The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a
1.Eternal Gardens Memorial Park Corporation vs. Phil. American Life Insurance Co.,
GR No. 166245, 09 April 2008
FACTS: 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.
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.
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. Consequently, Eternal filed a case before the Makati City Regional
Trial Court (RTC).
DECISION OF LOWER COURTS:
(1) RTC : in favor of Eternal. 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.
(2) CA : in favor of Philamlife. there being no application form, Chuang was not covered by
Philamlife's insurance.
ISSUE: May the inaction of the insurer on the insurance application be considered as
approval of the application?
RULING: YES
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.
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.
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.
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.
2. Philamcare Health Systems, Inc. vs. Court of Appeals, 379 SCRA 356, G.R. No.
125678, March 18, 2002
Facts: Ernani Trinos, deceased husband of Julita Trinos, applied for a health care
coverage with 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). " The application was approved for
a period of one year from 1 March 1988 to 1 March 1989. Accordingly, he was issued
Health Care Agreement P010194. Under the agreement, Trinos' 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 1 March 1989 to 1 March 1990,
then from 1 March 1990 to 1 June 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani
suffered a heart attack and was confined at the Manila Medical Center (MMC) for one
month beginning 9 March 1990. While her husband was in the hospital, Trinos tried to
claim the benefits under the health care agreement. However, Philamcare denied her
claim saying that the Health Care Agreement was void. According to Philamcare, 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, Trinos 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, Trinos
brought her husband home again. In the morning of 13 April 1990, Ernani had fever and
was feeling very weak. Trinos was constrained to bring him back to the Chinese General
Hospital where he died on the same day. On 24 July 1990, Trinos instituted with the
Regional Trial Court of Manila, Branch 44, an action for damages against Philamcare and
its president, Dr. Benito Reverente (Civil Case 90 53795). She asked for reimbursement of
her expenses plus moral damages and attorney's fees. After trial, the lower court ruled
against Philamcare and Reverente, ordering them 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; the reduced amount of moral
damages of P10,000.00 to Trinos; the reduced amount of P10,000.00 as exemplary
damages to Trinos; and the attorney's fees of P20,000.00, plus costs of suit. On appeal,
the Court of Appeals affirmed the decision of the trial court but deleted all awards for
damages and absolved Reverente. Philamcare's motion for reconsideration was denied.
Hence, Philamcare brought the petition for review, raising the primary argument that a
health care agreement is not an insurance contract; hence the "incontestability clause"
under the Insurance Code does not apply.
Issue [1]: Whether a health care agreement between Philamcare and Ernani Trinos is an
insurance contract. Held [1]: YES. 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. 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 that "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." Herein, the insurable interest of Trinos' 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. 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.
Issue [2]: Whether answers made in good faith, where matters of opinion or judgment are
called for, without intent to deceive will avoid a policy when they were untrue.
Held [2]: NO. 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.
Thus, although 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. The fraudulent intent
on the part of the insured must be established to warrant rescission of the insurance
contract. 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, Philamcare is liable for claims made under the contract. Having
assumed a responsibility under the agreement, Philamcare 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.
Issue [3]: Whether rescission must be exercised before commencement of an action on
the contract.
Held [3]: YES. Under Section 27 of the Insurance Code, "a concealment entitles the 3. Asian Terminals, Inc. v. First Lepanto-Taisho Insurance Corp., G.R. No. 185964,
injured party to rescind a contract of insurance." The right to rescind should be exercised June 16, 2014
previous to the commencement of an action on the contract. Herein, no rescission was
made. Besides, the cancellation of health care agreements as in insurance policies require
FACTS: On July 6, 1996, 3,000 bags of sodium tripolyphosphate were loaded and received
the concurrence of the following conditions: (1) Prior notice of cancellation to insured; (2)
on board M/V "Da Feng" owned by China Ocean Shipping Co. (COSCO) in favor of
Notice must be based on the occurrence after effective date of the policy of one or more of
consignee, Grand Asian Sales, Inc. (GASI). Based on a Certificate of Insurance, it appears
the grounds mentioned; (3) Must be in writing, mailed or delivered to the insured at the
that the shipment was insured against all risks. Upon receipt of the shipment, GASI found
address shown in the policy; (4) Must state the grounds relied upon provided in Section 64
that the delivered goods incurred shortages and spillage of loss/damage. GASI sought
of the Insurance Code and upon request of insured, to furnish facts on which cancellation
recompense from COSCO, thru its Philippine agent Smith Bell Shipping Lines, Inc. (SMITH
is based. None of the above pre-conditions was fulfilled in this case. When the terms of
BELL), ATI and PROVEN but was denied. Hence, it pursued indemnification from the
insurance contract contain limitations on liability, courts should construe them in such a
shipment’s insurer. FIRST LEPANTO paid GASI the amount of insurance indemnity.
way as to preclude the insurer from non-compliance with his obligation. Being a contract of
adhesion,
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
the terms of an insurance contract are to be construed strictly against the party which LEPANTO’s demands were not heeded, it filed a complaint for sum of money before MeTC
prepared the contract — the insurer. By reason of the exclusive control of the insurance of Manila. The MeTC absolved ATI and PROVEN from any liability and instead found
company over the terms and phraseology of the insurance contract, ambiguity must be COSCO to be the party at fault and hence liable for the loss/damage sustained by the
strictly interpreted against the insurer and liberally in favor of the insured, especially to subject shipment.
avoid forfeiture. This is equally applicable to Health Care Agreements.
On appeal, the RTC reversed the MeTC’s findings. The CA dismissed the appeal and held
Issue [4]: Whether the membership of the late Trinos is now incontestable. that FIRST LEPANTO was subrogated to its rights against those liable for the lost/damaged
shipment and also affirmed the ruling of the RTC that the subject shipment was damaged
while in the custody of ATI.
Held [4]: YES. Under the title Claim procedures of expenses, Philamcare had twelve
months from the date of issuance of the Agreement within which to contest the
ISSUE: Whether or not the presentation of the insurance policy is indispensable in proving
membership of the patient if he had previous ailment of asthma, and six months from the
the right of FIRST LEPANTO to be subrogated to the right of the consignee.
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.
HELD: The Court denies the petition. Non-presentation of the insurance contract is not fatal
to FIRST LEPANTO’s cause of action for reimbursement as subrogee.

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. Based on
the attendant facts of the instant case, the application of the exception is warranted. 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 Insurance and the Release of Claim presented as evidence sufficiently
established FIRST LEPANTO’s right to collect reimbursement as the subrogee of the
consignee, GASI.

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.
4. Cha vs. Court of Appeals, 277 SCRA 690, G.R. No. 124520, August 18, 1997
Facts: Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract
with CKS Development Corporation, as lessor, on 5 October 1988. One of the stipulations
of the 1 year lease contract states that "The LESSEE shall not insure against fire the
chattels, merchandise, textiles, goods and effects placed at any stall or store or space in
the leased premises without first obtaining the written consent and approval of the
LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the
LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own
benefit" Notwithstanding the above stipulation in the lease contract, the Cha spouses
insured against loss by fire their merchandise inside the leased premises for P500,000.00
with the United Insurance Co., Inc. without the written consent of CKS. On the day that the
lease contract was to expire, fire broke out inside the leased premises. When CKS learned
of the insurance earlier procured by the Cha spouses (without its consent), it wrote the
insurer (United) a demand letter asking that the proceeds of the insurance contract
(between the Cha spouses and United) be paid directly to CKS, based on its lease
contract with the Cha spouses. United refused to pay CKS. Hence, the latter filed a
complaint against the Cha spouses and United. On 2 June 1992, the Regional Trial Court,
Branch 6, Manila, rendered a decision ordering United to pay CKS the amount of
P335,063.11 and the Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00
as attorney's fees and costs of suit. On appeal, the Court of Appeals in CA GR CV 39328
rendered a decision dated 11 January 1996, affirming the trial court decision, deleting
however the awards for exemplary damages and attorney's fees. A motion for
reconsideration by United was denied on 29 March 1996. The spouses Cha and United
filed the petition for review on certiorari.
Issue: Whether paragraph 18 of the lease contract entered into between CKS and the
Cha spouses is valid insofar as it provides that any fire insurance policy obtained by the
lessee (Cha spouses) over their merchandise inside the leased premises is deemed
assigned or transferred to the lessor (CKS) if said policy is obtained without the prior
written consent of the latter.
Held: NO. It is basic in the law on contracts that the stipulations contained in a contract
cannot be contrary to law, morals, good customs, public order or public policy. Section 18
of the Insurance Code provides that "No contract or policy of insurance on property shall
be enforceable except for the benefit of some person having an insurable interest in the
property insured." A non-life insurance policy such as the fire insurance policy taken by the
spouses over their merchandise is primarily a contract of indemnity. Insurable interest in
the property insured must exist at the time the insurance takes effect and at the time the
loss occurs. The basis of such requirement of insurable interest in property insured is
based on sound public policy: to prevent a person from taking out an insurance policy on
property upon which he has no insurable interest and collecting the proceeds of said policy
in case of loss of the property. In such a case, the contract of insurance is a mere wager
which is void under Section 25 of the Insurance Code, which provides that "Every
stipulation in a policy of Insurance for the payment of loss whether the person insured has
or has not any interest in the property insured, or that the policy shall be received as proof
of such interest, and every policy executed by way of gaming or wagering, is void." Herein,
it cannot be denied that CKS has no insurable interest in the goods and merchandise
inside the leased premises under the provisions of Section 17 of the Insurance Code
which provides that "The measure of an insurable interest in property is the extent to
which the insured might be damnified by loss of injury thereof." Therefore, CKS cannot,
under the Insurance Code — a special law — be validly a beneficiary of the fire insurance
policy taken by the spouses over their merchandise. This insurable interest over said
merchandise remains with the insured, the Cha spouses. The automatic assignment of the
policy to CKS under the provision of the lease contract previously quoted is void for being
contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully
belong to the spouses Nilo Cha and Stella Uy-Cha. The insurer (United) cannot be
compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no
insurable interest in the property insured.
5. Gaisano Cagayan, Inc. vs. Insurance Company of North America, 490 SCRA 286,
G.R. No. 147839, June 8, 2006
Facts: IMC and Levi Strauss (Phils.) Inc. (LSPI) separately obtained from respondent
fire insurance policies with book debt endorsements. The insurance policies provide
for coverage on "book debts in connection with ready-made clothing materials which have
been sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines."
The policies defined book debts as the "unpaid account still appearing in the Book of
Account of the Insured 45 days after the time of the loss covered under this Policy." The
policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the
merchandise sold and delivered by the Insured which are outstanding at the date of loss
for a period in excess of six (6) months from the date of the covering invoice or actual
delivery of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after
the close of every calendar month all amount shown in their books of accounts as unpaid
and thus become receivable item from their customers and dealers.
Gaisano is a customer and dealer of the products of IMC and LSPI. On February 25, 1991,
the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was
consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready-
made clothing materials sold and delivered by IMC and LSPI.
Insurance of America filed a complaint for damages against Gaisano. It alleges that IMC
and LSPI were paid for their claims and that the unpaid accounts of petitioner on the sale
and delivery of ready-made clothing materials with IMC was P2,119,205.00 while with
LSPI it was P535,613.00.
The RTC rendered its decision dismissing Insurance's complaint. It held that the fire was
purely accidental; that the cause of the fire was not attributable to the negligence of the
petitioner. Also, it said that IMC and LSPI retained ownership of the delivered goods and
must bear the loss.
The CA rendered its decision and set aside the decision of the RTC. It ordered Gaisano to
pay Insurance the P 2 million and the P 500,000 the latter paid to IMC and Levi Strauss.
Hence this petition.
Issues:
1. WON the CA erred in construing a fire insurance policy on book debts as one covering
the unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-
made clothing materials sold and delivered to petitioner
2. WON IMC bears the risk of loss because it expressly reserved ownership of the goods
by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of
securing the payment of the purchase price the above described merchandise remains the
property of the vendor until the purchase price thereof is fully paid."
3. WON petitioner is liable for the unpaid accounts
4. WON it has been established that petitioner has outstanding accounts with IMC and
LSPI.
Held: No. Yes. Yes. Yes but account with LSPI unsubstantiated. Petition partly granted.
Ratio:
1. Nowhere is it provided in the questioned insurance policies that the subject of the
insurance is the goods sold and delivered to the customers and dealers of the insured.
Thus, what were insured against were the accounts of IMC and LSPI with petitioner which
remained unpaid 45 days after the loss through fire, and not the loss or destruction of the
goods delivered.
2. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the
ownership therein is transferred to the buyer, but when the ownership therein is
transferred to the buyer the goods are at the buyer's risk whether actual delivery has been
made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been retained by the seller
merely to secure performance by the buyer of his obligations under the contract, the goods
are at the buyer's risk from the time of such delivery
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the
risk of loss is borne by the buyer. Petitioner bears the risk of loss of the goods delivered.
IMC and LSPI had an insurable interest until full payment of the value of the delivered
goods. Unlike the civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, one's interest is not
determined by concept of title, but whether insured has substantial economic interest in
the property.
Section 13 of our Insurance Code defines insurable interest as "every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the insured." Parenthetically,
under Section 14 of the same Code, an insurable interest in property may consist in: (a) an
existing interest; (b) an inchoate interest founded on existing interest; or (c) an
expectancy, coupled with an existing interest in that out of which the expectancy arises.
Anyone has an insurable interest in property who derives a benefit from its existence or
would suffer loss from its destruction. Indeed, a vendor or seller retains an insurable
interest in the property sold so long as he has any interest therein, in other words, so long
as he would suffer by its destruction, as where he has a vendor's lien. In this case, the
insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books
of Account 45 days after the time of the loss covered by the policies.
3. Petitioner's argument that it is not liable because the fire is a fortuitous event under
Article 117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss
under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire
but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the
fire. Accordingly, petitioner's obligation is for the payment of money. As correctly stated by
the CA, where the obligation consists in the payment of money, the failure of the debtor to
make the payment even by reason of a fortuitous event shall not relieve him of his liability.
The rationale for this is that the rule that an obligor should be held exempt from liability
when the loss occurs thru a fortuitous event only holds true when the obligation consists in
the delivery of a determinate thing and there is no stipulation holding him liable even in
case of fortuitous event. It does not apply when the obligation is pecuniary in nature.
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss
or destruction of anything of the same kind does not extinguish the obligation." This rule is
based on the principle that the genus of a thing can never perish. An obligation to pay
money is generic; therefore, it is not excused by fortuitous loss of any specific property of
the debtor.
4. With respect to IMC, the respondent has adequately established its claim. The P 3 m
claim has been proven. The subrogation receipt, by itself, is sufficient to establish not only
the relationship of respondent as insurer and IMC as the insured, but also the amount paid
to settle the insurance claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim Respondent's action against petitioner is
squarely sanctioned by Article 2207 of the Civil Code which provides:
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 wrongdoer or the person who has violated the contract.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action.
There was no evidence that respondent has been subrogated to any right which LSPI may
have against petitioner. Failure to substantiate the claim of subrogation is fatal to
petitioner's case for recovery of P535,613.00.
6. Sun Life of Canada [Philippines], Inc. vs. Sibya, 793 SCRA 45, G.R. No. 211212
June 8, 2016
FACTS: On January 10, 2001, Atty. Jesus Sibya, Jr. applied for life insurance with Sun
Life. In his Application for Insurance, he indicated that he had sought advice for kidney
problems. Sun Life approved the application and issued Insurance Policy No. 031097335.
The policy indicated the respondents as beneficiaries and entitles them to a death benefit
of P1,000,000.00 should Atty. Jesus Jr. dies on or before February 5, 2021, or a sum of
money if Atty. Jesus Jr. is still living on the endowment date. On May 11, 2001, Atty. Jesus
Jr. died as a result of a gunshot wound. As such, Ma. Daisy filed a Claimant’s Statement
with Sun Life to seek the death benefits indicated in his insurance policy. However, Sun
Life denied the claim on the ground that the details on Atty. Jesus Jr.’s medical history
were not disclosed in his application. Simultaneously, Sun Life tendered a check
representing the refund of the premiums paid by Atty. Jesus. The respondents claimed
that Atty. Jesus Jr. did not commit misrepresentation in his application for insurance. The
RTC held that Atty. Jesus Jr. did not commit material concealment and misrepresentation
when he applied for life insurance with Sun Life. It observed that given the disclosures and
the waiver and authorization to investigate executed by Atty. Jesus Jr. to Sun Life, the
latter had all the means of ascertaining the facts allegedly concealed by the applicant.
ISSUE: Whether or not there was concealment or misrepresentation when Atty. Jesus Jr.
submitted his insurance application with Sun Life.
RULING: In Manila Bankers Life Insurance Corporation v. Aban, the Court held that if the
insured dies within the two-year contestability period, the insurer is bound to make good its
obligation under the policy, regardless of the presence or lack of concealment or
misrepresentation. The Court held:
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.
In the present case, Sun Life issued Atty. Jesus Jr.’s policy on February 5, 2001. Thus, it
has two years from its issuance, to investigate and verify whether the policy was obtained
by fraud, concealment, or misrepresentation. Upon the death of Atty. Jesus Jr., however,
on May 11, 2001, or a mere three months from the issuance of the policy, Sun Life loses
its right to rescind the policy. As discussed in Manila Bankers, the death of the insured
within the two-year period will render the right of the insurer to rescind the policy nugatory.
As such, the incontestability period will now set in.
As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical
treatment for kidney ailment. Moreover, he executed an authorization in favor of Sun Life
to conduct investigation in reference with his medical history.
Indeed, the intent to defraud on the part of the insured must be ascertained to merit
rescission of the insurance contract. Concealment as a defense for the 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 the present case, Sun Life failed
to clearly and satisfactorily establish its allegations, and is therefore liable to pay the
proceeds of the insurance.
7. Geagonia vs. Court of Appeals, 241 SCRA 152, G.R. No. 114427, February 6, 1995
Facts: Armando Geagonia is the owner of Norman's Mart located in the public market of
San Francisco, Agusan del Sur. On 22 December 1989, he obtained from Country
Bankers Insurance Corporation fire insurance policy No. F-14622 2 for P100,000.00. The
period of the policy was from 22 December 1989 to 22 December 1990 and covered the
following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and
women wear and other usual to assured's business." Geagonia declared in the policy
under the subheading entitled CO-INSURANCE that Mercantile Insurance Co., Inc. was
the co-insurer for P50,000.00. From 1989 to 1990, Geagonia had in his inventory stocks
amounting to P392,130.50, itemized as follows: Zenco Sales, Inc., P55,698.00; F. Legaspi
Gen. Merchandise, 86,432.50; and Cebu Tesing Textiles, 250,000.00 (on credit); totalling
P392,130.50. The policy contained the following condition, that "the insured shall give
notice to the Company of any insurance or insurances already effected, or which may
subsequently be effected, covering any of the property or properties consisting of stocks in
trade, goods in process and/or inventories only hereby insured, and unless notice be given
and the particulars of such insurance or insurances be stated therein or endorsed in this
policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company
before the occurrence of any loss or damage, all benefits under this policy shall be
deemed forfeited, provided however, that this condition shall not apply when the total
insurance or insurances in force at the time of the loss or damage is not more than
P200,000.00." On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at
the public market of San Francisco, Agusan del Sur. Geagonia's insured stocks-in-trade
were completely destroyed prompting him to file with Country Bankers a claim under the
policy. On 28 December 1990, Country Bankers denied the claim because it found that at
the time of the loss Geagonia's stocks-in-trade were likewise covered by fire insurance
policies GA-28146 and GA-28144, for P100,000.00 each, issued by the Cebu Branch of
the Philippines First Insurance Co., Inc. (PFIC). These policies indicate that the insured
was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause
reading ""MORTGAGEE: Loss, if any, shall be payable to Messrs. Cebu Tesing Textiles,
Cebu City as their interest may appear subject to the terms of this policy. CO-
INSURANCE DECLARED: P100,000. — Phils. First CEB/F-24758" The basis of Country
Bankers' denial was Geagonia's alleged violation of Condition 3 of the policy. Geagonia
then filed a complaint against Country Bankers with the Insurance Commission (Case
3340) for the recovery of P100,000.00 under fire insurance policy F-14622 and for
attorney's fees and costs of litigation. He attached his letter of 18 January 1991 which
asked for the reconsideration of the denial. He admitted in the said letter that at the time
he obtained Country Bankers's fire insurance policy he knew that the two policies issued
by the PFIC were already in existence; however, he had no knowledge of the provision in
Country Bankers' policy requiring him to inform it of the prior policies; this requirement was
not mentioned to him by Country Bankers' agent; and had it been so mentioned, he would
not have withheld such information. He further asserted that the total of the amounts
claimed under the three policies was below the actual value of his stocks at the time of
loss, which was P1,000,000.00. In its decision of 21 June 1993, the Insurance
Commission found that Geagonia did not violate Condition 3 as he had no knowledge of
the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu
Tesing Textiles which procured the PFIC policies without informing him or securing his
consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the
stocks. These findings were based on Geagonia's testimony that he came to know of the
PFIC policies only when he filed his claim with Country Bankers and that Cebu Tesing any of the property hereby insured, and unless such notice be given and the particulars of
Textile obtained them and paid for their premiums without informing him thereof. The such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the
Insurance Commission ordered Country Bankers to pay Geagibua the sum of Company before the occurrence of any loss or damage, all benefits under this Policy shall
P100,000.00 with legal interest from the time the complaint was filed until fully satisfied be forfeited"; or in the 1930 case of Santa Ana vs. Commercial Union Assurance Co., 55
plus the amount of P10,000.00 as attorney's fees. With costs. Its motion for the Phil. 329, 334 [1930], which provided "that any outstanding insurance upon the whole or a
reconsideration of the decision having been denied by the Insurance Commission in its portion of the objects thereby assured must be declared by the insured in writing and he
resolution of 20 August 1993, Country Bankers appealed to the Court of Appeals by way must cause the company to add or insert it in the policy, without which such policy shall be
of a petition for review (CA-GR SP 31916). In its decision of 29 December 1993, the Court null and void, and the insured will not be entitled to indemnity in case of loss," Condition 3
of Appeals reversed the decision of the Insurance Commission because it found that in Country Bankers' policy F-14622 does not absolutely declare void any violation thereof.
Geagonia knew of the existence of the two other policies issued by the PFIC. His motion It expressly provides that the condition "shall not apply when the total insurance or
to reconsider the adverse decision having been denied, Geagonia filed the petition for insurances in force at the time of the loss or damage is not more than P200,000.00." By
review on certiorari. stating within Condition 3 itself that such condition shall not apply if the total insurance in
force at the time of loss does not exceed P200,000.00, Country Bankers was amenable to
Issue [1]: Whether the non-disclosure of other insurance policies violate condition 3 of the assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind
policy, so as to deny Geagonia from recovering on the policy. was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other
insurance" clause in fire policies is to prevent over-insurance and thus avert the
perpetration of fraud. When a property owner obtains insurance policies from two or more
Held [1]: Condition 3 of Country Bankers's Policy F-14622 is a condition which is not insurers in a total amount that exceeds the property's value, the insured may have an
proscribed by law. Its incorporation in the policy is allowed by Section 75 of the Insurance inducement to destroy the property for the purpose of collecting the insurance. The public
Code, Such a condition is a provision which invariably appears in fire insurance policies as well as the insurer is interested in preventing a situation in which a fire would be
and is intended to prevent an increase in the moral hazard. It is commonly known as the profitable to the insured.
additional or "other insurance" clause and has been upheld as valid and as a warranty that
no other insurance exists. Its violation would thus avoid the policy. However, in order to
constitute a violation, the other insurance must be upon the same subject matter, the
same interest therein, and the same risk. The fire insurance policies issued by the PFIC
name Geagonia as the assured and contain a mortgage clause which reads: "Loss, if any,
shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear
subject to the terms of the policy." This is clearly a simple loss payable clause, not a
standard mortgage clause. The Court concludes that (a) the prohibition in Condition 3 of
the subject policy applies only to double insurance, and (b) the nullity of the policy shall
only be to the extent exceeding P200,000.00 of the total policies obtained. The first
conclusion is supported by the portion of the condition referring to other insurance
"covering any of the property or properties consisting of stocks in trade, goods in process
and/or inventories only hereby insured," and the portion regarding the insured's
declaration on the subheading CO-INSURANCE that the co-insurer is Mercantile
Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists where the same
person is insured by several insurers separately in respect of the same subject and
interest. Since the insurable interests of a mortgagor and a mortgagee on the mortgaged
property are distinct and separate; the two policies of the PFIC do not cover the same
interest as that covered by the policy of Country Bankers, no double insurance exists. The
non-disclosure then of the former policies was not fatal to Geagonia's right to recover on
Country Bankers' policy.

Issue [2]: Whether the violation of Condition 3 of the policy renders the policy void.

Held [2]: Unlike the "other insurance" clauses involved in General Insurance and Surety
Corp. vs. Ng Hua, 106 Phil. 1117 [1960], or in Pioneer Insurance & Surety Corp. vs. Yap,
61 SCRA 426 [1974] which reads "The insured shall give notice to the company of any
insurance or insurances already effected, or which may subsequently be effected covering
8. The Insular Life Assurance Company, Ltd. v. Paz Y. Khu, et al.
G.R. No. 195176; April 18, 2016
Facts: On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy
with Insular Life under the latter's Diamond Jubilee Insurance Plan. Felipe accomplished
the required medical questionnaire wherein he did not declare any illness or adverse
medical condition. Insular Life thereafter issued him Policy Number A000015683 with a
face value of PI million. This took effect on June 22, 1997.
On June 23, 1999, Felipe's policy lapsed due to non-payment of the premium covering the
period from June 22, 1999 to June 23, 2000. On September 7, 1999, Felipe applied for the
reinstatement of his policy and paid P25,020.00 as premium
On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may
only be considered if he agreed to certain conditions such as payment of additional
premium and the cancellation of the riders pertaining to premium waiver and accidental
death benefits. Felipe agreed to these conditions[8] and on December 27, 1999 paid the
agreed additional premium of P3,054.50
On September 22, 2001, Felipe died
On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. .and Frederick Y. Khu (collectively,
Felipe's beneficiaries or respondents) filed with Insular Life a claim for benefit under the
reinstated policy. This claim was denied.
Issues: Insular Life countered that Felipe did not disclose the ailments (viz., Type 2
Diabetes Mellitus, Diabetes Nephropathy and Alcoholic Liver Cirrhosis with Ascites) that
he already had prior to his application for reinstatement of his insurance policy; and that it
would not have reinstated the insurance policy had Felipe disclosed the material
information on his adverse health condition. It contended that when Felipe died, the policy
was still contestable... whether Felipe's reinstated life insurance policy is already
incontestable at the time of his death.
Ruling: this Court adopts the interpretation favorable to the insured in determining the
date when the reinstatement was approved.
We deny the Petition. Based on the foregoing, we find that the CA did not commit any
error in holding that the subject insurance policy be considered as reinstated on June 22,
1999. This finding must be upheld not only because it accords with the evidence, but also
because this is favorable to the insured who was not responsible for causing the ambiguity
or obscurity in the insurance contract.
WHEREFORE, the Petition is DENIED. The assailed June 24, 2010 Decision and
December 13, 2010 Resolution of the Court of Appeals in CA-GR. CV No. 81730 are
AFFIRMED.
Principles: that given the obscurity/ambiguity in the language of these two documents,
the construction/interpretation that favors the insured's right to recover should be adopted;
a... that the CA erred in declaring that resort to the principles of statutory construction is
still necessary to resolve that question given that the Application for Reinstatement,... The
court below is correct. Given the obscurity of the language, the construction favorable to
the insured will be adopted by the courts.
9. Sun Life of Canada (Phils.) vs. Sandra Tan Kit, G.R. No. 183272, October 15, 2014
The Court of Appeals' (CA) imposition of 12% interest on the P13,080.93 premium refund
is the only matter in question in this case.
This Petition for Review on Certiorari[1] assails the October 17, 2007 Decision[2] of CA in
CA-G.R. CV No. 86923, which, among others, imposed a 12% per annum rate of interest
reckoned from the time of death of the insured until fully paid, on the premium to be
reimbursed by petitioner Sun Life of Canada (Philippines), Inc. (petitioner) to respondents
Sandra Tan Kit (respondent Tan Kit) and the Estate of the Deceased Norberto Tan Kit
(respondent estate). Likewise assailed in this Petition is the CA's June 12, 2008
Resolution[3] denying petitioner's Motion for Reconsideration of the said Decision.
Factual Antecedents
Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit
(Norberto), whose application for a life insurance policy,[4] with face value of P300,000.00,
was granted by petitioner on October 28, 1999. On February 19, 2001, or within the two-
year contestability period,[5] Norberto died of disseminated gastric
carcinoma.[6] Consequently, respondent Tan Kit filed a claim under the subject policy.
In a Letter[7] dated September 3, 2001, petitioner denied respondent Tan Kit's claim on
account of Norberto's failure to fully and faithfully disclose in his insurance application
certain material and relevant information about his health and smoking history.
Specifically, Norberto answered "No" to the question inquiring whether he had smoked
cigarettes or cigars within the last 12 months prior to filling out said application. [8] However,
the medical report of Dr. Anna Chua (Dr. Chua), one of the several physicians that
Norberto consulted for his illness, reveals that he was a smoker and had only stopped
smoking in August 1999. According to petitioner, its underwriters would not have approved
Norberto's application for life insurance had they been given the correct information.
Believing that the policy is null and void, petitioner opined that its liability is limited to the
refund of all the premiums paid. Accordingly, it enclosed in the said letter a check for
P13,080.93 representing the premium refund.
In a letter[9] dated September 13, 2001, respondent Tan Kit refused to accept the check
and insisted on the payment of the insurance proceeds.
On October 4, 2002, petitioner filed a Complaint[10] for Rescission of Insurance Contract
before the Regional Trial Court (RTC) of Makati City.
Ruling of the Regional Trial Court
In its November 30, 2005 Decision,[11] the RTC noted that petitioner's physician, Dr.
Charity Salvador (Dr. Salvador), conducted medical examination on Norberto. Moreover,
petitioner's agent, Irma Joy E. Javelosa (Javelosa), answered "NO" to the question "Are
you aware of anything about the life to be insured's lifestyle, hazardous sports, habits,
medical history, or any risk factor that would have an adverse effect on insurability?" in her
Agent's Report. Javelosa also already knew Norberto two years prior to the approval of the
latter's application for insurance. The RTC concluded that petitioner, through the above-
mentioned circumstances, had already cleared Norberto of any misrepresentation that he
may have committed. The RTC also opined that the affidavit of Dr. Chua, presented as
part of petitioner's evidence and which confirmed the fact that the insured was a smoker
and only stopped smoking a year ago [1999], is hearsay since Dr. Chua did not testify in
court. Further, since Norberto had a subsisting insurance policy with petitioner during his
application for insurance subject of this case, it was incumbent upon petitioner to ascertain
the health condition of Norberto considering the additional burden that it was assuming.
Lastly, petitioner did not comply with the requirements for rescission of insurance contract
as held in Philamcare Health Systems, Inc. v. Court of Appeals.[12] Thus, the dispositive
portion of the RTC Decision:
WHEREFORE, in view of the foregoing considerations, this court hereby finds in favor of
the [respondents and] against the [petitioner], hence it hereby orders the [petitioner] to pay
the [respondent], Sandra Tan Kit, the sum of Philippine Pesos: THREE HUNDRED
THOUSAND (P300,000.00), representing the face value of the insurance policy with interest
at six percent (6%) per annum from October 4, 2002 until fully paid.
Cost de oficio. SO ORDERED. Petitioner moved for reconsideration,[14] but was denied in
an Order[15] dated February 15, 2006. Hence, petitioner appealed to the CA.
Ruling of the Court of Appeals
On appeal, the CA reversed and set aside the RTC's ruling in its Decision[16] dated
October 17, 2007.
From the records, the CA found that prior to his death, Norberto had consulted two
physicians, Dr. Chua on August 19, 2000, and Dr. John Ledesma (Dr. Ledesma) on
December 28, 2000, to whom he confided that he had stopped smoking only in 1999. At
the time therefore that he applied for insurance policy on October 28, 1999, there is no
truth to his claim that he did not smoke cigarettes within 12 months prior to the said
application. The CA thus held that Norberto is guilty of concealment which misled
petitioner in forming its estimates of the risks of the insurance policy. This gave petitioner
the right to rescind the insurance contract which it properly exercised in this case.
In addition, the CA held that the content of Norberto's medical records are deemed
admitted by respondents since they failed to deny the same despite having received from
petitioner a Request for Admission pursuant to Rule 26 of the Rules of Court.[17] And since
an admission is in the nature of evidence the legal effects of which form part of the
records, the CA discredited the RTC's ruling that the subject medical records and the
affidavits executed by Norberto's physicians attesting to the truth of the same were
hearsay.
The dispositive portion of the CA Decision reads:
WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the
appealed Decision REVERSED and SET ASIDE, and in lieu thereof, a judgment is hereby
rendered GRANTING the complaint a quo.
Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of P13,080.93
representing the [premium] paid by the insured with interest at the rate of 12% per annum
from the time of the death of the insured until fully paid. SO ORDERED.[18]
The parties filed their separate motions for reconsideration.[19] While respondents
questioned the factual and legal bases of the CA Decision, petitioner, on the other hand,
assailed the imposition of interest on the premium ordered refunded to respondents.
However, the appellate court denied the motions in its June 12, 2008 Resolution, [20] viz:
WHEREFORE, the foregoing considered, the separate motions for reconsideration filed by
the [petitioner] and the [respondents] are hereby DENIED. SO ORDERED.[21]
Only petitioner appealed to this Court through the present Petition for Review
on Certiorari.
Issue: The sole issue in this case is whether petitioner is liable to pay interest on the
premium to be refunded to respondents.
The Parties' Arguments
Petitioner argues that no interest should have been imposed on the premium to be
refunded because the CA Decision does not provide any legal or factual basis therefor;
that petitioner directly and timely tendered to respondents an amount representing the
premium refund but they rejected it since they opted to pursue their claim for the proceeds
of the insurance policy; that respondents should bear the consequence of their unsound
decision of rejecting the refund tendered to them; and, that petitioner is not guilty of delay
or of invalid or unjust rescission as to make it liable for interest. Hence, following the ruling
in Tio Khe Chio v. Court of Appeals,[22] no interest can be assessed against petitioner.
Respondents, on the other hand, contend that the reimbursement of premium is clearly a
money obligation or one that arises from forbearance of money, hence, the imposition of
12% interest per annum is just, proper and supported by jurisprudence. While they admit
that they refused the tender of payment of the premium refund, they aver that they only did
so because they did not want to abandon their claim for the proceeds of the insurance
policy. In any case, what petitioner should have done under the circumstances was to
consign the amount of payment in court during the pendency of the case.
Our Ruling
Tio Khe Chio is not applicable in this case. Petitioner avers that Tio Khe Chio, albeit
pertaining to marine insurance, is instructive on the issue of payment of interest. There,
the Court pointed to Sections 243 and 244 of the Insurance Code which explicitly provide
for payment of interest when there is unjustified refusal or withholding of payment of the
claim by the insurer, [23] and to Article 2209[24] of the New Civil Code which likewise
provides for payment of interest when the debtor is in delay.
The Court finds, however, that Tio Khe Chio is not applicable here as it deals with
payment of interest on the insurance proceeds in which the claim therefor was either
unreasonably denied or withheld or the insurer incurred delay in the payment thereof. In
this case, what is involved is an order for petitioner to refund to respondents the
insurance premium paid by Norberto as a consequence of the rescission of the insurance
contract on account of the latter's concealment of material information in his insurance
application. Moreover, petitioner did not unreasonably deny or withhold the insurance
proceeds as it was satisfactorily established that Norberto was guilty of concealment. to a forbearance of credit.[32] In such a case, the rate of interest shall be 6% per annum.[33]

Nature of interest imposed by the CA
There are two kinds of interest monetary and compensatory.
"Monetary interest refers to the compensation set by the parties for the use or forbearance
of money."[25] No such interest shall be due unless it has been expressly stipulated in
writing.[26] "On the other hand, compensatory interest refers to the penalty or indemnity for
damages imposed by law or by the courts."[27] The interest mentioned in Articles 2209 and
2212[28] of the Civil Code applies to compensatory interest.[29]
WHEREFORE, the assailed October 17, 2007 Decision of the Court of Appeals in CA-
G.R. CV No. 86923 is MODIFIED in that petitioner Sun Life of Canada (Philippines), Inc. is
ordered to reimburse to respondents Sandra Tan Kit and the Estate of the Deceased
Norberto Tan Kit the sum of P13,080.93 representing the premium paid by the insured
within fifteen (15) days from date of finality of this Decision. If the amount is not
reimbursed within said period, the same shall earn interest of 6% per annum until fully
paid.

Clearly and contrary to respondents' assertion, the interest imposed by the CA is not
monetary interest because aside from the fact that there is no use or forbearance of
money involved in this case, the subject interest was not one which was agreed upon by
the parties in writing. This being the case and judging from the tenor of the CA, to wit:

Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of P13,080.93

representing the [premium] paid by the insured with interest at the rate of 12% per annum
from time of death of the insured until fully paid.[30]

there can be no other conclusion than that the interest imposed by the appellate court is in
the nature of compensatory interest.

The CA incorrectly imposed

compensatory interest on the premium
refund reckoned from the time of death
of the insured until fully paid

As a form of damages, compensatory interest is due only if the obligor is proven to have
failed to comply with his obligation.[31]

In this case, it is undisputed that simultaneous to its giving of notice to respondents that it
was rescinding the policy due to concealment, petitioner tendered the refund of premium
by attaching to the said notice a check representing the amount of refund. However,
respondents refused to accept the same since they were seeking for the release of the
proceeds of the policy. Because of this discord, petitioner filed for judicial rescission of the
contract. Petitioner, after receiving an adverse judgment from the RTC, appealed to the
CA. And as may be recalled, the appellate court found Norberto guilty of concealment and
thus upheld the rescission of the insurance contract and consequently decreed the
obligation of petitioner to return to respondents the premium paid by Norberto. Moreover,
we find that petitioner did not incur delay or unjustifiably deny the claim.

Based on the foregoing, we find that petitioner properly complied with its obligation under
the law and contract. Hence, it should not be made liable to pay compensatory interest.

Considering the prevailing circumstances of the case, we hereby direct petitioner to

reimburse the premium paid within 15 days from date of finality of this Decision. If
petitioner fails to pay within the said period, then the amount shall be deemed equivalent
10. Tiu vs. Arriesgado (GR No. 138060, 01 September 2004) obligor, in this case the common carrier, failed to transport his passenger safely to his
destination are the matters that need to be proved. This is because under the said contract
Facts: At about 10:00 p.m. of March 15, 1987, the cargo truck marked "Condor Hollow
of carriage, the petitioners assumed the express obligation to transport the respondent and
Blocks and General Merchandise" bearing plate number GBP-675 was loaded with firewood
his wife to their destination safely and to observe extraordinary diligence with due regard for
in Bogo, Cebu and left for Cebu City. Upon reaching Sitio Aggies, Poblacion, Compostela,
all circumstances. Any injury suffered by the passengers in the course thereof is immediately
Cebu, just as the truck passed over a bridge, one of its rear tires exploded. The driver,
attributable to the negligence of the carrier. Upon the happening of the accident, the
Sergio Pedrano, then parked along the right side of the national highway and removed the
presumption of negligence at once arises, and it becomes the duty of a common carrier to
damaged tire to have it vulcanized at a nearby shop, about 700 meters away. Pedrano left
prove that he observed extraordinary diligence in the care of his passengers. It must be
his helper, Jose Mitante, Jr. to keep watch over the stalled vehicle, and instructed the latter
stressed that in requiring the highest possible degree of diligence from common carriers and
to place a spare tire six fathoms away behind the stalled truck to serve as a warning for
in creating a presumption of negligence against them, the law compels them to curb the
oncoming vehicles. The trucks tail lights were also left on. It was about 12:00 a.m., March
recklessness of their drivers. While evidence may be submitted to overcome such
16, 1987.
presumption of negligence, it must be shown that the carrier observed the required
extraordinary diligence, which means that the carrier must show the utmost diligence of very
At about 4:45 a.m., D Rough Riders passenger bus with plate number PBP-724 driven by
cautious persons as far as human care and foresight can provide, or that the accident was
Virgilio Te Laspiñas was cruising along the national highway of Sitio Aggies, Poblacion,
caused by fortuitous event. As correctly found by the trial court, petitioner Tiu failed to
Compostela, Cebu. The passenger bus was also bound for Cebu City, and had come from
conclusively rebut such presumption. The negligence of petitioner Laspiñas as driver of the
Maya, Daanbantayan, Cebu. Among its passengers were the Spouses Pedro A. Arriesgado
passenger bus is, thus, binding against petitioner Tiu, as the owner of the passenger bus
and Felisa Pepito Arriesgado, who were seated at the right side of the bus, about three (3)
engaged as a common carrier.
or four (4) places from the front seat.

As the bus was approaching the bridge, Laspiñas saw the stalled truck, which was then
about 25 meters away. He applied the breaks and tried to swerve to the left to avoid hitting
the truck. But it was too late; the bus rammed into the trucks left rear. The impact damaged
the right side of the bus and left several passengers injured. Pedro Arriesgado lost
consciousness and suffered a fracture in his right colles. His wife, Felisa, was brought to the
Danao City Hospital. She was later transferred to the Southern Island Medical Center where
she died shortly thereafter.

Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage,
damages and attorneys fees before the Regional Trial Court of Cebu City, Branch 20,
against the petitioners, D Rough Riders bus operator William Tiu and his driver, Virgilio Te
Laspiñas on May 27, 1987. The respondent alleged that the passenger bus in question was
cruising at a fast and high speed along the national road, and that petitioner Laspiñas did
not take precautionary measures to avoid the accident.

The petitioners, for their part, filed a Third-Party Complaint against the following: respondent
Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tiu’s insurer; respondent
Benjamin Condor, the registered owner of the cargo truck; and respondent Sergio Pedrano,
the driver of the truck. They alleged that petitioner Laspiñas was negotiating the uphill climb
along the national highway of Sitio Aggies, Poblacion, Compostela, in a moderate and
normal speed. It was further alleged that the truck was parked in a slanted manner, its rear
portion almost in the middle of the highway, and that no early warning device was displayed.
Petitioner Laspiñas promptly applied the brakes and swerved to the left to avoid hitting the
truck head-on, but despite his efforts to avoid damage to property and physical injuries on
the passengers, the right side portion of the bus hit the cargo truck’s left rear.

HELD: The rules which common carriers should observe as to the safety of their passengers
are set forth in the Civil Code, Articles 1733, 1755and 1756. It is undisputed that the
respondent and his wife were not safely transported to the destination agreed upon. In
actions for breach of contract, only the existence of such contract, and the fact that the
11. Gaisano vs. Development Insurance and Surety Corporation, 818 SCRA 603,
G.R. No. 190702 February 27, 2017
FACTS Respondent issued a comprehensive commercial vehicle policy to petitioner over
the 1992 Mitsubishi Montero (vehicle) owned by petitioner for a period of one year
commencing on September 27, 1996.
Petitioner’s company, Noah’s Ark, issued a Far East Bank check dated September 27,
1996 payable to Trans-Pacific on the same day. The check represents payment for the
insurance policies, with P55,620.60 for the premium and other charges over the vehicle.
However, nobody from Trans-Pacific picked up the check that day (September 27)
because its president and general manager was celebrating his birthday. It informed
Noah’s Ark that its messenger would get the check the next day.
In the evening of September 27, 1996, while under the official custody of Noah’s Ark
marketing manager Pacquing as a service company vehicle, the vehicle was stolen in the
vicinity of SM Megamall.
Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28. It
issued an official receipt, acknowledging the receipt of the premium and other charges
over the vehicle. The check was deposited with Metrobank for encashment on October 1,
1996.
On the same date, petitioner was informed of the vehicle’s loss. Thereafter, petitioner filed
a claim with respondent for the insurance proceeds of P1,500,000.00. After investigation,
respondent denied petitioner’s claim on the ground that there was no insurance contract.
Petitioner filed a complaint to collect the insurance proceeds from respondent.
The RTC ruled in favor of petitioner. It considered the premium paid as of September 27,
even if the check was received only on September 28. Thus, petitioner was awarded an
indemnity of P1,500,000.00 and attorney’s fees of P50,000.00.
After respondent’s MR was denied, it appealed to the CA.
The CA granted respondent’s appeal. It found that the premium was not yet paid at the
time of the loss on September 27, but only a day after or on September 28, 1996, when
the check was picked up by Trans-Pacific.
Hence petitioner filed this petition.
 Ong, in addition, the sum of P50,000.00, plus P12,500.00, that the latter advanced to the
ISSUE: Whether or not there is a binding insurance contract between petitioner and
respondent.
 Pioneer against Roque and Ong, dismissed, for lack of merit, but as to its cross-claim
RULING:
We deny the petition.
Insurance is a contract whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event. Just like any
other contract, it requires a cause or consideration. The consideration is the premium,
which must be paid at the time and in the way and manner specified in the policy. If not so
paid, the policy will lapse and be forfeited by its own terms.
The law, however, limits the parties’ autonomy as to when payment of premium may be
made for the contract to take effect. The general rule in insurance laws is that unless the
premium is paid, the insurance policy is not valid and binding.
Section 77 of the Insurance Code provides:
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against. Notwithstanding any agreement to the contrary, no
policy or contract of insurance issued by an insurance company is valid and binding unless
and until the premium thereof has been paid, except in the case of a life or an industrial life
policy whenever the grace period provision applies.
Here, there is no dispute that the check was delivered to and was accepted by
respondent’s agent, Trans-Pacific, only on September 28, 1996. No payment of premium
had thus been made at the time of the loss of the vehicle on September 27, 1996.
Thus, at the time of loss, there was no payment of premium yet to make the insurance
policy effective.
12. Roque vs. Intermediate Appellate Court, 139 SCRA 596, No. L-66935
Facts: On 19 February 1972, the Manila Bay Lighterage Corporation (MBLC) a common
carrier, entered into a contract with Isabela Roque (doing business under the name and
style of Isabela Roque Timber Enterprises) and Ong Chiong whereby the former would
load and carry on board its barge Mable 10 about 422.18 cubic meters of logs from
Malampaya Sound, Palawan to North Harbor, Manila. Roque and Ong insured the logs
against loss for P100,000.00 with the Pioneer Insurance and Surety Corporation (Pioneer).
On 29 February 1972, Roque and Ong loaded on the barge, 811 pieces of logs at
Malampaya Sound, Palawan for carriage and delivery to North Harbor, Port of Manila, but
the shipment never reached its destination because Mable 10 sank with the 811 pieces of
logs somewhere off Cabuli Point in Palawan on its way to Manila. The barge where the
logs were loaded was apparently not seaworthy such that it developed a leak. One of the
hatches was left open causing water to enter the barge and because the barge was not
provided with the necessary cover or tarpaulin, the ordinary splash of sea waves brought
more water inside the barge. On 8 March 1972, Roque and Ong wrote a letter to MBLC
demanding payment of P150,000.00 for the loss of the shipment plus P100,000.00 as
unrealized profits but the latter ignored the demand. Another letter was sent to Pioneer
claiming the full amount of P100,000.00 under the insurance policy but Pioneer refused to
pay on the ground that its liability depended upon the "Total loss by Total Loss of Vessel
only". Hence, Roque and Ong commenced Civil Case 86599 against MBLC and Pioneer
Pioneer. During the initial stages of the hearing, MBLC informed the trial court that it had
salvaged part of the logs. The court ordered them to be sold to the highest bidder with the
funds to be deposited in a bank in the name of Civil Case 86599. After hearing, the trial
court found in favor of Roque and Ong, condemning MBLC and Pioneer to pay Roque and
Ong, jointly and severally, the sum of P100,000.00; sentencing MBLC to pay Roque and
former as down payment for transporting the logs in question; ordering the counterclaim of
against its MBLC, the latter is ordered to reimburse the former for whatever amount it may
pay Roque and Ong as such surety; ordering the counterclaim of MBLC against Roque
and Ong, dismissed for lack of merit; dismissing Roque's and Ong's claim of not less than
P100,000.00 and P75,000.00 as exemplary damages, for lack of merit; granting Roque's
and Ong's claim for attorney's fees in the sum of P10,000.00; ordering MBLC and Pioneer
to pay the costs; and holding that the sum of P150,000.00 award to Roque and Ong, shall
bear interest of 6% from 25 March 1975, until amount is fully paid. Pioneer appealed to the
Intermediate Appellate Court. MBLC did not appeal, as allegedly, the transportation
company is no longer doing business and is without funds. On 30 January 1984, the
appellate court modified the trial court's decision and absolved Pioneer from liability after
finding that there was a breach of implied warranty of seaworthiness on the part of Roque
and Ong and that the loss of the insured cargo was caused by the "perils of the ship" and
not by the "perils of the sea". It ruled that the loss is not covered by the marine insurance
policy. After the appellate court denied their motion for reconsideration, Roque and Ong
filed the petition for certiorari.
Issue [1]: Whether there is a warranty of seaworthiness by the cargo owner in cases of
marine cargo insurance.
Held [1]: YES. There is no dispute over the liability of the common carrier MBLC. In fact, it
did not bother to appeal the questioned decision. However, Roque and Ong state that
MBLC has ceased operating as a firm and nothing may be recovered from it. They are,
therefore, trying to recover their losses from the insurer. The liability of the insurance
company is governed by law. Section 113 of the Insurance Code provides that "In every
marine insurance upon a ship or freight, or freightage, or upon any thing which is the
subject of marine insurance, a warranty is implied that the ship is seaworthy." Section 99
of the same Code also provides in part that "Marine insurance includes: (1) Insurance
against loss of or damage to: (a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes,
merchandise..." From the above-quoted provisions, there can be no mistaking the fact that
the term "cargo" can be the subject of marine insurance and that once it is so made, the
implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo
whether he be the shipowner or not. As ruled in the case of Go Tiaoco y Hermanos v.
Union Insurance Society of Canton (40 Phil. 40), "it is universally accepted that in every
contract of insurance upon anything which is the subject of marine insurance, a warranty is
implied that the ship shall be seaworthy at the time of the inception of the voyage. This
rule is accepted in our own Insurance Law (Act No. 2427, sec. 106)." Moreover, the fact
that the unseaworthiness of the ship was unknown to the insured is immaterial in ordinary
marine insurance and may not be used by him as a defense in order to recover on the
marine insurance policy. As was held in Richelieu and Ontario Nav. Co. v. Boston Marine,
Inc., Co. (136 U.S. 406), "the exception of losses occasioned by unseaworthiness was in
effect a warranty that a loss should not be so occasioned, and whether the fact of
unseaworthiness were known or unknown would be immaterial." Since the law provides
for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it
becomes the obligation of a cargo owner to look for a reliable common carrier which keeps
its vessels in seaworthy condition. The shipper of cargo may have no control over the
vessel but he has full control in the choice of the common carrier that will transport his
goods. Or the cargo owner may enter into a contract of insurance which specifically
provides that the insurer answers not only for the perils of the sea but also provides for
coverage of perils of the ship. The Court was constrained to apply Section 113 of the
Insurance Code to the facts of this case. "In marine cases, the risks insured against are
'perils of the sea' (Chute v. North River Ins. Co., Minn. 214 NW 472, 55 ALR 933). The
purpose of such insurance is protection against contingencies and against possible
damages and such a policy does not cover a loss or injury which must inevitably take
place in the ordinary course of things. There is no doubt that the term 'perils of the sea'
extends only to losses caused by sea damage, or by the violence of the elements, and
does not embrace all losses happening at sea. They insure against losses from
extraordinary occurrences only, such as stress of weather, winds and waves, lightning,
tempests, rocks and the like. These are understood to be the 'perils of the sea' referred in
the policy, and not those ordinary perils which every vessel must encounter. 'Perils of the
sea' has been said to include only such losses as are of extraordinary nature, or arise from
some overwhelming power, which cannot be guarded against by the ordinary exertion of
human skill and prudence. Damage done to a vessel by perils of the sea includes every
species of damages done to a vessel at sea, as distinguished from the ordinary wear and
tear of the voyage, and distinct from injuries suffered by the vessel in consequence of her
not being seaworthy at the outset of her voyage (as in this case). It is also the general rule
that everything which happens thru the inherent vice of the thing, or by the act of the
owners, master or shipper, shall not be reputed a peril, if not otherwise borne in the policy.
(14 RCL on 'Insurance', Sec. 384, pp. 1203-1204; Cia. de Navegacion v. Firemen's Fund
Ins. Co., 277 US 66, 72 L. ed. 787, 48 S. Ct. 459)."
Issue [2]: Whether the loss of the cargo was due to the perils of the ship rather than the
perils of the sea.
Held [2]: PERILS OF THE SHIP. At the time Mable 10 sank, there was no typhoon but
ordinary strong wind and waves, a condition which is natural and normal in the open sea.
The evidence shows that the sinking of Mable 10 was due to improper loading of the logs
on one side so that the barge was tilting on one side and for that it did not navigate on
even keel; that it was no longer seaworthy that was why it developed leak; that the
personnel of the tugboat and the barge committed a mistake when it turned loose the
barge from the tugboat east of Cabuli point where it was buffeted by storm and waves,
while the tugboat proceeded to west of Cabuli point where it was protected by the
mountain side from the storm and waves coming from the east direction. In fact, in
Roque's and Ong's complaint, it is alleged that the barge Mable 10 of MBLC developed a
leak which allowed water to come in and that one of the hatches of said barge was
negligently left open by the person in charge thereof causing more water to come in", and
that "he loss of their cargo was due to the fault, negligence, and/or lack of skill of MBLC
and/or MBLC's representatives on barge Mable 10. It is quite unmistakable that the loss of
the cargo was due to the perils of the ship rather than the perils of the sea. The facts
clearly negate Roque's and Ong's claim under the insurance policy. In the case of Go
Tiaoco y Hermanos v. Union Ins. Society of Canton, the Court had occasion to elaborate
on the term "perils of the ship" when it ruled that "It must be considered to be settled,
furthermore, that a loss which, in the ordinary course of events, results from the natural
and inevitable action of the sea, from the ordinary wear and tear of the ship, or from the
negligent failure of the ship's owner to provide the vessel with proper equipment to convey
the cargo under ordinary conditions, is not a peril of the sea. Such a loss is rather due to
what has been aptly called the 'peril of the ship.' The insurer undertakes to insure against
perils of the sea and similar perils, not against perils of the ship. As was well said by Lord
Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A. C., 503,
509), there must, in order to make the insurer liable, be 'some casualty, something which
could not be foreseen as one of the necessary incidents of the adventure. The purpose of
the policy is to secure an indemnity against accidents which may happen, not against
events which must happen.”
13. Manulife Philippines, Inc. vs. Ybañez, 810 SCRA 516, G.R. No. 204736 November
28, 2016
Facts: Manulife Philippines, Inc. (Manulife) instituted a Complaint for Rescission of
Insurance Contracts against Hermenegilda Ybañez (Hermenegilda) and the BPI Family
Savings Bank (BPI Family). It is alleged in the Complaint that Insurance which Manulife
issued in favor of Dr. Gumersindo Solidum Ybañez (insured), were void due to concealment
or misrepresentation of material facts in the latter's applications for life insurance; that
Hermenegilda, wife of the said insured, was revocably designated as beneficiary in the
subject insurance policies; that on November 17, 2003, when one of the subject insurance
policies had been in force for only one year and three months, while the other for only four
months, the insured died; that Manulife conducted an investigation into the circumstances
leading to the said insured's death, in view of the aforementioned entries in the said
insured's Death Certificate; that Manulife thereafter concluded that the insured
misrepresented or concealed material facts at the time the subject insurance policies were
applied for; and that for this reason Manulife accordingly denied Hermenegilda's death
claims and refunded the premiums that the insured paid on the subject insurance policies.
BPI Family filed a Manifestation praying that either it be dropped from the case or that the
case be dismissed with respect to it, since no objection was interposed to this prayer by
either Manulife or Hermenegilda, the RTC granted the prayer. Manulife presented its sole
witness in the person of Ms. Jessiebelle Victoriano (Victoriano ), the Senior Manager of its
Claims and Settlements Department. The oral testimony of this witness chiefly involved
identifying herself as the Senior Manager of Manulife's Claims and Settlements Department
and also identifying the evidence. After due proceedings, the RTC dismissed Manulife's
Complaint. The RTC found no merit at all in Manulife's Complaint for rescission of the
subject insurance policies because it utterly failed to prove that the insured had committed
the alleged misrepresentation/s or concealment/s. The CA affirmed the decision of RTC.
Issue: Whether the CA committed any reversible error in affirming the RTC Decision
dismissing Manulife's Complaint for rescission of insurance contracts for failure to prove
concealment on the part of the insured.
Held: No. The RTC correctly held that the CDH’s medical records that might have
established the insured’s purported misrepresentation/s or concealment/s was inadmissible
for being hearsay, given the fact that Manulife failed to present the physician or any
responsible official of the CDH who could confirm or attest to the due execution and
authenticity of the alleged medical records.
Manulife's sole witness gave no evidence at all relative to the particulars of the purported
concealment or misrepresentation allegedly perpetrated by the insured. In fact, Victoriano
merely perfunctorily identified the documentary exhibits adduced by Manulife; she never
testified in regard to the circumstances attending the execution of these documentary
exhibits much less in regard to its contents. Of course, the mere mechanical act of identifying
these documentary exhibits, without the testimonies of the actual participating parties
thereto, adds up to nothing. These documentary exhibits did not automatically validate or
explain themselves.
"The fraudulent intent on the part of the insured must be established to entitle the insurer to
rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer." For failure of Manulife to prove intent to defraud on the
part of the insured, it cannot validly sue for rescission of insurance contracts.
14. Loadstar Shipping Company, Incorporated vs. Malayan Insurance Company,
Incorporated, 742 SCRA 627, G.R. No. 185565 November 26, 2014
Facts: This resolves the Motion for Reconsideration[1] of the Decision[2] dated November
26, 2014 of the Court in the above-captioned case filed by respondent Malayan Insurance
Company, Incorporated (Malayan). Malayan alleges that in ruling in favor of Loadstar
Shipping Company, Incorporated and Loadstar International Shipping Company,
Incorporated (petitioners), the Court disregarded the conclusion of the Court of Appeals
that the petitioners acted as a common carrier; that there was a breach of the contract of
affreightment; and that the petitioners failed to produce evidence of a calamity to be
exculpated from liability.[3] In their Comment,[4] the petitioners contend that the grounds
raised by Malayan are no longer relevant because as found by the Court, Malayan did not
adduce proof of pecuniary loss to the insured Philippine Associated Smelting and Refining
Corporation (PASAR).[5] PASAR has not established by an iota of evidence the amount of
loss or actual damage it suffered by reason of seawater wettage of the 777.29 metric tons
of copper concentrates. In spite of no proof of loss, Malayan, with seeming hastiness paid
the claim of PASAR in the amount of P33,934,948.75.[6] According to the petitioners,
Malayan cannot make them answerable for its mistake in indemnifying PASAR.[7] On
June 10, 2015, Malayan filed a Motion to Refer the Case to the Court en banc[8] alleging
that the Decision dated November 26, 2014 of the Third Division deviated from the
doctrine enunciated in Delsan Transport Lines, Inc., v. CA.[9] Malayan contends that in
Delsan, the Court held that upon payment by the insurance company of the insurance
claim, the insurance company should be subrogated to the rights of the insured; it is not
even necessary to present the insurance policy because subrogation is a matter of eq...
uity.
Issues: Delsan involved the sinking of a vessel which took down with it the entire cargo of
fuel it was carrying. Hence, the fact of total loss was completely and undisputedly
established. The burden of proof was upon the common carrier to prove that it was not
liable for the loss, which it failed to discharge. It was only but logical for the Court to hold
the common carrier liable to the insurance company that paid the insured owner of the lost
cargo as the latter's subrogee.
Malayan argues that since the petitioners and PASAR agreed in their Contract of
Affreightment that copper concentrates are easily contaminated with seawater, the
contaminated parts should be considered as totally damaged;[12] and that when the
petitioners failed to provide a seaworthy ship under 25 years of age as agreed upon, they
should be held liable for damages.
Ruling: In comparison with Delsan, the facts of the instant case are not as straightforward.
Here, the copper concentrates were delivered by the petitioners to the consignee PASAR
although part thereof was contaminated with seawater. To be clear, PASAR did not simply
reject the contaminated goods (on the basis that these were no longer fit for the intended
purpose), claim the value thereof from Malayan and leave things at that - it bought back
the goods which it had already rejected. Meanwhile, Malayan opted to cash in the situation
by selling the contaminated copper concentrates to the very same consignee who already
rejected the goods as total loss. After denying the petitioners of opportunity to participate
in the disposal or sale of the goods,[11] Malayan sought to recover the total value of the
wet copper concentrates from them. Malayan and PASAR's extraneous actuations are
inconsistent with the alleged fact of total loss. Verily, Delsan cannot be applied given the
contradistinctive circumstances obtaining in this case.
the Court reiterates the principle that actual damages are not presumed; it cannot be
anchored on mere surmises, speculations or conjectures.[14] As the Court discussed in
the Decision dated November 26, 2014, Malayan was not able to prove the pecuniary loss
suffered by PASAR for which the latter was indemnified. This is in line with the principle
that a subrogee steps into the shoes of the insured and can recover only if the insured
likewise could have recovered.
As common carriers, the petitioners are bound to observe extraordinary diligence in their
vigilance over the goods they transport, as required by the nature of their business and for
reasons of public policy.[16] "Extraordinary diligence is that extreme measure of care and
caution which persons of unusual prudence and circumspection use for securing and
preserving their own property or rights."
When the copper concentrates delivered were contaminated with seawater, the petitioners
have failed to exercise extraordinary diligence in the carriage thereof.
the Court deems it proper to award nominal damages to Malayan... in recognition of the
breach of contract committed by the petitioners. "So long as there is a violation of the right
of the plaintiff—whether based on law, contract or other sources of obligations—an award
of nominal damages is proper."
Article 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which
has been violated or invaded by the defendant, may be vindicated or recognized, and not
for the purpose of indemnifying the plaintiff for any loss suffered by him. Article 2222. The
court may award nominal damages in every obligation arising from any source
enumerated in Article 1157, or in every case where any property right has been invaded.
"Nominal damages are recoverable where a legal right is technically violated and must be
vindicated against an invasion that has produced no actual present loss of any kind or
where there has been a breach of contract and no substantial injury or actual damages
whatsoever have been or can be shown."
"The amount of such damages is addressed to the sound discretion of the court, taking
into account the relevant circumstances."... the amount of P1,769,374.725, which is
equivalent to six percent (6%) of the sum being claimed by Malayan less the residual
value of the copper concentrates, is sufficient as damages.
Finally, the Court also takes the opportunity to make it clear that this disposition does not
in any way undermine the principle of subrogation; rather, the Court takes into
consideration all the circumstances in this case, inasmuch as Malayan and PASAR's
dealings post-delivery of the copper concentrates were unwarranted. While the breach of
contract committed by the petitioners should not be tolerated, the undue haste, as well as
the other doubtful circumstances under which the sale of the wet copper concentrates was
made, is not lost on the Court.
15. Alpha Insurance and Surety Co. vs. Castor, 704 SCRA 550, G.R. No. 198174
September 2, 2013
FACTS: On February 21, 2007, respondent entered into a contract of insurance, Motor
Car Policy No. MAND/CV-00186, with petitioner, involving her motor vehicle, a Toyota
Revo DLX DSL. The contract of insurance obligates the petitioner to pay the respondent
the amount of Six Hundred Thirty Thousand Pesos (P630,000.00) in case of loss or
damage to said vehicle during the period covered, which is from February 26, 2007 to
February 26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar
Lanuza (Lanuza), to bring the above-described vehicle to a nearby auto-shop for a tune-
up. However, Lanuza no longer returned the motor vehicle to respondent and despite
diligent efforts to locate the same, said efforts proved futile. Resultantly, respondent
promptly reported the incident to the police and concomitantly notified petitioner of the said
loss and demanded payment of the insurance proceeds in the total sum of P630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating
among others, thus:
Upon verification of the documents submitted, particularly the Police Report and your
Affidavit, which states that the culprit, who stole the Insure[d] unit, is employed with you.
We would like to invite you on the provision of the Policy under Exceptions to Section-III,
which we quote:
1.) The Company shall not be liable for:
xxx xxx xxx
(4) Any malicious damage caused by the Insured, any member of his family or by “A
PERSON IN THE INSURED’S SERVICE.”
In view [of] the foregoing, we regret that we cannot act favorably on your claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and
argued that the exception refers to damage of the motor vehicle and not to its loss.
However, petitioner’s denial of respondent’s insured claim remains firm.
ISSUE: whether or not the loss of respondent’s vehicle is excluded under the insurance
policy.
HELD: NO. Theft perpetrated by a driver of the insured is not an exception to the
coverage from the insurance policy subject of this case. This is evident from the very
provision of Section III — “Loss or Damage.” The insurance company, subject to the limits
of liability, is obligated to indemnify the insured against theft. Said provision does not
qualify as to who would commit the theft. Thus, even if the same is committed by the driver
of the insured, there being no categorical declaration of exception, the same must be
covered. As correctly pointed out by the plaintiff, “(A)n insurance contract should be
interpreted as to carry out the purpose for which the parties entered into the contract which
is to insure against risks of loss or damage to the goods. Such interpretation should result
from the natural and reasonable meaning of language in the policy. Where restrictive
provisions are open to two interpretations, that which is most favorable to the insured is
adopted.”
Contracts of insurance, like other contracts, are to be construed according to the sense
and meaning of the terms which the parties themselves have used. If such terms are clear
and unambiguous, they must be taken and understood in their plain, ordinary and popular
sense. Accordingly, in interpreting the exclusions in an insurance contract, the terms used
specifying the excluded classes therein are to be given their meaning as understood in
common speech.
Adverse to petitioner’s claim, the words “loss” and “damage” mean different things in
common ordinary usage. The word “loss” refers to the act or fact of losing, or failure to
keep possession, while the word “damage” means deterioration or injury to property.
Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance
policy under paragraph 4 of “Exceptions to Section III,” since the same refers only to
“malicious damage,” or more specifically, “injury” to the motor vehicle caused by a person
under the insured’s service. Paragraph 4 clearly does not contemplate “loss of property,”
as what happened in the instant case.
Further, the CA aptly ruled that “malicious damage,” as provided for in the subject policy
as one of the exceptions from coverage, is the damage that is the direct result from the
deliberate or willful act of the insured, members of his family, and any person in the
insured’s service, whose clear plan or purpose was to cause damage to the insured
vehicle for purposes of defrauding the insurer.
Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the
insurance contract contain limitations on liability, courts should construe them in such a
way as to preclude the insurer from non-compliance with his obligation.
16. Malayan Insurance vs. Lin, G.R. No. 207277, January 16, 2017
FACTS: Emma Concepcion Lin filed a Complaint for Collection of Sum of Money with
Damages against the petitioners. Lin obtained various loans secured by six clustered
warehouses. 5 warehouses, which were insured with Malayan, were gutted by fire. The
Bureau of Fire Protection determined that the cause of fire was accidental. Malayan
denied her demand for payment of her insurance claim since its forensic investigators
claimed that the cause of the fire was arson and not accidental. The Insurance
Commission (IC) recommended that Malayan pay Lin's insurance claim and/or accord
great weight to the BFP's findings.
Some five months later, Lin filed an administrative case against Malayan, claiming that it
should be held liable for unfair claim settlement practice due to its unjustified refusal to
settle her claim; and that Malayan’s license to operate as a non-life insurance company
should be revoked or suspended, until such time that it fully complies with the IC
Resolution.
Malayan filed a motion to dismiss the Civil Case based on forum shopping, which the RTC
denied. On appeal, the CA upheld the RTC.
ISSUE: Whether or not the CA erred in not dismissing the Civil Case on the ground of
willful and deliberate forum shopping despite the fact that the civil case and the
administrative case both seek the payment of the same fire insurance claim.
HELD: A civil case before the trial court involving recovery of payment of the insured's
insurance claim plus damages, can proceed simultaneously with an administrative case
before the IC.
True, the parties are the same, and both actions are predicated on the same set of facts,
and will require identical evidence. But the issues to be resolved, the quantum of
evidence, the procedure to be followed, and the reliefs to be adjudged by these two bodies
are different.
The causes of action in the Civil Case are predicated on the insurers' refusal to pay her
fire insurance claims. The principal issue that must be resolved is WON petitioner is
entitled to the payment of her insurance claims and damages. On the other hand, the core,
if not the sole bone of contention in the administrative case is the issue of WON there was
unfair claim settlement practice due to unjustified refusal to settle the claim, and if in the
affirmative, WON that would justify the suspension or revocation of the insurers' licenses.
Moreover, in Civil Case, petitioner must establish her case by a preponderance of
evidence. In Administrative Case, the degree of proof required is substantial evidence. In
addition, the procedure to be followed by the trial court is governed by the Rules of Court.
While the IC has its own set of rules and it is not bound by the rigidities of technical rules
of procedure.
17. The Insular Assurance Co., Ltd. vs. The Heirs of Jose H. Alvarez, G.R. No.
207526, October 03, 201818.
The Insurance Code dispenses with proof of fraudulent intent in cases of rescission due to
concealment, but not so in cases of rescission due to false representations. When an
abundance of available documentary evidence can be referenced to demonstrate a design
to defraud, presenting a singular document with an erroneous entry does not qualify as
clear and convincing proof of fraudulent intent.
Facts: Alvarez applied for and was granted a housing loan by. This loan was secured by a
promissory note, a real estate mortgage over the lot, and a mortgage redemption
insurance taken on the life of Alvarez with UnionBank as beneficiary. Alvarez was among
the mortgagors included in the list of qualified debtors covered by the Group Mortgage
Redemption Insurance that UnionBank had with Insular Life. Alvarez died and
subsequently, UnionBank filed with Insular Life a death claim under Alvarez's name
pursuant to the Group Mortgage Redemption Insurance. Insular Life denied the claim after
determining that Alvarez was not eligible for coverage as he was supposedly more than 60
years old at the time of his loan's approval. With the claim's denial, the monthly
amortizations of the loan stood unpaid. Subsequently, the lot was foreclosed and sold at a
public auction with UnionBank as the highest bidder. The Heirs of Alvarez filed a complaint
for specific performance to demand against Insular Life to fulfill its obligation as an insurer
under the Group Mortgage Redemption Insurance, and for nullification of foreclosure
against UnionBank. Both Court of Appeals and Regional Trial Court ruled in favor of the
Heirs of Alvarez. They noted that the errors assigned by Insular Life and UnionBank boiled
down to the issue of whether or not Alvarez was guilty of fraudulent misrepresentation as
to warrant the rescission of the Group Mortgage Redemption Insurance obtained by
UnionBank on Alvarez's life. Insular Life only relied on Alvarez's Health Statement Form
where he wrote "1942" as his birth year. However, this form alone was insufficient to prove
that he fraudulently intended to misrepresent his age. It noted that aside from the Health
Statement Form, Alvarez had to fill out an application for insurance. This application would
have supported the conclusion that he consistently wrote "1942" in all the documents that
he had submitted to UnionBank. However, the records made no reference to this
document.
Issues: 1. Whether or not The Insular Life Assurance Co., Ltd. is obliged to pay
UnionBank the balance of Alvarez's loan given the claim that he lied about his age at the
time of the approval of his loan; and 2. Whether or not UnionBank was correct in
proceeding with the foreclosure following Insular Life Assurance Co., Ltd.'s refusal to pay.
Ruling: 1. Yes, Insular life is liable to pay UnionBank for its failure to prove intent to
defraud on the part of Alvarez. Citing Section 27 of the Insurance Code, however, Insular
Life asserts that in cases of rescission due to concealment, i.e., when a party "neglect[s] to
communicate that which [he or she] knows and ought to communicate," proof of fraudulent
intent is not necessary. Section 27 of the Insurance Code reads: “A concealment whether
intentional or unintentional entitles the injured party to rescind a contract of insurance.”
While Insular Life correctly reads Section 27 as making no distinction between intentional
and unintentional concealment, it erroneously pleads Section 27 as the proper statutory
anchor of this case. The Insurance Code distinguishes representations from
concealments. What this case involves, instead, is an allegedly false representation.
Section 44 of the Insurance Code states, "A representation is to be deemed false when
the facts fail to correspond with its assertions or stipulations." If indeed Alvarez
misdeclared his age such that his assertion fails to correspond with his factual age, he
made a false representation, not a concealment. In relation to Section 44, Section 45 of
the Insurance Code reads: “If a representation is false in a material point, whether
affirmative or promissory, the injured party is entitled to rescind the contract from the time
when the representation becomes false.” Not being similarly qualified as rescission under
Section 27, rescission under Section 45 remains subject to the basic precept of fraud
having to be proven by clear and convincing evidence. Consistent with the requirement of
clear and convincing evidence, it was Insular Life's burden to establish the merits of its
own case. At bar, Insular Life basically relied on the Health Statement form personally
accomplished by Jose Alvarez wherein he wrote that his birth year was 1942. The Court,
however posited that Alvarez must have accomplished and submitted many other
documents when he applied for the housing loan and executed supporting instruments like
the promissory note, real estate mortgage, and Group Mortgage Redemption Insurance. A
design to defraud would have demanded his consistency. He needed to maintain
appearances across all documents. However, the best that Insular Life could come up with
before the Regional Trial Court and the Court of Appeals was a single document. The
Court of Appeals was straightforward, i.e., the most basic document that Alvarez
accomplished in relation to Insular Life must have been an insurance application form.
Strangely, Insular Life failed to adduce even this document — a piece of evidence that
was not only commonsensical, but also one which has always been in its possession and
disposal. Insular Life had all the opportunity to demonstrate Alvarez's pattern of
consistently indicating erroneous entries for his age. All it needed to do was to inventory
the documents submitted by Alvarez and note the statements he made concerning his
age. This was not a cumbersome task, yet it failed at it. Its failure to discharge its burden
of proving must thwart its plea for relief from this Court.
18. H.H. Hollero vs. GSIS, GR No 152334, Sept 24, 2014
Facts: On April 26, 1988, the GSIS and petitioner entered into a Project Agreement
(Agreement) whereby the latter undertook the development of a GSIS housing project
known as Modesta Village Section B (Project). Petitioner obligated itself to insurethe Project,
including all the improvements, upon the execution of the Agreement under a Contractors’
All Risks (CAR) Insurance with the GSIS General Insurance Department for an amount
equal to its cost or sound value, which shall not be subject to any automatic annual
reduction. Pursuant to its undertaking, petitioner secured CAR Policy No. 88/085 in the
amount of P development, which was later increased to P 1,000,000.00 for land
10,000,000.00, effective from May 2, 1988 to May 2, 1989. Petitioner likewise secured CAR
Policy No. 88/086 in the amount of P 1,000,000.00 for the construction of twenty (20)
housing units, which amount was later increased to P 17,750,000.00 from May 2, 1988 to
June 1, 1989. to cover the construction of another 355 new units, effective In turn, the GSIS
reinsured CAR Policy No. 88/085 with respondent Pool of Machinery Insurers (Pool). Under
both policies, it was provided that: (a) there must be prior notice of claim for loss, damage
or liability within fourteen (14) days from the occurrence of the loss or damage; (b) all
benefits thereunder shall be forfeited if no action is instituted within twelve(12) months after
the rejection of the claim for loss, damage or liability; and (c) if the sum insured is found to
be less than the amount required to be insured, the amount recoverable shall be reduced
tosuch proportion before taking into account the deductibles stated in the schedule (average
clause provision). During the construction, three (3) typhoons hit the country, namely,
Typhoon Biring from June 1 to June 4, 1988, Typhoon Huaning on July 29, 1988, and
Typhoon Saling on October 11, 1989, which caused considerable damage to the Project.
Accordingly, petitioner filed several claims for indemnity with the GSIS on June 30,
1988, August 25, 1988, and October 18, 1989, respectively. In a letter dated April 26, 1990,
the GSIS rejected petitioner’s indemnity claims for the damages wrought by Typhoons Biring
and Huaning, finding that no amount is recoverable pursuant to the average clause provision
under the policies. In a letter dated June 21, 1990, the GSIS similarly rejected petitioner’s
indemnity claim for damages wrought by Typhoon Saling on a “no loss” basis, it appearing
from its records that the policies were not renewed before the onset of the said typhoon.
Issue: Whether or not the petitioner is barred from filing a complaint before the courts based
on the insurance claim.
Held: Yes. 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.
Section 10 of the General Conditions of the subject CAR Policies commonly read:
10. If a claim is in any respect fraudulent, or if any false declaration is made or used in
support thereof, or if any fraudulent means or devices are used by the Insured or anyone
acting on his behalf to obtain any benefit under this Policy, or if a claim is made and rejected
and no action or suit is commenced within twelve months after such rejectionor, in case of
arbitration taking place as provided herein, within twelve months after the Arbitrator or
Arbitrators or Umpire have made their award, all benefit under this Policy shall be forfeited.
In this relation, case law illumines that the prescriptive period for the insured’s action for
indemnity should be reckoned from the “final rejection” of the claim.
As correctly observed by the CA, “final rejection” simply means denial by the insurer of the
claims of the insured and not the rejection or denial by the insurer of the insured’s motion or
request for reconsideration. The rejection referred to should be construed as the rejection
in the first instance, as in the two instances above-discussed.
The right of the insured to the payment of his loss accrues from the happening of the loss.
However, the cause of action in an insurance contract does not accrue until the insured’s
claim is finally rejected by the insurer. This is because before such final rejection there is no
real necessity for bringing suit.
19. GSIS vs. Prudential Guarantee, G.R. No. 165585;
Assailed in these consolidated petitions for review on Certiorari1 are separate issuances of
the Court of Appeals (CA) in relation to the complaint for sum of money filed by Prudential
Guarantee and Assurance, Inc. (PGAI) against the Government Service Insurance System
(GSIS) before the Regional Trial Court of Makati City, Branch 149 (RTC), docketed as
Civil Case No. 01-1634.
In particular, the petition in G.R. No. 165585 assails the Decision2 dated May 26, 2004 and
Resolution3 dated October 6, 2004 of the CA in CA-G.R. SP No. 69289 which affirmed the
Order4 dated February 14, 2002, as well as the Order,5 Notices of Garnishment,6 and Writ
of Execution,7 all dated February 19, 2002, issued by the RTC authorizing execution
pending appeal.
On the other hand, the petition in G.R. No. 176982 assails the Decision8 dated October
30, 2006 and Resolution9 dated March 12, 2007 of the CA in CA-G.R. CV No. 73965
which dismissed the appeal filed by GSIS, affirming with modification the Order10 dated
January 11, 2002 of the RTC rendering judgment on the pleadings.
The Facts
Sometime in March 1999, the National Electrification Administration (NEA) entered into a
Memorandum of Agreement11 (MOA) with GSIS insuring all real and personal properties
mortgaged to it by electrical cooperatives under an Industrial All Risks Policy (IAR
policy).12 The total sum insured under the IAR policy was ₱16,731,141,166.80, out of
which, 95% or ₱15,894,584,108.40 was reinsured by GSIS with PGAI for a period of one
year or from March 5, 1999 to March 5, 2000.13 As reflected in Reinsurance Request Note
No. 99-15014 (reinsurance cover) and the Reinsurance Binder15 dated April 21, 1999
(reinsurance binder), GSIS agreed to pay PGAI reinsurance premiums in the amount of
₱32,885,894.52 per quarter or a total of ₱131,543,578.08.16 While GSIS remitted to PGAI
the reinsurance premiums for the first three quarters, it, however, failed to pay the fourth
and last reinsurance premium due on December 5, 1999 despite demands. This prompted
PGAI to file, on November 15, 2001, a Complaint17 for sum of money (complaint) against
GSIS before the RTC, docketed as Civil Case No. 01-1634.
In its complaint, PGAI alleged, among others, that: (a) after it had issued the IAR policy, it
further reinsured the risks covered under the said reinsurance with reputable reinsurers
worldwide such as Lloyds of London, Copenhagen Re, Cigna Singapore, CCR, Generali,
and Arig;18 (b) the first three reinsurance premiums were paid to PGAI by GSIS and, in the
same vein, NEA paid the first three reinsurance premiums due to GSIS;19 (c) GSIS failed
to pay PGAI the fourth and last reinsurance premium due on December 5, 1999; 20 (d) the
IAR policy remained in full force and effect for the entire insurable period and, in fact, the
losses/damages on various risks reinsured by PGAI were paid and accordingly settled by
it;21 (e) PGAI is under continuous pressure from its reinsurers in the international market to
settle the matter;22 and (f) GSIS acknowledged its obligation to pay the last reinsurance
premium as it, in turn, demanded from NEA the fourth and last reinsurance premium. 23
In its Answer,24 GSIS admitted, among others, that: (a) its request for reinsurance cover
was accepted by PGAI in a reinsurance binder;25 (b) it remitted to PGAI the first three
reinsurance premiums which were paid by NEA;26 and (c) it failed to remit the fourth and
last reinsurance premium to PGAI.27 It, however, denied, inter alia, that: (a) it had
acknowledged its obligation to pay the last quarter’s reinsurance premium to PGAI; 28 and
(b) the IAR policy remained in full force and effect for the entire insurable period of March
5, 1999 to March 5, 2000.29 GSIS also proffered the following affirmative defenses: (a) the
complaint states no cause of action against GSIS because the non-payment of the last
reinsurance premium only renders the reinsurance contract ineffective, and does not give
PGAI a right of action to collect;30 (b) pursuant to the regulations issued by the
Commission on Audit, GSIS is prohibited from advancing payments to PGAI occasioned
by the failure of the principal insured, NEA, to pay the insurance premium;31 and (c)
PGAI’s cause of action lies against NEA since GSIS merely acted as a conduit. 32 By way
of counterclaim, GSIS prayed that PGAI be ordered to pay exemplary damages, including
litigation expenses, and costs of suit.33
On December 18, 2001, PGAI filed a Motion for Judgment on the Pleadings 34 averring that
GSIS essentially admitted the material allegations of the complaint, such as: (a) the
existence of the MOA between NEA and GSIS; (b) the existence of the reinsurance binder
between GSIS and PGAI; (c) the remittance by GSIS to PGAI of the first three quarterly
reinsurance premiums; and (d) the failure/refusal of GSIS to remit the fourth and last
reinsurance premium.35 Hence, PGAI prayed that the RTC render a judgment on the
pleadings pursuant to Section 1, Rule 34 of the Rules of Court (Rules). GSIS
opposed36 the foregoing motion by reiterating the allegations and defenses in its Answer.
On January 11, 2002, the RTC issued an Order37 (January 11, 2002 Order) granting
PGAI’s Motion for Judgment on the Pleadings. It observed that the admissions of GSIS
that it paid the first three quarterly reinsurance premiums to PGAI affirmed the validity of
the contract of reinsurance between them. As such, GSIS cannot now renege on its
obligation to remit the last and remaining quarterly reinsurance premium. 38 It further
pointed out that while it is true that the payment of the premium is a requisite for the
validity of an insurance contract as provided under Section 77 of Presidential Decree No.
(PD) 612,39 otherwise known as "The Insurance Code," it was held in Makati Tuscany
Condominium Corp. v. CA40 (Makati Tuscany) that insurance policies are valid even if the
premiums were paid in installments, as in this case.41 Thus, in view of the foregoing, the
RTC ordered GSIS to pay PGAI the last quarter reinsurance premium in the sum of
₱32,885,894.52, including interests amounting to ₱6,519,515.91 as of July 31, 2000 until
full payment, attorney’s fees, and costs of suit.42 Dissatisfied, GSIS filed a notice of
appeal.43
Meanwhile, PGAI filed a Motion for Execution Pending Appeal44 based on the following
reasons: (a) GSIS’ appeal was patently dilatory since it already acknowledged the validity
of PGAI’s claim;45 (b) GSIS posted no valid defense as its Answer raised no genuine
issues;46 and (c) PGAI would suffer serious and irreparable injury as it may be blacklisted
as a consequence of the non-payment of premiums due.47 PGAI also manifested its
willingness to post a sufficient surety bond to answer for any resulting damage to
GSIS.48 The latter opposed49 the motion asserting that there lies no sufficient ground or
urgency to justify execution pending appeal. It also claimed that all its funds and properties
are exempted from execution citing Section 39 of Republic Act No. (RA) 8291, 50 otherwise
known as "The Government Service Insurance System Act of 1997."51
On February 14, 2002, the RTC issued an Order52 (February 14, 2002 Order) granting
PGAI’s Motion for Execution Pending Appeal, conditioned on the posting of a bond. It
further held that only the GSIS Social Insurance Fund is exempt from execution.
Accordingly, PGAI duly posted a surety bond which the RTC approved through an
Order53 dated February 19, 2002, resulting to the issuance of a writ of execution54 and
notices of garnishment55 (February 19, 2002 issuances), all of even date, against GSIS.
The CA Proceedings Antecedent to G.R. No. 165585
Aggrieved by the RTC’s February 14, 2002 Order, as well as the February 19, 2002
issuances, GSIS – without first filing a motion for reconsideration (from the said order of
execution) or a sufficient supersedeas bond56 – filed on February 26, 2002 a petition for
certiorari57 before the CA, docketed as CA-G.R. SP No. 69289, against the RTC and
PGAI. It also impleaded in the said petition the Land Bank of the Philippines (LBP) and the
Development Bank of the Philippines (DBP) as nominal parties so as to render them
subject to the writs and processes of the CA.58
In its petition, GSIS argued that: (a) none of the grounds proffered by PGAI justifies the
issuance of a writ of execution pending appeal;59 and (b) all funds and assets of GSIS are
exempt from execution and levy in accordance with RA 8291. 60
On April 4, 2002, the CA issued a temporary restraining order (TRO)61 enjoining the
garnishment of GSIS’ funds with LBP and DBP. Nevertheless, since the TRO’s effectivity
lapsed, GSIS’ funds with the LBP were eventually garnished. 62
On May 26, 2004, the CA rendered a Decision63 dismissing GSIS’ petition, upholding,
among others, the validity of the execution pending appeal pursuant to the RTC’s
February 14, 2002 Order as well as the February 19, 2002 issuances. It found that the
impending blacklisting of PGAI constitutes a good reason for allowing the execution
pending appeal (also known as "discretionary execution") considering that the imposition
of international sanctions on any single local insurance company puts in grave and
immediate jeopardy not only the viability of that company but also the integrity of the entire
local insurance system including that of the state insurance agency. It pointed out that the
insurance business thrives on credibility which is maintained by honoring financial
commitments.
On the claimed exemption of GSIS funds from execution, the CA held that such exemption
only covers funds under the Social Insurance Fund which remains liable for the payment
of benefits like retirement, disability and death compensation and not those covered under
the General Insurance Fund, as in this case, which are meant for investment in the
business of insurance and reinsurance.64
GSIS’ motion for reconsideration65 was denied by the CA in a Resolution66 dated October
6, 2004. Hence, the petition for review on certiorari in G.R. No. 165585. 67
The CA Proceedings Antecedent to G.R. No. 176982
Separately, GSIS also assailed the RTC’s January 11, 2002 Order which granted PGAI’s
Motion for Judgment on the Pleadings through an appeal68 filed on October 7, 2002,
docketed as CA G.R. CV No. 73965.
GSIS averred that the RTC gravely erred in: (a) rendering judgment on the pleadings since
it specifically denied the material allegations in PGAI’s complaint; (b) ordering execution
pending appeal since there are no justifiable reasons for the same; and (c) effecting
execution against funds and assets of GSIS given that RA 8291 exempts the same from
levy, execution and garnishment.69
For its part, PGAI maintained that: (a) the judgment on the pleadings was in order given
that GSIS never disputed the facts as alleged in its complaint; (b) the discretionary
execution was proper in view of the dilatory methods employed by GSIS in order to evade
the payment of a valid obligation; and (c) the general insurance fund of GSIS, which was
attached and garnished by the RTC, is not exempt from execution.70
In a Decision71 dated October 30, 2006, the CA sustained the RTC’s January 11, 2002
Order but deleted the awards of interest and attorney’s fees for lack of factual and legal
basis.72
The CA ruled that judgment on the pleadings was proper since GSIS did not specifically
deny the genuineness, due execution, and perfection of its reinsurance contract with
PGAI.73 In fact, PGAI even settled reinsurance claims during the covering period rendering
the reinsurance contract not only perfected but partially executed as well. 74
Passing on the issue of the exemption from execution of GSIS funds, the CA, citing Rubia
v. GSIS75 (Rubia), held that the exemption provided for by RA 8291 is not absolute since it
only pertains to the social security benefits of its members; thus, funds used by the GSIS
for business investments and commercial ventures, as in this case, may be attached and
garnished.76
GSIS’ motion for reconsideration77 was denied by the CA in a Resolution78 dated March
12, 2007. Hence, the present petition for review on certiorari in G.R. No. 176982. 79
The Issues Before the Court: In these consolidated petitions, the essential issues are the
following: (a) in G.R. No. 165585, whether the CA erred in (1) upholding the RTC’s
February 14, 2002 Order authorizing execution pending appeal, and (2) ruling that only the
Social Insurance Fund and not the General Fund of the GSIS is exempt from garnishment;
and (b) in G.R. No. 176982, whether the CA erred in sustaining the RTC’s January 11,
2002 Order rendering judgment on the pleadings.
The Court’s Ruling
The petitions are partly meritorious.
A. Good reasons to allow execution pending appeal and the nature of the exemption under
Section 39 of RA 8291.
The execution of a judgment pending appeal is an exception to the general rule that only a
final judgment may be executed.80 In order to grant the same pursuant to Section 2,81 Rule
39 of the Rules, the following requisites must concur: (a) there must be a motion by the
prevailing party with notice to the adverse party; (b) there must be a good reason for
execution pending appeal; and (c) the good reason must be stated in a special order. 82
Good reasons call for the attendance of compelling circumstances warranting immediate
execution for fear that favorable judgment may yield to an empty victory. In this regard, the
Rules do not categorically and strictly define what constitutes "good reason," and hence,
its presence or absence must be determined in view of the peculiar circumstances of each
case. As a guide, jurisprudence dictates that the "good reason" yardstick imports a
superior circumstance that will outweigh injury or damage to the adverse
party.83 Corollarily, the requirement of "good reason" does not necessarily entail
unassailable and flawless basis but at the very least, an invocation thereof must be
premised on solid footing.84
In the case at bar, the RTC, as affirmed by the CA, granted PGAI’s motion for execution
pending appeal on the ground that the impending sanctions against it by foreign
underwriters/reinsurers constitute good reasons therefor. It must, however, be observed
that PGAI has not proffered any evidence to substantiate its claim, as it merely presented
bare allegations thereon. It is hornbook doctrine that mere allegations do not constitute
proof. As held in Real v. Belo,85 "it is basic in the rule of evidence that bare allegations,
unsubstantiated by evidence, are not equivalent to proof. In short, mere allegations are not
evidence."86 Hence, without any sufficient basis to support the existence of its alleged
"good reasons," it cannot be said that the second requisite to allow an execution pending
appeal exists. To reiterate, the requirement of "good reasons" must be premised on solid
footing so as to ensure that the "superior circumstance" which would impel immediate
execution is not merely contrived or based on speculation. This, however, PGAI failed to
demonstrate in the present case. In fine, the Court therefore holds that the CA’s
affirmance of the RTC’s February 14, 2002 Order authorizing execution pending appeal,
as well as the February 19, 2002 issuances related thereto, was improper.
Nevertheless, while an execution pending appeal should not lie in view of the above-
discussed reasons, it must be noted that the funds and assets of GSIS may – after the
resolution of the appeal and barring any provisional injunction thereto – be subject to
execution, attachment, garnishment or levy since the exemption under Section 39 of RA
829187 does not operate to deny private entities from properly enforcing their contractual
claims against GSIS.88 This has been established in the case of Rubia wherein the Court
held as follows:
The declared policy of the State in Section 39 of the GSIS Charter granting GSIS an
exemption from tax, lien, attachment, levy, execution, and other legal processes should be
read together with the grant of power to the GSIS to invest its "excess funds" under
Section 36 of the same Act. Under Section 36, the GSIS is granted the ancillary power to
invest in business and other ventures for the benefit of the employees, by using its excess
funds for investment purposes. In the exercise of such function and power, the GSIS is
allowed to assume a character similar to a private corporation. Thus, it may sue and be
sued, as also explicitly granted by its charter.
Needless to say, where proper, under Section 36, the GSIS may be held liable for the
contracts it has entered into in the course of its business investments. For GSIS cannot
claim a special immunity from liability in regard to its business ventures under said
Section.
Nor can it deny contracting parties, in our view, the right of redress and the enforcement of
a claim, particularly as it arises from a purely contractual relationship of a private character
between an individual and the GSIS.89 (Emphases supplied and citations omitted)
Thus, the petition in G.R. No. 165585 is partly granted.
B. Propriety of judgment on the pleadings.
Judgment on the pleadings is appropriate when an answer fails to tender an issue, or
otherwise admits the material allegations of the adverse party’s pleading. The rule is
stated in Section 1, Rule 34 of the Rules which reads as follows:
Sec. 1. Judgment on the pleadings. – Where an answer fails to tender an issue, or
otherwise admits the material allegations of the adverse party’s pleading, the court may,
on motion of that party, direct judgment on such pleading. x x x.
In this relation, jurisprudence dictates that an answer fails to tender an issue if it does not
comply with the requirements of a specific denial as set out in Sections 8 90 and 10,91 Rule
8 of the Rules, resulting in the admission of the material allegations of the adverse party’s
pleadings.92
As such, it is a form of judgment that is exclusively based on the submitted pleadings
without the introduction of evidence as the factual issues remain uncontroverted.93
In this case, records disclose that in its Answer, GSIS admitted the material allegations of
PGAI’s complaint warranting the grant of the relief prayed for. In particular, GSIS admitted
that: (a) it made a request for reinsurance cover which PGAI accepted in a reinsurance
binder effective for one year;94 (b) it remitted only the first three reinsurance premium
payments to PGAI;95 (c) it failed to pay PGAI the fourth and final reinsurance premium
installment;96 and (d) it received demand letters from PGAI.97 It also did not refute the
allegation of PGAI that it settled reinsurance claims during the reinsured period. On the
basis of these admissions, the Court finds that the CA did not err in affirming the propriety
of a judgment on the pleadings.
GSIS’ affirmative defense that the non-payment of the last reinsurance premium merely
rendered the contract ineffective pursuant to Section 7798 of PD 612 no longer involves
any factual issue, but stands solely as a mere question of law in the light of the foregoing
admissions hence allowing for a judgment on the pleadings. Besides, in the case of Makati
Tuscany, the Court already ruled that the non-payment of subsequent installment
premiums would not prevent the insurance contract from taking effect; that the parties
intended to make the insurance contract valid and binding is evinced from the fact that the
insured paid – and the insurer received – several reinsurance premiums due thereon,
although the former refused to pay the remaining balance, viz:
We hold that the subject policies are valid even if the premiums were paid on installments.
The records clearly show that petitioner and private respondent intended subject
insurance policies to be binding and effective notwithstanding the staggered payment of
the premiums. The initial insurance contract entered into in 1982 was renewed in 1983,
then in 1984. In those three (3) years, the insurer accepted all the installment payments.
Such acceptance of payments speaks loudly of the insurer’s intention to honor the policies
it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the
insurer to continue collecting and accepting the premiums, although paid on installments,
and later deny liability on the lame excuse that the premiums were not prepaid in full.
We therefore sustain the Court of Appeals. We quote with approval the well-reasoned
findings and conclusion of the appellate court contained in its Resolution denying the
motion to reconsider its Decision —
While the import of Section 77 is that prepayment of premiums is strictly required as a
condition to the validity of the contract, We are not prepared to rule that the request to
make installment payments duly approved by the insurer, would prevent the entire contract
of insurance from going into effect despite payment and acceptance of the initial premium
or first installment . Section 78 of the Insurance Code in effect allows waiver by the insurer
of the condition of prepayment by making an acknowledgment in the insurance policy of
receipt of premium as conclusive evidence of payment so far as to make the policy binding
despite the fact that premium is actually unpaid. Section 77 merely precludes the parties
from stipulating that the policy is valid even if premiums are not paid, but does not
expressly prohibit an agreement granting credit extension, and such an agreement is not
contrary to morals, good customs, public order or public policy (De Leon, the Insurance
Code, at p. 175). So is an understanding to allow insured to pay premiums in installments
not so proscribed. At the very least, both parties should be deemed in estoppel to question
the arrangement they have voluntarily accepted.
[I]n the case before Us, petitioner paid the initial installment and thereafter made
staggered payments resulting in full payment of the 1982 and 1983 insurance
policies.1âwphi1 For the 1984 policy, petitioner paid two (2) installments although it
refused to pay the balance.
It appearing from the peculiar circumstances that the parties actually intended to make
three (3) insurance contracts valid, effective and binding, petitioner may not be allowed to
renege on its obligation to pay the balance of the premium after the expiration of the whole
term of the third policy (No. AH-CPP-9210651) in March 1985. Moreover, as correctly
observed by the appellate court, where the risk is entire and the contract is indivisible, the
insured is not entitled to a refund of the premiums paid if the insurer was exposed to the
risk insured for any period, however brief or momentary.99 (Emphases supplied and
citation omitted)
Thus, owing to the identical complexion of Makati Tuscany with the present case, the
Court upholds PGAI’s right to be paid by GSIS the amount of the fourth and last
reinsurance premium pursuant to the reinsurance contract between them. All told, the
petition in G.R. No. 176982 is denied.
WHEREFORE, the petition in G.R. No. 165585 is PARTLY GRANTED. The Decision
dated May 26, 2004 and Resolution dated October 6, 2004 of the Court of Appeals in CA-
G.R. SP No. 69289 are MODIFIED only insofar as it upheld the validity of Prudential
Guarantee and Assurance, Inc.’s execution pending appeal. In this respect, the Order
dated February 14, 2002 of the Regional Trial Court of Makati, Branch 149 as well as all
other issuances related thereto are set aside.
On the other hand, the petition in G.R. No. 176982 is DENIED. The Decision dated
October 30, 2006 and Resolution dated March 12, 2007 in CA-G.R. CV No. 73965 are
hereby AFFIRMED.
SO ORDERED.
20. Equitable Insurance Corp vs. Transmodal International, G.R. No. 223592, Aug 7,
2018,
This is to resolve the Petition for Review on Certiorari under Rule 45 of the Rules of Court,
dated May 11, 2016, of petitioner Equitable Insurance Corporation that seeks to reverse and
set aside the Decision1 dated September 15, 2015 and Resolution2 dated March 17, 2016
of the Court of Appeals (CA) reversing the Decision3 dated June 18, 2013 of the Regional
Trial Court (RTC), Branch 26, Manila in a civil case for actual damages.

 According to the RTC, petitioner Equitable Insurance was able to prove by substantial
The facts follow.

Sytengco Enterprises Corporation (Sytengco) hired respondent
Transmodal International, Inc. (Transmodal) to clear from the customs authorities and
withdraw, transport, and deliver to its warehouse, cargoes consisting of 200 cartons of gum
Arabic with a total weight of 5,000 kilograms valued at US21,750.00.

The said cargoes
arrived in Manila on August 14, 2004 and were brought to Ocean Links Container Terminal
Center, Inc. pending their release by the Bureau of Customs (BOC) and on September 2,
2004, respondent Transmodal withdrew the same cargoes and delivered them to Sytengco's
warehouse. It was noted in the delivery receipt that all the containers were wet.

In a
preliminary survey conducted by Elite Adjusters and Surveyors, Inc. (Elite Surveyors), it was
found that 187 cartons had water marks and the contents of the 13 wet cartons were partly
hardened. On October 13, 2004, a re-inspection was conducted and it was found that the
contents of the randomly opened 20 cartons were about 40% to 60% hardened, while 8
cartons had marks of previous wetting. In its final report dated October 27, 2004, Elite
Surveyor fixed the computed loss payable at P728,712.00 after adjustment of 50% loss
allowance.

Thus, on November 2, 2004, Sytengco demanded from respondent
Transmodal the payment of P1,457,424.00 as compensation for total loss of shipment. On
that same date, petitioner Equitable Insurance, as insurer of the cargoes per Marine Open
Policy No. MN-MRN-HO-000549 paid Sytengco's claim for P728,712.00. On October 4,
2004, Sytengco then signed a subrogation receipt and loss receipt in favor of petitioner
Equitable Insurance. As such, petitioner Equitable Insurance demanded from respondent
Transmodal reimbursement of the payment given to Sytengco.

Thereafter, petitioner
Equitable Insurance filed a complaint for damages invoking its right as subrogee after paying
Sytengco's insurance claim and averred that respondent Transmodal's fault and gross
negligence were the causes of the damages sustained by Sytengco's shipment. Petitioner
Equitable Insurance prayed for the payment of P728,712.00 actual damages with 6%
interest from the date of the filing of the complaint until full payment, plus attorney's fees
and cost of suit.

Respondent Transmodal denied knowledge of an insurance policy and
claimed that petitioner Equitable Insurance has no cause of action against it because the
damages to the cargoes were not due to its fault or gross negligence. According to the same
respondent, the cargoes arrived at Sytengco's warehouse around 11:30 in the morning of
September 1, 2004, however, Sytengco did not immediately receive the said cargoes and
as a result, the cargoes got wet due to the rain that occurred on the night of September 1,
2004. Respondent Transmodal also questioned the timeliness of Sytengco's formal claim
for payment which was allegedly made more than 14 days from the time the cargoes were
placed at its disposal in contravention of the stipulations in the delivery receipts.

The RTC,
in its Decision dated June 18, 2013, found in favor of petitioner Equitable Insurance, thus,
the following dispositive portion of said decision:
 COMPAÑA MARITIMA V. INSURANCE COMPANY OF NORTH AMERICA, 12 SCRA 213;
WHEREFORE, based on the foregoing, judgment is hereby rendered in favor of the plaintiff
and against the defendant, ordering the latter to pay the
following:chanRoblesvirtualLawlibrary
(1) Actual damages in the amount of Php728,712.00 plus 6% interest from judicial demand
until full payment;
(2) Attorney's fees in the amount equivalent to 10% of the amount claimed;
(3) Costs of suit. SO ORDERED.4
evidence its right to institute an action as subrogee of Sytengco. It also ruled that petitioner
Equitable Insurance's non-presentation of the insurance policy and non-compliance with
Section 7, Rule 8 of the Rules of Court on actionable document were raised for the first
time in respondent Transmodal's memorandum and also noted that petitioner Equitable
Insurance had, in fact, submitted a copy of the insurance contract.
Respondent Transmodal appealed the RTC's decision to the CA. The CA, on September
15, 2015, promulgated its decision reversing the RTC's decision. It disposed of the appeal
as follows:chanRoblesvirtualLawlibrary
WHEREFORE, the appeal is hereby GRANTED. The June 18,2013 Decision of the
Regional Trial Court, Branch 26, Manila in Civil Case No. 06-114861 is REVERSED and
SET ASIDE. Accordingly, Equitable Insurance Corp.'s complaint is DISMISSED for failure
to prove cause of action.
SO ORDERED.5
The CA ruled that there was no proof of insurance of the cargoes at the time of the loss
and that the subrogation was improper. According to the CA, the insurance contract was
neither attached in the complaint nor offered in evidence for the perusal and appreciation
of the RTC, and what was presented was just the marine risk note.
Hence, the present petition after the CA denied petitioner Equitable Insurance's motion for
reconsideration.
Petitioner Equitable Insurance enumerates the following assignment of
errors:chanRoblesvirtualLawlibrary
1. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING THAT THE
CASE OF MALAYAN INSURANCE CO., INC. V. REGIS BROKERAGE CORP. (G.R. NO.
172156, NOVEMBER 23, 2007) IS NOT APPLICABLE IN THE INSTANT CASE;
2. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING THAT THE
FACTS SURROUNDING THE CASE OF MALAYAN INSURANCE CO., INC. V. REGIS
BROKERAGE CORP. (G.R. NO. 172156, NOVEMBER 23, 2007) IS DIFFERENT FROM
THE FACTS ATTENDING THE INSTANT CASE;
3. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE CASE OF
TISON V. COURT OF APPEALS, 276 SCRA 582;
4. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE CASE OF
5. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE CASE OF appreciation of the court a quo. Instead, Equitable Insurance presented the marine risk
DELSAN TRANSPORT LINES, INC. V. COURT OF APPEALS, 273 SCRA 262; note. For clarity, We quote the pertinent portions of the marine risk
note, viz.:chanRoblesvirtualLawlibrary
6. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE Line & Subline
STATUTORY PRESUMPTION OF FAULT AND NEGLIGENCE.6 MARINE CARGO
It is the contention of petitioner Equitable Insurance that the CA erred in not applying RISK NOTE
certain jurisprudence on this case which it deemed applicable. It also argues that the Policy No.:
present case is not a suit between the insured Sytengco and the insurer but one between MN-MRN-HO-0005479
the consignee Sytengco and the respondent common carrier since petitioner Equitable Issue date Sep. 08, 2004
Insurance merely stepped into the shoes of the said insured who has a direct cause of Invoice No. 59298 V
action against respondent Transmodal on account of the damage sustained by the subject
cargo, thus, the carrier cannot set up as defense any defect in the insurance policy Assured: SYTENGCO ENTERPRISES CORPORATION
because it cannot avoid its liability to the consignee under the contract of carriage which Address: 10RESTHAVEN ST.
binds it to pay any loss or damage that may be caused to the cargo involved therein. SAN FRANCISCO DEL MONTE SUBDIVISION,
QUEZON CITY, METRO MANILA
In its Comment7 dated July 25, 2016, respondent Transmodal avers that the CA did not err
in not applying certain jurisprudence in the latter's decision. Respondent Transmodal We have this day noted the undermentioned risk in your favor and hereby guarantee that
further refutes all the assigned errors that petitioner Equitable Insurance enumerated in its this document has all the force and effect of the terms and conditions of EQUITABLE
petition. INSURANCE CORPORATION Marine Policy No. MN-MOP-HO-0000099.

A closer look at the arguments raised in the petition would show that petitioner is indeed
asking this Court to review the factual findings of the CA which is not within the scope of a
petition for review under Rule 45 of the Rules of Court. However, this Court has
recognized exceptions to the rule that the findings of fact of the CA are conclusive and
binding in the following instances: (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
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 CA manifestly overlooked
certain relevant facts not disputed by the parties, which, if properly considered, would
justify a different conclusion.8 Considering that the findings of facts of the RTC and the CA
are glaringly in contrast, this Court deems it proper to review the present case.
In ruling that petitioner's subrogation right is improper, the CA stated that it found no proof
of insurance of the cargoes at the time of their loss. It also found that what was presented
in court was the marine risk note and not the insurance contract or policy,
thus:chanRoblesvirtualLawlibrary
A perusal of the complaint and the other documentary evidence submitted by Equitable
Insurance such as the preliminary and final report clearly shows that the claims for damages
and subrogation were based on Policy No. MN-MRN-HO-0005479. However, said
insurance contract was neither attached in the complaint nor offered in evidence for the
perusal and
L/C AMOUNT: USD 21,750.00 MARK-UP: 20%
SUM INSURED: PHP 1,457,424.00 EXCHANGE RATE: 55.8400
CARGO: 200 CTNS. GUM ARABIC POWDER KB-120
Supplier: JUMBO TRADING CO., LTD.
Vessel: ASIAN ZEPHYR VOYAGE No.: 062N
BL#:MNL04086310
ETD: 09-AUG-04 ETA: 13-AUG-04
From: THAILAND To: Manila, Philippines9
As such, according to the CA, the case of Eastern Shipping Lines, Inc. v. Prudential
Guarantee and Assurance, Inc.10 is applicable, wherein this Court held that a marine risk
note is not an insurance policy. The CA also found applicable this Court's ruling
in Malayan Insurance Co., Inc. v. Regis Brokerage Corp.,11 stating that a marine policy is
constitutive of the insurer-insured relationship, thus, such document should have been
attached to the complaint as mandated by Section 7,12 Rule 8 of the Rules of Court.
Petitioner, however, insists that the CA erred in applying the case of Malayan because the
plaintiff therein did not present the marine insurance policy whereas in the present case,
petitioner has presented not only the marine risk note but also Marine Open Policy No.
MN-MOP-HO-000009913 which were all admitted in evidence.
Indeed, a perusal of the records would show that petitioner is correct in its claim that the
marine insurance policy was offered as evidence. In fact, in the questioned decision of the
CA, the latter, mentioned such policy, thus:chanRoblesvirtualLawlibrary
Contrary to the ruling of the RTC, the marine policy was not at all presented. As borne by
the records, only the marine risk note and EQUITABLE INSURANCE CORPORATION
Marine Policy No. MN-MOP-HO-0000099 were offered in evidence. These pieces of
evidence are immaterial to Equitable Insurance's cause of action. We have earlier pointed
out that a marine risk note is insufficient to prove the insurer's claim. Although the marine
risk note provided that it "has all the force and effect of the terms and conditions of
EQUITABLE INSURANCE CORPORATION Marine Policy No. MN-MOP-HO-0000099,"
there is nothing in the records showing that the said policy is related to Policy No. MN-MRN-
HO-005479 which was the basis of Equitable Insurance's complaint. It did not escape our
attention that the second page of the marine risk note explicitly stated that it was "attached
to and forming part of the Policy No. MN-MRN-005479." Thus, without the presentation of
Policy No. MN-MRN-005479, We cannot simply assume that the terms and conditions,
including the period of coverage, of such policy are similar to Marine Policy No. MN-MOP-
HO-0000099.14
As such, respondent had the opportunity to examine the said documents or to object to its
presentation as pieces of evidence. The records also show that respondent was able to
cross-examine petitioner's witness regarding the said documents. Thus, it was well
established that petitioner has the right to step into the shoes of the insured who has a
direct cause of action against herein respondent on account of the damages sustained by
the cargoes. "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."15 The right of
subrogation springs from Article 2207 of the Civil Code which
states:chanRoblesvirtualLawlibrary
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 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.
The records further show that petitioner was able to accomplish its obligation under the
insurance policy as it has paid the assured of its insurance claim in the amount of
P728,712,00 as evidenced by, among others, the Subrogation Receipt, 16 Loss
Receipt,17 Check Voucher,18 and Equitable PCI Bank Check No. 0000013925.19 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.20
This Court's ruling in Asian Terminals, Inc. v. First Lepanto-Taisho Insurance
Corporation21 is highly instructive, thus:chanRoblesvirtualLawlibrary
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., 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.
In Home Insurance Corporation v. CA, 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.
An analogous disposition was arrived at in the Wallem 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.
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, 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.
The same rationale was the basis of the judgment in International Container Terminal
Services, Inc. v. FGU Insurance Corporation, 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.22
In view thereof, the RTC did not err in its ruling, thus:chanRoblesvirtualLawlibrary
Defendant in its memorandum, raised the issue that plaintiff failed to attach in its complaint
a copy of the Marine Open Insurance Policy, thus, it failed to establish its cause of action as
subrogee of the consignee quoting the case of Malayan Insurance Co., Inc. v. Regis
Brokerage Corp.
The above-mentioned case is not applicable in the instant case. In Malayan Insurance Co.
v. Regis Brokerage, Malayan did not submit the copy of the insurance contract or policy. In
the instant case, plaintiff submitted the copy of the insurance contract. In fact, the non-
presentation of the insurance contract is not fatal to its cause of action.
In the more recent case of Asian Terminals, Inc. v. Malayan Insurance Co., Inc., it was
held:chanRoblesvirtualLawlibrary
Similarly, in this case, the presentation of the insurance contract or policy was not
necessary. Although petitioner objected to the admission of the Subrogation Receipt in its
Comment to respondent's formal offer of evidence on the ground that respondent failed to
present the insurance contract or policy, a perusal of petitioner's Answer and Pre-trial Brief
shows that petitioner never questioned respondent's right to subrogation, nor did it dispute
the coverage of the insurance contract or policy. Since there was no issue regarding the
validity of the insurance contract or policy, or any provision thereof, respondent had no
reason to present the insurance contract or policy as evidence during the trial.
Perusal of the records likewise show that the defendant failed to raise the issue of non-
compliance with Section 7, Rule 8 of the 1997 Rules of Procedure and the non-presentation
of insurance policy during the pre-trial. In the same case, it was
held:chanRoblesvirtualLawlibrary
Petitioner claims that respondent's non-presentation of the insurance contract or policy
between the respondent and the consignee is fatal to its cause of action.
We do not agree.
First of all, this was never raised as an issue before the RTC. In fact, it is not among the
issues agreed upon by the parties to be resolved during the pre-trial. As we have said, the
determination of issues during the pre-trial conference bars the consideration of other
questions, whether during trial or on appeal. Thus, [t]he parties must disclose during pre-
trial all issues they intend to raise during the trial, except those involving privileged or
impeaching matters. x x x The basis of the rule is simple. Petitioners are bound by the
delimitation of the issues during the pre-trial because they themselves agreed to the same.
Plaintiff was able to prove by substantial evidence their right to institute this action as
subrogee of the insured. The defendant did not present any evidence or witness to bolster
their defense and to contradict plaintiffs allegation.23
To reiterate, in this case, petitioner was able to present as evidence the marine open
policy that vested upon it, its rights as a subrogee. 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 injustice, equity and good conscience ought to pay. 24
WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of Court,
dated May 11, 2016, of petitioner Equitable Insurance Corporation is GRANTED.
Consequently, the Decision dated September 15, 2015 and Resolution dated March 17,
2016 of the Court of Appeals in CA-G.R. CV No. 101296 are REVERSED and SET
ASIDE, and the Decision dated June 18, 2013 of the Regional Trial Court, Branch 26,
Manila is AFFIRMED and REINSTATED.
SO ORDERED.
21. Oriental Assurance Corporation vs. Manuel Ong, G.R. No. 189524, Oct 11, 2017
Facts:
JEA Steel Industries, Inc. (JEA Steel) imported from South Korea 72 aluminum-zinc-alloy-
coated steel sheets in coils.
to Manila on board the vessel M/V Dooyang Glory as evidenced by Bill of Lading... the 72
coils were discharged and stored in Pier 9 under the custody of the arrastre contractor,
Asian Terminals, Inc. (Asian Terminals).
the coils were loaded on the trucks of Manuel Ong (Ong) and delivered to JEA Steel's
plant in Barangay Lapidario, Trece Martirez, Cavite on June 14, 2002[6] and Ju
Eleven of these coils ''were found to be in damaged condition, dented or their normal
round shape deformed."
Ong countered that the 11 coils were already damaged when they were loaded on board
his trucks and transported to the consignee.
Asian Terminals claimed that it exercised due diligence in handling the cargo, that the
cargo was released to the consignee's representative in the same condition as when
received from the vessel, and that the damages were sustained while in the custody of the
vessel or the customs broker... further argued that Oriental's claim was barred for the
latter's failure to file a notice of claim within the 15-day period provided in the Gate Pass
Article VII, Section 7.01 of the Contract for Cargo Handling Services
Asan Terminals added that its liability, if any, should not exceed P5,000.00, pursuant to
said Section 7.01.
Regional Trial Court, Manila rendered its Decision[19] on August 9, 2006 dismissing the
complaint.
Court of Appeals dismissed Oriental’s appeal on the ground that its claim had already
prescribed.
Oriental contends that it was not aware of the provisions[46] of the Gate Pass or the
Management Contract, neither of which it was a party to.[47] Consequently, it cannot be
bound by the stipulation limiting the liability of Asian Terminals.[48]
Asian Terminals counters that "[t]he provisions of the Management Contract and the Gate
Pass are binding on Oriental as insurer-subrogee and successor-in-interest of the
consignee."
Issues:
whether or not petitioner, who was not a party to the Gate Pass or Management Contract,
is bound by the 15-day prescriptive period fixed in them to file a claim against the arrastre
operator
Ruling:
As subrogee, petitioner merely stepped into the shoes of the consignee and may only
exercise those rights that the consignee may have against the wrongdoer who caused the
damage.[55] "It can recover only the amount that is recoverable by the assured."[56] And
since the right of action of the consignee is subject to a precedent condition stipulated in
the Gate Pass, which includes by reference the terms of the Management Contract,
necessarily a suit by the insurer is subject to the same precedent condition.
the records do not show that the value of the shipment was specified or manifested to
Asian Terminals before discharge from the vessel.
Accordingly, Asian Terminals' liability should be limited to the maximum recoverable value
ofP5,000.00 per package or coil, the customary freight unit. Hence, the total recoverable
amount is P55,000.00 for the 11 damaged coils.

Asian Terminals adds that the consignee is presumed to have learned of the damage on
June 17, 2002, the date of complete delivery of the shipment to the consignee's plant,
since there was no showing that the consignee learned of the damage later than this
date.[63] Thus, counting 15 days, Oriental had until July 2, 2002 to file its claim.[64] Asian
Terminals received Oriental's claim only on July 4, 2002; hence, the claim was barred by
prescription.
The issuance of a certificate is not an indispensable condition for the 15-day limit to run.
upon the contractor's failure to issue a certification within 15 days from receipt of a
consignee or his duly authorized representative or any interested party's written request,
this certification "shall be deemed to have been issued, and thereafter, the fifteen (15) day
period within which to file the claim commences."... the purpose of the time limitation for
filing claims is "to apprise the arrastre operator of the existence of a claim and enable it to
check on the validity of the claimant's demand while the facts are still fresh for recollection
of the persons who took part in the undertaking and the pertinent papers are still
available."... the Request for Bad Order Survey and the ensuing examination report
satisfied the purpose of a formal claim, as respondent was made aware of and was able to
verify that five (5) skids were damaged or in bad order while in its custody before the last
withdrawal of the shipment. Hence, even if the formal claim was filed beyond the 15-day
period stipulated in the Contract, respondent was not prejudiced by it, since it already
knew of the number of skids damaged in its possession per the examination report on the
request for bad order survey.
that Ong should be held solidarily liable with Asian Terminals for acting in bad faith when it
did not apprise the consignee or Asian Terminals about the damaged coils. This Court
finds this contention untenable.
This issue was never raised by petitioner in the lower courts.
Principles:
this Court held that the provisions of a gate pass or of an arrastre management contract
are binding on an insurer-subrogee even if the latter is not a party
In the performance of its job, an arrastre operator is bound by the management contract it
had executed with the Bureau of Customs. However, a management contract, which is a
sort of a stipulation pour autrui within the meaning of Article 1311 of the Civil Code, is also
binding on a consignee because it is incorporated in the gate pass and delivery receipt
which must be presented by the consignee before delivery can be effected to it.
insurer, as successor-in-interest of the consignee, is likewise bound by the management
contract.
upon taking delivery of the cargo,... tacitly accepts the provisions of the management
contract, including those which are intended to limit the liability of one of the contracting
parties, the arrastre operator.

"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."... the facts do not show that a provisional claim or a request for bad
order survey was made by the consignee. Instead, what was only established is that the
consignee's claim letter dated July 2, 2002 was received by respondent on July 4, 2002, or
17 days from last delivery of the coils to the consignee.

this Court adopts a reasonable interpretation of the stipulations in the Management

Contract and hold that petitioner's complaint is not time-barred.

Hence, the consignee's claim letter is regarded as substantial compliance with the
condition precedent set forth in the Management Contract to hold the arrastre operator
liable.

Although its representative was not present during the inspections,[84] the fact that Asian
Terminals requested for the cargo survey shows that it had knowledge of the damage of
the shipment while in its possession and that the survey was sought specifically to
ascertain the nature and extent of the damage. Thus, respondent cannot escape liability
for the damaged coils, simply by its own act of not sending a representative, after it had
contracted for the survey of the shipment.