Republic of the Philippines the after July 1, 1915, there was, however, in force the Insurance Act. No.
SUPREME COURT 2427. Chapter IV of this Act concerns life and health insurance. The Act
Manila
EN BANC
G.R. No. L-15895 November 29, 1920
RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin
Ma. Herrer, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.
Jose A. Espiritu for appellant.
Cohn, Fisher and DeWitt for appellee.
MALCOLM, J.:
This is an action brought by the plaintiff ad administrator of the estate of the
late Joaquin Ma. Herrer to recover from the defendant life insurance company
the sum of pesos 6,000 paid by the deceased for a life annuity. The trial court
gave judgment for the defendant. Plaintiff appeals.
The undisputed facts are these: On September 24, 1917, Joaquin Herrer
made application to the Sun Life Assurance Company of Canada through its
office in Manila for a life annuity. Two days later he paid the sum of P6,000 to
the manager of the company's Manila office and was given a receipt reading
as follows:
MANILA, I. F., 26 de septiembre, 1917.
PROVISIONAL RECEIPT Pesos 6,000
Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como
prima dela Renta Vitalicia solicitada por dicho Don Joaquin Herrer hoy, sujeta
al examen medico y aprobacion de la Oficina Central de la Compañia.
The application was immediately forwarded to the head office of the company
at Montreal, Canada. On November 26, 1917, the head office gave notice of
acceptance by cable to Manila. (Whether on the same day the cable was
received notice was sent by the Manila office of Herrer that the application had
been accepted, is a disputed point, which will be discussed later.) On
December 4, 1917, the policy was issued at Montreal. On December 18, 1917,
attorney Aurelio A. Torres wrote to the Manila office of the company stating
that Herrer desired to withdraw his application. The following day the local
office replied to Mr. Torres, stating that the policy had been issued, and called
attention to the notification of November 26, 1917. This letter was received by
Mr. Torres on the morning of December 21, 1917. Mr. Herrer died on
December 20, 1917.
As above suggested, the issue of fact raised by the evidence is whether
Herrer received notice of acceptance of his application. To resolve this
question, we propose to go directly to the evidence of record.
The chief clerk of the Manila office of the Sun Life Assurance Company of
Canada at the time of the trial testified that he prepared the letter introduced in
evidence as Exhibit 3, of date November 26, 1917, and handed it to the local
manager, Mr. E. E. White, for signature. The witness admitted on cross-
examination that after preparing the letter and giving it to he manager, he new
nothing of what became of it. The local manager, Mr. White, testified to having
received the cablegram accepting the application of Mr. Herrer from the home
office on November 26, 1917. He said that on the same day he signed a letter
notifying Mr. Herrer of this acceptance. The witness further said that letters,
after being signed, were sent to the chief clerk and placed on the mailing desk
for transmission. The witness could not tell if the letter had every actually been
placed in the mails. Mr. Tuason, who was the chief clerk, on November 26,
1917, was not called as a witness. For the defense, attorney Manuel Torres
testified to having prepared the will of Joaquin Ma. Herrer, that on this
occasion, Mr. Herrer mentioned his application for a life annuity, and that he
said that the only document relating to the transaction in his possession was
the provisional receipt. Rafael Enriquez, the administrator of the estate,
testified that he had gone through the effects of the deceased and had found
no letter of notification from the insurance company to Mr. Herrer.
Our deduction from the evidence on this issue must be that the letter of
November 26, 1917, notifying Mr. Herrer that his application had been
accepted, was prepared and signed in the local office of the insurance
company, was placed in the ordinary channels for transmission, but as far as
we know, was never actually mailed and thus was never received by the
applicant.
Not forgetting our conclusion of fact, it next becomes necessary to determine
the law which should be applied to the facts. In order to reach our legal goal,
the obvious signposts along the way must be noticed.
Until quite recently, all of the provisions concerning life insurance in the
Philippines were found in the Code of Commerce and the Civil Code. In the
Code of the Commerce, there formerly existed Title VIII of Book III and Section
III of Title III of Book III, which dealt with insurance contracts. In the Civil Code
there formerly existed and presumably still exist, Chapters II and IV, entitled
insurance contracts and life annuities, respectively, of Title XII of Book IV. On
Page 1 of 43
expressly repealed Title VIII of Book II and Section III of Title III of Book III of
the code of Commerce. The law of insurance is consequently now found in the
Insurance Act and the Civil Code.
While, as just noticed, the Insurance Act deals with life insurance, it is silent as
to the methods to be followed in order that there may be a contract of
insurance. On the other hand, the Civil Code, in article 1802, not only
describes a contact of life annuity markedly similar to the one we are
considering, but in two other articles, gives strong clues as to the proper
disposition of the case. For instance, article 16 of the Civil Code provides that
"In matters which are governed by special laws, any deficiency of the latter
shall be supplied by the provisions of this Code." On the supposition,
therefore, which is incontestable, that the special law on the subject of
insurance is deficient in enunciating the principles governing acceptance, the
subject-matter of the Civil code, if there be any, would be controlling. In the
Civil Code is found article 1262 providing that "Consent is shown by the
concurrence of offer and acceptance with respect to the thing and the
consideration which are to constitute the contract. An acceptance made by
letter shall not bind the person making the offer except from the time it came to
his knowledge. The contract, in such case, is presumed to have been entered
into at the place where the offer was made." This latter article is in opposition
to the provisions of article 54 of the Code of Commerce.
If no mistake has been made in announcing the successive steps by which we
reach a conclusion, then the only duty remaining is for the court to apply the
law as it is found. The legislature in its wisdom having enacted a new law on
insurance, and expressly repealed the provisions in the Code of Commerce on
the same subject, and having thus left a void in the commercial law, it would
seem logical to make use of the only pertinent provision of law found in the
Civil code, closely related to the chapter concerning life annuities.
The Civil Code rule, that an acceptance made by letter shall bind the person
making the offer only from the date it came to his knowledge, may not be the
best expression of modern commercial usage. Still it must be admitted that its
enforcement avoids uncertainty and tends to security. Not only this, but in
order that the principle may not be taken too lightly, let it be noticed that it is
identical with the principles announced by a considerable number of
respectable courts in the United States. The courts who take this view have
expressly held that an acceptance of an offer of insurance not actually or
constructively communicated to the proposer does not make a contract. Only
the mailing of acceptance, it has been said, completes the contract of
insurance, as the locus poenitentiae is ended when the acceptance has
passed beyond the control of the party. (I Joyce, The Law of Insurance, pp.
235, 244.)
In resume, therefore, the law applicable to the case is found to be the second
paragraph of article 1262 of the Civil Code providing that an acceptance made
by letter shall not bind the person making the offer except from the time it
came to his knowledge. The pertinent fact is, that according to the provisional
receipt, three things had to be accomplished by the insurance company before
there was a contract: (1) There had to be a medical examination of the
applicant; (2) there had to be approval of the application by the head office of
the company; and (3) this approval had in some way to be communicated by
the company to the applicant. The further admitted facts are that the head
office in Montreal did accept the application, did cable the Manila office to that
effect, did actually issue the policy and did, through its agent in Manila,
actually write the letter of notification and place it in the usual channels for
transmission to the addressee. The fact as to the letter of notification thus fails
to concur with the essential elements of the general rule pertaining to the
mailing and delivery of mail matter as announced by the American courts,
namely, when a letter or other mail matter is addressed and mailed with
postage prepaid there is a rebuttable presumption of fact that it was received
by the addressee as soon as it could have been transmitted to him in the
ordinary course of the mails. But if any one of these elemental facts fails to
appear, it is fatal to the presumption. For instance, a letter will not be
presumed to have been received by the addressee unless it is shown that it
was deposited in the post-office, properly addressed and stamped. (See 22
C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)
We hold that the contract for a life annuity in the case at bar was not perfected
because it has not been proved satisfactorily that the acceptance of the
application ever came to the knowledge of the applicant.lawph!l.net
Judgment is reversed, and the plaintiff shall have and recover from the
defendant the sum of P6,000 with legal interest from November 20, 1918, until
paid, without special finding as to costs in either instance. So ordered.
Mapa, C.J., Araullo, Avanceña and Villamor, JJ., concur.
Johnson, J., dissents.
Republic of the Philippines
 SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-44059 October 28, 1977
THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-
appellants.
MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife named as
beneficiary in the life insurance policy of a legally married man claim the
proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life
Assurance Co., Ltd., Policy No. 009929 on a whole-life for P5,882.00 with a,
rider for Accidental Death for the same amount Buenaventura C. Ebrado
designated T. Ebrado as the revocable beneficiary in his policy. He to her as
his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when
he was hit by a failing branch of a tree. As the policy was in force, The Insular
Life Assurance Co., Ltd. liable to pay the coverage in the total amount of
P11,745.73, representing the face value of the policy in the amount of
P5,882.00 plus the additional benefits for accidental death also in the amount
of P5,882.00 and the refund of P18.00 paid for the premium due November,
1969, minus the unpaid premiums and interest thereon due for January and
February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy
as the designated beneficiary therein, although she admits that she and the
insured Buenaventura C. Ebrado were merely living as husband and wife
without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased
insured. She asserts that she is the one entitled to the insurance proceeds, not
the common-law wife, Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be paid, the insurer, The
Insular Life Assurance Co., Ltd. commenced an action for Interpleader before
the Court of First Instance of Rizal on April 29, 1970.
After the issues have been joined, a pre-trial conference was held on July 8,
1972, after which, a pre-trial order was entered reading as follows:
ñé+.£ªwph!1
During the pre-trial conference, the parties manifested to the court. that there
is no possibility of amicable settlement. Hence, the Court proceeded to have
the parties submit their evidence for the purpose of the pre-trial and make
admissions for the purpose of pretrial. During this conference, parties
Carponia T. Ebrado and Pascuala Ebrado agreed and stipulated: 1) that the
deceased Buenaventura Ebrado was married to Pascuala Ebrado with whom
she has six — (legitimate) namely; Hernando, Cresencio, Elsa, Erlinda,
Felizardo and Helen, all surnamed Ebrado; 2) that during the lifetime of the
deceased, he was insured with Insular Life Assurance Co. Under Policy No.
009929 whole life plan, dated September 1, 1968 for the sum of P5,882.00
with the rider for accidental death benefit as evidenced by Exhibits A for
plaintiffs and Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia
Ebrado; 3) that during the lifetime of Buenaventura Ebrado, he was living with
his common-wife, Carponia Ebrado, with whom she had 2 children although
he was not legally separated from his legal wife; 4) that Buenaventura in
accident on October 21, 1969 as evidenced by the death Exhibit 3 and
affidavit of the police report of his death Exhibit 5; 5) that complainant
Carponia Ebrado filed claim with the Insular Life Assurance Co. which was
contested by Pascuala Ebrado who also filed claim for the proceeds of said
policy 6) that in view ofthe adverse claims the insurance company filed this
action against the two herein claimants Carponia and Pascuala Ebrado; 7) that
there is now due from the Insular Life Assurance Co. as proceeds of the policy
P11,745.73; 8) that the beneficiary designated by the insured in the policy is
Carponia Ebrado and the insured made reservation to change the beneficiary
but although the insured made the option to change the beneficiary, same was
never changed up to the time of his death and the wife did not have any
opportunity to write the company that there was reservation to change the
designation of the parties agreed that a decision be rendered based on and
stipulation of facts as to who among the two claimants is entitled to the policy.
Upon motion of the parties, they are given ten (10) days to file their
simultaneous memoranda from the receipt of this order.
SO ORDERED.
On September 25, 1972, the trial court rendered judgment declaring among
others, Carponia T. Ebrado disqualified from becoming beneficiary of the
insured Buenaventura Cristor Ebrado and directing the payment of the
insurance proceeds to the estate of the deceased insured. The trial court held:
ñé+.£ªwph!1
Page 2 of 43
It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal
conviction for adultery or concubinage is not essential in order to establish the
disqualification mentioned therein. Neither is it also necessary that a finding of
such guilt or commission of those acts be made in a separate independent
action brought for the purpose. The guilt of the donee (beneficiary) may be
proved by preponderance of evidence in the same proceeding (the action
brought to declare the nullity of the donation).
It is, however, essential that such adultery or concubinage exists at the time
defendant Carponia T. Ebrado was made beneficiary in the policy in question
for the disqualification and incapacity to exist and that it is only necessary that
such fact be established by preponderance of evidence in the trial. Since it is
agreed in their stipulation above-quoted that the deceased insured and
defendant Carponia T. Ebrado were living together as husband and wife
without being legally married and that the marriage of the insured with the
other defendant Pascuala Vda. de Ebrado was valid and still existing at the
time the insurance in question was purchased there is no question that
defendant Carponia T. Ebrado is disqualified from becoming the beneficiary of
the policy in question and as such she is not entitled to the proceeds of the
insurance upon the death of the insured.
From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but
on July 11, 1976, the Appellate Court certified the case to Us as involving only
questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as
amended) or even the new Insurance Code (PD No. 612, as amended) does
not contain any specific provision grossly resolutory of the prime question at
hand. Section 50 of the Insurance Act which provides that "(t)he insurance
shag be applied exclusively to the proper interest of the person in whose name
it is made" 1 cannot be validly seized upon to hold that the mm includes the
beneficiary. The word "interest" highly suggests that the provision refers only
to the "insured" and not to the beneficiary, since a contract of insurance is
personal in character. 2 Otherwise, the prohibitory laws against illicit
relationships especially on property and descent will be rendered nugatory, as
the same could easily be circumvented by modes of insurance. Rather, the
general rules of civil law should be applied to resolve this void in the Insurance
Law. Article 2011 of the New Civil Code states: "The contract of insurance is
governed by special laws. Matters not expressly provided for in such special
laws shall be regulated by this Code." When not otherwise specifically
provided for by the Insurance Law, the contract of life insurance is governed
by the general rules of the civil law regulating contracts. 3 And under Article
2012 of the same Code, "any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a fife insurance
policy by the person who cannot make a donation to him. 4 Common-law
spouses are, definitely, barred from receiving donations from each other.
Article 739 of the new Civil Code provides: ñé+.£ªwph!1
The following donations shall be void:
1. Those made between persons who were guilty of adultery or
concubinage at the time of donation;
Those made between persons found guilty of the same criminal offense, in
consideration thereof;
3. Those made to a public officer or his wife, descendants or
ascendants by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilt of the donee may
be proved by preponderance of evidence in the same action.
2. In essence, a life insurance policy is no different from a civil
donation insofar as the beneficiary is concerned. Both are founded upon the
same consideration: liberality. A beneficiary is like a donee, because from the
premiums of the policy which the insured pays out of liberality, the beneficiary
will receive the proceeds or profits of said insurance. As a consequence, the
proscription in Article 739 of the new Civil Code should equally operate in life
insurance contracts. The mandate of Article 2012 cannot be laid aside: any
person who cannot receive a donation cannot be named as beneficiary in the
life insurance policy of the person who cannot make the donation. 5 Under
American law, a policy of life insurance is considered as a testament and in
construing it, the courts will, so far as possible treat it as a will and determine
the effect of a clause designating the beneficiary by rules under which wins
are interpreted. 6
3. Policy considerations and dictates of morality rightly justify the
institution of a barrier between common law spouses in record to Property
relations since such hip ultimately encroaches upon the nuptial and filial rights
of the legitimate family There is every reason to hold that the bar in donations
between legitimate spouses and those between illegitimate ones should be
enforced in life insurance policies since the same are based on similar
consideration As above pointed out, a beneficiary in a fife insurance policy is
no different from a donee. Both are recipients of pure beneficence. So long as
manage remains the threshold of family laws, reason and morality dictate that
the impediments imposed upon married couple should likewise be imposed
upon extra-marital relationship. If legitimate relationship is circumscribed by
these legal disabilities, with more reason should an illicit relationship be
restricted by these disabilities. Thus, in Matabuena v. Cervantes, 7 this Court,
through Justice Fernando, said: ñé+.£ªwph!1
If the policy of the law is, in the language of the opinion of the then Justice
J.B.L. Reyes of that court (Court of Appeals), 'to prohibit donations in favor of
the other consort and his descendants because of and undue and improper
pressure and influence upon the donor, a prejudice deeply rooted in our
ancient law;" por-que no se enganen desponjandose el uno al otro por amor
que han de consuno' (According to) the Partidas (Part IV, Tit. XI, LAW IV),
reiterating the rationale 'No Mutuato amore invicem spoliarentur' the Pandects
(Bk, 24, Titl. 1, De donat, inter virum et uxorem); then there is very reason to
apply the same prohibitive policy to persons living together as husband and
wife without the benefit of nuptials. For it is not to be doubted that assent to
such irregular connection for thirty years bespeaks greater influence of one
party over the other, so that the danger that the law seeks to avoid is
correspondingly increased. Moreover, as already pointed out by Ulpian (in his
lib. 32 ad Sabinum, fr. 1), 'it would not be just that such donations should
subsist, lest the condition 6f those who incurred guilt should turn out to be
better.' So long as marriage remains the cornerstone of our family law, reason
and morality alike demand that the disabilities attached to marriage should
likewise attach to concubinage.
It is hardly necessary to add that even in the absence of the above
pronouncement, any other conclusion cannot stand the test of scrutiny. It
would be to indict the frame of the Civil Code for a failure to apply a laudable
rule to a situation which in its essentials cannot be distinguished. Moreover, if
it is at all to be differentiated the policy of the law which embodies a deeply
rooted notion of what is just and what is right would be nullified if such irregular
relationship instead of being visited with disabilities would be attended with
benefits. Certainly a legal norm should not be susceptible to such a reproach.
If there is every any occasion where the principle of statutory construction that
what is within the spirit of the law is as much a part of it as what is written, this
is it. Otherwise the basic purpose discernible in such codal provision would not
be attained. Whatever omission may be apparent in an interpretation purely
literal of the language used must be remedied by an adherence to its avowed
objective.
4. We do not think that a conviction for adultery or concubinage is
exacted before the disabilities mentioned in Article 739 may effectuate. More
specifically, with record to the disability on "persons who were guilty of
adultery or concubinage at the time of the donation," Article 739 itself
provides: ñé+.£ªwph!1
In the case referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilty of the donee may
be proved by preponderance of evidence in the same action.
The underscored clause neatly conveys that no criminal conviction for the
offense is a condition precedent. In fact, it cannot even be from the
aforequoted provision that a prosecution is needed. On the contrary, the law
plainly states that the guilt of the party may be proved "in the same acting for
declaration of nullity of donation. And, it would be sufficient if evidence
preponderates upon the guilt of the consort for the offense indicated. The
quantum of proof in criminal cases is not demanded.
In the caw before Us, the requisite proof of common-law relationship between
the insured and the beneficiary has been conveniently supplied by the
stipulations between the parties in the pre-trial conference of the case. It case
agreed upon and stipulated therein that the deceased insured Buenaventura
C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate
children; that during his lifetime, the deceased insured was living with his
common-law wife, Carponia Ebrado, with whom he has two children. These
stipulations are nothing less 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."
ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed.
Carponia T. Ebrado is hereby declared disqualified to be the beneficiary of the
late Buenaventura C. Ebrado in his life insurance policy. As a consequence,
the proceeds of the policy are hereby held payable to the estate of the
deceased insured. Costs against Carponia T. Ebrado.
SO ORDERED.
Teehankee (Chairman), Makasiar, Muñ;oz Palma, Fernandez and Guerrero,
JJ., concur.
Page 3 of 43
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-19638 June 20, 1966
FILIPINAS COMPAÑIA DE SEGUROS, ET AL., petitioners and appellees,
vs.
HON. FRANCISCO Y. MANDANAS, in his capacity as Insurance
Commissioner, respondent and appellant.
AGRICULTURAL FIRE INSURANCE & SURETY CO., INC., ET AL.,
intervenors and appellees.
Jalandoni and Jamir for petitioner and appellees.
Office of the Solicitor General Arturo A. Alafriz, 1st Assistant Solicitor
General Esmeraldo Umali and Solicitor Comrade T. Limcaoco for
intervenors and appellees.
CONCEPCION, C.J.:
This is a special civil action for a declaratory relief Thirty-nine (39) non-life
insurance companies instituted it, in the Court of First Instance of Manila, to
secure a declaration of legality of Article 22 of the Constitution of the Philippine
Rating Bureau, of which they are members, inasmuch as respondent
Insurance Commissioner assails its validity upon the ground that it constitutes
an illegal or undue restraint of trade. Subsequently to the filing of the petition,
twenty (20) other non-life insurance companies, likewise, members of said
Bureau, were allowed to intervene in support of the petition. After appropriate
proceedings, said court rendered judgment declaring that the aforementioned
Article 22 is neither contrary to law nor against public policy, and that,
accordingly, petitioners herein, as well as the intervenors and other members
of the aforementioned Bureau, may lawfully observe and enforce said Article,
and are bound to comply with the provisions thereof, without special
pronouncement as to costs. Hence this appeal by respondent Insurance
Commissioner, who insists that the Article in question constitutes an illegal or
undue restraint of trade and, hence, null and void.
The record discloses that on March 11, 1960, respondent wrote to said
Bureau, a communication expressing his doubts of the validity of said Article
22, reading:
xxx xxx xxx
In respect to the classes of insurance specified in the Objects of the Bureau1
and for Philippine business only, the members of this Bureau agree not to
represent nor to effect reinsurance with, nor to accept reinsurance from, any
Company, Body, or Underwriter licensed to do business in the Philippines not
a Member in good standing of this Bureau.
and requesting that said provision, be, accordingly, repealed. On April 11,
1960, respondent wrote another letter to the Bureau inquiring on the action
taken on the subject-matter of his previous communication. In reply thereto,
the Bureau advised respondent that the suggestion to delete said Article 22
was still under consideration by a committee of said Bureau. Soon thereafter,
or on May 9, 1961, the latter was advised by respondent that, being an illegal
agreement or combination in restraint of trade, said Article should not be given
force and effect; that failure to comply with this requirement would compel
respondent to suspend the license issued to the Bureau; and that the latter
should circularize all of its members on this matter and advise them that
"violation of this requirement by any member of the Bureau" would also
compel respondent "to suspend the certificate of authority of the company
concerned to do business in the Philippines". Thereupon, or on May 16, 1961,
the present action was commenced.
Briefly, appellant maintains that, since, in the aforementioned Article 22,
members of the Bureau "agree not to represent nor to effect reinsurance with,
nor to accept reinsurance from any company, body, or underwriter, licensed to
do business in the Philippines not a member in good standing of the Bureau",
said provision is illegal as a combination in restraint of trade. As early as
August 10, 1916, this Court had had occasion to declare that the test on
whether a given agreement constitutes an unlawful machination or a
combination in restraint of trade
... is, whether, under the particular circumstances of the case and the nature of
the particular contract involved in it, the contract is, or is not, unreasonable.
(Ferrazini vs. Gsell, 34 Phil. 697, 712-13.)
This view was reiterated in Ollendorf vs. Abrahamson (38 Phil. 585) and Red
Line Transportation Co. vs. Bachrach Motor Co. (67 Phil. 77), in the following
language:
...The general tendency, we believe, of modern authority, is to make the test
whether the restraint is reasonably necessary for the protection of the
contracting parties. If the contract is reasonably necessary to protect the
interest of the parties, it will be upheld.
xxx xxx xxx
...we adopt the modern rule that the validity of restraints upon trade or
employment is to be determined by the intrinsic reasonableness of the
restriction in each case, rather than by any fixed rule, and that such
restrictions may be upheld when not contrary to the public welfare and not
greater than is necessary to afford a fair and reasonable protection to the party
in whose favor it is imposed. (Ollendorf vs. Abrahamson, 38 Phil. 585.)
...The test of validity is whether under the particular circumstances of the case
and considering the nature of the particular contract involved, public interest
and welfare are not involved and the restraint is not only reasonably necessary
for the protection of the contracting parties but will not affect the public interest
or service. (Red Line Transportation Co. vs. Bachrach Motor Co., 67 Phil. 77.)
(See also, Del Castillo vs. Richmond, 45 Phil. 483.)
The issue in the case at bar hinges, therefore, on the purpose or effect of the
disputed provision. The only evidence on this point is the uncontradicted
testimony of Salvador Estrada, Chairman of the Bureau when it was first
organized and when he took the witness stand. Briefly stated, he declared that
the purpose of Article 22 is to maintain a high degree or standard of ethical
practice, so that insurance companies may earn and maintain the respect of
the public, because the intense competition between the great number of non-
life insurance companies operating in the Philippines is conducive to unethical
practices, oftentimes taking the form of underrating; that to achieve this
purpose it is highly desirable to have cooperative action between said
companies in the compilation of their total experience in the business, so that
the Bureau could determine more accurately the proper rate of premium to be
charged from the insured; that, several years ago, the very Insurance
Commissioner had indicated to the Bureau the necessity of doing something
to combat underrating, for, otherwise, he would urge the amendment of the
law so that appropriate measures could be taken therefor by his office; that
much of the work of the Bureau has to do with rate-making and policy-wording;
that rate-making is actually dependent very much on statistics; that, unlike life
insurance companies, which have tables of mortality to guide them in the fixing
of rates, non-life insurance companies have, as yet, no such guides; that,
accordingly, non-life insurance companies need an adequate record of losses
and premium collections that will enable them to determine the amount of risk
involved in each type of risk and, hence, to determine the rates or premiums
that should be charged in insuring every type of risk; that this information
cannot be compiled without full cooperation on the part of the companies
concerned, which cannot be expected from non-members of the Bureau, over
which the latter has no control; and that, in addition to submitting information
about their respective experience, said Bureau members must, likewise, share
in the rather appreciable expenses entailed in compiling the aforementioned
data and in analyzing the same.1äwphï1.ñët
We find nothing unlawful, or immoral, or unreasonable, or contrary to public
policy either in the objectives thus sought to be attained by the Bureau, or in
the means availed of to achieve said objectives, or in the consequences of the
accomplishment thereof. The purpose of said Article 22 is not to eliminate
competition, but to promote ethical practices among non-life insurance
companies, although, incidentally it may discourage, and hence, eliminate
unfair competition, through underrating, which in itself is eventually injurious to
the public. Indeed, in the words of Mr. Justice Brandeis:
... the legality of an agreement or regulation cannot be determined by so
simple a test, as whether it restrains competition. Every agreement concerning
trade, every regulation of trade, restrains. To bind, to restrain, is of their very
essence. The true test of legality is whether the restraint imposed is such as
merely regulates and promotes competition, or whether it is such as may
suppress or even destroy competition. To determine that question the court
must ordinarily consider the facts peculiar to the business to which the
restraint is applied; its condition before and after the restraint was imposed;
the nature of the restraint, and its effect, actual or probable. (Board of Trade of
Chicago vs. U.S., 246 U.S. 231, 62 L. ed. 683 [1918].)
Thus, in Sugar Institute, Inc. vs. U.S. (297 U.S. 553), the Federal Supreme
Court added:
The restrictions imposed by the Sherman Act are not mechanical or artificial.
We have repeatedly said that they set up the essential standard of
reasonableness. Standard Oil Co. vs. United States, 221 U.S. 1, 55 L. ed. 619,
31 S. Ct. 502, 34 L.R.A. (N.S.) 834, Ann. Cas. 1912D, 734; United States vs.
American Tobacco Co., 221 U.S. 106, 55 L. ed. 663, 31 S. Ct. 632. They are
aimed at contracts and combinations which "by reason of intent or the inherent
nature of the contemplated acts, prejudice the public interests by unduly
restraining competition or unduly obstructing the course of trade." Nash vs.
United States, 229 U.S. 373, 376, 57 L. ed. 1232, 1235, 33 S. Ct. 780; United
States vs. American Linseed Oil Co., 262 U.S. 371, 388, 389, 67 L. ed. 1035,
1040, 1041, 43 S. Ct. 607. Designed to frustrate unreasonable restraints, they
do not prevent the adoption of reasonable means to protect interstate
commerce from destructive or injurious practices and to promote competition
upon a sound basis. Voluntary action to end abuses and to foster fair
competitive opportunities in the public interest may be more effective than
legal processes. And cooperative endeavor may appropriately have wider
objectives than merely the removal of evils which are infractions of positive
law.
Hence, the City Fiscal of Manila refused to prosecute criminally in Manila Fire
Insurance Association for following a policy analogous to that incorporated in
the provision disputed in this case and the action of said official was sustained
by the Secretary of Justice, upon the ground that:
... combinations among insurance companies or their agents to fix and control
rates of insurance do not constitute indictable conspiracies, provided no
Page 4 of 43
unlawful means are used in accomplishing their purpose (41 C.J. 161; Aetna
Ins. Co. vs. Commonwealth, 106 Ky. 864, 51 SW 624; Queen Ins. Co. vs.
State, 86 Tex. 250, 24 SW 397; I Joyce on Insurance, par. 329-a).
Indeed, Mr. Estrada's testimony shows that the limitation upon reinsurance
contained in the aforementioned Article 22 does not affect the public at all, for,
whether there is reinsurance or not, the liability of the insurer in favor of the
insured is the same. Besides, there are sufficient foreign reinsurance
companies operating in the Philippines from which non-members of the
Bureau may secure reinsurance. What is more, whatever the Bureau may do
in the matter of rate-fixing is not decisive insofar as the public is concerned, for
no insurance company in the Philippines may charge a rate of premium that
has not been approved by the Insurance Commissioner.
In fact, respondent's Circular No. 54, dated February 261 1954, provides:
II. Non-life Insurance company or Group Association of such companies.
Every non-life insurance company or group or association of such companies
doing business in the Philippines shall file with the Insurance Commissioner
for approval general basic schedules showing the premium rates on all
classes of risk except marine, as distinguished from inland marine insurable by
such insurance company or association of insurance companies in this
country.
xxx xxx xxx
An insurance company or group of such companies may satisfy its obligation
to make such filings by becoming a member of or subscriber to a rating
organization which makes such filing and by authorizing the insurance
commissioner to accept such filings of the rating organization on such
company's or group's behalf.
III. Requiring Previous Application to and Approval by the Insurance
Commissioner before any Change in the Rates Schedules filed with Him Shall
Take Effect.
No change in the schedules filed in compliance with the requirements of the
next preceding paragraph shall be made except upon application duly filed
with and approved by the Insurance Commissioner. Said application shall
state the changes proposed and the date of their effectivity; all changes finally
approved by the Insurance Commissioner shall be incorporated in the old
schedules or otherwise indicated as new in the new schedules.
IV. Empowering the Insurance Commissioner to Investigate All Non-Life
Insurance Rates.
The Insurance Commissioner shall have power to examine any or all rates
established by non-life insurance companies or group or association of such
insurance companies in the country. Should any rate appear, in the opinion of
the Insurance Commissioner, unreasonably high or not adequate to the
financial safety or soundness to the company charging the same, or pre-
judicial to policy-holders, the Commissioner shall, in such case, hold a hearing
and/or conduct an investigation. Should the result of such hearing and/or
investigation show that the rate is unreasonably high or low that it is not
adequate to the financial safety and soundness of the company charging the
same, or is prejudicial to policy-holders, the Insurance Commissioner shall
direct a revision of the said rate in accordance with his findings. Any insurance
company or group or association of insurance companies may be required to
publish the schedule of rates which may have been revised in accordance
herewith.
The decision of the Insurance Commissioner shall be appealable within thirty
days after it has been rendered to the Secretary of Finance.
V. Prohibiting Non-life Insurance Companies and their Agents from Insuring
Any Property in this Country at a Rate Different from that in the Schedules;
Unethical Practices.
No insurance company shall engage or participate in the insurance of any
property located in the Philippines ... unless the schedule of rates under which
such property is insured has been filed and approved in accordance with the
provisions of this Circular. ... . (Emphasis ours.)
On the same date, the Constitution of the Bureau, containing a provision
substantially identical to the one now under consideration, was approved.
Article 2 of said Constitution reads:
2. OBJECTS
The objects of the Bureau shall be:
a. To establish rates in respect of Fire, Earthquake, Riot and Civil Commotion,
Automobile and Workmen's Compensation, and whenever applicable, Marine
Insurance business.
xxx xxx xxx
c. To file the rates referred to above, tariff rules, and all other conditions or
data which may in any way affect premium rates with the Office of the
Insurance Commissioner on behalf of members for approval. (Emphasis ours.)
In compliance with the aforementioned Circular No. 54, in April, 1954, the
Bureau applied for the license required therein, and submitted with its
application a copy of said Constitution. On April 28, 1954, respondent's office
issued to the Bureau the license applied for, certifying not only that it had
complied with the requirements of Circular No. 54, but, also, that the license
empowered it "to engage in the making of rates or policy conditions to be used
by insurance companies in the Philippines". Subsequently, thereafter, the
Bureau applied for and was granted yearly the requisite license to operate in
accordance with the provisions of its Constitution. During all this time,
respondent's office did not question, but impliedly acknowledged, the legality
of Article 22. It was not until March 11, 1960, that it assailed its validity.
Respondent's contention is anchored mainly on Paramount Famous Lasky
Corp. vs. U.S., 282 U.S. 30, but the same is not in point, not only because it
refers to the conditions under which movie film producers and distributors
determine the terms under which theaters or exhibitors may be allowed to run
movie films — thereby placing the exhibitors under the control of the
producers or distributors and giving the exhibitors, in effect, no choice as to
what films and whose films they will show — but, also, because there is, in the
film industry, no agency or officer with powers or functions comparable to
those in the Insurance Commissioner, as regards the regulation of the
business concerned and of the transactions involved therein.
Wherefore, the decision appealed from should be, as it is hereby affirmed,
without costs. It is so ordered.
Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.
Reyes, J.B.L. and Barrera, JJ., took no part.
Republic of the Philippines
SUPREME COURT
FIRST DIVISION
G.R. No. 154514. July 28, 2005
WHITE GOLD MARINE SERVICES, INC., Petitioners,
vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD.,
Respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision1 dated July 30, 2002 of the Court
of Appeals in CA-G.R. SP No. 60144, affirming the Decision2 dated May 3,
2000 of the Insurance Commission in I.C. Adm. Case No. RD-277. Both
decisions held that there was no violation of the Insurance Code and the
respondents do not need license as insurer and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and
indemnity coverage for its vessels from The Steamship Mutual Underwriting
Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance
and Surety Corporation (Pioneer). Subsequently, White Gold was issued a
Certificate of Entry and Acceptance.3 Pioneer also issued receipts evidencing
payments for the coverage. When White Gold failed to fully pay its accounts,
Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of
sum of money to recover the latter’s unpaid balance. White Gold on the other
hand, filed a complaint before the Insurance Commission claiming that
Steamship Mutual violated Sections 1864 and 1875 of the Insurance Code,
while Pioneer violated Sections 299,6 3007 and 3018 in relation to Sections
302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no
need for Steamship Mutual to secure a license because it was not engaged in
the insurance business. It explained that Steamship Mutual was a Protection
and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another
license as insurance agent and/or a broker for Steamship Mutual because
Steamship Mutual was not engaged in the insurance business. Moreover,
Pioneer was already licensed, hence, a separate license solely as
agent/broker of Steamship Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In
its decision, the appellate court distinguished between P & I Clubs vis-à-vis
conventional insurance. The appellate court also held that Pioneer merely
acted as a collection agent of Steamship Mutual.
In this petition, petitioner assigns the following errors allegedly committed by
the appellate court,
FIRST ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT
STEAMSHIP IS NOT DOING BUSINESS IN THE PHILIPPINES ON THE
GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS
Page 5 of 43
AGENT AND/OR BROKER HENCE AS AN INSURER IT NEED NOT
SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE
PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS
BEREFT OF ANY EVIDENCE THAT RESPONDENT STEAMSHIP IS
ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT
PIONEER NEED NOT SECURE A LICENSE WHEN CONDUCTING ITS
AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF
RESPONDENT PIONEER AND [IN NOT REMOVING] THE OFFICERS AND
DIRECTORS OF RESPONDENT PIONEER.9
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club,
engaged in the insurance business in the Philippines? (2) Does Pioneer need
a license as an insurance agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual
admits it does not have a license to do business in the Philippines although
Pioneer is its resident agent. This relationship is reflected in the certifications
issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the
insurance business. To buttress its assertion, it cites the definition of a P & I
Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals10 as "an association
composed of shipowners in general who band together for the specific
purpose of providing insurance cover on a mutual basis against liabilities
incidental to shipowning that the members incur in favor of third parties." It
stresses that as a P & I Club, Steamship Mutual’s primary purpose is to solicit
and provide protection and indemnity coverage and for this purpose, it has
engaged the services of Pioneer to act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not
engaged in the insurance business in the Philippines. It is merely an
association of vessel owners who have come together to provide mutual
protection against liabilities incidental to shipowning.11 Respondents aver
Hyopsung is inapplicable in this case because the issue in Hyopsung was the
jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes "doing an
insurance business" or "transacting an insurance business". These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the
meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of
the foregoing in a manner designed to evade the provisions of this Code.
...
The same provision also provides, the fact that no profit is derived from the
making of insurance contracts, agreements or transactions, or that no
separate or direct consideration is received therefor, shall not preclude the
existence of an insurance business.12
The test to determine if a contract is an insurance contract or not, depends on
the nature of the promise, the act required to be performed, and the exact
nature of the agreement in the light of the occurrence, contingency, or
circumstances under which the performance becomes requisite. It is not by
what it is called.13
Basically, an insurance contract is a contract of indemnity. In it, one
undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event.14
In particular, a marine insurance undertakes to indemnify the assured against
marine losses, such as the losses incident to a marine adventure.15 Section
9916 of the Insurance Code enumerates the coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the
members are both the insurer and insured. In it, the members all contribute, by
a system of premiums or assessments, to the creation of a fund from which all
losses and liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest.17 Additionally, mutual insurance
associations, or clubs, provide three types of coverage, namely, protection and
indemnity, war risks, and defense costs.18
A P & I Club is "a form of insurance against third party liability, where the third
party is anyone other than the P & I Club and the members."19 By definition
then, Steamship Mutual as a P & I Club is a mutual insurance association
engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit
without the requisite certificate of authority mandated by Section 18720 of the
Insurance Code. It maintains a resident agent in the Philippines to solicit
insurance and to collect payments in its behalf. We note that Steamship
Mutual even renewed its P & I Club cover until it was cancelled due to non-
payment of the calls. Thus, to continue doing business here, Steamship
Mutual or through its agent Pioneer, must secure a license from the Insurance
Commission.
Since a contract of insurance involves public interest, regulation by the State is
necessary. Thus, no insurer or insurance company is allowed to engage in the
insurance business without a license or a certificate of authority from the
Insurance Commission.21
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the
certificate of registration22 issued by the Insurance Commission. It has been
licensed to do or transact insurance business by virtue of the certificate of
authority23 issued by the same agency. However, a Certification from the
Commission states that Pioneer does not have a separate license to be an
agent/broker of Steamship Mutual.24
Although Pioneer is already licensed as an insurance company, it needs a
separate license to act as insurance agent for Steamship Mutual. Section 299
of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the
solicitation or procurement of applications for insurance, or receive for services
in obtaining insurance, any commission or other compensation from any
insurance company doing business in the Philippines or any agent thereof,
without first procuring a license so to act from the Commissioner, which must
be renewed annually on the first day of January, or within six months
thereafter. . .
Finally, White Gold seeks revocation of Pioneer’s certificate of authority and
removal of its directors and officers. Regrettably, we are not the forum for
these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated
July 30, 2002 of the Court of Appeals affirming the Decision dated May 3,
2000 of the Insurance Commission is hereby REVERSED AND SET ASIDE.
The Steamship Mutual Underwriting Association (Bermuda) Ltd., and Pioneer
Insurance and Surety Corporation are ORDERED to obtain licenses and to
secure proper authorizations to do business as insurer and insurance agent,
respectively. The petitioner’s prayer for the revocation of Pioneer’s Certificate
of Authority and removal of its directors and officers, is DENIED. Costs against
respondents.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ.,
concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 167330 June 12, 2008
PHILIPPINE HEALTH CARE PROVIDERS, INC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
CORONA, J.:
Is a health care agreement in the nature of an insurance contract and
therefore subject to the documentary stamp tax (DST) imposed under Section
185 of Republic Act 8424 (Tax Code of 1997)?
This is an issue of first impression. The Court of Appeals (CA) answered it
affirmatively in its August 16, 2004 decision1 in CA-G.R. SP No. 70479.
Petitioner Philippine Health Care Providers, Inc. believes otherwise and
assails the CA decision in this petition for review under Rule 45 of the Rules of
Court.
Page 6 of 43
Petitioner is a domestic corporation whose primary purpose is "[t]o establish,
maintain, conduct and operate a prepaid group practice health care delivery
system or a health maintenance organization to take care of the sick and
disabled persons enrolled in the health care plan and to provide for the
administrative, legal, and financial responsibilities of the organization."2
Individuals enrolled in its health care programs pay an annual membership fee
and are entitled to various preventive, diagnostic and curative medical
services provided by its duly licensed physicians, specialists and other
professional technical staff participating in the group practice health delivery
system at a hospital or clinic owned, operated or accredited by it.3
The pertinent part of petitioner's membership or health care agreement4
provides:
VII BENEFITS
Subject to paragraphs VIII [on pre-existing medical condition] and X [on claims
for reimbursement] of this Agreement, Members shall have the following
Benefits under this Agreement:
In-Patient Services. In the event that a Member contract[s] sickness or suffers
injury which requires confinement in a participating Hospital[,] the services or
benefits stated below shall be provided to the Member free of charge, but in no
case shall [petitioner] be liable to pay more than P75,000.00 in benefits with
respect to anyone sickness, injury or related causes. If a member has
exhausted such maximum benefits with respect to a particular sickness, injury
or related causes, all accounts in excess of P75,000.00 shall be borne by the
enrollee. It is[,] however, understood that the payment by [petitioner] of the
said maximum in In-Patient Benefits to any one member shall preclude a
subsequent payment of benefits to such member in respect of an unrelated
sickness, injury or related causes happening during the remainder of his
membership term.
(a) Room and Board
(b) Services of physician and/or surgeon or specialist
(c) Use of operating room and recovery room
(d) Standard Nursing Services
(e) Drugs and Medication for use in the hospital except those which are used
to dissolve blood clots in the vascular systems (i.e., trombolytic agents)
(f) Anesthesia and its administration
(g) Dressings, plaster casts and other miscellaneous supplies
(h) Laboratory tests, x-rays and other necessary diagnostic services
(i) Transfusion of blood and other blood elements
Condition for in-Patient Care. The provision of the services or benefits
mentioned in the immediately preceding paragraph shall be subject to the
following conditions:
(a) The Hospital Confinement must be approved by [petitioner's] Physician,
Participating Physician or [petitioner's] Medical Coordinator in that Hospital
prior to confinement.
(b) The confinement shall be in a Participating Hospital and the
accommodation shall be in accordance with the Member[']s benefit
classification.
(c) Professional services shall be provided only by the [petitioner's] Physicians
or Participating Physicians.
(d) If discharge from the Hospital has been authorized by [petitioner's]
attending Physician or Participating Physician and the Member shall fail or
refuse to do so, [petitioner] shall not be responsible for any charges incurred
after discharge has been authorized.
Out-Patient Services. A Member is entitled free of charge to the following
services or benefits which shall be rendered or administered either in
[petitioner's] Clinic or in a Participating Hospital under the direction or
supervision of [petitioner's] Physician, Participating Physician or [petitioner's]
Medical Coordinator.
(a) Gold Plan Standard Annual Physical Examination on the anniversary date
of membership, to be done at [petitioner's] designated hospital/clinic, to wit:
(i) Taking a medical history
(ii) Physical examination
(iii) Chest x-ray
(iv) Stool examination
(v) Complete Blood Count
(vi) Urinalysis

(vii) Fasting Blood Sugar (FBS)
(viii) SGPT
(ix) Creatinine
(x) Uric Acid
(xi) Resting Electrocardiogram
(xii) Pap Smear (Optional for women 40 years and above)
(b) Platinum Family Plan/Gold Family Plan and Silver Annual Physical
Examination.
The following tests are to be done as part of the Member[']s Annual check-up
program at [petitioner's] designated clinic, to wit:
1) Routine Physical Examination
2) CBC (Complete Blood Count)
* Hemoglobin * Hematocrit
* Differential * RBC/WBC
3) Chest X-ray
4) Urinalysis
5) Fecalysis
(c) Preventive Health Care, which shall include:
(i) Periodic Monitoring of Health Problems
(ii) Family planning counseling
(iii) Consultation and advices on diet, exercise and other healthy habits
(iv) Immunization but excluding drugs for vaccines used
(d) Out-Patient Care, which shall include:
(i) Consultation, including specialist evaluation
(ii) Treatment of injury or illness
(iii) Necessary x-ray and laboratory examination
(iv) Emergency medicines needed for the immediate
relief of symptoms
(v) Minor surgery not requiring confinement
Emergency Care. Subject to the conditions and limitations in this Agreement
and those specified below, a Member is entitled to receive emergency care [in
case of emergency. For this purpose, all hospitals and all attending
physician(s) in the Emergency Room automatically become accredited. In
participating hospitals, the member shall be entitled to the following services
free of charge: (a) doctor's fees, (b) emergency room fees, (c) medicines used
for immediate relief and during treatment, (d) oxygen, intravenous fluids and
whole blood and human blood products, (e) dressings, casts and sutures and
(f) x-rays, laboratory and diagnostic examinations and other medical services
related to the emergency treatment of the patient.]5 Provided, however, that in
no case shall the total amount payable by [petitioner] for said Emergency,
inclusive of hospital bill and professional fees, exceed P75,000.00.
If the Member received care in a non-participating hospital, [petitioner] shall
reimburse [him]6 80% of the hospital bill or the amount of P5,000.00[,]
whichever is lesser, and 50% of the professional fees of non-participating
physicians based on [petitioner's] schedule of fees provided that the total
amount[,] inclusive of hospital bills and professional fee shall not exceed
P5,000.00.
On January 27, 2000, respondent Commissioner of Internal Revenue sent
petitioner a formal demand letter and the corresponding assessment notices
demanding the payment of deficiency taxes, including surcharges and interest,
for the taxable years 1996 and 1997 in the total amount of P224,702,641.18.
The assessment represented the following:
Value Added Tax (VAT) DST
1996 P 45,767,596.23 P 55,746,352.19
1997 54,738,434.03 68,450,258.73
P 100,506,030.26 P 124,196,610.92
Page 7 of 43
The deficiency DST assessment was imposed on petitioner's health care
agreement with the members of its health care program pursuant to Section
185 of the 1997 Tax Code which provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. - On all
policies of insurance or bonds or obligations of the nature of indemnity for loss,
damage, or liability made or renewed by any person, association or company
or corporation transacting the business of accident, fidelity, employer's liability,
plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other
branch of insurance (except life, marine, inland, and fire insurance), and all
bonds, undertakings, or recognizances, conditioned for the performance of the
duties of any office or position, for the doing or not doing of anything therein
specified, and on all obligations guaranteeing the validity or legality of any
bond or other obligations issued by any province, city, municipality, or other
public body or organization, and on all obligations guaranteeing the title to any
real estate, or guaranteeing any mercantile credits, which may be made or
renewed by any such person, company or corporation, there shall be collected
a documentary stamp tax of fifty centavos (P0.50) on each four pesos (P4.00),
or fractional part thereof, of the premium charged. (emphasis supplied)
Petitioner protested the assessment in a letter dated February 23, 2000. As
respondent did not act on the protest, petitioner filed a petition for review in the
Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT
and DST assessments.
On April 5, 2002, the CTA rendered a decision,7 the dispositive portion of
which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is
PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the deficiency
VAT amounting to P22,054,831.75 inclusive of 25% surcharge plus 20%
interest from January 20, 1997 until fully paid for the 1996 VAT deficiency and
P31,094,163.87 inclusive of 25% surcharge plus 20% interest from January
20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT Ruling
No. [231]-88 is declared void and without force and effect. The 1996 and 1997
deficiency DST assessment against petitioner is hereby CANCELLED AND
SET ASIDE. Respondent is ORDERED to DESIST from collecting the said
DST deficiency tax.
SO ORDERED.8
Respondent appealed the CTA decision to the CA9 insofar as it cancelled the
DST assessment. He claimed that petitioner's health care agreement was a
contract of insurance subject to DST under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision.10 It held that petitioner's
health care agreement was in the nature of a non-life insurance contract
subject to DST:
WHEREFORE, the petition for review is GRANTED. The Decision of the Court
of Tax Appeals, insofar as it cancelled and set aside the 1996 and 1997
deficiency documentary stamp tax assessment and ordered petitioner to desist
from collecting the same is REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19 and
P68,450,258.73 as deficiency Documentary Stamp Tax for 1996 and 1997,
respectively, plus 25% surcharge for late payment and 20% interest per
annum from January 27, 2000, pursuant to Sections 248 and 249 of the Tax
Code, until the same shall have been fully paid.
SO ORDERED.11
Petitioner moved for reconsideration but the CA denied it. Hence, this petition.
Petitioner essentially argues that its health care agreement is not a contract of
insurance but a contract for the provision on a prepaid basis of medical
services, including medical check-up, that are not based on loss or damage.
Petitioner also insists that it is not engaged in the insurance business. It is a
health maintenance organization regulated by the Department of Health, not
an insurance company under the jurisdiction of the Insurance Commission.
For these reasons, petitioner asserts that the health care agreement is not
subject to DST.
We do not agree.
The DST is levied on the exercise by persons of certain privileges conferred
by law for the creation, revision, or termination of specific legal relationships
through the execution of specific instruments.12 It is an excise upon the
privilege, opportunity, or facility offered at exchanges for the transaction of the
business.13 In particular, the DST under Section 185 of the 1997 Tax Code is
imposed on the privilege of making or renewing any policy of insurance
(except life, marine, inland and fire insurance), bond or obligation in the nature
of indemnity for loss, damage, or liability.
Under the law, a contract of insurance is an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event.14 The event insured
against must be designated in the contract and must either be unknown or
contingent.15
Petitioner's health care agreement is primarily a contract of indemnity. And in
the recent case of Blue Cross Healthcare, Inc. v. Olivares,16 this Court ruled
that a health care agreement is in the nature of a non-life insurance policy.
Contrary to petitioner's claim, its health care agreement is not a contract for
the provision of medical services. Petitioner does not actually provide medical
or hospital services but merely arranges for the same17 and pays for them up
to the stipulated maximum amount of coverage. It is also incorrect to say that
the health care agreement is not based on loss or damage because, under the
said agreement, petitioner assumes the liability and indemnifies its member for
hospital, medical and related expenses (such as professional fees of
physicians). The term "loss or damage" is broad enough to cover the monetary
expense or liability a member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and
professional services to the member in case of sickness, injury or emergency
or his availment of so-called "out-patient services" (including physical
examination, x-ray and laboratory tests, medical consultations, vaccine
administration and family planning counseling) is the contingent event which
gives rise to liability on the part of the member. In case of exposure of the
member to liability, he would be entitled to indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by
paying for expenses arising from the stipulated contingencies belies its claim
that its services are prepaid. The expenses to be incurred by each member
cannot be predicted beforehand, if they can be predicted at all. Petitioner
assumes the risk of paying for the costs of the services even if they are
significantly and substantially more than what the member has "prepaid."
Petitioner does not bear the costs alone but distributes or spreads them out
among a large group of persons bearing a similar risk, that is, among all the
other members of the health care program. This is insurance.
Petitioner's health care agreement is substantially similar to that involved in
Philamcare Health Systems, Inc. v. CA.18 The health care agreement in that
case entitled the subscriber to avail of the hospitalization benefits, whether
ordinary or emergency, listed therein. It also provided for "out-patient benefits"
such as annual physical examinations, preventive health care and other out-
patient services. This Court ruled in Philamcare Health Systems, Inc.:
[T]he insurable interest of [the subscriber] 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. Once the
member incurs hospital, medical or any other expense arising from sickness,
injury or other stipulated contingency, the health care provider must pay for the
same to the extent agreed upon under the contract.19 (emphasis supplied)
Similarly, the insurable interest of every member of petitioner's health care
program in obtaining the health care agreement is his own health. Under the
agreement, petitioner is bound to indemnify any member who incurs hospital,
medical or any other expense arising from sickness, injury or other stipulated
contingency to the extent agreed upon under the contract.
Petitioner's contention that it is a health maintenance organization and not an
insurance company is irrelevant. Contracts between companies like petitioner
and the beneficiaries under their plans are treated as insurance contracts.20
Moreover, DST is not a tax on the business transacted but an excise on the
privilege, opportunity, or facility offered at exchanges for the transaction of the
business.21 It is an excise on the facilities used in the transaction of the
business, separate and apart from the business itself.22
WHEREFORE, the petition is hereby DENIED. The August 16, 2004 decision
of the Court of Appeals in CA-G.R. SP No. 70479 is AFFIRMED.
Petitioner is ordered to pay the amounts of P55,746,352.19 and
P68,450,258.73 as deficiency documentary stamp tax for 1996 and 1997,
respectively, plus 25% surcharge for late payment and 20% interest per
annum from January 27, 2000 until full payment thereof.
Costs against petitioner.
SO ORDERED.
Puno, C.J., Chairperson, Carpio, Azcuna, Leonardo-de Castro, JJ., concur.
THIRD DIVISION
[G.R. No. 112360. July 18, 2000]
RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT OF
APPEALS and TRANSWORLD KNITTING MILLS, INC., respondents.
DECISION
PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeking to annul and set aside the July 15, 1993 Decision[1] and
October 22, 1993 Resolution[2] of the Court of Appeals[3] in CA-G.R. CV NO.
28779, which modified the Ruling[4] of the Regional Trial Court of Pasig,
Branch 161, in Civil Case No. 46106.
Page 8 of 43
The antecedent facts that matter are as follows:
On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance)
issued Fire Insurance Policy No. 45727 in favor of Transworld Knitting Mills,
Inc. (Transworld), initially for One Million (P1,000,000.00) Pesos and
eventually increased to One Million Five Hundred Thousand (P1,500,000.00)
Pesos, covering the period from August 14, 1980 to March 13, 1981.
Pertinent portions of subject policy on the buildings insured, and location
thereof, read:
"On stocks of finished and/or unfinished products, raw materials and supplies
of every kind and description, the properties of the Insureds and/or held by
them in trust, on commission or on joint account with others and/or for which
they (sic) responsible in case of loss whilst contained and/or stored during the
currency of this Policy in the premises occupied by them forming part of the
buildings situate (sic) within own Compound at MAGDALO STREET, BARRIO
UGONG, PASIG, METRO MANILA, PHILIPPINES, BLOCK NO. 601.
xxx...............xxx...............xxx
Said building of four-span lofty one storey in height with mezzanine portions is
constructed of reinforced concrete and hollow blocks and/or concrete under
galvanized iron roof and occupied as hosiery mills, garment and lingerie
factory, transistor-stereo assembly plant, offices, warehouse and caretaker's
quarters.
'Bounds in front partly by one-storey concrete building under galvanized iron
roof occupied as canteen and guardhouse, partly by building of two and partly
one storey constructed of concrete below, timber above undergalvanized iron
roof occupied as garage and quarters and partly by open space and/or
tracking/ packing, beyond which is the aforementioned Magdalo Street; on its
right and left by driveway, thence open spaces, and at the rear by open
spaces.'"[5]
The same pieces of property insured with the petitioner were also insured with
New India Assurance Company, Ltd., (New India).
On January 12, 1981, fire broke out in the compound of Transworld, razing the
middle portion of its four-span building and partly gutting the left and right
sections thereof. A two-storey building (behind said four-span building) where
fun and amusement machines and spare parts were stored, was also
destroyed by the fire.
Transworld filed its insurance claims with Rizal Surety & Insurance Company
and New India Assurance Company but to no avail.
On May 26, 1982, private respondent brought against the said insurance
companies an action for collection of sum of money and damages, docketed
as Civil Case No. 46106 before Branch 161 of the then Court of First Instance
of Rizal; praying for judgment ordering Rizal Insurance and New India to pay
the amount of P2,747, 867.00 plus legal interest, P400,000.00 as attorney's
fees, exemplary damages, expenses of litigation of P50,000.00 and costs of
suit.[6]
Petitioner Rizal Insurance countered that its fire insurance policy sued upon
covered only the contents of the four-span building, which was partly burned,
and not the damage caused by the fire on the two-storey annex building.[7]
On January 4, 1990, the trial court rendered its decision; disposing as follows:
"ACCORDINGLY, judgment is hereby rendered as follows:
(1)Dismissing the case as against The New India Assurance Co., Ltd.;
(2) Ordering defendant Rizal Surety And Insurance Company to pay
Transwrold (sic) Knitting Mills, Inc. the amount of P826, 500.00 representing
the actual value of the losses suffered by it; and
(3) Cost against defendant Rizal Surety and Insurance Company.
SO ORDERED."[8]
Both the petitioner, Rizal Insurance Company, and private respondent,
Transworld Knitting Mills, Inc., went to the Court of Appeals, which came out
with its decision of July 15, 1993 under attack, the decretal portion of which
reads:
"WHEREFORE, and upon all the foregoing, the decision of the court below is
MODIFIED in that defendant New India Assurance Company has and is
hereby required to pay plaintiff-appellant the amount of P1,818,604.19 while
the other Rizal Surety has to pay the plaintiff-appellant P470,328.67, based on
the actual losses sustained by plaintiff Transworld in the fire, totalling
P2,790,376.00 as against the amounts of fire insurance coverages
respectively extended by New India in the amount of P5,800,000.00 and Rizal
Surety and Insurance Company in the amount of P1,500,000.00.
No costs.
SO ORDERED."[9]
On August 20, 1993, from the aforesaid judgment of the Court of Appeals New
India appealed to this Court theorizing inter alia that the private respondent
could not be compensated for the loss of the fun and amusement machines
and spare parts stored at the two-storey building because it (Transworld) had
no insurable interest in said goods or items.
On February 2, 1994, the Court denied the appeal with finality in G.R. No. L-
111118 (New India Assurance Company Ltd. vs. Court of Appeals).
Petitioner Rizal Insurance and private respondent Transworld, interposed a
Motion for Reconsideration before the Court of Appeals, and on October 22,
1993, the Court of Appeals reconsidered its decision of July 15, 1993, as
regards the imposition of interest, ruling thus:
"WHEREFORE, the Decision of July 15, 1993 is amended but only insofar as
the imposition of legal interest is concerned, that, on the assessment against
New India Assurance Company on the amount of P1,818,604.19 and that
against Rizal Surety & Insurance Company on the amount of P470,328.67,
from May 26, 1982 when the complaint was filed until payment is made. The
rest of the said decision is retained in all other respects.
SO ORDERED."[10]
Undaunted, petitioner Rizal Surety & Insurance Company found its way to this
Court via the present Petition, contending that:
I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT THE ANNEX
BUILDING WHERE THE BULK OF THE BURNED PROPERTIES WERE
STORED, WAS INCLUDED IN THE COVERAGE OF THE INSURANCE
POLICY ISSUED BY RIZAL SURETY TO TRANSWORLD.
II.....SAID DECISION AND RESOLUTION (ANNEXES A AND B) ERRED IN
NOT CONSIDERING THE PICTURES (EXHS. 3 TO 7-C-RIZAL SURETY),
TAKEN IMMEDIATELY AFTER THE FIRE, WHICH CLEARLY SHOW THAT
THE PREMISES OCCUPIED BY TRANSWORLD, WHERE THE INSURED
PROPERTIES WERE LOCATED, SUSTAINED PARTIAL DAMAGE ONLY.
III. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING THAT
TRANSWORLD HAD ACTED IN PALPABLE BAD FAITH AND WITH MALICE
IN FILING ITS CLEARLY UNFOUNDED CIVIL ACTION, AND IN NOT
ORDERING TRANSWORLD TO PAY TO RIZAL SURETY MORAL AND
PUNITIVE DAMAGES (ART. 2205, CIVIL CODE), PLUS ATTORNEY'S FEES
AND EXPENSES OF LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL
CODE).[11]
The Petition is not impressed with merit.
It is petitioner's submission that the fire insurance policy litigated upon
protected only the contents of the main building (four-span),[12] and did not
include those stored in the two-storey annex building. On the other hand, the
private respondent theorized that the so called "annex" was not an annex but
was actually an integral part of the four-span building[13] and therefore, the
goods and items stored therein were covered by the same fire insurance
policy.
Resolution of the issues posited here hinges on the proper interpretation of the
stipulation in subject fire insurance policy regarding its coverage, which reads:
"xxx contained and/or stored during the currency of this Policy in the premises
occupied by them forming part of the buildings situate (sic) within own
Compound xxx"
Therefrom, it can be gleaned unerringly that the fire insurance policy in
question did not limit its coverage to what were stored in the four-span
building. As opined by the trial court of origin, two requirements must concur in
order that the said fun and amusement machines and spare parts would be
deemed protected by the fire insurance policy under scrutiny, to wit:
"First, said properties must be contained and/or stored in the areas occupied
by Transworld and second, said areas must form part of the building described
in the policy xxx"[14]
'Said building of four-span lofty one storey in height with mezzanine portions is
constructed of reinforced concrete and hollow blocks and/or concrete under
galvanized iron roof and occupied as hosiery mills, garment and lingerie
factory, transistor-stereo assembly plant, offices, ware house and caretaker's
quarter.'
The Court is mindful of the well-entrenched doctrine that factual findings by the
Court of Appeals are conclusive on the parties and not reviewable by this
Court, and the same carry even more weight when the Court of Appeals has
affirmed the findings of fact arrived at by the lower court.[15]
In the case under consideration, both the trial court and the Court of Appeals
found that the so called "annex " was not an annex building but an integral and
inseparable part of the four-span building described in the policy and
consequently, the machines and spare parts stored therein were covered by
the fire insurance in dispute. The letter-report of the Manila Adjusters and
Surveyor's Company, which petitioner itself cited and invoked, describes the
"annex" building as follows:
Page 9 of 43
"Two-storey building constructed of partly timber and partly concrete hollow
blocks under g.i. roof which is adjoining and intercommunicating with the
repair of the first right span of the lofty storey building and thence by property
fence wall."[16]
Verily, the two-storey building involved, a permanent structure which adjoins
and intercommunicates with the "first right span of the lofty storey
building",[17] formed part thereof, and meets the requisites for compensability
under the fire insurance policy sued upon.
So also, considering that the two-storey building aforementioned was already
existing when subject fire insurance policy contract was entered into on
January 12, 1981, having been constructed sometime in 1978,[18] petitioner
should have specifically excluded the said two-storey building from the
coverage of the fire insurance if minded to exclude the same but if did not, and
instead, went on to provide that such fire insurance policy covers the products,
raw materials and supplies stored within the premises of respondent
Transworld which was an integral part of the four-span building occupied by
Transworld, knowing fully well the existence of such building adjoining and
intercommunicating with the right section of the four-span building.
After a careful study, the Court does not find any basis for disturbing what the
lower courts found and arrived at.
Indeed, the stipulation as to the coverage of the fire insurance policy under
controversy has created a doubt regarding the portions of the building insured
thereby. Article 1377 of the New Civil Code provides:
"Art.1377. The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity"
Conformably, it stands to reason that the doubt should be resolved against the
petitioner, Rizal Surety Insurance Company, whose lawyer or managers
drafted the fire insurance policy contract under scrutiny. Citing the aforecited
provision of law in point, the Court in Landicho vs. Government Service
Insurance System,[19] ruled:
"This is particularly true as regards insurance policies, in respect of which it is
settled that the 'terms in an insurance policy, which are ambiguous, equivocal,
or uncertain x x x are to be construed strictly and most strongly against the
insurer, and liberally in favor of the insured so as to effect the dominant
purpose of indemnity or payment to the insured, especially where forfeiture is
involved' (29 Am. Jur., 181), and the reason for this is that the 'insured usually
has no voice in the selection or arrangement of the words employed and that
the language of the contract is selected with great care and deliberation by
experts and legal advisers employed by, and acting exclusively in the interest
of, the insurance company.' (44 C.J.S., p. 1174).""[20]
Equally relevant is the following disquisition of the Court in Fieldmen's
Insurance Company, Inc. vs. Vda. De Songco,[21] to wit:
"'This rigid application of the rule on ambiguities has become necessary in
view of current business practices. The courts cannot ignore that nowadays
monopolies, cartels and concentration of capital, endowed with overwhelming
economic power, manage to impose upon parties dealing with them cunningly
prepared 'agreements' that the weaker party may not change one whit, his
participation in the 'agreement' being reduced to the alternative to 'take it or
leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats
[sic] d'adhesion), in contrast to these entered into by parties bargaining on an
equal footing, such contracts (of which policies of insurance and international
bills of lading are prime example) obviously call for greater strictness and
vigilance on the part of courts of justice with a view to protecting the weaker
party from abuses and imposition, and prevent their becoming traps for the
unwary (New Civil Code, Article 24; Sent. of Supreme Court of Spain, 13 Dec.
1934, 27 February 1942.)'"[22]
The issue of whether or not Transworld has an insurable interest in the fun
and amusement machines and spare parts, which entitles it to be indemnified
for the loss thereof, had been settled in G.R. No. L-111118, entitled New India
Assurance Company, Ltd., vs. Court of Appeals, where the appeal of New
India from the decision of the Court of Appeals under review, was denied with
finality by this Court on February 2, 1994.
The rule on conclusiveness of judgment, which obtains under the premises,
precludes the relitigation of a particular fact or issue in another action between
the same parties based on a different claim or cause of action. "xxx the
judgment in the prior action operates as estoppel only as to those matters in
issue or points controverted, upon the determination of which the finding or
judgment was rendered. In fine, the previous judgment is conclusive in the
second case, only as those matters actually and directly controverted and
determined and not as to matters merely involved therein."[23]
Applying the abovecited pronouncement, the Court, in Smith Bell and
Company (Phils.), Inc. vs. Court of Appeals,[24] held that the issue of
negligence of the shipping line, which issue had already been passed upon in
a case filed by one of the insurers, is conclusive and can no longer be
relitigated in a similar case filed by another insurer against the same shipping
line on the basis of the same factual circumstances. Ratiocinating further, the
Court opined:
"In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai Maru') had
been negligent, or so negligent as to have proximately caused the collision
between them, was an issue that was actually, directly and expressly raised,
controverted and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J., resolved
that issue in his Decision and held the 'Don Carlos' to have been negligent
rather than the 'Yotai Maru' and, as already noted, that Decision was affirmed
by this Court in G.R. No. L-48839 in a Resolution dated 6 December 1987.
The Reyes Decision thus became final and executory approximately two (2)
years before the Sison Decision, which is assailed in the case at bar, was
promulgated. Applying the rule of conclusiveness of judgment, the question of
which vessel had been negligent in the collision between the two (2) vessels,
had long been settled by this Court and could no longer be relitigated in C.A.-
G.R. No. 61206-R. Private respondent Go Thong was certainly bound by the
ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of
Appeals fell into clear and reversible error when it disregarded the Decision of
this Court affirming the Reyes Decision."[25]
The controversy at bar is on all fours with the aforecited case. Considering that
private respondent's insurable interest in, and compensability for the loss of
subject fun and amusement machines and spare parts, had been adjudicated,
settled and sustained by the Court of Appeals in CA-G.R. CV NO. 28779, and
by this Court in G.R. No. L-111118, in a Resolution, dated February 2, 1994,
the same can no longer be relitigated and passed upon in the present case.
Ineluctably, the petitioner, Rizal Surety Insurance Company, is bound by the
ruling of the Court of Appeals and of this Court that the private respondent has
an insurable interest in the aforesaid fun and amusement machines and spare
parts; and should be indemnified for the loss of the same.
So also, the Court of Appeals correctly adjudged petitioner liable for the
amount of P470,328.67, it being the total loss and damage suffered by
Transworld for which petitioner Rizal Insurance is liable.[26]
All things studiedly considered and viewed in proper perspective, the Court is
of the irresistible conclusion, and so finds, that the Court of Appeals erred not
in holding the petitioner, Rizal Surety Insurance Company, liable for the
destruction and loss of the insured buildings and articles of the private
respondent.
WHEREFORE, the Decision, dated July 15, 1993, and the Resolution, dated
October 22, 1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are
AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 169737 February 12, 2008
BLUE CROSS HEALTH CARE, INC., petitioner,
vs.
NEOMI* and DANILO OLIVARES, respondents.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 and resolution3 of the
Court of Appeals (CA) dated July 29, 2005 and September 21, 2005,
respectively, in CA-G.R. SP No. 84163 which affirmed the decision of the
Regional Trial Court (RTC), Makati City, Branch 61 dated February 2, 2004 in
Civil Case No. 03-1153,4 which in turn reversed the decision of the
Metropolitan Trial Court (MeTC), Makati City, Branch 66 dated August 5, 2003
in Civil Case No. 80867.5
Respondent Neomi T. Olivares applied for a health care program with
petitioner Blue Cross Health Care, Inc., a health maintenance firm. For the
period October 16, 2002 to October 15, 2003,6 she paid the amount of
P11,117. For the same period, she also availed of the additional service of
limitless consultations for an additional amount of P1,000. She paid these
amounts in full on October 17, 2002. The application was approved on
October 22, 2002. In the health care agreement, ailments due to "pre-existing
conditions" were excluded from the coverage.7
On November 30, 2002, or barely 38 days from the effectivity of her health
insurance, respondent Neomi suffered a stroke and was admitted at the
Medical City which was one of the hospitals accredited by petitioner. During
her confinement, she underwent several laboratory tests. On December 2,
2002, her attending physician, Dr. Edmundo Saniel,8 informed her that she
could be discharged from the hospital. She incurred hospital expenses
amounting to P34,217.20. Consequently, she requested from the
representative of petitioner at Medical City a letter of authorization in order to
settle her medical bills. But petitioner refused to issue the letter and
suspended payment pending the submission of a certification from her
attending physician that the stroke she suffered was not caused by a pre-
existing condition.9
Page 10 of 43
She was discharged from the hospital on December 3, 2002. On December 5,
2002, she demanded that petitioner pay her medical bill. When petitioner still
refused, she and her husband, respondent Danilo Olivares, were constrained
to settle the bill.10 They thereafter filed a complaint for collection of sum of
money against petitioner in the MeTC on January 8, 2003.11 In its answer
dated January 24, 2003, petitioner maintained that it had not yet denied
respondents' claim as it was still awaiting Dr. Saniel's report.
In a letter to petitioner dated February 14, 2003, Dr. Saniel stated that:
This is in response to your letter dated February 13, 2003. [Respondent]
Neomi T. Olivares called by phone on January 29, 2003. She stated that she
is invoking patient-physician confidentiality. That she no longer has any
relationship with [petitioner]. And that I should not release any medical
information concerning her neurologic status to anyone without her approval.
Hence, the same day I instructed my secretary to inform your office thru Ms.
Bernie regarding [respondent's] wishes.
xxx xxx xxx12
In a decision dated August 5, 2003, the MeTC dismissed the complaint for lack
of cause of action. It held:
xxx the best person to determine whether or not the stroke she suffered was
not caused by "pre-existing conditions" is her attending physician Dr. Saniel
who treated her and conducted the test during her confinement. xxx But since
the evidence on record reveals that it was no less than [respondent Neomi]
herself who prevented her attending physician from issuing the required
certification, petitioner cannot be faulted from suspending payment of her
claim, for until and unless it can be shown from the findings made by her
attending physician that the stroke she suffered was not due to pre-existing
conditions could she demand entitlement to the benefits of her policy.13
On appeal, the RTC, in a decision dated February 2, 2004, reversed the ruling
of the MeTC and ordered petitioner to pay respondents the following amounts:
(1) P34,217.20 representing the medical bill in Medical City and P1,000 as
reimbursement for consultation fees, with legal interest from the filing of the
complaint until fully paid; (2) P20,000 as moral damages; (3) P20,000 as
exemplary damages; (4) P20,000 as attorney's fees and (5) costs of suit.14
The RTC held that it was the burden of petitioner to prove that the stroke of
respondent Neomi was excluded from the coverage of the health care
program for being caused by a pre-existing condition. It was not able to
discharge that burden.15
Aggrieved, petitioner filed a petition for review under Rule 42 of the Rules of
Court in the CA. In a decision promulgated on July 29, 2005, the CA affirmed
the decision of the RTC. It denied reconsideration in a resolution promulgated
on September 21, 2005. Hence this petition which raises the following issues:
(1) whether petitioner was able to prove that respondent Neomi's stroke was
caused by a pre-existing condition and therefore was excluded from the
coverage of the health care agreement and (2) whether it was liable for moral
and exemplary damages and attorney's fees.
The health care agreement defined a "pre-existing condition" as:
x x x a disability which existed before the commencement date of membership
whose natural history can be clinically determined, whether or not the Member
was aware of such illness or condition. Such conditions also include
disabilities existing prior to reinstatement date in the case of lapse of an
Agreement. Notwithstanding, the following disabilities but not to the exclusion
of others are considered pre-existing conditions including their complications
when occurring during the first year of a Member’s coverage:
I. Tumor of Internal Organs
II. Hemorrhoids/Anal Fistula
III. Diseased tonsils and sinus conditions requiring surgery
IV. Cataract/Glaucoma
V. Pathological Abnormalities of nasal septum or turbinates
VI. Goiter and other thyroid disorders
VII. Hernia/Benign prostatic hypertrophy
VIII. Endometriosis
IX. Asthma/Chronic Obstructive Lung disease
X. Epilepsy
XI. Scholiosis/Herniated disc and other Spinal column abnormalities
XII. Tuberculosis
XIII. Cholecysitis
XIV. Gastric or Duodenal ulcer
XV. Hallux valgus
XVI. Hypertension and other Cardiovascular diseases
XVII. Calculi
XVIII. Tumors of skin, muscular tissue, bone or any form of blood dyscracias
XIX. Diabetes Mellitus
XX. Collagen/Auto-Immune disease
After the Member has been continuously covered for 12 months, this pre-
existing provision shall no longer be applicable except for illnesses specifically
excluded by an endorsement and made part of this Agreement.16
Under this provision, disabilities which existed before the commencement of
the agreement are excluded from its coverage if they become manifest within
one year from its effectivity. Stated otherwise, petitioner is not liable for pre-
existing conditions if they occur within one year from the time the agreement
takes effect.
Petitioner argues that respondents prevented Dr. Saniel from submitting his
report regarding the medical condition of Neomi. Hence, it contends that the
presumption that evidence willfully suppressed would be adverse if produced
should apply in its favor.17
Respondents counter that the burden was on petitioner to prove that Neomi's
stroke was excluded from the coverage of their agreement because it was due
to a pre-existing condition. It failed to prove this.18
We agree with respondents.
In Philamcare Health Systems, Inc. v. CA,19 we ruled that a health care
agreement is in the nature of a non-life insurance.20 It is an established rule in
insurance contracts that when their terms contain limitations on liability, they
should be construed strictly against the insurer. These are contracts of
adhesion the terms of which must be interpreted and enforced stringently
against the insurer which prepared the contract. This doctrine is equally
applicable to health care agreements.21
Petitioner never presented any evidence to prove that respondent Neomi's
stroke was due to a pre-existing condition. It merely speculated that Dr.
Saniel's report would be adverse to Neomi, based on her invocation of the
doctor-patient privilege. This was a disputable presumption at best.
Section 3 (e), Rule 131 of the Rules of Court states:
Sec. 3. Disputable presumptions. ― The following presumptions are
satisfactory if uncontradicted, but may be contradicted and overcome by other
evidence:
xxx xxx xxx
(e) That evidence willfully suppressed would be adverse if produced.
Suffice it to say that this presumption does not apply if (a) the evidence is at
the disposal of both parties; (b) the suppression was not willful; (c) it is merely
corroborative or cumulative and (d) the suppression is an exercise of a
privilege.22 Here, respondents' refusal to present or allow the presentation of
Dr. Saniel's report was justified. It was privileged communication between
physician and patient.
Furthermore, as already stated, limitations of liability on the part of the insurer
or health care provider must be construed in such a way as to preclude it from
evading its obligations. Accordingly, they should be scrutinized by the courts
with "extreme jealousy"23 and "care" and with a "jaundiced eye."24 Since
petitioner had the burden of proving exception to liability, it should have made
its own assessment of whether respondent Neomi had a pre-existing condition
when it failed to obtain the attending physician's report. It could not just
passively wait for Dr. Saniel's report to bail it out. The mere reliance on a
disputable presumption does not meet the strict standard required under our
jurisprudence.
Next, petitioner argues that it should not be held liable for moral and
exemplary damages, and attorney's fees since it did not act in bad faith in
denying respondent Neomi's claim. It insists that it waited in good faith for Dr.
Saniel's report and that, based on general medical findings, it had reasonable
ground to believe that her stroke was due to a pre-existing condition,
considering it occurred only 38 days after the coverage took effect.25
We disagree.
The RTC and CA found that there was a factual basis for the damages
adjudged against petitioner. They found that it was guilty of bad faith in
denying a claim based merely on its own perception that there was a pre-
existing condition:
[Respondents] have sufficiently shown that [they] were forced to engage in a
dispute with [petitioner] over a legitimate claim while [respondent Neomi was]
still experiencing the effects of a stroke and forced to pay for her medical bills
during and after her hospitalization despite being covered by [petitioner’s]
Page 11 of 43
health care program, thereby suffering in the process extreme mental anguish,
shock, serious anxiety and great stress. [They] have shown that because of
the refusal of [petitioner] to issue a letter of authorization and to pay
[respondent Neomi's] hospital bills, [they had] to engage the services of
counsel for a fee of P20,000.00. Finally, the refusal of petitioner to pay
respondent Neomi's bills smacks of bad faith, as its refusal [was] merely
based on its own perception that a stroke is a pre-existing condition.
(emphasis supplied)
This is a factual matter binding and conclusive on this Court.26 We see no
reason to disturb these findings.
WHEREFORE, the petition is hereby DENIED. The July 29, 2005 decision and
September 21, 2005 resolution of the Court of Appeals in CA-G.R. SP No.
84163 are AFFIRMED.
Treble costs against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 115278 May 23, 1995
FORTUNE INSURANCE AND SURETY CO., INC., petitioner,
vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES,
respondents.
DAVIDE, JR., J.:
The fundamental legal issue raised in this petition for review on certiorari is
whether the petitioner is liable under the Money, Security, and Payroll Robbery
policy it issued to the private respondent or whether recovery thereunder is
precluded under the general exceptions clause thereof. Both the trial court and
the Court of Appeals held that there should be recovery. The petitioner
contends otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati,
Metro Manila, by private respondent Producers Bank of the Philippines
(hereinafter Producers) against petitioner Fortune Insurance and Surety Co.,
Inc. (hereinafter Fortune) of a complaint for recovery of the sum of
P725,000.00 under the policy issued by Fortune. The sum was allegedly lost
during a robbery of Producer's armored vehicle while it was in transit to
transfer the money from its Pasay City Branch to its head office in Makati. The
case was docketed as Civil Case No. 1817 and assigned to Branch 146
thereof.
After joinder of issues, the parties asked the trial court to render judgment
based on the following stipulation of facts:
1. The plaintiff was insured by the defendants and an insurance
policy was issued, the duplicate original of which is hereto attached as Exhibit
"A";
2. An armored car of the plaintiff, while in the process of transferring
cash in the sum of P725,000.00 under the custody of its teller, Maribeth
Alampay, from its Pasay Branch to its Head Office at 8737 Paseo de Roxas,
Makati, Metro Manila on June 29, 1987, was robbed of the said cash. The
robbery took place while the armored car was traveling along Taft Avenue in
Pasay City;
3. The said armored car was driven by Benjamin Magalong Y de
Vera, escorted by Security Guard Saturnino Atiga Y Rosete. Driver Magalong
was assigned by PRC Management Systems with the plaintiff by virtue of an
Agreement executed on August 7, 1983, a duplicate original copy of which is
hereto attached as Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn Security
Services, Inc. with the plaintiff by virtue of a contract of Security Service
executed on October 25, 1982, a duplicate original copy of which is hereto
attached as Exhibit "C";
5. After an investigation conducted by the Pasay police authorities,
the driver Magalong and guard Atiga were charged, together with Edelmer
Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532
(Anti-Highway Robbery Law) before the Fiscal of Pasay City. A copy of the
complaint is hereto attached as Exhibit "D";
6. The Fiscal of Pasay City then filed an information charging the
aforesaid persons with the said crime before Branch 112 of the Regional Trial
Court of Pasay City. A copy of the said information is hereto attached as
Exhibit "E." The case is still being tried as of this date;
7. Demands were made by the plaintiff upon the defendant to pay the
amount of the loss of P725,000.00, but the latter refused to pay as the loss is
excluded from the coverage of the insurance policy, attached hereto as Exhibit
"A," specifically under page 1 thereof, "General Exceptions" Section (b), which
is marked as Exhibit "A-1," and which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
xxx 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. . . .
8. The plaintiff opposes the contention of the defendant and contends
that Atiga and Magalong are not its "officer, employee, . . . trustee or
authorized representative . . . at the time of the robbery.1
On 26 April 1990, the trial court rendered its decision in favor of Producers.
The dispositive portion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and against
defendant, and
(a) orders defendant to pay plaintiff the net amount of P540,000.00 as
liability under Policy No. 0207 (as mitigated by the P40,000.00 special clause
deduction and by the recovered sum of P145,000.00), with interest thereon at
the legal rate, until fully paid;
(b) orders defendant to pay plaintiff the sum of P30,000.00 as and for
attorney's fees; and
(c) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or
representatives of Producers. It Said:
The Court is satisfied that plaintiff may not be said to have selected and
engaged Magalong and Atiga, their services as armored car driver and as
security guard having been merely offered by PRC Management and by
Unicorn Security and which latter firms assigned them to plaintiff. The wages
and salaries of both Magalong and Atiga are presumably paid by their
respective firms, which alone wields the power to dismiss them. Magalong and
Atiga are assigned to plaintiff in fulfillment of agreements to provide driving
services and property protection as such — in a context which does not
impress the Court as translating into plaintiff's power to control the conduct of
any assigned driver or security guard, beyond perhaps entitling plaintiff to
request are replacement for such driver guard. The finding is accordingly
compelled that neither Magalong nor Atiga were plaintiff's "employees" in
avoidance of defendant's liability under the policy, particularly the general
exceptions therein embodied.
Neither is the Court prepared to accept the proposition that driver Magalong
and guard Atiga were the "authorized representatives" of plaintiff. They were
merely an assigned armored car driver and security guard, respectively, for
the June 29, 1987 money transfer from plaintiff's Pasay Branch to its Makati
Head Office. Quite plainly — it was teller Maribeth Alampay who had "custody"
of the P725,000.00 cash being transferred along a specified money route, and
hence plaintiff's then designated "messenger" adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the
case as CA-G.R. CV No. 32946. In its decision 4 promulgated on 3 May 1994,
it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that
Magalong and Atiga were neither employees nor authorized representatives of
Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor of the
insured and strictly against the insurance company (New Life Enterprises vs.
Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of
Appeals, 211 SCRA 554). Contracts of insurance, like other contracts, are to
be construed according to the sense and meaning of the terms which the
parties themselves have used. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular sense (New
Life Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of
Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted stipulation is
plain, ordinary and simple. No other interpretation is necessary. The word
"employee" must be taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing with/and specifically
designed to protect labor and therefore its definition as to employer-employee
relationships insofar as the application/enforcement of said Code is concerned
Page 12 of 43
must necessarily be inapplicable to an insurance contract which defendant-
appellant itself had formulated. Had it intended to apply the Labor Code in
defining what the word "employee" refers to, it must/should have so stated
expressly in the insurance policy.
Said driver and security guard cannot be considered as employees of plaintiff-
appellee bank because it has no power to hire or to dismiss said driver and
security guard under the contracts (Exhs. 8 and C) except only to ask for their
replacements from the contractors.5
On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges
that the trial court and the Court of Appeals erred in holding it liable under the
insurance policy because the loss falls within the general exceptions clause
considering that driver Magalong and security guard Atiga were Producers'
authorized representatives or employees in the transfer of the money and
payroll from its branch office in Pasay City to its head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver to
transfer its funds from one branch to another, they effectively and necessarily
became its authorized representatives in the care and custody of the money.
Assuming that they could not be considered authorized representatives, they
were, nevertheless, employees of Producers. It asserts that the existence of
an employer-employee relationship "is determined by law and being such, it
cannot be the subject of agreement." Thus, if there was in reality an employer-
employee relationship between Producers, on the one hand, and Magalong
and Atiga, on the other, the provisions in the contracts of Producers with PRC
Management System for Magalong and with Unicorn Security Services for
Atiga which state that Producers is not their employer and that it is absolved
from any liability as an employer, would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon four
standards: (1) the manner of selection and engagement of the putative
employee; (2) the mode of payment of wages; (3) the presence or absence of
a power to dismiss; and (4) the presence and absence of a power to control
the putative employee's conduct. Of the four, the right-of-control test has been
held to be the decisive factor. 6 It asserts that the power of control over
Magalong and Atiga was vested in and exercised by Producers. Fortune
further insists that PRC Management System and Unicorn Security Services
are but "labor-only" contractors under Article 106 of the Labor Code which
provides:
Art. 106. Contractor or subcontractor. — There is "labor-only" contracting
where the person supplying workers to an employer does not have substantial
capital or investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by such
persons are performing activities which are directly related to the principal
business of such employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be responsible to
the workers in the same manner and extent as if the latter were directly
employed by him.
Fortune thus contends that Magalong and Atiga were employees of
Producers, following the ruling in International Timber Corp. vs. NLRC 7 that a
finding that a contractor is a "labor-only" contractor is equivalent to a finding
that there is an employer-employee relationship between the owner of the
project and the employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not its
employees since it had nothing to do with their selection and engagement, the
payment of their wages, their dismissal, and the control of their conduct.
Producers argued that the rule in International Timber Corp. is not applicable
to all cases but only when it becomes necessary to prevent any violation or
circumvention of the Labor Code, a social legislation whose provisions may
set aside contracts entered into by parties in order to give protection to the
working man.
Producers further asseverates that what should be applied is the rule in
American President Lines vs. Clave, 8 to wit:
In determining the existence of employer-employee relationship, the following
elements are generally considered, namely: (1) the selection and engagement
of the employee; (2) the payment of wages; (3) the power of dismissal; and (4)
the power to control the employee's conduct.
Since under Producers' contract with PRC Management Systems it is the
latter which assigned Magalong as the driver of Producers' armored car and
was responsible for his faithful discharge of his duties and responsibilities, and
since Producers paid the monthly compensation of P1,400.00 per driver to
PRC Management Systems and not to Magalong, it is clear that Magalong
was not Producers' employee. As to Atiga, Producers relies on the provision of
its contract with Unicorn Security Services which provides that the guards of
the latter "are in no sense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a
theft or robbery insurance policy which is a form of casualty insurance. Section
174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising
from accident or mishap, excluding certain types of loss which by law or
custom are considered as falling exclusively within the scope of insurance
such as fire or marine. It includes, but is not limited to, employer's liability
insurance, public liability insurance, motor vehicle liability insurance, plate
glass insurance, burglary and theft insurance, personal accident and health
insurance as written by non-life insurance companies, and other substantially
similar kinds of insurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability insurance, the
Insurance Code contains no other provisions applicable to casualty insurance
or to robbery insurance in particular. These contracts are, therefore, governed
by the general provisions applicable to all types of insurance. Outside of these,
the rights and obligations of the parties must be determined by the terms of
their contract, taking into consideration its purpose and always in accordance
with the general principles of insurance law. 9
It has been aptly observed that in burglary, robbery, and theft insurance, "the
opportunity to defraud the insurer — the moral hazard — is so great that
insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured against." 10 Persons
frequently excluded under such provisions are those in the insured's service
and employment. 11 The purpose of the exception is to guard against liability
should the theft be committed by one having unrestricted access to the
property. 12 In such cases, the terms specifying the excluded classes are to
be given their meaning as understood in common speech. 13 The terms
"service" and "employment" are generally associated with the idea of
selection, control, and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity therein
should be resolved against the insurer, 15 or it should be construed liberally in
favor of the insured and strictly against the insurer. 16 Limitations of liability
should be regarded with extreme jealousy and must be construed
in such a way, as to preclude the insurer from non-compliance with its
obligation. 17 It goes without saying then that if the terms of the contract are
clear and unambiguous, there is no room for construction and such terms
cannot be enlarged or diminished by judicial construction. 18
An insurance contract is a contract of indemnity upon the terms and conditions
specified therein. 19 It is settled that the terms of the policy constitute the
measure of the insurer's liability. 20 In the absence of statutory prohibition to
the contrary, insurance companies have the same rights as individuals to limit
their liability and to impose whatever conditions they deem best upon their
obligations not inconsistent with public policy.
With the foregoing principles in mind, it may now be asked whether Magalong
and Atiga qualify as employees or authorized representatives of Producers
under paragraph (b) of the general exceptions clause of the policy which, for
easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx 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
Fortune claims that Producers' contracts with PRC Management Systems and
Unicorn Security Services are "labor-only" contracts.
Producers, however, insists that by the express terms thereof, it is not the
employer of Magalong. Notwithstanding such express assumption of PRC
Management Systems and Unicorn Security Services that the drivers and the
security guards each shall supply to Producers are not the latter's employees,
it may, in fact, be that it is because the contracts are, indeed, "labor-only"
contracts. Whether they are is, in the light of the criteria provided for in Article
106 of the Labor Code, a question of fact. Since the parties opted to submit
the case for judgment on the basis of their stipulation of facts which are strictly
limited to the insurance policy, the contracts with PRC Management Systems
and Unicorn Security Services, the complaint for violation of P.D. No. 532, and
the information therefor filed by the City Fiscal of Pasay City, there is a paucity
of evidence as to whether the contracts between Producers and PRC
Management Systems and Unicorn Security Services are "labor-only"
contracts.
Page 13 of 43
But even granting for the sake of argument that these contracts were not
"labor-only" contracts, and PRC Management Systems and Unicorn Security
Services were truly independent contractors, we are satisfied that Magalong
and Atiga were, in respect of the transfer of Producer's money from its Pasay
City branch to its head office in Makati, its "authorized representatives" who
served as such with its teller Maribeth Alampay. Howsoever viewed,
Producers entrusted the three with the specific duty to safely transfer the
money to its head office, with Alampay to be responsible for its custody in
transit; Magalong to drive the armored vehicle which would carry the money;
and Atiga to provide the needed security for the money, the vehicle, and his
two other companions. In short, for these particular tasks, the three acted as
agents of Producers. A "representative" is defined as one who represents or
stands in the place of another; one who represents others or another in a
special capacity, as an agent, and is interchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the general
exceptions clause of the insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of the
Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that
of Branch 146 of the Regional Trial Court of Makati in Civil Case No. 1817 are
REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is
DISMISSED.
No pronouncement as to costs.
SO ORDERED.
Bellosillo and Kapunan, JJ., concur.
Padilla, J., took no part.
Quiason, J., is on leave.
SECOND DIVISION
G.R. No. 156167 May 16, 2005
GULF RESORTS, INC., petitioner,
vs.
PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.
DECISION
PUNO, J.:
Before the Court is the petition for certiorari under Rule 45 of the Revised
Rules of Court by petitioner GULF RESORTS, INC., against respondent
PHILIPPINE CHARTER INSURANCE CORPORATION. Petitioner assails the
appellate court decision1 which dismissed its two appeals and affirmed the
judgment of the trial court.
For review are the warring interpretations of petitioner and respondent on the
scope of the insurance company’s liability for earthquake damage to
petitioner’s properties. Petitioner avers that, pursuant to its earthquake shock
endorsement rider, Insurance Policy No. 31944 covers all damages to the
properties within its resort caused by earthquake. Respondent contends that
the rider limits its liability for loss to the two swimming pools of petitioner.
The facts as established by the court a quo, and affirmed by the appellate
court are as follows:
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had
its properties in said resort insured originally with the American Home
Assurance Company (AHAC-AIU). In the first four insurance policies issued by
AHAC-AIU from 1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs. "C", "D",
"E" and "F"; also Exhs. "1", "2", "3" and "4" respectively), the risk of loss from
earthquake shock was extended only to plaintiff’s two swimming pools, thus,
"earthquake shock endt." (Item 5 only) (Exhs. "C-1"; "D-1," and "E" and two (2)
swimming pools only (Exhs. "C-1"; ‘D-1", "E" and "F-1"). "Item 5" in those
policies referred to the two (2) swimming pools only (Exhs. "1-B", "2-B", "3-B"
and "F-2"); that subsequently AHAC(AIU) issued in plaintiff’s favor Policy No.
206-4182383-0 covering the period March 14, 1988 to March 14, 1989 (Exhs.
"G" also "G-1") and in said policy the earthquake endorsement clause as
indicated in Exhibits "C-1", "D-1", Exhibits "E" and "F-1" was deleted and the
entry under Endorsements/Warranties at the time of issue read that plaintiff
renewed its policy with AHAC (AIU) for the period of March 14, 1989 to March
14, 1990 under Policy No. 206-4568061-9 (Exh. "H") which carried the entry
under "Endorsement/Warranties at Time of Issue", which read "Endorsement
to Include Earthquake Shock (Exh. "6-B-1") in the amount of P10,700.00 and
paid P42,658.14 (Exhs. "6-A" and "6-B") as premium thereof, computed as
follows:
Item - P7,691,000.00 - on the Clubhouse only
@ .392%;
- 1,500,000.00 - on the furniture, etc. contained in the
building above-mentioned@ .490%;
- 393,000.00 - on the two swimming pools, only (against
 the peril of earthquake shock only) @
0.100%
- 116,600.00 other buildings include as follows:
a) Tilter - P19,800.00 - 0.551%
House
b) Power - P41,000.00 - 0.551%
House
c) House - P55,000.00 - 0.540%
Shed
P100,000.00 - for furniture, fixtures, lines air-con and
operating equipment
that plaintiff agreed to insure with defendant the properties covered by AHAC
(AIU) Policy No. 206-4568061-9 (Exh. "H") provided that the policy wording
and rates in said policy be copied in the policy to be issued by defendant; that
defendant issued Policy No. 31944 to plaintiff covering the period of March 14,
1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92
(Exh. "I"); that in the computation of the premium, defendant’s Policy No.
31944 (Exh. "I"), which is the policy in question, contained on the right-hand
upper portion of page 7 thereof, the following:
Rate-Various
Premium – P37,420.60 F/L
– 2,061.52 – Typhoon
– 1,030.76 – EC
– 393.00 – ES
Doc. Stamps 3,068.10
F.S.T. 776.89
Prem. Tax 409.05
TOTAL 45,159.92;
that the above break-down of premiums shows that plaintiff paid only P393.00
as premium against earthquake shock (ES); that in all the six insurance
policies (Exhs. "C", "D", "E", "F", "G" and "H"), the premium against the peril of
earthquake shock is the same, that is P393.00 (Exhs. "C" and "1-B"; "2-B" and
"3-B-1" and "3-B-2"; "F-02" and "4-A-1"; "G-2" and "5-C-1"; "6-C-1"; issued by
AHAC (Exhs. "C", "D", "E", "F", "G" and "H") and in Policy No. 31944 issued by
defendant, the shock endorsement provide(sic):
In consideration of the payment by the insured to the company of the sum
included additional premium the Company agrees, notwithstanding what is
stated in the printed conditions of this policy due to the contrary, that this
insurance covers loss or damage to shock to any of the property insured by
this Policy occasioned by or through or in consequence of earthquake (Exhs.
"1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C");
that in Exhibit "7-C" the word "included" above the underlined portion was
deleted; that on July 16, 1990 an earthquake struck Central Luzon and
Northern Luzon and plaintiff’s properties covered by Policy No. 31944 issued
by defendant, including the two swimming pools in its Agoo Playa Resort were
damaged.2
After the earthquake, petitioner advised respondent that it would be making a
claim under its Insurance Policy No. 31944 for damages on its properties.
Respondent instructed petitioner to file a formal claim, then assigned the
investigation of the claim to an independent claims adjuster, Bayne Adjusters
and Surveyors, Inc.3 On July 30, 1990, respondent, through its adjuster,
requested petitioner to submit various documents in support of its claim. On
August 7, 1990, Bayne Adjusters and Surveyors, Inc., through its Vice-
President A.R. de Leon,4 rendered a preliminary report5 finding extensive
damage caused by the earthquake to the clubhouse and to the two swimming
pools. Mr. de Leon stated that "except for the swimming pools, all affected
items have no coverage for earthquake shocks."6 On August 11, 1990,
petitioner filed its formal demand7 for settlement of the damage to all its
properties in the Agoo Playa Resort. On August 23, 1990, respondent denied
petitioner’s claim on the ground that its insurance policy only afforded
earthquake shock coverage to the two swimming pools of the resort.8
Petitioner and respondent failed to arrive at a settlement.9 Thus, on January
24, 1991, petitioner filed a complaint10 with the regional trial court of Pasig
praying for the payment of the following:
1.) The sum of P5,427,779.00, representing losses sustained by the insured
properties, with interest thereon, as computed under par. 29 of the policy
(Annex "B") until fully paid;
2.) The sum of P428,842.00 per month, representing continuing losses
sustained by plaintiff on account of defendant’s refusal to pay the claims;
3.) The sum of P500,000.00, by way of exemplary damages;
4.) The sum of P500,000.00 by way of attorney’s fees and expenses of
litigation;
5.) Costs.11
Page 14 of 43
Respondent filed its Answer with Special and Affirmative Defenses with
Compulsory Counterclaims.12
On February 21, 1994, the lower court after trial ruled in favor of the
respondent, viz:
The above schedule clearly shows that plaintiff paid only a premium of
P393.00 against the peril of earthquake shock, the same premium it paid
against earthquake shock only on the two swimming pools in all the policies
issued by AHAC(AIU) (Exhibits "C", "D", "E", "F" and "G"). From this fact the
Court must consequently agree with the position of defendant that the
endorsement rider (Exhibit "7-C") means that only the two swimming pools
were insured against earthquake shock.
Plaintiff correctly points out that a policy of insurance is a contract of adhesion
hence, where the language used in an insurance contract or application is
such as to create ambiguity the same should be resolved against the party
responsible therefor, i.e., the insurance company which prepared the contract.
To the mind of [the] Court, the language used in the policy in litigation is clear
and unambiguous hence there is no need for interpretation or construction but
only application of the provisions therein.
From the above observations the Court finds that only the two (2) swimming
pools had earthquake shock coverage and were heavily damaged by the
earthquake which struck on July 16, 1990. Defendant having admitted that the
damage to the swimming pools was appraised by defendant’s adjuster at
P386,000.00, defendant must, by virtue of the contract of insurance, pay
plaintiff said amount.
Because it is the finding of the Court as stated in the immediately preceding
paragraph that defendant is liable only for the damage caused to the two (2)
swimming pools and that defendant has made known to plaintiff its willingness
and readiness to settle said liability, there is no basis for the grant of the other
damages prayed for by plaintiff. As to the counterclaims of defendant, the
Court does not agree that the action filed by plaintiff is baseless and highly
speculative since such action is a lawful exercise of the plaintiff’s right to come
to Court in the honest belief that their Complaint is meritorious. The prayer,
therefore, of defendant for damages is likewise denied.
WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the
sum of THREE HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00)
representing damage to the two (2) swimming pools, with interest at 6% per
annum from the date of the filing of the Complaint until defendant’s obligation
to plaintiff is fully paid.
No pronouncement as to costs.13
Petitioner’s Motion for Reconsideration was denied. Thus, petitioner filed an
appeal with the Court of Appeals based on the following assigned errors:14
A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT
CAN ONLY RECOVER FOR THE DAMAGE TO ITS TWO SWIMMING
POOLS UNDER ITS FIRE POLICY NO. 31944, CONSIDERING ITS
PROVISIONS, THE CIRCUMSTANCES SURROUNDING THE ISSUANCE
OF SAID POLICY AND THE ACTUATIONS OF THE PARTIES
SUBSEQUENT TO THE EARTHQUAKE OF JULY 16, 1990.
B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANT’S
RIGHT TO RECOVER UNDER DEFENDANT-APPELLEE’S POLICY (NO.
31944; EXH "I") BY LIMITING ITSELF TO A CONSIDERATION OF THE SAID
POLICY ISOLATED FROM THE CIRCUMSTANCES SURROUNDING ITS
ISSUANCE AND THE ACTUATIONS OF THE PARTIES AFTER THE
EARTHQUAKE OF JULY 16, 1990.
C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-
APPELLANT IS ENTITLED TO THE DAMAGES CLAIMED, WITH INTEREST
COMPUTED AT 24% PER ANNUM ON CLAIMS ON PROCEEDS OF
POLICY.
On the other hand, respondent filed a partial appeal, assailing the lower
court’s failure to award it attorney’s fees and damages on its compulsory
counterclaim.
After review, the appellate court affirmed the decision of the trial court and
ruled, thus:
However, after carefully perusing the documentary evidence of both parties,
We are not convinced that the last two (2) insurance contracts (Exhs. "G" and
"H"), which the plaintiff-appellant had with AHAC (AIU) and upon which the
subject insurance contract with Philippine Charter Insurance Corporation is
said to have been based and copied (Exh. "I"), covered an extended
earthquake shock insurance on all the insured properties.
xxx
We also find that the Court a quo was correct in not granting the plaintiff-
appellant’s prayer for the imposition of interest – 24% on the insurance claim
and 6% on loss of income allegedly amounting to P4,280,000.00. Since the
defendant-appellant has expressed its willingness to pay the damage caused
on the two (2) swimming pools, as the Court a quo and this Court correctly
found it to be liable only, it then cannot be said that it was in default and
therefore liable for interest.
Coming to the defendant-appellant’s prayer for an attorney’s fees, long-
standing is the rule that the award thereof is subject to the sound discretion of
the court. Thus, if such discretion is well-exercised, it will not be disturbed on
appeal (Castro et al. v. CA, et al., G.R. No. 115838, July 18, 2002). Moreover,
being the award thereof an exception rather than a rule, it is necessary for the
court to make findings of facts and law that would bring the case within the
exception and justify the grant of such award (Country Bankers Insurance
Corp. v. Lianga Bay and Community Multi-Purpose Coop., Inc., G.R. No.
136914, January 25, 2002). Therefore, holding that the plaintiff-appellant’s
action is not baseless and highly speculative, We find that the Court a quo did
not err in granting the same.
WHEREFORE, in view of all the foregoing, both appeals are hereby
DISMISSED and judgment of the Trial Court hereby AFFIRMED in toto. No
costs.15
Petitioner filed the present petition raising the following issues:16
A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT
UNDER RESPONDENT’S INSURANCE POLICY NO. 31944, ONLY THE
TWO (2) SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES
COVERED THEREUNDER, ARE INSURED AGAINST THE RISK OF
EARTHQUAKE SHOCK.
B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED
PETITIONER’S PRAYER FOR DAMAGES WITH INTEREST THEREON AT
THE RATE CLAIMED, ATTORNEY’S FEES AND EXPENSES OF
LITIGATION.
Petitioner contends:
First, that the policy’s earthquake shock endorsement clearly covers all of the
properties insured and not only the swimming pools. It used the words "any
property insured by this policy," and it should be interpreted as all inclusive.
Second, the unqualified and unrestricted nature of the earthquake shock
endorsement is confirmed in the body of the insurance policy itself, which
states that it is "[s]ubject to: Other Insurance Clause, Typhoon Endorsement,
Earthquake Shock Endt., Extended Coverage Endt., FEA Warranty & Annual
Payment Agreement On Long Term Policies."17
Third, that the qualification referring to the two swimming pools had already
been deleted in the earthquake shock endorsement.
Fourth, it is unbelievable for respondent to claim that it only made an
inadvertent omission when it deleted the said qualification.
Fifth, that the earthquake shock endorsement rider should be given
precedence over the wording of the insurance policy, because the rider is the
more deliberate expression of the agreement of the contracting parties.
Sixth, that in their previous insurance policies, limits were placed on the
endorsements/warranties enumerated at the time of issue.
Seventh, any ambiguity in the earthquake shock endorsement should be
resolved in favor of petitioner and against respondent. It was respondent
which caused the ambiguity when it made the policy in issue.
Eighth, the qualification of the endorsement limiting the earthquake shock
endorsement should be interpreted as a caveat on the standard fire insurance
policy, such as to remove the two swimming pools from the coverage for the
risk of fire. It should not be used to limit the respondent’s liability for
earthquake shock to the two swimming pools only.
Ninth, there is no basis for the appellate court to hold that the additional
premium was not paid under the extended coverage. The premium for the
earthquake shock coverage was already included in the premium paid for the
policy.
Tenth, the parties’ contemporaneous and subsequent acts show that they
intended to extend earthquake shock coverage to all insured properties. When
it secured an insurance policy from respondent, petitioner told respondent that
it wanted an exact replica of its latest insurance policy from American Home
Assurance Company (AHAC-AIU), which covered all the resort’s properties for
earthquake shock damage and respondent agreed. After the July 16, 1990
earthquake, respondent assured petitioner that it was covered for earthquake
shock. Respondent’s insurance adjuster, Bayne Adjusters and Surveyors, Inc.,
likewise requested petitioner to submit the necessary documents for its
building claims and other repair costs. Thus, under the doctrine of equitable
estoppel, it cannot deny that the insurance policy it issued to petitioner
covered all of the properties within the resort.
Eleventh, that it is proper for it to avail of a petition for review by certiorari
under Rule 45 of the Revised Rules of Court as its remedy, and there is no
need for calibration of the evidence in order to establish the facts upon which
this petition is based.
On the other hand, respondent made the following counter arguments:18
Page 15 of 43
First, none of the previous policies issued by AHAC-AIU from 1983 to 1990
explicitly extended coverage against earthquake shock to petitioner’s insured
properties other than on the two swimming pools. Petitioner admitted that from
1984 to 1988, only the two swimming pools were insured against earthquake
shock. From 1988 until 1990, the provisions in its policy were practically
identical to its earlier policies, and there was no increase in the premium paid.
AHAC-AIU, in a letter19 by its representative Manuel C. Quijano, categorically
stated that its previous policy, from which respondent’s policy was copied,
covered only earthquake shock for the two swimming pools.
Second, petitioner’s payment of additional premium in the amount of P393.00
shows that the policy only covered earthquake shock damage on the two
swimming pools. The amount was the same amount paid by petitioner for
earthquake shock coverage on the two swimming pools from 1990-1991. No
additional premium was paid to warrant coverage of the other properties in the
resort.
Third, the deletion of the phrase pertaining to the limitation of the earthquake
shock endorsement to the two swimming pools in the policy schedule did not
expand the earthquake shock coverage to all of petitioner’s properties. As per
its agreement with petitioner, respondent copied its policy from the AHAC-AIU
policy provided by petitioner. Although the first five policies contained the said
qualification in their rider’s title, in the last two policies, this qualification in the
title was deleted. AHAC-AIU, through Mr. J. Baranda III, stated that such
deletion was a mere inadvertence. This inadvertence did not make the policy
incomplete, nor did it broaden the scope of the endorsement whose
descriptive title was merely enumerated. Any ambiguity in the policy can be
easily resolved by looking at the other provisions, specially the enumeration of
the items insured, where only the two swimming pools were noted as covered
for earthquake shock damage.
Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through
1988, the phrase "Item 5 – P393,000.00 – on the two swimming pools only
(against the peril of earthquake shock only)" meant that only the swimming
pools were insured for earthquake damage. The same phrase is used in toto
in the policies from 1989 to 1990, the only difference being the designation of
the two swimming pools as "Item 3."
Fifth, in order for the earthquake shock endorsement to be effective, premiums
must be paid for all the properties covered. In all of its seven insurance
policies, petitioner only paid P393.00 as premium for coverage of the
swimming pools against earthquake shock. No other premium was paid for
earthquake shock coverage on the other properties. In addition, the use of the
qualifier "ANY" instead of "ALL" to describe the property covered was done
deliberately to enable the parties to specify the properties included for
earthquake coverage.
Sixth, petitioner did not inform respondent of its requirement that all of its
properties must be included in the earthquake shock coverage. Petitioner’s
own evidence shows that it only required respondent to follow the exact
provisions of its previous policy from AHAC-AIU. Respondent complied with
this requirement. Respondent’s only deviation from the agreement was when it
modified the provisions regarding the replacement cost endorsement. With
regard to the issue under litigation, the riders of the old policy and the policy in
issue are identical.
Seventh, respondent did not do any act or give any assurance to petitioner as
would estop it from maintaining that only the two swimming pools were
covered for earthquake shock. The adjuster’s letter notifying petitioner to
present certain documents for its building claims and repair costs was given to
petitioner before the adjuster knew the full coverage of its policy.
Petitioner anchors its claims on AHAC-AIU’s inadvertent deletion of the phrase
"Item 5 Only" after the descriptive name or title of the Earthquake Shock
Endorsement. However, the words of the policy reflect the parties’ clear
intention to limit earthquake shock coverage to the two swimming pools.
Before petitioner accepted the policy, it had the opportunity to read its
conditions. It did not object to any deficiency nor did it institute any action to
reform the policy. The policy binds the petitioner.
Eighth, there is no basis for petitioner to claim damages, attorney’s fees and
litigation expenses. Since respondent was willing and able to pay for the
damage caused on the two swimming pools, it cannot be considered to be in
default, and therefore, it is not liable for interest.
We hold that the petition is devoid of merit.
In Insurance Policy No. 31944, four key items are important in the resolution of
the case at bar.
First, in the designation of location of risk, only the two swimming pools were
specified as included, viz:
ITEM 3 – 393,000.00 – On the two (2) swimming pools only (against the peril
of earthquake shock only)20
Second, under the breakdown for premium payments,21 it was stated that:
PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM
xxx
22]
3 393,000.00 0.100%-E/S 393.00
Third, Policy Condition No. 6 stated:
6. This insurance does not cover any loss or damage occasioned by or
through or in consequence, directly or indirectly of any of the following
occurrences, namely:--
(a) Earthquake, volcanic eruption or other convulsion of nature. 23
Fourth, the rider attached to the policy, titled "Extended Coverage
Endorsement (To Include the Perils of Explosion, Aircraft, Vehicle and
Smoke)," stated, viz:
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES
THE INSURED UNDER THIS POLICY HAVING ESTABLISHED
AGGREGATE SUMS INSURED IN EXCESS OF FIVE MILLION PESOS, IN
CONSIDERATION OF A DISCOUNT OF 5% OR 7 ½ % OF THE NET
PREMIUM x x x POLICY HEREBY UNDERTAKES TO CONTINUE THE
INSURANCE UNDER THE ABOVE NAMED x x x AND TO PAY THE
PREMIUM.
Earthquake Endorsement
In consideration of the payment by the Insured to the Company of the sum of
P. . . . . . . . . . . . . . . . . additional premium the Company agrees,
notwithstanding what is stated in the printed conditions of this Policy to the
contrary, that this insurance covers loss or damage (including loss or damage
by fire) to any of the property insured by this Policy occasioned by or through
or in consequence of Earthquake.
Provided always that all the conditions of this Policy shall apply (except in so
far as they may be hereby expressly varied) and that any reference therein to
loss or damage by fire should be deemed to apply also to loss or damage
occasioned by or through or in consequence of Earthquake.24
Petitioner contends that pursuant to this rider, no qualifications were placed on
the scope of the earthquake shock coverage. Thus, the policy extended
earthquake shock coverage to all of the insured properties.
It is basic that all the provisions of the insurance policy should be examined
and interpreted in consonance with each other.25 All its parts are reflective of
the true intent of the parties. The policy cannot be construed piecemeal.
Certain stipulations cannot be segregated and then made to control; neither do
particular words or phrases necessarily determine its character. Petitioner
cannot focus on the earthquake shock endorsement to the exclusion of the
other provisions. All the provisions and riders, taken and interpreted together,
indubitably show the intention of the parties to extend earthquake shock
coverage to the two swimming pools only.
A careful examination of the premium recapitulation will show that it is the
clear intent of the parties to extend earthquake shock coverage only to the two
swimming pools. Section 2(1) of the Insurance Code defines a contract of
insurance as an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or
contingent event. Thus, an insurance contract exists where the following
elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated
peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a premium.26
(Emphasis ours)
An insurance premium is the consideration paid an insurer for undertaking to
indemnify the insured against a specified peril.27 In fire, casualty, and marine
insurance, the premium payable becomes a debt as soon as the risk
attaches.28 In the subject policy, no premium payments were made with
regard to earthquake shock coverage, except on the two swimming pools.
There is no mention of any premium payable for the other resort properties
with regard to earthquake shock. This is consistent with the history of
petitioner’s previous insurance policies from AHAC-AIU. As borne out by
petitioner’s witnesses:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25,
1991
pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your
insurance policy during the period from March 4, 1984 to March 4, 1985 the
coverage on earthquake shock was limited to the two swimming pools only?
Page 16 of 43
A. Yes, sir. It is limited to the two swimming pools, specifically shown in the
warranty, there is a provision here that it was only for item 5.
Q. More specifically Item 5 states the amount of P393,000.00 corresponding to
the two swimming pools only?
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25,
1991
pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989, did you
personally arrange for the procurement of this policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your company?
A. No, sir. They are our insurance agency.
Q. And they are independent of your company insofar as operations are
concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is concerned they
are of course subject to your instruction, is that not correct?
A. Yes, sir. The final action is still with us although they can recommend what
insurance to take.
Q. In the procurement of the insurance police (sic) from March 14, 1988 to
March 14, 1989, did you give written instruction to Forte Insurance Agency
advising it that the earthquake shock coverage must extend to all properties of
Agoo Playa Resort in La Union?
A. No, sir. We did not make any written instruction, although we made an oral
instruction to that effect of extending the coverage on (sic) the other properties
of the company.
Q. And that instruction, according to you, was very important because in April
1987 there was an earthquake tremor in La Union?
A. Yes, sir.
Q. And you wanted to protect all your properties against similar tremors in the
[future], is that correct?
A. Yes, sir.
Q. Now, after this policy was delivered to you did you bother to check the
provisions with respect to your instructions that all properties must be covered
again by earthquake shock endorsement?
A. Are you referring to the insurance policy issued by American Home
Assurance Company marked Exhibit "G"?
Atty. Mejia: Yes.
Witness:
A. I examined the policy and seeing that the warranty on the earthquake shock
endorsement has no more limitation referring to the two swimming pools only,
I was contented already that the previous limitation pertaining to the two
swimming pools was already removed.
Petitioner also cited and relies on the attachment of the phrase "Subject to:
Other Insurance Clause, Typhoon Endorsement, Earthquake Shock
Endorsement, Extended Coverage Endorsement, FEA Warranty & Annual
Payment Agreement on Long Term Policies"29 to the insurance policy as
proof of the intent of the parties to extend the coverage for earthquake shock.
However, this phrase is merely an enumeration of the descriptive titles of the
riders, clauses, warranties or endorsements to which the policy is subject, as
required under Section 50, paragraph 2 of the Insurance Code.
We also hold that no significance can be placed on the deletion of the
qualification limiting the coverage to the two swimming pools. The earthquake
shock endorsement cannot stand alone. As explained by the testimony of
Juan Baranda III, underwriter for AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III30
TSN, August 11, 1992
pp. 9-12
Atty. Mejia:

We respectfully manifest that the same exhibits C to H inclusive have been
previously marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did you
have occasion to review of (sic) these six (6) policies issued by your company
[in favor] of Agoo Playa Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one point of time, sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C
to H respectively carries an earthquake shock endorsement[?] My question to
you is, on the basis on (sic) the wordings indicated in Exhibits C to H
respectively what was the extent of the coverage [against] the peril of
earthquake shock as provided for in each of the six (6) policies?
xxx
WITNESS:
The extent of the coverage is only up to the two (2) swimming pools, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?
A. Yes, sir.
ATTY. MEJIA:
What is your basis for stating that the coverage against earthquake shock as
provided for in each of the six (6) policies extend to the two (2) swimming
pools only?
WITNESS:
Because it says here in the policies, in the enumeration "Earthquake Shock
Endorsement, in the Clauses and Warranties: Item 5 only (Earthquake Shock
Endorsement)," sir.
ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor.
WITNESS:
We do not normally cover earthquake shock endorsement on stand alone
basis. For swimming pools we do cover earthquake shock. For building we
covered it for full earthquake coverage which includes earthquake shock…
COURT:
As far as earthquake shock endorsement you do not have a specific coverage
for other things other than swimming pool? You are covering building? They
are covered by a general insurance?
WITNESS:
Earthquake shock coverage could not stand alone. If we are covering building
or another we can issue earthquake shock solely but that the moment I see
this, the thing that comes to my mind is either insuring a swimming pool,
foundations, they are normally affected by earthquake but not by fire, sir.
DIRECT EXAMINATION OF JUAN BARANDA III
TSN, August 11, 1992
pp. 23-25
Q. Plaintiff’s witness, Mr. Mantohac testified and he alleged that only Exhibits
C, D, E and F inclusive [remained] its coverage against earthquake shock to
two (2) swimming pools only but that Exhibits G and H respectively entend the
coverage against earthquake shock to all the properties indicated in the
respective schedules attached to said policies, what can you say about that
testimony of plaintiff’s witness?
WITNESS:
As I have mentioned earlier, earthquake shock cannot stand alone without the
other half of it. I assure you that this one covers the two swimming pools with
respect to earthquake shock endorsement. Based on it, if we are going to look
at the premium there has been no change with respect to the rates. Everytime
(sic) there is a renewal if the intention of the insurer was to include the
earthquake shock, I think there is a substantial increase in the premium. We
are not only going to consider the two (2) swimming pools of the other as
stated in the policy. As I see, there is no increase in the amount of the
premium. I must say that the coverage was not broaden (sic) to include the
other items.
COURT:
They are the same, the premium rates?
WITNESS:
Page 17 of 43
They are the same in the sence (sic), in the amount of the coverage. If you are
going to do some computation based on the rates you will arrive at the same
premiums, your Honor.
CROSS-EXAMINATION OF JUAN BARANDA III
TSN, September 7, 1992
pp. 4-6
ATTY. ANDRES:
Would you as a matter of practice [insure] swimming pools for fire insurance?
WITNESS:
No, we don’t, sir.
Q. That is why the phrase "earthquake shock to the two (2) swimming pools
only" was placed, is it not?
A. Yes, sir.
ATTY. ANDRES:
Will you not also agree with me that these exhibits, Exhibits G and H which
you have pointed to during your direct-examination, the phrase "Item no. 5
only" meaning to (sic) the two (2) swimming pools was deleted from the
policies issued by AIU, is it not?
xxx
ATTY. ANDRES:
As an insurance executive will you not attach any significance to the deletion
of the qualifying phrase for the policies?
WITNESS:
My answer to that would be, the deletion of that particular phrase is
inadvertent. Being a company underwriter, we do not cover. . it was
inadvertent because of the previous policies that we have issued with no
specific attachments, premium rates and so on. It was inadvertent, sir.
The Court also rejects petitioner’s contention that respondent’s
contemporaneous and subsequent acts to the issuance of the insurance policy
falsely gave the petitioner assurance that the coverage of the earthquake
shock endorsement included all its properties in the resort. Respondent only
insured the properties as intended by the petitioner. Petitioner’s own witness
testified to this agreement, viz:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 4-5
Q. Just to be clear about this particular answer of yours Mr. Witness, what
exactly did you tell Atty. Omlas (sic) to copy from Exhibit "H" for purposes of
procuring the policy from Philippine Charter Insurance Corporation?
A. I told him that the insurance that they will have to get will have the same
provisions as this American Home Insurance Policy No. 206-4568061-9.
Q. You are referring to Exhibit "H" of course?
A. Yes, sir, to Exhibit "H".
Q. So, all the provisions here will be the same except that of the premium
rates?
A. Yes, sir. He assured me that with regards to the insurance premium rates
that they will be charging will be limited to this one. I (sic) can even be lesser.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 12-14
Atty. Mejia:
Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the
provisions and scope of coverage of Exhibits "I" and "H" sometime in the third
week of March, 1990 or thereabout?
A. Yes, sir, about that time.
Q. And at that time did you notice any discrepancy or difference between the
policy wordings as well as scope of coverage of Exhibits "I" and "H"
respectively?
A. No, sir, I did not discover any difference inasmuch (sic) as I was assured
already that the policy wordings and rates were copied from the insurance
policy I sent them but it was only when this case erupted that we discovered
some discrepancies.
Q. With respect to the items declared for insurance coverage did you notice
any discrepancy at any time between those indicated in Exhibit "I" and those
indicated in Exhibit "H" respectively?
A. With regard to the wordings I did not notice any difference because it was
exactly the same P393,000.00 on the two (2) swimming pools only against the
peril of earthquake shock which I understood before that this provision will
have to be placed here because this particular provision under the peril of
earthquake shock only is requested because this is an insurance policy and
therefore cannot be insured against fire, so this has to be placed.
The verbal assurances allegedly given by respondent’s representative Atty.
Umlas were not proved. Atty. Umlas categorically denied having given such
assurances.
Finally, petitioner puts much stress on the letter of respondent’s independent
claims adjuster, Bayne Adjusters and Surveyors, Inc. But as testified to by the
representative of Bayne Adjusters and Surveyors, Inc., respondent never
meant to lead petitioner to believe that the endorsement for earthquake shock
covered properties other than the two swimming pools, viz:
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and
Surveyors, Inc.)
TSN, January 26, 1993
pp. 22-26
Q. Do you recall the circumstances that led to your discussion regarding the
extent of coverage of the policy issued by Philippine Charter Insurance
Corporation?
A. I remember that when I returned to the office after the inspection, I got a
photocopy of the insurance coverage policy and it was indicated under Item 3
specifically that the coverage is only for earthquake shock. Then, I remember I
had a talk with Atty. Umlas (sic), and I relayed to him what I had found out in
the policy and he confirmed to me indeed only Item 3 which were the two
swimming pools have coverage for earthquake shock.
xxx
Q. Now, may we know from you Engr. de Leon your basis, if any, for stating
that except for the swimming pools all affected items have no coverage for
earthquake shock?
xxx
A. I based my statement on my findings, because upon my examination of the
policy I found out that under Item 3 it was specific on the wordings that on the
two swimming pools only, then enclosed in parenthesis (against the peril[s] of
earthquake shock only), and secondly, when I examined the summary of
premium payment only Item 3 which refers to the swimming pools have a
computation for premium payment for earthquake shock and all the other
items have no computation for payment of premiums.
In sum, there is no ambiguity in the terms of the contract and its riders.
Petitioner cannot rely on the general rule that insurance contracts are
contracts of adhesion which should be liberally construed in favor of the
insured and strictly against the insurer company which usually prepares it.31 A
contract of adhesion is one wherein a party, usually a corporation, prepares
the stipulations in the contract, while the other party merely affixes his
signature or his "adhesion" thereto. Through the years, the courts have held
that in these type of contracts, the parties do not bargain on equal footing, the
weaker party's participation being reduced to the alternative to take it or leave
it. Thus, these contracts are viewed as traps for the weaker party whom the
courts of justice must protect.32 Consequently, any ambiguity therein is
resolved against the insurer, or construed liberally in favor of the insured.33
The case law will show that this Court will only rule out blind adherence to
terms where facts and circumstances will show that they are basically one-
sided.34 Thus, we have called on lower courts to remain careful in scrutinizing
the factual circumstances behind each case to determine the efficacy of the
claims of contending parties. In Development Bank of the Philippines v.
National Merchandising Corporation, et al.,35 the parties, who were acute
businessmen of experience, were presumed to have assented to the assailed
documents with full knowledge.
We cannot apply the general rule on contracts of adhesion to the case at bar.
Petitioner cannot claim it did not know the provisions of the policy. From the
inception of the policy, petitioner had required the respondent to copy verbatim
the provisions and terms of its latest insurance policy from AHAC-AIU. The
testimony of Mr. Leopoldo Mantohac, a direct participant in securing the
insurance policy of petitioner, is reflective of petitioner’s knowledge, viz:
DIRECT EXAMINATION OF LEOPOLDO MANTOHAC36
TSN, September 23, 1991
pp. 20-21
Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for
those facilities in Agoo Playa?
A. Yes, sir. I told him that I will agree to that renewal of this policy under
Philippine Charter Insurance Corporation as long as it will follow the same or
Page 18 of 43
exact provisions of the previous insurance policy we had with American Home
Assurance Corporation.
Q. Did you take any step Mr. Witness to ensure that the provisions which you
wanted in the American Home Insurance policy are to be incorporated in the
PCIC policy?
A. Yes, sir.
Q. What steps did you take?
A. When I examined the policy of the Philippine Charter Insurance Corporation
I specifically told him that the policy and wordings shall be copied from the AIU
Policy No. 206-4568061-9.
Respondent, in compliance with the condition set by the petitioner, copied AIU
Policy No. 206-4568061-9 in drafting its Insurance Policy No. 31944. It is true
that there was variance in some terms, specifically in the replacement cost
endorsement, but the principal provisions of the policy remained essentially
similar to AHAC-AIU’s policy. Consequently, we cannot apply the "fine print" or
"contract of adhesion" rule in this case as the parties’ intent to limit the
coverage of the policy to the two swimming pools only is not ambiguous.37
IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The
petition for certiorari is dismissed. No costs.
SO ORDERED.
Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.
Republic of the Philippines
SUPREME COURT
Baguio City
SECOND DIVISION
G.R. No. 166245 April 9, 2008
ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.
DECISION
VELASCO, JR., J.:
The Case
Central to this Petition for Review on Certiorari under Rule 45 which seeks to
reverse and set aside the November 26, 2004 Decision1 of the Court of
Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the
insurer on the insurance application be considered as approval of the
application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance
Company (Philamlife) entered into an agreement denominated as Creditor
Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial Park
Corporation (Eternal). Under the policy, the clients of Eternal who purchased
burial lots from it on installment basis would be insured by Philamlife. The
amount of insurance coverage depended upon the existing balance of the
purchased burial lots. The policy was to be effective for a period of one year,
renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65
years of age, is indebted to the Assured for the unpaid balance of his loan with
the Assured, and is accepted for Life Insurance coverage by the Company on
its effective date is eligible for insurance under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to
P50,000.00. However, a declaration of good health shall be required for all Lot
Purchasers as part of the application. The Company reserves the right to
require further evidence of insurability satisfactory to the Company in respect
of the following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time shall be the
amount of the unpaid balance of his loan (including arrears up to but not
exceeding 2 months) as reported by the Assured to the Company or the sum
of P100,000.00, whichever is smaller. Such benefit shall be paid to the
Assured if the Lot Purchaser dies while insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he
contracts a loan with the Assured. However, there shall be no insurance if the
application of the Lot Purchaser is not approved by the Company.3
Eternal was required under the policy to submit to Philamlife a list of all new lot
purchasers, together with a copy of the application of each purchaser, and the
amounts of the respective unpaid balances of all insured lot purchasers. In
relation to the instant petition, Eternal complied by submitting a letter dated
December 29, 1982,4 containing a list of insurable balances of its lot buyers
for October 1982. One of those included in the list as "new business" was a
certain John Chuang. His balance of payments was PhP 100,000. On August
2, 1984, Chuang died.
Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an
insurance claim for Chuang’s death. Attached to the claim were the following
documents: (1) Chuang’s Certificate of Death; (2) Identification Certificate
stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant;
(4) Certificate of Attending Physician; and (5) Assured’s Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984,6 requiring
Eternal to submit the following documents relative to its insurance claim for
Chuang’s death: (1) Certificate of Claimant (with form attached); (2) Assured’s
Certificate (with form attached); (3) Application for Insurance accomplished
and signed by the insured, Chuang, while still living; and (4) Statement of
Account showing the unpaid balance of Chuang before his death.
Eternal transmitted the required documents through a letter dated November
14, 1984,7 which was received by Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to
the latter’s insurance claim. This prompted Eternal to demand from Philamlife
the payment of the claim for PhP 100,000 on April 25, 1986.8
In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim
in a letter dated May 20, 1986,9 a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and
9529 with Eternal Gardens Memorial Park in October 1982 for the total
maximum insurable amount of P100,000.00 each. No application for Group
Insurance was submitted in our office prior to his death on August 2, 1984.
In accordance with our Creditor’s Group Life Policy No. P-1920, under
Evidence of Insurability provision, "a declaration of good health shall be
required for all Lot Purchasers as party of the application." We cite further the
provision on Effective Date of Coverage under the policy which states that
"there shall be no insurance if the application is not approved by the
Company." Since no application had been submitted by the Insured/Assured,
prior to his death, for our approval but was submitted instead on November 15,
1984, after his death, Mr. John Uy Chuang was not covered under the Policy.
We wish to point out that Eternal Gardens being the Assured was a party to
the Contract and was therefore aware of these pertinent provisions.
With regard to our acceptance of premiums, these do not connote our
approval per se of the insurance coverage but are held by us in trust for the
payor until the prerequisites for insurance coverage shall have been met. We
will however, return all the premiums which have been paid in behalf of John
Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial Court
(RTC) for a sum of money against Philamlife, docketed as Civil Case No.
14736. The trial court decided in favor of Eternal, the dispositive portion of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
Plaintiff ETERNAL, against Defendant PHILAMLIFE, ordering the Defendant
PHILAMLIFE, to pay the sum of P100,000.00, representing the proceeds of
the Policy of John Uy Chuang, plus legal rate of interest, until fully paid; and,
to pay the sum of P10,000.00 as attorney’s fees.
SO ORDERED.
The RTC found that Eternal submitted Chuang’s application for insurance
which he accomplished before his death, as testified to by Eternal’s witness
and evidenced by the letter dated December 29, 1982, stating, among others:
"Encl: Phil-Am Life Insurance Application Forms & Cert."10 It further ruled that
due to Philamlife’s inaction from the submission of the requirements of the
group insurance on December 29, 1982 to Chuang’s death on August 2, 1984,
as well as Philamlife’s acceptance of the premiums during the same period,
Philamlife was deemed to have approved Chuang’s application. The RTC said
that since the contract is a group life insurance, once proof of death is
submitted, payment must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case
No. 57810 is REVERSED and SET ASIDE, and the complaint is DISMISSED.
No costs.
Page 19 of 43
SO ORDERED.11
The CA based its Decision on the factual finding that Chuang’s application
was not enclosed in Eternal’s letter dated December 29, 1982. It further ruled
that the non-accomplishment of the submitted application form violated
Section 26 of the Insurance Code. Thus, the CA concluded, there being no
application form, Chuang was not covered by Philamlife’s insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of substance, not
therefore determined by this Honorable Court, or has decided it in a way not in
accord with law or with the applicable jurisprudence, in holding that:
I. The application for insurance was not duly submitted to respondent
PhilamLife before the death of John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the Regional Trial Court dated
May 29, 1996.
The Court’s Ruling
As a general rule, this Court is not a trier of facts and will not re-examine
factual issues raised before the CA and first level courts, considering their
findings of facts are conclusive and binding on this Court. However, such rule
is subject to exceptions, as enunciated in Sampayan v. Court of Appeals:
(1) when the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment
is based on a misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the [CA] went beyond the issues of
the case, or its findings are contrary to the admissions of both the appellant
and the appellee; (7) when the findings [of the CA] are contrary to the trial
court; (8) when the findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the petition
as well as in the petitioner’s main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record; and (11)
when the Court of Appeals manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different
conclusion.12 (Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA;
thus, this Court may review them.
Eternal claims that the evidence that it presented before the trial court
supports its contention that it submitted a copy of the insurance application of
Chuang before his death. In Eternal’s letter dated December 29, 1982, a list of
insurable interests of buyers for October 1982 was attached, including Chuang
in the list of new businesses. Eternal added it was noted at the bottom of said
letter that the corresponding "Phil-Am Life Insurance Application Forms &
Cert." were enclosed in the letter that was apparently received by Philamlife
on January 15, 1983. Finally, Eternal alleged that it provided a copy of the
insurance application which was signed by Chuang himself and executed
before his death.
On the other hand, Philamlife claims that the evidence presented by Eternal is
insufficient, arguing that Eternal must present evidence showing that
Philamlife received a copy of Chuang’s insurance application.
The evidence on record supports Eternal’s position.
The fact of the matter is, the letter dated December 29, 1982, which Philamlife
stamped as received, states that the insurance forms for the attached list of
burial lot buyers were attached to the letter. Such stamp of receipt has the
effect of acknowledging receipt of the letter together with the attachments.
Such receipt is an admission by Philamlife against its own interest.13 The
burden of evidence has shifted to Philamlife, which must prove that the letter
did not contain Chuang’s insurance application. However, Philamlife failed to
do so; thus, Philamlife is deemed to have received Chuang’s insurance
application.
To reiterate, it was Philamlife’s bounden duty to make sure that before a
transmittal letter is stamped as received, the contents of the letter are correct
and accounted for.
Philamlife’s allegation that Eternal’s witnesses ran out of credibility and
reliability due to inconsistencies is groundless. The trial court is in the best
position to determine the reliability and credibility of the witnesses, because it
has the opportunity to observe firsthand the witnesses’ demeanor, conduct,
and attitude. Findings of the trial court on such matters are binding and
conclusive on the appellate court, unless some facts or circumstances of
weight and substance have been overlooked, misapprehended, or
misinterpreted,14 that, if considered, might affect the result of the case.15
An examination of the testimonies of the witnesses mentioned by Philamlife,
however, reveals no overlooked facts of substance and value.
Philamlife primarily claims that Eternal did not even know where the original
insurance application of Chuang was, as shown by the testimony of Edilberto
Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in case of new
coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up two copies
of this form and the original of this is submitted to Philamlife together with the
monthly remittances and the second copy is remained or retained with the
marketing department of Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as counsel is merely
asking for the location and does not [ask] for the number of copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but when I submitted
with that payment together with the new clients all the originals I see to it
before I sign the transmittal letter the originals are attached therein.16
In other words, the witness admitted not knowing where the original insurance
application was, but believed that the application was transmitted to Philamlife
as an attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel Cortez on
whether one or two insurance application forms were accomplished and the
testimony of Mendoza on who actually filled out the application form, these are
minor inconsistencies that do not affect the credibility of the witnesses. Thus,
we ruled in People v. Paredes that minor inconsistencies are too trivial to
affect the credibility of witnesses, and these may even serve to strengthen
their credibility as these negate any suspicion that the testimonies have been
rehearsed.17
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential integrity of
the prosecution’s evidence as a whole or reflect on the witnesses’ honesty.
The test is whether the testimonies agree on essential facts and whether the
respective versions corroborate and substantially coincide with each other so
as to make a consistent and coherent whole.18
In the present case, the number of copies of the insurance application that
Chuang executed is not at issue, neither is whether the insurance application
presented by Eternal has been falsified. Thus, the inconsistencies pointed out
by Philamlife are minor and do not affect the credibility of Eternal’s witnesses.
However, the question arises as to whether Philamlife assumed the risk of loss
without approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement
denominated as Creditor Group Life Policy No. P-1920 dated December 10,
1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he
contracts a loan with the Assured. However, there shall be no insurance if the
application of the Lot Purchaser is not approved by the Company.
An examination of the above provision would show ambiguity between its two
sentences. The first sentence appears to state that the insurance coverage of
the clients of Eternal already became effective upon contracting a loan with
Eternal while the second sentence appears to require Philamlife to approve
the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion
which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latter’s interest. Thus, in Malayan
Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the
general rule of resolving any ambiguity therein in favor of the insured, where
the contract or policy is prepared by the insurer. A contract of insurance, being
a contract of adhesion, par excellence, any ambiguity therein should be
resolved against the insurer; in other words, it should be construed liberally in
favor of the insured and strictly against the insurer. Limitations of liability
should be regarded with extreme jealousy and must be construed in such a
way as to preclude the insurer from noncompliance with its obligations.19
(Emphasis supplied.)
Page 20 of 43
In the more recent case of Philamcare Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling, stating that:
When the terms of insurance contract contain limitations on liability, courts
should construe them in such a way as to preclude the insurer from non-
compliance with his obligation. Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the party which
prepared the contract, the insurer. By reason of the exclusive control of the
insurance company over the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer and liberally in favor
of the insured, especially to avoid forfeiture.20
Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-
1920 dated December 10, 1980, must be construed in favor of the insured and
in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized to
mean that upon a party’s purchase of a memorial lot on installment from
Eternal, an insurance contract covering the lot purchaser is created and the
same is effective, valid, and binding until terminated by Philamlife by
disapproving the insurance application. The second sentence of Creditor
Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature
of a resolutory condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the insurance
application must not work to prejudice the insured; it cannot be interpreted as
a termination of the insurance contract. The termination of the insurance
contract by the insurer must be explicit and unambiguous.
As a final note, to characterize the insurer and the insured as contracting
parties on equal footing is inaccurate at best. Insurance contracts are wholly
prepared by the insurer with vast amounts of experience in the industry
purposefully used to its advantage. More often than not, insurance contracts
are contracts of adhesion containing technical terms and conditions of the
industry, confusing if at all understandable to laypersons, that are imposed on
those who wish to avail of insurance. As such, insurance contracts are imbued
with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in order
to protect the interest of insurance applicants, insurance companies must be
obligated to act with haste upon insurance applications, to either deny or
approve the same, or otherwise be bound to honor the application as a valid,
binding, and effective insurance contract.21
WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision
in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The May 29, 1996
Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife is
hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of
the Life Insurance Policy of Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of
PhP 100,000 from the time of extra-judicial demand by Eternal until
Philamlife’s receipt of the May 29, 1996 RTC Decision on June 17, 1996;
(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum
of PhP 100,000 from June 17, 1996 until full payment of this award; and
(4) To pay Eternal attorney’s fees in the amount of PhP 10,000.
No costs.
SO ORDERED.
Carpio-Morales, Acting Chairperson, Tinga, Brion, Chico-Nazario*, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 175666 July 29, 2013
MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner.
vs.
CRESENCIA P. ABAN, Respondent.
DECISION
DEL CASTILLO, J.:
The ultimate aim of Section 48 of the Insurance Code is to compel insurers to
solicit business from or provide insurance coverage only to legitimate and
bona fide clients, by requiring them to thoroughly investigate those they insure
within two years from effectivity of the policy and while the insured is still alive.
If they do not, they will be obligated to honor claims on the policies they issue,
regardless of fraud, concealment or misrepresentation. The law assumes that
they will do just that and not sit on their laurels, indiscriminately soliciting and
accepting insurance business from any Tom, Dick and Harry.
Assailed in this Petition for Review on Certiorari1 are the September 28, 2005
Decision2 of the Court of Appeals' (CA) in CA-G.R. CV No. 62286 and its
November 9, 2006 Resolution3 denying the petitioner’s Motion for
Reconsideration.4
Factual Antecedents
On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from
Manila Bankers Life Insurance Corporation (Bankers Life), designating
respondent Cresencia P. Aban (Aban), her niece,5 as her beneficiary.
Petitioner issued Insurance Policy No. 747411 (the policy), with a face value of
₱100,000.00, in Sotero’s favor on August 30, 1993, after the requisite medical
examination and payment of the insurance premium.6
On April 10, 1996,7 when the insurance policy had been in force for more than
two years and seven months, Sotero died. Respondent filed a claim for the
insurance proceeds on July 9, 1996. Petitioner conducted an investigation into
the claim,8 and came out with the following findings:
1. Sotero did not personally apply for insurance coverage, as she was
illiterate;
2. Sotero was sickly since 1990;
3. Sotero did not have the financial capability to pay the insurance premiums
on Insurance Policy No. 747411;
4. Sotero did not sign the July 3, 1993 application for insurance;9 and
5. Respondent was the one who filed the insurance application, and x x x
designated herself as the beneficiary.10
For the above reasons, petitioner denied respondent’s claim on April 16, 1997
and refunded the premiums paid on the policy.11
On April 24, 1997, petitioner filed a civil case for rescission and/or annulment
of the policy, which was docketed as Civil Case No. 97-867 and assigned to
Branch 134 of the Makati Regional Trial Court. The main thesis of the
Complaint was that the policy was obtained by fraud, concealment and/or
misrepresentation under the Insurance Code,12 which thus renders it voidable
under Article 139013 of the Civil Code.
Respondent filed a Motion to Dismiss14 claiming that petitioner’s cause of
action was barred by prescription pursuant to Section 48 of the Insurance
Code, which provides as follows:
Whenever a right to rescind a contract of insurance is given to the insurer by
any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall
have been in force during the lifetime of the insured for a period of two years
from the date of its issue or of its last reinstatement, the insurer cannot prove
that the policy is void ab initio or is rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.
During the proceedings on the Motion to Dismiss, petitioner’s investigator
testified in court, stating among others that the insurance underwriter who
solicited the insurance is a cousin of respondent’s husband, Dindo Aban,15
and that it was the respondent who paid the annual premiums on the policy.16
Ruling of the Regional Trial Court
On December 9, 1997, the trial court issued an Order17 granting respondent’s
Motion to Dismiss, thus:
WHEREFORE, defendant CRESENCIA P. ABAN’s Motion to Dismiss is
hereby granted. Civil Case No. 97-867 is hereby dismissed.
SO ORDERED.18
In dismissing the case, the trial court found that Sotero, and not respondent,
was the one who procured the insurance; thus, Sotero could legally take out
insurance on her own life and validly designate – as she did – respondent as
the beneficiary. It held further that under Section 48, petitioner had only two
years from the effectivity of the policy to question the same; since the policy
had been in force for more than two years, petitioner is now barred from
contesting the same or seeking a rescission or annulment thereof.
Petitioner moved for reconsideration, but in another Order19 dated October
20, 1998, the trial court stood its ground.
Page 21 of 43
Petitioner interposed an appeal with the CA, docketed as CA-G.R. CV No.
62286. Petitioner questioned the dismissal of Civil Case No. 97-867, arguing
that the trial court erred in applying Section 48 and declaring that prescription
has set in. It contended that since it was respondent – and not Sotero – who
obtained the insurance, the policy issued was rendered void ab initio for want
of insurable interest.
Ruling of the Court of Appeals
On September 28, 2005, the CA issued the assailed Decision, which
contained the following decretal portion:
WHEREFORE, in the light of all the foregoing, the instant appeal is
DISMISSED for lack of merit.
SO ORDERED.20
The CA thus sustained the trial court. Applying Section 48 to petitioner’s case,
the CA held that petitioner may no longer prove that the subject policy was
void ab initio or rescindible by reason of fraudulent concealment or
misrepresentation after the lapse of more than two years from its issuance. It
ratiocinated that petitioner was equipped with ample means to determine,
within the first two years of the policy, whether fraud, concealment or
misrepresentation was present when the insurance coverage was obtained. If
it failed to do so within the statutory two-year period, then the insured must be
protected and allowed to claim upon the policy.
Petitioner moved for reconsideration,21 but the CA denied the same in its
November 9, 2006 Resolution.22 Hence, the present Petition.
Issues
Petitioner raises the following issues for resolution:
I
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE
ORDER OF THE TRIAL COURT DISMISSING THE COMPLAINT ON THE
GROUND OF PRESCRIPTION IN CONTRAVENTION (OF) PERTINENT
LAWS AND APPLICABLE JURISPRUDENCE.
II
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE
APPLICATION OF THE INCONTESTABILITY PROVISION IN THE
INSURANCE CODE BY THE TRIAL COURT.
III
WHETHER THE COURT OF APPEALS ERRED IN DENYING PETITIONER’S
MOTION FOR RECONSIDERATION.23
Petitioner’s Arguments
In praying that the CA Decision be reversed and that the case be remanded to
the trial court for the conduct of further proceedings, petitioner argues in its
Petition and Reply24 that Section 48 cannot apply to a case where the
beneficiary under the insurance contract posed as the insured and obtained
the policy under fraudulent circumstances. It adds that respondent, who was
merely Sotero’s niece, had no insurable interest in the life of her aunt.
Relying on the results of the investigation that it conducted after the claim for
the insurance proceeds was filed, petitioner insists that respondent’s claim
was spurious, as it appeared that Sotero did not actually apply for insurance
coverage, was unlettered, sickly, and had no visible source of income to pay
for the insurance premiums; and that respondent was an impostor, posing as
Sotero and fraudulently obtaining insurance in the latter’s name without her
knowledge and consent.
Petitioner adds that Insurance Policy No. 747411 was void ab initio and could
not have given rise to rights and obligations; as such, the action for the
declaration of its nullity or inexistence does not prescribe.25
Respondent’s Arguments
Respondent, on the other hand, essentially argues in her Comment26 that the
CA is correct in applying Section 48. She adds that petitioner’s new allegation
in its Petition that the policy is void ab initio merits no attention, having failed to
raise the same below, as it had claimed originally that the policy was merely
voidable.
On the issue of insurable interest, respondent echoes the CA’s
pronouncement that since it was Sotero who obtained the insurance, insurable
interest was present. Under Section 10 of the Insurance Code, Sotero had
insurable interest in her own life, and could validly designate anyone as her
beneficiary. Respondent submits that the CA’s findings of fact leading to such
conclusion should be respected.
Our Ruling
The Court denies the Petition.
The Court will not depart from the trial and appellate courts’ finding that it was
Sotero who obtained the insurance for herself, designating respondent as her
beneficiary. Both courts are in accord in this respect, and the Court is loath to
disturb this. While petitioner insists that its independent investigation on the
claim reveals that it was respondent, posing as Sotero, who obtained the
insurance, this claim is no longer feasible in the wake of the courts’ finding that
it was Sotero who obtained the insurance for herself. This finding of fact binds
the Court.
With the above crucial finding of fact – that it was Sotero who obtained the
insurance for herself – petitioner’s case is severely weakened, if not totally
disproved. Allegations of fraud, which are predicated on respondent’s alleged
posing as Sotero and forgery of her signature in the insurance application, are
at once belied by the trial and appellate courts’ finding that Sotero herself took
out the insurance for herself. "Fraudulent intent on the part of the insured must
be established to entitle the insurer to rescind the contract."27 In the absence
of proof of such fraudulent intent, no right to rescind arises.
Moreover, the results and conclusions arrived at during the investigation
conducted unilaterally by petitioner after the claim was filed may simply be
dismissed as self-serving and may not form the basis of a cause of action
given the existence and application of Section 48, as will be discussed at
length below.
Section 48 serves a noble purpose, as it regulates the actions of both the
insurer and the insured. Under the provision, an insurer is given two years –
from the effectivity of a life insurance contract and while the insured is alive –
to discover or prove that the policy is void ab initio or is rescindible by reason
of the fraudulent concealment or misrepresentation of the insured or his agent.
After the two-year period lapses, or when the insured dies within the period,
the insurer must make good on the policy, even though the policy was
obtained by fraud, concealment, or misrepresentation. This is not to say that
insurance fraud must be rewarded, but that insurers who recklessly and
indiscriminately solicit and obtain business must be penalized, for such
recklessness and lack of discrimination ultimately work to the detriment of
bona fide takers of insurance and the public in general.
Section 48 regulates both the actions of the insurers and prospective takers of
life insurance. It gives insurers enough time to inquire whether the policy was
obtained by fraud, concealment, or misrepresentation; on the other hand, it
forewarns scheming individuals that their attempts at insurance fraud would be
timely uncovered – thus deterring them from venturing into such nefarious
enterprise. At the same time, legitimate policy holders are absolutely protected
from unwarranted denial of their claims or delay in the collection of insurance
proceeds occasioned by allegations of fraud, concealment, or
misrepresentation by insurers, claims which may no longer be set up after the
two-year period expires as ordained under the law.
Thus, the self-regulating feature of Section 48 lies in the fact that both the
insurer and the insured are given the assurance that any dishonest scheme to
obtain life insurance would be exposed, and attempts at unduly denying a
claim would be struck down. Life insurance policies that pass the statutory
two-year period are essentially treated as legitimate and beyond question, and
the individuals who wield them are made secure by the thought that they will
be paid promptly upon claim. In this manner, Section 48 contributes to the
stability of the insurance industry.
Section 48 prevents a situation where the insurer knowingly continues to
accept annual premium payments on life insurance, only to later on deny a
claim on the policy on specious claims of fraudulent concealment and
misrepresentation, such as what obtains in the instant case. Thus, instead of
conducting at the first instance an investigation into the circumstances
surrounding the issuance of Insurance Policy No. 747411 which would have
timely exposed the supposed flaws and irregularities attending it as it now
professes, petitioner appears to have turned a blind eye and opted instead to
continue collecting the premiums on the policy. For nearly three years,
petitioner collected the premiums and devoted the same to its own profit. It
cannot now deny the claim when it is called to account. Section 48 must be
applied to it with full force and effect.
The Court therefore agrees fully with the appellate court’s pronouncement that
– WHEREFORE, the Petition is DENIED. The assailed September 28, 2005
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.
Page 22 of 43
At least two (2) years from the issuance of the policy or its last reinstatement,
the beneficiary is given the stability to recover under the policy when the
insured dies. The provision also makes clear when the two-year period should
commence in case the policy should lapse and is reinstated, that is, from the
date of the last reinstatement.
After two years, the defenses of concealment or misrepresentation, no matter
how patent or well-founded, will no longer lie.
Congress felt this was a sufficient answer to the various tactics employed by
insurance companies to avoid liability.
The so-called "incontestability clause" precludes the insurer from raising the
defenses of false representations or concealment of material facts insofar as
health and previous diseases are concerned if the insurance has been in force
for at least two years during the insured’s lifetime. The phrase "during the
lifetime" found in Section 48 simply means that the policy is no longer
considered in force after the insured has died. The key phrase in the second
paragraph of Section 48 is "for a period of two years."
As borne by the records, the policy was issued on August 30, 1993, the
insured died on April 10, 1996, and the claim was denied on April 16, 1997.
The insurance policy was thus in force for a period of 3 years, 7 months, and
24 days. Considering that the insured died after the two-year period, the
plaintiff-appellant is, therefore, barred from proving that the policy is void ab
initio by reason of the insured’s fraudulent concealment or misrepresentation
or want of insurable interest on the part of the beneficiary, herein defendant-
appellee.
Well-settled is the rule that it is the plaintiff-appellant’s burden to show that the
factual findings of the trial court are not based on substantial evidence or that
its conclusions are contrary to applicable law and jurisprudence. The plaintiff-
appellant failed to discharge that burden.28
Petitioner claims that its insurance agent, who solicited the Sotero account,
happens to be the cousin of respondent’s husband, and thus insinuates that
both connived to commit insurance fraud. If this were truly the case, then
petitioner would have discovered the scheme earlier if it had in earnest
conducted an investigation into the circumstances surrounding the Sotero
policy. But because it did not and it investigated the Sotero account only after
a claim was filed thereon more than two years later, naturally it was unable to
detect the scheme. For its negligence and inaction, the Court cannot
sympathize with its plight. Instead, its case precisely provides the strong
argument for requiring insurers to diligently conduct investigations on each
policy they issue within the two-year period mandated under Section 48, and
not after claims for insurance proceeds are filed with them.
Besides, if insurers cannot vouch for the integrity and honesty of their
insurance agents/salesmen and the insurance policies they issue, then they
should cease doing business. If they could not properly screen their agents or
salesmen before taking them in to market their products, or if they do not
thoroughly investigate the insurance contracts they enter into with their clients,
then they have only themselves to blame. Otherwise said, insurers cannot be
allowed to collect premiums on insurance policies, use these amounts
collected and invest the same through the years, generating profits and
returns therefrom for their own benefit, and thereafter conveniently deny
insurance claims by questioning the authority or integrity of their own agents or
the insurance policies they issued to their premium-paying clients. This is
exactly one of the schemes which Section 48 aims to prevent.
Insurers may not be allowed to delay the payment of claims by filing frivolous
cases in court, hoping that the inevitable may be put off for years – or even
decades – by the pendency of these unnecessary court cases. In the
meantime, they benefit from collecting the interest and/or returns on both the
premiums previously paid by the insured and the insurance proceeds which
should otherwise go to their beneficiaries. The business of insurance is a
highly regulated commercial activity in the country,29 and is imbued with
public interest.30 "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 former’s interest."31
Decision and the November 9, 2006 Resolution of the Court of Appeals in CA-
G.R. CV No. 62286 are AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 75605 January 22, 1993
RAFAEL (REX) VERENDIA, petitioner,
vs.
COURT OF APPEALS and FIDELITY & SURETY CO. OF THE
PHILIPPINES, respondents.

G.R. No. 76399 January 22, 1993
FIDELITY & SURETY CO. OF THE PHILIPPINES, INC., petitioner,
vs.
RAFAEL VERENDIA and THE COURT OF APPEALS, respondents.
B.L. Padilla for petitioner.
Sabino Padilla, Jr. for Fidelity & Surety, Co.
MELO, J.:
The two consolidated cases involved herein stemmed from the issuance by
Fidelity and Surety Insurance Company of the Philippines (Fidelity for short) of
its Fire Insurance Policy No. F-18876 effective between June 23, 1980 and
June 23, 1981 covering Rafael (Rex) Verendia's residential building located at
Tulip Drive, Beverly Hills, Antipolo, Rizal in the amount of P385,000.00.
Designated as beneficiary was the Monte de Piedad & Savings Bank.
Verendia also insured the same building with two other companies, namely,
The Country Bankers Insurance for P56,000.00 under Policy No. PDB-80-
1913 expiring on May 12, 1981, and The Development Insurance for
P400,000.00 under Policy No. F-48867 expiring on June 30, 198l.
While the three fire insurance policies were in force, the insured property was
completely destroyed by fire on the early morning of December 28, 1980.
Fidelity was accordingly informed of the loss and despite demands, refused
payment under its policy, thus prompting Verendia to file a complaint with the
then Court of First Instance of Quezon City, praying for payment of
P385,000.00, legal interest thereon, plus attorney's fees and litigation
expenses. The complaint was later amended to include Monte de Piedad as
an "unwilling defendant" (P. 16, Record).
Answering the complaint, Fidelity, among other things, averred that the policy
was avoided by reason of over-insurance; that Verendia maliciously
represented that the building at the time of the fire was leased under a
contract executed on June 25, 1980 to a certain Roberto Garcia, when actually
it was a Marcelo Garcia who was the lessee.
On May 24, 1983, the trial court rendered a decision, per Judge Rodolfo A.
Ortiz, ruling in favor of Fidelity. In sustaining the defenses set up by Fidelity,
the trial court ruled that Paragraph 3 of the policy was also violated by
Verendia in that the insured failed to inform Fidelity of his other insurance
coverages with Country Bankers Insurance and Development Insurance.
Verendia appealed to the then Intermediate Appellate Court and in a decision
promulgated on March 31, 1986, (CA-G.R. No. CV No. 02895, Coquia, Zosa,
Bartolome, and Ejercito (P), JJ.), the appellate court reversed for the following
reasons: (a) there was no misrepresentation concerning the lease for the
contract was signed by Marcelo Garcia in the name of Roberto Garcia; and (b)
Paragraph 3 of the policy contract requiring Verendia to give notice to Fidelity
of other contracts of insurance was waived by Fidelity as shown by its conduct
in attempting to settle the claim of Verendia (pp. 32-33, Rollo of G.R. No.
76399).
Fidelity received a copy of the appellate court's decision on April 4, 1986, but
instead of directly filing a motion for reconsideration within 15 days therefrom,
Fidelity filed on April 21, 1986, a motion for extension of 3 days within which to
file a motion for reconsideration. The motion for extension was not filed on
April 19, 1986 which was the 15th day after receipt of the decision because
said 15th day was a Saturday and of course, the following day was a Sunday
(p. 14., Rollo of G.R. No. 75605). The motion for extension was granted by the
appellate court on April 30, 1986 (p. 15. ibid.), but Fidelity had in the meantime
filed its motion for reconsideration on April 24, 1986 (p. 16, ibid.).
Verendia filed a motion to expunge from the record Fidelity's motion for
reconsideration on the ground that the motion for extension was filed out of
time because the 15th day from receipt of the decision which fell on a
Saturday was ignored by Fidelity, for indeed, so Verendia contended, the
Intermediate Appellate Court has personnel receiving pleadings even on
Saturdays.
The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and after a
motion for reconsideration was similarly brushed aside on July 22, 1986 (p. 30,
ibid .), the petition herein docketed as G.R. No. 75605 was initiated.
Subsequently, or more specifically on October 21, 1986, the appellate court
denied Fidelity's motion for reconsideration and account thereof. Fidelity filed
on March 31, 1986, the petition for review on certiorari now docketed as G.R.
No. 76399. The two petitions, inter-related as they are, were consolidated
(p. 54, Rollo of G.R. No. 76399) and thereafter given due course.
Before we can even begin to look into the merits of the main case which is the
petition for review on certiorari, we must first determine whether the decision
of the appellate court may still be reviewed, or whether the same is beyond
further judicial scrutiny. Stated otherwise, before anything else, inquiry must
be made into the issue of whether Fidelity could have legally asked for an
extension of the 15-day reglementary period for appealing or for moving for
reconsideration.
As early as 1944, this Court through Justice Ozaeta already pronounced the
doctrine that the pendency of a motion for extension of time to perfect an
Page 23 of 43
appeal does not suspend the running of the period sought to be extended
(Garcia vs. Buenaventura 74 Phil. 611 [1944]). To the same effect were the
rulings in Gibbs vs. CFI of Manila (80 Phil. 160 [1948]) Bello vs. Fernando (4
SCRA 138 [1962]), and Joe vs. King (20 SCRA 1120 [1967]).
The above cases notwithstanding and because the Rules of Court do not
expressly prohibit the filing of a motion for extension of time to file a motion for
reconsideration in regard to a final order or judgment, magistrates, including
those in the Court of Appeals, held sharply divided opinions on whether the
period for appealing which also includes the period for moving to reconsider
may be extended. The matter was not definitely settled until this Court issued
its Resolution in Habaluyas Enterprises, Inc. vs. Japson (142 SCRA [1986]),
declaring that beginning one month from the promulgation of the resolution on
May 30, 1986 —
. . . the rule shall be strictly enforced that no motion for extension of time to file
a motion for new trial or reconsideration shall be filed . . . (at p. 212.)
In the instant case, the motion for extension was filed and granted before June
30, 1986, although, of course, Verendia's motion to expunge the motion for
reconsideration was not finally disposed until July 22, 1986, or after the dictum
in Habaluyas had taken effect. Seemingly, therefore, the filing of the motion for
extension came before its formal proscription under Habaluyas, for which
reason we now turn our attention to G.R. No. 76399.
Reduced to bare essentials, the issues Fidelity raises therein are: (a) whether
or not the contract of lease submitted by Verendia to support his claim on the
fire insurance policy constitutes a false declaration which would forfeit his
benefits under Section 13 of the policy and (b) whether or not, in submitting
the subrogation receipt in evidence, Fidelity had in effect agreed to settle
Verendia's claim in the amount stated in said receipt.1
Verging on the factual, the issue of the veracity or falsity of the lease contract
could have been better resolved by the appellate court for, in a petition for
review on certiorari under Rule 45, the jurisdiction of this Court is limited to the
review of errors of law. The appellate court's findings of fact are, therefore,
conclusive upon this Court except in the following cases: (1) when the
conclusion is a finding grounded entirely on speculation, surmises, or
conjectures; (2) when the inference made is manifestly absurd, mistaken, or
impossible; (3) when there is grave abuse of discretion in the appreciation of
facts; (4) when the judgment is premised on a misapprehension of facts; (5)
when the findings of fact are conflicting; and (6) when the Court of Appeals in
making its findings went beyond the issues of the case and the same are
contrary to the admissions of both appellant and appellee (Ronquillo v. Court
of Appeals, 195 SCRA 433 [1991]). In view of the conflicting findings of the
trial court and the appellate court on important issues in these consolidated
cases and it appearing that the appellate court judgment is based on a
misapprehension of facts, this Court shall review the evidence on record.
The contract of lease upon which Verendia relies to support his claim for
insurance benefits, was entered into between him and one Robert Garcia,
married to Helen Cawinian, on June 25, 1980 (Exh. "1"), a couple of days after
the effectivity of the insurance policy. When the rented residential building was
razed to the ground on December 28, 1980, it appears that Robert Garcia (or
Roberto Garcia) was still within the premises. However, according to the
investigation report prepared by Pat. Eleuterio M. Buenviaje of the Antipolo
police, the building appeared to have "no occupant" and that Mr. Roberto
Garcia was "renting on the otherside (sic) portion of said compound"
(Exh. "E"). These pieces of evidence belie Verendia's uncorroborated
testimony that Marcelo Garcia, whom he considered as the real lessee, was
occupying the building when it was burned (TSN, July 27, 1982, p.10).
Robert Garcia disappeared after the fire. It was only on October 9, 1981 that
an adjuster was able to locate him. Robert Garcia then executed an affidavit
before the National Intelligence and Security Authority (NISA) to the effect that
he was not the lessee of Verendia's house and that his signature on the
contract of lease was a complete forgery. Thus, on the strength of these facts,
the adjuster submitted a report dated December 4, 1981 recommending the
denial of Verendia's claim (Exh. "2").
Ironically, during the trial, Verendia admitted that it was not Robert Garcia who
signed the lease contract. According to Verendia, it was signed by Marcelo
Garcia, cousin of Robert, who had been paying the rentals all the while.
Verendia, however, failed to explain why Marcelo had to sign his cousin's
name when he in fact was paying for the rent and why he (Verendia) himself,
the lessor, allowed such a ruse. Fidelity's conclusions on these proven facts
appear, therefore, to have sufficient bases; Verendia concocted the lease
contract to deflect responsibility for the fire towards an alleged "lessee",
inflated the value of the property by the alleged monthly rental of P6,500 when
in fact, the Provincial Assessor of Rizal had assessed the property's fair
market value to be only P40,300.00, insured the same property with two other
insurance companies for a total coverage of around P900,000, and created a
dead-end for the adjuster by the disappearance of Robert Garcia.
Basically a contract of indemnity, an insurance contract is the law between the
parties (Pacific Banking Corporation vs. Court of Appeals 168 SCRA 1 [1988]).
Its terms and conditions constitute the measure of the insurer's liability and
compliance therewith is a condition precedent to the insured's right to recovery
from the insurer (Oriental Assurance Corporation vs. Court of Appeals, 200
SCRA 459 [1991], citing Perla Compania de Seguros, Inc. vs. Court of
Appeals, 185 SCRA 741 [1991]). As it is also a contract of adhesion, an
insurance contract should be liberally construed in favor of the insured and
strictly against the insurer company which usually prepares it (Western
Guaranty Corporation vs. Court of Appeals, 187 SCRA 652 [1980]).
Considering, however, the foregoing discussion pointing to the fact that
Verendia used a false lease contract to support his claim under Fire Insurance
Policy No. F-18876, the terms of the policy should be strictly construed against
the insured. Verendia failed to live by the terms of the policy, specifically
Section 13 thereof which is expressed in terms that are clear and
unambiguous, that all benefits under the policy shall be forfeited "If the claim
be in any respect fraudulent, or if any false declaration be made or used in
support thereof, or if any fraudulent means or devises are used by the Insured
or anyone acting in his behalf to obtain any benefit under the policy".
Verendia, having presented a false declaration to support his claim for benefits
in the form of a fraudulent lease contract, he forfeited all benefits therein by
virtue of Section 13 of the policy in the absence of proof that Fidelity waived
such provision (Pacific Banking Corporation vs. Court of Appeals, supra).
Worse yet, by presenting a false lease contract, Verendia, reprehensibly
disregarded the principle that insurance contracts are uberrimae fidae and
demand the most abundant good faith (Velasco vs. Apostol, 173 SCRA 228
[1989]).
There is also no reason to conclude that by submitting the subrogation receipt
as evidence in court, Fidelity bound itself to a "mutual agreement" to settle
Verendia's claims in consideration of the amount of P142,685.77. While the
said receipt appears to have been a filled-up form of Fidelity, no representative
of Fidelity had signed it. It is even incomplete as the blank spaces for a
witness and his address are not filled up. More significantly, the same receipt
states that Verendia had received the aforesaid amount. However, that
Verendia had not received the amount stated therein, is proven by the fact that
Verendia himself filed the complaint for the full amount of P385,000.00 stated
in the policy. It might be that there had been efforts to settle Verendia's claims,
but surely, the subrogation receipt by itself does not prove that a settlement
had been arrived at and enforced. Thus, to interpret Fidelity's presentation of
the subrogation receipt in evidence as indicative of its accession to its "terms"
is not only wanting in rational basis but would be substituting the will of the
Court for that of the parties.
WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in
G.R. No. 76399 is GRANTED and the decision of the then Intermediate
Appellate Court under review is REVERSED and SET ASIDE and that of the
trial court is hereby REINSTATED and UPHELD.
SO ORDERED.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.
# Footnotes
1 Fidelity appears to have agreed with the appellate court that
it had waived Verendia's failure to abide by policy condition
No. 3 on disclosure of other insurance policies by its failure
to assign it as an error in the petition in G.R. No. 76399. It
must have likewise realized the futility of assigning it as an
error because on the first page of the policy the following is
typewritten: "Other insurances allowed, the amounts to be
declared in the event of loss or when required."
FIRST DIVISION
G.R. No. 125678 March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC., petitioner,
vs.
COURT OF APPEALS and JULITA TRINOS, respondents.
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a
health care coverage with petitioner Philamcare Health Systems, Inc. In the
standard application form, he answered no to the following question:
Have you or any of your family members ever consulted or been treated for
high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or
peptic ulcer? (If Yes, give details).1
The application was approved for a period of one year from March 1, 1988 to
March 1, 1989. Accordingly, he was issued Health Care Agreement No.
P010194. Under the agreement, respondent’s husband was entitled to avail of
hospitalization benefits, whether ordinary or emergency, listed therein. He was
also entitled to avail of "out-patient benefits" such as annual physical
examinations, preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another
year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1,
1990. The amount of coverage was increased to a maximum sum of
P75,000.00 per disability.2
Page 24 of 43
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 Ernani’s medical history.
Doctors at the MMC allegedly discovered at the time of Ernani’s confinement
that he was hypertensive, diabetic and asthmatic, contrary to his answer in the
application form. Thus, respondent paid the hospitalization expenses herself,
amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a
physical therapist at home. Later, he was admitted at the Chinese General
Hospital. Due to financial difficulties, however, respondent brought her
husband home again. In the morning of April 13, 1990, Ernani had fever and
was feeling very weak. Respondent was constrained to bring him back to the
Chinese General Hospital where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of
Manila, Branch 44, an action for damages against petitioner and its president,
Dr. Benito Reverente, which was docketed as Civil Case No. 90-53795. She
asked for reimbursement of her expenses plus moral damages and attorney’s
fees. After trial, the lower court ruled against petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in favor of
the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital coverage of the
late Ernani Trinos in the amount of P76,000.00 plus interest, until the amount
is fully paid to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to
plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary
damages to plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the trial court but
deleted all awards for damages and absolved petitioner Reverente.4
Petitioner’s motion for reconsideration was denied.5 Hence, petitioner brought
the instant petition for review, raising the primary argument that a health care
agreement is not an insurance contract; hence the "incontestability clause"
under the Insurance Code6 does not apply.1âwphi1.nêt
Petitioner argues that the agreement grants "living benefits," such as medical
check-ups and hospitalization which a member may immediately enjoy so long
as he is alive upon effectivity of the agreement until its expiration one-year
thereafter. Petitioner also points out that only medical and hospitalization
benefits are given under the agreement without any indemnification, unlike in
an insurance contract where the insured is indemnified for his loss. Moreover,
since Health Care Agreements are only for a period of one year, as compared
to insurance contracts which last longer,7 petitioner argues that the
incontestability clause does not apply, as the same requires an effectivity
period of at least two years. Petitioner further argues that it is not an insurance
company, which is governed by the Insurance Commission, but a Health
Maintenance Organization under the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event.
An insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated
peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and
5. In consideration of the insurer’s promise, the insured pays a premium.8
Section 3 of the Insurance Code states that any contingent or unknown event,
whether past or future, which may damnify a person having an insurable
interest against him, may be insured against. Every person has an insurable
interest in the life and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or
support, or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money,
respecting property or service, of which death or illness might delay or prevent
the performance; and
(4) of any person upon whose life any estate or interest vested in him
depends.
In the case at bar, the insurable interest of respondent’s husband in obtaining
the health care agreement was his own health. The health care agreement
was in the nature of non-life insurance, which is primarily a contract of
indemnity.9 Once the member incurs hospital, medical or any other expense
arising from sickness, injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed upon under the contract.
Petitioner argues that respondent’s husband concealed a material fact in his
application. It appears that in the application for health coverage, petitioners
required respondent’s 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 respondent’s husband states:
We hereby declare and agree that all statement and answers contained herein
and in any addendum annexed to this application are full, complete and true
and bind all parties in interest under the Agreement herein applied for, that
there shall be no contract of health care coverage unless and until an
Agreement is issued on this application and the full Membership Fee
according to the mode of payment applied for is actually paid during the
lifetime and good health of proposed Members; that no information acquired
by any Representative of PhilamCare shall be binding upon PhilamCare
unless set out in writing in the application; that any physician is, by these
presents, expressly authorized to disclose or give testimony at anytime relative
to any information acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage of the Proposed
Members and that the acceptance of any Agreement issued on this application
shall be a ratification of any correction in or addition to this application as
stated in the space for Home Office Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally required the applicant
for authorization to inquire about the applicant’s medical history, thus:
I hereby authorize any person, organization, or entity that has any record or
knowledge of my health and/or that of __________ to give to the PhilamCare
Health Systems, Inc. any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or examination. This
authorization is in connection with the application for health care coverage
only. A photographic copy of this authorization shall be as valid as the
original.12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement"
which reads:
Failure to disclose or misrepresentation of any material information by the
member in the application or medical examination, whether intentional or
unintentional, shall automatically invalidate the Agreement from the very
beginning and liability of Philamcare shall be limited to return of all
Membership Fees paid. An undisclosed or misrepresented information is
deemed material if its revelation would have resulted in the declination of the
applicant by Philamcare or the assessment of a higher Membership Fee for
the benefit or benefits applied for.13
The answer assailed by petitioner was in response to the question relating to
the medical history of the applicant. This largely depends on opinion rather
than fact, especially coming from respondent’s husband who was not a
medical doctor. Where matters of opinion or judgment are called for, answers
made in good faith and without intent to deceive will not avoid a policy even
though they are untrue.14 Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion,
or judgment of the insured will not avoid the policy if there is no actual fraud in
inducing the acceptance of the risk, or its acceptance at a lower rate of
premium, and this is likewise the rule although the statement is material to the
risk, if the statement is obviously of the foregoing character, since in such case
the insurer is not justified in relying upon such statement, but is obligated to
make further inquiry. There is a clear distinction between such a case and one
in which the insured is fraudulently and intentionally states to be true, as a
matter of expectation or belief, that which he then knows, to be actually untrue,
or the impossibility of which is shown by the facts within his knowledge, since
in such case the intent to deceive the insurer is obvious and amounts to actual
fraud.15 (Underscoring ours)
The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract.16 Concealment as a defense for the
health care provider or insurer to avoid liability is an affirmative defense and
the duty to establish such defense by satisfactory and convincing evidence
rests upon the provider or insurer. In any case, with or without the authority to
investigate, petitioner is liable for claims made under the contract. Having
assumed a responsibility under the agreement, petitioner is bound to answer
the same to the extent agreed upon. In the end, the liability of the health care
provider attaches once the member is hospitalized for the disease or injury
covered by the agreement or whenever he avails of the covered benefits
which he has prepaid.
Page 25 of 43
Under Section 27 of the Insurance Code, "a concealment entitles the injured
party to rescind a contract of insurance." The right to rescind should be
exercised previous to the commencement of an action on the contract.17 In
this case, no rescission was made. Besides, the cancellation of health care
agreements as in insurance policies require the concurrence of the following
conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of
one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown
in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance
Code and upon request of insured, to furnish facts on which cancellation is
based.18
None of the above pre-conditions was fulfilled in this case. When the terms of
insurance contract contain limitations on liability, courts should construe them
in such a way as to preclude the insurer from non-compliance with his
obligation.19 Being a contract of adhesion, the terms of an insurance contract
are to be construed strictly against the party which prepared the contract – the
insurer.20 By reason of the exclusive control of the insurance company over
the terms and phraseology of the insurance contract, ambiguity must be
strictly interpreted against the insurer and liberally in favor of the insured,
especially to avoid forfeiture.21 This is equally applicable to Health Care
Agreements. The phraseology used in medical or hospital service contracts,
such as the one at bar, must be liberally construed in favor of the subscriber,
and if doubtful or reasonably susceptible of two interpretations the construction
conferring coverage is to be adopted, and exclusionary clauses of doubtful
import should be strictly construed against the provider.22
Anent the incontestability of the membership of respondent’s husband, we
quote with approval the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant Philamcare
Health Systems Inc. had twelve months from the date of issuance of the
Agreement within which to contest the membership of the patient if he had
previous ailment of asthma, and six months from the issuance of the
agreement if the patient was sick of diabetes or hypertension. The periods
having expired, the defense of concealment or misrepresentation no longer
lie.23
Finally, petitioner alleges that respondent was not the legal wife of the
deceased member considering that at the time of their marriage, the deceased
was previously married to another woman who was still alive. The health care
agreement is in the nature of a contract of indemnity. Hence, payment should
be made to the party who incurred the expenses. It is not controverted that
respondent paid all the hospital and medical expenses. She is therefore
entitled to reimbursement. The records adequately prove the expenses
incurred by respondent for the deceased’s hospitalization, medication and the
professional fees of the attending physicians.24
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed
decision of the Court of Appeals dated December 14, 1995 is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., Puno, and Kapunan, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-52756 October 12, 1987
MANILA MAHOGANY MANUFACTURING CORPORATION, petitioner,
vs.
COURT OF APPEALS AND ZENITH INSURANCE CORPORATION,
respondents.
PADILLA, J:
Petition to review the decision * of the Court of Appeals, in CA-G.R. No. SP-
08642, dated 21 March 1979, ordering petitioner Manila Mahogany
Manufacturing Corporation to pay private respondent Zenith Insurance
Corporation the sum of Five Thousand Pesos (P5,000.00) with 6% annual
interest from 18 January 1973, attorney's fees in the sum of five hundred
pesos (P500.00), and costs of suit, and the resolution of the same Court,
dated 8 February 1980, denying petitioner's motion for reconsideration of it's
decision.
From 6 March 1970 to 6 March 1971, petitioner insured its Mercedes Benz 4-
door sedan with respondent insurance company. On 4 May 1970 the insured
vehicle was bumped and damaged by a truck owned by San Miguel
Corporation. For the damage caused, respondent company paid petitioner five
thousand pesos (P5,000.00) in amicable settlement. Petitioner's general
manager executed a Release of Claim, subrogating respondent company to all
its right to action against San Miguel Corporation.
On 11 December 1972, respondent company wrote Insurance Adjusters, Inc.
to demand reimbursement from San Miguel Corporation of the amount it had
paid petitioner. Insurance Adjusters, Inc. refused reimbursement, alleging that
San Miguel Corporation had already paid petitioner P4,500.00 for the
damages to petitioner's motor vehicle, as evidenced by a cash voucher and a
Release of Claim executed by the General Manager of petitioner discharging
San Miguel Corporation from "all actions, claims, demands the rights of action
that now exist or hereafter [sic] develop arising out of or as a consequence of
the accident."
Respondent insurance company thus demanded from petitioner
reimbursement of the sum of P4,500.00 paid by San Miguel Corporation.
Petitioner refused; hence, respondent company filed suit in the City Court of
Manila for the recovery of P4,500.00. The City Court ordered petitioner to pay
respondent P4,500.00. On appeal the Court of First Instance of Manila
affirmed the City Court's decision in toto, which CFI decision was affirmed by
the Court of Appeals, with the modification that petitioner was to pay
respondent the total amount of P5,000.00 that it had earlier received from the
respondent insurance company.
Petitioner now contends it is not bound to pay P4,500.00, and much more,
P5,000.00 to respondent company as the subrogation in the Release of Claim
it executed in favor of respondent was conditioned on recovery of the total
amount of damages petitioner had sustained. Since total damages were
valued by petitioner at P9,486.43 and only P5,000.00 was received by
petitioner from respondent, petitioner argues that it was entitled to go after San
Miguel Corporation to claim the additional P4,500.00 eventually paid to it by
the latter, without having to turn over said amount to respondent. Respondent
of course disputes this allegation and states that there was no qualification to
its right of subrogation under the Release of Claim executed by petitioner, the
contents of said deed having expressed all the intents and purposes of the
parties.
To support its alleged right not to return the P4,500.00 paid by San Miguel
Corporation, petitioner cites Art. 2207 of the Civil Code, which states:
If the plaintiff's property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance company does not fully cover the
injury or loss the aggrieved party shall be entitled to recover the deficiency
from the person causing the loss or injury.
Petitioner also invokes Art. 1304 of the Civil Code, stating.
A creditor, to whom partial payment has been made, may exercise his right for
the remainder, and he shall be preferred to the person who has been
subrogated in his place in virtue of the partial payment of the same credit.
We find petitioners arguments to be untenable and without merit. In the
absence of any other evidence to support its allegation that a gentlemen's
agreement existed between it and respondent, not embodied in the Release of
Claim, such ease of Claim must be taken as the best evidence of the intent
and purpose of the parties. Thus, the Court of Appeals rightly stated:
Petitioner argues that the release claim it executed subrogating Private
respondent to any right of action it had against San Miguel Corporation did not
preclude Manila Mahogany from filing a deficiency claim against the
wrongdoer. Citing Article 2207, New Civil Code, to the effect that if the amount
paid by an insurance company does not fully cover the loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing the
loss, petitioner claims a preferred right to retain the amount coming from San
Miguel Corporation, despite the subrogation in favor of Private respondent.
Although petitioners right to file a deficiency claim against San Miguel
Corporation is with legal basis, without prejudice to the insurer's right of
subrogation, nevertheless when Manila Mahogany executed another release
claim (Exhibit K) discharging San Miguel Corporation from "all actions, claims,
demands and rights of action that now exist or hereafter arising out of or as a
consequence of the accident" after the insurer had paid the proceeds of the
policy- the compromise agreement of P5,000.00 being based on the insurance
policy-the insurer is entitled to recover from the insured the amount of
insurance money paid (Metropolitan Casualty Insurance Company of New
York vs. Badler, 229 N.Y.S. 61, 132 Misc. 132 cited in Insurance Code and
Insolvency Law with comments and annotations, H.B. Perez 1976, p. 151).
Since petitioner by its own acts released San Miguel Corporation, thereby
defeating private respondents, the right of subrogation, the right of action of
petitioner against the insurer was also nullified. (Sy Keng & Co. vs.
Queensland Insurance Co., Ltd., 54 O.G. 391) Otherwise stated: private
respondent may recover the sum of P5,000.00 it had earlier paid to petitioner.
1
As held in Phil. Air Lines v. Heald Lumber Co., 2
If a property is insured and the owner receives the indemnity from the insurer,
it is provided in [Article 2207 of the New Civil Code] that the insurer is deemed
Page 26 of 43
subrogated to the rights of the insured against the wrongdoer and if the
amount paid by the insurer does not fully cover the loss, then the aggrieved
party is the one entitled to recover the deficiency. ... Under this legal provision,
the real party in interest with regard to the portion of the indemnity paid is the
insurer and not the insured 3 (Emphasis supplied)
The decision of the respondent court ordering petitioner to pay respondent
company, not the P4,500.00 as originally asked for, but P5,000.00, the amount
respondent company paid petitioner as insurance, is also in accord with law
and jurisprudence. In disposing of this issue, the Court of Appeals held:
... petitioner is entitled to keep the sum of P4,500.00 paid by San Miguel
Corporation under its clear right to file a deficiency claim for damages
incurred, against the wrongdoer, should the insurance company not fully pay
for the injury caused (Article 2207, New Civil Code). However, when petitioner
released San Miguel Corporation from any liability, petitioner's right to retain
the sum of P5,000.00 no longer existed, thereby entitling private respondent to
recover the same. (Emphasis supplied)
As has been observed:
... The right of subrogation can only exist after the insurer has paid the
otherwise the insured will be deprived of his right to full indemnity. If the
insurance proceeds are not sufficient to cover the damages suffered by the
insured, then he may sue the party responsible for the damage for the the [sic]
remainder. To the extent of the amount he has already received from the
insurer enjoy's [sic] the right of subrogation.
Since the insurer can be subrogated to only such rights as the insured may
have, should the insured, after receiving payment from the insurer, release the
wrongdoer who caused the loss, the insurer loses his rights against the latter.
But in such a case, the insurer will be entitled to recover from the insured
whatever it has paid to the latter, unless the release was made with the
consent of the insurer. 4 (Emphasis supplied.)
And even if the specific amount asked for in the complaint is P4,500.00 only
and not P5,000.00, still, the respondent Court acted well within its discretion in
awarding P5,000.00, the total amount paid by the insurer. The Court of
Appeals rightly reasoned as follows:
It is to be noted that private respondent, in its companies, prays for the
recovery, not of P5,000.00 it had paid under the insurance policy but
P4,500.00 San Miguel Corporation had paid to petitioner. On this score, We
believe the City Court and Court of First Instance erred in not awarding the
proper relief. Although private respondent prays for the reimbursement of
P4,500.00 paid by San Miguel Corporation, instead of P5,000.00 paid under
the insurance policy, the trial court should have awarded the latter, although
not prayed for, under the general prayer in the complaint "for such further or
other relief as may be deemed just or equitable, (Rule 6, Sec. 3, Revised
Rules of Court; Rosales vs. Reyes Ordoveza, 25 Phil. 495 ; Cabigao vs. Lim,
50 Phil. 844; Baguiro vs. Barrios Tupas, 77 Phil 120).
WHEREFORE, premises considered, the petition is DENIED. The judgment
appealed from is hereby AFFIRMED with costs against petitioner.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Paras and Sarmiento, JJ., concur.
THIRD DIVISION
G.R. No. 150094 August 18, 2004
FEDERAL EXPRESS CORPORATION, petitioner,
vs.
AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE
COMPANY, INC., respondents.
DECISION
PANGANIBAN, J.:
Basic is the requirement that before suing to recover loss of or damage to
transported goods, the plaintiff must give the carrier notice of the loss or
damage, within the period prescribed by the Warsaw Convention and/or the
airway bill.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court,
challenging the June 4, 2001 Decision2 and the September 21, 2001
Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 58208. The
assailed Decision disposed as follows:
"WHEREFORE, premises considered, the present appeal is hereby
DISMISSED for lack of merit. The appealed Decision of Branch 149 of the
Regional Trial Court of Makati City in Civil Case No. 95-1219, entitled
'American Home Assurance Co. and PHILAM Insurance Co., Inc. v. FEDERAL
EXPRESS CORPORATION and/or CARGOHAUS, INC. (formerly U-
WAREHOUSE, INC.),' is hereby AFFIRMED and REITERATED.
"Costs against the [petitioner and Cargohaus, Inc.]."4
The assailed Resolution denied petitioner's Motion for Reconsideration.
The Facts
The antecedent facts are summarized by the appellate court as follows:
"On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of
Nebraska, USA delivered to Burlington Air Express (BURLINGTON), an agent
of [Petitioner] Federal Express Corporation, a shipment of 109 cartons of
veterinary biologicals for delivery to consignee SMITHKLINE and French
Overseas Company in Makati City, Metro Manila. The shipment was covered
by Burlington Airway Bill No. 11263825 with the words, 'REFRIGERATE
WHEN NOT IN TRANSIT' and 'PERISHABLE' stamp marked on its face. That
same day, Burlington insured the cargoes in the amount of $39,339.00 with
American Home Assurance Company (AHAC). The following day, Burlington
turned over the custody of said cargoes to Federal Express which transported
the same to Manila. The first shipment, consisting of 92 cartons arrived in
Manila on January 29, 1994 in Flight No. 0071-28NRT and was immediately
stored at [Cargohaus Inc.'s] warehouse. While the second, consisting of 17
cartons, came in two (2) days later, or on January 31, 1994, in Flight No.
0071-30NRT which was likewise immediately stored at Cargohaus'
warehouse. Prior to the arrival of the cargoes, Federal Express informed
GETC Cargo International Corporation, the customs broker hired by the
consignee to facilitate the release of its cargoes from the Bureau of Customs,
of the impending arrival of its client's cargoes.
"On February 10, 1994, DARIO C. DIONEDA ('DIONEDA'), twelve (12) days
after the cargoes arrived in Manila, a non-licensed custom's broker who was
assigned by GETC to facilitate the release of the subject cargoes, found out,
while he was about to cause the release of the said cargoes, that the same
[were] stored only in a room with two (2) air conditioners running, to cool the
place instead of a refrigerator. When he asked an employee of Cargohaus
why the cargoes were stored in the 'cool room' only, the latter told him that the
cartons where the vaccines were contained specifically indicated therein that it
should not be subjected to hot or cold temperature. Thereafter, DIONEDA,
upon instructions from GETC, did not proceed with the withdrawal of the
vaccines and instead, samples of the same were taken and brought to the
Bureau of Animal Industry of the Department of Agriculture in the Philippines
by SMITHKLINE for examination wherein it was discovered that the 'ELISA
reading of vaccinates sera are below the positive reference serum.'
"As a consequence of the foregoing result of the veterinary biologics test,
SMITHKLINE abandoned the shipment and, declaring 'total loss' for the
unusable shipment, filed a claim with AHAC through its representative in the
Philippines, the Philam Insurance Co., Inc. ('PHILAM') which recompensed
SMITHKLINE for the whole insured amount of THIRTY NINE THOUSAND
THREE HUNDRED THIRTY NINE DOLLARS ($39,339.00). Thereafter,
[respondents] filed an action for damages against the [petitioner] imputing
negligence on either or both of them in the handling of the cargo.
"Trial ensued and ultimately concluded on March 18, 1997 with the [petitioner]
being held solidarily liable for the loss as follows:
'WHEREFORE, judgment is hereby rendered in favor of [respondents] and
[petitioner and its Co-Defendant Cargohaus] are directed to pay [respondents],
jointly and severally, the following:
1. Actual damages in the amount of the peso equivalent of US$39,339.00 with
interest from the time of the filing of the complaint to the time the same is fully
paid.
2. Attorney's fees in the amount of P50,000.00 and
3. Costs of suit.
'SO ORDERED.'
"Aggrieved, [petitioner] appealed to [the CA]."5
Ruling of the Court of Appeals
The Test Report issued by the United States Department of Agriculture
(Animal and Plant Health Inspection Service) was found by the CA to be
inadmissible in evidence. Despite this ruling, the appellate court held that the
shipping Receipts were a prima facie proof that the goods had indeed been
delivered to the carrier in good condition. We quote from the ruling as follows:
"Where the plaintiff introduces evidence which shows prima facie that the
goods were delivered to the carrier in good condition [i.e., the shipping
receipts], and that the carrier delivered the goods in a damaged condition, a
presumption is raised that the damage occurred through the fault or
negligence of the carrier, and this casts upon the carrier the burden of showing
that the goods were not in good condition when delivered to the carrier, or that
the damage was occasioned by some cause excepting the carrier from
absolute liability. This the [petitioner] failed to discharge. x x x."6
Page 27 of 43
Found devoid of merit was petitioner's claim that respondents had no
personality to sue. This argument was supposedly not raised in the Answer or
during trial.
Hence, this Petition.7
The Issues
In its Memorandum, petitioner raises the following issues for our consideration:
"I.
Are the decision and resolution of the Honorable Court of Appeals proper
subject for review by the Honorable Court under Rule 45 of the 1997 Rules of
Civil Procedure?
"II.
Is the conclusion of the Honorable Court of Appeals – petitioner's claim that
respondents have no personality to sue because the payment was made by
the respondents to Smithkline when the insured under the policy is Burlington
Air Express is devoid of merit – correct or not?
"III.
Is the conclusion of the Honorable Court of Appeals that the goods were
received in good condition, correct or not?
"IV.
Are Exhibits 'F' and 'G' hearsay evidence, and therefore, not admissible?
"V.
Is the Honorable Court of Appeals correct in ignoring and disregarding
respondents' own admission that petitioner is not liable? and
"VI.
Is the Honorable Court of Appeals correct in ignoring the Warsaw
Convention?"8
Simply stated, the issues are as follows: (1) Is the Petition proper for review by
the Supreme Court? (2) Is Federal Express liable for damage to or loss of the
insured goods?
This Court's Ruling
The Petition has merit.
Preliminary Issue:
Propriety of Review
The correctness of legal conclusions drawn by the Court of Appeals from
undisputed facts is a question of law cognizable by the Supreme Court.9
In the present case, the facts are undisputed. As will be shown shortly,
petitioner is questioning the conclusions drawn from such facts. Hence, this
case is a proper subject for review by this Court.
Main Issue:
Liability for Damages
Petitioner contends that respondents have no personality to sue -- thus, no
cause of action against it -- because the payment made to Smithkline was
erroneous.
Pertinent to this issue is the Certificate of Insurance10 ("Certificate") that both
opposing parties cite in support of their respective positions. They differ only in
their interpretation of what their rights are under its terms. The determination
of those rights involves a question of law, not a question of fact. "As
distinguished from a question of law which exists 'when the doubt or difference
arises as to what the law is on a certain state of facts' -- 'there is a question of
fact when the doubt or difference arises as to the truth or the falsehood of
alleged facts'; or when the 'query necessarily invites calibration of the whole
evidence considering mainly the credibility of witnesses, existence and
relevancy of specific surrounding circumstance, their relation to each other
and to the whole and the probabilities of the situation.'"11
Proper Payee
The Certificate specifies that loss of or damage to the insured cargo is
"payable to order x x x upon surrender of this Certificate." Such wording
conveys the right of collecting on any such damage or loss, as fully as if the
property were covered by a special policy in the name of the holder itself. At
the back of the Certificate appears the signature of the representative of
Burlington. This document has thus been duly indorsed in blank and is
deemed a bearer instrument.
Since the Certificate was in the possession of Smithkline, the latter had the
right of collecting or of being indemnified for loss of or damage to the insured
shipment, as fully as if the property were covered by a special policy in the
name of the holder. Hence, being the holder of the Certificate and having an
insurable interest in the goods, Smithkline was the proper payee of the
insurance proceeds.
Subrogation
Upon receipt of the insurance proceeds, the consignee (Smithkline) executed
a subrogation Receipt12 in favor of respondents. The latter were thus
authorized "to file claims and begin suit against any such carrier, vessel,
person, corporation or government." Undeniably, the consignee had a legal
right to receive the goods in the same condition it was delivered for transport
to petitioner. If that right was violated, the consignee would have a cause of
action against the person responsible therefor.
Upon payment to the consignee of an indemnity for the loss of or damage to
the insured goods, the insurer's entitlement to subrogation pro tanto -- being of
the highest equity -- equips it with a cause of action in case of a contractual
breach or negligence.13 "Further, the insurer's subrogatory right to sue for
recovery under the bill of lading in case of loss of or damage to the cargo is
jurisprudentially upheld."14
In the exercise of its subrogatory right, an insurer may proceed against an
erring carrier. To all intents and purposes, it stands in the place and in
substitution of the consignee. A fortiori, both the insurer and the consignee are
bound by the contractual stipulations under the bill of lading.15
Prescription of Claim
From the initial proceedings in the trial court up to the present, petitioner has
tirelessly pointed out that respondents' claim and right of action are already
barred. The latter, and even the consignee, never filed with the carrier any
written notice or complaint regarding its claim for damage of or loss to the
subject cargo within the period required by the Warsaw Convention and/or in
the airway bill. Indeed, this fact has never been denied by respondents and is
plainly evident from the records.
Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states:
"6. No action shall be maintained in the case of damage to or partial loss of
the shipment unless a written notice, sufficiently describing the goods
concerned, the approximate date of the damage or loss, and the details of the
claim, is presented by shipper or consignee to an office of Burlington within
(14) days from the date the goods are placed at the disposal of the person
entitled to delivery, or in the case of total loss (including non-delivery) unless
presented within (120) days from the date of issue of the [Airway Bill]."16
Relevantly, petitioner's airway bill states:
"12./12.1 The person entitled to delivery must make a complaint to the carrier
in writing in the case:
12.1.1 of visible damage to the goods, immediately after discovery of the
damage and at the latest within fourteen (14) days from receipt of the goods;
12.1.2 of other damage to the goods, within fourteen (14) days from the date
of receipt of the goods;
12.1.3 delay, within twenty-one (21) days of the date the goods are placed at
his disposal; and
12.1.4 of non-delivery of the goods, within one hundred and twenty (120) days
from the date of the issue of the air waybill.
12.2 For the purpose of 12.1 complaint in writing may be made to the carrier
whose air waybill was used, or to the first carrier or to the last carrier or to the
carrier who performed the transportation during which the loss, damage or
delay took place."17
Article 26 of the Warsaw Convention, on the other hand, provides:
"ART. 26. (1) Receipt by the person entitled to the delivery of baggage or
goods without complaint shall be prima facie evidence that the same have
been delivered in good condition and in accordance with the document of
transportation.
(2) In case of damage, the person entitled to delivery must complain to the
carrier forthwith after the discovery of the damage, and, at the latest, within 3
days from the date of receipt in the case of baggage and 7 days from the date
of receipt in the case of goods. In case of delay the complaint must be made
at the latest within 14 days from the date on which the baggage or goods have
been placed at his disposal.
(3) Every complaint must be made in writing upon the document of
transportation or by separate notice in writing dispatched within the times
aforesaid.
(4) Failing complaint within the times aforesaid, no action shall lie against the
carrier, save in the case of fraud on his part."18
Condition Precedent
Page 28 of 43
In this jurisdiction, the filing of a claim with the carrier within the time limitation
therefor actually constitutes a condition precedent to the accrual of a right of
action against a carrier for loss of or damage to the goods.19 The shipper or
consignee must allege and prove the fulfillment of the condition. If it fails to do
so, no right of action against the carrier can accrue in favor of the former. The
aforementioned requirement is a reasonable condition precedent; it does not
constitute a limitation of action.20
The requirement of giving notice of loss of or injury to the goods is not an
empty formalism. The fundamental reasons for such a stipulation are (1) to
inform the carrier that the cargo has been damaged, and that it is being
charged with liability therefor; and (2) to give it an opportunity to examine the
nature and extent of the injury. "This protects the carrier by affording it an
opportunity to make an investigation of a claim while the matter is fresh and
easily investigated so as to safeguard itself from false and fraudulent
claims."21
When an airway bill -- or any contract of carriage for that matter -- has a
stipulation that requires a notice of claim for loss of or damage to goods
shipped and the stipulation is not complied with, its enforcement can be
prevented and the liability cannot be imposed on the carrier. To stress, notice
is a condition precedent, and the carrier is not liable if notice is not given in
accordance with the stipulation.22 Failure to comply with such a stipulation
bars recovery for the loss or damage suffered.23
Being a condition precedent, the notice must precede a suit for
enforcement.24 In the present case, there is neither an allegation nor a
showing of respondents' compliance with this requirement within the
prescribed period. While respondents may have had a cause of action then,
they cannot now enforce it for their failure to comply with the aforesaid
condition precedent.
In view of the foregoing, we find no more necessity to pass upon the other
issues raised by petitioner.
We note that respondents are not without recourse. Cargohaus, Inc. --
petitioner's co-defendant in respondents' Complaint below -- has been
adjudged by the trial court as liable for, inter alia, "actual damages in the
amount of the peso equivalent of US $39,339."25 This judgment was affirmed
by the Court of Appeals and is already final and executory.26
WHEREFORE, the Petition is GRANTED, and the assailed Decision
REVERSED insofar as it pertains to Petitioner Federal Express Corporation.
No pronouncement as to costs.
SO ORDERED.
Corona, and Carpio-Morales, JJ., concur.
Sandoval-Gutierrez, J., on leave.
THIRD DIVISION
KEPPEL CEBU SHIPYARD, INC.,
Petitioner,
- versus -
PIONEER INSURANCE AND SURETY CORPORATION,
Respondent.
X----------------------------X
PIONEER INSURANCE AND SURETY CORPORATION,
Petitioner,
- versus -
 1. The Owner shall inform its insurer of Clause 20[7] and 22 (a)[8] (refer at
KEPPEL CEBU SHIPYARD, INC., the back hereof) and shall include Keppel Cebu Shipyard as a co-assured in
its insurance policy.
Respondent.

G.R. Nos. 180880-81 2. The Owner shall waive its right to claim for any loss of profit or loss of
use or damages consequential on such loss of use resulting from the delay in
the redelivery of the above vessel.

3. Owners sub-contractors or workers are not permitted to work in the

yard without the written approval of the Vice President Operations.

4. In consideration of Keppel Cebu Shipyard allowing Owner to carry out

own repairs onboard the vessel, the Owner shall indemnify and hold Keppel
Cebu Shipyard harmless from any or all claims, damages, or liabilities arising
from death or bodily injuries to Owners workers, or damages to the vessel or
other property however caused.
G.R. Nos. 180896-97

Present: 5. On arrival, the Owner Representative, Captain, Chief Officer and Chief
Engineer will be invited to attend a conference with our Production, Safety and
Security personnel whereby they will be briefed on, and given copies of
Shipyard safety regulations.
YNARES-SANTIAGO, J.,*

Chairperson,
6. An adequate number of officers and crew must remain on board at all
CHICO-NAZARIO, times to ensure the safety of the vessel and compliance of safety regulations
by crew and owner employed workmen.
VELASCO, JR.,

NACHURA, and
7. The ships officers/crew or owner appointed security personnel shall
PERALTA, JJ. maintain watch against pilferage and acts of sabotage.

Promulgated: 8. The yard must be informed and instructed to provide the necessary
security arrangement coverage should there be inadequate or no crew on
board to provide the expressed safety and security enforcement.

September 25, 2009

x------------------------------------------------------------------------------------x
DECISION
9. The Owner shall be liable to Keppel Cebu Shipyard for any death
and/or bodily injuries for the [K]eppel Cebu Shipyards employees and/or
contract workers; theft and/or damages to Keppel Cebu Shipyards properties
and other liabilities which are caused by the workers of the Owner.

NACHURA, J.: 10. The invoice shall be based on quotation reference 99-KCSI-211 dated
December 20, 1999 tariff dated March 15, 1998.

Before us are the consolidated petitions filed by the partiesPioneer Insurance

and Surety Corporation[1] (Pioneer) and Keppel Cebu Shipyard, Inc.[2]
(KCSI)to review on certiorari the Decision[3] dated December 17, 2004 and 11. Payment term shall be as follows:
the Amended Decision[4] dated December 20, 2007 of the Court of Appeals
(CA) in CA-G.R. SP Nos. 74018 and 73934.

On January 26, 2000, KCSI and WG&A Jebsens Shipmanagement, Inc.
(WG&A) executed a Shiprepair Agreement[5] wherein KCSI would renovate
and reconstruct WG&As M/V Superferry 3 using its dry docking facilities
pursuant to its restrictive safety and security rules and regulations. Prior to the
execution of the Shiprepair Agreement, Superferry 3 was already insured by
WG&A with Pioneer for US$8,472,581.78. The Shiprepair Agreement reads
12. The Owner and Keppel Cebu Shipyard shall endeavor to settle amicably
any dispute that may arise under this Agreement. Should all efforts for an
amicable settlement fail, the disputes shall be submitted for arbitration in Metro
Manila in accordance with provisions of Executive Order No. 1008 under the
auspices of the Philippine Arbitration Commission.

SHIPREPAIR AGREEMENT[6]
(Signed)

Company: WG & A JEBSENS SHIPMANAGEMENT INC. BARRY CHIA SOO HOCK _________(Signed)__________

Address: Harbour Center II, Railroad & Chicago Sts. (Printed Name/Signature Above Name) (Printed Name/Signature Above
Name)
Port Area, City of Manila

Vice President Operations Authorized Representative

We, WG & A JEBSENS SHIPMGMT. Owner/Operator of M/V SUPERFERRY
3 and KEPPEL CEBU SHIPYARD, INC. (KCSI) enter into an agreement that Keppel Cebu Shipyard, Inc. for and in behalf of:
the Drydocking and Repair of the above-named vessel ordered by the Owners
Authorized Representative shall be carried out under the Keppel Cebu WG & A Jebsens Shipmgmt.
Shipyard Standard Conditions of Contract for Shiprepair, guidelines and
regulations on safety and security issued by Keppel Cebu Shipyard. In
addition, the following are mutually agreed upon by the parties:
JAN. 26, 2000 . ________________________

Page 29 of 43
Date Date
On February 8, 2000, in the course of its repair, M/V Superferry 3 was gutted
by fire. Claiming that the extent of the damage was pervasive, WG&A declared
the vessels damage as a total constructive loss and, hence, filed an insurance
claim with Pioneer.
On June 16, 2000, Pioneer paid the insurance claim of WG&A in the amount
of US$8,472,581.78. WG&A, in turn, executed a Loss and Subrogation
Receipt[9] in favor of Pioneer, to wit:
LOSS AND SUBROGATION RECEIPT
16 June 2000
Our Claim Ref: MH-NIL-H0-99-00018
US$8,472,581.78
------------------------------------------------
RECEIVED from PIONEER INSURANCE & SURETY CORPORATION the
sum of U.S. DOLLARS EIGHT MILLION FOUR HUNDRED SEVENTY-TWO
THOUSAND FIVE HUNDRED EIGHTY-ONE & 78/100 (US$ 8,472,581.78)
equivalent to PESOS THREE HUNDRED SIXTY MILLION & 00/100 (Php
360,000,000.00), in full satisfaction, compromise and discharge of all claims
for loss and expenses sustained to the vessel SUPERFERRY 3 insured under
Policy Nos. MH-H0-99-0000168-00-D (H&M) and MH-H0-99-0000169 (I.V.) by
reason as follows:
Fire on board at Keppel Cebu Shipyard
on 08 February 2000
and in consideration of which the undersigned hereby assigns and transfers to
the said company each and all claims and demands against any person,
persons, corporation or property arising from or connected with such loss or
damage and the said company is subrogated in the place of and to the claims
and demands of the undersigned against said person, persons, corporation or
property in the premises to the extent of the amount above-mentioned.
WILLIAM, GOTHONG & ABOITIZ, INC.
&/OR ABOITIZ SHIPPING CORP.
By: (Signed)
______________________________________
Witnesses: (Signed)
______________________________________
(Signed)
______________________________________
Armed with the subrogation receipt, Pioneer tried to collect from KCSI, but the
latter denied any responsibility for the loss of the subject vessel. As KCSI
continuously refused to pay despite repeated demands, Pioneer, on August 7,
2000, filed a Request for Arbitration before the Construction Industry
Arbitration Commission (CIAC) docketed as CIAC Case No. 21-2000, seeking
the following reliefs:
1. To pay to the claimant Pioneer Insurance and Surety Corporation
the sum of U.S.$8,472,581.78 or its equivalent amount in Philippine Currency,
plus interest thereon computed from the date of the Loss and Subrogation
Receipt on 16 June 2000 or from the date of filing of [the] Request for
Arbitration, as may be found proper;
2. To pay to claimant WG&A, INC. and/or Aboitiz Shipping
Corporation and WG&A Jebsens Shipmanagement, Inc. the sum of
P500,000,000.00 plus interest thereon from the date of filing [of the] Request
for Arbitration or date of the arbitral award, as may be found proper;
Page 30 of 43
3. To pay to the claimants herein the sum of P3,000,000.00 for and
as attorneys fees; plus other damages as may be established during the
proceedings, including arbitration fees and other litigation expenses, and the
costs of suit.
It is likewise further prayed that Clauses 1 and 2 on the unsigned page 1 of the
Shiprepair Agreement (Annex A) as well as the hardly legible Clauses 20 and
22 (a) and other similar clauses printed in very fine print on the unsigned
dorsal page thereof, be all declared illegal and void ab initio and without any
legal effect whatsoever.[10]
KCSI and WG&A reached an amicable settlement, leading the latter to file a
Notice of Withdrawal of Claim on April 17, 2001 with the CIAC. The CIAC
granted the withdrawal on October 22, 2001, thereby dismissing the claim of
WG&A against KCSI. Hence, the arbitration proceeded with Pioneer as the
remaining claimant.
In the course of the proceedings, Pioneer and KCSI stipulated, among others,
that: (1) on January 26, 2000, M/V Superferry 3 arrived at KCSI in Lapu-Lapu
City, Cebu, for dry docking and repairs; (2) on the same date, WG&A signed a
ship repair agreement with KCSI; and (3) a fire broke out on board M/V
Superferry 3 on February 8, 2000, while still dry docked in KCSIs shipyard.[11]
As regards the disputed facts, below are the respective positions of the
parties, viz.:
Pioneers Theory of the Case:
First, Pioneer (as Claimant) is the real party in interest in this case and that
Pioneer has been subrogated to the claim of its assured. The Claimant claims
that it has the preponderance of evidence over that of the Respondent.
Claimant cited documentary references on the Statutory Source of the
Principle of Subrogation. Claimant then proceeded to explain that the Right of
Subrogation:
Is by Operation of Law
exists in Property Insurance
is not Dependent Upon Privity of Contract.
Claimant then argued that Payment Operates as Equitable Assignment of
Rights to Insurer and that the Right of Subrogation Entitles Insurer to Recover
from the Liable Party.
Second, Respondent Keppel had custody of and control over the M/V
Superferry 3 while said vessel was in Respondent Keppels premises. In its
Draft Decision, Claimant stated:
A. The evidence presented during the hearings indubitably proves
that respondent not only took custody but assumed responsibility and control
over M/V Superferry 3 in carrying out the dry-docking and repair of the vessel.
B. The presence on board the M/V Superferry 3 of its officers and
crew does not relieve the respondent of its responsibility for said vessel.
C. Respondent Keppel assumed responsibility over M/V Superferry
3 when it brought the vessel inside its graving dock and applied its own safety
rules to the dry-docking and repairs of the vessel.
D. The practice of allowing a shipowner and its sub-contractors to
perform maintenance works while the vessel was within respondents premises
does not detract from the fact that control and custody over M/V Superferry 3
was transferred to the yard.
From the preceding statements, Claimant claims that Keppel is clearly liable
for the loss of M/V Superferry 3.
Third, the Vessels Safety Manual cannot be relied upon as proof of the
Masters continuing control over the vessel.
Fourth, the Respondent Yard is liable under the Doctrine of Res Ipsa Loquitur.
According to Claimant, the Yard is liable under the ruling laid down by the
Supreme Court in the Manila City case. Claimant asserts that said ruling is
applicable hereto as The Law of the Case.
Fifth, the liability of Respondent does not arise merely from the application of
the Doctrine of Res Ipsa Loquitur, but from its negligence in this case.
Sixth, the Respondent Yard was the employer responsible for the negligent
acts of the welder. According to Claimant;
In contemplation of law, Sevillejo was not a loaned servant/employee. The
yard, being his employer, is solely and exclusively liable for his negligent acts.
Claimant proceeded to enumerate its reasons:
A. The Control Test The yard exercised control over Sevillejo. The
power of control is not diminished by the failure to exercise control.
B. There was no independent work contract between Joniga and
Sevillejo Joniga was not the employer of Sevillejo, as Sevillejo remained an
employee of the yard at the time the loss occurred.
C. The mere fact that Dr. Joniga requested Sevillejo to perform
some of the Owners hot works under the 26 January 2000 work order did not
make Dr. Joniga the employer of Sevillejo.
Claimant proffers that Dr. Joniga was not a Contractor of the Hot Work Done
on Deck A. Claimant argued that:
A. The yard, not Dr. Joniga, gave the welders their marching orders,
and
B. Dr. Jonigas authority to request the execution of owners hot
works in the passenger areas was expressly recognized by the Yard Project
Superintendent Orcullo.
Seventh, the shipowner had no legal duty to apply for a hotworks permit since
it was not required by the yard, and the owners hotworks were conducted by
welders who remained employees of the yard. Claimant contends that the
need, if any, for an owners application for a hot work permit was canceled out
by the yards actual knowledge of Sevillejos whereabouts and the fact that he
was in deck A doing owners hotworks.
Eight[h], in supplying welders and equipment as per The Work Order Dated 26
January 2000, the Yard did so at its own risk, and acted as a Less Than
Prudent Ship Repairer.
The Claimant then disputed the statements of Manuel Amagsila by claiming
that Amagsila was a disgruntled employee. Nevertheless, Claimant claims that
Amagsila affirmed that the five yard welders never became employees of the
owner so as to obligate the latter to be responsible for their conduct and
performance.
Claimant enumerated further badges of yard negligence.
Page 31 of 43
According to Claimant:
A. Yards water supply was inadequate.
B. Yard Fire Fighting Efforts and Equipment Were Inadequate.
C. Yard Safety Practices and Procedures Were Unsafe or Inadequate.
D. Yard Safety Assistants and Firewatch-Men were Overworked.
Finally, Claimant disputed the theories propounded by the Respondent (The
Yard). Claimant presented its case against:
(i) Non-removal of the life jackets theory.
(ii) Hole-in-the[-]floor theory.
(iii) Need for a plan theory.
(iv) The unauthorized hot works theory.
(v) The Marina report theory.
The Claimant called the attention of the Tribunal (CIAC) on the non-
appearance of the welder involved in the cause of the fire, Mr. Severino
Sevillejo. Claimant claims that this is suppression of evidence by Respondent.
KCSIs Theory of the Case
1. The Claimant has no standing to file the Request for Arbitration and the
Tribunal has no jurisdiction over the case:
(a) There is no valid arbitration agreement between the Yard and the
Vessel Owner. On January 26, 2000, when the ship repair agreement (which
includes the arbitration agreement) was signed by WG&A Jebsens on behalf
of the Vessel, the same was still owned by Aboitiz Shipping. Consequently,
when another firm, WG&A, authorized WG&A Jebsens to manage the MV
Superferry 3, it had no authority to do so. There is, as a result, no binding
arbitration agreement between the Vessel Owner and the Yard to which the
Claimant can claim to be subrogated and which can support CIAC jurisdiction.
(b) The Claimant is not a real party in interest and has no standing
because it has not been subrogated to the Vessel Owner. For the reason
stated above, the insurance policies on which the Claimant bases its right of
subrogation were not validly obtained. In any event, the Claimant has not been
subrogated to any rights which the Vessel may have against the Yard
because:
i. The Claimant has not proved payment of the proceeds of the
policies to any specific party. As a consequence, it has also not proved
payment to the Vessel Owner.
ii. The Claimant had no legally demandable obligation to pay
under the policies and did so only voluntarily. Under the policies, the Claimant
and the Vessel agreed that there is no Constructive Total Loss unless the
expense of recovering and repairing the vessel would exceed the Agreed
Value of P360 million assigned by the parties to the Vessel, a threshold which
the actual repair cost for the Vessel did not reach. Since the Claimant opted to
pay contrary to the provisions of the policies, its payment was voluntary, and
there was no resulting subrogation to the Vessel.
iii. There was also no subrogation under Article 1236 of the Civil
Code. First, if the Claimant asserts a right of payment only by virtue of Article
1236, then there is no legal subrogation under Article 2207 and it does not
succeed to the Vessels rights under the Ship [R]epair Agreement and the
arbitration agreement. It does not have a right to demand arbitration and will
have only a purely civil law claim for reimbursement to the extent that its
payment benefited the Yard which should be filed in court. Second, since the
Yard is not liable for the fire and the resulting damage to the Vessel, then it
derived no benefit from the Claimants payment to the Vessel Owner. Third, in
any event, the Claimant has not proved payment of the proceeds to the Vessel
Owner.
2. The Ship [R]epair Agreement was not imposed upon the Vessel. The
Vessel knowingly and voluntarily accepted that agreement. Moreover, there
are no signing or other formal defects that can invalidate the agreement.
3. The proximate cause of the fire and damage to the Vessel was not any
negligence committed by Angelino Sevillejo in cutting the bulkhead door or
any other shortcoming by the Yard. On the contrary, the proximate cause of
the fire was Dr. Jonigas and the Vessels deliberate decision to have Angelino
Sevillejo undertake cutting work in inherently dangerous conditions created by
them.
(a) The Claimants material witnesses lied on the record and the
Claimant presented no credible proof of any negligence by Angelino Sevillejo.
(b) Uncontroverted evidence proved that Dr. Joniga neglected or
decided not to obtain a hot work permit for the bulkhead cutting and also
neglected or refused to have the ceiling and the flammable lifejackets removed
from underneath the area where he instructed Angelino Sevillejo to cut the
bulkhead door. These decisions or oversights guaranteed that the cutting
would be done in extremely hazardous conditions and were the proximate
cause of the fire and the resulting damage to the Vessel.
(c) The Yards expert witness, Dr. Eric Mullen gave the only credible
account of the cause and the mechanics of ignition of the fire. He established
that: i) the fire started when the cutting of the bulkhead door resulted in sparks
or hot molten slag which fell through pre-existing holes on the deck floor and
came into contact with and ignited the flammable lifejackets stored in the
ceiling void directly below; and ii) the bottom level of the bulkhead door was
immaterial, because the sparks and slag could have come from the cutting of
any of the sides of the door. Consequently, the cutting itself of the bulkhead
door under the hazardous conditions created by Dr. Joniga, rather than the
positioning of the doors bottom edge, was the proximate cause of the fire.
(d) The Manila City case is irrelevant to this dispute and in any case,
does not establish governing precedent to the effect that when a ship is
damaged in dry dock, the shipyard is presumed at fault. Apart from the
differences in the factual setting of the two cases, the Manila City
pronouncements regarding the res ipsa loquitur doctrine are obiter dicta
without value as binding precedent. Furthermore, even if the principle were
applied to create a presumption of negligence by the Yard, however, that
presumption is conclusively rebutted by the evidence on record.
(e) The Vessels deliberate acts and its negligence created the
inherently hazardous conditions in which the cutting work that could otherwise
be done safely ended up causing a fire and the damage to the Vessel. The fire
was a direct and logical consequence of the Vessels decisions to: (1) take
Angelino Sevillejo away from his welding work at the Promenade Deck
restaurant and instead to require him to do unauthorized cutting work in Deck
A; and (2) to have him do that without satisfying the requirements for and
obtaining a hot work permit in violation of the Yards Safety Rules and without
removing the flammable ceiling and life jackets below, contrary to the
requirements not only of the Yards Safety Rules but also of the demands of
standard safe practice and the Vessels own explicit safety and hot work
policies.
(f) The vessel has not presented any proof to show that the Yard was
remiss in its fire fighting preparations or in the actual conduct of fighting the 8
February 2000 fire. The Yard had the necessary equipment and trained
personnel and employed all those resources immediately and fully to putting
out the 8 February 2000 fire.
4. Even assuming that Angelino Sevillejo cut the bulkhead door close to
the deck floor, and that this circumstance rather than the extremely hazardous
conditions created by Dr. Joniga and the Vessel for that activity caused the
fire, the Yard may still not be held liable for the resulting damage.
(a) The Yards only contractual obligation to the Vessel in respect of
the 26 January 2000 Work Order was to supply welders for the Promenade
Deck restaurant who would then perform welding work per owner[s]
instruction. Consequently, once it had provided those welders, including
Angelino Sevillejo, its obligation to the Vessel was fully discharged and no
Page 32 of 43
claim for contractual breach, or for damages on account thereof, may be
raised against the Yard.
(b) The Yard is also not liable to the Vessel/Claimant on the basis of
quasi-delict.
i. The Vessel
exercised supervision and control over Angelino Sevillejo when he was doing
work at the Promenade Deck restaurant and especially when he was
instructed by Dr. Joniga to cut the bulkhead door. Consequently, the Vessel
was the party with actual control over his tasks and is deemed his true and
effective employer for purposes of establishing Article 2180 employer liability.
ii. Even assuming that
the Yard was Angelino Sevillejos employer, the Yard may nevertheless not be
held liable under Article 2180 because Angelino Sevillejo was acting beyond
the scope of his tasks assigned by the Yard (which was only to do welding for
the Promenade Deck restaurant) when he cut the bulkhead door pursuant to
instructions given by the Vessel.
iii. The Yard is
nonetheless not liable under Article 2180 because it exercised due diligence in
the selection and supervision of Angelino Sevillejo.
5. Assuming that the Yard is liable, it cannot be compelled to pay the full
amount of P360 million paid by the Claimant.
(a) Under the law, the Yard may not be held liable to the Claimant, as
subrogee, for an amount greater than that which the Vessel could have
recovered, even if the Claimant may have paid a higher amount under its
policies. In turn, the right of the Vessel to recover is limited to actual damage
to the MV Superferry 3, at the time of the fire.
(b) Under the Ship [R]epair Agreement, the liability of the Yard is
limited to P50 million a stipulation which, under the law and decisions of the
Supreme Court, is valid, binding and enforceable.
(c) The Vessel breached its obligation under Clause 22 (a) of the
Yards Standard Terms to name the Yard as co-assured under the policies a
breach which makes the Vessel liable for damages. This liability should in turn
be set-off against the Claimants claim for damages.
The Respondent listed what it believes the Claimant wanted to impress upon
the Tribunal. Respondent enumerated and disputed these as follows:
1. Claimants counsel contends that the cutting of the bulkhead door
was covered by the 26 January 2000 Work Order.
2. Claimants counsel contends that Dr. Joniga told Gerry Orcullo
about his intention to have Angelino Sevillejo do cutting work at the Deck A
bulkhead on the morning of 8 February 2000.
3. Claimants counsel contends that under Article 1727 of the Civil
Code, The contractor is responsible for the work done by persons employed
by him.
4. Claimants counsel contends that [t]he second reason why there
was no job spec or job order for this cutting work, [is] the cutting work was
known to the yard and coordinated with Mr. Gerry Orcullo, the yard project
superintendent.
5. Claimants counsel also contends, to make the Vessels
unauthorized hot works activities seem less likely, that they could easily be
detected because Mr. Avelino Aves, the Yard Safety Superintendent, admitted
that No hot works could really be hidden from the Yard, your Honors, because
the welding cables and the gas hoses emanating from the dock will give these
hotworks away apart from the assertion and the fact that there were also
safety assistants supposedly going around the vessel.
Respondent disputed the above by presenting its own argument in its Final
Memorandum.[12]

On October 28, 2002, the CIAC rendered its Decision[13] declaring both
WG&A and KCSI guilty of negligence, with the following findings and
conclusions
1. Pioneers Motion for Reconsideration is PARTIALLY GRANTED, ordering
The Yard to pay Pioneer P25 Million, without legal interest, within 15 days
from the finality of this Amended Decision, subject to the following
modifications:

1.1 Pioneers Petition (CA-G.R. SP No. 74018) is PARTIALLY GRANTED as

the Yard is hereby ordered to pay Pioneer P25 Million without legal interest;
The Tribunal agrees that the contractual obligation of the Yard is to provide the
welders and equipment to the promenade deck. [The] Tribunal agrees that the
cutting of the bulkhead door was not a contractual obligation of the Yard.
However, by requiring, according to its own regulations, that only Yard welders 2. The Yard is hereby declared as equally negligent, thus, the total
are to undertake hotworks, it follows that there are certain qualifications of GRANTING of its Petition (CA-G.R. SP No. 73934) is now reduced to
Yard welders that would be requisite of yard welders against those of the PARTIALLY GRANTED, in so far as it is ordered to pay Pioneer P25 Million,
vessel welders. To the Tribunal, this means that yard welders are aware of the without legal interest, within 15 days from the finality of this Amended
Yard safety rules and regulations on hotworks such as applying for a hotwork Decision; and
permit, discussing the work in a production meeting, and complying with the
conditions of the hotwork permit prior to implementation. By the requirement
that all hotworks are to be done by the Yard, the Tribunal finds that Sevillejo
remains a yard employee. The act of Sevillejo is however mitigated in that he 3. The rest of the disposition in the original Decision remains the same.
was not even a foreman, and that the instructions to him was (sic) by an
authorized person. The Tribunal notes that the hotworks permit require[s] a
request by at least a foreman. The fact that no foreman was included in the
five welders issued to the Vessel was never raised in this dispute. As SO ORDERED.[18]
discussed earlier by the Tribunal, with the fact that what was ask (sic) of
Sevillejo was outside the work order, the Vessel is considered equally
negligent. This Tribunal finds the concurrent negligence of the Yard through
Sevillejo and the Vessel through Dr. Joniga as both contributory to the cause
of the fire that damaged the vessel.[14]
Hence, these petitions. Pioneer bases its petition on the following grounds:

Holding that the liability for damages was limited to P50,000,000.00, the CIAC
ordered KCSI to pay Pioneer the amount of P25,000,000.00, with interest at
6% per annum from the time of the filing of the case up to the time the
decision is promulgated, and 12% interest per annum added to the award, or
any balance thereof, after it becomes final and executory. The CIAC further
ordered that the arbitration costs be imposed on both parties on a pro rata
basis.[15]
I
THE COURT OF APPEALS ERRED IN BASING ITS ORIGINAL DECISION
ON NON-FACTS LEADING IT TO MAKE FALSE LEGAL CONCLUSIONS;
NON-FACTS REMAIN TO INVALIDATE THE AMENDED DECISION. THIS
ALSO VIOLATES SECTION 14, ARTICLE VIII OF THE CONSTITUTION.

Pioneer appealed to the CA and its petition was docketed as CA-G.R. SP No. II
74018. KCSI likewise filed its own appeal and the same was docketed as CA-
G.R. SP No. 73934. The cases were consolidated.

THE COURT OF APPEALS ERRED IN LIMITING THE LEGAL LIABILITY OF

THE YARD TO THE SUM OF P50,000,000.00, IN THAT:
On December 17, 2004, the Former Fifteenth Division of the CA rendered its
Decision, disposing as follows:

A. STARE DECISIS RENDERS INAPPLICABLE ANY INVOCATION OF

LIMITED LIABILITY BY THE YARD.
WHEREFORE, premises considered, the Petition of Pioneer (CA-G.R. SP No.
74018) is DISMISSED while the Petition of the Yard (CA-G.R. SP No. 73934)
is GRANTED, dismissing petitioners claims in its entirety. No costs.
B. THE LIMITATION CLAUSE IS CONTRARY TO PUBLIC POLICY.

The Yard and The WG&A are hereby ordered to pay the arbitration costs pro-
rata. C. THE VESSEL OWNER DID NOT AGREE THAT THE YARDS LIABILITY
FOR LOSS OR DAMAGE TO THE VESSEL ARISING FROM YARDS
NEGLIGENCE IS LIMITED TO THE SUM OF P50,000,000.00 ONLY.

SO ORDERED.[16]

D. IT IS INIQUITOUS TO ALLOW THE YARD TO LIMIT LIABILITY, IN THAT:

Aggrieved, Pioneer sought reconsideration of the December 17, 2004
Decision, insisting that it suffered from serious errors in the appreciation of the
evidence and from gross misapplication of the law and jurisprudence on
negligence. KCSI, for its part, filed a motion for partial reconsideration of the
same Decision.
(i) THE YARD HAD CUSTODY AND CONTROL OVER THE VESSEL (M/V
SUPERFERRY 3) ON 08 FEBRUARY 2000 WHEN IT WAS GUTTED BY
FIRE;

(ii) THE DAMAGING FIRE INCIDENT HAPPENED IN THE COURSE OF THE

REPAIRS EXCLUSIVELY PERFORMED BY YARD WORKERS.
On December 20, 2007, an Amended Decision was promulgated by the
Special Division of Five Former Fifteenth Division of the CA in light of the
dissent of Associate Justice Lucas P. Bersamin,[17] joined by Associate
Justice Japar B. Dimaampao. The fallo of the Amended Decision reads III

WHEREFORE, premises considered, the Court hereby decrees that: THE COURT OF APPEALS ERRED IN ITS RULING THAT WG&A WAS
CONCURRENTLY NEGLIGENT, CONSIDERING THAT:

Page 33 of 43
A. DR. JONIGA, THE VESSELS PASSAGE TEAM LEADER, DID NOT
SUPERVISE OR CONTROL THE REPAIRS.
B. IT WAS THE YARD THROUGH ITS PROJECT SUPERINTENDENT
GERMINIANO ORCULLO THAT SUPERVISED AND CONTROLLED THE
REPAIR WORKS.
C. SINCE ONLY YARD WELDERS COULD PERFORM HOT WORKS IT
FOLLOWS THAT THEY ALONE COULD BE GUILTY OF NEGLIGENCE IN
DOING THE SAME.
D. THE YARD AUTHORIZED THE HOT WORK OF YARD WELDER
ANGELINO SEVILLEJO.
E. THE NEGLIGENCE OF ANGELINO SEVILLEJO WAS THE PROXIMATE
CAUSE OF THE LOSS.
F. WG&A WAS NOT GUILTY OF NEGLIGENCE, BE IT DIRECT OR
CONTRIBUTORY TO THE LOSS.
IV
THE COURT OF APPEALS CORRECTLY RULED THAT WG&A SUFFERED
A CONSTRUCTIVE TOTAL LOSS OF ITS VESSEL BUT ERRED BY NOT
HOLDING THAT THE YARD WAS LIABLE FOR THE VALUE OF THE FULL
CONSTRUCTIVE TOTAL LOSS.
V Superferry 3 be imputed?
THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD LIABLE
FOR INTEREST.
VI
THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD SOLELY
LIABLE FOR ARBITRATION COSTS.[19]
On the other hand, KCSI cites the following grounds for the allowance of its
petition, to wit:
1. ABSENCE OF YARD RESPONSIBILITY
IT WAS GRIEVOUS ERROR FOR THE COURT OF APPEALS TO ADOPT,
WITHOUT EXPLANATION, THE CIACS RULING THAT THE YARD WAS
EQUALLY NEGLIGENT BECAUSE OF ITS FAILURE TO REQUIRE A HOT
WORKS PERMIT FOR THE CUTTING WORK DONE BY ANGELINO
SEVILLEJO, AFTER THE COURT OF APPEALS ITSELF HAD SHOWN
THAT RULING TO BE COMPLETELY WRONG AND BASELESS.
2. NO CONSTRUCTIVE TOTAL LOSS
IT WAS EQUALLY GRIEVOUS ERROR FOR THE COURT OF APPEALS TO
RULE, WITHOUT EXPLANATION, THAT THE VESSEL WAS A
CONSTRUCTIVE TOTAL LOSS AFTER HAVING ITSELF EXPLAINED WHY
THE VESSEL COULD NOT BE A CONSTRUCTIVE TOTAL LOSS.
Page 34 of 43
3. FAILURE OR REFUSAL TO ADDRESS
KEPPELS MOTION FOR RECONSIDERATION
FINALLY, IT WAS ALSO GRIEVOUS ERROR FOR THE COURT OF
APPEALS TO HAVE EFFECTIVELY DENIED, WITHOUT ADDRESSING IT
AND ALSO WITHOUT EXPLANATION, KEPPELS PARTIAL MOTION FOR
RECONSIDERATION OF THE ORIGINAL DECISION WHICH SHOWED: 1)
WHY PIONEER WAS NOT SUBROGATED TO THE RIGHTS OF THE
VESSEL OWNER AND SO HAD NO STANDING TO SUE THE YARD; 2)
WHY KEPPEL MAY NOT BE REQUIRED TO REIMBURSE PIONEERS
PAYMENTS TO THE VESSEL OWNER IN VIEW OF THE CO-INSURANCE
CLAUSE IN THE SHIPREPAIR AGREEMENT; AND 3) WHY PIONEER
ALONE SHOULD BEAR THE COSTS OF ARBITRATION.
4. FAILURE TO CREDIT FOR SALVAGE RECOVERY
EVEN IF THE COURT OF APPEALS RULINGS ON ALL OF THE
FOREGOING ISSUES WERE CORRECT AND THE YARD MAY PROPERLY
BE HELD EQUALLY LIABLE FOR THE DAMAGE TO THE VESSEL AND
REQUIRED TO PAY HALF OF THE DAMAGES AWARDED (P25 MILLION),
THE COURT OF APPEALS STILL ERRED IN NOT DEDUCTING THE
SALVAGE VALUE OF THE VESSEL RECOVERED AND RECEIVED BY THE
INSURER, PIONEER, TO REDUCE ANY LIABILITY ON THE PART OF THE
YARD TO P9.874 MILLION.[20]
To our minds, these errors assigned by both Pioneer and KCSI may be
summed up in the following core issues:
A. To whom may negligence over the fire that broke out on board M/V
B. Is subrogation proper? If proper, to what extent can subrogation be made?
C. Should interest be imposed on the award of damages? If so, how much?
D. Who should bear the cost of the arbitration?
To resolve these issues, it is imperative that we digress from the general rule
that in petitions for review under Rule 45 of the Rules of Court, only questions
of law shall be entertained. Considering the disparate findings of fact of the
CIAC and the CA which led them to different conclusions, we are constrained
to revisit the factual circumstances surrounding this controversy.[21]
The Courts Ruling
A. The issue of negligence
Undeniably, the immediate cause of the fire was the hot work done by
Angelino Sevillejo (Sevillejo) on the accommodation area of the vessel,
specifically on Deck A. As established before the CIAC
The fire broke out shortly after 10:25 and an alarm was raised (Exh. 1-Ms. Aini
Ling,[22] p. 20). Angelino Sevillejo tried to put out the fire by pouring the
contents of a five-liter drinking water container on it and as he did so, smoke
came up from under Deck A. He got another container of water which he also
poured whence the smoke was coming. In the meantime, other workers in the
immediate vicinity tried to fight the fire by using fire extinguishers and buckets
of water. But because the fire was inside the ceiling void, it was extremely
difficult to contain or extinguish; and it spread rapidly because it was not
possible to direct water jets or the fire extinguishers into the space at the
source. Fighting the fire was extremely difficult because the life jackets and the
construction materials of the Deck B ceiling were combustible and permitted
the fire to spread within the ceiling void. From there, the fire dropped into the
Deck B accommodation areas at various locations, where there were
combustible materials. Respondent points to cans of paint and thinner, in
addition to the plywood partitions and foam mattresses on deck B (Exh. 1-
Mullen,[23] pp. 7-8, 18; Exh. 2-Mullen, pp. 11-12).[24]
Pioneer contends that KCSI should be held liable because Sevillejo was its
employee who, at the time the fire broke out, was doing his assigned task, and
that KCSI was solely responsible for all the hot works done on board the
vessel. KCSI claims otherwise, stating that the hot work done was beyond the
scope of Sevillejos assigned tasks, the same not having been authorized
under the Work Order[25] dated January 26, 2000 or under the Shiprepair
Agreement. KCSI further posits that WG&A was itself negligent, through its
crew, particularly Dr. Raymundo Joniga (Dr. Joniga), for failing to remove the
life jackets from the ceiling void, causing the immediate spread of the fire to
the other areas of the ship.
We rule in favor of Pioneer.
First. The Shiprepair Agreement is clear that WG&A, as owner of M/V
Superferry 3, entered into a contract for the dry docking and repair of the
vessel under KCSIs Standard Conditions of Contract for Shiprepair, and its
guidelines and regulations on safety and security. Thus, the CA erred when it
said that WG&A would renovate and reconstruct its own vessel merely using
the dry docking facilities of KCSI.
Second. Pursuant to KCSIs rules and regulations on safety and security, only
employees of KCSI may undertake hot works on the vessel while it was in the
graving dock in Lapu-Lapu City, Cebu. This is supported by Clause 3 of the
Shiprepair Agreement requiring the prior written approval of KCSIs Vice
President for Operations before WG&A could effect any work performed by its
own workers or sub-contractors. In the exercise of this authority, KCSIs Vice-
President for Operations, in the letter dated January 2, 1997, banned any hot
works from being done except by KCSIs workers, viz.:
The Yard will restrict all hot works in the engine room, accommodation cabin,
and fuel oil tanks to be carried out only by shipyard workers x x x.[26]
WG&A recognized and complied with this restrictive directive such that, during
the arrival conference on January 26, 2000, Dr. Joniga, the vessels passage
team leader in charge of its hotel department, specifically requested KCSI to
finish the hot works started by the vessels contractors on the passenger
accommodation decks.[27] This was corroborated by the statements of the
vessels hotel manager Marcelo Rabe[28] and the vessels quality control
officer Joselito Esteban.[29] KCSI knew of the unfinished hot works in the
passenger accommodation areas. Its safety supervisor Esteban Cabalhug
confirmed that KCSI was aware that the owners of this vessel (M/V Superferry
3) had undertaken their own (hot) works prior to arrival alongside (sic) on 26th
January, and that no hot work permits could thereafter be issued to WG&As
own workers because this was not allowed for the Superferry 3.[30] This
shows that Dr. Joniga had authority only to request the performance of hot
works by KCSIs welders as needed in the repair of the vessel while on dry
dock.
Third. KCSI welders covered by the Work Order performed hot works on
various areas of the M/V Superferry 3, aside from its promenade deck. This
was a recognition of Dr. Jonigas authority to request the conduct of hot works
even on the passenger accommodation decks, subject to the provision of the
January 26, 2000 Work Order that KCSI would supply welders for the
promenade deck of the ship.
At the CIAC proceedings, it was adequately shown that between February 4
and 6, 2000, the welders of KCSI: (a) did the welding works on the ceiling
hangers in the lobby of Deck A; (b) did the welding and cutting works on the
deck beam to access aircon ducts; and (c) did the cutting and welding works
on the protection bars at the tourist dining salon of Deck B,[31] at a rate of
P150.00/welder/hour.[32] In fact, Orcullo, Project Superintendent of KCSI,
admitted that as early as February 3, 2000 (five days before the fire) [the Yard]
Page 35 of 43
had acknowledged Dr. Jonigas authority to order such works or additional
jobs.[33]
It is evident, therefore, that although the January 26, 2000 Work Order was a
special order for the supply of KCSI welders to the promenade deck, it was not
restricted to the promenade deck only. The Work Order was only a special
arrangement between KCSI and WG&A that meant additional cost to the
latter.
Fourth. At the time of the fire, Sevillejo was an employee of KCSI and was
subject to the latters direct control and supervision.
Indeed, KCSI was the employer of Sevillejopaying his salaries; retaining the
power and the right to discharge or substitute him with another welder;
providing him and the other welders with its equipment; giving him and the
other welders marching orders to work on the vessel; and monitoring and
keeping track of his and the other welders activities on board, in view of the
delicate nature of their work.[34] Thus, as such employee, aware of KCSIs
Safety Regulations on Vessels Afloat/Dry, which specifically provides that (n)o
hotwork (welding/cutting works) shall be done on board [the] vessel without [a]
Safety Permit from KCSI Safety Section,[35] it was incumbent upon Sevillejo
to obtain the required hot work safety permit before starting the work he did,
including that done on Deck A where the fire started.
Fifth. There was a lapse in KCSIs supervision of Sevillejos work at the time the
fire broke out.
It was established that no hot works could be hidden from or remain
undetected by KCSI because the welding cables and the gas hoses
emanating from the dock would give the hot works away. Moreover, KCSI had
roving fire watchmen and safety assistants who were moving around the
vessel.[36] This was confirmed by Restituto Rebaca (Rebaca), KCSIs Safety
Supervisor, who actually spotted Sevillejo on Deck A, two hours before the
fire, doing his cutting work without a hot work permit, a fire watchman, or a fire
extinguisher. KCSI contends that it did its duty when it prohibited Sevillejo from
continuing the hot work. However, it is noteworthy that, after purportedly
scolding Sevillejo for working without a permit and telling him to stop until the
permit was acquired and the other safety measures were observed, Rebaca
left without pulling Sevillejo out of the work area or making sure that the latter
did as he was told. Unfortunately for KCSI, Sevillejo reluctantly proceeded with
his cutting of the bulkhead door at Deck A after Rebaca left, even disregarding
the 4-inch marking set, thus cutting the door level with the deck, until the fire
broke out.
This conclusion on the failure of supervision by KCSI was absolutely
supported by Dr. Eric Mullen of the Dr. J.H. Burgoyne & Partners
(International) Ltd., Singapore, KCSIs own fire expert, who observed that
4.3. The foregoing would be compounded by Angelino Sevillejo being an
electric arc welder, not a cutter. The dangers of ignition occurring as a result of
the two processes are similar in that both electric arc welding and hot cutting
produce heat at the work area and sparks and incendive material that can
travel some distance from the work area. Hence, the safety precautions that
are expected to be applied by the supervisor are the same for both types of
work. However, the quantity and incendivity of the spray from the hot cutting
are much greater than those of sparks from electric arc welding, and it may
well be that Angelino Sevillejo would not have a full appreciation of the
dangers involved. This made it all the more important that the supervisor, who
should have had such an appreciation, ensured that the appropriate safety
precautions were carried out.[37]
In this light, therefore, Sevillejo, being one of the specially trained welders
specifically authorized by KCSI to do the hot works on M/V Superferry 3 to the
exclusion of other workers, failed to comply with the strict safety standards of
KCSI, not only because he worked without the required permit, fire watch, fire
buckets, and extinguishers, but also because he failed to undertake other
precautionary measures for preventing the fire. For instance, he could have, at
the very least, ensured that whatever combustible material may have been in
the vicinity would be protected from the sparks caused by the welding torch.
He could have easily removed the life jackets from the ceiling void, as well as
the foam mattresses, and covered any holes where the sparks may enter.
Conjunctively, since Rebaca was already aware of the hazard, he should have
taken all possible precautionary measures, including those above mentioned,
before allowing Sevillejo to continue with his hot work on Deck A. In addition to
scolding Sevillejo, Rebaca merely checked that no fire had started yet.
Nothing more. Also, inasmuch as KCSI had the power to substitute Sevillejo
with another electric arc welder, Rebaca should have replaced him.
There is negligence when an act is done without exercising the competence
that a reasonable person in the position of the actor would recognize as
necessary to prevent an unreasonable risk of harm to another. Those who
undertake any work calling for special skills are required to exercise
reasonable care in what they do.[38] Verily, there is an obligation all persons
have to take due care which, under ordinary circumstances of the case, a
reasonable and prudent man would take. The omission of that care constitutes
negligence. Generally, the degree of care required is graduated according to
the danger a person or property may be subjected to, arising from the activity
that the actor pursues or the instrumentality that he uses. The greater the
danger, the greater the degree of care required. Extraordinary risk demands
extraordinary care. Similarly, the more imminent the danger, the higher degree
of care warranted.[39] In this aspect,
KCSI failed to exercise the necessary degree of caution and foresight called
for by the circumstances.
We cannot subscribe to KCSIs position that WG&A, through Dr. Joniga, was
negligent.
On the one hand, as discussed above, Dr. Joniga had authority to request the
performance of hot works in the other areas of the vessel. These hot works
were deemed included in the January 26, 2000 Work Order and the Shiprepair
Agreement. In the exercise of this authority, Dr. Joniga asked Sevillejo to do
the cutting of the bulkhead door near the staircase of Deck A. KCSI was aware
of what Sevillejo was doing, but failed to supervise him with the degree of care
warranted by the attendant circumstances.
Neither can Dr. Joniga be faulted for not removing the life jackets from the
ceiling void for two reasons (1) the life jackets were not even contributory to
the occurrence of the fire; and (2) it was not incumbent upon him to remove
the same. It was shown during the hearings before the CIAC that the removal
of the life jackets would not have made much of a difference. The fire would
still have occurred due to the presence of other combustible materials in the
area. This was the uniform conclusion of both WG&As[40] and KCSIs[41] fire
experts. It was also proven during the CIAC proceedings that KCSI did not see
the life jackets as being in the way of the hot works, thus, making their removal
from storage unnecessary.[42]
These circumstances, taken collectively, yield the inevitable conclusion that
Sevillejo was negligent in the performance of his assigned task. His
negligence was the proximate cause of the fire on board M/V Superferry 3. As
he was then definitely engaged in the performance of his assigned tasks as an
employee of KCSI, his negligence gave rise to the vicarious liability of his
employer[43] under Article 2180 of the Civil Code, which provides
Art. 2180. The obligation imposed by article 2176 is demandable not only for
ones own act or omission, but also for those of persons for whom one is
responsible.
xxxx
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even
though the former are not engaged in any business or industry.
xxxx
The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a
family to prevent damage.
Page 36 of 43
KCSI failed to prove that it exercised the necessary diligence incumbent upon
it to rebut the legal presumption of its negligence in supervising Sevillejo.[44]
Consequently, it is responsible for the damages caused by the negligent act of
its employee, and its liability is primary and solidary. All that is needed is proof
that the employee has, by his negligence, caused damage to another in order
to make the employer responsible for the tortuous act of the former.[45] From
the foregoing disquisition, there is ample proof of the employees negligence.
B. The right of subrogation
Pioneer asseverates that there existed a total constructive loss so that it had
to pay WG&A the full amount of the insurance coverage and, by operation of
law, it was entitled to be subrogated to the rights of WG&A to claim the
amount of the loss. It further argues that the limitation of liability clause found
in the Shiprepair Agreement is null and void for being iniquitous and against
public policy.
KCSI counters that a total constructive loss was not adequately proven by
Pioneer, and that there is no proof of payment of the insurance proceeds.
KCSI insists on the validity of the limited-liability clause up to P50,000,000.00,
because WG&A acceded to the provision when it executed the Shiprepair
Agreement. KCSI also claims that the salvage value of the vessel should be
deducted from whatever amount it will be made to pay to Pioneer.
We find in favor of Pioneer, subject to the claim of KCSI as to the salvage
value of M/V Superferry 3.
In marine insurance, a constructive total loss occurs under any of the
conditions set forth in Section 139 of the Insurance Code, which provides
Sec. 139. A person insured by a contract of marine insurance may abandon
the thing insured, or any particular portion hereof separately valued by the
policy, or otherwise separately insured, and recover for a total loss thereof,
when the cause of the loss is a peril insured against:
(a) If more than three-fourths thereof in value is actually lost, or would have to
be expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-
fourths; x x x.
It appears, however, that in the execution of the insurance policies over M/V
Superferry 3, WG&A and Pioneer incorporated by reference the American
Institute Hull Clauses 2/6/77, the Total Loss Provision of which reads
Total Loss
In ascertaining whether the Vessel is a constructive Total Loss the Agreed
Value shall be taken as the repaired value and nothing in respect of the
damaged or break-up value of the Vessel or wreck shall be taken into account.
There shall be no recovery for a constructive Total Loss hereunder unless the
expense of recovering and repairing the Vessel would exceed the Agreed
Value in policies on Hull and Machinery. In making this determination, only
expenses incurred or to be incurred by reason of a single accident or a
sequence of damages arising from the same accident shall be taken into
account, but expenses incurred prior to tender of abandonment shall not be
considered if such are to be claimed separately under the Sue and Labor
clause. x x x.
In the course of the arbitration proceedings, Pioneer adduced in evidence the
estimates made by three (3) disinterested and qualified shipyards for the cost
of the repair of the vessel, specifically: (a) P296,256,717.00, based on the
Philippine currency equivalent of the quotation dated April 17, 2000 turned in
by Tsuneishi Heavy Industries (Cebu) Inc.; (b) P309,780,384.15, based on the
Philippine currency equivalent of the quotation of Sembawang Shipyard Pte.
Ltd., Singapore; and (c) P301,839,974.00, based on the Philippine currency
equivalent of the quotation of Singapore Technologies Marine Ltd. All the
estimates showed that the repair expense would exceed P270,000,000.00, the
amount equivalent to of the vessels insured value of P360,000,000.00. Thus,
WG&A opted to abandon M/V Superferry 3 and claimed from Pioneer the full
amount of the policies. Pioneer paid WG&As claim, and now demands from
KCSI the full amount of P360,000,000.00, by virtue of subrogation.
KCSI denies the liability because, aside from its claim that it cannot be held
culpable for negligence resulting in the destructive fire, there was no
constructive total loss, as the amount of damage was only US$3,800,000.00
or P170,611,260.00, the amount of repair expense quoted by Simpson,
Spence & Young.
In the face of this apparent conflict, we hold that Section 139 of the Insurance
Code should govern, because (1) Philippine law is deemed incorporated in
every locally executed contract; and (2) the marine insurance policies in
question expressly provided the following:
IMPORTANT
This insurance is subject to English jurisdiction, except in the event that loss or
losses are payable in the Philippines, in which case if the said laws and
customs of England shall be in conflict with the laws of the Republic of the
Philippines, then the laws of the Republic of the Philippines shall govern.
(Underscoring supplied.)
The CA held that Section 139 of the Insurance Code is merely permissive on
account of the word may in the provision. This is incorrect. Properly
considered, the word may in the provision is intended to grant the insured
(WG&A) the option or discretion to choose the abandonment of the thing
insured (M/V Superferry 3), or any particular portion thereof separately valued
by the policy, or otherwise separately insured, and recover for a total loss
when the cause of the loss is a peril insured against. This option or discretion
is expressed as a right in Section 131 of the same Code, to wit:
Sec. 131. A constructive total loss is one which gives to a person insured a
right to abandon under Section one hundred thirty-nine.
It cannot be denied that M/V Superferry 3 suffered widespread damage from
the fire that occurred on February 8, 2000, a covered peril under the marine
insurance policies obtained by WG&A from Pioneer. The estimates given by
the three disinterested and qualified shipyards show that the damage to the
ship would exceed P270,000,000.00, or of the total value of the policies
P360,000,000.00. These estimates constituted credible and acceptable proof
of the extent of the damage sustained by the vessel. It is significant that these
estimates were confirmed by the Adjustment Report dated June 5, 2000
submitted by Richards Hogg Lindley (Phils.), Inc., the average adjuster that
Pioneer had enlisted to verify and confirm the extent of the damage. The
Adjustment Report verified and confirmed that the damage to the vessel
amounted to a constructive total loss and that the claim for P360,000,000.00
under the policies was compensable.[46] It is also noteworthy that KCSI did
not cross-examine Henson Lim, Director of Richards Hogg, whose affidavit-
direct testimony submitted to the CIAC confirmed that the vessel was a
constructive total loss.
Considering the extent of the damage, WG&A opted to abandon the ship and
claimed the value of its policies. Pioneer, finding the claim compensable, paid
the claim, with WG&A issuing a Loss and Subrogation Receipt evidencing
receipt of the payment of the insurance proceeds from Pioneer. On this note,
we find as unacceptable the claim of KCSI that there was no ample proof of
payment simply because the person who signed the Receipt appeared to be
an employee of Aboitiz Shipping Corporation.[47] The Loss and Subrogation
Receipt issued by WG&A to Pioneer is the best evidence of payment of the
insurance proceeds to the former, and no controverting evidence was
Page 37 of 43
presented by KCSI to rebut the presumed authority of the signatory to receive
such payment.
On the matter of subrogation, Article 2207 of the Civil Code provides
Art. 2207. If the plaintiffs property has been insured and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. If the amount paid by the insurance company
does not fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury.
Subrogation is the substitution of one person by another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the
other in relation to a debt or claim, including its remedies or securities. The
principle covers a situation wherein an insurer has paid a loss under an
insurance policy is entitled to all the rights and remedies belonging to the
insured against a third party with respect to any loss covered by the policy. It
contemplates full substitution such that it places the party subrogated in the
shoes of the creditor, and he may use all means that the creditor could employ
to enforce payment.[48]
We have held that payment by the insurer to the insured operates as an
equitable assignment to the insurer of all the remedies that the insured may
have against the third party whose negligence or wrongful act caused the loss.
The right of subrogation is not dependent upon, nor does it grow out of, any
privity of contract. It accrues simply upon payment by the insurance company
of the insurance claim. The doctrine of subrogation has its roots in equity. It is
designed to promote and to accomplish justice; and is the mode that equity
adopts to compel the ultimate payment of a debt by one who, in justice, equity,
and good conscience, ought to pay.[49]
We cannot accept KCSIs insistence on upholding the validity Clause 20, which
provides that the limit of its liability is only up to P50,000,000.00; nor of Clause
22(a), that KCSI stands as a co-assured in the insurance policies, as found in
the Shiprepair Agreement.
Clauses 20 and 22(a) of the Shiprepair Agreement are without factual and
legal foundation. They are unfair and inequitable under the premises. It was
established during arbitration that WG&A did not voluntarily and expressly
agree to these provisions. Engr. Elvin F. Bello, WG&As fleet manager, testified
that he did not sign the fine-print portion of the Shiprepair Agreement where
Clauses 20 and 22(a) were found, because he did not want WG&A to be
bound by them. However, considering that it was only KCSI that had shipyard
facilities large enough to accommodate the dry docking and repair of big
vessels owned by WG&A, such as M/V Superferry 3, in Cebu, he had to sign
the front portion of the Shiprepair Agreement; otherwise, the vessel would not
be accepted for dry docking.[50]
Indeed, the assailed clauses amount to a contract of adhesion imposed on
WG&A on a take-it-or-leave-it basis. A contract of adhesion is so-called
because its terms are prepared by only one party, while the other party merely
affixes his signature signifying his adhesion thereto. Although not invalid, per
se, a contract of adhesion is void when the weaker party is imposed upon in
dealing with the dominant bargaining party, and its option is reduced to the
alternative of taking it or leaving it, completely depriving such party of the
opportunity to bargain on equal footing.[51]
Clause 20 is also a void and ineffectual waiver of the right of WG&A to be
compensated for the full insured value of the vessel or, at the very least, for its
actual market value. There was clearly no intention on the part of WG&A to
relinquish such right. It is an elementary rule that a waiver must be positively
proved, since a waiver by implication is not normally countenanced. The norm
is that a waiver must not only be voluntary, but must have been made
knowingly, intelligently, and with sufficient awareness of the relevant
circumstances and likely consequences. There must be persuasive evidence
to show an actual intention to relinquish the right.[52] This has not been
demonstrated in this case.
Likewise, Clause 20 is a stipulation that may be considered contrary to public
policy. To allow KCSI to limit its liability to only P50,000,000.00,
notwithstanding the fact that there was a constructive total loss in the amount
of P360,000,000.00, would sanction the exercise of a degree of diligence short
of what is ordinarily required. It would not be difficult for a negligent party to
escape liability by the simple expedient of paying an amount very much lower
than the actual damage or loss sustained by the other.[53]
Along the same vein, Clause 22(a) cannot be upheld. The intention of the
parties to make each other a co-assured under an insurance policy is to be
gleaned principally from the insurance contract or policy itself and not from any
other contract or agreement, because the insurance policy denominates the
assured and the beneficiaries of the insurance contract. Undeniably, the hull
and machinery insurance procured by WG&A from Pioneer named only the
former as the assured. There was no manifest intention on the part of WG&A
to constitute KCSI as a co-assured under the policies. To have deemed KCSI
as a co-assured under the policies would have had the effect of nullifying any
claim of WG&A from Pioneer for any loss or damage caused by the
negligence of KCSI. No ship owner would agree to make a ship repairer a co-
assured under such insurance policy. Otherwise, any claim for loss or damage
under the policy would be rendered nugatory. WG&A could not have intended
such a result.[54]
Nevertheless, we concur with the position of KCSI that the salvage value of
the damaged M/V Superferry 3 should be taken into account in the grant of
any award. It was proven before the CIAC that the machinery and the hull of
the vessel were separately sold for P25,290,000.00 (or US$468,333.33) and
US$363,289.50, respectively. WG&As claim for the upkeep of the wreck until
the same were sold amounts to P8,521,737.75 (or US$157,809.96), to be
deducted from the proceeds of the sale of the machinery and the hull, for a net
recovery of US$673,812.87, or equivalent to P30,252,648.09, at P44.8977/$1,
the prevailing exchange rate when the Request for Arbitration was filed. Not
considering this salvage value in the award would amount to unjust
enrichment on the part of Pioneer.
C. On the imposition of interest
Pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,[55]
the award in favor of Pioneer in the amount of P350,146,786.89 should earn
interest at 6% per annum from the filing of the case until the award becomes
final and executory. Thereafter, the rate of interest shall be 12% per annum
from the date the award becomes final and executory until its full satisfaction.
D. On the payment for the cost of arbitration
It is only fitting that both parties should share in the burden of the cost of
arbitration, on a pro rata basis. We find that Pioneer had a valid reason to
institute a suit against KCSI, as it believed that it was entitled to claim
reimbursement of the amount it paid to WG&A. However, we disagree with
Pioneer that only KCSI should shoulder the arbitration costs. KCSI cannot be
faulted for defending itself for perceived wrongful acts and conditions.
Otherwise, we would be putting a price on the right to litigate on the part of
Pioneer.
WHEREFORE, the Petition of Pioneer Insurance and Surety Corporation in
G.R. No. 180896-97 and the Petition of Keppel Cebu Shipyard, Inc. in G.R.
No. 180880-81 are PARTIALLY GRANTED and the Amended Decision dated
December 20, 2007 of the Court of Appeals is MODIFIED. Accordingly, KCSI
is ordered to pay Pioneer the amount of P360,000,000.00 less
P30,252,648.09, equivalent to the salvage value recovered by Pioneer from
M/V Superferry 3, or the net total amount of P329,747,351.91, with six percent
(6%) interest per annum reckoned from the time the Request for Arbitration
was filed until this Decision becomes final and executory, plus twelve percent
(12%) interest per annum on the said amount or any balance thereof from the
finality of the Decision until the same will have been fully paid. The arbitration
costs shall be borne by both parties on a pro rata basis. Costs against KCSI.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 194320 February 1, 2012
MALAYAN INSURANCE CO., INC., Petitioner,
vs.
RODELIO ALBERTO and ENRICO ALBERTO REYES, Respondents.
DECISION
Page 38 of 43
VELASCO, JR., J.:
The Case
Before Us is a Petition for Review on Certiorari under Rule 45, seeking to
reverse and set aside the July 28, 2010 Decision1 of the Court of Appeals
(CA) and its October 29, 2010 Resolution2 denying the motion for
reconsideration filed by petitioner Malayan Insurance Co., Inc. (Malayan
Insurance). The July 28, 2010 CA Decision reversed and set aside the
Decision3 dated February 2, 2009 of the Regional Trial Court, Branch 51 in
Manila.
The Facts
At around 5 o’clock in the morning of December 17, 1995, an accident
occurred at the corner of EDSA and Ayala Avenue, Makati City, involving four
(4) vehicles, to wit: (1) a Nissan Bus operated by Aladdin Transit with plate
number NYS 381; (2) an Isuzu Tanker with plate number PLR 684; (3) a Fuzo
Cargo Truck with plate number PDL 297; and (4) a Mitsubishi Galant with
plate number TLM 732.4
Based on the Police Report issued by the on-the-spot investigator, Senior
Police Officer 1 Alfredo M. Dungga (SPO1 Dungga), the Isuzu Tanker was in
front of the Mitsubishi Galant with the Nissan Bus on their right side shortly
before the vehicular incident. All three (3) vehicles were at a halt along EDSA
facing the south direction when the Fuzo Cargo Truck simultaneously bumped
the rear portion of the Mitsubishi Galant and the rear left portion of the Nissan
Bus. Due to the strong impact, these two vehicles were shoved forward and
the front left portion of the Mitsubishi Galant rammed into the rear right portion
of the Isuzu Tanker.5
Previously, particularly on December 15, 1994, Malayan Insurance issued Car
Insurance Policy No. PV-025-00220 in favor of First Malayan Leasing and
Finance Corporation (the assured), insuring the aforementioned Mitsubishi
Galant against third party liability, own damage and theft, among others.
Having insured the vehicle against such risks, Malayan Insurance claimed in
its Complaint dated October 18, 1999 that it paid the damages sustained by
the assured amounting to PhP 700,000.6
Maintaining that it has been subrogated to the rights and interests of the
assured by operation of law upon its payment to the latter, Malayan Insurance
sent several demand letters to respondents Rodelio Alberto (Alberto) and
Enrico Alberto Reyes (Reyes), the registered owner and the driver,
respectively, of the Fuzo Cargo Truck, requiring them to pay the amount it had
paid to the assured. When respondents refused to settle their liability, Malayan
Insurance was constrained to file a complaint for damages for gross
negligence against respondents.7
In their Answer, respondents asserted that they cannot be held liable for the
vehicular accident, since its proximate cause was the reckless driving of the
Nissan Bus driver. They alleged that the speeding bus, coming from the
service road of EDSA, maneuvered its way towards the middle lane without
due regard to Reyes’ right of way. When the Nissan Bus abruptly stopped,
Reyes stepped hard on the brakes but the braking action could not cope with
the inertia and failed to gain sufficient traction. As a consequence, the Fuzo
Cargo Truck hit the rear end of the Mitsubishi Galant, which, in turn, hit the
rear end of the vehicle in front of it. The Nissan Bus, on the other hand,
sideswiped the Fuzo Cargo Truck, causing damage to the latter in the amount
of PhP 20,000. Respondents also controverted the results of the Police
Report, asserting that it was based solely on the biased narration of the
Nissan Bus driver.8
After the termination of the pre-trial proceedings, trial ensued. Malayan
Insurance presented the testimony of its lone witness, a motor car claim
adjuster, who attested that he processed the insurance claim of the assured
and verified the documents submitted to him. Respondents, on the other hand,
failed to present any evidence.
In its Decision dated February 2, 2009, the trial court, in Civil Case No. 99-
95885, ruled in favor of Malayan Insurance and declared respondents liable
for damages. The dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff against
defendants jointly and severally to pay plaintiff the following:
1. The amount of P700,000.00 with legal interest from the time of the filing of
the complaint;
2. Attorney’s fees of P10,000.00 and;
3. Cost of suit.
SO ORDERED.9
Dissatisfied, respondents filed an appeal with the CA, docketed as CA-G.R.
CV No. 93112. In its Decision dated July 28, 2010, the CA reversed and set
aside the Decision of the trial court and ruled in favor of respondents,
disposing:
WHEREFORE, the foregoing considered, the instant appeal is hereby
GRANTED and the assailed Decision dated 2 February 2009 REVERSED and
SET ASIDE. The Complaint dated 18 October 1999 is hereby DISMISSED for
lack of merit. No costs.
SO ORDERED.10
The CA held that the evidence on record has failed to establish not only
negligence on the part of respondents, but also compliance with the other
requisites and the consequent right of Malayan Insurance to subrogation.11 It
noted that the police report, which has been made part of the records of the
trial court, was not properly identified by the police officer who conducted the
on-the-spot investigation of the subject collision. It, thus, held that an appellate
court, as a reviewing body, cannot rightly appreciate firsthand the genuineness
of an unverified and unidentified document, much less accord it evidentiary
value.12
Subsequently, Malayan Insurance filed its Motion for Reconsideration, arguing
that a police report is a prima facie evidence of the facts stated in it. And
inasmuch as they never questioned the presentation of the report in evidence,
respondents are deemed to have waived their right to question its authenticity
and due execution.13
In its Resolution dated October 29, 2010, the CA denied the motion for
reconsideration. Hence, Malayan Insurance filed the instant petition.
The Issues
In its Memorandum14 dated June 27, 2011, Malayan Insurance raises the
following issues for Our consideration:
I do so.25 As a result, the police report is still admissible in evidence.
WHETHER THE CA ERRED IN REFUSING ADMISSIBILITY OF THE
POLICE REPORT SINCE THE POLICE INVESTIGATOR WHO PREPARED
THE SAME DID NOT ACTUALLY TESTIFY IN COURT THEREON.
II
WHETHER THE SUBROGATION OF MALAYAN INSURANCE IS IMPAIRED
AND/OR DEFICIENT.
On the other hand, respondents submit the following issues in its
Memorandum15 dated July 7, 2011:
I the police report in evidence, still, respondents cannot evade liability by virtue
WHETHER THE CA IS CORRECT IN DISMISSING THE COMPLAINT FOR
FAILURE OF MALAYAN INSURANCE TO OVERCOME THE BURDEN OF
PROOF REQUIRED TO ESTABLISH THE NEGLIGENCE OF
RESPONDENTS.
II
WHETHER THE PIECES OF EVIDENCE PRESENTED BY MALAYAN
INSURANCE ARE SUFFICIENT TO CLAIM FOR THE AMOUNT OF
DAMAGES.
III
WHETHER THE SUBROGATION OF MALAYAN INSURANCE HAS PASSED
COMPLIANCE AND REQUISITES AS PROVIDED UNDER PERTINENT
LAWS.
Essentially, the issues boil down to the following: (1) the admissibility of the
police report; (2) the sufficiency of the evidence to support a claim for gross
negligence; and (3) the validity of subrogation in the instant case.
Our Ruling
The petition has merit.
Admissibility of the Police Report
Malayan Insurance contends that, even without the presentation of the police
investigator who prepared the police report, said report is still admissible in
evidence, especially since respondents failed to make a timely objection to its
presentation in evidence.16 Respondents counter that since the police report
was never confirmed by the investigating police officer, it cannot be
considered as part of the evidence on record.17
Indeed, under the rules of evidence, a witness can testify only to those facts
which the witness knows of his or her personal knowledge, that is, which are
derived from the witness’ own perception.18 Concomitantly, a witness may not
testify on matters which he or she merely learned from others either because
said witness was told or read or heard those matters.19 Such testimony is
considered hearsay and may not be received as proof of the truth of what the
witness has learned. This is known as the hearsay rule.20
As discussed in D.M. Consunji, Inc. v. CA,21 "Hearsay is not limited to oral
testimony or statements; the general rule that excludes hearsay as evidence
applies to written, as well as oral statements."
Page 39 of 43
There are several exceptions to the hearsay rule under the Rules of Court,
among which are entries in official records.22 Section 44, Rule 130 provides:
Entries in official records made in the performance of his duty by a public
officer of the Philippines, or by a person in the performance of a duty specially
enjoined by law are prima facie evidence of the facts therein stated.
In Alvarez v. PICOP Resources,23 this Court reiterated the requisites for the
admissibility in evidence, as an exception to the hearsay rule of entries in
official records, thus: (a) that the entry was made by a public officer or by
another person specially enjoined by law to do so; (b) that it was made by the
public officer in the performance of his or her duties, or by such other person
in the performance of a duty specially enjoined by law; and (c) that the public
officer or other person had sufficient knowledge of the facts by him or her
stated, which must have been acquired by the public officer or other person
personally or through official information.
Notably, the presentation of the police report itself is admissible as an
exception to the hearsay rule even if the police investigator who prepared it
was not presented in court, as long as the above requisites could be
adequately proved.24
Here, there is no dispute that SPO1 Dungga, the on-the-spot investigator,
prepared the report, and he did so in the performance of his duty. However,
what is not clear is whether SPO1 Dungga had sufficient personal knowledge
of the facts contained in his report. Thus, the third requisite is lacking.
Respondents failed to make a timely objection to the police report’s
presentation in evidence; thus, they are deemed to have waived their right to
Sufficiency of Evidence
Malayan Insurance contends that since Reyes, the driver of the Fuzo Cargo
truck, bumped the rear of the Mitsubishi Galant, he is presumed to be
negligent unless proved otherwise. It further contends that respondents failed
to present any evidence to overturn the presumption of negligence.26
Contrarily, respondents claim that since Malayan Insurance did not present
any witness who shall affirm any negligent act of Reyes in driving the Fuzo
Cargo truck before and after the incident, there is no evidence which would
show negligence on the part of respondents.27
We agree with Malayan Insurance. Even if We consider the inadmissibility of
of the res ipsa loquitur doctrine. The D.M. Consunji, Inc. case is quite
elucidating:
Petitioner’s contention, however, loses relevance in the face of the application
of res ipsa loquitur by the CA. The effect of the doctrine is to warrant a
presumption or inference that the mere fall of the elevator was a result of the
person having charge of the instrumentality was negligent. As a rule of
evidence, the doctrine of res ipsa loquitur is peculiar to the law of negligence
which recognizes that prima facie negligence may be established without
direct proof and furnishes a substitute for specific proof of negligence.
The concept of res ipsa loquitur has been explained in this wise:
While negligence is not ordinarily inferred or presumed, and while the mere
happening of an accident or injury will not generally give rise to an inference or
presumption that it was due to negligence on defendant’s part, under the
doctrine of res ipsa loquitur, which means, literally, the thing or transaction
speaks for itself, or in one jurisdiction, that the thing or instrumentality speaks
for itself, the facts or circumstances accompanying an injury may be such as
to raise a presumption, or at least permit an inference of negligence on the
part of the defendant, or some other person who is charged with negligence.
x x x where it is shown that the thing or instrumentality which caused the injury
complained of was under the control or management of the defendant, and
that the occurrence resulting in the injury was such as in the ordinary course of
things would not happen if those who had its control or management used
proper care, there is sufficient evidence, or, as sometimes stated, reasonable
evidence, in the absence of explanation by the defendant, that the injury arose
from or was caused by the defendant’s want of care.
One of the theoretical bases for the doctrine is its necessity, i.e., that
necessary evidence is absent or not available.
The res ipsa loquitur doctrine is based in part upon the theory that the
defendant in charge of the instrumentality which causes the injury either
knows the cause of the accident or has the best opportunity of ascertaining it
and that the plaintiff has no such knowledge, and therefore is compelled to
allege negligence in general terms and to rely upon the proof of the happening
of the accident in order to establish negligence. The inference which the
doctrine permits is grounded upon the fact that the chief evidence of the true
cause, whether culpable or innocent, is practically accessible to the defendant
but inaccessible to the injured person.
It has been said that the doctrine of res ipsa loquitur furnishes a bridge by
which a plaintiff, without knowledge of the cause, reaches over to defendant
who knows or should know the cause, for any explanation of care exercised by
the defendant in respect of the matter of which the plaintiff complains. The res
ipsa loquitur doctrine, another court has said, is a rule of necessity, in that it
proceeds on the theory that under the peculiar circumstances in which the
doctrine is applicable, it is within the power of the defendant to show that there
was no negligence on his part, and direct proof of defendant’s negligence is
beyond plaintiff’s power. Accordingly, some courts add to the three
prerequisites for the application of the res ipsa loquitur doctrine the further
requirement that for the res ipsa loquitur doctrine to apply, it must appear that
the injured party had no knowledge or means of knowledge as to the cause of
the accident, or that the party to be charged with negligence has superior
knowledge or opportunity for explanation of the accident.
The CA held that all the requisites of res ipsa loquitur are present in the case
at bar:
There is no dispute that appellee’s husband fell down from the 14th floor of a
building to the basement while he was working with appellant’s construction
project, resulting to his death. The construction site is within the exclusive
control and management of appellant. It has a safety engineer, a project
superintendent, a carpenter leadman and others who are in complete control
of the situation therein. The circumstances of any accident that would occur
therein are peculiarly within the knowledge of the appellant or its employees.
On the other hand, the appellee is not in a position to know what caused the
accident. Res ipsa loquitur is a rule of necessity and it applies where evidence
is absent or not readily available, provided the following requisites are present:
(1) the accident was of a kind which does not ordinarily occur unless someone
is negligent; (2) the instrumentality or agency which caused the injury was
under the exclusive control of the person charged with negligence; and (3) the
injury suffered must not have been due to any voluntary action or contribution
on the part of the person injured. x x x.
No worker is going to fall from the 14th floor of a building to the basement
while performing work in a construction site unless someone is negligent[;]
thus, the first requisite for the application of the rule of res ipsa loquitur is
present. As explained earlier, the construction site with all its paraphernalia
and human resources that likely caused the injury is under the exclusive
control and management of appellant[;] thus[,] the second requisite is also
present. No contributory negligence was attributed to the appellee’s deceased
husband[;] thus[,] the last requisite is also present. All the requisites for the
application of the rule of res ipsa loquitur are present, thus a reasonable
presumption or inference of appellant’s negligence arises. x x x.
Petitioner does not dispute the existence of the requisites for the application of
res ipsa loquitur, but argues that the presumption or inference that it was
negligent did not arise since it "proved that it exercised due care to avoid the
accident which befell respondent’s husband."
Petitioner apparently misapprehends the procedural effect of the doctrine. As
stated earlier, the defendant’s negligence is presumed or inferred when the
plaintiff establishes the requisites for the application of res ipsa loquitur. Once
the plaintiff makes out a prima facie case of all the elements, the burden then
shifts to defendant to explain. The presumption or inference may be rebutted
or overcome by other evidence and, under appropriate circumstances a
disputable presumption, such as that of due care or innocence, may outweigh
the inference. It is not for the defendant to explain or prove its defense to
prevent the presumption or inference from arising. Evidence by the defendant
of say, due care, comes into play only after the circumstances for the
application of the doctrine has been established.28
In the case at bar, aside from the statement in the police report, none of the
parties disputes the fact that the Fuzo Cargo Truck hit the rear end of the
Mitsubishi Galant, which, in turn, hit the rear end of the vehicle in front of it.
Respondents, however, point to the reckless driving of the Nissan Bus driver
as the proximate cause of the collision, which allegation is totally unsupported
by any evidence on record. And assuming that this allegation is, indeed, true,
it is astonishing that respondents never even bothered to file a cross-claim
against the owner or driver of the Nissan Bus.
What is at once evident from the instant case, however, is the presence of all
the requisites for the application of the rule of res ipsa loquitur. To reiterate,
res ipsa loquitur is a rule of necessity which applies where evidence is absent
or not readily available. As explained in D.M. Consunji, Inc., it is partly based
upon the theory that the defendant in charge of the instrumentality which
causes the injury either knows the cause of the accident or has the best
opportunity of ascertaining it and that the plaintiff has no such knowledge, and,
therefore, is compelled to allege negligence in general terms and to rely upon
the proof of the happening of the accident in order to establish negligence.
As mentioned above, the requisites for the application of the res ipsa loquitur
rule are the following: (1) the accident was of a kind which does not ordinarily
occur unless someone is negligent; (2) the instrumentality or agency which
caused the injury was under the exclusive control of the person charged with
negligence; and (3) the injury suffered must not have been due to any
voluntary action or contribution on the part of the person injured.29
In the instant case, the Fuzo Cargo Truck would not have had hit the rear end
of the Mitsubishi Galant unless someone is negligent. Also, the Fuzo Cargo
Truck was under the exclusive control of its driver, Reyes. Even if respondents
avert liability by putting the blame on the Nissan Bus driver, still, this allegation
was self-serving and totally unfounded. Finally, no contributory negligence was
attributed to the driver of the Mitsubishi Galant. Consequently, all the
requisites for the application of the doctrine of res ipsa loquitur are present,
thereby creating a reasonable presumption of negligence on the part of
respondents.
Page 40 of 43
It is worth mentioning that just like any other disputable presumptions or
inferences, the presumption of negligence may be rebutted or overcome by
other evidence to the contrary. It is unfortunate, however, that respondents
failed to present any evidence before the trial court. Thus, the presumption of
negligence remains. Consequently, the CA erred in dismissing the complaint
for Malayan Insurance’s adverted failure to prove negligence on the part of
respondents.
Validity of Subrogation
Malayan Insurance contends that there was a valid subrogation in the instant
case, as evidenced by the claim check voucher30 and the Release of Claim
and Subrogation Receipt31 presented by it before the trial court.
Respondents, however, claim that the documents presented by Malayan
Insurance do not indicate certain important details that would show proper
subrogation.
As noted by Malayan Insurance, respondents had all the opportunity, but failed
to object to the presentation of its evidence. Thus, and as We have mentioned
earlier, respondents are deemed to have waived their right to make an
objection. As this Court held in Asian Construction and Development
Corporation v. COMFAC Corporation:
The rule is that failure to object to the offered evidence renders it admissible,
and the court cannot, on its own, disregard such evidence. We note that
ASIAKONSTRUCT’s counsel of record before the trial court, Atty. Bernard Dy,
who actively participated in the initial stages of the case stopped attending the
hearings when COMFAC was about to end its presentation. Thus,
ASIAKONSTRUCT could not object to COMFAC’s offer of evidence nor
present evidence in its defense; ASIAKONSTRUCT was deemed by the trial
court to have waived its chance to do so.
Note also that when a party desires the court to reject the evidence offered, it
must so state in the form of a timely objection and it cannot raise the objection
to the evidence for the first time on appeal. Because of a party’s failure to
timely object, the evidence becomes part of the evidence in the case.
Thereafter, all the parties are considered bound by any outcome arising from
the offer of evidence properly presented.32 (Emphasis supplied.)
Bearing in mind that the claim check voucher and the Release of Claim and
Subrogation Receipt presented by Malayan Insurance are already part of the
evidence on record, and since it is not disputed that the insurance company,
indeed, paid PhP 700,000 to the assured, then there is a valid subrogation in
the case at bar. As explained in Keppel Cebu Shipyard, Inc. v. Pioneer
Insurance and Surety Corporation:
Subrogation is the substitution of one person by another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the
other in relation to a debt or claim, including its remedies or securities. The
principle covers a situation wherein an insurer has paid a loss under an
insurance policy is entitled to all the rights and remedies belonging to the
insured against a third party with respect to any loss covered by the policy. It
contemplates full substitution such that it places the party subrogated in the
shoes of the creditor, and he may use all means that the creditor could employ
to enforce payment.1âwphi1
We have held that payment by the insurer to the insured operates as an
equitable assignment to the insurer of all the remedies that the insured may
have against the third party whose negligence or wrongful act caused the loss.
The right of subrogation is not dependent upon, nor does it grow out of, any
privity of contract. It accrues simply upon payment by the insurance company
of the insurance claim. The doctrine of subrogation has its roots in equity. It is
designed to promote and to accomplish justice; and is the mode that equity
adopts to compel the ultimate payment of a debt by one who, in justice, equity,
and good conscience, ought to pay.33
Considering the above ruling, it is only but proper that Malayan Insurance be
subrogated to the rights of the assured.
WHEREFORE, the petition is hereby GRANTED. The CA’s July 28, 2010
Decision and October 29, 2010 Resolution in CA-G.R. CV No. 93112 are
hereby REVERSED and SET ASIDE. The Decision dated February 2, 2009
issued by the trial court in Civil Case No. 99-95885 is hereby REINSTATED.
No pronouncement as to cost.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 185964 June 16, 2014
ASIAN TERMINALS, INC., Petitioner,
vs.
FIRST LEPANTO-TAISHO INSURANCE CORPORATION, Respondent.
 DECISION
REYES, J.:
This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court
seeking to annul and set aside the Decision2 dated October 10, 2008 of the
Court of Appeals (CA) in CA-G.R. SP No. 99021 which adjudged petitioner
Asian Terminals, Inc. (ATI) liable to pay the money claims of respondent First
Lepanto-Taisho Insurance Corporation (FIRST LEPANTO).
The Undisputed Facts
On July 6, 1996,3 3,000 bags of sodium tripolyphosphate contained in 100
plain jumbo bags complete and in good condition were loaded and received on
board M/V "Da Feng" owned by China Ocean Shipping Co. (COSCO) in favor
of consignee, Grand Asian Sales, Inc. (GASI). Based on a Certificate of
Insurance4 dated August 24, 1995, it appears that the shipment was insured
against all risks by GASI with FIRST LEPANTO for ₱7,959,550.50 under
Marine Open Policy No. 0123.
The shipment arrived in Manila on July 18, 1996 and was discharged into the
possession and custody of ATI, a domestic corporation engaged in arrastre
business. The shipment remained for quite some time at ATI’s storage area
until it was withdrawn by broker, Proven Customs Brokerage Corporation
(PROVEN), on August 8 and 9, 1996 for delivery to the consignee. Upon
receipt of the shipment,5 GASI subjected the same to inspection and found
that the delivered goods incurred shortages of 8,600 kilograms and spillage of
3,315 kg for a total of11,915 kg of loss/damage valued at ₱166,772.41.
GASI sought recompense from COSCO, thru its Philippine agent Smith Bell
Shipping Lines, Inc. (SMITH BELL),6 ATI7 and PROVEN8 but was denied.
Hence, it pursued indemnification from the shipment’s insurer.9
After the requisite investigation and adjustment, FIRST LEPANTO paid GASI
the amount of ₱165,772.40 as insurance indemnity.10
Thereafter, GASI executed a Release of Claim11 discharging FIRST
LEPANTO from any and all liabilities pertaining to the lost/damaged shipment
and subrogating it to all the rights of recovery and claims the former may have
against any person or corporation in relation to the lost/damaged shipment.
As such subrogee, FIRST LEPANTO demanded from COSCO, its shipping
agency in the Philippines, SMITH BELL, PROVEN and ATI, reimbursement of
the amount it paid to GASI. When FIRST LEPANTO’s demands were not
heeded, it filed on May 29, 1997 a Complaint12 for sum of money before the
Metropolitan Trial Court (MeTC) of Manila, Branch 3. FIRST LEPANTO sought
that it be reimbursed the amount of 166,772.41, twenty-five percent (25%)
thereof as attorney’s fees, and costs of suit.
ATI denied liability for the lost/damaged shipment and claimed that it exercised
due diligence and care in handling the same.13 ATI averred that upon arrival
of the shipment, SMITH BELL requested for its inspection14 and it was
discovered that one jumbo bag thereof sustained loss/damage while in the
custody of COSCO as evidenced by Turn Over Survey of Bad Order Cargo
No. 47890 dated August 6, 199615 jointly executed by the respective
representatives of ATI and COSCO. During the withdrawal of the shipment by
PROVEN from ATI’s warehouse, the entire shipment was re-examined and it
was found to be exactly in the same condition as when it was turned over to
ATI such that one jumbo bag was damaged. To bolster this claim, ATI
submitted Request for Bad Order Survey No. 40622 dated August 9, 199616
jointly executed by the respective representatives of ATI and PROVEN. ATI
also submitted various Cargo Gate Passes17 showing that PROVEN was able
to completely withdraw all the shipment from ATI’s warehouse in good order
condition except for that one damaged jumbo bag.
In the alternative, ATI asserted that even if it is found liable for the
lost/damaged portion of the shipment, its contract for cargo handling services
limits its liability to not more than ₱5,000.00 per package. ATI interposed a
counterclaim of ₱20,000.00 against FIRST LEPANTO as and for attorney’s
fees. It also filed a cross-claim against its co-defendants COSCO and SMITH
BELL in the event that it is made liable to FIRST LEPANTO.18
PROVEN denied any liability for the lost/damaged shipment and averred that
the complaint alleged no specific acts or omissions that makes it liable for
damages. PROVEN claimed that the damages in the shipment were sustained
before they were withdrawn from ATI’s custody under which the shipment was
left in an open area exposed to the elements, thieves and vandals. PROVEN
contended that it exercised due diligence and prudence in handling the
shipment. PROVEN also filed a counterclaim for attorney’s fees and
damages.19
Despite receipt of summons on December 4, 1996,20 COSCO and SMITH
BELL failed to file an answer to the complaint. FIRST LEPANTO thus moved
that they be declared in default21 but the motion was denied by the MeTC on
the ground that under Rule 9, Section 3 of the Rules of Civil Procedure, "when
a pleading asserting a claim states a common cause of action against several
defending parties, some of whom answer and the other fail to do so, the Court
shall try the case against all upon the answers thus filed, and render judgment
upon the evidence presented."22
Ruling of the MeTC
Page 41 of 43
In a Judgment23 dated May 30, 2006, the MeTC absolved ATI and PROVEN
from any liability and instead found COSCO to be the party at fault and hence
liable for the loss/damage sustained by the subject shipment. However, the
MeTC ruled it has no jurisdiction over COSCO because it is a foreign
corporation. Also, it cannot enforce judgment upon SMITH BELL because no
evidence was presented establishing that it is indeed the Philippine agent of
COSCO. There is also no evidence attributing any fault to SMITH BELL.
Consequently, the complaint was dismissed in this wise:
WHEREFORE, in light of the foregoing, judgment is hereby rendered
DISMISSING the instant case for failure of [FIRST LEPANTO] to sufficiently
establish its cause o faction against [ATI, COSCO, SMITH BELL, and
PROVEN].
The counterclaims of [ATI and PROVEN] are likewise dismissed for lack of
legal basis.
No pronouncement as to cost.
SO ORDERED.24
Ruling of the Regional Trial Court
On appeal, the Regional Trial Court (RTC) reversed the MeTC’s findings. In its
Decision25 dated January 26, 2007, the RTC of Manila, Branch 21, in Civil
Case No. 06-116237, rejected the contentions of ATI upon its observation that
the same is belied by its very own documentary evidence. The RTC remarked
that, if, as alleged by ATI, one jumbo bag was already in bad order condition
upon its receipt of the shipment from COSCO on July 18, 1996, then how
come that the Request for Bad Order Survey and the Turn Over Survey of Bad
Order Cargo were prepared only weeks thereafter or on August 9, 1996 and
August 6, 1996, respectively. ATI was adjudged unable to prove that it
exercised due diligence while in custody of the shipment and hence, negligent
and should be held liable for the damages caused to GASI which, in turn, is
subrogated by FIRST LEPANTO.
The RTC rejected ATI’s contention that its liability is limited only to ₱5,000.00
per package because its Management Contract with the Philippine Ports
Authority (PPA) purportedly containing the same was not presented as
evidence. More importantly, FIRST LEPANTO or GASI cannot be deemed
bound thereby because they were not parties thereto. Lastly, the RTC did not
give merit to ATI’s defense that any claim against it has already prescribed
because GASI failed to file any claim within the 15-day period stated in the
gate pass issued by ATI to GASI’s broker, PROVEN. Accordingly, the RTC
disposed thus:
WHEREFORE, in light of the foregoing, the judgment on appeal is hereby
REVERSED.
[ATI] is hereby ordered to reimburse [FIRST LEPANTO] the amount of
[P]165,772.40 with legal interest until fully paid, to pay [FIRST LEPANTO] 10%
of the amount due the latter as and for attorney’s fees plus the costs of suit.
The complaint against [COSCO/SMITH BELL and PROVEN] are DISMISSED
for lack of evidence against them. The counterclaim and cross[-]claim of [ATI]
are likewise DISMISSED for lack of merit.
SO ORDERED.26
Ruling of the CA
ATI sought recourse with the CA challenging the RTC’s finding that FIRST
LEPANTO was validly subrogated to the rights of GASI with respect to the
lost/damaged shipment. ATI argued that there was no valid subrogation
because FIRSTLEPANTO failed to present a valid, existing and enforceable
Marine Open Policy or insurance contract. ATI reasoned that the Certificate of
Insurance or Marine Cover Note submitted by FIRST LEPANTO as evidence
is not the same as an actual insurance contract.
In its Decision27 dated October 10, 2008, the CA dismissed the appeal and
held that the Release of Claim and the Certificate of Insurance presented by
FIRST LEPANTO sufficiently established its relationship with the consignee
and that upon proof of payment of the latter’s claim for damages, FIRST
LEPANTO was subrogated to its rights against those liable for the
lost/damaged shipment.
The CA also affirmed the ruling of the RTC that the subject shipment was
damaged while in the custody of ATI. Thus, the CA disposed as follows:
WHEREFORE, premises considered, the assailed Decision is hereby
AFFIRMED and the instant petition is DENIED for lack of merit.
SO ORDERED.28
ATI moved for reconsideration but the motion was denied in the CA
Resolution29 dated January 12, 2009. Hence, this petition arguing that:
(a) The presentation of the insurance policy is indispensable in proving the
right of FIRST LEPANTO to be subrogated to the right of the consignee
pursuant to the ruling in Wallem Philippines Shipping, Inc. v. Prudential
Guarantee and Assurance Inc.;30
(b) ATI cannot be barred from invoking the defense of prescription as provided
for in the gate passes in consonance with the ruling in International Container
Terminal Services, Inc. v. Prudential Guarantee and Assurance Co, Inc.31
Ruling of the Court
The Court denies the petition.
ATI failed to prove that it exercised
due care and diligence while the
shipment was under its custody,
control and possession as arrastre
operator.
It must be emphasized that factual questions pertaining to ATI’s liability for the
loss/damage sustained by GASI has already been settled in the uniform
factual findings of the RTC and the CA that: ATI failed to prove by
preponderance of evidence that it exercised due diligence in handling the
shipment.
Such findings are binding and conclusive upon this Court since a review
thereof is proscribed by the nature of the present petition. Only questions of
law are allowed in petitions for review on certiorari under Rule 45 of the Rules
of Court. It is not the Court’s duty to review, examine, and evaluate or weigh
all over again the probative value of the evidence presented, especially where
the findings of the RTC are affirmed by the CA, as in this case.32
There are only specific instances when the Court deviates from the rule and
conducts a review of the courts a quo’s factual findings, such as when: (1) the
inference made is manifestly mistaken, absurd or impossible; (2) there is
grave abuse of discretion;(3) the findings are grounded entirely on
speculations, surmises or conjectures; (4) the judgment of the CA is based on
misapprehension of facts; (5) the CA, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both
appellant and appellee; (6) the findings of fact are conclusions without citation
of specific evidence on which they are based; (7) the CA manifestly
overlooked certain relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion; and (8) the findings of
fact of the CA are premised on the absence of evidence and are contradicted
by the evidence on record.33
None of these instances, however, are present in this case. Moreover, it is
unmistakable that ATI has already conceded to the factual findings of RTC
and CA adjudging it liable for the shipment’s loss/damage considering the
absence of arguments pertaining to such issue in the petition at bar.
These notwithstanding, the Court scrutinized the records of the case and
found that indeed, ATI is liable as the arrastre operator for the lost/damaged
portion of the shipment.
The relationship between the consignee and the arrastre operator is akin to
that existing between the consignee and/or the owner of the shipped goods
and the common carrier, or that between a depositor and a warehouseman.
Hence, in the performance of its obligations, an arrastre operator should
observe the same degree of diligence as that required of a common carrier
and a warehouseman. Being the custodian of the goods discharged from a
vessel, an arrastre operator’s duty is to take good care of the goods and to
turn them over to the party entitled to their possession.34
In a claim for loss filed by the consignee (or the insurer), the burden of proof to
show compliance with the obligation to deliver the goods to the appropriate
party devolves upon the arrastre operator. Since the safekeeping of the goods
is its responsibility, it must prove that the losses were not due to its negligence
or to that of its employees. To avoid liability, the arrastre operator must prove
that it exercised diligence and due care in handling the shipment.35
ATI failed to discharge its burden of proof. Instead, it insisted on shifting the
blame to COSCO on the basis of the Request for Bad Order Survey dated
August 9, 1996 purportedly showing that when ATI received the shipment, one
jumbo bag thereof was already in damaged condition.
The RTC and CA were both correct in concluding that ATI’s contention was
improbable and illogical. As judiciously discerned by the courts a quo, the date
of the document was too distant from the date when the shipment was actually
received by ATI from COSCO on July 18, 1996. In fact, what the document
established is that when the loss/damage was discovered, the shipment has
been in ATI’s custody for at least two weeks. This circumstance, coupled with
the undisputed declaration of PROVEN’s witnesses that while the shipment
was in ATI’s custody, it was left in an open area exposed to the elements,
thieves and vandals,36 all generate the conclusion that ATI failed to exercise
due care and diligence while the subject shipment was under its custody,
control and possession as arrastre operator.
To prove the exercise of diligence in handling the subject cargoes, an arrastre
operator must do more than merely show the possibility that some other party
could be responsible for the loss or the damage.37 It must prove that it used
all reasonable means to handle and store the shipment with due care and
diligence including safeguarding it from weather elements, thieves or vandals.
Non-presentation of the insurance
contract is not fatal to FIRST
LEPANTO’s cause of action for
Page 42 of 43
reimbursement as subrogee.
It is conspicuous from the records that ATI put in issue the submission of the
insurance contract for the first time before the CA. Despite opportunity to study
FIRST LEPANTO’s complaint before the MeTC, ATI failed to allege in its
answer the necessity of the insurance contract. Neither was the same
considered during pre-trial as one of the decisive matters in the case. Further,
ATI never challenged the relevancy or materiality of the Certificate of
Insurance presented by FIRST LEPANTO as evidence during trial as proof of
its right to be subrogated in the consignee’s stead. Since it was not agreed
during the pre-trial proceedings that FIRST LEPANTO will have to prove its
subrogation rights by presenting a copy of the insurance contract, ATI is
barred from pleading the absence of such contract in its appeal. It is
imperative for the parties to disclose during pre-trial all issues they intend to
raise during the trial because, they are bound by the delimitation of such
issues. The determination of issues during the pre-trial conference bars the
consideration of other questions, whether during trial or on appeal.38
A faithful adherence to the rule by litigants is ensured by the equally settled
principle that a party cannot change his theory on appeal as such act violates
the basic rudiments of fair play and due process. As stressed in Jose v.
Alfuerto:39
[A] party cannot change his theory ofthe case or his cause of action on appeal.
Points of law, theories, issues and arguments not brought to the attention of
the lower court will not be considered by the reviewing court. The defenses not
pleaded in the answer cannot, on appeal, change fundamentally the nature of
the issue in the case. To do so would be unfair to the adverse party, who had
no opportunity to present evidence in connection with the new theory; this
would offend the basic rules of due process and fair play.40 (Citation omitted)
While the Court may adopt a liberal stance and relax the rule, no reasonable
explanation, however, was introduced to justify ATI’s failure to timely question
the basis of FIRST LEPANTO’s rights as a subrogee.
The fact that the CA took cognizance of and resolved the said issue did not
cure or ratify ATI’s faux pas. "[A] judgment that goes beyond the issues and
purports to adjudicate something on which the court did not hear the parties, is
not only irregular but also extrajudicial and invalid."41 Thus, for resolving an
issue not framed during the pre-trial and on which the parties were not heard
during the trial, that portion of the CA’s judgment discussing the necessity of
presenting an insurance contract was erroneous.
At any rate, the non-presentation of the insurance contract is not fatal to
FIRST LEPANTO’s right to collect reimbursement as the subrogee of GASI.
"Subrogation is the substitution of one person in the place of another with
reference to a lawful claim or right, so that he who is substituted succeeds to
the rights of the other in relation to a debt or claim, including its remedies or
securities."42 The right of subrogation springs from Article 2207 of the Civil
Code which states:
Art. 2207. If the plaintiff’s property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrong-doer or the person
who has violated the contract. If the amount paid by the insurance company
does not fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury.
As a general rule, the marine insurance policy needs to be presented in
evidence before the insurer may recover the insured value of the
lost/damaged cargo in the exercise of its subrogatory right. In Malayan
Insurance Co., Inc. v.Regis Brokerage Corp.,43 the Court stated that the
presentation of the contract constitutive of the insurance relationship between
the consignee and insurer is critical because it is the legal basis of the latter’s
right to subrogation.44
In Home Insurance Corporation v. CA,45 the Court also held that the
insurance contract was necessary to prove that it covered the hauling portion
of the shipment and was not limited to the transport of the cargo while at sea.
The shipment in that case passed through six stages with different parties
involved in each stage until it reached the consignee. The insurance contract,
which was not presented in evidence, was necessary to determine the scope
of the insurer’s liability, if any, since no evidence was adduced indicating at
what stage in the handling process the damage to the cargo was sustained.46
An analogous disposition was arrived at in the Wallem47 case cited by ATI
wherein the Court held that the insurance contract must be presented in
evidence in order to determine the extent of its coverage. It was further ruled
therein that the liability of the carrier from whom reimbursement was
demanded was not established with certainty because the alleged shortage
incurred by the cargoes was not definitively determined.48
Nevertheless, the rule is not inflexible. In certain instances, the Court has
admitted exceptions by declaring that a marine insurance policy is dispensable
evidence in reimbursement claims instituted by the insurer.
In Delsan Transport Lines, Inc. v. CA,49 the Court ruled that the right of
subrogation accrues simply upon payment by the insurance company of the
insurance claim. Hence, presentation in evidence of the marine insurance
policy is not indispensable before the insurer may recover from the common
carrier the insured value of the lost cargo in the exercise of its subrogatory
right. The subrogation receipt, by itself, was held sufficient to establish not only
the relationship between the insurer and consignee, but also the amount paid
to settle the insurance claim. The presentation of the insurance contract was
deemed not fatal to the insurer’s cause of action because the loss of the cargo
undoubtedly occurred while on board the petitioner’s vessel.50
The same rationale was the basis of the judgment in International Container
Terminal Services, Inc. v. FGU Insurance Corporation,51 wherein the arrastre
operator was found liable for the lost shipment despite the failure of the
insurance company to offer in evidence the insurance contract or policy. As in
Delsan, it was certain that the loss of the cargo occurred while in the
petitioner’s custody.52
Based on the attendant facts of the instant case, the application of the
exception is warranted.1âwphi1 As discussed above, it is already settled that
the loss/damage to the GASI’s shipment occurred while they were in ATI’s
custody, possession and control as arrastre operator. Verily, the Certificate of
Insurance53 and the Release of Claim54 presented as evidence sufficiently
established FIRST LEPANTO’s right to collect reimbursement as the subrogee
of the consignee, GASI.
With ATI’s liability having been positively established, to strictly require the
presentation of the insurance contract will run counter to the principle of equity
upon which the doctrine of subrogation is premised. Subrogation is designed
to promote and to accomplish justice and is the mode which equity adopts to
compel the ultimate payment of a debt by one who in justice, equity and good
conscience ought to pay.55
ATI cannot rely on the ruling in Prudentiat61 because the consignee therein
made no provisional claim thru request for bad order survey and instead filed a
claim for the first time after four months from receipt of the shipment.
Attorney's fees and interests
All told, ATI is liable to pay FIRST LEPANTO the amount of the Pl 65, 772.40
representing the insurance indemnity paid by the latter to GASI. Pursuant to
Nacar v. Gallery Frames,62 the said amount shall earn a legal interest at the
rate of six percent (6%) per annum from the date of finality of this judgment
until its full satisfaction.
As correctly imposed by the RTC and the CA, ten percent (10%) of the
judgment award is reasonable as and for attorney's fees considering the
length of time that has passed in prosecuting the claim.63
WHEREFORE, premises considered, the petition is hereby DENIED. The
Decision dated October 10, 2008 of the Court of Appeals in CA-G.R. SP No.
99021 is hereby AFFIRMED insofar as it adjudged liable and ordered Asian
Terminals, Inc., to pay First Lepanto-Taisho Insurance Corp., the amount of
₱165,772.40, ten percent (10%) thereof as and for attorney's fees, plus costs
of suit. The said amount shall earn legal interest at the rate of six percent (
6%) per annum from the date of finality of this judgment until its full
satisfaction.
SO ORDERED.

The payment by the insurer to the insured operates as an equitable

assignment to the insurer of all the remedies which the insured may have
against the third party whose negligence or wrongful act caused the loss. The
right of subrogation is not dependent upon, nor does it grow out of any privity
of contract or upon payment by the insurance company of the insurance claim.
It accrues simply upon payment by the insurance company of the insurance
claim.56

ATI cannot invoke prescription

ATI argued that the consignee, thru its insurer, FIRST LEPANTO is barred
from seeking payment for the lost/damaged shipment because the claim letter
of GASI to ATI was served only on September 27, 1996 or more than one
month from the date the shipment was delivered to the consignee’s
warehouse on August 9, 1996. The claim of GASI was thus filed beyond the
15-day period stated in ATI’s Management Contract with PPA which in turn
was reproduced in the gate passes issued to the consignee’s broker,
PROVEN, as follows:

Issuance of this Gate Pass Constitutes delivery to and receipt by consignee of

the goods as described above in good order and condition unless an
accompanying x x x certificates duly issued and noted on the face of this Gate
Pass appeals. [sic]

This Gate pass is subject to all terms and conditions defined in the
Management Contract between the Philippine Port[s] Authority and Asian
Terminals, Inc. and amendment thereto and alterations thereof particularly but
not limited to the [A]rticle VI thereof, limiting the contractor’s liability to
[P]5,000.00 per package unless the importation is otherwise specified or
manifested or communicated in writing together with the invoice value and
supported by a certified packing list to the contractor by the interested party or
parties before the discharge of the goods and corresponding arrastre charges
have been paid providing exception or restrictions from liability releasing the
contractor from liability among others unless a formal claim with the required
annexes shall have been filed with the contractor within fifteen (15) days from
date of issuance by the contractors or certificate of loss, damages, injury, or
Certificate of non-delivery.57

The contention is bereft of merit. As clarified in Insurance Company of North

America v. Asian Terminals, Inc.,58 substantial compliance with the 15-day
time limitation is allowed provided that the consignee has made a provisional
claim thru a request for bad order survey or examination report, viz:

Although the formal claim was filed beyond the 15-day period from the
issuance of the examination report on the request for bad order survey, the
purpose of the time limitations for the filing of claims had already been fully
satisfied by the request of the consignee’s broker for a bad order survey and
by the examination report of the arrastre operator on the result thereof, as the
arrastre operator had become aware of and had verified the facts giving rise to
its liability. Hence, the arrastre operator suffered no prejudice by the lack of
strict compliance with the 15-day limitation to file the formal complaint.59
(Citations omitted)

In the present case, ATI was notified of the loss/damage to the subject
shipment as early as August 9, 1996 thru a Request for Bad Order Survey60
jointly prepared by the consignee’s broker, PROVEN, and the representatives
of ATI. For having submitted a provisional claim, GASI is thus deemed to have
substantially complied with the notice requirement to the arrastre operator
notwithstanding that a formal claim was sent to the latter only on September
27, 1996. ATI was not deprived the best opportunity to probe immediately the
veracity of such claims. Verily then, GASI, thru its subrogee FIRST LEPANTO,
is not barred by filing the herein action in court.

Page 43 of 43