MALAYAN INSURANCE COMPANY INC. vs PAP CO., LTD.

(PHIL BRANCH)
GR. 200784, AUGUST 7, 2013

FACTS:
 Malayan Insurance issued a Fire insurance policy to PAP for the latter’s machineries and equipment in
Sanyo Building. The insurance was for M15 pesos for a period of 1 year which was procured by PAP for
RCBC, the mortgagee of the insured machineries and equipment. However, prior to the expiration of the
insurance coverage, PAP renewed the policy on an “as is” basis and pursuant to it, the Fire insurance
policy was issued by Malayan to PAP for the next year. During the subsistence of the renewal policy, the
insured machineries and equipment were totally lost by fire, hence, PAP filed a claim with Malayan for the
amount insured. However, Malayan denied the claim on the ground that at the time the insurance was
lost, the insured machineries and equipment were transferred by PAP to a different location from that
indicated in the policy. PAP argued that Malayan cannot avoid liability as it was informed of the transfer
by RCBC, the party duty-bound to relay such information.
 RTC rendered a judgement in favor of PAP holding that PAP’s notice to RCBC sufficiently complied with
the notice requirement under the policy considering that it was RCBC which procured the insurance hence
PAP acted in good faith in notifying RCBC about the transfer since the latter even conducted an inspection
of the machinery in the new location.
 CA affirmed the decision of the RTC holding, among others, that Malayan failed to show that there was a
prohibition on the transfer of the insured properties during the effectivity of the insurance policy neither
was it able to prove that there was a contractual consent required before carrying out a transfer of the
said properties nor was it able to cite the specific provisions of the policy to support its claim that the
original and renewed insurance policies contained provisions on transfer limitations of the insured
properties.

ISSUE: Whether or not PAP is entitled to its claim from insurance?

HELD: NO. The fire insurance policy from Malayan covered its machineries and equipment for 1 year expressly
stated that the insured properties were located in Sanyo building however, before the expiration, the policy was
renewed for another year and the subject properties were later transferred to a different location the fire broke
out and totally burned the insured properties.

The policy expressly forbade the removal of insured properties unless sanctioned by Malayan. Any
transfer effected by the insured without the insurer’s consent would free the latter from liability.

Records show that PAP was only able to relay the fact of transfer to RCBC, the beneficiary of the policy
and sister company of Malayan. However, the fact that RCBC referred PAP to Malayan did not clothe it with
authority to represent and bind the said insurance company.

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

Considering that the original policy was renewed on an "as is basis," it follows that the renewal policy carried with
it the same stipulations and limitations. The terms and conditions in the renewal policy provided, among others,
that the location of the risk insured against is at the Sanyo factory. The subject insured properties, however, were
totally burned in a different location. There being an unconsented removal, the transfer was at PAP’s own risk.
Consequently, it must suffer the consequences of the fire. It can also be said that with the transfer of the location
of the subject properties, without notice and without Malayan’s consent, after the renewal of the policy, PAP
clearly committed concealment, misrepresentation and a breach of a material warranty.
MANILA BANKERS LIFE INSURANCE CORP. vs. ABAN
GR. 175666, JULY 29, 2013

FACTS:
 Sotero took out a life insurance policy from Petitioner Manila Bankers designating Respondent Aban, her
niece, as her beneficiary. Petitioner issued the policy after the requisite medical examination and
payment of the insurance premiums.
 More than 2 years after the issuance of the policy, Sotero died. Respondent filed a claim for the insurance
proceeds and petitioner investigated the claim and found, among others, that Sotero did not personally
apply for insurance coverage since she was illiterate and was sickly 3 years prior to applying for insurance
hence, petitioner denied the claim and refunded the premiums paid.
 Petitioner filed a civil case for rescission and or annulment of the policy before the RTC claiming that the
policy was obtained by fraud, concealment and/or misrepresentation under the insurance code which
renders it voidable however, respondent filed a motion to dismiss claiming that the action was barred by
prescription.
 RTC ruled in favor of respondent Aban and dismissed the action filed by petitioner. It ruled that Sotero
was the one who procured the insurance and thus, could legally take out insurance on his own life and
validly designate another such as respondent, as the beneficiary and petitioner had only 2 years from the
effectivity of the policy, to question it. Since the policy had been in force for more than 2 years, petitioner
is now barred from contesting the same and seeking rescission or annulment.
 CA sustained the RTC’s decision.

ISSUE: Whether or not petitioner may validly move for the rescission and or annulment of the policy even after
the lapse of 2 years.

HELD: No. Section 48 of the insurance code gives the insurer 2 years from the effectivity of the insurance
contract and while insured is still alive, to discover or prove that the policy is void ab initio or is rescindable by
reason of fraudulent concealment or misrepresentation of the insured or his agent. After the two-year period
lapses, or when the insured dies within the period, the insurer must make good on the policy, even though the
policy was obtained by fraud, concealment, or misrepresentation.

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

The purpose of the law is to give protection to the insured or his beneficiary by limiting the rescinding of the
contract of insurance on the ground of fraudulent concealment or misrepresentation to a period of only two (2)
years from the issuance of the policy or its last reinstatement.

The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the premiums as long as
the insured is still alive, only to raise the issue of fraudulent concealment or misrepresentation when the insured
dies in order to defeat the right of the beneficiary to recover under the policy.

The insurance policy, according to the record, was in force for a period of 3 years, 7 months, and 24 days.
Considering that the insured died after the two-year period, petitioner Manila Banking is, therefore, barred from
proving that the policy is void ab initio by reason of the insured’s fraudulent concealment or misrepresentation or
want of insurable interest on the part of the beneficiary, herein respondent.
EASTERN SHIPPING LINES vs BPI/INSURANCE CORP
GR 193986, January 15, 2014

FACTS:
 Sumitomo shipped through a vessel owned by petitioner eastern shipping, various sheets in coil for Japan
for delivery in favor of the consignee Calamba Steel. It was insured against all risk by Sumitomo with
respondent Mistui. Upon arriving at the port of Manila and unloading from the vessel, some of the coils
were observed to be in bad condition hence, the damaged portion was rejected by Calamba steel for
being unfit for its intended purpose and the same thing happened to the 2 nd and 3rd shipment.
 Calamba steel filed an insurance claim with Mitsui through the latter’s settling agent, respondent BPI. BPI
filed a complaint for damages as an insurer and subrogee of Calamba Steel, against petitioner.
 The RTC rendered a judgement in favor of BPI finding that petitioners were very negligent in the handling
of the subject cargoes. CA affirmed.
ISSUE: Whether or not BPI’s claim must be granted

HELD: YES. In maritime jurisprudence, cargoes while being unloaded generally remain under the custody of the
carrier. Based on the evidence presented, the goods were damaged even before they were turned over to
consignee. Such damage was even compounded by the negligent acts of petitioner in handling the goods during
the discharging operations. Thus, it bears stressing unto petitioner that common carriers, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the
goods transported by them. Subject to certain exceptions enumerated under Article 1734 of the Civil Code,
common carriers are responsible for the loss, destruction, or deterioration of the goods. The extraordinary
responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of,
and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier
to the consignee, or to the person who has a right to receive them. Owing to this high degree of diligence required
of them, common carriers, as a general rule, are presumed to have been at fault or negligent if the goods they
transported deteriorated or got lost or destroyed. That is, unless they prove that they exercised extraordinary
diligence in transporting the goods. In order to avoid responsibility for any loss or damage, therefore, they have
the burden of proving that they observed such high level of diligence. In this case, petitioner failed to hurdle such
burden.
GSIS vs PRUDENTIAL GUARANTEE AND ASSURANCE
GR 165585, NOVEMBER 20, 2013

FACTS:
 NEA entered into a Memorandum of agreement with GSIS insuring all real and personal properties
mortgaged to it by electrical cooperatives under an IAR policy. 95% of the sum insured under the IAR
policy was reinsured by GSIS with PGAI for a year where GSIS agreed to pay PGAI reinsurance premiums
per quarter. GSIS failed, however, to pay for the fourth and last reinsurance premium despite demands
which prompted PGAI to file a complaint for sum of money against GSIS alleging among others, that (b)
the first three reinsurance premiums were paid to PGAI by GSIS and, in the same vein, NEA paid the first
three reinsurance premiums due to GSIS; (c) GSIS failed to pay PGAI the fourth and last reinsurance
premium due on December 5, 1999 xxx GSIS admitted that: xxx (b) it remitted to PGAI the first three
reinsurance premiums which were paid by NEA; and (c) it failed to remit the fourth and last reinsurance
premium to PGAI. It, however, denied, inter alia, that: (a) it had acknowledged its obligation to pay the
last quarter’s reinsurance premium to PGAI xxx On January 11, 2002, the RTC observed that the
admissions of GSIS that it paid the first three quarterly reinsurance premiums to PGAI affirmed the validity
of the contract of reinsurance between them. As such, GSIS cannot now renege on its obligation to remit
the last and remaining quarterly reinsurance premium. It further pointed out that while it is true that the
payment of the premium is a requisite for the validity of an insurance contract as provided under Section
77 of Presidential Decree No. (PD) 612, otherwise known as "The Insurance Code," it was held in Makati
Tuscany Condominium Corp. v. CA that insurance policies are valid even if the premiums were paid in
installments, as in this case. Thus, in view of the foregoing, the RTC ordered GSIS to pay PGAI the last
quarter reinsurance premium. CA sustained RTC’s order with modification and GSIS’ motion for
reconsideration.

ISSUE: WON PGAI is entitled to the payment of the fourth and last reinsurance premium by GSIS

HELD: YES. the non-payment of the last reinsurance premium merely rendered the contract ineffective pursuant
to Section 77 of PD 612 no longer involves any factual issue, but stands solely as a mere question of law in the light
of the foregoing admissions hence allowing for a judgment on the pleadings. Besides, in the case of Makati
Tuscany, the Court already ruled that the non-payment of subsequent installment premiums would not prevent
the insurance contract from taking effect; that the parties intended to make the insurance contract valid and
binding is evinced from the fact that the insured paid – and the insurer received – several reinsurance premiums
due thereon, although the former refused to pay the remaining balance, viz:
We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly
show that petitioner and private respondent intended subject insurance policies to be binding and effective
notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982 was
renewed in 1983, then in 1984. In those three (3) years, the insurer accepted all the installment payments. Such
acceptance of payments speaks loudly of the insurer’s intention to honor the policies it issued to petitioner.
Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and accepting
the premiums, although paid on installments, and later deny liability on the lame excuse that the premiums were
not prepaid in full.

While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of
the contract, We are not prepared to rule that the request to make installment payments duly approved by the
insurer, would prevent the entire contract of insurance from going into effect despite payment and acceptance of
the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver by
the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of
premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is
actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums
are not paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not
contrary to morals, good customs, public order or public policy (De Leon, the Insurance Code, at p. 175). So is an
understanding to allow insured to pay premiums in installments not so proscribed. At the very least, both parties
should be deemed in estoppel to question the arrangement they have voluntarily accepted. [I]n the case before
Us, petitioner paid the initial installment and thereafter made staggered payments resulting in full payment of the
1982 and 1983 insurance policies. For the 1984 policy, petitioner paid two (2) installments although it refused to
pay the balance.

It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance
contracts valid, effective and binding, petitioner may not be allowed to renege on its obligation to pay the balance
of the premium after the expiration of the whole term of the third policy (No. AH-CPP-9210651) in March 1985.
Moreover, as correctly observed by the appellate court, where the risk is entire and the contract is indivisible, the
insured is not entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for any
period, however brief or momentary.
ALPHA INSURANCE AND SURETY CO vs. ARSENIA SONIA CASTOR
GR 198174, SEPTEMBER 2, 2013

FACTS:
 Respondent entered into a contract of insurance with petitioner, involving a motor vehicle. The contract
of insurance obligates the petitioner to pay the respondent in case of loss or damage to said vehicle
during the period covered which was for a year.
 During the subsistence of the contract, respondent instructed her driver to bring the vehicle to a nearby
auto-shop for a tune-up but it was not returned to her despite diligent efforts to locate the same.
 Respondent demanded payment of the insurance proceeds but petitioner denied stating among others
that according to the policy, since damage was caused by a person under the insured’s service, the
company cannot be held liable.
 Respondent filed a complaint for sum of money with damages against petitioner before the RTC which
rendered a decision in favor of respondent.CA affirmed the RTC

ISSUE: WON the loss of respondent’s vehicle is excluded under the insurance policy

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

It is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to the
sense and meaning of the terms which the parties thereto have used. In the case of property insurance policies,
the evident intention of the contracting parties, i.e., the insurer and the assured, determine the import of the
various terms and provisions embodied in the policy. However, when the terms of the insurance policy are
ambiguous, equivocal or uncertain, such that the parties themselves disagree about the meaning of particular
provisions, the policy will be construed by the courts liberally in favor of the assured and strictly against the
insurer.

Further, a contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance
with his obligation. It must be remembered that an insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to safeguard the latter’s interest.

When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as
to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the party which prepared the contract, the insurer. By
reason of the exclusive control of the insurance company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially
to avoid forfeiture.