1

G.R. No. 154514. July 28, 2005 violated Sections 299,63007 and 3018 in relation to Sections 302
and 303, thereof.
WHITE GOLD MARINE SERVICES, INC., Petitioners,
vs. The Insurance Commission dismissed the complaint. It said that
PIONEER INSURANCE AND SURETY CORPORATION AND there was no need for Steamship Mutual to secure a license
THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION because it was not engaged in the insurance business. It
(BERMUDA) LTD., Respondents. explained that Steamship Mutual was a Protection and Indemnity
Club (P & I Club). Likewise, Pioneer need not obtain another
DECISION license as insurance agent and/or a broker for Steamship Mutual
because Steamship Mutual was not engaged in the insurance
QUISUMBING, J.: business. Moreover, Pioneer was already licensed, hence, a
separate license solely as agent/broker of Steamship Mutual was
already superfluous.
This petition for review assails the Decision1 dated July 30, 2002
of the Court of Appeals in CA-G.R. SP No. 60144, affirming
the Decision2 dated May 3, 2000 of the Insurance Commission in The Court of Appeals affirmed the decision of the Insurance
I.C. Adm. Case No. RD-277. Both decisions held that there was Commissioner. In its decision, the appellate court distinguished
no violation of the Insurance Code and the respondents do not between P & I Clubs vis-à-vis conventional insurance. The
need license as insurer and insurance agent/broker. appellate court also held that Pioneer merely acted as a collection
agent of Steamship Mutual.
The facts are undisputed.
In this petition, petitioner assigns the following errors allegedly
committed by the appellate court,
White Gold Marine Services, Inc. (White Gold) procured a
protection and indemnity coverage for its vessels from The
Steamship Mutual Underwriting Association (Bermuda) Limited FIRST ASSIGNMENT OF ERROR
(Steamship Mutual) through Pioneer Insurance and Surety
Corporation (Pioneer). Subsequently, White Gold was issued a THE COURT A QUO ERRED WHEN IT RULED THAT
Certificate of Entry and Acceptance.3Pioneer also issued receipts RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN THE
evidencing payments for the coverage. When White Gold failed to PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS
fully pay its accounts, Steamship Mutual refused to renew the TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER
coverage. HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE
TO ENGAGE IN INSURANCE BUSINESS IN THE PHILIPPINES.
Steamship Mutual thereafter filed a case against White Gold for
collection of sum of money to recover the latter’s unpaid balance. SECOND ASSIGNMENT OF ERROR
White Gold on the other hand, filed a complaint before the
Insurance Commission claiming that Steamship Mutual violated THE COURT A QUO ERRED WHEN IT RULED THAT THE
Sections 1864 and 1875 of the Insurance Code, while Pioneer RECORD IS BEREFT OF ANY EVIDENCE THAT
2

RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE coverage and for this purpose, it has engaged the services of
BUSINESS. Pioneer to act as its agent.

THIRD ASSIGNMENT OF ERROR Respondents contend that although Steamship Mutual is a P & I
Club, it is not engaged in the insurance business in the
THE COURT A QUO ERRED WHEN IT RULED, THAT Philippines. It is merely an association of vessel owners who
RESPONDENT PIONEER NEED NOT SECURE A LICENSE have come together to provide mutual protection against liabilities
WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF incidental to shipowning.11 Respondents aver Hyopsung is
RESPONDENT STEAMSHIP. inapplicable in this case because the issue in Hyopsung was the
jurisdiction of the court over Hyopsung.
FOURTH ASSIGNMENT OF ERROR
Is Steamship Mutual engaged in the insurance business?
THE COURT A QUO ERRED IN NOT REVOKING THE
LICENSE OF RESPONDENT PIONEER AND [IN NOT Section 2(2) of the Insurance Code enumerates what constitutes
REMOVING] THE OFFICERS AND DIRECTORS OF "doing an insurance business" or "transacting an insurance
RESPONDENT PIONEER.9 business". These are:

Simply, the basic issues before us are (1) Is Steamship Mutual, a (a) making or proposing to make, as insurer, any insurance
P & I Club, engaged in the insurance business in the Philippines? contract;
(2) Does Pioneer need a license as an insurance agent/broker for
Steamship Mutual? (b) making, or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to any other
The parties admit that Steamship Mutual is a P & I Club. legitimate business or activity of the surety;
Steamship Mutual admits it does not have a license to do
business in the Philippines although Pioneer is its resident agent. (c) doing any kind of business, including a reinsurance business,
This relationship is reflected in the certifications issued by the specifically recognized as constituting the doing of an insurance
Insurance Commission. business within the meaning of this Code;

Petitioner insists that Steamship Mutual as a P & I Club is (d) doing or proposing to do any business in substance equivalent
engaged in the insurance business. To buttress its assertion, it to any of the foregoing in a manner designed to evade the
cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. provisions of this Code.
v. Court of Appeals10 as "an association composed of shipowners
in general who band together for the specific purpose of providing ...
insurance cover on a mutual basis against liabilities incidental to
shipowning that the members incur in favor of third parties." It The same provision also provides, the fact that no profit is derived
stresses that as a P & I Club, Steamship Mutual’s primary from the making of insurance contracts, agreements or
purpose is to solicit and provide protection and indemnity transactions, or that no separate or direct consideration is
3

received therefor, shall not preclude the existence of an resident agent in the Philippines to solicit insurance and to collect
insurance business.12 payments in its behalf. We note that Steamship Mutual even
renewed its P & I Club cover until it was cancelled due to non-
The test to determine if a contract is an insurance contract or not, payment of the calls. Thus, to continue doing business here,
depends on the nature of the promise, the act required to be Steamship Mutual or through its agent Pioneer, must secure a
performed, and the exact nature of the agreement in the light of license from the Insurance Commission.
the occurrence, contingency, or circumstances under which the
performance becomes requisite. It is not by what it is called.13 Since a contract of insurance involves public interest, regulation
by the State is necessary. Thus, no insurer or insurance company
Basically, an insurance contract is a contract of indemnity. In it, is allowed to engage in the insurance business without a license
one undertakes for a consideration to indemnify another against or a certificate of authority from the Insurance Commission.21
loss, damage or liability arising from an unknown or contingent
event.14 Does Pioneer, as agent/broker of Steamship Mutual, need a
special license?
In particular, a marine insurance undertakes to indemnify the
assured against marine losses, such as the losses incident to a Pioneer is the resident agent of Steamship Mutual as evidenced
marine adventure.15 Section 9916 of the Insurance Code by the certificate of registration22 issued by the Insurance
enumerates the coverage of marine insurance. Commission. It has been licensed to do or transact insurance
business by virtue of the certificate of authority23 issued by the
Relatedly, a mutual insurance company is a cooperative same agency. However, a Certification from the Commission
enterprise where the members are both the insurer and insured. states that Pioneer does not have a separate license to be an
In it, the members all contribute, by a system of premiums or agent/broker of Steamship Mutual.24
assessments, to the creation of a fund from which all losses and
liabilities are paid, and where the profits are divided among Although Pioneer is already licensed as an insurance company, it
themselves, in proportion to their interest.17 Additionally, mutual needs a separate license to act as insurance agent for Steamship
insurance associations, or clubs, provide three types of coverage, Mutual. Section 299 of the Insurance Code clearly states:
namely, protection and indemnity, war risks, and defense costs.18
SEC. 299 . . .
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 No person shall act as an insurance agent or as an insurance
members."19 By definition then, Steamship Mutual as a P & I Club broker in the solicitation or procurement of applications for
is a mutual insurance association engaged in the marine insurance, or receive for services in obtaining insurance, any
insurance business. commission or other compensation from any insurance company
doing business in the Philippines or any agent thereof, without
The records reveal Steamship Mutual is doing business in the first procuring a license so to act from the Commissioner, which
country albeit without the requisite certificate of authority must be renewed annually on the first day of January, or within
mandated by Section 18720 of the Insurance Code. It maintains a six months thereafter. . .
4

Finally, White Gold seeks revocation of Pioneer’s certificate of G.R. No. L-28866 March 17, 1972
authority and removal of its directors and officers. Regrettably, we
are not the forum for these issues. FE DE JOYA LANDICHO, in her own behalf and as judicial
guardian of her minor children, RAFAEL J. LANDICHO and
WHEREFORE, the petition is PARTIALLY GRANTED. The MA. LOURDES EUGENIA LANDICHO,plaintiffs-appellees,
Decision dated July 30, 2002 of the Court of Appeals affirming the vs.
Decision dated May 3, 2000 of the Insurance Commission is GOVERNMENT SERVICE INSURANCE SYSTEM,defendant-
hereby REVERSED AND SET ASIDE. The Steamship Mutual appellant. .
Underwriting Association (Bermuda) Ltd., and Pioneer Insurance
and Surety Corporation are ORDERED to obtain licenses and to Vedasto J. Hernandez for plaintiffs-appellees.Government
secure proper authorizations to do business as insurer and Corporate Counsel Leopoldo M. Abellera and Trial Attorney
insurance agent, respectively. The petitioner’s prayer for the Arsenio J. Magpale defendant-appellant.
revocation of Pioneer’s Certificate of Authority and removal of its
directors and officers, is DENIED. Costs against respondents.

SO ORDERED. CONCEPCION, C.J.:p

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Appeal of the Government Service Insurance System — hereinafter referred to as GSIS, for
Azcuna, JJ., concur. the sake of brevity — from a decision of the Court of First Instance of Manila directing said
defendant to pay to the plaintiffs-appellees, Fe de Joya Landicho and her minor children,
Rafael J. and Maria Lourdes Eugenia, both surnamed Landicho, the sum of P15,800, with
interest thereon, at the legal rate, from September 26, 1967, until fully paid, in addition to
the sum of P1,000, as and for attorney's fees, and the costs.

The facts are not in dispute. On June 1, 1964, the GSIS issued in
favor of Flaviano Landicho, a civil engineer of the Bureau of
Public Works, stationed at Mamburao, Mindoro Occidental,
optional additional life insurance policy No. OG-136107 in the
sum of P7,900. The policy states on its face:

This insurance is granted subject to the terms and

conditions hereinafter set forth and in
consideration of the "Information" therefor and of
the payment on the day this Policy takes effect of
the monthly premiums stated above, due from
and payable by the Insured, and the like
payments on the last day of every month during
the lifetime of the Insured until maturity of this
Policy or until prior death of the Insured.
5

On page 2 of said policy, condition No. 1 provides, in part: . 7. I hereby declare that all the above statements
and answers as well as those I may make to the
1. PAYMENT OF PREMIUMS: — . System's Medical Examiner in continuation of this
application, to be true and co direct to the best of
... . Premiums are due and payable at the Office my knowledge and belief, and I hereby agree as
of the System in Manila or at any of its branches. follows: .
When any premium or installment thereof remains
unpaid after its due date, such due date is the a. That this declaration, with the answers to be
date of default in payment of premiums. The mere given by me to the Medical Officer, shall be made
possession of this Policy does not imply that it is the basis the policy and form part of the same; .
in force unless the premiums due thereon are
paid on time or the policy has sufficient cash b. That acceptance of my policy issued on this
value to keep it in force. application will constitute a ratification by me of
any correction or addition to this application made
Condition No. 18, on page 8 of the policy, is of the following tenor: by the System; .
.
c. That this application serves as a letter of
18. ENTIRE CONTRACT IN THIS POLICY: — . authority to the Collecting Officer of our Office thru
the GSIS to deduct from my salary the monthly
This Policy together with the "Information" sheet premium in the amount of P33.36, beginning the
signed by the Insured, a copy of which is attached month of May, 1964, and every month thereafter
hereto, is issued under the provisions of until notice of its discontinuance shall have
Commonwealth Act No. 186, as amended, and beenreceived from the System; .
constitutes the entire contract.
d. That the failure to deduct from my salary the
All statements made by the Insured shall, in the month premiums shall not make the policy lapse,
absence of fraud, be deemed representations and however, the premium account shall be
no warranties, and no statement shall void the considered as indebtedness which, I bind myself
Policy or be used as a defense to claim hereunder to pay the System; .
unless it be contained in written information and a
copy of such information be endorsed upon or e. That my policy shall be made effective on the
attached to the Policy when issued. first day of the month next following the month the
first premium is paid; provided, that it is not more
Before the issuance of said policy, the insured had filed an ninety (90) days before or after the date of the
application, by filing and signing a printed form of the GSIS on the medical examination,was conducted if required." .
basis of which the policy was issued. Paragraph 7 of said
application States:
6

While still under the employment of the Bureau of Public Works, be made effective on the first day of the month next following the
Mr. Landicho met his death, on June 29, 1966, in an airplane month the first premium is paid." Under this theory, subdivisions
crash in Mindoro. Thereupon, Mrs. Landicho, in her own behalf (c) and (d) of said paragraph 7 would not apply unless and until
and that of her co-plaintiffs and minor children, Rafael J. and the first premium shall have been actually paid, pursuant to
Maria Lourdes Eugenia, filed with the GSIS a claim for P15,800, subdivision (e) of the same paragraph.
as the double indemnity due under policy No. OG-136107,
because of the untimely death of the insured owing to said Although it may not be entirely farfetched, this view is not likely to
accident. The GSIS denied the claim, upon the ground that the be in accord with the understanding of many, if not most,
policy had never been in force because, pursuant to subdivision government employees who obtain an optional additional life
(e) of the above-quoted paragraph 7 of the application, the policy insurance policy. As a consequence, the actual receipt by them of
"shall be ... effective on the first day of the month next following their full pay — without any deduction for premiums on their
the month the first premium is paid," and no premium had ever optional additional life insurance policies — may not impart to
been paid on said policy. Upon refusal of the GSIS to reconsider them the warning — which, otherwise, it would necessarily
its stand, this action was filed, September 22, 1967, in the Court convey — that said policy is not, as yet, in force, for they are
of First Instance of Manila, in which the GSIS reiterated its liable to believe "that failure to deduct" — from the salary of the
aforementioned defense. Thereafter submitted by both parties for insured — "the monthly premiums shall not" — in the language of
judgment on the pleadings, upon the ground thatthe case involve subdivision (d) — "make the policy lapse" and that "the premiums
purely questions of law, said court rendered, in due course, its account shall be considered as indebtedness," to be paid or
abovementioned decision, from which the GSIS has taken the deducted later, because, after all, the so called "payment" of
present appeal. premiums is nothing but a "paper" or "accounting" process,
whereby funds are merely transferred, notphysically, but
The main issue therein is whether or not the insurance policy in constructively, from one office of the government to another. In
question has ever been in force, not a single premium having other words, the language, of subdivisions (c), (d) and (e) is such
been paid thereon. In support of the affirmative, plaintiffs invoke as to create an ambiguity that should be resolved against the
the stipulation in the policy to the effect that the information party responsible therefor — defendant GSIS, as the party who
contained in the application filed by the insured shall form part of prepared and furnished the application form — and in favor of the
the contract between him and the GSIS, and, especially, party misled thereby, the insured employee.
subdivisions (c) and (d) of paragraph 7 of said application stating
that the same shall serve "as a letter of authority to the Collecting Indeed, our Civil Code provides:
Officer of our Office" — the Bureau of Public Works — "thru the
GSIS to deduct from my salary the monthly premium in the The interpretation of obscure words or stipulations
amount of P33.36 beginning the month of May, 1964, and every in a contract shall not favor the party who caused
month thereafter," and that "failure to deduct from my salary the the obscurity.2
monthly premiums shall not make the policy lapse, however,
the premium account shall be considered as indebtedness which,
This is particularly true as regards insurance policies, in respect
I" — the insured — "bind myself to pay the System."1 The GSIS
of which it is settled that the " "terms in an insurance policy, which
maintains, however, the negative, relying upon subdivision (e) of
are ambiguous, equivocal, or uncertain ... are to be construed
the same paragraph No. 7, which provides that the "policy shall
strictly and most strongly against the insurer, and liberally in favor
7

of the insured so as to effect the dominant purpose of indemnity G.R. No. 112360 July 18, 2000
or payment to the insured, especially where a forfeiture is
involved" (29 Am. Jur., 181), and the reason for this rule is the RIZAL SURETY & INSURANCE COMPANY, petitioner,
"insured usually has no voice in the selection or arrangement of vs.
the words employed and that the language of the contract is COURT OF APPEALS and TRANSWORLD KNITTING MILLS,
selected with great care and deliberation by experts and legal INC., respondents.
advisers employed by, and acting exclusively in the interest of,
the insurance company." (44 C.J.S., p. 1174.)3 . DECISION

The equitable and ethical considerations justifying the foregoing PURISIMA, J.:
view are bolstered up by two (2) factors, namely:
At bar is a Petition for Review on Certiorari under Rule 45 of the
(a) The aforementioned subdivision (c) states "that this Rules of Court seeking to annul and set aside the July 15, 1993
application serves as a letter of authority to the Collecting Officer Decision1 and October 22, 1993 Resolution2 of the Court of
of our Office" — the Bureau of Public Works — "thru the GSIS to Appeals3 in CA-G.R. CV NO. 28779, which modified the Ruling4 of
deduct from my salary the monthly premium in the amount of the Regional Trial Court of Pasig, Branch 161, in Civil Case No.
P33.36." No such deduction was made — and, consequently, not 46106.
even the first premium "paid" — because the collecting officer of
the Bureau of Public Works was not advised by the GSIS to make
The antecedent facts that matter are as follows:
it (the deduction) pursuant to said authority. Surely, this omission
of the GSIS should not inure to its benefit. .
On March 13, 1980, Rizal Surety & Insurance Company (Rizal
Insurance) issued Fire Insurance Policy No. 45727 in favor of
(b) The GSIS had impliedly induced the insured to believe that
Transworld Knitting Mills, Inc. (Transworld), initially for One
Policy No. OG-136107 was in force, he having been paid by the
Million (₱1,000,000.00) Pesos and eventually increased to One
GSIS the dividends corresponding to said policy. Had the insured
Million Five Hundred Thousand (₱1,500,000.00) Pesos, covering
had the slightest inkling that the latter was not, as yet, effective
the period from August 14, 1980 to March 13, 1981.
for non-payment of the first premium, he would have, in all
probability, caused the same to be forthwith satisfied.
Pertinent portions of subject policy on the buildings insured, and
location thereof, read:
WHEREFORE, the decision appealed from should be, it is hereby
affirmed, with costs against the defendant-appellant, Government
Service Insurance System. It is so ordered. . "‘On stocks of finished and/or unfinished products, raw materials
and supplies of every kind and description, the properties of the
Insureds and/or held by them in trust, on commission or on joint
Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando,
account with others and/or for which they (sic) responsible in
Teehankee, Villamor, Barredo and Makasiar, JJ., concur.
case of loss whilst contained and/or stored during the currency of
this Policy in the premises occupied by them forming part of the
buildings situate (sic) within own Compound at MAGDALO
8

STREET, BARRIO UGONG, PASIG, METRO MANILA, and damages, docketed as Civil Case No. 46106 before Branch
PHILIPPINES, BLOCK NO. 601.’ 161 of the then Court of First Instance of Rizal; praying for
judgment ordering Rizal Insurance and New India to pay the
xxx xxx xxx amount of ₱2,747, 867.00 plus legal interest, ₱400,000.00 as
attorney's fees, exemplary damages, expenses of litigation of
‘Said building of four-span lofty one storey in height with ₱50,000.00 and costs of suit.6
mezzanine portions is constructed of reinforced concrete and
hollow blocks and/or concrete under galvanized iron roof and Petitioner Rizal Insurance countered that its fire insurance policy
occupied as hosiery mills, garment and lingerie factory, transistor- sued upon covered only the contents of the four-span building,
stereo assembly plant, offices, warehouse and caretaker's which was partly burned, and not the damage caused by the fire
quarters. on the two-storey annex building.7

'Bounds in front partly by one-storey concrete building under On January 4, 1990, the trial court rendered its decision;
galvanized iron roof occupied as canteen and guardhouse, partly disposing as follows:
by building of two and partly one storey constructed of concrete
below, timber above undergalvanized iron roof occupied as "ACCORDINGLY, judgment is hereby rendered as follows:
garage and quarters and partly by open space and/or tracking/
packing, beyond which is the aforementioned Magdalo Street; on (1)Dismissing the case as against The New India
its right and left by driveway, thence open spaces, and at the rear Assurance Co., Ltd.;
by open spaces.'"5
(2) Ordering defendant Rizal Surety And Insurance
The same pieces of property insured with the petitioner were also Company to pay Transwrold (sic) Knitting Mills, Inc. the
insured with New India Assurance Company, Ltd., (New India). amount of P826, 500.00 representing the actual value of
the losses suffered by it; and
On January 12, 1981, fire broke out in the compound of
Transworld, razing the middle portion of its four-span building and (3) Cost against defendant Rizal Surety and Insurance
partly gutting the left and right sections thereof. A two-storey Company.
building (behind said four-span building) where fun and
amusement machines and spare parts were stored, was also SO ORDERED."8
destroyed by the fire.
Both the petitioner, Rizal Insurance Company, and private
Transworld filed its insurance claims with Rizal Surety & respondent, Transworld Knitting Mills, Inc., went to the Court of
Insurance Company and New India Assurance Company but to Appeals, which came out with its decision of July 15, 1993 under
no avail. attack, the decretal portion of which reads:

On May 26, 1982, private respondent brought against the said "WHEREFORE, and upon all the foregoing, the decision of the
insurance companies an action for collection of sum of money court below is MODIFIED in that defendant New India Assurance
9

Company has and is hereby required to pay plaintiff-appellant the SO ORDERED."10

amount of P1,818,604.19 while the other Rizal Surety has to pay
the plaintiff-appellant P470,328.67, based on the actual losses Undaunted, petitioner Rizal Surety & Insurance Company found
sustained by plaintiff Transworld in the fire, totalling its way to this Court via the present Petition, contending that:
P2,790,376.00 as against the amounts of fire insurance
coverages respectively extended by New India in the amount of I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING
P5,800,000.00 and Rizal Surety and Insurance Company in the THAT THE ANNEX BUILDING WHERE THE BULK OF
amount of P1,500,000.00. THE BURNED PROPERTIES WERE STORED, WAS
INCLUDED IN THE COVERAGE OF THE INSURANCE
No costs. POLICY ISSUED BY RIZAL SURETY TO
TRANSWORLD.
SO ORDERED."9
II.....SAID DECISION AND RESOLUTION (ANNEXES A
On August 20, 1993, from the aforesaid judgment of the Court of AND B) ERRED IN NOT CONSIDERING THE
Appeals New India appealed to this Court theorizing inter alia that PICTURES (EXHS. 3 TO 7-C-RIZAL SURETY), TAKEN
the private respondent could not be compensated for the loss of IMMEDIATELY AFTER THE FIRE, WHICH CLEARLY
the fun and amusement machines and spare parts stored at the SHOW THAT THE PREMISES OCCUPIED BY
two-storey building because it (Transworld) had no insurable TRANSWORLD, WHERE THE INSURED PROPERTIES
interest in said goods or items. WERE LOCATED, SUSTAINED PARTIAL DAMAGE
ONLY.
On February 2, 1994, the Court denied the appeal with finality in
G.R. No. L-111118 (New India Assurance Company Ltd. vs. III. SAID DECISION (ANNEX A) ERRED IN NOT
Court of Appeals). HOLDING THAT TRANSWORLD HAD ACTED IN
PALPABLE BAD FAITH AND WITH MALICE IN FILING
Petitioner Rizal Insurance and private respondent Transworld, ITS CLEARLY UNFOUNDED CIVIL ACTION, AND IN
interposed a Motion for Reconsideration before the Court of NOT ORDERING TRANSWORLD TO PAY TO RIZAL
Appeals, and on October 22, 1993, the Court of Appeals SURETY MORAL AND PUNITIVE DAMAGES (ART.
reconsidered its decision of July 15, 1993, as regards the 2205, CIVIL CODE), PLUS ATTORNEY'S FEES AND
imposition of interest, ruling thus: EXPENSES OF LITIGATION (ART. 2208 PARS. 4 and
11, CIVIL CODE).11
"WHEREFORE, the Decision of July 15, 1993 is amended but
only insofar as the imposition of legal interest is concerned, that, The Petition is not impressed with merit.
on the assessment against New India Assurance Company on
the amount of P1,818,604.19 and that against Rizal Surety & It is petitioner's submission that the fire insurance policy litigated
Insurance Company on the amount of P470,328.67, from May 26, upon protected only the contents of the main building (four-
1982 when the complaint was filed until payment is made. The span),12 and did not include those stored in the two-storey annex
rest of the said decision is retained in all other respects. building. On the other hand, the private respondent theorized that
10

the so called "annex" was not an annex but was actually an In the case under consideration, both the trial court and the Court
integral part of the four-span building13 and therefore, the goods of Appeals found that the so called "annex " was not an annex
and items stored therein were covered by the same fire insurance building but an integral and inseparable part of the four-span
policy. building described in the policy and consequently, the machines
and spare parts stored therein were covered by the fire insurance
Resolution of the issues posited here hinges on the proper in dispute. The letter-report of the Manila Adjusters and
interpretation of the stipulation in subject fire insurance policy Surveyor's Company, which petitioner itself cited and invoked,
regarding its coverage, which reads: describes the "annex" building as follows:

"xxx contained and/or stored during the currency of this Policy in "Two-storey building constructed of partly timber and partly
the premises occupied by them forming part of the buildings concrete hollow blocks under g.i. roof which is adjoining and
situate (sic) within own Compound xxx" intercommunicating with the repair of the first right span of the
lofty storey building and thence by property fence wall."16
Therefrom, it can be gleaned unerringly that the fire insurance
policy in question did not limit its coverage to what were stored in Verily, the two-storey building involved, a permanent structure
the four-span building. As opined by the trial court of origin, two which adjoins and intercommunicates with the "first right span of
requirements must concur in order that the said fun and the lofty storey building",17 formed part thereof, and meets the
amusement machines and spare parts would be deemed requisites for compensability under the fire insurance policy sued
protected by the fire insurance policy under scrutiny, to wit: upon.

"First, said properties must be contained and/or stored in the So also, considering that the two-storey building aforementioned
areas occupied by Transworld and second, said areas must form was already existing when subject fire insurance policy contract
part of the building described in the policy xxx"14 was entered into on January 12, 1981, having been constructed
sometime in 1978,18 petitioner should have specifically excluded
'Said building of four-span lofty one storey in height with the said two-storey building from the coverage of the fire
mezzanine portions is constructed of reinforced concrete and insurance if minded to exclude the same but if did not, and
hollow blocks and/or concrete under galvanized iron roof and instead, went on to provide that such fire insurance policy covers
occupied as hosiery mills, garment and lingerie factory, transistor- the products, raw materials and supplies stored within the
stereo assembly plant, offices, ware house and caretaker's premises of respondent Transworld which was an integral part of
quarter.' the four-span building occupied by Transworld, knowing fully well
the existence of such building adjoining and intercommunicating
with the right section of the four-span building.
The Court is mindful of the well-entrenched doctrine that factual
findings by the Court of Appeals are conclusive on the parties and
not reviewable by this Court, and the same carry even more After a careful study, the Court does not find any basis for
weight when the Court of Appeals has affirmed the findings of fact disturbing what the lower courts found and arrived at.
arrived at by the lower court.15
11

Indeed, the stipulation as to the coverage of the fire insurance cunningly prepared 'agreements' that the weaker party may not
policy under controversy has created a doubt regarding the change one whit, his participation in the 'agreement' being
portions of the building insured thereby. Article 1377 of the New reduced to the alternative to 'take it or leave it' labelled since
Civil Code provides: Raymond Saleilles 'contracts by adherence' (contrats [sic]
d'adhesion), in contrast to these entered into by parties
"Art.1377. The interpretation of obscure words or stipulations in a bargaining on an equal footing, such contracts (of which policies
contract shall not favor the party who caused the obscurity" of insurance and international bills of lading are prime example)
obviously call for greater strictness and vigilance on the part of
Conformably, it stands to reason that the doubt should be courts of justice with a view to protecting the weaker party from
resolved against the petitioner, Rizal Surety Insurance Company, abuses and imposition, and prevent their becoming traps for the
whose lawyer or managers drafted the fire insurance policy unwary (New Civil Code, Article 24; Sent. of Supreme Court of
contract under scrutiny. Citing the aforecited provision of law in Spain, 13 Dec. 1934, 27 February 1942.)'"22
point, the Court in Landicho vs. Government Service Insurance
System,19 ruled: The issue of whether or not Transworld has an insurable interest
in the fun and amusement machines and spare parts, which
"This is particularly true as regards insurance policies, in respect entitles it to be indemnified for the loss thereof, had been settled
of which it is settled that the 'terms in an insurance policy, which in G.R. No. L-111118, entitled New India Assurance Company,
are ambiguous, equivocal, or uncertain x x x are to be construed Ltd., vs. Court of Appeals, where the appeal of New India from
strictly and most strongly against the insurer, and liberally in favor the decision of the Court of Appeals under review, was denied
of the insured so as to effect the dominant purpose of indemnity with finality by this Court on February 2, 1994.
or payment to the insured, especially where forfeiture is involved'
(29 Am. Jur., 181), and the reason for this is that the 'insured The rule on conclusiveness of judgment, which obtains under the
usually has no voice in the selection or arrangement of the words premises, precludes the relitigation of a particular fact or issue in
employed and that the language of the contract is selected with another action between the same parties based on a different
great care and deliberation by experts and legal advisers claim or cause of action. "xxx the judgment in the prior action
employed by, and acting exclusively in the interest of, the operates as estoppel only as to those matters in issue or points
insurance company.' (44 C.J.S., p. 1174).""20 controverted, upon the determination of which the finding or
judgment was rendered. In fine, the previous judgment is
Equally relevant is the following disquisition of the Court conclusive in the second case, only as those matters actually and
in Fieldmen's Insurance Company, Inc. vs. Vda. De Songco,21 to directly controverted and determined and not as to matters
wit: merely involved therein."23

"'This rigid application of the rule on ambiguities has become Applying the abovecited pronouncement, the Court, in Smith Bell
necessary in view of current business practices. The courts
1âwphi1
and Company (Phils.), Inc. vs. Court of Appeals,24held that the
cannot ignore that nowadays monopolies, cartels and issue of negligence of the shipping line, which issue had already
concentration of capital, endowed with overwhelming economic been passed upon in a case filed by one of the insurers, is
power, manage to impose upon parties dealing with them conclusive and can no longer be relitigated in a similar case filed
by another insurer against the same shipping line on the basis of
12

the same factual circumstances. Ratiocinating further, the Court So also, the Court of Appeals correctly adjudged petitioner liable
opined: for the amount of P470,328.67, it being the total loss and damage
suffered by Transworld for which petitioner Rizal Insurance is
"In the case at bar, the issue of which vessel ('Don Carlos' or liable.26
'Yotai Maru') had been negligent, or so negligent as to have
proximately caused the collision between them, was an issue that All things studiedly considered and viewed in proper perspective,
was actually, directly and expressly raised, controverted and the Court is of the irresistible conclusion, and so finds, that the
litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J., resolved that Court of Appeals erred not in holding the petitioner, Rizal Surety
issue in his Decision and held the 'Don Carlos' to have been Insurance Company, liable for the destruction and loss of the
negligent rather than the 'Yotai Maru' and, as already noted, that insured buildings and articles of the private respondent.
Decision was affirmed by this Court in G.R. No. L-48839 in a
Resolution dated 6 December 1987. The Reyes Decision thus WHEREFORE, the Decision, dated July 15, 1993, and the
became final and executory approximately two (2) years before Resolution, dated October 22, 1993, of the Court of Appeals in
the Sison Decision, which is assailed in the case at bar, was CA-G.R. CV NO. 28779 are AFFIRMED in toto. No
promulgated. Applying the rule of conclusiveness of judgment, pronouncement as to costs.
the question of which vessel had been negligent in the collision
between the two (2) vessels, had long been settled by this Court SO ORDERED.
and could no longer be relitigated in C.A.-G.R. No. 61206-R.
Private respondent Go Thong was certainly bound by the ruling or
judgment of Reyes, L.B., J. and that of this Court. The Court of
Appeals fell into clear and reversible error when it disregarded the
Decision of this Court affirming the Reyes Decision."25

The controversy at bar is on all fours with the aforecited case.

Considering that private respondent's insurable interest in, and
compensability for the loss of subject fun and amusement
machines and spare parts, had been adjudicated, settled and
sustained by the Court of Appeals in CA-G.R. CV NO. 28779, and
by this Court in G.R. No. L-111118, in a Resolution, dated
February 2, 1994, the same can no longer be relitigated and
passed upon in the present case. Ineluctably, the petitioner, Rizal
Surety Insurance Company, is bound by the ruling of the Court of
Appeals and of this Court that the private respondent has an
insurable interest in the aforesaid fun and amusement machines
and spare parts; and should be indemnified for the loss of the
same.
13

G.R. No. L-31845 April 30, 1979 Company (hereinafter referred to as Pacific Life) for a twenty-year
endownment policy in the amount of P50,000.00 on the life of his
GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner, one-year old daughter Helen Go. Said respondent supplied the
vs. essential data which petitioner Lapulapu D. Mondragon, Branch
HONORABLE COURT OF APPEALS, respondents. Manager of the Pacific Life in Cebu City wrote on the
corresponding form in his own handwriting (Exhibit I-M).
G.R. No. L-31878 April 30, 1979 Mondragon finally type-wrote the data on the application form
which was signed by private respondent Ngo Hing. The latter paid
the annual premuim the sum of P1,077.75 going over to the
LAPULAPU D. MONDRAGON, petitioner,
Company, but he reatined the amount of P1,317.00 as his
vs.
commission for being a duly authorized agebt of Pacific Life.
HON. COURT OF APPEALS and NGO HING, respondents.
Upon the payment of the insurance premuim, the binding deposit
receipt (Exhibit E) was issued to private respondent Ngo Hing.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna Likewise, petitioner Mondragon handwrote at the bottom of the
& Manalo for petitioner Company. back page of the application form his strong recommendation for
the approval of the insurance application. Then on April 30, 1957,
Voltaire Garcia for petitioner Mondragon. Mondragon received a letter from Pacific Life disapproving the
insurance application (Exhibit 3-M). The letter stated that the said
Pelaez, Pelaez & Pelaez for respondent Ngo Hing. life insurance application for 20-year endowment plan is not
available for minors below seven years old, but Pacific Life can
consider the same under the Juvenile Triple Action Plan, and
advised that if the offer is acceptable, the Juvenile Non-Medical
DE CASTRO, J.: Declaration be sent to the company.

The two above-entitled cases were ordered consolidated by the The non-acceptance of the insurance plan by Pacific Life was
Resolution of this Court dated April 29, 1970, (Rollo, No. L-31878, allegedly not communicated by petitioner Mondragon to private
p. 58), because the petitioners in both cases seek similar relief, respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote
through these petitions for certiorari by way of appeal, from the back Pacific Life again strongly recommending the approval of
amended decision of respondent Court of Appeals which affirmed the 20-year endowment insurance plan to children, pointing out
in toto the decision of the Court of First Instance of Cebu, that since 1954 the customers, especially the Chinese, were
ordering "the defendants (herein petitioners Great Pacific Ligfe asking for such coverage (Exhibit 4-M).
Assurance Company and Mondragon) jointly and severally to pay
plaintiff (herein private respondent Ngo Hing) the amount of It was when things were in such state that on May 28, 1957 Helen
P50,000.00 with interest at 6% from the date of the filing of the Go died of influenza with complication of bronchopneumonia.
complaint, and the sum of P1,077.75, without interest. Thereupon, private respondent sought the payment of the
proceeds of the insurance, but having failed in his effort, he filed
It appears that on March 14, 1957, private respondent Ngo Hing the action for the recovery of the same before the Court of First
filed an application with the Great Pacific Life Assurance
14

Instance of Cebu, which rendered the adverse decision as earlier E. If the applicant shall not have been insurable
refered to against both petitioners. under Condition A above, and the Company
declines to approve the application the insurance
The decisive issues in these cases are: (1) whether the binding applied for shall not have been in force at any
deposit receipt (Exhibit E) constituted a temporary contract of the time and the sum paid be returned to the
life insurance in question; and (2) whether private respondent applicant upon the surrender of this
Ngo Hing concealed the state of health and physical condition of receipt. (Emphasis Ours).
Helen Go, which rendered void the aforesaid Exhibit E.
The aforequoted provisions printed on Exhibit E show that the
1. At the back of Exhibit E are condition precedents required binding deposit receipt is intended to be merely a provisional or
before a deposit is considered a BINDING RECEIPT. These temporary insurance contract and only upon compliance of the
conditions state that: following conditions: (1) that the company shall be satisfied that
the applicant was insurable on standard rates; (2) that if the
A. If the Company or its agent, shan have company does not accept the application and offers to issue a
received the premium deposit ... and the policy for a different plan, the insurance contract shall not be
insurance application, ON or PRIOR to the date of binding until the applicant accepts the policy offered; otherwise,
medical examination ... said insurance shan be in the deposit shall be reftmded; and (3) that if the applicant is not
force and in effect from the date of such medical ble according to the standard rates, and the company
examination, for such period as is covered by the disapproves the application, the insurance applied for shall not be
deposit ..., PROVIDED the company shall be in force at any time, and the premium paid shall be returned to
satisfied that on said date the applicant was the applicant.
insurable on standard rates under its rule for the
amount of insurance and the kind of policy Clearly implied from the aforesaid conditions is that the binding
requested in the application. deposit receipt in question is merely an acknowledgment, on
behalf of the company, that the latter's branch office had received
D. If the Company does not accept the from the applicant the insurance premium and had accepted the
application on standard rate for the amount of application subject for processing by the insurance company; and
insurance and/or the kind of policy requested in that the latter will either approve or reject the same on the basis
the application but issue, or offers to issue a of whether or not the applicant is "insurable on standard rates."
policy for a different plan and/or amount ..., the Since petitioner Pacific Life disapproved the insurance application
insurance shall not be in force and in effect until of respondent Ngo Hing, the binding deposit receipt in question
the applicant shall have accepted the policy as had never become in force at any time.
issued or offered by the Company and shall have
paid the full premium thereof. If the applicant does Upon this premise, the binding deposit receipt (Exhibit E) is,
not accept the policy, the deposit shall be manifestly, merely conditional and does not insure outright. As
refunded. held by this Court, where an agreement is made between the
applicant and the agent, no liability shall attach until the principal
approves the risk and a receipt is given by the agent. The
15

acceptance is merely conditional and is subordinated to the act of their minds. Private respondet, being an authorized insurance
the company in approving or rejecting the application. Thus, in life agent of Pacific Life at Cebu branch office, is indubitably aware
insurance, a "binding slip" or "binding receipt" does not insure by that said company does not offer the life insurance applied for.
itself (De Lim vs. Sun Life Assurance Company of Canada, 41 When he filed the insurance application in dispute, private
Phil. 264). respondent was, therefore, only taking the chance that Pacific
Life will approve the recommendation of Mondragon for the
It bears repeating that through the intra-company communication acceptance and approval of the application in question along with
of April 30, 1957 (Exhibit 3-M), Pacific Life disapproved the his proposal that the insurance company starts to offer the 20-
insurance application in question on the ground that it is not year endowment insurance plan for children less than seven
offering the twenty-year endowment insurance policy to children years. Nonetheless, the record discloses that Pacific Life had
less than seven years of age. What it offered instead is another rejected the proposal and recommendation. Secondly, having an
plan known as the Juvenile Triple Action, which private insurable interest on the life of his one-year old daughter, aside
respondent failed to accept. In the absence of a meeting of the from being an insurance agent and an offense associate of
minds between petitioner Pacific Life and private respondent Ngo petitioner Mondragon, private respondent Ngo Hing must have
Hing over the 20-year endowment life insurance in the amount of known and followed the progress on the processing of such
P50,000.00 in favor of the latter's one-year old daughter, and with application and could not pretend ignorance of the Company's
the non-compliance of the abovequoted conditions stated in the rejection of the 20-year endowment life insurance application.
disputed binding deposit receipt, there could have been no
insurance contract duly perfected between thenl Accordingly, the At this juncture, We find it fit to quote with approval, the very apt
deposit paid by private respondent shall have to be refunded by observation of then Appellate Associate Justice Ruperto G.
Pacific Life. Martin who later came up to this Court, from his dissenting
opinion to the amended decision of the respondent court which
As held in De Lim vs. Sun Life Assurance Company of completely reversed the original decision, the following:
Canada, supra, "a contract of insurance, like other contracts,
must be assented to by both parties either in person or by their Of course, there is the insinuation that neither the
agents ... The contract, to be binding from the date of the memorandum of rejection (Exhibit 3-M) nor the
application, must have been a completed contract, one that reply thereto of appellant Mondragon reiterating
leaves nothing to be dione, nothing to be completed, nothing to the desire for applicant's father to have the
be passed upon, or determined, before it shall take effect. There application considered as one for a 20-year
can be no contract of insurance unless the minds of the parties endowment plan was ever duly communicated to
have met in agreement." Ngo; Hing, father of the minor applicant. I am not
quite conninced that this was so. Ngo Hing, as
We are not impressed with private respondent's contention that father of the applicant herself, was precisely the
failure of petitioner Mondragon to communicate to him the "underwriter who wrote this case" (Exhibit H-1).
rejection of the insurance application would not have any adverse The unchallenged statement of appellant
effect on the allegedly perfected temporary contract Mondragon in his letter of May 6, 1957) (Exhibit 4-
(Respondent's Brief, pp. 13-14). In this first place, there was no M), specifically admits that said Ngo Hing was
contract perfected between the parties who had no meeting of "our associate" and that it was the latter who
16

"insisted that the plan be placed on the 20-year said significant fact in the insurance application fom Pacific Life
endowment plan." Under these circumstances, it would have verified the same and would have had no choice but
is inconceivable that the progress in the to disapprove the application outright.
processing of the application was not brought
home to his knowledge. He must have been duly The contract of insurance is one of perfect good faith uberrima
apprised of the rejection of the application for a fides meaning good faith, absolute and perfect candor or
20-year endowment plan otherwise Mondragon openness and honesty; the absence of any concealment or
would not have asserted that it was Ngo Hing demotion, however slight [Black's Law Dictionary, 2nd Edition],
himself who insisted on the application as not for the alone but equally so for the insurer (Field man's
originally filed, thereby implictly declining the offer Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70).
to consider the application under the Juvenile Concealment is a neglect to communicate that which a partY
Triple Action Plan. Besides, the associate of knows aDd Ought to communicate (Section 25, Act No. 2427).
Mondragon that he was, Ngo Hing should only be Whether intentional or unintentional the concealment entitles the
presumed to know what kind of policies are insurer to rescind the contract of insurance (Section 26, Id.: Yu
available in the company for minors below 7 years Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino
old. What he and Mondragon were apparently vs. Philippine American Life Insurance Company, 7 SCRA 316).
trying to do in the premises was merely to prod Private respondent appears guilty thereof.
the company into going into the business of
issuing endowment policies for minors just as We are thus constrained to hold that no insurance contract was
other insurance companies allegedly do. Until perfected between the parties with the noncompliance of the
such a definite policy is however, adopted by the conditions provided in the binding receipt, and concealment, as
company, it can hardly be said that it could have legally defined, having been comraitted by herein private
been bound at all under the binding slip for a plan respondent.
of insurance that it could not have, by then issued
at all. (Amended Decision, Rollo, pp- 52-53).
WHEREFORE, the decision appealed from is hereby set aside,
and in lieu thereof, one is hereby entered absolving petitioners
2. Relative to the second issue of alleged concealment. this Court Lapulapu D. Mondragon and Great Pacific Life Assurance
is of the firm belief that private respondent had deliberately Company from their civil liabilities as found by respondent Court
concealed the state of health and piysical condition of his and ordering the aforesaid insurance company to reimburse the
daughter Helen Go. Wher private regpondeit supplied the amount of P1,077.75, without interest, to private respondent, Ngo
required essential data for the insurance application form, he was Hing. Costs against private respondent.
fully aware that his one-year old daughter is typically a mongoloid
child. Such a congenital physical defect could never be
SO ORDERED.
ensconced nor disguished. Nonetheless, private respondent, in
apparent bad faith, withheld the fact materal to the risk to be
assumed by the insurance compary. As an insurance agent of
Pacific Life, he ought to know, as he surely must have known. his
duty and responsibility to such a material fact. Had he diamond
17

G.R. No. 125678 March 18, 2002 the Health Care Agreement was void. According to petitioner,
there was a concealment regarding Ernani’s medical history.
PHILAMCARE HEALTH SYSTEMS, INC., petitioner, Doctors at the MMC allegedly discovered at the time of Ernani’s
vs. confinement that he was hypertensive, diabetic and asthmatic,
COURT OF APPEALS and JULITA TRINOS, respondents. contrary to his answer in the application form. Thus, respondent
paid the hospitalization expenses herself, amounting to about
YNARES-SANTIAGO, J.: P76,000.00.

Ernani Trinos, deceased husband of respondent Julita Trinos, After her husband was discharged from the MMC, he was
applied for a health care coverage with petitioner Philamcare attended by a physical therapist at home. Later, he was admitted
Health Systems, Inc. In the standard application form, he at the Chinese General Hospital. Due to financial difficulties,
answered no to the following question: however, respondent brought her husband home again. In the
morning of April 13, 1990, Ernani had fever and was feeling very
weak. Respondent was constrained to bring him back to the
Have you or any of your family members ever consulted
Chinese General Hospital where he died on the same day.
or been treated for high blood pressure, heart trouble,
diabetes, cancer, liver disease, asthma or peptic ulcer? (If
Yes, give details).1 On July 24, 1990, respondent instituted with the Regional Trial
Court of Manila, Branch 44, an action for damages against
petitioner and its president, Dr. Benito Reverente, which was
The application was approved for a period of one year from
docketed as Civil Case No. 90-53795. She asked for
March 1, 1988 to March 1, 1989. Accordingly, he was issued
reimbursement of her expenses plus moral damages and
Health Care Agreement No. P010194. Under the agreement,
attorney’s fees. After trial, the lower court ruled against
respondent’s husband was entitled to avail of hospitalization
petitioners, viz:
benefits, whether ordinary or emergency, listed therein. He was
also entitled to avail of "out-patient benefits" such as annual
physical examinations, preventive health care and other out- WHEREFORE, in view of the forgoing, the Court renders
patient services. judgment in favor of the plaintiff Julita Trinos, ordering:

Upon the termination of the agreement, the same was extended 1. Defendants to pay and reimburse the medical and
for another year from March 1, 1989 to March 1, 1990, then from hospital coverage of the late Ernani Trinos in the amount
March 1, 1990 to June 1, 1990. The amount of coverage was of P76,000.00 plus interest, until the amount is fully paid
increased to a maximum sum of P75,000.00 per disability.2 to plaintiff who paid the same;

During the period of his coverage, Ernani suffered a heart attack 2. Defendants to pay the reduced amount of moral
and was confined at the Manila Medical Center (MMC) for one damages of P10,000.00 to plaintiff;
month beginning March 9, 1990. While her husband was in the
hospital, respondent tried to claim the benefits under the health 3. Defendants to pay the reduced amount of P10,000.00
care agreement. However, petitioner denied her claim saying that as exemplary damages to plaintiff;
18

4. Defendants to pay attorney’s fees of P20,000.00, plus 2. The insured is subject to a risk of loss by the
costs of suit. happening of the designated peril;

SO ORDERED.3 3. The insurer assumes the risk;

On appeal, the Court of Appeals affirmed the decision of the trial 4. Such assumption of risk is part of a general scheme to
court but deleted all awards for damages and absolved petitioner distribute actual losses among a large group of persons
Reverente.4 Petitioner’s motion for reconsideration was bearing a similar risk; and
denied.5 Hence, petitioner brought the instant petition for review,
raising the primary argument that a health care agreement is not 5. In consideration of the insurer’s promise, the insured
an insurance contract; hence the "incontestability clause" under pays a premium.8
the Insurance Code6 does not apply. 1âw phi 1.nêt

Section 3 of the Insurance Code states that any contingent or

Petitioner argues that the agreement grants "living benefits," such unknown event, whether past or future, which may damnify a
as medical check-ups and hospitalization which a member may person having an insurable interest against him, may be insured
immediately enjoy so long as he is alive upon effectivity of the against. Every person has an insurable interest in the life
agreement until its expiration one-year thereafter. Petitioner also and health of himself. Section 10 provides:
points out that only medical and hospitalization benefits are given
under the agreement without any indemnification, unlike in an Every person has an insurable interest in the life and
insurance contract where the insured is indemnified for his loss. health:
Moreover, since Health Care Agreements are only for a period of
one year, as compared to insurance contracts which last
(1) of himself, of his spouse and of his children;
longer,7 petitioner argues that the incontestability clause does not
apply, as the same requires an effectivity period of at least two
years. Petitioner further argues that it is not an insurance (2) of any person on whom he depends wholly or in part
company, which is governed by the Insurance Commission, but a for education or support, or in whom he has a pecuniary
Health Maintenance Organization under the authority of the interest;
Department of Health.
(3) of any person under a legal obligation to him for the
Section 2 (1) of the Insurance Code defines a contract of payment of money, respecting property or service, of
insurance as an agreement whereby one undertakes for a which death or illness might delay or prevent the
consideration to indemnify another against loss, damage or performance; and
liability arising from an unknown or contingent event. An
insurance contract exists where the following elements concur: (4) of any person upon whose life any estate or interest
vested in him depends.
1. The insured has an insurable interest;
In the case at bar, the insurable interest of respondent’s husband
in obtaining the health care agreement was his own health. The
19

health care agreement was in the nature of non-life insurance, In addition to the above condition, petitioner additionally required
which is primarily a contract of indemnity.9 Once the member the applicant for authorization to inquire about the applicant’s
incurs hospital, medical or any other expense arising from medical history, thus:
sickness, injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed upon under I hereby authorize any person, organization, or entity that
the contract. has any record or knowledge of my health and/or that of
__________ to give to the PhilamCare Health Systems,
Petitioner argues that respondent’s husband concealed a material Inc. any and all information relative to any hospitalization,
fact in his application. It appears that in the application for health consultation, treatment or any other medical advice or
coverage, petitioners required respondent’s husband to sign an examination. This authorization is in connection with the
express authorization for any person, organization or entity that application for health care coverage only. A photographic
has any record or knowledge of his health to furnish any and all copy of this authorization shall be as valid as the
information relative to any hospitalization, consultation, treatment original.12 (Underscoring ours)
or any other medical advice or examination.10 Specifically, the
Health Care Agreement signed by respondent’s husband states: Petitioner cannot rely on the stipulation regarding "Invalidation of
agreement" which reads:
We hereby declare and agree that all statement and
answers contained herein and in any addendum annexed Failure to disclose or misrepresentation of any material
to this application are full, complete and true and bind all information by the member in the application or medical
parties in interest under the Agreement herein applied for, examination, whether intentional or unintentional, shall
that there shall be no contract of health care coverage automatically invalidate the Agreement from the very
unless and until an Agreement is issued on this beginning and liability of Philamcare shall be limited to
application and the full Membership Fee according to the return of all Membership Fees paid. An undisclosed or
mode of payment applied for is actually paid during the misrepresented information is deemed material if its
lifetime and good health of proposed Members; that no revelation would have resulted in the declination of the
information acquired by any Representative of applicant by Philamcare or the assessment of a higher
PhilamCare shall be binding upon PhilamCare unless set Membership Fee for the benefit or benefits applied for.13
out in writing in the application; that any physician is, by
these presents, expressly authorized to disclose or give The answer assailed by petitioner was in response to the
testimony at anytime relative to any information acquired question relating to the medical history of the applicant. This
by him in his professional capacity upon any question largely depends on opinion rather than fact, especially coming
affecting the eligibility for health care coverage of the from respondent’s husband who was not a medical doctor. Where
Proposed Members and that the acceptance of any matters of opinion or judgment are called for, answers made in
Agreement issued on this application shall be a good faith and without intent to deceive will not avoid a policy
ratification of any correction in or addition to this even though they are untrue.14 Thus,
application as stated in the space for Home Office
Endorsement.11 (Underscoring ours)
20

(A)lthough false, a representation of the expectation, 1. Prior notice of cancellation to insured;

intention, belief, opinion, or judgment of the insured will
not avoid the policy if there is no actual fraud in inducing 2. Notice must be based on the occurrence after effective date of
the acceptance of the risk, or its acceptance at a lower the policy of one or more of the grounds mentioned;
rate of premium, and this is likewise the rule although the
statement is material to the risk, if the statement is 3. Must be in writing, mailed or delivered to the insured at the
obviously of the foregoing character, since in such case address shown in the policy;
the insurer is not justified in relying upon such statement,
but is obligated to make further inquiry. There is a clear
4. Must state the grounds relied upon provided in Section 64 of
distinction between such a case and one in which the
the Insurance Code and upon request of insured, to furnish facts
insured is fraudulently and intentionally states to be true,
on which cancellation is based.18
as a matter of expectation or belief, that which he then
knows, to be actually untrue, or the impossibility of which
is shown by the facts within his knowledge, since in such None of the above pre-conditions was fulfilled in this case. When
case the intent to deceive the insurer is obvious and the terms of insurance contract contain limitations on liability,
amounts to actual fraud.15(Underscoring ours) courts should construe them in such a way as to preclude the
insurer from non-compliance with his obligation.19 Being a
contract of adhesion, the terms of an insurance contract are to be
The fraudulent intent on the part of the insured must be
construed strictly against the party which prepared the contract –
established to warrant rescission of the insurance
the insurer.20 By reason of the exclusive control of the insurance
contract.16 Concealment as a defense for the health care provider
company over the terms and phraseology of the insurance
or insurer to avoid liability is an affirmative defense and the duty
contract, ambiguity must be strictly interpreted against the insurer
to establish such defense by satisfactory and convincing
and liberally in favor of the insured, especially to avoid
evidence rests upon the provider or insurer. In any case, with or
forfeiture.21 This is equally applicable to Health Care Agreements.
without the authority to investigate, petitioner is liable for claims
The phraseology used in medical or hospital service contracts,
made under the contract. Having assumed a responsibility under
such as the one at bar, must be liberally construed in favor of the
the agreement, petitioner is bound to answer the same to the
subscriber, and if doubtful or reasonably susceptible of two
extent agreed upon. In the end, the liability of the health care
interpretations the construction conferring coverage is to be
provider attaches once the member is hospitalized for the disease
adopted, and exclusionary clauses of doubtful import should be
or injury covered by the agreement or whenever he avails of the
strictly construed against the provider.22
covered benefits which he has prepaid.
Anent the incontestability of the membership of respondent’s
Under Section 27 of the Insurance Code, "a concealment entitles
husband, we quote with approval the following findings of the trial
the injured party to rescind a contract of insurance." The right to
court:
rescind should be exercised previous to the commencement of an
action on the contract.17In this case, no rescission was made.
Besides, the cancellation of health care agreements as in (U)nder the title Claim procedures of expenses, the
insurance policies require the concurrence of the following defendant Philamcare Health Systems Inc. had twelve
conditions: months from the date of issuance of the Agreement within
21

which to contest the membership of the patient if he had G.R. No. L-36413 September 26, 1988
previous ailment of asthma, and six months from the
issuance of the agreement if the patient was sick of MALAYAN INSURANCE CO., INC., petitioner,
diabetes or hypertension. The periods having expired, the vs.
defense of concealment or misrepresentation no longer THE HON. COURT OF APPEALS (THIRD DIVISION) MARTIN
lie.23 C. VALLEJOS, SIO CHOY, SAN LEON RICE MILL, INC. and
PANGASINAN TRANSPORTATION CO., INC., respondents.
Finally, petitioner alleges that respondent was not the legal wife
of the deceased member considering that at the time of their Freqillana Jr. for petitioner.
marriage, the deceased was previously married to another
woman who was still alive. The health care agreement is in the B.F. Estrella & Associates for respondent Martin Vallejos.
nature of a contract of indemnity. Hence, payment should be
made to the party who incurred the expenses. It is not
Vicente Erfe Law Office for respondent Pangasinan
controverted that respondent paid all the hospital and medical
Transportation Co., Inc.
expenses. She is therefore entitled to reimbursement. The
records adequately prove the expenses incurred by respondent
for the deceased’s hospitalization, medication and the Nemesio Callanta for respondent Sio Choy and San Leon Rice
professional fees of the attending physicians.24 Mill, Inc.

WHEREFORE, in view of the foregoing, the petition is DENIED.

The assailed decision of the Court of Appeals dated December
14, 1995 is AFFIRMED. PADILLA, J.:

Review on certiorari of the judgment * of the respondent appellate court in CA-G.R. No.
SO ORDERED. 47319-R, dated 22 February 1973, which affirmed, with some modifications, the
decision, ** dated 27 April 1970, rendered in Civil Case No. U-2021 of the Court of First
Instance of Pangasinan.

The antecedent facts of the case are as follows:

On 29 March 1967, herein petitioner, Malayan Insurance Co.,

Inc., issued in favor of private respondent Sio Choy Private Car
Comprehensive Policy No. MRO/PV-15753, effective from 18
April 1967 to 18 April 1968, covering a Willys jeep with Motor No.
ET-03023 Serial No. 351672, and Plate No. J-21536, Quezon
City, 1967. The insurance coverage was for "own damage" not to
exceed P600.00 and "third-party liability" in the amount of
P20,000.00.
22

During the effectivity of said insurance policy, and more cross-claim against the herein petitioner, he alleged that the
particularly on 19 December 1967, at about 3:30 o'clock in the petitioner had issued in his favor a private car comprehensive
afternoon, the insured jeep, while being driven by one Juan P. policy wherein the insurance company obligated itself to
Campollo an employee of the respondent San Leon Rice Mill, indemnify Sio Choy, as insured, for the damage to his motor
Inc., collided with a passenger bus belonging to the respondent vehicle, as well as for any liability to third persons arising out of
Pangasinan Transportation Co., Inc. (PANTRANCO, for short) at any accident during the effectivity of such insurance contract,
the national highway in Barrio San Pedro, Rosales, Pangasinan, which policy was in full force and effect when the vehicular
causing damage to the insured vehicle and injuries to the driver, accident complained of occurred. He prayed that he be
Juan P. Campollo, and the respondent Martin C. Vallejos, who reimbursed by the insurance company for the amount that he
was riding in the ill-fated jeep. may be ordered to pay.

As a result, Martin C. Vallejos filed an action for damages against Also later, the herein petitioner sought, and was granted, leave to
Sio Choy, Malayan Insurance Co., Inc. and the PANTRANCO file a third-party complaint against the San Leon Rice Mill, Inc. for
before the Court of First Instance of Pangasinan, which was the reason that the person driving the jeep of Sio Choy, at the
docketed as Civil Case No. U-2021. He prayed therein that the time of the accident, was an employee of the San Leon Rice Mill,
defendants be ordered to pay him, jointly and severally, the Inc. performing his duties within the scope of his assigned task,
amount of P15,000.00, as reimbursement for medical and and not an employee of Sio Choy; and that, as the San Leon Rice
hospital expenses; P6,000.00, for lost income; P51,000.00 as Mill, Inc. is the employer of the deceased driver, Juan P.
actual, moral and compensatory damages; and P5,000.00, for Campollo, it should be liable for the acts of its employee,
attorney's fees. pursuant to Art. 2180 of the Civil Code. The herein petitioner
prayed that judgment be rendered against the San Leon Rice Mill,
Answering, PANTRANCO claimed that the jeep of Sio Choy was Inc., making it liable for the amounts claimed by the plaintiff
then operated at an excessive speed and bumped the and/or ordering said San Leon Rice Mill, Inc. to reimburse and
PANTRANCO bus which had moved to, and stopped at, the indemnify the petitioner for any sum that it may be ordered to pay
shoulder of the highway in order to avoid the jeep; and that it had the plaintiff.
observed the diligence of a good father of a family to prevent
damage, especially in the selection and supervision of its After trial, judgment was rendered as follows:
employees and in the maintenance of its motor vehicles. It prayed
that it be absolved from any and all liability. WHEREFORE, in view of the foregoing findings of
this Court judgment is hereby rendered in favor of
Defendant Sio Choy and the petitioner insurance company, in the plaintiff and against Sio Choy and Malayan
their answer, also denied liability to the plaintiff, claiming that the Insurance Co., Inc., and third-party defendant San
fault in the accident was solely imputable to the PANTRANCO. Leon Rice Mill, Inc., as follows:

Sio Choy, however, later filed a separate answer with a cross- (a) P4,103 as actual damages;
claim against the herein petitioner wherein he alleged that he had
actually paid the plaintiff, Martin C. Vallejos, the amount of
P5,000.00 for hospitalization and other expenses, and, in his
23

(b) P18,000.00 representing the unearned income (1/2) of the entire amount of damages, petitioner may be ordered
of plaintiff Martin C. Vallejos for the period of three to pay jointly and severally with Sio Choy.
(3) years;
The Court, acting upon the petition, gave due course to the same,
(c) P5,000.00 as moral damages; but "only insofar as it concerns the alleged liability of respondent
San Leon Rice Mill, Inc. to petitioner, it being understood that no
(d) P2,000.00 as attomey's fees or the total of other aspect of the decision of the Court of Appeals shall be
P29,103.00, plus costs. reviewed, hence, execution may already issue in favor of
respondent Martin C. Vallejos against the respondents, without
The above-named parties against whom this prejudice to the determination of whether or not petitioner shall be
judgment is rendered are hereby held jointly and entitled to reimbursement by respondent San Leon Rice Mill, Inc.
severally liable. With respect, however, to for the whole or part of whatever the former may pay on the
Malayan Insurance Co., Inc., its liability will be up P20,000.00 it has been adjudged to pay respondent Vallejos." 3
to only P20,000.00.
However, in order to determine the alleged liability of respondent
As no satisfactory proof of cost of damage to its San Leon Rice Mill, Inc. to petitioner, it is important to determine
bus was presented by defendant Pantranco, no first the nature or basis of the liability of petitioner to respondent
award should be made in its favor. Its counter- Vallejos, as compared to that of respondents Sio Choy and San
claim for attorney's fees is also dismissed for not Leon Rice Mill, Inc.
being proved. 1
Therefore, the two (2) principal issues to be resolved are (1)
On appeal, the respondent Court of Appeals affirmed the whether the trial court, as upheld by the Court of Appeals, was
judgment of the trial court that Sio Choy, the San Leon Rice Mill, correct in holding petitioner and respondents Sio Choy and San
Inc. and the Malayan Insurance Co., Inc. are jointly and severally Leon Rice Mill, Inc. "solidarily liable" to respondent Vallejos; and
liable for the damages awarded to the plaintiff Martin C. Vallejos. (2) whether petitioner is entitled to be reimbursed by respondent
It ruled, however, that the San Leon Rice Mill, Inc. has no San Leon Rice Mill, Inc. for whatever amount petitioner has been
obligation to indemnify or reimburse the petitioner insurance adjudged to pay respondent Vallejos on its insurance policy.
company for whatever amount it has been ordered to pay on its
policy, since the San Leon Rice Mill, Inc. is not a privy to the As to the first issue, it is noted that the trial court found, as
contract of insurance between Sio Choy and the insurance affirmed by the appellate court, that petitioner and respondents
company. 2 Sio Choy and San Leon Rice Mill, Inc. are jointly and severally
liable to respondent Vallejos.
Hence, the present recourse by petitioner insurance company.
We do not agree with the aforesaid ruling. We hold instead that it
The petitioner prays for the reversal of the appellate court's is only respondents Sio Choy and San Leon Rice Mill, Inc, (to the
judgment, or, in the alternative, to order the San Leon Rice Mill, exclusion of the petitioner) that are solidarily liable to respondent
Inc. to reimburse petitioner any amount, in excess of one-half Vallejos for the damages awarded to Vallejos.
24

It must be observed that respondent Sio Choy is made liable to The responsibility treated in this article shall
said plaintiff as owner of the ill-fated Willys jeep, pursuant to cease when the persons herein mentioned proved
Article 2184 of the Civil Code which provides: that they observed all the diligence of a good
father of a family to prevent damage.
Art. 2184. In motor vehicle mishaps, the owner is
solidarily liable with his driver, if the former, who It thus appears that respondents Sio Choy and San Leon Rice
was in the vehicle, could have, by the use of due Mill, Inc. are the principal tortfeasors who are primarily liable to
diligence, prevented the misfortune it is disputably respondent Vallejos. The law states that the responsibility of two
presumed that a driver was negligent, if he had or more persons who are liable for a quasi-delict is solidarily.4
been found guilty of reckless driving or violating
traffic regulations at least twice within the next On the other hand, the basis of petitioner's liability is its insurance
preceding two months. contract with respondent Sio Choy. If petitioner is adjudged to pay
respondent Vallejos in the amount of not more than P20,000.00,
If the owner was not in the motor vehicle, the this is on account of its being the insurer of respondent Sio Choy
provisions of article 2180 are applicable. under the third party liability clause included in the private car
comprehensive policy existing between petitioner and respondent
On the other hand, it is noted that the basis of liability of Sio Choy at the time of the complained vehicular accident.
respondent San Leon Rice Mill, Inc. to plaintiff Vallejos, the
former being the employer of the driver of the Willys jeep at the In Guingon vs. Del Monte, 5 a passenger of a jeepney had just
time of the motor vehicle mishap, is Article 2180 of the Civil Code alighted therefrom, when he was bumped by another passenger
which reads: jeepney. He died as a result thereof. In the damage suit filed by
the heirs of said passenger against the driver and owner of the
Art. 2180. The obligation imposed by article 2176 jeepney at fault as well as against the insurance company which
is demandable not only for one's own acts or insured the latter jeepney against third party liability, the trial
omissions, but also for those of persons for whom court, affirmed by this Court, adjudged the owner and the driver of
one is responsible. the jeepney at fault jointly and severally liable to the heirs of the
victim in the total amount of P9,572.95 as damages and
xxx xxx xxx attorney's fees; while the insurance company was sentenced to
pay the heirs the amount of P5,500.00 which was to be applied
as partial satisfaction of the judgment rendered against said
Employers shall be liable for the damages caused
owner and driver of the jeepney. Thus, in said Guingon case, it
by their employees and household helpers acting
was only the owner and the driver of the jeepney at fault, not
within the scope of their assigned tasks, even
including the insurance company, who were held solidarily liable
though the former are not engaged ill any
to the heirs of the victim.
business or industry.
While it is true that where the insurance contract provides for
xxx xxx xxx
indemnity against liability to third persons, such third persons can
directly sue the insurer, 6 however, the direct liability of the insurer
25

under indemnity contracts against third party liability does not solidarily liable with respondents Sio Choy and San Leon Rice
mean that the insurer can be held solidarily liable with the insured Mill, Inc. to respondent Vallejos.
and/or the other parties found at fault. The liability of the insurer is
based on contract; that of the insured is based on tort. As to the second issue, the Court of Appeals, in affirming the
decision of the trial court, ruled that petitioner is not entitled to be
In the case at bar, petitioner as insurer of Sio Choy, is liable to reimbursed by respondent San Leon Rice Mill, Inc. on the ground
respondent Vallejos, but it cannot, as incorrectly held by the trial that said respondent is not privy to the contract of insurance
court, be made "solidarily" liable with the two principal tortfeasors existing between petitioner and respondent Sio Choy. We
namely respondents Sio Choy and San Leon Rice Mill, Inc. For if disagree.
petitioner-insurer were solidarily liable with said two (2)
respondents by reason of the indemnity contract against third The appellate court overlooked the principle of subrogation in
party liability-under which an insurer can be directly sued by a insurance contracts. Thus —
third party — this will result in a violation of the principles
underlying solidary obligation and insurance contracts. ... Subrogation is a normal incident of indemnity
insurance (Aetna L. Ins. Co. vs. Moses, 287 U.S.
In solidary obligation, the creditor may enforce the entire 530, 77 L. ed. 477). Upon payment of the loss, the
obligation against one of the solidary debtors. 7 On the other insurer is entitled to be subrogated pro tanto to
hand, insurance is defined as "a contract whereby one any right of action which the insured may have
undertakes for a consideration to indemnify another against loss, against the third person whose negligence or
damage, or liability arising from an unknown or contingent wrongful act caused the loss (44 Am. Jur. 2nd
event." 8 745, citing Standard Marine Ins. Co. vs. Scottish
Metropolitan Assurance Co., 283 U.S. 284, 75 L.
In the case at bar, the trial court held petitioner together with ed. 1037).
respondents Sio Choy and San Leon Rice Mills Inc. solidarily
liable to respondent Vallejos for a total amount of P29,103.00, The right of subrogation is of the highest equity.
with the qualification that petitioner's liability is only up to The loss in the first instance is that of the insured
P20,000.00. In the context of a solidary obligation, petitioner may but after reimbursement or compensation, it
be compelled by respondent Vallejos to pay the entire obligation becomes the loss of the insurer (44 Am. Jur. 2d,
of P29,013.00, notwithstanding the qualification made by the trial 746, note 16, citing Newcomb vs. Cincinnati Ins.
court. But, how can petitioner be obliged to pay the entire Co., 22 Ohio St. 382).
obligation when the amount stated in its insurance policy with
respondent Sio Choy for indemnity against third party liability is Although many policies including policies in the
only P20,000.00? Moreover, the qualification made in the standard form, now provide for subrogation, and
decision of the trial court to the effect that petitioner is sentenced thus determine the rights of the insurer in this
to pay up to P20,000.00 only when the obligation to pay respect, the equitable right of subrogation as the
P29,103.00 is made solidary, is an evident breach of the concept legal effect of payment inures to the insurer
of a solidary obligation. Thus, We hold that the trial court, as without any formal assignment or any express
upheld by the Court of Appeals, erred in holding petitioner,
26

stipulation to that effect in the policy" (44 Am. Jur. In accordance with Article 1217, petitioner, upon payment to
2nd 746). Stated otherwise, when the insurance respondent Vallejos and thereby becoming the subrogee of
company pays for the loss, such payment solidary debtor Sio Choy, is entitled to reimbursement from
operates as an equitable assignment to the respondent San Leon Rice Mill, Inc.
insurer of the property and all remedies which the
insured may have for the recovery thereof. That To recapitulate then: We hold that only respondents Sio Choy
right is not dependent upon , nor does it grow out and San Leon Rice Mill, Inc. are solidarily liable to the respondent
of any privity of contract (emphasis supplied) or Martin C. Vallejos for the amount of P29,103.00. Vallejos may
upon written assignment of claim, and payment to enforce the entire obligation on only one of said solidary debtors.
the insured makes the insurer assignee in equity If Sio Choy as solidary debtor is made to pay for the entire
(Shambley v. Jobe-Blackley Plumbing and obligation (P29,103.00) and petitioner, as insurer of Sio Choy, is
Heating Co., 264 N.C. 456, 142 SE 2d 18). 9 compelled to pay P20,000.00 of said entire obligation, petitioner
would be entitled, as subrogee of Sio Choy as against San Leon
It follows, therefore, that petitioner, upon paying respondent Rice Mills, Inc., to be reimbursed by the latter in the amount of
Vallejos the amount of riot exceeding P20,000.00, shall become P14,551.50 (which is 1/2 of P29,103.00 )
the subrogee of the insured, the respondent Sio Choy; as such, it
is subrogated to whatever rights the latter has against respondent WHEREFORE, the petition is GRANTED. The decision of the trial
San Leon Rice Mill, Inc. Article 1217 of the Civil Code gives to a court, as affirmed by the Court of Appeals, is hereby AFFIRMED,
solidary debtor who has paid the entire obligation the right to be with the modification above-mentioned. Without pronouncement
reimbursed by his co-debtors for the share which corresponds to as to costs.
each.
SO ORDERED.
Art. 1217. Payment made by one of the solidary
debtors extinguishes the obligation. If two or more
solidary debtors offer to pay, the creditor may
choose which offer to accept.

He who made the payment may claim from his co-

debtors only the share which corresponds to
each, with the interest for the payment already
made. If the payment is made before the debt is
due, no interest for the intervening period may be
demanded.

xxx xxx xxx

27

G.R. No. 138941 October 8, 2001 oil mill. It stated that the description of the insured establishment
referred to another building thus: "Our policy nos. 306-7432321-9
AMERICAN HOME ASSURANCE COMPANY, petitioner, (Ps 6M) and 306-7432324-4 (Ps 3M) extend insurance coverage
vs. to your oil mill under Building No. 5, whilst the affected oil mill was
TANTUCO ENTERPRISES, INC., respondent. under Building No. 14. "5

PUNO, J.: A complaint for specific performance and damages was

consequently instituted by the respondent with the RTC, Branch
Before us is a Petition for Review on Certiorari assailing the 53 of Lucena City. On October 16, 1995, after trial, the lower
Decision of the Court of Appeals in CA-G.R. CV No. 52221 court rendered a Decision finding the petitioner liable on the
promulgated on January 14, 1999, which affirmed in toto the insurance policy thus:
Decision of the Regional Trial Court, Branch 53, Lucena City in
Civil Case No. 92-51 dated October 16, 1995. "WHEREFORE, judgment is rendered in favor of the
plaintiff ordering defendant to pay plaintiff:
Respondent Tantuco Enterprises, Inc. is engaged in the coconut
oil milling and refining industry. It owns two oil mills. Both are (a) P4,406,536.40 representing damages for loss by fire
located at factory compound at Iyam, Lucena City. It appears that of its insured property with interest at the legal rate;
respondent commenced its business operations with only one oil
mill. In 1988, it started operating its second oil mill. The latter (b) P80,000.00 for litigation expenses;
came to be commonly referred to as the new oil mill.
(c) P300,000.00 for and as attorney's fees; and
The two oil mills were separately covered by fire insurance
policies issued by petitioner American Home Assurance Co., (d) Pay the costs.
Philippine Branch.1 The first oil mill was insured for three million
pesos (P3,000,000.00) under Policy No. 306-7432324-3 for the SO ORDERED."6
period March 1, 1991 to 1992.2 The new oil mill was insured for
six million pesos (P6,000,000.00) under Policy No. 306-7432321-
Petitioner assailed this judgment before the Court of Appeals.
9 for the same term.3 Official receipts indicating payment for the
The appellate court upheld the same in a Decision promulgated
full amount of the premium were issued by the petitioner's agent.4
on January 14, 1999, the pertinent portion of which states:
A fire that broke out in the early morning of September 30,1991
"WHEREFORE, the instant appeal is hereby DISMISSED
gutted and consumed the new oil mill. Respondent immediately
for lack of merit and the trial court's Decision dated
notified the petitioner of the incident. The latter then sent its
October 16, 1995 is hereby AFFIRMED in toto.
appraisers who inspected the burned premises and the properties
destroyed. Thereafter, in a letter dated October 15, 1991,
petitioner rejected respondent's claim for the insurance proceeds SO ORDERED."7
on the ground that no policy was issued by it covering the burned
28

Petitioner moved for reconsideration. The motion, however, was However, it argues that this specific boundary description clearly
denied for lack of merit in a Resolution promulgated on June 10, pertains, not to the burned oil mill, but to the other mill. In other
1999. words, the oil mill gutted by fire was not the one described by the
specific boundaries in the contested policy.
Hence, the present course of action, where petitioner ascribes to
the appellate court the following errors: What exacerbates respondent's predicament, petitioner posits, is
that it did not have the supposed wrong description or mistake
"(1) The Court of Appeals erred in its conclusion that the corrected. Despite the fact that the policy in question was issued
issue of non-payment of the premium was beyond its way back in 1988, or about three years before the fire, and
jurisdiction because it was raised for the first time on despite the "Important Notice" in the policy that "Please read and
appeal."8 examine the policy and if incorrect, return it immediately for
alteration," respondent apparently did not call petitioner's
"(2) The Court of Appeals erred in its legal interpretation attention with respect to the misdescription.
of 'Fire Extinguishing Appliances Warranty' of the policy."9
By way of conclusion, petitioner argues that respondent is "barred
"(3) With due respect, the conclusion of the Court of by the parole evidence rule from presenting evidence (other than
Appeals giving no regard to the parole evidence rule and the policy in question) of its self-serving intention (sic) that it
the principle of estoppel is erroneous."10 intended really to insure the burned oil mill," just as it is "barred
by estoppel from claiming that the description of the insured oil
mill in the policy was wrong, because it retained the policy without
The petition is devoid of merit.
having the same corrected before the fire by an endorsement in
accordance with its Condition No. 28."
The primary reason advanced by the petitioner in resisting the
claim of the respondent is that the burned oil mill is not covered
These contentions can not pass judicial muster.
by any insurance policy. According to it, the oil mill insured is
specifically described in the policy by its boundaries in the
following manner: In construing the words used descriptive of a building insured, the
greatest liberality is shown by the courts in giving effect to the
insurance.11 In view of the custom of insurance agents to examine
"Front: by a driveway thence at 18 meters distance by
buildings before writing policies upon them, and since a mistake
Bldg. No. 2.
as to the identity and character of the building is extremely
unlikely, the courts are inclined to consider that the policy of
Right: by an open space thence by Bldg. No. 4. insurance covers any building which the parties manifestly
intended to insure, however inaccurate the description may be.12
Left: Adjoining thence an imperfect wall by Bldg. No. 4.
Notwithstanding, therefore, the misdescription in the policy, it is
Rear: by an open space thence at 8 meters distance." beyond dispute, to our mind, that what the parties manifestly
intended to insure was the new oil mill. This is obvious from the
29

categorical statement embodied in the policy, extending its typed is that the description of the boundaries from
protection: the old policy was copied but she inserted covering
the new oil mill and to me at that time the important
"On machineries and equipment with complete thing is that it covered the new oil mill because it is
accessories usual to a coconut oil mill including stocks of just within one compound and there are only two oil
copra, copra cake and copra mills whilst contained in mill[s] and so just enough, I had the policy prepared. In
the new oil mill building, situate (sic) at UNNO. ALONG fact, two policies were prepared having the same date
NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY one for the old one and the other for the new oil mill and
UNBLOCKED.''13 (emphasis supplied.) exactly the same policy period, sir."14(emphasis supplied)

If the parties really intended to protect the first oil mill, then there It is thus clear that the source of the discrepancy happened
is no need to specify it as new. during the preparation of the written contract.

Indeed, it would be absurd to assume that respondent would These facts lead us to hold that the present case falls within one
protect its first oil mill for different amounts and leave uncovered of the recognized exceptions to the parole evidence rule. Under
its second one. As mentioned earlier, the first oil mill is already the Rules of Court, a party may present evidence to modify,
covered under Policy No. 306-7432324-4 issued by the petitioner. explain or add to the terms of the written agreement if he puts in
It is unthinkable for respondent to obtain the other policy from the issue in his pleading, among others, its failure to express the true
very same company. The latter ought to know that a second intent and agreement of the parties thereto.15 Here, the
agreement over that same realty results in its over insurance. contractual intention of the parties cannot be understood from a
mere reading of the instrument. Thus, while the contract explicitly
The imperfection in the description of the insured oil mill's stipulated that it was for the insurance of the new oil mill, the
boundaries can be attributed to a misunderstanding between the boundary description written on the policy concededly pertains to
petitioner's general agent, Mr. Alfredo Borja, and its policy issuing the first oil mill. This irreconcilable difference can only be clarified
clerk, who made the error of copying the boundaries of the first oil by admitting evidence aliunde, which will explain the imperfection
mill when typing the policy to be issued for the new one. As and clarify the intent of the parties.
testified to by Mr. Borja:
Anent petitioner's argument that the respondent is barred by
"Atty. G. Camaligan: estoppel from claiming that the description of the insured oil mill
in the policy was wrong, we find that the same proceeds from a
wrong assumption. Evidence on record reveals that respondent's
Q: What did you do when you received the report?
operating manager, Mr. Edison Tantuco, notified Mr. Borja (the
petitioner's agent with whom respondent negotiated for the
A: I told them as will be shown by the map the contract) about the inaccurate description in the policy. However,
intention really of Mr. Edison Tantuco is to cover the new Mr. Borja assured Mr. Tantuco that the use of the
oil mill that is why when I presented the existing policy of adjective new will distinguish the insured property. The assurance
the old policy, the policy issuing clerk just merely (sic) convinced respondent, despite the impreciseness in the
copied the wording from the old policy and what she specification of the boundaries, the insurance will cover the new
30

oil mill. This can be seen from the testimony on cross of Mr. amount of the premium and breach of the Fire Extinguishing
Tantuco: Appliances Warranty.

"ATTY. SALONGA: The amount of the premium stated on the face of the policy was
P89,770.20. From the admission of respondent's own witness,
Q: You mentioned, sir, that at least in so far as Mr. Borja, which the petitioner cited, the former only paid it
Exhibit A is concern you have read what the policy P75,147.00, leaving a difference of P14,623.20. The deficiency,
contents. (sic) petitioner argues, suffices to invalidate the policy, in accordance
with Section 77 of the Insurance Code.18
Kindly take a look in the page of Exhibit A which was
marked as Exhibit A-2 particularly the boundaries of the The Court of Appeals refused to consider this contention of the
property insured by the insurance policy Exhibit A, will petitioner. It held that this issue was raised for the first time on
you tell us as the manager of the company whether the appeal, hence, beyond its jurisdiction to resolve, pursuant to Rule
boundaries stated in Exhibit A-2 are the boundaries of the 46, Section 18 of the Rules of Court.19
old (sic) mill that was burned or not.
Petitioner, however, contests this finding of the appellate court. It
A: It was not, I called up Mr. Borja regarding this insists that the issue was raised in paragraph 24 of its Answer,
matter and he told me that what is important is the word viz.:
new oil mill. Mr. Borja said, as a matter of fact, you can
never insured (sic) one property with two (2) policies, you "24. Plaintiff has not complied with the condition of the
will only do that if you will make to increase the amount policy and renewal certificate that the renewal premium
and it is by indorsement not by another policy, sir.,16 should be paid on or before renewal date."

We again stress that the object of the court in construing a Petitioner adds that the issue was the subject of the cross-
contract is to ascertain the intent of the parties to the contract and examination of Mr. Borja, who acknowledged that the paid
to enforce the agreement which the parties have entered into. In amount was lacking by P14,623.20 by reason of a discount or
determining what the parties intended, the courts will read and rebate, which rebate under Sec. 361 of the Insurance Code is
construe the policy as a whole and if possible, give effect to all illegal.
the parts of the contract, keeping in mind always, however, the
prime rule that in the event of doubt, this doubt is to be resolved The argument fails to impress. It is true that the asseverations
against the insurer. In determining the intent of the parties to the petitioner made in paragraph 24 of its Answer ostensibly spoke of
contract, the courts will consider the purpose and object of the the policy's condition for payment of the renewal premium on time
contract.17 and respondent's non-compliance with it. Yet, it did not contain
any specific and definite allegation that respondent did not pay
In a further attempt to avoid liability, petitioner claims that the premium, or that it did not pay the full amount, or that it did
respondent forfeited the renewal policy for its failure to pay the full not pay the amount on time.
31

Likewise, when the issues to be resolved in the trial court were BREACH of this warranty shall render this policy null and void
formulated at the pre-trial proceedings, the question of the and the Company shall no longer be liable for any loss which may
supposed inadequate payment was never raised. Most significant occur."20
to point, petitioner fatally neglected to present, during the whole
course of the trial, any witness to testify that respondent indeed Petitioner argues that the warranty clearly obligates the insured to
failed to pay the full amount of the premium. The thrust of the maintain all the appliances specified therein. The breach occurred
cross-examination of Mr. Borja, on the other hand, was not for the when the respondent failed to install internal fire hydrants inside
purpose of proving this fact. Though it briefly touched on the the burned building as warranted. This fact was admitted by the
alleged deficiency, such was made in the course of discussing a oil mill's expeller operator, Gerardo Zarsuela.
discount or rebate, which the agent apparently gave the
respondent. Certainly, the whole tenor of Mr. Borja's testimony, Again, the argument lacks merit. We agree with the appellate
both during direct and cross examinations, implicitly assumed a court's conclusion that the aforementioned warranty did not
valid and subsisting insurance policy. It must be remembered that require respondent to provide for all the fire extinguishing
he was called to the stand basically to demonstrate that an appliances enumerated therein. Additionally, we find that neither
existing policy issued by the petitioner covers the burned building. did it require that the appliances are restricted to those mentioned
in the warranty. In other words, what the warranty mandates is
Finally, petitioner contends that respondent violated the express that respondent should maintain in efficient working condition
terms of the Fire Extinguishing Appliances Warranty. The said within the premises of the insured property, fire fighting
warranty provides: equipments such as, but not limited to, those identified in the list,
which will serve as the oil mill's first line of defense in case any
"WARRANTED that during the currency of this Policy, Fire part of it bursts into flame.
Extinguishing Appliances as mentioned below shall be
maintained in efficient working order on the premises to which To be sure, respondent was able to comply with the warranty.
insurance applies: Within the vicinity of the new oil mill can be found the following
devices: numerous portable fire extinguishers, two fire
- PORTABLE EXTINGUISHERS hoses,21 fire hydrant,22 and an emergency fire engine.23 All of
these equipments were in efficient working order when the fire
- INTERNAL HYDRANTS occurred.

- EXTERNAL HYDRANTS It ought to be remembered that not only are warranties strictly
construed against the insurer, but they should, likewise, by
- FIRE PUMP themselves be reasonably interpreted.24 That reasonableness is
to be ascertained in light of the factual conditions prevailing in
each case. Here, we find that there is no more need for an
- 24-HOUR SECURITY SERVICES
internal hydrant considering that inside the burned building were:
(1) numerous portable fire extinguishers, (2) an emergency fire
engine, and (3) a fire hose which has a connection to one of the
external hydrants.
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IN VIEW WHEREOF, finding no reversible error in the impugned

Decision, the instant petition is hereby DISMISSED.

SO ORDERED.