Insurance Cases Batch 2

1 INSURANCE CASES BATCH 2
WHITE GOLD MARINE SERVICES, INC. vs. PIONEER INSURANCE AND SURETY SECOND ASSIGNMENT OF ERROR
CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION
(BERMUDA) LTD.
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY
EVIDENCE THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.
This petition for review assails the Decision[1] dated July 30, 2002 of the Court of
Appeals in CA-G.R. SP No. 60144, affirming the Decision[2] dated May 3, 2000 of the
THIRD ASSIGNMENT OF ERROR
Insurance Commission in I.C. Adm. Case No. RD-277. Both decisions held that there was
no violation of the Insurance Code and the respondents do not need license as insurer and
insurance agent/broker. THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED
NOT SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF
RESPONDENT STEAMSHIP.
The facts are undisputed.
FOURTH ASSIGNMENT OF ERROR

White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity
coverage for its vessels from The Steamship Mutual Underwriting Association (Bermuda)
Limited (Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer). THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT
Subsequently, White Gold was issued a Certificate of Entry and Acceptance. [3] Pioneer also PIONEER AND [IN NOT REMOVING] THE OFFICERS AND DIRECTORS OF
issued receipts evidencing payments for the coverage. When White Gold failed to fully pay RESPONDENT PIONEER.[9]
its accounts, Steamship Mutual refused to renew the coverage.
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged
Steamship Mutual thereafter filed a case against White Gold for collection of sum of in the insurance business in the Philippines? (2) Does Pioneer need a license as an
money to recover the latters unpaid balance. White Gold on the other hand, filed a complaint insurance agent/broker for Steamship Mutual?
before the Insurance Commission claiming that Steamship Mutual violated Sections
186[4]and 187[5] of the Insurance Code, while Pioneer violated Sections 299,[6] 300[7] and The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it
301[8] in relation to Sections 302 and 303, thereof. does not have a license to do business in the Philippines although Pioneer is its resident
agent. This relationship is reflected in the certifications issued by the Insurance Commission.
The Insurance Commission dismissed the complaint. It said that there was no need
for Steamship Mutual to secure a license because it was not engaged in the insurance Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance
business. It explained that Steamship Mutual was a Protection and Indemnity Club (P & I business. To buttress its assertion, it cites the definition of a P & I Club in Hyopsung
Club). Likewise, Pioneer need not obtain another license as insurance agent and/or a broker Maritime Co., Ltd. v. Court of Appeals[10]as an association composed of shipowners in
for Steamship Mutual because Steamship Mutual was not engaged in the insurance general who band together for the specific purpose of providing insurance cover on a mutual
business. Moreover, Pioneer was already licensed, hence, a separate license solely as basis against liabilities incidental to shipowning that the members incur in favor of third
agent/broker of Steamship Mutual was already superfluous. parties. It stresses that as a P & I Club, Steamship Mutuals primary purpose is to solicit and
provide protection and indemnity coverage and for this purpose, it has engaged the services
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its of Pioneer to act as its agent.
decision, the appellate court distinguished between P & I Clubs vis--vis conventional
insurance. The appellate court also held that Pioneer merely acted as a collection agent of Respondents contend that although Steamship Mutual is a P & I Club, it is not
Steamship Mutual. engaged in the insurance business in the Philippines. It is merely an association of vessel
owners who have come together to provide mutual protection against liabilities incidental to
In this petition, petitioner assigns the following errors allegedly committed by the shipowning.[11]Respondents aver Hyopsung is inapplicable in this case because the issue
appellate court, in Hyopsung was the jurisdiction of the court over Hyopsung.
FIRST ASSIGNMENT OF ERROR Is Steamship Mutual engaged in the insurance business?
THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT Section 2(2) of the Insurance Code enumerates what constitutes doing an insurance
DOING BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS business or transacting an insurance business. These are:
TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT
NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE (a) making or proposing to make, as insurer, any insurance contract;
PHILIPPINES.
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation Since a contract of insurance involves public interest, regulation by the State is
and not as merely incidental to any other legitimate business or activity of the necessary. Thus, no insurer or insurance company is allowed to engage in the insurance
surety; business without a license or a certificate of authority from the Insurance Commission.[21]
(c) doing any kind of business, including a reinsurance business, specifically Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
recognized as constituting the doing of an insurance business within the
meaning of this Code;
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of
registration[22] issued by the Insurance Commission. It has been licensed to do or transact
(d) doing or proposing to do any business in substance equivalent to any of the insurance business by virtue of the certificate of authority [23] issued by the same agency.
foregoing in a manner designed to evade the provisions of this Code. However, a Certification from the Commission states that Pioneer does not have a separate
license to be an agent/broker of Steamship Mutual.[24]
. . .The same provision also provides, the fact that no profit is derived from the making of
insurance contracts, agreements or transactions, or that no separate or direct consideration Although Pioneer is already licensed as an insurance company, it needs a separate
is received therefor, shall not preclude the existence of an insurance business. [12] license to act as insurance agent for Steamship Mutual. Section 299 of the Insurance Code
clearly states:
The test to determine if a contract is an insurance contract or not, depends on the
nature of the promise, the act required to be performed, and the exact nature of the SEC. 299 . . .
agreement in the light of the occurrence, contingency, or circumstances under which the
performance becomes requisite. It is not by what it is called.[13]
No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance, any
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a commission or other compensation from any insurance company doing business in the
consideration to indemnify another against loss, damage or liability arising from an unknown Philippines or any agent thereof, without first procuring a license so to act from the
or contingent event.[14] Commissioner, which must be renewed annually on the first day of January, or within six
months thereafter. . .
In particular, a marine insurance undertakes to indemnify the assured against marine
losses, such as the losses incident to a marine adventure. [15] Section 99[16] of the Insurance Finally, White Gold seeks revocation of Pioneers certificate of authority and removal of
Code enumerates the coverage of marine insurance. its directors and officers. Regrettably, we are not the forum for these issues.
Relatedly, a mutual insurance company is a cooperative enterprise where the WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30,
members are both the insurer and insured. In it, the members all contribute, by a system of 2002 of the Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance
premiums or assessments, to the creation of a fund from which all losses and liabilities are Commission is hereby REVERSED AND SET ASIDE. The Steamship Mutual Underwriting
paid, and where the profits are divided among themselves, in proportion to their interest. Association (Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED
[17]
Additionally, mutual insurance associations, or clubs, provide three types of coverage, to obtain licenses and to secure proper authorizations to do business as insurer and
namely, protection and indemnity, war risks, and defense costs.[18] insurance agent, respectively. The petitioners prayer for the revocation of Pioneers
Certificate of Authority and removal of its directors and officers, is DENIED. Costs against
respondents. SO ORDERED.
A P & I Club is a form of insurance against third party liability, where the third party is
anyone other than the P & I Club and the members. [19] By definition then, Steamship Mutual
as a P & I Club is a mutual insurance association engaged in the marine insurance White Gold Marine Services, Inc. owns several shipping vessels. Steamship Mutual
business. Underwriting Association, Ltd. (based in Bermuda) is a protection and indemnity club which
is an association composed of shipowners in general who band together for the specific
purpose of providing insurance cover on a mutual basis against liabilities incidental to
The records reveal Steamship Mutual is doing business in the country albeit without
shipowning that the members incur in favor of third parties. White Gold, through Pioneer
the requisite certificate of authority mandated by Section 187 [20] of the Insurance Code. It
Insurance (agent of Steamship Mutual here), procured a protection and indemnity coverage
maintains a resident agent in the Philippines to solicit insurance and to collect payments in
from Steamship Mutual. Steamship Mutual does not have authority from the Insurance
its behalf. We note that Steamship Mutual even renewed its P & I Club cover until it was
Commission to conduct insurance business in the Philippines but its collection agent here
cancelled due to non-payment of the calls. Thus, to continue doing business here,
(Pioneer Insurance) has been licensed to conduct insurance business.
Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance
Commission.
Later, Steamship Mutual filed a case for collection of sum of money against White Gold due
to the latters failure to pay its balance with the former. White Gold averred that Steamship
Mutual has no license [hence it cannot collect]. Nor can it collect through Pioneer Insurance
because, though Pioneer Insurance is licensed as an insurance company, it is not licensed medical doctor hence his statement in answering the question asked of him when he was
to be an insurance broker/agent. Steamship Mutual insisted it is not conducting insurance applying is an opinion rather than a fact. Answers made in good faith will not void the policy.
business here and is merely a protection and indemnity club. The Insurance Commission as
well as the Court of Appeals ruled against White Gold.
Further, Philamcare, in believing there was concealment, should have taken the necessary
steps to void the health coverage agreement prior to the filing of the suit by Julita.
ISSUE: Whether or not Steamship Mutual needs a license to operate in the Philippines. Philamcare never gave notice to Julita of the fact that they are voiding the agreement.
Therefore, Philamcare should pay the expenses paid by Julita.
HELD: Yes. The test to determine if a contract is an insurance contract or not, depends on
the nature of the promise, the act required to be performed, and the exact nature of the
agreement in the light of the occurrence, contingency, or circumstances under which the
performance becomes requisite. It is not by what it is called. If it is a contract of indemnity, it
GULF RESORTS, INC. vs. PHILIPPINE CHARTER INSURANCE CORPORATION
must be a contract of insurance. In fact, a protection and indemnity club is a form of
insurance where the members are both the insurers and the insured. It is a mutual insurance
company. The club indemnifies the member for whatever risks it may incur against a third Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of
party where the third party is other than the club and the members. Hence, Steamship Court by petitioner GULF RESORTS, INC., against respondent PHILIPPINE CHARTER
Mutual needs to procure a license from the Insurance Commission in order to continue INSURANCE CORPORATION. Petitioner assails the appellate court decision [1] which
operating here. dismissed its two appeals and affirmed the judgment of the trial court.
Pioneer Insurance also needs to secure another license as an insurance broker/agent of For review are the warring interpretations of petitioner and respondent on the scope of
Steamship Mutual pursuant to Section 299 of the Insurance Code. the insurance companys liability for earthquake damage to petitioners properties. Petitioner
avers that, pursuant to its earthquake shock endorsement rider, Insurance Policy No. 31944
covers all damages to the properties within its resort caused by earthquake. Respondent
contends that the rider limits its liability for loss to the two swimming pools of petitioner.
PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF APPEALS and JULITA TRINOS
The facts as established by the court a quo, and affirmed by the appellate court are as
follows:
379 SCRA 356 Mercantile Law Insurance Law Representation Concealment
Rescission of an Insurance Contract Health Care Agreement is an Insurance Contract
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its properties
in said resort insured originally with the American Home Assurance Company (AHAC-AIU).
In 1988, Ernani Trinos applied for a health care insurance under the Philamcare Health In the first four insurance policies issued by AHAC-AIU from 1984-85; 1985-86; 1986-1987;
Systems, Inc. He was asked if he was ever treated for high blood, heart trouble, diabetes, and 1987-88 (Exhs. C, D, E and F; also Exhs. 1, 2, 3 and 4 respectively), the risk of loss
cancer, liver disease, asthma, or peptic ulcer; he answered no. His application was from earthquake shock was extended only to plaintiffs two swimming pools, thus,
approved and it was effective for one year. His coverage was subsequently renewed twice earthquake shock endt. (Item 5 only) (Exhs. C-1; D-1, and E and two (2) swimming pools
for one year each. While the coverage was still in force in 1990, Ernani suffered a heart only (Exhs. C-1; D-1, E and F-1). Item 5 in those policies referred to the two (2) swimming
attack for which he was hospitalized. The cost of the hospitalization amounted to pools only (Exhs. 1-B, 2-B, 3-B and F-2); that subsequently AHAC(AIU) issued in plaintiffs
P76,000.00. Julita Trinos, wife of Ernani, filed a claim before Philamcare for the latter to pay favor Policy No. 206-4182383-0 covering the period March 14, 1988 to March 14, 1989
the hospitalization cost. Philamcare refused to pay as it alleged that Ernani failed to disclose (Exhs. G also G-1) and in said policy the earthquake endorsement clause as indicated in
the fact that he was diabetic, hypertensive, and asthmatic. Julita ended up paying the Exhibits C-1, D-1, Exhibits E and F-1 was deleted and the entry under
hospital expenses. Ernani eventually died. In July 1990, Julita sued Philamcare for Endorsements/Warranties at the time of issue read that plaintiff renewed its policy with
damages. Philamcare alleged that the health coverage is not an insurance contract; that the AHAC (AIU) for the period of March 14, 1989 to March 14, 1990 under Policy No. 206-
concealment made by Ernani voided the agreement. 4568061-9 (Exh. H) which carried the entry under Endorsement/Warranties at Time of Issue,
which read Endorsement to Include Earthquake Shock (Exh. 6-B-1) in the amount
of P10,700.00 and paid P42,658.14 (Exhs. 6-A and 6-B) as premium thereof, computed as
ISSUE: Whether or not Philamcare can avoid the health coverage agreement.
follows:
HELD: No. The health coverage agreement (health care agreement) entered upon by
Item -P7,691,000.00 - on the Clubhouse only
Ernani with Philamcare is a non-life insurance contract and is covered by the Insurance Law.
It 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 @ .392%;
must pay for the same to the extent agreed upon under the contract. There is no
concealment on the part of Ernani. He answered the question with good faith. He was not a
1,500,000.00 - on the furniture, etc.
contained in the building Doc. Stamps 3,068.10
above-mentioned@ .490%; F.S.T. 776.89
393,000.00- on the two swimming Prem. Tax 409.05
pools, only (against the TOTAL 45,159.92;
peril of earthquake that the above break-down of premiums shows that plaintiff paid only P393.00 as premium
against earthquake shock (ES); that in all the six insurance policies (Exhs. C, D, E, F, G and
H), the premium against the peril of earthquake shock is the same, that is P393.00 (Exhs. C
shock only) @ 0.100%
and 1-B; 2-B and 3-B-1 and 3-B-2; F-02 and 4-A-1; G-2 and 5-C-1; 6-C-1; issued by AHAC
(Exhs. C, D, E, F, G and H) and in Policy No. 31944 issued by defendant, the shock
116,600.00- other buildings include endorsement provide(sic):
as follows: In consideration of the payment by the insured to the company of the

sum included additional premium the Company agrees, notwithstanding what is stated in the
a) Tilter House- P19,800.00- 0.551% printed conditions of this policy due to the contrary, that this insurance covers loss or
damage to shock to any of the property insured by this Policy occasioned by or through or in
consequence of earthquake (Exhs. 1-D, 2-D, 3-A, 4-B, 5-A, 6-D and 7-C);
b) Power House- P41,000.00- 0.551%
that in Exhibit 7-C the word included above the underlined portion was deleted; that on July
c) House Shed- P55,000.00 -0.540% 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiffs properties
covered by Policy No. 31944 issued by defendant, including the two swimming pools in its
P100,000.00 for furniture, fixtures, Agoo Playa Resort were damaged.[2]
lines air-con and After the earthquake, petitioner advised respondent that it would be making a claim
under its Insurance Policy No. 31944 for damages on its properties. Respondent instructed
petitioner to file a formal claim, then assigned the investigation of the claim to an
operating equipment
independent claims adjuster, Bayne Adjusters and Surveyors, Inc. [3] On July 30, 1990,
respondent, through its adjuster, requested petitioner to submit various documents in
that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU) Policy support of its claim. On August 7, 1990, Bayne Adjusters and Surveyors, Inc., through its
No. 206-4568061-9 (Exh. H) provided that the policy wording and rates in said policy be Vice-President A.R. de Leon,[4] rendered a preliminary report[5] finding extensive damage
copied in the policy to be issued by defendant; that defendant issued Policy No. 31944 to caused by the earthquake to the clubhouse and to the two swimming pools. Mr. de Leon
plaintiff covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a stated that except for the swimming pools, all affected items have no coverage for
total premium of P45,159.92 (Exh. I); that in the computation of the premium, defendants earthquake shocks.[6] On August 11, 1990, petitioner filed its formal demand [7] for settlement
Policy No. 31944 (Exh. I), which is the policy in question, contained on the right-hand upper of the damage to all its properties in the Agoo Playa Resort. On August 23, 1990,
portion of page 7 thereof, the following: respondent denied petitioners claim on the ground that its insurance policy only afforded
earthquake shock coverage to the two swimming pools of the resort. [8] Petitioner and
respondent failed to arrive at a settlement.[9]Thus, on January 24, 1991, petitioner filed a
Rate-Various
Premium - P37,420.60 F/L complaint[10] with the regional trial court of Pasig praying for the payment of the following:
2,061.52 Typhoon 1.) The sum of P5,427,779.00, representing losses sustained by the insured properties, with
interest thereon, as computed under par. 29 of the policy (Annex B) until fully paid;
2.) The sum of P428,842.00 per month, representing continuing losses sustained by plaintiff
1,030.76 EC on account of defendants refusal to pay the claims;
3.) The sum of P500,000.00, by way of exemplary damages;
4.) The sum of P500,000.00 by way of attorneys fees and expenses of litigation;
393.00 ES
5.) Costs.[11]
Respondent filed its Answer with Special and Affirmative Defenses with Compulsory B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANTS RIGHT TO
Counterclaims.[12] RECOVER UNDER DEFENDANT-APPELLEES POLICY (NO. 31944; EXH I) BY LIMITING
ITSELF TO A CONSIDERATION OF THE SAID POLICY ISOLATED FROM THE
CIRCUMSTANCES SURROUNDING ITS ISSUANCE AND THE ACTUATIONS OF THE
On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:
PARTIES AFTER THE EARTHQUAKE OF JULY 16, 1990.
The above schedule clearly shows that plaintiff paid only a premium of P393.00 against the
C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS
peril of earthquake shock, the same premium it paid against earthquake shock only on the
ENTITLED TO THE DAMAGES CLAIMED, WITH INTEREST COMPUTED AT 24% PER
two swimming pools in all the policies issued by AHAC(AIU) (Exhibits C, D, E, F and G).
ANNUM ON CLAIMS ON PROCEEDS OF POLICY.
From this fact the Court must consequently agree with the position of defendant that the
endorsement rider (Exhibit 7-C) means that only the two swimming pools were insured
against earthquake shock. On the other hand, respondent filed a partial appeal, assailing the lower courts failure
to award it attorneys fees and damages on its compulsory counterclaim.
Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, where
the language used in an insurance contract or application is such as to create ambiguity the After review, the appellate court affirmed the decision of the trial court and ruled, thus:
same should be resolved against the party responsible therefor, i.e., the insurance company
which prepared the contract. To the mind of [the] Court, the language used in the policy in
However, after carefully perusing the documentary evidence of both parties, We are not
litigation is clear and unambiguous hence there is no need for interpretation or construction
convinced that the last two (2) insurance contracts (Exhs. G and H), which the plaintiff-
but only application of the provisions therein.
appellant had with AHAC (AIU) and upon which the subject insurance contract with
Philippine Charter Insurance Corporation is said to have been based and copied (Exh. I),
From the above observations the Court finds that only the two (2) swimming pools had covered an extended earthquake shock insurance on all the insured properties. x x x
earthquake shock coverage and were heavily damaged by the earthquake which struck on
July 16, 1990. Defendant having admitted that the damage to the swimming pools was
We also find that the Court a quo was correct in not granting the plaintiff-appellants prayer
appraised by defendants adjuster at P386,000.00, defendant must, by virtue of the contract
for the imposition of interest 24% on the insurance claim and 6% on loss of income allegedly
of insurance, pay plaintiff said amount.
amounting to P4,280,000.00. Since the defendant-appellant has expressed its willingness to
pay the damage caused on the two (2) swimming pools, as the Court a quo and this Court
Because it is the finding of the Court as stated in the immediately preceding paragraph that correctly found it to be liable only, it then cannot be said that it was in default and therefore
defendant is liable only for the damage caused to the two (2) swimming pools and that liable for interest.
defendant has made known to plaintiff its willingness and readiness to settle said liability,
there is no basis for the grant of the other damages prayed for by plaintiff. As to the
Coming to the defendant-appellants prayer for an attorneys fees, long-standing is the rule
counterclaims of defendant, the Court does not agree that the action filed by plaintiff is
that the award thereof is subject to the sound discretion of the court. Thus, if such discretion
baseless and highly speculative since such action is a lawful exercise of the plaintiffs right to
is well-exercised, it will not be disturbed on appeal (Castro et al. v. CA, et al., G.R. No.
come to Court in the honest belief that their Complaint is meritorious. The prayer, therefore,
115838, July 18, 2002). Moreover, being the award thereof an exception rather than a rule, it
of defendant for damages is likewise denied.
is necessary for the court to make findings of facts and law that would bring the case within
the exception and justify the grant of such award (Country Bankers Insurance Corp. v.
WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of Lianga Bay and Community Multi-Purpose Coop., Inc., G.R. No. 136914, January 25, 2002).
THREE HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00) representing damage Therefore, holding that the plaintiff-appellants action is not baseless and highly speculative,
to the two (2) swimming pools, with interest at 6% per annum from the date of the filing of We find that the Court a quo did not err in granting the same.
the Complaint until defendants obligation to plaintiff is fully paid. No pronouncement as to
costs.[13]
WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and
judgment of the Trial Court hereby AFFIRMED in toto. No costs.[15]
Petitioners Motion for Reconsideration was denied. Thus, petitioner filed an appeal
with the Court of Appeals based on the following assigned errors:[14]
Petitioner filed the present petition raising the following issues:[16]
A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY

A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER
RECOVER FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS FIRE
RESPONDENTS INSURANCE POLICY NO. 31944, ONLY THE TWO (2)
POLICY NO. 31944, CONSIDERING ITS PROVISIONS, THE CIRCUMSTANCES
SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVERED
SURROUNDING THE ISSUANCE OF SAID POLICY AND THE ACTUATIONS OF THE
THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE
PARTIES SUBSEQUENT TO THE EARTHQUAKE OF JULY 16, 1990.
SHOCK.
B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONERS requested petitioner to submit the necessary documents for its building claims and other
PRAYER FOR DAMAGES WITH INTEREST THEREON AT THE RATE repair costs. Thus, under the doctrine of equitable estoppel, it cannot deny that the
CLAIMED, ATTORNEYS FEES AND EXPENSES OF LITIGATION. insurance policy it issued to petitioner covered all of the properties within the resort.
Petitioner contends: Eleventh, that it is proper for it to avail of a petition for review by certiorari under Rule
45 of the Revised Rules of Court as its remedy, and there is no need for calibration of the
evidence in order to establish the facts upon which this petition is based.
First, that the policys earthquake shock endorsement clearly covers all of the
properties insured and not only the swimming pools. It used the words any property insured
by this policy, and it should be interpreted as all inclusive. On the other hand, respondent made the following counter arguments: [18]
Second, the unqualified and unrestricted nature of the earthquake shock First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly
endorsement is confirmed in the body of the insurance policy itself, which states that it is extended coverage against earthquake shock to petitioners insured properties other than on
[s]ubject to: Other Insurance Clause, Typhoon Endorsement, Earthquake Shock Endt., the two swimming pools. Petitioner admitted that from 1984 to 1988, only the two swimming
Extended Coverage Endt., FEA Warranty & Annual Payment Agreement On Long Term pools were insured against earthquake shock. From 1988 until 1990, the provisions in its
Policies.[17] policy were practically identical to its earlier policies, and there was no increase in the
premium paid. AHAC-AIU, in a letter[19]by its representative Manuel C. Quijano, categorically
stated that its previous policy, from which respondents policy was copied, covered only
Third, that the qualification referring to the two swimming pools had already been
earthquake shock for the two swimming pools.
deleted in the earthquake shock endorsement.
Second, petitioners payment of additional premium in the amount of P393.00 shows

Fourth, it is unbelievable for respondent to claim that it only made an inadvertent
that the policy only covered earthquake shock damage on the two swimming pools. The
omission when it deleted the said qualification.
amount was the same amount paid by petitioner for earthquake shock coverage on the two
swimming pools from 1990-1991. No additional premium was paid to warrant coverage of
Fifth, that the earthquake shock endorsement rider should be given precedence over the other properties in the resort.
the wording of the insurance policy, because the rider is the more deliberate expression of
the agreement of the contracting parties.
Third, the deletion of the phrase pertaining to the limitation of the earthquake shock
endorsement to the two swimming pools in the policy schedule did not expand the
Sixth, that in their previous insurance policies, limits were placed on the earthquake shock coverage to all of petitioners properties. As per its agreement with
endorsements/warranties enumerated at the time of issue. petitioner, respondent copied its policy from the AHAC-AIU policy provided by petitioner.
Although the first five policies contained the said qualification in their riders title, in the last
Seventh, any ambiguity in the earthquake shock endorsement should be resolved in two policies, this qualification in the title was deleted. AHAC-AIU, through Mr. J. Baranda III,
favor of petitioner and against respondent. It was respondent which caused the ambiguity stated that such deletion was a mere inadvertence. This inadvertence did not make the
when it made the policy in issue. policy incomplete, nor did it broaden the scope of the endorsement whose descriptive title
was merely enumerated. Any ambiguity in the policy can be easily resolved by looking at the
other provisions, specially the enumeration of the items insured, where only the two
Eighth, the qualification of the endorsement limiting the earthquake shock swimming pools were noted as covered for earthquake shock damage.
endorsement should be interpreted as a caveat on the standard fire insurance policy, such
as to remove the two swimming pools from the coverage for the risk of fire. It should not be
used to limit the respondents liability for earthquake shock to the two swimming pools only. Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988,
the phrase Item 5 P393,000.00 on the two swimming pools only (against the peril of
earthquake shock only) meant that only the swimming pools were insured for earthquake
Ninth, there is no basis for the appellate court to hold that the additional premium was damage. The same phrase is used in toto in the policies from 1989 to 1990, the only
not paid under the extended coverage. The premium for the earthquake shock coverage difference being the designation of the two swimming pools as Item 3.
was already included in the premium paid for the policy.
Fifth, in order for the earthquake shock endorsement to be effective, premiums must
Tenth, the parties contemporaneous and subsequent acts show that they intended to be paid for all the properties covered. In all of its seven insurance policies, petitioner only
extend earthquake shock coverage to all insured properties. When it secured an insurance paid P393.00 as premium for coverage of the swimming pools against earthquake shock. No
policy from respondent, petitioner told respondent that it wanted an exact replica of its latest other premium was paid for earthquake shock coverage on the other properties. In addition,
insurance policy from American Home Assurance Company (AHAC-AIU), which covered all the use of the qualifier ANY instead of ALL to describe the property covered was done
the resorts properties for earthquake shock damage and respondent agreed. After the July deliberately to enable the parties to specify the properties included for earthquake coverage.
16, 1990 earthquake, respondent assured petitioner that it was covered for earthquake
shock. Respondents insurance adjuster, Bayne Adjusters and Surveyors, Inc., likewise
Sixth, petitioner did not inform respondent of its requirement that all of its properties 6. This insurance does not cover any loss or damage occasioned by or through or in
must be included in the earthquake shock coverage. Petitioners own evidence shows that it consequence, directly or indirectly of any of the following occurrences, namely:--
only required respondent to follow the exact provisions of its previous policy from AHAC-
AIU. Respondent complied with this requirement. Respondents only deviation from the
(a) Earthquake, volcanic eruption or other convulsion of nature. [23]
agreement was when it modified the provisions regarding the replacement cost
endorsement. With regard to the issue under litigation, the riders of the old policy and the
policy in issue are identical. Fourth, the rider attached to the policy, titled Extended Coverage Endorsement (To
Include the Perils of Explosion, Aircraft, Vehicle and Smoke), stated, viz:
Seventh, respondent did not do any act or give any assurance to petitioner as would
estop it from maintaining that only the two swimming pools were covered for earthquake ANNUAL PAYMENT AGREEMENT ON
shock. The adjusters letter notifying petitioner to present certain documents for its building
claims and repair costs was given to petitioner before the adjuster knew the full coverage of LONG TERM POLICIES
its policy.
THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS

Petitioner anchors its claims on AHAC-AIUs inadvertent deletion of the phrase Item 5 INSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A DISCOUNT
Only after the descriptive name or title of the Earthquake Shock Endorsement. However, the OF 5% OR 7 % OF THE NET PREMIUM x x x POLICY HEREBY UNDERTAKES TO
words of the policy reflect the parties clear intention to limit earthquake shock coverage to CONTINUE THE INSURANCE UNDER THE ABOVE NAMED x x x AND TO PAY THE
the two swimming pools. PREMIUM.
Before petitioner accepted the policy, it had the opportunity to read its conditions. It did Earthquake Endorsement
not object to any deficiency nor did it institute any action to reform the policy. The policy
binds the petitioner.
In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . . . .
. . . . . . additional premium the Company agrees, notwithstanding what is stated in the
Eighth, there is no basis for petitioner to claim damages, attorneys fees and litigation printed conditions of this Policy to the contrary, that this insurance covers loss or damage
expenses. Since respondent was willing and able to pay for the damage caused on the two (including loss or damage by fire) to any of the property insured by this Policy occasioned by
swimming pools, it cannot be considered to be in default, and therefore, it is not liable for or through or in consequence of Earthquake.
interest. We hold that the petition is devoid of merit.
Provided always that all the conditions of this Policy shall apply (except in so far as they may
In Insurance Policy No. 31944, four key items are important in the resolution of the be hereby expressly varied) and that any reference therein to loss or damage by fire should
case at bar. be deemed to apply also to loss or damage occasioned by or through or in consequence of
Earthquake.[24]
First, in the designation of location of risk, only the two swimming pools were
specified as included, viz: Petitioner contends that pursuant to this rider, no qualifications were placed on the
scope of the earthquake shock coverage. Thus, the policy extended earthquake shock
ITEM 3 393,000.00 On the two (2) swimming pools only (against the peril of earthquake coverage to all of the insured properties.
shock only)[20]
It is basic that all the provisions of the insurance policy should be examined and
Second, under the breakdown for premium payments,[21] it was stated that: interpreted in consonance with each other.[25] All its parts are reflective of the true intent of
the parties. The policy cannot be construed piecemeal. Certain stipulations cannot be
segregated and then made to control; neither do particular words or phrases necessarily
PREMIUM RECAPITULATION
determine its character. Petitioner cannot focus on the earthquake shock endorsement to
the exclusion of the other provisions. All the provisions and riders, taken and interpreted
ITEM NOS. AMOUNT RATES PREMIUM x x x together, indubitably show the intention of the parties to extend earthquake shock coverage
to the two swimming pools only.
3 393,000.00 0.100%-E/S 393.00[22]
Third, Policy Condition No. 6 stated:

A careful examination of the premium recapitulation will show that it is the clear intent that the earthquake shock coverage must extend to all properties of Agoo Playa
of the parties to extend earthquake shock coverage only to the two swimming pools. Section Resort in La Union?
2(1) of the Insurance Code defines a contract of insurance as an agreement whereby one A. No, sir. We did not make any written instruction, although we made an oral
undertakes for a consideration to indemnify another against loss, damage or liability arising instruction to that effect of extending the coverage on (sic) the other properties of
from an unknown or contingent event. Thus, an insurance contract exists where the the company.
following elements concur: Q. And that instruction, according to you, was very important because in April
1987 there was an earthquake tremor in La Union?
A. Yes, sir.
1. The insured has an insurable interest; Q. And you wanted to protect all your properties against similar tremors in the
2. The insured is subject to a risk of loss by the happening of the designated peril; [future], is that correct?
3. The insurer assumes the risk; A. Yes, sir.
4. Such assumption of risk is part of a general scheme to distribute actual losses Q. Now, after this policy was delivered to you did you bother to check the
among a large group of persons bearing a similar risk; and provisions with respect to your instructions that all properties must be covered
5. In consideration of the insurer's promise, the insured pays a premium. again by earthquake shock endorsement?
A. Are you referring to the insurance policy issued by American Home Assurance
Company marked Exhibit G?
An insurance premium is the consideration paid an insurer for undertaking to
Atty. Mejia: Yes.
indemnify the insured against a specified peril. [27] In fire, casualty, and marine insurance, the
Witness:
premium payable becomes a debt as soon as the risk attaches.[28] In the subject policy, no A. I examined the policy and seeing that the warranty on the earthquake shock
premium payments were made with regard to earthquake shock coverage, except on the endorsement has no more limitation referring to the two swimming pools only, I
two swimming pools. There is no mention of any premium payable for the other resort was contented already that the previous limitation pertaining to the two swimming
properties with regard to earthquake shock. This is consistent with the history of petitioners pools was already removed.
previous insurance policies from AHAC-AIU. As borne out by petitioners witnesses:
Petitioner also cited and relies on the attachment of the phrase Subject to: Other
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991 Insurance Clause, Typhoon Endorsement, Earthquake Shock Endorsement, Extended
Coverage Endorsement, FEA Warranty & Annual Payment Agreement on Long Term
pp. 12-13 Policies[29] to the insurance policy as proof of the intent of the parties to extend the coverage
for earthquake shock. However, this phrase is merely an enumeration of the descriptive titles
of the riders, clauses, warranties or endorsements to which the policy is subject, as required
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance under Section 50, paragraph 2 of the Insurance Code.
policy during the period from March 4, 1984 to March 4, 1985 the coverage on
earthquake shock was limited to the two swimming pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically shown in the We also hold that no significance can be placed on the deletion of the qualification
warranty, there is a provision here that it was only for item 5. limiting the coverage to the two swimming pools. The earthquake shock endorsement
Q. More specifically Item 5 states the amount of P393,000.00 corresponding to cannot stand alone. As explained by the testimony of Juan Baranda III, underwriter for
the two swimming pools only? AHAC-AIU:
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 23-26 DIRECT EXAMINATION OF JUAN BARANDA III[30]
Q. For the period from March 14, 1988 up to March 14, 1989, did you personally
arrange for the procurement of this policy? TSN, August 11, 1992 pp. 9-12
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes. Atty. Mejia:
Q. Is Forte Insurance Agency a department or division of your company?
A. No, sir. They are our insurance agency.
We respectfully manifest that the same exhibits C to H inclusive have been
Q. And they are independent of your company insofar as operations are
previously marked by counsel for defendant as Exhibit[s] 1-6 inclusive.
concerned?
A. Yes, sir, they are separate entity. Did you have occasion to review of (sic) these six (6) policies issued by
Q. But insofar as the procurement of the insurance policy is concerned they are of your company [in favor] of Agoo Playa Resort?
course subject to your instruction, is that not correct?
A. Yes, sir. The final action is still with us although they can recommend what WITNESS:
insurance to take.
Q. In the procurement of the insurance police (sic) from March 14, 1988 to March
14, 1989, did you give written instruction to Forte Insurance Agency advising it Yes[,] I remember having gone over these policies at one point of time, sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to moment I see this, the thing that comes to my mind is either insuring a
H respectively carries an earthquake shock endorsement[?] My question swimming pool, foundations, they are normally affected by earthquake but
to you is, on the basis on (sic) the wordings indicated in Exhibits C to H not by fire, sir.
respectively what was the extent of the coverage [against] the peril of
earthquake shock as provided for in each of the six (6) policies? x x x
DIRECT EXAMINATION OF JUAN BARANDA III
WITNESS:
TSN, August 11, 1992
The extent of the coverage is only up to the two (2) swimming pools, sir.
pp. 23-25
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?
Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only Exhibits C,
D, E and F inclusive [remained] its coverage against earthquake shock to
A. Yes, sir. two (2) swimming pools only but that Exhibits G and H respectively
entend the coverage against earthquake shock to all the properties
indicated in the respective schedules attached to said policies, what can
ATTY. MEJIA:
you say about that testimony of plaintiffs witness?
What is your basis for stating that the coverage against earthquake shock
WITNESS:
as provided for in each of the six (6) policies extend to the two (2)
swimming pools only?
As I have mentioned earlier, earthquake shock cannot stand alone without
the other half of it. I assure you that this one covers the two swimming
WITNESS:
pools with respect to earthquake shock endorsement. Based on it, if we
are going to look at the premium there has been no change with respect
Because it says here in the policies, in the enumeration Earthquake to the rates. Everytime (sic) there is a renewal if the intention of the
Shock Endorsement, in the Clauses and Warranties: Item 5 only insurer was to include the earthquake shock, I think there is a substantial
(Earthquake Shock Endorsement), sir. increase in the premium. We are not only going to consider the two (2)
swimming pools of the other as stated in the policy. As I see, there is no
ATTY. MEJIA: increase in the amount of the premium. I must say that the coverage was
not broaden (sic) to include the other items.
Witness referring to Exhibit C-1, your Honor.

COURT:
WITNESS:
They are the same, the premium rates?
We do not normally cover earthquake shock endorsement on stand alone

basis. For swimming pools we do cover earthquake shock. For building WITNESS:
we covered it for full earthquake coverage which includes earthquake
shock They are the same in the sence (sic), in the amount of the coverage. If
you are going to do some computation based on the rates you will arrive
COURT: at the same premiums, your Honor.
As far as earthquake shock endorsement you do not have a specific CROSS-EXAMINATION OF JUAN BARANDA III
coverage for other things other than swimming pool? You are covering
building? They are covered by a general insurance? TSN, September 7, 1992
WITNESS: pp. 4-6
Earthquake shock coverage could not stand alone. If we are covering ATTY. ANDRES:
building or another we can issue earthquake shock solely but that the
Would you as a matter of practice [insure] swimming pools for fire Q. Just to be clear about this particular answer of yours Mr. Witness, what
insurance? exactly did you tell Atty. Omlas (sic) to copy from Exhibit H for purposes of
procuring the policy from Philippine Charter Insurance Corporation?
WITNESS:
A. I told him that the insurance that they will have to get will have the same
provisions as this American Home Insurance Policy No. 206-4568061-9.
No, we dont, sir.
Q. You are referring to Exhibit H of course?

Q. That is why the phrase earthquake shock to the two (2) swimming pools only
was placed, is it not?
A. Yes, sir, to Exhibit H.
A. Yes, sir.
Q. So, all the provisions here will be the same except that of the premium rates?
ATTY. ANDRES:
A. Yes, sir. He assured me that with regards to the insurance premium rates that
they will be charging will be limited to this one. I (sic) can even be lesser.
Will you not also agree with me that these exhibits, Exhibits G and H
which you have pointed to during your direct-examination, the phrase Item
no. 5 only meaning to (sic) the two (2) swimming pools was deleted from CROSS EXAMINATION OF LEOPOLDO MANTOHAC
the policies issued by AIU, is it not?
TSN, January 14, 1992
xxx
pp. 12-14
ATTY. ANDRES:
Atty. Mejia:
As an insurance executive will you not attach any significance to the
deletion of the qualifying phrase for the policies?
Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the
provisions and scope of coverage of Exhibits I and H sometime in the
WITNESS: third week of March, 1990 or thereabout?
My answer to that would be, the deletion of that particular phrase is A. Yes, sir, about that time.
inadvertent. Being a company underwriter, we do not cover. . it was
inadvertent because of the previous policies that we have issued with no
Q. And at that time did you notice any discrepancy or difference between the
specific attachments, premium rates and so on. It was inadvertent, sir.
policy wordings as well as scope of coverage of Exhibits I and H
respectively?
The Court also rejects petitioners contention that respondents contemporaneous and
subsequent acts to the issuance of the insurance policy falsely gave the petitioner
A. No, sir, I did not discover any difference inasmuch (sic) as I was assured
assurance that the coverage of the earthquake shock endorsement included all its
already that the policy wordings and rates were copied from the insurance
properties in the resort. Respondent only insured the properties as intended by the
policy I sent them but it was only when this case erupted that we
petitioner. Petitioners own witness testified to this agreement, viz:
discovered some discrepancies.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC

Q. With respect to the items declared for insurance coverage did you notice any
discrepancy at any time between those indicated in Exhibit I and those
TSN, January 14, 1992 indicated in Exhibit H respectively?
pp. 4-5 A. With regard to the wordings I did not notice any difference because it was
exactly the same P393,000.00 on the two (2) swimming pools only
against the peril of earthquake shock which I understood before that this
provision will have to be placed here because this particular provision
under the peril of earthquake shock only is requested because this is an In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner
insurance policy and therefore cannot be insured against fire, so this has cannot rely on the general rule that insurance contracts are contracts of adhesion which
to be placed. should be liberally construed in favor of the insured and strictly against the insurer company
which usually prepares it.[31] A contract of adhesion is one wherein a party, usually a
corporation, prepares the stipulations in the contract, while the other party merely affixes his
The verbal assurances allegedly given by respondents representative Atty. Umlas
signature or his "adhesion" thereto. Through the years, the courts have held that in these
were not proved. Atty. Umlas categorically denied having given such assurances.
type of contracts, the parties do not bargain on equal footing, the weaker party's participation
being reduced to the alternative to take it or leave it. Thus, these contracts are viewed as
Finally, petitioner puts much stress on the letter of respondents independent claims traps for the weaker party whom the courts of justice must protect.[32] Consequently, any
adjuster, Bayne Adjusters and Surveyors, Inc. But as testified to by the representative of ambiguity therein is resolved against the insurer, or construed liberally in favor of the
Bayne Adjusters and Surveyors, Inc., respondent never meant to lead petitioner to believe insured.[33]
that the endorsement for earthquake shock covered properties other than the two swimming
pools, viz:
The case law will show that this Court will only rule out blind adherence to terms
where facts and circumstances will show that they are basically one-sided.[34] Thus, we have
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne called on lower courts to remain careful in scrutinizing the factual circumstances behind
each case to determine the efficacy of the claims of contending parties. In Development
Adjusters and Surveyors, Inc.) Bank of the Philippines v. National Merchandising Corporation, et al.,[35] the parties,
who were acute businessmen of experience, were presumed to have assented to the
assailed documents with full knowledge.
TSN, January 26, 1993
We cannot apply the general rule on contracts of adhesion to the case at bar.
pp. 22-26 Petitioner cannot claim it did not know the provisions of the policy. From the inception of the
policy, petitioner had required the respondent to copy verbatim the provisions and terms of
Q. Do you recall the circumstances that led to your discussion regarding the its latest insurance policy from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct
extent of coverage of the policy issued by Philippine Charter Insurance participant in securing the insurance policy of petitioner, is reflective of petitioners
Corporation? knowledge, viz:
A. I remember that when I returned to the office after the inspection, I got a DIRECT EXAMINATION OF LEOPOLDO MANTOHAC[36]
photocopy of the insurance coverage policy and it was indicated under
Item 3 specifically that the coverage is only for earthquake shock. Then, I TSN, September 23, 1991
remember I had a talk with Atty. Umlas (sic), and I relayed to him what I
had found out in the policy and he confirmed to me indeed only Item 3
which were the two swimming pools have coverage for earthquake shock. pp. 20-21
xxx Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for
those facilities in Agoo Playa?
Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that
except for the swimming pools all affected items have no coverage for A. Yes, sir. I told him that I will agree to that renewal of this policy under
earthquake shock? Philippine Charter Insurance Corporation as long as it will follow the same
or exact provisions of the previous insurance policy we had with American
Home Assurance Corporation.
xxx
Q. Did you take any step Mr. Witness to ensure that the provisions which you
A. I based my statement on my findings, because upon my examination of the wanted in the American Home Insurance policy are to be incorporated in
policy I found out that under Item 3 it was specific on the wordings that on the PCIC policy?
the two swimming pools only, then enclosed in parenthesis (against the
peril[s] of earthquake shock only), and secondly, when I examined the
summary of premium payment only Item 3 which refers to the swimming A. Yes, sir.
pools have a computation for premium payment for earthquake shock and
all the other items have no computation for payment of premiums. Q. What steps did you take?
A. When I examined the policy of the Philippine Charter Insurance Corporation I G.R. No. 166245 April 9, 2008
specifically told him that the policy and wordings shall be copied from the
AIU Policy No. 206-4568061-9. ETERNAL GARDENS MEMORIAL PARK CORPORATION vs. THE PHILIPPINE
AMERICAN LIFE INSURANCE COMPANY
Respondent, in compliance with the condition set by the petitioner, copied AIU Policy FACTS: Philamlife) entered into an agreement denominated as Creditor Group Life Policy
No. 206-4568061-9 in drafting its Insurance Policy No. 31944. It is true that there was No. P-19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the
variance in some terms, specifically in the replacement cost endorsement, but the principal policy, the clients of Eternal who purchased burial lots from it on installment basis would be
provisions of the policy remained essentially similar to AHAC-AIUs policy. Consequently, we insured by Philamlife. The amount of insurance coverage depended upon the existing
cannot apply the "fine print" or "contract of adhesion" rule in this case as the parties intent to balance of the purchased burial lots.
limit the coverage of the policy to the two swimming pools only is not ambiguous.[37]
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
IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal
for certiorari is dismissed. No costs. SO ORDERED. 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
Facts: Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had its business" was a certain John Chuang. His balance of payments was PhP 100,000. On
properties in said resort insured originally with the American Home Assurance Company August 2, 1984, Chuang died.
(AHAC). In the first 4 policies issued, the risks of loss from earthquake shock was extended
only to petitioners two swimming pools. Gulf Resorts agreed to insure with Phil Charter the Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance
properties covered by the AHAC policy provided that the policy wording and rates in said claim for Chuang's death.
policy be copied in the policy to be issued by Phil Charter. Phil Charter issued Policy No. After more than a year, Philamlife had not furnished Eternal with any reply to the latter's
31944 to Gulf Resorts covering the period of March 14, 1990 to March 14, 1991 for insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim
P10,700,600.00 for a total premium of P45,159.92. the break-down of premiums shows that for PhP 100,000 on April 25, 1986.8
Gulf Resorts paid only P393.00 as premium against earthquake shock (ES). In Policy No.
31944 issued by defendant, the shock endorsement provided that In consideration of the In response to Eternal's demand, Philamlife denied Eternal's insurance claim in a letter
payment by the insured to the company of the sum included additional premium the dated May 20, 1986. Consequently, Eternal filed a case before the Makati City Regional Trial
Company agrees, notwithstanding what is stated in the printedconditions of this policy due to Court (RTC).
the contrary, that this insurance covers loss or damage to shock to any of the property
insured by this Policy occasioned by or through or in consequence of earthquake (Exhs. "1- DECISION OF LOWER COURTS:
D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C"). In Exhibit "7-C" the word "included" above the (1) RTC : in favor of Eternal. due to Philamlife's inaction from the submission of the
underlined portion was deleted. On July 16, 1990 an earthquake struck Central Luzon and requirements of the group insurance on December 29, 1982 to Chuang's death on August 2,
Northern Luzon and plaintiffs properties covered by Policy No. 31944 issued by defendant, 1984, as well as Philamlife's acceptance of the premiums during the same period, Philamlife
including the two swimming pools in its Agoo Playa Resort were damaged. 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.
Petitioner advised respondent that it would be making a claim under its Insurance Policy (2) CA : in favor of Philamlife. there being no application form, Chuang was not covered by
31944 for damages on its properties. Respondent denied petitioners claim on the ground Philamlife's insurance.
that its insurance policy only afforded earthquake shock coverage to the two swimming
pools of the resort. The trial court ruled in favor of respondent. In its ruling, ISSUE: May the inaction of the insurer on the insurance application be considered as
the schedule clearly shows that petitioner paid only a premium of P393.00 against the peril approval of the application?
of earthquake shock, the same premium it had paid against earthquake shock only on the
two swimming pools in all the policies issued by AHAC. RULING: YES
Issue: Whether or not the policy covers only the two swimming pools owned by Gulf Resorts As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor
and does not extend to all properties damaged therein Group Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:
Held: YES. All the provisions and riders taken and interpreted together, indubitably show the EFFECTIVE DATE OF BENEFIT.
intention of the parties to extend earthquake shock coverage to the two swimming pools
only. An insurance premium is the consideration paid an insurer for undertaking to indemnify The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a
the insured against a specified peril. In fire,casualty and marine insurance, the premium loan with the Assured. However, there shall be no insurance if the application of the Lot
becomes a debt as soon as the risk attaches. In the subject policy, no premium payments Purchaser is not approved by the Company.
were made with regard to earthquake shock coverage except on the two swimming pools.
There is no mention of any premium payable for the other resort properties with regard to An examination of the above provision would show ambiguity between its two sentences.
earthquake shock. This is consistent with the history of petitioners insurance policies with The first sentence appears to state that the insurance coverage of the clients of Eternal
AHAC. 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 Furthermore, the provisional receipt provides for conditions before a contract is deemed
construed liberally in favor of the insured and strictly against the insurer in order to final. 1. Medical examination. 2. Approval by head office of the application. 3. the company
safeguard the latter's interest. communicates approval to the applicant.
The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as In the case, there was no letter of notification. No evidence of knowledge. Judgment
received, states that the insurance forms for the attached list of burial lot buyers were reversed. Php6000 with interest is to be returned.
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 G.R. No. L-31845 April 30, 1979
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.
GREAT PACIFIC LIFE ASSURANCE COMPANY vs. COURT OF APPEALS
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 G.R. No. L-31878 April 30, 1979
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 LAPULAPU D. MONDRAGON vs. HON. COURT OF APPEALS and NGO HING
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 The two above-entitled cases were ordered consolidated by the Resolution of this Court
cannot be interpreted as a termination of the insurance contract. The termination of the dated April 29, 1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases seek
insurance contract by the insurer must be explicit and unambiguous. similar relief, through these petitions for certiorari by way of appeal, from the amended
decision of respondent Court of Appeals which affirmed in toto the decision of the Court of
ENRIQUEZ VS. SUN LIFE ASSURANCE CO. [GR NO. 15895; NOVEMBER 29, 1920] First Instance of Cebu, ordering "the defendants (herein petitioners Great Pacific Ligfe
Assurance Company and Mondragon) jointly and severally to pay plaintiff (herein private
Facts: Plaintiff is estate administrator for late Joaquin Herrer. Herrer has respondent Ngo Hing) the amount of P50,000.00 with interest at 6% from the date of the
pending application with defendant Sun Life Assurance Co (sun Life) evidenced by a filing of the complaint, and the sum of P1,077.75, without interest.
provisional receipt. The provisional receipt reads payment of Php6, 000 for
life annuity received 26 September 1917. The application was received by Sun Life head It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the
office a month after. 04 December 1917, the policy was issued in Montreal. A petition for
Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a twenty-
withdrawal of application was filed by Herrers lawyer 18 December 1917. Herrer died 20
year endownment policy in the amount of P50,000.00 on the life of his one-year old
December. A letter from Sun Life was received 21 December stating policy was issued and
reminds the party of anotification of acceptance of the application dated 26 November. daughter Helen Go. Said respondent supplied the essential data which petitioner Lapulapu
Plaintiff testified that he had found no letter of notification from the Sun Life. Lower Court D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding
decides in favor of respondent. Appeal was taken. form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote the data on the
application form which was signed by private respondent Ngo Hing. The latter paid the
Issue: Whether or not the there has been a valid offer and acceptance?? annual premuim the sum of P1,077.75 going over to the Company, but he reatined the
amount of P1,317.00 as his commission for being a duly authorized agebt of Pacific Life.
Held: None. The Civil Code provides that the acceptance made by letter binds the person Upon the payment of the insurance premuim, the binding deposit receipt (Exhibit E) was
making the offer only from the date it has came to its knowledge. The contract of issued to private respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at the
life annuity was not perfected. There was no satisfactory evidence that the application bottom of the back page of the application form his strong recommendation for the approval
acceptance came to the knowledge of Herrer. of the insurance application. Then on April 30, 1957, Mondragon received a letter from
Pacific Life disapproving the insurance application (Exhibit 3-M). The letter stated that the
Article 16 of the civil code provides that any deficiency in the special law shall be supplied by said life insurance application for 20-year endowment plan is not available for minors below
the Code. The Insurance Code does not provide for law on the principle of acceptance, thus seven years old, but Pacific Life can consider the same under the Juvenile Triple Action
the Civil Code shall govern. Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be
sent to the company.
Article 1262 provides that consent is shown by concurrence of offer and acceptance with the
thing and the consideration to the contract. The acceptance by letter shall not bind the
person making the offer except from the time It came to his knowledge. The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated
by petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957,
American Courts held that acceptance of offer not actually communicated does Mondragon wrote back Pacific Life again strongly recommending the approval of the 20-year
not complete the contract but the mailing of the acceptance. Locus Poenitrntiae is ended endowment insurance plan to children, pointing out that since 1954 the customers,
when acceptance has passed beyond partys control. especially the Chinese, were asking for such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza with Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional
complication of bronchopneumonia. Thereupon, private respondent sought the payment of and does not insure outright. As held by this Court, where an agreement is made between
the proceeds of the insurance, but having failed in his effort, he filed the action for the the applicant and the agent, no liability shall attach until the principal approves the risk and a
recovery of the same before the Court of First Instance of Cebu, which rendered the adverse receipt is given by the agent. The acceptance is merely conditional and is subordinated to
decision as earlier refered to against both petitioners. the act of the company in approving or rejecting the application. Thus, in life insurance, a
"binding slip" or "binding receipt" does not insure by itself (De Lim vs. Sun Life Assurance
Company of Canada, 41 Phil. 264).
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E)
constituted a temporary contract of the life insurance in question; and (2) whether private
respondent Ngo Hing concealed the state of health and physical condition of Helen Go, It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit
which rendered void the aforesaid Exhibit E. 3-M), Pacific Life disapproved the insurance application in question on the ground that it is
not offering the twenty-year endowment insurance policy to children less than seven years
of age. What it offered instead is another plan known as the Juvenile Triple Action, which
1. At the back of Exhibit E are condition precedents required before a deposit is considered
private respondent failed to accept. In the absence of a meeting of the minds between
a BINDING RECEIPT. These conditions state that:
petitioner Pacific Life and private respondent Ngo Hing over the 20-year endowment life
insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and
A. If the Company or its agent, shan have received the premium deposit ... and the with the non-compliance of the abovequoted conditions stated in the disputed binding
insurance application, ON or PRIOR to the date of medical examination ... said deposit receipt, there could have been no insurance contract duly perfected between thenl
insurance shan be in force and in effect from the date of such medical examination, Accordingly, the deposit paid by private respondent shall have to be refunded by Pacific Life.
for such period as is covered by the deposit ..., PROVIDED the company shall be
satisfied that on said date the applicant was insurable on standard rates under its
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of
rule for the amount of insurance and the kind of policy requested in the application.
insurance, like other contracts, must be assented to by both parties either in person or by
their agents ... The contract, to be binding from the date of the application, must have been
D. If the Company does not accept the application on standard rate for the amount of a completed contract, one that leaves nothing to be dione, nothing to be completed, nothing
insurance and/or the kind of policy requested in the application but issue, or offers to to be passed upon, or determined, before it shall take effect. There can be no contract of
issue a policy for a different plan and/or amount ..., the insurance shall not be in force insurance unless the minds of the parties have met in agreement."
and in effect until the applicant shall have accepted the policy as issued or offered by
the Company and shall have paid the full premium thereof. If the applicant does not
We are not impressed with private respondent's contention that failure of petitioner
accept the policy, the deposit shall be refunded.
Mondragon to communicate to him the rejection of the insurance application would not have
any adverse effect on the allegedly perfected temporary contract (Respondent's Brief, pp.
E. If the applicant shall not have been insurable under Condition A above, and the 13-14). In this first place, there was no contract perfected between the parties who had no
Company declines to approve the application the insurance applied for shall not have meeting of their minds. Private respondet, being an authorized insurance agent of Pacific
been in force at any time and the sum paid be returned to the applicant upon the Life at Cebu branch office, is indubitably aware that said company does not offer the life
surrender of this receipt. (Emphasis Ours). insurance applied for. When he filed the insurance application in dispute, private respondent
was, therefore, only taking the chance that Pacific Life will approve the recommendation of
The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is Mondragon for the acceptance and approval of the application in question along with his
intended to be merely a provisional or temporary insurance contract and only upon proposal that the insurance company starts to offer the 20-year endowment insurance plan
compliance of the following conditions: (1) that the company shall be satisfied that the for children less than seven years. Nonetheless, the record discloses that Pacific Life had
applicant was insurable on standard rates; (2) that if the company does not accept the rejected the proposal and recommendation. Secondly, having an insurable interest on the
application and offers to issue a policy for a different plan, the insurance contract shall not life of his one-year old daughter, aside from being an insurance agent and an offense
be binding until the applicant accepts the policy offered; otherwise, the deposit shall be associate of petitioner Mondragon, private respondent Ngo Hing must have known and
reftmded; and (3) that if the applicant is not ble according to the standard rates, and the followed the progress on the processing of such application and could not pretend ignorance
company disapproves the application, the insurance applied for shall not be in force at any of the Company's rejection of the 20-year endowment life insurance application.
time, and the premium paid shall be returned to the applicant.
At this juncture, We find it fit to quote with approval, the very apt observation of then
Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is Appellate Associate Justice Ruperto G. Martin who later came up to this Court, from his
merely an acknowledgment, on behalf of the company, that the latter's branch office had dissenting opinion to the amended decision of the respondent court which completely
received from the applicant the insurance premium and had accepted the application subject reversed the original decision, the following:
for processing by the insurance company; and that the latter will either approve or reject the
same on the basis of whether or not the applicant is "insurable on standard rates." Since Of course, there is the insinuation that neither the memorandum of rejection
petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing, the (Exhibit 3-M) nor the reply thereto of appellant Mondragon reiterating the desire
binding deposit receipt in question had never become in force at any time. for applicant's father to have the application considered as one for a 20-year
endowment plan was ever duly communicated to Ngo; Hing, father of the minor aforesaid insurance company to reimburse the amount of P1,077.75, without interest, to
applicant. I am not quite conninced that this was so. Ngo Hing, as father of the private respondent, Ngo Hing. Costs against private respondent. SO ORDERED.
applicant herself, was precisely the "underwriter who wrote this case" (Exhibit H-
1). The unchallenged statement of appellant Mondragon in his letter of May 6,
GREAT PACIFIC V CA G.R. NO. L-31845 APRIL 30, 1979
1957) (Exhibit 4-M), specifically admits that said Ngo Hing was "our associate" J. De Castro
and that it was the latter who "insisted that the plan be placed on the 20-year
endowment plan." Under these circumstances, it is inconceivable that the Facts: Ngo Hing filed an application with the Great Pacific for a twenty-year endowment
progress in the processing of the application was not brought home to his policy in the amount of P50,000.00 on the life of his one-year old daughter Helen. He
knowledge. He must have been duly apprised of the rejection of the application for supplied the essential data which petitioner Mondragon, the Branch Manager, wrote on
a 20-year endowment plan otherwise Mondragon would not have asserted that it the form. The latter paid the annual premium the sum of P1,077.75 going over to the
was Ngo Hing himself who insisted on the application as originally filed, thereby Company, but he retained the amount of P1,317.00 as his commission for being a
implictly declining the offer to consider the application under the Juvenile Triple duly authorized agent of Pacific Life.
Action Plan. Besides, the associate of Mondragon that he was, Ngo Hing should Upon the payment of the insurance premium, the binding deposit receipt was issued Ngo
only be presumed to know what kind of policies are available in the company for Hing. Likewise, petitioner Mondragon handwrote at the bottom of the back page of
minors below 7 years old. What he and Mondragon were apparently trying to do in the application form his strong recommendation for the approval of the
the premises was merely to prod the company into going into the business of insurance application. Then Mondragon received a letter from Pacific Life disapproving the
issuing endowment policies for minors just as other insurance companies insurance application. The letter stated that the said life insurance application for 20-year
endowment plan is not available for minors below seven years old, but Pacific Life can
allegedly do. Until such a definite policy is however, adopted by the company, it
consider the same under the Juvenile Triple Action Plan, and advised that if the offer
can hardly be said that it could have been bound at all under the binding slip for a
is acceptable, the Juvenile Non-Medical Declaration be sent to the company.
plan of insurance that it could not have, by then issued at all. (Amended Decision, The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated
Rollo, pp- 52-53). by petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957,
Mondragon wrote back Pacific Life again strongly recommending the approval of the 20-year
2. Relative to the second issue of alleged concealment. this Court is of the firm belief that endowment insurance plan to children, pointing out that since the customers were asking for
private respondent had deliberately concealed the state of health and piysical condition of such coverage.
his daughter Helen Go. Wher private regpondeit supplied the required essential data for the Helen Go died of influenza. Ngo Hing sought the payment of the proceeds of the insurance,
but having failed in his effort, he filed the action for the recovery before the Court of First
insurance application form, he was fully aware that his one-year old daughter is typically a
Instance of Cebu, which ruled against him.
mongoloid child. Such a congenital physical defect could never be ensconced nor
disguished. Nonetheless, private respondent, in apparent bad faith, withheld the fact materal Issues: 1. Whether the binding deposit receipt constituted a temporary contract of the life
to the risk to be assumed by the insurance compary. As an insurance agent of Pacific Life, insurance in question
he ought to know, as he surely must have known. his duty and responsibility to such a 2. Whether Ngo Hing concealed the state of health and physical condition of Helen Go,
material fact. Had he diamond said significant fact in the insurance application fom Pacific which rendered void the policy
Life would have verified the same and would have had no choice but to disapprove the
application outright. Held: No. Yes. Petition dismissed.
Ratio: The receipt was intended to be merely a provisional insurance contract. Its perfection
The contract of insurance is one of perfect good faith uberrima fides meaning good faith,
was subject to compliance of the following conditions: (1) that the company shall be satisfied
absolute and perfect candor or openness and honesty; the absence of any concealment or
that the applicant was insurable on standard rates; (2) that if the company does not accept
demotion, however slight [Black's Law Dictionary, 2nd Edition], not for the alone but equally the application and offers to issue a policy for a different plan, the insurance contract shall
so for the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70). not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be
Concealment is a neglect to communicate that which a partY knows aDd Ought to refunded; and (3) that if the company disapproves the application, the insurance applied for
communicate (Section 25, Act No. 2427). Whether intentional or unintentional the shall not be in force at any time, and the premium paid shall be returned to the applicant.
concealment entitles the insurer to rescind the contract of insurance (Section 26, Id.: Yu The receipt is merely an acknowledgment that the latter's branch office had received from
Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine American Life the applicant the insurance premium and had accepted the application subject for
Insurance Company, 7 SCRA 316). Private respondent appears guilty thereof. processing by the insurance company. There was still approval or rejection the same on the
basis of whether or not the applicant is "insurable on standard rates." Since Pacific Life
disapproved the insurance application of respondent Ngo Hing, the binding deposit receipt in
We are thus constrained to hold that no insurance contract was perfected between the question had never become in force at any time. The binding deposit receipt is conditional
parties with the noncompliance of the conditions provided in the binding receipt, and and does not insure outright. This was held in Lim v Sun.
concealment, as legally defined, having been comraitted by herein private respondent. The deposit paid by private respondent shall have to be refunded by Pacific Life.
2. Ngo Hing had deliberately concealed the state of health of his daughter Helen Go. When
WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is he supplied data, he was fully aware that his one-year old daughter is typically a mongoloid
hereby entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life child. He withheld the fact material to the risk insured.
Assurance Company from their civil liabilities as found by respondent Court and ordering the
The contract of insurance is one of perfect good faith uberrima fides meaning good faith, In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be
absolute and perfect candor or openness and honesty; the absence of any concealment or held liable because the property covered by the insurance policies were destroyed due to
demotion, however slight. fortuities event or force majeure; that respondent's right of subrogation has no basis
The concealment entitles the insurer to rescind the contract of insurance. inasmuch as there was no breach of contract committed by it since the loss was due to fire
GAISANO CAGAYAN, INC vs. INSURANCE COMPANY OF NORTH AMERICA which it could not prevent or foresee; that IMC and LSPI never communicated to it that they
insured their properties; that it never consented to paying the claim of the insured. 6
Before the Court is a petition for review on certiorari of the Decision1 dated October 11, 2000
of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, trial
August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92- on the merits ensued.
322 and upheld the causes of action for damages of Insurance Company of North America
(respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April
11, 2001 which denied petitioner's motion for reconsideration. On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint. 8 It
held that the fire was purely accidental; that the cause of the fire was not attributable to the
negligence of the petitioner; that it has not been established that petitioner is the debtor of
The factual background of the case is as follows: IMC and LSPI; that since the sales invoices state that "it is further agreed that merely for
purpose of securing the payment of purchase price, the above-described merchandise
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss remains the property of the vendor until the purchase price is fully paid", IMC and LSPI
(Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi retained ownership of the delivered goods and must bear the loss.
Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance policies
with book debt endorsements. The insurance policies provide for coverage on "book debts in Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its
connection with ready-made clothing materials which have been sold or delivered to various decision setting aside the decision of the RTC. The dispositive portion of the decision reads:
customers and dealers of the Insured anywhere in the Philippines."2 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."3 The policies also provide for the WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET
following conditions: ASIDE and a new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to
pay:
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 1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-
outstanding at the date of loss for a period in excess of six (6) months from the appellant to the insured Inter Capitol Marketing Corporation, plus legal interest
date of the covering invoice or actual delivery of the merchandise whichever shall from the time of demand until fully paid;
first occur.
2. the amount of P535,613.00 representing the amount paid by the plaintiff-
2. Warranted that the Insured shall submit to the Company within twelve (12) days appellant to the insured Levi Strauss Phil., Inc., plus legal interest from the time of
after the close of every calendar month all amount shown in their books of demand until fully paid.
accounts as unpaid and thus become receivable item from their customers and
dealers. x x x4 x x x x With costs against the defendant-appellee. SO ORDERED.10
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, The CA held that the sales invoices are proofs of sale, being detailed statements of the
the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was nature, quantity and cost of the thing sold; that loss of the goods in the fire must be borne by
consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready- petitioner since the proviso contained in the sales invoices is an exception under Article
made clothing materials sold and delivered by IMC and LSPI. 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous event, the
risk is borne by the owner of the thing at the time the loss under the principle of res perit
On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges domino; that petitioner's obligation to IMC and LSPI is not the delivery of the lost goods but
that IMC and LSPI filed with respondent their claims under their respective fire insurance the payment of its unpaid account and as such the obligation to pay is not extinguished,
policies with book debt endorsements; that as of February 25, 1991, the unpaid accounts of even if the fire is considered a fortuitous event; that by subrogation, the insurer has the right
petitioner on the sale and delivery of ready-made clothing materials with IMC to go against petitioner; that, being a fire insurance with book debt endorsements, what was
was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims of insured was the vendor's interest as a creditor.11
IMC and LSPI and, by virtue thereof, respondent was subrogated to their rights against
petitioner; that respondent made several demands for payment upon petitioner but these Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution
went unheeded.5 dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the following Assignment of Court is not a trier of facts; it is not its function to analyze or weigh evidence all over
Errors: again.19 Accordingly, findings of fact of the appellate court are generally conclusive on the
Supreme Court.20
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE
INSTANT CASE WAS ONE OVER CREDIT. Nevertheless, jurisprudence has recognized several exceptions in which factual issues may
be resolved by this Court, such as: (1) when the findings are grounded entirely on
speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken,
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT
absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON
based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when
DELIVERY THEREOF.
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
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC to the trial court; (8) when the findings are conclusions without citation of specific evidence
SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14 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
Anent the first error, petitioner contends that the insurance in the present case cannot be of fact are premised on the supposed absence of evidence and contradicted by the evidence
deemed to be over credit since an insurance "on credit" belies not only the nature of fire on record; and (11) when the CA manifestly overlooked certain relevant facts not disputed by
insurance but the express terms of the policies; that it was not credit that was insured since the parties, which, if properly considered, would justify a different conclusion.21 Exceptions
respondent paid on the occasion of the loss of the insured goods to fire and not because of (4), (5), (7), and (11) apply to the present petition.
the non-payment by petitioner of any obligation; that, even if the insurance is deemed as
one over credit, there was no loss as the accounts were not yet due since no prior demands At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that
were made by IMC and LSPI against petitioner for payment of the debt and such demands the CA erred in construing a fire insurance policy on book debts as one covering the unpaid
came from respondent only after it had already paid IMC and LSPI under the fire insurance accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing
policies.15 materials sold and delivered to petitioner.
As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer The Court disagrees with petitioner's stand.
IMC and LSPI assumed the risk of loss when they secured fire insurance policies over the
goods.
It is well-settled that when the words of a contract are plain and readily understood, there is
no room for construction.22 In this case, the questioned insurance policies provide coverage
Concerning the third ground, petitioner submits that there is no subrogation in favor of for "book debts in connection with ready-made clothing materials which have been sold or
respondent as no valid insurance could be maintained thereon by IMC and LSPI since all delivered to various customers and dealers of the Insured anywhere in the Philippines."23 ;
risk had transferred to petitioner upon delivery of the goods; that petitioner was not privy to and defined book debts as the "unpaid account still appearing in the Book of Account of the
the insurance contract or the payment between respondent and its insured nor was its Insured 45 days after the time of the loss covered under this Policy."24 Nowhere is it provided
consent or approval ever secured; that this lack of privity forecloses any real interest on the in the questioned insurance policies that the subject of the insurance is the goods sold and
part of respondent in the obligation to pay, limiting its interest to keeping the insured goods delivered to the customers and dealers of the insured.
safe from fire.
Indeed, when the terms of the agreement are clear and explicit that they do not justify an
For its part, respondent counters that while ownership over the ready- made clothing attempt to read into it any alleged intention of the parties, the terms are to be understood
materials was transferred upon delivery to petitioner, IMC and LSPI have insurable interest literally just as they appear on the face of the contract.25 Thus, what were insured against
over said goods as creditors who stand to suffer direct pecuniary loss from its destruction by were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the
fire; that petitioner is liable for loss of the ready-made clothing materials since it failed to loss through fire, and not the loss or destruction of the goods delivered.
overcome the presumption of liability under Article 126516 of the Civil Code; that the fire was
caused through petitioner's negligence in failing to provide stringent measures of caution,
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of
care and maintenance on its property because electric wires do not usually short circuit
the goods by stipulating in the sales invoices that "[i]t is further agreed that merely for
unless there are defects in their installation or when there is lack of proper maintenance and
purpose of securing the payment of the purchase price the above described merchandise
supervision of the property; that petitioner is guilty of gross and evident bad faith in refusing
remains the property of the vendor until the purchase price thereof is fully paid."26
to pay respondent's valid claim and should be liable to respondent for contracted lawyer's
fees, litigation expenses and cost of suit.17
The Court is not persuaded.
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before
it from the CA is limited to reviewing questions of law which involves no examination of the The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
probative value of the evidence presented by the litigants or any of them.18 The Supreme
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the rationale for this is that the rule that an obligor should be held exempt from liability when the
ownership therein is transferred to the buyer, but when the ownership therein is transferred loss occurs thru a fortuitous event only holds true when the obligation consists in the
to the buyer the goods are at the buyer's risk whether actual delivery has been made or delivery of a determinate thing and there is no stipulation holding him liable even in case of
not, except that: fortuitous event. It does not apply when the obligation is pecuniary in nature.34
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or
pursuance of the contract and the ownership in the goods has been retained by the seller destruction of anything of the same kind does not extinguish the obligation." If the obligation
merely to secure performance by the buyer of his obligations under the contract, the goods is generic in the sense that the object thereof is designated merely by its class or genus
are at the buyer's risk from the time of such delivery; (Emphasis supplied) x x x x without any particular designation or physical segregation from all others of the same class,
the loss or destruction of anything of the same kind even without the debtor's fault and
before he has incurred in delay will not have the effect of extinguishing the obligation.35 This
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the
rule is based on the principle that the genus of a thing can never perish. Genus nunquan
risk of loss is borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the goods
perit.36 An obligation to pay money is generic; therefore, it is not excused by fortuitous loss
delivered.
of any specific property of the debtor.37
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest
Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to
until full payment of the value of the delivered goods. Unlike the civil law concept of res perit
this case. What is relevant here is whether it has been established that petitioner has
domino, where ownership is the basis for consideration of who bears the risk of loss, in
outstanding accounts with IMC and LSPI.
property insurance, one's interest is not determined by concept of title, but whether insured
has substantial economic interest in the property.28
With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-
22"38 show that petitioner has an outstanding account with IMC in the amount
Section 13 of our Insurance Code defines insurable interest as "every interest in property,
of P2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC. Exhibit
whether real or personal, or any relation thereto, or liability in respect thereof, of such nature
"F"40 is the subrogation receipt executed by IMC in favor of respondent upon receipt of the
that a contemplated peril might directly damnify the insured." Parenthetically, under Section
insurance proceeds. All these documents have been properly identified, presented and
14 of the same Code, an insurable interest in property may consist in: (a) an existing
marked as exhibits in court. The subrogation receipt, by itself, is sufficient to establish not
interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled
only the relationship of respondent as insurer and IMC as the insured, but also the amount
with an existing interest in that out of which the expectancy arises.
paid to settle the insurance claim. The right of subrogation accrues simply upon payment by
the insurance company of the insurance claim.41 Respondent's action against petitioner is
Therefore, an insurable interest in property does not necessarily imply a property interest in, squarely sanctioned by Article 2207 of the Civil Code which provides:
or a lien upon, or possession of, the subject matter of the insurance, and neither the title nor
a beneficial interest is requisite to the existence of such an interest, it is sufficient that the
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insured is so situated with reference to the property that he would be liable to loss should it
insurance company for the injury or loss arising out of the wrong or breach of contract
be injured or destroyed by the peril against which it is insured. 29 Anyone has an insurable
complained of, the insurance company shall be subrogated to the rights of the insured
interest in property who derives a benefit from its existence or would suffer loss from its
against the wrongdoer or the person who has violated the contract. x x x
destruction.30Indeed, 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.31 In this case, the insurable interest of IMC and Petitioner failed to refute respondent's evidence.
LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the
time of the loss covered by the policies.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No
evidentiary weight can be given to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991
The next question is: Is petitioner liable for the unpaid accounts? from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an admission of
petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in the
amount of P535,613.00 in the fire that razed petitioner's building on February 25, 1991.
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, there is no proof of full settlement of the insurance claim of LSPI; no subrogation
receipt was offered in evidence. Thus, there is no evidence that respondent has been
subrogated to any right which LSPI may have against petitioner. Failure to substantiate the
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire
claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00.
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 WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11,
the payment even by reason of a fortuitous event shall not relieve him of his liability.33 The 2000 and Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848
are AFFIRMED with the MODIFICATION that the order to pay the amount of P535,613.00 to ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the
respondent is DELETED for lack of factual basis. No pronouncement as to costs. SO ownership therein is transferred to the buyer, but when the ownership therein is transferred
ORDERED. 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
GAISANO V INSURANCE G.R. NO. 147839 JUNE 8, 2006 pursuance of the contract and the ownership in the goods has been retained by the seller
J. Martinez 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
Facts: IMC and Levi Strauss (Phils.) Inc. (LSPI) separately obtained from respondent fire Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the
insurance policies with book debt endorsements. The insurance policies provide for risk of loss is borne by the buyer. Petitioner bears the risk of loss of the goods delivered.
coverage on "book debts in connection with ready-made clothing materials which have been IMC and LSPI had an insurable interest until full payment of the value of the delivered
sold or delivered to various customers and dealers of the Insured anywhere in the goods. Unlike the civil law concept of res perit domino, where ownership is the basis for
Philippines." The policies defined book debts as the "unpaid account still appearing in the consideration of who bears the risk of loss, in property insurance, one's interest is not
Book of Account of the Insured 45 days after the time of the loss covered under this Policy." determined by concept of title, but whether insured has substantial economic interest in the
The policies also provide for the following conditions: property.
1. Warranted that the Company shall not be liable for any unpaid account in respect of the Section 13 of our Insurance Code defines insurable interest as "every interest in property,
merchandise sold and delivered by the Insured which are outstanding at the date of loss for whether real or personal, or any relation thereto, or liability in respect thereof, of such nature
a period in excess of six (6) months from the date of the covering invoice or actual delivery that a contemplated peril might directly damnify the insured." Parenthetically, under Section
of the merchandise whichever shall first occur. 14 of the same Code, an insurable interest in property may consist in: (a) an existing
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled
close of every calendar month all amount shown in their books of accounts as unpaid and with an existing interest in that out of which the expectancy arises.
thus become receivable item from their customers and dealers. Anyone has an insurable interest in property who derives a benefit from its existence or
Gaisano is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, would suffer loss from its destruction. Indeed, a vendor or seller retains an insurable interest
the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was in the property sold so long as he has any interest therein, in other words, so long as he
consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready- would suffer by its destruction, as where he has a vendor's lien. In this case, the insurable
made clothing materials sold and delivered by IMC and LSPI. interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account
Insurance of America filed a complaint for damages against Gaisano. It alleges that IMC and 45 days after the time of the loss covered by the policies.
LSPI were paid for their claims and that the unpaid accounts of petitioner on the sale and 3. Petitioner's argument that it is not liable because the fire is a fortuitous event under Article
delivery of ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it 117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article
was P535,613.00. 1504 (1) of the Civil Code.
The RTC rendered its decision dismissing Insurance's complaint. It held that the fire was Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire
purely accidental; that the cause of the fire was not attributable to the negligence of the but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire.
petitioner. Also, it said that IMC and LSPI retained ownership of the delivered goods and Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the
must bear the loss. CA, where the obligation consists in the payment of money, the failure of the debtor to make
The CA rendered its decision and set aside the decision of the RTC. It ordered Gaisano to the payment even by reason of a fortuitous event shall not relieve him of his liability. The
pay Insurance the P 2 million and the P 500,000 the latter paid to IMC and Levi Strauss. rationale for this is that the rule that an obligor should be held exempt from liability when the
Hence this petition. 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
Issues: 1. WON the CA erred in construing a fire insurance policy on book debts as one fortuitous event. It does not apply when the obligation is pecuniary in nature.
covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of the Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or
ready-made clothing materials sold and delivered to petitioner destruction of anything of the same kind does not extinguish the obligation." This rule is
2. WON IMC bears the risk of loss because it expressly reserved ownership of the goods by based on the principle that the genus of a thing can never perish. An obligation to pay
stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing money is generic; therefore, it is not excused by fortuitous loss of any specific property of
the payment of the purchase price the above described merchandise remains the property the debtor.
of the vendor until the purchase price thereof is fully paid." 4. With respect to IMC, the respondent has adequately established its claim. The P 3 m
3. WON petitioner is liable for the unpaid accounts claim has been proven. The subrogation receipt, by itself, is sufficient to establish not only
4. WON it has been established that petitioner has outstanding accounts with IMC and LSPI. 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
Held: No. Yes. Yes. Yes but account with LSPI unsubstantiated. Petition partly granted. insurance company of the insurance claim Respondent's action against petitioner is squarely
sanctioned by Article 2207 of the Civil Code which provides:
Ratio: 1. Nowhere is it provided in the questioned insurance policies that the subject of the Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance is the goods sold and delivered to the customers and dealers of the insured. insurance company for the injury or loss arising out of the wrong or breach of
Thus, what were insured against were the accounts of IMC and LSPI with petitioner which contract complained of, the insurance company shall be subrogated to the rights of the
remained unpaid 45 days after the loss through fire, and not the loss or destruction of the insured against the wrongdoer or the person who has violated the contract.
goods delivered. As to LSPI, respondent failed to present sufficient evidence to prove its cause of action.
2. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code: 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.

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1 INSURANCE CASES BATCH 2

FOURTH ASSIGNMENT OF ERROR

FIRST ASSIGNMENT OF ERROR Is Steamship Mutual engaged in the insurance business?

above-mentioned@ .490%; F.S.T. 776.89

393,000.00- on the two swimming Prem. Tax 409.05

pools, only (against the TOTAL 45,159.92;

as follows: In consideration of the payment by the insured to the company of the

A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY

Second, petitioners payment of additional premium in the amount of P393.00 shows

THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS

Third, Policy Condition No. 6 stated:

Witness referring to Exhibit C-1, your Honor.

We do not normally cover earthquake shock endorsement on stand alone

WITNESS: pp. 4-6

Q. You are referring to Exhibit H of course?

CROSS EXAMINATION OF LEOPOLDO MANTOHAC

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