship between Producers, on the one hand, and Magalong and Atiga, on the
other, the provisions in the contracts of Producers with PRC Management System for
Magalong and with Unicorn Security Services for Atiga which state that Producers is not their
employer and that it is absolved from any liability as an employer, would not obliterate the
relationship.

There is merit in this petition.


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

insurance cases: general provisions

Page

Art. 106. Contractor or subcontractor. There is "labor-only" contracting where the person It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to
supplying workers to an employer does not have substantial capital or investment in the form defraud the insurer the moral hazard is so great that insurers have found it necessary
of tools, equipment, machineries, work premises, among others, and the workers recruited to fill up their policies with countless restrictions, many designed to reduce this hazard.

12

Sec. 174.
Casualty insurance is insurance covering loss or liability arising from
accident or mishap, excluding certain types of loss which by law or custom are considered
as falling exclusively within the scope of insurance such as fire or marine. It includes, but is
not limited to, employer's liability insurance, public liability insurance, motor vehicle liability
insurance, plate glass insurance, burglary and theft insurance, personal accident and health
insurance as written by non-life insurance companies, and other substantially similar kinds
Fortune points out that an employer-employee relationship depends upon four standards: (1) of insurance. (emphases supplied)
the manner of selection and engagement of the putative employee; (2) the mode of payment
of wages; (3) the presence or absence of a power to dismiss; and (4) the presence and Except with respect to compulsory motor vehicle liability insurance, the Insurance Code
absence of a power to control the putative employee's conduct. Of the four, the right-of- contains no other provisions applicable to casualty insurance or to robbery insurance in
control test has been held to be the decisive factor. 6 It asserts that the power of control over particular. These contracts are, therefore, governed by the general provisions applicable to
Magalong and Atiga was vested in and exercised by Producers. Fortune further insists that all types of insurance. Outside of these, the rights and obligations of the parties must be
PRC Management System and Unicorn Security Services are but "labor-only" contractors determined by the terms of their contract, taking into consideration its purpose and always
under Article 106 of the Labor Code which provides:
in accordance with the general principles of insurance law. 9

Seldom does the insurer assume the risk of all losses due to the hazards insured against." 10
Persons frequently excluded under such provisions are those in the insured's service and
employment. 11 The purpose of the exception is to guard against liability should the theft be
committed by one having unrestricted access to the property. 12 In such cases, the terms
specifying the excluded classes are to be given their meaning as understood in common
speech. 13 The terms "service" and "employment" are generally associated with the idea of
selection, control, and compensation. 14

for in Article 106 of the Labor Code, a question of fact. Since the parties opted to submit the
case for judgment on the basis of their stipulation of facts which are strictly limited to the
insurance policy, the contracts with PRC Management Systems and Unicorn Security
Services, the complaint for violation of P.D. No. 532, and the information therefor filed by the
City Fiscal of Pasay City, there is a paucity of evidence as to whether the contracts between
Producers and PRC Management Systems and Unicorn Security Services are "labor-only"
contracts.

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


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

But even granting for the sake of argument that these contracts were not "labor-only"
contracts, and PRC Management Systems and Unicorn Security Services were truly
independent contractors, we are satisfied that Magalong and Atiga were, in respect of the
transfer of Producer's money from its Pasay City branch to its head office in Makati, its
"authorized representatives" who served as such with its teller Maribeth Alampay.
Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer
the money to its head office, with Alampay to be responsible for its custody in transit;
Magalong to drive the armored vehicle which would carry the money; and Atiga to provide
the needed security for the money, the vehicle, and his two other companions. In short, for
An insurance contract is a contract of indemnity upon the terms and conditions specified these particular tasks, the three acted as agents of Producers. A "representative" is defined
therein. 19 It is settled that the terms of the policy constitute the measure of the insurer's as one who represents or stands in the place of another; one who represents others or
liability. 20 In the absence of statutory prohibition to the contrary, insurance companies have another in a special capacity, as an agent, and is interchangeable with "agent." 23
the same rights as individuals to limit their liability and to impose whatever conditions they
deem best upon their obligations not inconsistent with public policy.
In view of the foregoing, Fortune is exempt from liability under the general exceptions clause
of the insurance policy.
With the foregoing principles in mind, it may now be asked whether Magalong and Atiga
qualify as employees or authorized representatives of Producers under paragraph (b) of the WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals
general exceptions clause of the policy which, for easy reference, is again quoted:
in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial
Court of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint in Civil
GENERAL EXCEPTIONS
Case No. 1817 is DISMISSED.
The company shall not be liable under this policy in respect of

No pronouncement as to costs.

xxx

SO ORDERED.

xxx

xxx

(b)
any loss caused by any dishonest, fraudulent or criminal act of the insured or any
officer, employee, partner, director, trustee or authorized representative of the Insured
whether acting alone or in conjunction with others. . . . (emphases supplied)
There is marked disagreement between the parties on the correct meaning of the terms
"employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt
from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of
persons granted or having unrestricted access to Producers' money or payroll. When it used
then the term "employee," it must have had in mind any person who qualifies as such as
generally and universally understood, or jurisprudentially established in the light of the four
standards in the determination of the employer-employee relationship, 21 or as statutorily
declared even in a limited sense as in the case of Article 106 of the Labor Code which
considers the employees under a "labor-only" contract as employees of the party employing
them and not of the party who supplied them to the employer. 22

insurance cases: general provisions

Page

Producers, however, insists that by the express terms thereof, it is not the employer of
Magalong. Notwithstanding such express assumption of PRC Management Systems and
Unicorn Security Services that the drivers and the security guards each shall supply to
Producers are not the latter's employees, it may, in fact, be that it is because the contracts
are, indeed, "labor-only" contracts. Whether they are is, in the light of the criteria provided

13

Fortune claims that Producers' contracts with PRC Management Systems and Unicorn
Security Services are "labor-only" contracts.

G.R. No. L-44059 October 28, 1977


the option to change the beneficiary, same was never changed up to the time of his death and
THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee, vs. CARPONIA T. the wife did not have any opportunity to write the company that there was reservation to
EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.
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.
MARTIN, J.:
Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda
This is a novel question in insurance law: Can a common-law wife named as beneficiary in the from the receipt of this order.
life insurance policy of a legally married man claim the proceeds thereof in case of death of
the latter?
SO ORDERED.
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 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

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.

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).

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

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

Page

The following donations shall be void:

insurance cases: general provisions

14

It is, however, essential that such adultery or concubinage exists at the time defendant
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the Carponia T. Ebrado was made beneficiary in the policy in question for the disqualification and
designated beneficiary therein, although she admits that she and the insured Buenaventura incapacity to exist and that it is only necessary that such fact be established by
C. Ebrado were merely living as husband and wife without the benefit of marriage.
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
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She husband and wife without being legally married and that the marriage of the insured with the
asserts that she is the one entitled to the insurance proceeds, not the common-law wife, other defendant Pascuala Vda. de Ebrado was valid and still existing at the time the insurance
Carponia T. Ebrado.
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
In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life entitled to the proceeds of the insurance upon the death of the insured.
Assurance Co., Ltd. commenced an action for Interpleader before the Court of First Instance
of Rizal on April 29, 1970.
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.
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
We affirm the judgment of the lower court.

distinguished. Moreover, if it is at all to be differentiated the policy of the law which embodies
1.
Those made between persons who were guilty of adultery or concubinage at the a deeply rooted notion of what is just and what is right would be nullified if such irregular
time of donation;
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
Those made between persons found guilty of the same criminal offense, in consideration occasion where the principle of statutory construction that what is within the spirit of the law
thereof;
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
3.
Those made to a public officer or his wife, descendants or ascendants by reason of interpretation purely literal of the language used must be remedied by an adherence to its
his office.
avowed objective.
In the case referred to in No. 1, the action for declaration of nullity may be brought by the 4.
We do not think that a conviction for adultery or concubinage is exacted before the
spouse of the donor or donee; and the guilt of the donee may be proved by preponderance of disabilities mentioned in Article 739 may effectuate. More specifically, with record to the
evidence in the same action.
disability on "persons who were guilty of adultery or concubinage at the time of the donation,"
Article 739 itself provides: +.wph!1
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 In the case referred to in No. 1, the action for declaration of nullity may be brought by the
beneficiary is like a donee, because from the premiums of the policy which the insured pays spouse of the donor or donee; and the guilty of the donee may be proved by preponderance
out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a of evidence in the same action.
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 The underscored clause neatly conveys that no criminal conviction for the offense is a
cannot receive a donation cannot be named as beneficiary in the life insurance policy of the condition precedent. In fact, it cannot even be from the aforequoted provision that a
person who cannot make the donation. 5 Under American law, a policy of life insurance is prosecution is needed. On the contrary, the law plainly states that the guilt of the party may
considered as a testament and in construing it, the courts will, so far as possible treat it as a be proved "in the same acting for declaration of nullity of donation. And, it would be sufficient
will and determine the effect of a clause designating the beneficiary by rules under which if evidence preponderates upon the guilt of the consort for the offense indicated. The
wins are interpreted. 6
quantum of proof in criminal cases is not demanded.

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

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 than judicial 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."

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.

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.

insurance cases: general provisions

Page

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

15

SO ORDERED.

G.R. No. 181132


June 5, 2009
HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN
MARAMAG, Petitioners, vs. EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN
MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA ANGELIE MARAMAG, THE
INSULAR LIFE ASSURANCE COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE
CORPORATION, Respondents.

During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised
in their respective answers be resolved first. The trial court ordered petitioners to comment
within 15 days.

This is a petition1 for review on certiorari under Rule 45 of the Rules, seeking to reverse and
set aside the Resolution2 dated January 8, 2008 of the Court of Appeals (CA), in CA-G.R. CV In their comment, petitioners alleged that the issue raised by Insular and Grepalife was purely
No. 85948, dismissing petitioners appeal for lack of jurisdiction.
legal whether the complaint itself was proper or not and that the designation of a
beneficiary is an act of liberality or a donation and, therefore, subject to the provisions of
The case stems from a petition3 filed against respondents with the Regional Trial Court, Articles 7528 and 7729 of the Civil Code.
Branch 29, for revocation and/or reduction of insurance proceeds for being void and/or
inofficious, with prayer for a temporary restraining order (TRO) and a writ of preliminary In reply, both Insular and Grepalife countered that the insurance proceeds belong exclusively
injunction.
to the designated beneficiaries in the policies, not to the estate or to the heirs of the insured.
Grepalife also reiterated that it had disqualified Eva as a beneficiary when it ascertained that
The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto Loreto was legally married to Vicenta Pangilinan Maramag.
Maramag (Loreto), while respondents were Loretos illegitimate family; (2) Eva de Guzman
Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the latter, thus, she On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which
is disqualified to receive any proceeds from his insurance policies from Insular Life reads
Assurance Company, Ltd. (Insular)4 and Great Pacific Life Assurance Corporation
(Grepalife);5 (3) the illegitimate children of LoretoOdessa, Karl Brian, and Trisha Angelie WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life
were entitled only to one-half of the legitime of the legitimate children, thus, the proceeds and Grepalife is granted with respect to defendants Odessa, Karl Brian and Trisha Maramag.
released to Odessa and those to be released to Karl Brian and Trisha Angelie were inofficious The action shall proceed with respect to the other defendants Eva Verna de Guzman, Insular
and should be reduced; and (4) petitioners could not be deprived of their legitimes, which Life and Grepalife.
should be satisfied first.
SO ORDERED.10
In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among
others, that part of the insurance proceeds had already been released in favor of Odessa, In so ruling, the trial court ratiocinated thus
while the rest of the proceeds are to be released in favor of Karl Brian and Trisha Angelie,
both minors, upon the appointment of their legal guardian. Petitioners also prayed for the Art. 2011 of the Civil Code provides that the contract of insurance is governed by the (sic)
total amount of P320,000.00 as actual litigation expenses and attorneys fees.
special laws. Matters not expressly provided for in such special laws shall be regulated by
this Code. The principal law on insurance is the Insurance Code, as amended. Only in case of
In answer,6 Insular admitted that Loreto misrepresented Eva as his legitimate wife and deficiency in the Insurance Code that the Civil Code may be resorted to. (Enriquez v. Sun Life
Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that they filed their Assurance Co., 41 Phil. 269.)
claims for the insurance proceeds of the insurance policies; that when it ascertained that Eva
was not the legal wife of Loreto, it disqualified her as a beneficiary and divided the proceeds The Insurance Code, as amended, contains a provision regarding to whom the insurance
among Odessa, Karl Brian, and Trisha Angelie, as the remaining designated beneficiaries; proceeds shall be paid. It is very clear under Sec. 53 thereof that the insurance proceeds
and that it released Odessas share as she was of age, but withheld the release of the shares shall be applied exclusively to the proper interest of the person in whose name or for whose
of minors Karl Brian and Trisha Angelie pending submission of letters of guardianship. Insular benefit it is made, unless otherwise specified in the policy. Since the defendants are the ones
alleged that the complaint or petition failed to state a cause of action insofar as it sought to named as the primary beneficiary (sic) in the insurances (sic) taken by the deceased Loreto
declare as void the designation of Eva as beneficiary, because Loreto revoked her C. Maramag and there is no showing that herein plaintiffs were also included as beneficiary
designation as such in Policy No. A001544070 and it disqualified her in Policy No. (sic) therein the insurance proceeds shall exclusively be paid to them. This is because the
A001693029; and insofar as it sought to declare as inofficious the shares of Odessa, Karl beneficiary has a vested right to the indemnity, unless the insured reserves the right to
Brian, and Trisha Angelie, considering that no settlement of Loretos estate had been filed change the beneficiary. (Grecio v. Sunlife Assurance Co. of Canada, 48 Phil. [sic] 63).
nor had the respective shares of the heirs been determined. Insular further claimed that it
was bound to honor the insurance policies designating the children of Loreto with Eva as Neither could the plaintiffs invoked (sic) the law on donations or the rules on testamentary
beneficiaries pursuant to Section 53 of the Insurance Code.
succession in order to defeat the right of herein defendants to collect the insurance
indemnity. The beneficiary in a contract of insurance is not the donee spoken in the law of
In its own answer7 with compulsory counterclaim, Grepalife alleged that Eva was not donation. The rules on testamentary succession cannot apply here, for the insurance
designated as an insurance policy beneficiary; that the claims filed by Odessa, Karl Brian, indemnity does not partake of a donation. As such, the insurance indemnity cannot be
and Trisha Angelie were denied because Loreto was ineligible for insurance due to a considered as an advance of the inheritance which can be subject to collation (Del Val v. Del
misrepresentation in his application form that he was born on December 10, 1936 and, thus, Val, 29 Phil. 534). In the case of Southern Luzon Employees Association v. Juanita Golpeo,
not more than 65 years old when he signed it in September 2001; that the case was et al., the Honorable Supreme Court made the following pronouncements[:]
insurance cases: general provisions

16

NACHURA, J.:

As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to
petitioners, summons by publication was resorted to. Still, the illegitimate family of Loreto
failed to file their answer. Hence, the trial court, upon motion of petitioners, declared them in
default in its Order dated May 7, 2004.

Page

DECISION

premature, there being no claim filed by the legitimate family of Loreto; and that the law on
succession does not apply where the designation of insurance beneficiaries is clear.

"With the finding of the trial court that the proceeds to the Life Insurance Policy belongs
exclusively to the defendant as his individual and separate property, we agree that the
proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate of
the person whose life was insured, and that such proceeds are the separate and individual
property of the beneficiary and not of the heirs of the person whose life was insured, is the
doctrine in America. We believe that the same doctrine obtains in these Islands by virtue of
Section 428 of the Code of Commerce x x x."

children should be reduced based on the rules on legitime, the trial court held that the
distribution of the insurance proceeds is governed primarily by the Insurance Code, and the
provisions of the Civil Code are irrelevant and inapplicable. With respect to the Grepalife
policy, the trial court noted that Eva was never designated as a beneficiary, but only Odessa,
Karl Brian, and Trisha Angelie; thus, it upheld the dismissal of the case as to the illegitimate
children. It further held that the matter of Loretos misrepresentation was premature; the
appropriate action may be filed only upon denial of the claim of the named beneficiaries for
the insurance proceeds by Grepalife.

In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no
sufficient cause of action against defendants Odessa, Karl Brian and Trisha Angelie Maramag
for the reduction and/or declaration of inofficiousness of donation as primary beneficiary (sic)
in the insurances (sic) of the late Loreto C. Maramag.

Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for
lack of jurisdiction, holding that the decision of the trial court dismissing the complaint for
failure to state a cause of action involved a pure question of law. The appellate court also
noted that petitioners did not file within the reglementary period a motion for reconsideration
of the trial courts Resolution, dated September 21, 2004, dismissing the complaint as against
However, herein plaintiffs are not totally bereft of any cause of action. One of the named Odessa, Karl Brian, and Trisha Angelie; thus, the said Resolution had already attained finality.
beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is his concubine
Eva Verna De Guzman. Any person who is forbidden from receiving any donation under Hence, this petition raising the following issues:
Article 739 cannot be named beneficiary of a life insurance policy of the person who cannot
make any donation to him, according to said article (Art. 2012, Civil Code). If a concubine is a. In determining the merits of a motion to dismiss for failure to state a cause of action, may
made the beneficiary, it is believed that the insurance contract will still remain valid, but the the Court consider matters which were not alleged in the Complaint, particularly the defenses
indemnity must go to the legal heirs and not to the concubine, for evidently, what is prohibited put up by the defendants in their Answer?
under Art. 2012 is the naming of the improper beneficiary. In such case, the action for the
declaration of nullity may be brought by the spouse of the donor or donee, and the guilt of the b. In granting a motion for reconsideration of a motion to dismiss for failure to state a cause
donor and donee may be proved by preponderance of evidence in the same action (Comment of action, did not the Regional Trial Court engage in the examination and determination of
of Edgardo L. Paras, Civil Code of the Philippines, page 897). Since the designation of what were the facts and their probative value, or the truth thereof, when it premised the
defendant Eva Verna de Guzman as one of the primary beneficiary (sic) in the insurances (sic) dismissal on allegations of the defendants in their answer which had not been proven?
taken by the late Loreto C. Maramag is void under Art. 739 of the Civil Code, the insurance
indemnity that should be paid to her must go to the legal heirs of the deceased which this c. x x x (A)re the members of the legitimate family entitled to the proceeds of the insurance
court may properly take cognizance as the action for the declaration for the nullity of a void for the concubine?15
donation falls within the general jurisdiction of this Court.11
In essence, petitioners posit that their petition before the trial court should not have been
Insular12 and Grepalife13 filed their respective motions for reconsideration, arguing, in the dismissed for failure to state a cause of action because the finding that Eva was either
main, that the petition failed to state a cause of action. Insular further averred that the disqualified as a beneficiary by the insurance companies or that her designation was revoked
proceeds were divided among the three children as the remaining named beneficiaries. by Loreto, hypothetically admitted as true, was raised only in the answers and motions for
Grepalife, for its part, also alleged that the premiums paid had already been refunded.
reconsideration of both Insular and Grepalife. They argue that for a motion to dismiss to
prosper on that ground, only the allegations in the complaint should be considered. They
Petitioners, in their comment, reiterated their earlier arguments and posited that whether the further contend that, even assuming Insular disqualified Eva as a beneficiary, her share
complaint may be dismissed for failure to state a cause of action must be determined solely should not have been distributed to her children with Loreto but, instead, awarded to them,
on the basis of the allegations in the complaint, such that the defenses of Insular and being the legitimate heirs of the insured deceased, in accordance with law and
Grepalife would be better threshed out during trial.1avvphi1
jurisprudence.
On June 16, 2005, the trial court issued a Resolution, disposing, as follows:

The petition should be denied.

WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed by
defendants Grepalife and Insular Life are hereby GRANTED. Accordingly, the portion of the
Resolution of this Court dated 21 September 2004 which ordered the prosecution of the case
against defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE,
and the case against them is hereby ordered DISMISSED.

The grant of the motion to dismiss was based on the trial courts finding that the petition failed
to state a cause of action, as provided in Rule 16, Section 1(g), of the Rules of Court, which
reads

SO ORDERED.14

SECTION 1. Grounds. Within the time for but before filing the answer to the complaint or
pleading asserting a claim, a motion to dismiss may be made on any of the following grounds:
xxxx

A cause of action is the act or omission by which a party violates a right of another.16 A
complaint states a cause of action when it contains the three (3) elements of a cause of
action(1) the legal right of the plaintiff; (2) the correlative obligation of the defendant; and
(3) the act or omission of the defendant in violation of the legal right. If any of these elements

insurance cases: general provisions

17

(g) That the pleading asserting the claim states no cause of action.

Page

In granting the motions for reconsideration of Insular and Grepalife, the trial court considered
the allegations of Insular that Loreto revoked the designation of Eva in one policy and that
Insular disqualified her as a beneficiary in the other policy such that the entire proceeds
would be paid to the illegitimate children of Loreto with Eva pursuant to Section 53 of the
Insurance Code. It ruled that it is only in cases where there are no beneficiaries designated,
or when the only designated beneficiary is disqualified, that the proceeds should be paid to
the estate of the insured. As to the claim that the proceeds to be paid to Loretos illegitimate

is absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure insurance proceeds, whether forfeited by the court in view of the prohibition on donations
to state a cause of action.17
under Article 739 of the Civil Code or by the insurers themselves for reasons based on the
insurance contracts, must be awarded to the said illegitimate children, the designated
When a motion to dismiss is premised on this ground, the ruling thereon should be based only beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has not
on the facts alleged in the complaint. The court must resolve the issue on the strength of such designated any beneficiary,23 or when the designated beneficiary is disqualified by law to
allegations, assuming them to be true. The test of sufficiency of a cause of action rests on receive the proceeds,24 that the insurance policy proceeds shall redound to the benefit of
whether, hypothetically admitting the facts alleged in the complaint to be true, the court can the estate of the insured.
render a valid judgment upon the same, in accordance with the prayer in the complaint. This
is the general rule.
In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the
same light, the Decision of the CA dated January 8, 2008 should be sustained. Indeed, the
However, this rule is subject to well-recognized exceptions, such that there is no hypothetical appellate court had no jurisdiction to take cognizance of the appeal; the issue of failure to
admission of the veracity of the allegations if:
state a cause of action is a question of law and not of fact, there being no findings of fact in
the first place.25
1. the falsity of the allegations is subject to judicial notice;
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.
2. such allegations are legally impossible;
SO ORDERED.
3. the allegations refer to facts which are inadmissible in evidence;
4. by the record or document in the pleading, the allegations appear unfounded; or
5. there is evidence which has been presented to the court by stipulation of the parties or in
the course of the hearings related to the case.18
In this case, it is clear from the petition filed before the trial court that, although petitioners
are the legitimate heirs of Loreto, they were not named as beneficiaries in the insurance
policies issued by Insular and Grepalife. The basis of petitioners claim is that Eva, being a
concubine of Loreto and a suspect in his murder, is disqualified from being designated as
beneficiary of the insurance policies, and that Evas children with Loreto, being illegitimate
children, are entitled to a lesser share of the proceeds of the policies. They also argued that
pursuant to Section 12 of the Insurance Code,19 Evas share in the proceeds should be
forfeited in their favor, the former having brought about the death of Loreto. Thus, they
prayed that the share of Eva and portions of the shares of Loretos illegitimate children should
be awarded to them, being the legitimate heirs of Loreto entitled to their respective legitimes.
It is evident from the face of the complaint that petitioners are not entitled to a favorable
judgment in light of Article 2011 of the Civil Code which expressly provides that insurance
contracts shall be governed by special laws, i.e., the Insurance Code. Section 53 of the
Insurance Code states
SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of
the person in whose name or for whose benefit it is made unless otherwise specified in the
policy.

insurance cases: general provisions

Page

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus,
are not entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife have
no legal obligation to turn over the insurance proceeds to petitioners. The revocation of Eva
as a beneficiary in one policy and her disqualification as such in another are of no moment
considering that the designation of the illegitimate children as beneficiaries in Loretos
insurance policies remains valid. Because no legal proscription exists in naming as
beneficiaries the children of illicit relationships by the insured,22 the shares of Eva in the

18

Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds
are either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon
the maturation of the policy.20 The exception to this rule is a situation where the insurance
contract was intended to benefit third persons who are not parties to the same in the form of
favorable stipulations or indemnity. In such a case, third parties may directly sue and claim
from the insurer.21

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