1

SECOND DIVISION
Any Lot Purchaser of the Assured who is at least 18 but not more
than 65 years of age, is indebted to the Assured for the unpaid
ETERNAL GARDENS MEMORIAL G.R. No. 166245 balance of his loan with the Assured, and is accepted for Life
PARK CORPORATION, Insurance coverage by the Company on its effective date is eligible
Petitioner, for insurance under the Policy.
Present:
CARPIO MORALES, EVIDENCE OF INSURABILITY.
- versus - Acting Chairperson,
TINGA, No medical examination shall be required for amounts of insurance
VELASCO, JR., up to P50,000.00. However, a declaration of good health shall be
CHICO-NAZARIO,* and required for all Lot Purchasers as part of the application. The
BRION, JJ. Company reserves the right to require further evidence of
THE PHILIPPINE AMERICAN Promulgated: insurability satisfactory to the Company in respect of the
LIFE INSURANCE COMPANY, following:
Respondent. April 9, 2008 1. Any amount of insurance in excess of P50,000.00.
x-----------------------------------------------------------------------------------------x 2. Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT.

D E C I S I O N
The Life Insurance coverage of any Lot Purchaser at any time shall
VELASCO, JR., J.: be the amount of the unpaid balance of his loan (including arrears
up to but not exceeding 2 months) as reported by the Assured to
The Case the Company or the sum of P100,000.00, whichever is smaller. Such
benefit shall be paid to the Assured if the Lot Purchaser dies while
Central to this Petition for Review on Certiorari under Rule 45 which seeks to insured under the Policy.
reverse and set aside the November 26, 2004 Decision[1] of the Court of Appeals
(CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the insurer on the EFFECTIVE DATE OF BENEFIT.
insurance application be considered as approval of the application?
The insurance of any eligible Lot Purchaser shall be effective on
The Facts the date he contracts a loan with the Assured. However, there shall
be no insurance if the application of the Lot Purchaser is not
On December 10, 1980, respondent Philippine American Life Insurance Company approved by the Company.[3]
(Philamlife) entered into an agreement denominated as Creditor Group Life Policy
No. P-1920[2] with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Eternal was required under the policy to submit to Philamlife a list of all new lot
Under the policy, the clients of Eternal who purchased burial lots from it on purchasers, together with a copy of the application of each purchaser, and the
installment basis would be insured by Philamlife. The amount of insurance coverage amounts of the respective unpaid balances of all insured lot purchasers. In relation
depended upon the existing balance of the purchased burial lots. The policy was to to the instant petition, Eternal complied by submitting a letter dated December 29,
be effective for a period of one year, renewable on a yearly basis. 1982,[4] containing a list of insurable balances of its lot buyers for October 1982.
One of those included in the list as new business was a certain John Chuang. His
The relevant provisions of the policy are: balance of payments was PhP 100,000. On August 2, 1984, Chuang died.

ELIGIBILITY.
2
Eternal sent a letter dated August 20, 1984[5] to Philamlife, which served as an With regard to our acceptance of premiums, these do not connote
insurance claim for Chuangs death. Attached to the claim were the following our approval per se of the insurance coverage but are held by us in
documents: (1) Chuangs Certificate of Death; (2) Identification Certificate stating trust for the payor until the prerequisites for insurance coverage
that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4) shall have been met. We will however, return all the premiums which
Certificate of Attending Physician; and (5) Assureds Certificate. have been paid in behalf of John Uy Chuang.

In reply, Philamlife wrote Eternal a letter on November 12, Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC)
1984,[6] requiring Eternal to submit the following documents relative to its insurance for a sum of money against Philamlife, docketed as Civil Case No. 14736. The trial
claim for Chuangs death: (1) Certificate of Claimant (with form attached); (2) court decided in favor of Eternal, the dispositive portion of which reads:
Assureds Certificate (with form attached); (3) Application for Insurance
accomplished and signed by the insured, Chuang, while still living; and (4) Statement WHEREFORE, premises considered, judgment is hereby rendered
of Account showing the unpaid balance of Chuang before his death. in favor of Plaintiff ETERNAL, against Defendant PHILAMLIFE,
ordering the Defendant PHILAMLIFE, to pay the sum of
Eternal transmitted the required documents through a letter P100,000.00, representing the proceeds of the Policy of John Uy
dated November 14, 1984,[7] which was received by Philamlife on November 15, 1984. Chuang, plus legal rate of interest, until fully paid; and, to pay the
sum of P10,000.00 as attorneys fees.
After more than a year, Philamlife had not furnished Eternal with any reply
to the latters insurance claim. This prompted Eternal to demand from Philamlife the SO ORDERED.
payment of the claim for PhP 100,000 on April 25, 1986.[8]
The RTC found that Eternal submitted Chuangs application for insurance
In response to Eternals demand, Philamlife denied Eternals insurance claim which he accomplished before his death, as testified to by Eternals witness and
in a letter dated May 20, 1986,[9] a portion of which reads: evidenced by the letter dated December 29, 1982, stating, among others: Encl: Phil-
Am Life Insurance Application Forms & Cert.[10] It further ruled that due to
The deceased was 59 years old when he entered into Contract Philamlifes inaction from the submission of the requirements of the group insurance
#9558 and 9529 with Eternal Gardens Memorial Park in October on December 29, 1982 to Chuangs death on August 2, 1984, as well as Philamlifes
1982 for the total maximum insurable amount of P100,000.00 each. acceptance of the premiums during the same period, Philamlife was deemed to have
No application for Group Insurance was submitted in our office approved Chuangs application. The RTC said that since the contract is a group life
prior to his death on August 2, 1984. insurance, once proof of death is submitted, payment must follow.

In accordance with our Creditors Group Life Policy No. P-1920, Philamlife appealed to the CA, which ruled, thus:
under Evidence of Insurability provision, a declaration of good
health shall be required for all Lot Purchasers as party of the WHEREFORE, the decision of the Regional Trial Court of
application. We cite further the provision on Effective Date of Makati in Civil Case No. 57810 is REVERSED and SET ASIDE, and
Coverage under the policy which states that there shall be no the complaint is DISMISSED. No costs.
insurance if the application is not approved by the Company. Since
no application had been submitted by the Insured/Assured, prior SO ORDERED.[11]
to his death, for our approval but was submitted instead
on November 15, 1984, after his death, Mr. John Uy Chuang was The CA based its Decision on the factual finding that Chuangs application was not
not covered under the Policy. We wish to point out enclosed in Eternals letter dated December 29, 1982. It further ruled that the non-
that Eternal Gardens being the Assured was a party to the accomplishment of the submitted application form violated Section 26 of the
Contract and was therefore aware of these pertinent provisions. Insurance Code. Thus, the CA concluded, there being no application form, Chuang
was not covered by Philamlifes insurance.
3
Hence, we have this petition with the following grounds:
Eternal claims that the evidence that it presented before the trial court supports
The Honorable Court of Appeals has decided a question of its contention that it submitted a copy of the insurance application of Chuang before
substance, not therefore determined by this Honorable Court, or his death. In Eternals letter dated December 29, 1982, a list of insurable interests
has decided it in a way not in accord with law or with the applicable of buyers for October 1982 was attached, including Chuang in the list of new
jurisprudence, in holding that: businesses. Eternal added it was noted at the bottom of said letter that the
corresponding Phil-Am Life Insurance Application Forms & Cert. were enclosed in
I. The application for insurance was not duly submitted to the letter that was apparently received by Philamlife on January 15, 1983. Finally,
respondent PhilamLife before the death of John Chuang; Eternal alleged that it provided a copy of the insurance application which was signed
by Chuang himself and executed before his death.
II. There was no valid insurance coverage; and
On the other hand, Philamlife claims that the evidence presented by Eternal is
III. Reversing and setting aside the Decision of the Regional insufficient, arguing that Eternal must present evidence showing that Philamlife
Trial Court dated May 29, 1996. received a copy of Chuangs insurance application.

The Courts Ruling The evidence on record supports Eternals position.

As a general rule, this Court is not a trier of facts and will not re-examine The fact of the matter is, the letter dated December 29, 1982, which Philamlife
factual issues raised before the CA and first level courts, considering their findings stamped as received, states that the insurance forms for the attached list of burial
of facts are conclusive and binding on this Court. However, such rule is subject to lot buyers were attached to the letter. Such stamp of receipt has the effect of
exceptions, as enunciated in Sampayan v. Court of Appeals: acknowledging receipt of the letter together with the attachments. Such receipt is
an admission by Philamlife against its own interest.[13] The burden of evidence has
(1) when the findings are grounded entirely on speculation, surmises shifted to Philamlife, which must prove that the letter did not contain Chuangs
or conjectures; (2) when the inference made is manifestly insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed
mistaken, absurd or impossible; (3) when there is grave abuse of to have received Chuangs insurance application.
discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of facts are conflicting; (6) when in To reiterate, it was Philamlifes bounden duty to make sure that before a transmittal
making its findings the [CA] went beyond the issues of the case, or letter is stamped as received, the contents of the letter are correct and accounted
its findings are contrary to the admissions of both the appellant for.
and the appellee; (7) when the findings [of the CA] are contrary
to the trial court; (8) when the findings are conclusions without Philamlifes allegation that Eternals witnesses ran out of credibility and reliability
citation of specific evidence on which they are based; (9) when the due to inconsistencies is groundless. The trial court is in the best position to
facts set forth in the petition as well as in the petitioners main and determine the reliability and credibility of the witnesses, because it has the
reply briefs are not disputed by the respondent; (10) when the opportunity to observe firsthand the witnesses demeanor, conduct, and
findings of fact are premised on the supposed absence of evidence attitude. Findings of the trial court on such matters are binding and conclusive on
and contradicted by the evidence on record; and (11) when the the appellate court, unless some facts or circumstances of weight and substance
Court of Appeals manifestly overlooked certain relevant facts not have been overlooked, misapprehended, or misinterpreted,[14] that, if considered,
disputed by the parties, which, if properly considered, would might affect the result of the case.[15]
justify a different conclusion.[12] (Emphasis supplied.)
An examination of the testimonies of the witnesses mentioned by Philamlife,
however, reveals no overlooked facts of substance and value.
In the instant case, the factual findings of the RTC were reversed by the CA; thus,
this Court may review them.
4
Philamlife primarily claims that Eternal did not even know where the original credibility of witnesses, and these may even serve to strengthen their credibility as
insurance application of Chuang was, as shown by the testimony of Edilberto these negate any suspicion that the testimonies have been rehearsed.[17]
Mendoza:
Atty. Arevalo: We reiterated the above ruling in Merencillo v. People:

Q Where is the original of the application form which is required Minor discrepancies or inconsistencies do not impair the
in case of new coverage? essential integrity of the prosecutions evidence as a whole or
reflect on the witnesses honesty. The test is whether the
[Mendoza:] testimonies agree on essential facts and whether the respective
versions corroborate and substantially coincide with each other so
A It is [a] standard operating procedure for the new client to fill as to make a consistent and coherent whole.[18]
up two copies of this form and the original of this is submitted to In the present case, the number of copies of the insurance application that Chuang
Philamlife together with the monthly remittances and the second executed is not at issue, neither is whether the insurance application presented by
copy is remained or retained with the marketing department Eternal has been falsified. Thus, the inconsistencies pointed out by Philamlife are
of Eternal Gardens. minor and do not affect the credibility of Eternals witnesses.

Atty. Miranda: However, the question arises as to whether Philamlife assumed the risk of
loss without approving the application.
We move to strike out the answer as it is not responsive as counsel
is merely asking for the location and does not [ask] for the number This question must be answered in the affirmative.
of copy.
As earlier stated, Philamlife and Eternal entered into an agreement
Atty. Arevalo: denominated as Creditor Group Life Policy No. P-1920 dated December 10, 1980. In
the policy, it is provided that:
Q Where is the original?
EFFECTIVE DATE OF BENEFIT.
[Mendoza:]
The insurance of any eligible Lot Purchaser shall be
A As far as I remember I do not know where the original but when effective on the date he contracts a loan with the Assured.
I submitted with that payment together with the new clients all However, there shall be no insurance if the application of the Lot
the originals I see to it before I sign the transmittal letter the Purchaser is not approved by the Company.
originals are attached therein.[16]
An examination of the above provision would show ambiguity between its two
In other words, the witness admitted not knowing where the original sentences. The first sentence appears to state that the insurance coverage of the
insurance application was, but believed that the application was transmitted to clients of Eternal already became effective upon contracting a loan with Eternal
Philamlife as an attachment to a transmittal letter. while the second sentence appears to require Philamlife to approve the insurance
contract before the same can become effective.
As to the seeming inconsistencies between the testimony of Manuel Cortez
on whether one or two insurance application forms were accomplished and the It must be remembered that an insurance contract is a contract of adhesion
testimony of Mendoza on who actually filled out the application form, these are minor which must be construed liberally in favor of the insured and strictly against the
inconsistencies that do not affect the credibility of the witnesses. Thus, we ruled insurer in order to safeguard the latters interest. Thus, in Malayan Insurance
in People v. Paredes that minor inconsistencies are too trivial to affect the Corporation v. Court of Appeals, this Court held that:
5
Indemnity and liability insurance policies are construed in As a final note, to characterize the insurer and the insured as contracting
accordance with the general rule of resolving any ambiguity therein parties on equal footing is inaccurate at best. Insurance contracts are wholly
in favor of the insured, where the contract or policy is prepared by prepared by the insurer with vast amounts of experience in the industry purposefully
the insurer. A contract of insurance, being a contract of used to its advantage. More often than not, insurance contracts are contracts of
adhesion, par excellence, any ambiguity therein should be adhesion containing technical terms and conditions of the industry, confusing if at
resolved against the insurer; in other words, it should be all understandable to laypersons, that are imposed on those who wish to avail of
construed liberally in favor of the insured and strictly against the insurance. As such, insurance contracts are imbued with public interest that must
insurer. Limitations of liability should be regarded with extreme be considered whenever the rights and obligations of the insurer and the insured
jealousy and must be construed in such a way as to preclude the are to be delineated. Hence, in order to protect the interest of insurance applicants,
insurer from noncompliance with its obligations.[19] (Emphasis insurance companies must be obligated to act with haste upon insurance applications,
supplied.) to either deny or approve the same, or otherwise be bound to honor the application
as a valid, binding, and effective insurance contract.[21]
In the more recent case of Philamcare Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling, stating that: WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-
G.R. CV No. 57810 is REVERSED and SET ASIDE. The May 29, 1996 Decision of the
When the terms of insurance contract contain limitations Makati City RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED:
on liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation. Being (1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life
a contract of adhesion, the terms of an insurance contract are to Insurance Policy of Chuang;
be construed strictly against the party which prepared the (2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP
contract, the insurer. By reason of the exclusive control of the 100,000 from the time of extra-judicial demand by Eternal until Philamlifes receipt
insurance company over the terms and phraseology of the insurance of the May 29, 1996 RTC Decision on June 17, 1996;
contract, ambiguity must be strictly interpreted against the (3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of
insurer and liberally in favor of the insured, especially to avoid PhP 100,000 from June 17, 1996 until full payment of this award; and
forfeiture.[20] (4) To pay Eternal attorneys fees in the amount of PhP 10,000.

No costs.
Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-
1920 dated December 10, 1980, must be construed in favor of the insured and in SO ORDERED.
favor of the effectivity of the insurance contract.

FIRST DIVISION
On the other hand, the seemingly conflicting provisions must be harmonized
to mean that upon a partys purchase of a memorial lot on installment from Eternal, [G.R. No. 125678. March 18, 2002]
an insurance contract covering the lot purchaser is created and the same is
effective, valid, and binding until terminated by Philamlife by disapproving the PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS
insurance application. The second sentence of Creditor Group Life Policy No. P-1920 and JULITA TRINOS, respondents.
on the Effective Date of Benefit is in the nature of a resolutory condition which
would lead to the cessation of the insurance contract. Moreover, the mere inaction D E C I S I O N
of the insurer on the insurance application must not work to prejudice the insured;
YNARES-SANTIAGO, J.:
it cannot be interpreted as a termination of the insurance contract. The termination
of the insurance contract by the insurer must be explicit and unambiguous.
6
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the
health care coverage with petitioner Philamcare Health Systems, Inc. In the plaintiff Julita Trinos, ordering:
standard application form, he answered no to the following question:
1. Defendants to pay and reimburse the medical and hospital coverage of the late
Have you or any of your family members ever consulted or been treated for high Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully
blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic paid to plaintiff who paid the same;
ulcer? (If Yes, give details).[1]
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to
The application was approved for a period of one year from March 1, 1988 to plaintiff;
March 1, 1989. Accordingly, he was issued Health Care Agreement No.
P010194. Under the agreement, respondents husband was entitled to avail of 3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to
hospitalization benefits, whether ordinary or emergency, listed therein. He was also plaintiff;
entitled to avail of out-patient benefits such as annual physical examinations,
preventive health care and other out-patient services. 4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.
Upon the termination of the agreement, the same was extended for another
year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, SO ORDERED.[3]
1990. The amount of coverage was increased to a maximum sum of P75,000.00 per
disability.[2] On appeal, the Court of Appeals affirmed the decision of the trial court but
deleted all awards for damages and absolved petitioner Reverente.[4] Petitioners
During the period of his coverage, Ernani suffered a heart attack and was motion for reconsideration was denied.[5] Hence, petitioner brought the instant
confined at the Manila Medical Center (MMC) for one month beginning March 9, petition for review, raising the primary argument that a health care agreement is
1990. While her husband was in the hospital, respondent tried to claim the benefits not an insurance contract; hence the incontestability clause under the Insurance
under the health care agreement. However, petitioner denied her claim saying that Code[6] does not apply.
the Health Care Agreement was void. According to petitioner, there was a
concealment regarding Ernanis medical history. Doctors at the MMC allegedly Petitioner argues that the agreement grants living benefits, such as medical
discovered at the time of Ernanis confinement that he was hypertensive, diabetic check-ups and hospitalization which a member may immediately enjoy so long as he
and asthmatic, contrary to his answer in the application form. Thus, respondent paid is alive upon effectivity of the agreement until its expiration one-year
the hospitalization expenses herself, amounting to about P76,000.00. thereafter. Petitioner also points out that only medical and hospitalization benefits
are given under the agreement without any indemnification, unlike in an insurance
After her husband was discharged from the MMC, he was attended by a contract where the insured is indemnified for his loss. Moreover, since Health Care
physical therapist at home. Later, he was admitted at the Chinese General Agreements are only for a period of one year, as compared to insurance contracts
Hospital. Due to financial difficulties, however, respondent brought her husband which last longer,[7]petitioner argues that the incontestability clause does not apply,
home again. In the morning of April 13, 1990, Ernani had fever and was feeling very as the same requires an effectivity period of at least two years. Petitioner further
weak. Respondent was constrained to bring him back to the Chinese General Hospital argues that it is not an insurance company, which is governed by the Insurance
where he died on the same day. Commission, but a Health Maintenance Organization under the authority of the
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Department of Health.
Branch 44, an action for damages against petitioner and its president, Dr. Benito Section 2 (1) of the Insurance Code defines a contract of insurance as an
Reverente, which was docketed as Civil Case No. 90-53795. She asked for agreement whereby one undertakes for a consideration to indemnify another against
reimbursement of her expenses plus moral damages and attorneys fees. After trial, loss, damage or liability arising from an unknown or contingent event. An insurance
the lower court ruled against petitioners, viz: contract exists where the following elements concur:

1. The insured has an insurable interest;

7
2. The insured is subject to a risk of loss by the happening of the We hereby declare and agree that all statement and answers contained herein and
designated peril; in any addendum annexed to this application are full, complete and true and bind all
parties in interest under the Agreement herein applied for, that there shall be no
3. The insurer assumes the risk;
contract of health care coverage unless and until an Agreement is issued on this
4. Such assumption of risk is part of a general scheme to distribute actual application and the full Membership Fee according to the mode of payment applied
losses among a large group of persons bearing a similar risk; and for is actually paid during the lifetime and good health of proposed Members; that
no information acquired by any Representative of PhilamCare shall be binding upon
5. In consideration of the insurers promise, the insured pays a premium.[8] PhilamCare unless set out in writing in the application; that any physician is, by
Section 3 of the Insurance Code states that any contingent or unknown event, these presents, expressly authorized to disclose or give testimony at anytime
whether past or future, which may damnify a person having an insurable interest relative to any information acquired by him in his professional capacity upon any
against him, may be insured against. Every person has an insurable interest in the question affecting the eligibility for health care coverage of the Proposed
life and health of himself. Section 10 provides: Members and that the acceptance of any Agreement issued on this application shall
be a ratification of any correction in or addition to this application as stated in the
space for Home Office Endorsement.[11] (Underscoring ours)
Every person has an insurable interest in the life and health:

In addition to the above condition, petitioner additionally required the applicant

(1) of himself, of his spouse and of his children;
for authorization to inquire about the applicants medical history, thus:

(2) of any person on whom he depends wholly or in part for education or

I hereby authorize any person, organization, or entity that has any record or
support, or in whom he has a pecuniary interest;
knowledge of my health and/or that of __________ to give to the PhilamCare
Health Systems, Inc. any and all information relative to any hospitalization,
(3) of any person under a legal obligation to him for the payment of
consultation, treatment or any other medical advice or examination. This
money, respecting property or service, of which death or illness
authorization is in connection with the application for health care coverage only. A
might delay or prevent the performance; and
photographic copy of this authorization shall be as valid as the
original.[12] (Underscoring ours)
(4) of any person upon whose life any estate or interest vested in him
depends.
Petitioner cannot rely on the stipulation regarding Invalidation of agreement
which reads:
In the case at bar, the insurable interest of respondents husband in obtaining
the health care agreement was his own health. The health care agreement was in the
Failure to disclose or misrepresentation of any material information by the member
nature of non-life insurance, which is primarily a contract of indemnity.[9] Once the
in the application or medical examination, whether intentional or unintentional, shall
member incurs hospital, medical or any other expense arising from sickness, injury
automatically invalidate the Agreement from the very beginning and liability of
or other stipulated contingent, the health care provider must pay for the same to
Philamcare shall be limited to return of all Membership Fees paid. An undisclosed
the extent agreed upon under the contract.
or misrepresented information is deemed material if its revelation would have
Petitioner argues that respondents husband concealed a material fact in his resulted in the declination of the applicant by Philamcare or the assessment of a
application. It appears that in the application for health coverage, petitioners higher Membership Fee for the benefit or benefits applied for.[13]
required respondents husband to sign an express authorization for any person,
organization or entity that has any record or knowledge of his health to furnish any The answer assailed by petitioner was in response to the question relating to
and all information relative to any hospitalization, consultation, treatment or any the medical history of the applicant. This largely depends on opinion rather than
other medical advice or examination.[10] Specifically, the Health Care Agreement fact, especially coming from respondents husband who was not a medical
signed by respondents husband states: doctor. Where matters of opinion or judgment are called for, answers made in good
8
faith and without intent to deceive will not avoid a policy even though they are 4. Must state the grounds relied upon provided in Section 64 of the Insurance
untrue.[14] Thus, Code and upon request of insured, to furnish facts on which cancellation is
based.[18]
(A)lthough false, a representation of the expectation, intention, belief, opinion, or
judgment of the insured will not avoid the policy if there is no actual fraud in None of the above pre-conditions was fulfilled in this case. When the terms of
inducing the acceptance of the risk, or its acceptance at a lower rate of premium, insurance contract contain limitations on liability, courts should construe them in
and this is likewise the rule although the statement is material to the risk, if the such a way as to preclude the insurer from non-compliance with his
statement is obviously of the foregoing character, since in such case the insurer is obligation.[19] Being a contract of adhesion, the terms of an insurance contract are
not justified in relying upon such statement, but is obligated to make further to be construed strictly against the party which prepared the contract the
inquiry. There is a clear distinction between such a case and one in which the insurer.[20] By reason of the exclusive control of the insurance company over the
insured is fraudulently and intentionally states to be true, as a matter of terms and phraseology of the insurance contract, ambiguity must be strictly
expectation or belief, that which he then knows, to be actually untrue, or the interpreted against the insurer and liberally in favor of the insured, especially to
impossibility of which is shown by the facts within his knowledge, since in such case avoid forfeiture.[21] This is equally applicable to Health Care Agreements. The
the intent to deceive the insurer is obvious and amounts to actual phraseology used in medical or hospital service contracts, such as the one at bar,
fraud.[15](Underscoring ours) must be liberally construed in favor of the subscriber, and if doubtful or reasonably
susceptible of two interpretations the construction conferring coverage is to be
The fraudulent intent on the part of the insured must be established to adopted, and exclusionary clauses of doubtful import should be strictly construed
warrant rescission of the insurance contract.[16] Concealment as a defense for the against the provider.[22]
health care provider or insurer to avoid liability is an affirmative defense and the
Anent the incontestability of the membership of respondents husband, we
duty to establish such defense by satisfactory and convincing evidence rests upon
quote with approval the following findings of the trial court:
the provider or insurer. In any case, with or without the authority to investigate,
petitioner is liable for claims made under the contract. Having assumed a
(U)nder the title Claim procedures of expenses, the defendant Philamcare Health
responsibility under the agreement, petitioner is bound to answer the same to the
Systems Inc. had twelve months from the date of issuance of the Agreement
extent agreed upon. In the end, the liability of the health care provider attaches
within which to contest the membership of the patient if he had previous ailment
once the member is hospitalized for the disease or injury covered by the agreement
of asthma, and six months from the issuance of the agreement if the patient was
or whenever he avails of the covered benefits which he has prepaid.
sick of diabetes or hypertension. The periods having expired, the defense of
Under Section 27 of the Insurance Code, a concealment entitles the injured concealment or misrepresentation no longer lie.[23]
party to rescind a contract of insurance. The right to rescind should be exercised
previous to the commencement of an action on the contract.[17] In this case, no Finally, petitioner alleges that respondent was not the legal wife of the
rescission was made. Besides, the cancellation of health care agreements as in deceased member considering that at the time of their marriage, the deceased was
insurance policies require the concurrence of the following conditions: previously married to another woman who was still alive. The health care agreement
is in the nature of a contract of indemnity. Hence, payment should be made to the
1. Prior notice of cancellation to insured; party who incurred the expenses. It is not controverted that respondent paid all the
hospital and medical expenses. She is therefore entitled to reimbursement. The
2. Notice must be based on the occurrence after effective date of the policy of records adequately prove the expenses incurred by respondent for the deceaseds
one or more of the grounds mentioned; hospitalization, medication and the professional fees of the attending physicians.[24]

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

3. Must be in writing, mailed or delivered to the insured at the address shown in decision of the Court of Appeals dated December 14, 1995 is AFFIRMED.
the policy;
SO ORDERED.
9
FIRST DIVISION After the requisite investigation and adjustment, FIRST LEPANTO paid GASI the
amount of ₱165,772.40 as insurance indemnity.10
G.R. No. 185964 June 16, 2014
Thereafter, GASI executed a Release of Claim11 discharging FIRST LEPANTO
ASIAN TERMINALS, INC., Petitioner, from any and all liabilities pertaining to the lost/damaged shipment and subrogating
vs. it to all the rights of recovery and claims the former may have against any person
FIRST LEPANTO-TAISHO INSURANCE CORPORATION, Respondent. or corporation in relation to the lost/damaged shipment.

DECISION As such subrogee, FIRST LEPANTO demanded from COSCO, its shipping agency in
the Philippines, SMITH BELL, PROVEN and ATI, reimbursement of the amount it
REYES, J.: paid to GASI. When FIRST LEPANTO’s demands were not heeded, it filed on May
29, 1997 a Complaint12 for sum of money before the Metropolitan Trial Court
This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court (MeTC) of Manila, Branch 3. FIRST LEPANTO sought that it be reimbursed the
seeking to annul and set aside the Decision2 dated October 10, 2008 of the Court amount of 166,772.41, twenty-five percent (25%) thereof as attorney’s fees, and
of Appeals (CA) in CA-G.R. SP No. 99021 which adjudged petitioner Asian costs of suit.
Terminals, Inc. (ATI) liable to pay the money claims of respondent First Lepanto-
Taisho Insurance Corporation (FIRST LEPANTO). ATI denied liability for the lost/damaged shipment and claimed that it exercised
due diligence and care in handling the same.13 ATI averred that upon arrival of the
The Undisputed Facts shipment, SMITH BELL requested for its inspection14 and it was discovered that
one jumbo bag thereof sustained loss/damage while in the custody of COSCO as
evidenced by Turn Over Survey of Bad Order Cargo No. 47890 dated August 6,
On July 6, 1996,3 3,000 bags of sodium tripolyphosphate contained in 100 plain
199615 jointly executed by the respective representatives of ATI and COSCO.
jumbo bags complete and in good condition were loaded and received on board M/V
During the withdrawal of the shipment by PROVEN from ATI’s warehouse, the
"Da Feng" owned by China Ocean Shipping Co. (COSCO) in favor of consignee, Grand
entire shipment was re-examined and it was found to be exactly in the same
Asian Sales, Inc. (GASI). Based on a Certificate of Insurance4 dated August 24,
condition as when it was turned over to ATI such that one jumbo bag was damaged.
1995, it appears that the shipment was insured against all risks by GASI with
To bolster this claim, ATI submitted Request for Bad Order Survey No. 40622
FIRST LEPANTO for ₱7,959,550.50 under Marine Open Policy No. 0123.
dated August 9, 199616 jointly executed by the respective representatives of ATI
and PROVEN. ATI also submitted various Cargo Gate Passes17 showing that
The shipment arrived in Manila on July 18, 1996 and was discharged into the
PROVEN was able to completely withdraw all the shipment from ATI’s warehouse in
possession and custody of ATI, a domestic corporation engaged in arrastre
good order condition except for that one damaged jumbo bag.
business. The shipment remained for quite some time at ATI’s storage area until it
was withdrawn by broker, Proven Customs Brokerage Corporation (PROVEN), on
In the alternative, ATI asserted that even if it is found liable for the
August 8 and 9, 1996 for delivery to the consignee. Upon receipt of the
lost/damaged portion of the shipment, its contract for cargo handling services
shipment,5 GASI subjected the same to inspection and found that the delivered
limits its liability to not more than ₱5,000.00 per package. ATI interposed a
goods incurred shortages of 8,600 kilograms and spillage of 3,315 kg for a total
counterclaim of ₱20,000.00 against FIRST LEPANTO as and for attorney’s fees. It
of11,915 kg of loss/damage valued at ₱166,772.41.
also filed a cross-claim against its co-defendants COSCO and SMITH BELL in the
event that it is made liable to FIRST LEPANTO.18
GASI sought recompense from COSCO, thru its Philippine agent Smith Bell
Shipping Lines, Inc. (SMITH BELL),6ATI7 and PROVEN8 but was denied. Hence, it
PROVEN denied any liability for the lost/damaged shipment and averred that the
pursued indemnification from the shipment’s insurer.9
complaint alleged no specific acts or omissions that makes it liable for damages.
PROVEN claimed that the damages in the shipment were sustained before they
were withdrawn from ATI’s custody under which the shipment was left in an open
10
area exposed to the elements, thieves and vandals. PROVEN contended that it Order Survey and the Turn Over Survey of Bad Order Cargo were prepared only
exercised due diligence and prudence in handling the shipment. PROVEN also filed a weeks thereafter or on August 9, 1996 and August 6, 1996, respectively. ATI was
counterclaim for attorney’s fees and damages.19 adjudged unable to prove that it exercised due diligence while in custody of the
shipment and hence, negligent and should be held liable for the damages caused to
Despite receipt of summons on December 4, 1996,20 COSCO and SMITH BELL GASI which, in turn, is subrogated by FIRST LEPANTO.
failed to file an answer to the complaint. FIRST LEPANTO thus moved that they
be declared in default21 but the motion was denied by the MeTC on the ground that The RTC rejected ATI’s contention that its liability is limited only to ₱5,000.00
under Rule 9, Section 3 of the Rules of Civil Procedure, "when a pleading asserting per package because its Management Contract with the Philippine Ports Authority
a claim states a common cause of action against several defending parties, some of (PPA) purportedly containing the same was not presented as evidence. More
whom answer and the other fail to do so, the Court shall try the case against all importantly, FIRST LEPANTO or GASI cannot be deemed bound thereby because
upon the answers thus filed, and render judgment upon the evidence presented."22 they were not parties thereto. Lastly, the RTC did not give merit to ATI’s defense
that any claim against it has already prescribed because GASI failed to file any
Ruling of the MeTC claim within the 15-day period stated in the gate pass issued by ATI to GASI’s
broker, PROVEN. Accordingly, the RTC disposed thus:
In a Judgment23 dated May 30, 2006, the MeTC absolved ATI and PROVEN from
any liability and instead found COSCO to be the party at fault and hence liable for WHEREFORE, in light of the foregoing, the judgment on appeal is hereby
the loss/damage sustained by the subject shipment. However, the MeTC ruled it REVERSED.
has no jurisdiction over COSCO because it is a foreign corporation. Also, it cannot
enforce judgment upon SMITH BELL because no evidence was presented [ATI] is hereby ordered to reimburse [FIRST LEPANTO] the amount of
establishing that it is indeed the Philippine agent of COSCO. There is also no [P]165,772.40 with legal interest until fully paid, to pay [FIRST LEPANTO] 10% of
evidence attributing any fault to SMITH BELL. Consequently, the complaint was the amount due the latter as and for attorney’s fees plus the costs of suit.
dismissed in this wise:
The complaint against [COSCO/SMITH BELL and PROVEN] are DISMISSED for
WHEREFORE, in light of the foregoing, judgment is hereby rendered lack of evidence against them. The counterclaim and cross[-]claim of [ATI] are
DISMISSING the instant case for failure of [FIRST LEPANTO] to sufficiently likewise DISMISSED for lack of merit.
establish its cause o faction against [ATI, COSCO, SMITH BELL, and PROVEN].
SO ORDERED.26
The counterclaims of [ATI and PROVEN] are likewise dismissed for lack of legal
basis. Ruling of the CA

No pronouncement as to cost. ATI sought recourse with the CA challenging the RTC’s finding that FIRST
LEPANTO was validly subrogated to the rights of GASI with respect to the
SO ORDERED.24 lost/damaged shipment. ATI argued that there was no valid subrogation because
FIRSTLEPANTO failed to present a valid, existing and enforceable Marine Open
Ruling of the Regional Trial Court Policy or insurance contract. ATI reasoned that the Certificate of Insurance or
Marine Cover Note submitted by FIRST LEPANTO as evidence is not the same as
On appeal, the Regional Trial Court (RTC) reversed the MeTC’s findings. In its an actual insurance contract.
Decision25 dated January 26, 2007, the RTC of Manila, Branch 21, in Civil Case No.
06-116237, rejected the contentions of ATI upon its observation that the same is In its Decision27 dated October 10, 2008, the CA dismissed the appeal and held
belied by its very own documentary evidence. The RTC remarked that, if, as alleged that the Release of Claim and the Certificate of Insurance presented by FIRST
by ATI, one jumbo bag was already in bad order condition upon its receipt of the LEPANTO sufficiently established its relationship with the consignee and that
shipment from COSCO on July 18, 1996, then how come that the Request for Bad
11
upon proof of payment of the latter’s claim for damages, FIRST LEPANTO was the Court’s duty to review, examine, and evaluate or weigh all over again the
subrogated to its rights against those liable for the lost/damaged shipment. probative value of the evidence presented, especially where the findings of the
RTC are affirmed by the CA, as in this case.32
The CA also affirmed the ruling of the RTC that the subject shipment was
damaged while in the custody of ATI. Thus, the CA disposed as follows: There are only specific instances when the Court deviates from the rule and
conducts a review of the courts a quo’s factual findings, such as when: (1) the
WHEREFORE, premises considered, the assailed Decision is hereby AFFIRMED and inference made is manifestly mistaken, absurd or impossible; (2) there is grave
the instant petition is DENIED for lack of merit. abuse of discretion;(3) the findings are grounded entirely on speculations, surmises
or conjectures; (4) the judgment of the CA is based on misapprehension of facts;
SO ORDERED.28 (5) the CA, in making its findings, went beyond the issues of the case and the same
is contrary to the admissions of both appellant and appellee; (6) the findings of
ATI moved for reconsideration but the motion was denied in the CA fact are conclusions without citation of specific evidence on which they are based;
Resolution29 dated January 12, 2009. Hence, this petition arguing that: (7) the CA manifestly overlooked certain relevant facts not disputed by the
parties and which, if properly considered, would justify a different conclusion; and
(8) the findings of fact of the CA are premised on the absence of evidence and are
(a) The presentation of the insurance policy is indispensable in proving the right of
contradicted by the evidence on record.33
FIRST LEPANTO to be subrogated to the right of the consignee pursuant to the
ruling in Wallem Philippines Shipping, Inc. v. Prudential Guarantee and Assurance
Inc.;30 None of these instances, however, are present in this case. Moreover, it is
unmistakable that ATI has already conceded to the factual findings of RTC and CA
adjudging it liable for the shipment’s loss/damage considering the absence of
(b) ATI cannot be barred from invoking the defense of prescription as provided
arguments pertaining to such issue in the petition at bar.
for in the gate passes in consonance with the ruling in International Container
Terminal Services, Inc. v. Prudential Guarantee and Assurance Co, Inc.31
These notwithstanding, the Court scrutinized the records of the case and found
that indeed, ATI is liable as the arrastre operator for the lost/damaged portion of
Ruling of the Court
the shipment.

The Court denies the petition.

The relationship between the consignee and the arrastre operator is akin to that
existing between the consignee and/or the owner of the shipped goods and the
ATI failed to prove that it exercised
common carrier, or that between a depositor and a warehouseman. Hence, in the
due care and diligence while the
performance of its obligations, an arrastre operator should observe the same
shipment was under its custody,
degree of diligence as that required of a common carrier and a warehouseman.
control and possession as arrastre
Being the custodian of the goods discharged from a vessel, an arrastre operator’s
operator.
duty is to take good care of the goods and to turn them over to the party entitled
to their possession.34
It must be emphasized that factual questions pertaining to ATI’s liability for the
loss/damage sustained by GASI has already been settled in the uniform factual
In a claim for loss filed by the consignee (or the insurer), the burden of proof to
findings of the RTC and the CA that: ATI failed to prove by preponderance of
show compliance with the obligation to deliver the goods to the appropriate party
evidence that it exercised due diligence in handling the shipment.
devolves upon the arrastre operator. Since the safekeeping of the goods is its
responsibility, it must prove that the losses were not due to its negligence or to
Such findings are binding and conclusive upon this Court since a review thereof is that of its employees. To avoid liability, the arrastre operator must prove that it
proscribed by the nature of the present petition. Only questions of law are allowed exercised diligence and due care in handling the shipment.35
in petitions for review on certiorari under Rule 45 of the Rules of Court. It is not
12
ATI failed to discharge its burden of proof. Instead, it insisted on shifting the A faithful adherence to the rule by litigants is ensured by the equally settled
blame to COSCO on the basis of the Request for Bad Order Survey dated August principle that a party cannot change his theory on appeal as such act violates the
9, 1996 purportedly showing that when ATI received the shipment, one jumbo bag basic rudiments of fair play and due process. As stressed in Jose v. Alfuerto:39
thereof was already in damaged condition.
[A] party cannot change his theory ofthe case or his cause of action on appeal.
The RTC and CA were both correct in concluding that ATI’s contention was Points of law, theories, issues and arguments not brought to the attention of the
improbable and illogical. As judiciously discerned by the courts a quo, the date of lower court will not be considered by the reviewing court. The defenses not
the document was too distant from the date when the shipment was actually pleaded in the answer cannot, on appeal, change fundamentally the nature of the
received by ATI from COSCO on July 18, 1996. In fact, what the document issue in the case. To do so would be unfair to the adverse party, who had no
established is that when the loss/damage was discovered, the shipment has been in opportunity to present evidence in connection with the new theory; this would
ATI’s custody for at least two weeks. This circumstance, coupled with the offend the basic rules of due process and fair play.40 (Citation omitted)
undisputed declaration of PROVEN’s witnesses that while the shipment was in
ATI’s custody, it was left in an open area exposed to the elements, thieves and While the Court may adopt a liberal stance and relax the rule, no reasonable
vandals,36 all generate the conclusion that ATI failed to exercise due care and explanation, however, was introduced to justify ATI’s failure to timely question the
diligence while the subject shipment was under its custody, control and possession basis of FIRST LEPANTO’s rights as a subrogee.
as arrastre operator.
The fact that the CA took cognizance of and resolved the said issue did not cure
To prove the exercise of diligence in handling the subject cargoes, an arrastre or ratify ATI’s faux pas. "[A] judgment that goes beyond the issues and purports
operator must do more than merely show the possibility that some other party to adjudicate something on which the court did not hear the parties, is not only
could be responsible for the loss or the damage.37 It must prove that it used all irregular but also extrajudicial and invalid."41 Thus, for resolving an issue not
reasonable means to handle and store the shipment with due care and diligence framed during the pre-trial and on which the parties were not heard during the
including safeguarding it from weather elements, thieves or vandals. trial, that portion of the CA’s judgment discussing the necessity of presenting an
insurance contract was erroneous.
Non-presentation of the insurance
contract is not fatal to FIRST At any rate, the non-presentation of the insurance contract is not fatal to FIRST
LEPANTO’s cause of action for LEPANTO’s right to collect reimbursement as the subrogee of GASI.
reimbursement as subrogee.
"Subrogation is the substitution of one person in the place of another with
It is conspicuous from the records that ATI put in issue the submission of the reference to a lawful claim or right, so that he who is substituted succeeds to the
insurance contract for the first time before the CA. Despite opportunity to study rights of the other in relation to a debt or claim, including its remedies or
FIRST LEPANTO’s complaint before the MeTC, ATI failed to allege in its answer securities."42 The right of subrogation springs from Article 2207 of the Civil Code
the necessity of the insurance contract. Neither was the same considered during which states:
pre-trial as one of the decisive matters in the case. Further, ATI never challenged
the relevancy or materiality of the Certificate of Insurance presented by FIRST Art. 2207. If the plaintiff’s property has been insured, and he has received
LEPANTO as evidence during trial as proof of its right to be subrogated in the indemnity from the insurance company for the injury or loss arising out of the
consignee’s stead. Since it was not agreed during the pre-trial proceedings that wrong or breach of contract complained of, the insurance company shall be
FIRST LEPANTO will have to prove its subrogation rights by presenting a copy of subrogated to the rights of the insured against the wrong-doer or the person who
the insurance contract, ATI is barred from pleading the absence of such contract has violated the contract. If the amount paid by the insurance company does not
in its appeal. It is imperative for the parties to disclose during pre-trial all issues fully cover the injury or loss, the aggrieved party shall be entitled to recover the
they intend to raise during the trial because, they are bound by the delimitation of deficiency from the person causing the loss or injury.
such issues. The determination of issues during the pre-trial conference bars the
consideration of other questions, whether during trial or on appeal.38
13
As a general rule, the marine insurance policy needs to be presented in evidence Delsan, it was certain that the loss of the cargo occurred while in the petitioner’s
before the insurer may recover the insured value of the lost/damaged cargo in the custody.52
exercise of its subrogatory right. In Malayan Insurance Co., Inc. v.Regis Brokerage
Corp.,43 the Court stated that the presentation of the contract constitutive of the Based on the attendant facts of the instant case, the application of the exception
insurance relationship between the consignee and insurer is critical because it is is warranted.1âwphi1 As discussed above, it is already settled that the loss/damage
the legal basis of the latter’s right to subrogation.44 to the GASI’s shipment occurred while they were in ATI’s custody, possession and
control as arrastre operator. Verily, the Certificate of Insurance53 and the
In Home Insurance Corporation v. CA,45 the Court also held that the insurance Release of Claim54presented as evidence sufficiently established FIRST
contract was necessary to prove that it covered the hauling portion of the LEPANTO’s right to collect reimbursement as the subrogee of the consignee,
shipment and was not limited to the transport of the cargo while at sea. The GASI.
shipment in that case passed through six stages with different parties involved in
each stage until it reached the consignee. The insurance contract, which was not With ATI’s liability having been positively established, to strictly require the
presented in evidence, was necessary to determine the scope of the insurer’s presentation of the insurance contract will run counter to the principle of equity
liability, if any, since no evidence was adduced indicating at what stage in the upon which the doctrine of subrogation is premised. Subrogation is designed to
handling process the damage to the cargo was sustained.46 promote and to accomplish justice and is the mode which equity adopts to compel
the ultimate payment of a debt by one who in justice, equity and good conscience
An analogous disposition was arrived at in the Wallem47 case cited by ATI wherein ought to pay.55
the Court held that the insurance contract must be presented in evidence in order
to determine the extent of its coverage. It was further ruled therein that the The payment by the insurer to the insured operates as an equitable assignment to
liability of the carrier from whom reimbursement was demanded was not the insurer of all the remedies which the insured may have against the third party
established with certainty because the alleged shortage incurred by the cargoes whose negligence or wrongful act caused the loss. The right of subrogation is not
was not definitively determined.48 dependent upon, nor does it grow out of any privity of contract or upon payment by
the insurance company of the insurance claim. It accrues simply upon payment by
Nevertheless, the rule is not inflexible. In certain instances, the Court has the insurance company of the insurance claim.56
admitted exceptions by declaring that a marine insurance policy is dispensable
evidence in reimbursement claims instituted by the insurer. ATI cannot invoke prescription

In Delsan Transport Lines, Inc. v. CA,49 the Court ruled that the right of ATI argued that the consignee, thru its insurer, FIRST LEPANTO is barred from
subrogation accrues simply upon payment by the insurance company of the seeking payment for the lost/damaged shipment because the claim letter of GASI
insurance claim. Hence, presentation in evidence of the marine insurance policy is to ATI was served only on September 27, 1996 or more than one month from the
not indispensable before the insurer may recover from the common carrier the date the shipment was delivered to the consignee’s warehouse on August 9, 1996.
insured value of the lost cargo in the exercise of its subrogatory right. The The claim of GASI was thus filed beyond the 15-day period stated in ATI’s
subrogation receipt, by itself, was held sufficient to establish not only the Management Contract with PPA which in turn was reproduced in the gate passes
relationship between the insurer and consignee, but also the amount paid to settle issued to the consignee’s broker, PROVEN, as follows:
the insurance claim. The presentation of the insurance contract was deemed not
fatal to the insurer’s cause of action because the loss of the cargo undoubtedly Issuance of this Gate Pass Constitutes delivery to and receipt by consignee of the
occurred while on board the petitioner’s vessel.50 goods as described above in good order and condition unless an accompanying x x x
certificates duly issued and noted on the face of this Gate Pass appeals. [sic]
The same rationale was the basis of the judgment in International Container
Terminal Services, Inc. v. FGU Insurance Corporation,51 wherein the arrastre This Gate pass is subject to all terms and conditions defined in the Management
operator was found liable for the lost shipment despite the failure of the Contract between the Philippine Port[s] Authority and Asian Terminals, Inc. and
insurance company to offer in evidence the insurance contract or policy. As in amendment thereto and alterations thereof particularly but not limited to the
14
[A]rticle VI thereof, limiting the contractor’s liability to [P]5,000.00 per package Nacar v. Gallery Frames,62 the said amount shall earn a legal interest at the rate of
unless the importation is otherwise specified or manifested or communicated in six percent (6%) per annum from the date of finality of this judgment until its full
writing together with the invoice value and supported by a certified packing list to satisfaction.
the contractor by the interested party or parties before the discharge of the
goods and corresponding arrastre charges have been paid providing exception or As correctly imposed by the RTC and the CA, ten percent (10%) of the judgment
restrictions from liability releasing the contractor from liability among others award is reasonable as and for attorney's fees considering the length of time that
unless a formal claim with the required annexes shall have been filed with the has passed in prosecuting the claim.63
contractor within fifteen (15) days from date of issuance by the contractors or
certificate of loss, damages, injury, or Certificate of non-delivery.57 WHEREFORE, premises considered, the petition is hereby DENIED. The Decision
dated October 10, 2008 of the Court of Appeals in CA-G.R. SP No. 99021 is hereby
The contention is bereft of merit. As clarified in Insurance Company of North AFFIRMED insofar as it adjudged liable and ordered Asian Terminals, Inc., to pay
America v. Asian Terminals, Inc.,58substantial compliance with the 15-day time First Lepanto-Taisho Insurance Corp., the amount of ₱165,772.40, ten percent
limitation is allowed provided that the consignee has made a provisional claim thru a (10%) thereof as and for attorney's fees, plus costs of suit. The said amount shall
request for bad order survey or examination report, viz: earn legal interest at the rate of six percent ( 6%) per annum from the date of
finality of this judgment until its full satisfaction.
Although the formal claim was filed beyond the 15-day period from the issuance of
the examination report on the request for bad order survey, the purpose of the SO ORDERED.
time limitations for the filing of claims had already been fully satisfied by the
request of the consignee’s broker for a bad order survey and by the examination FIRST DIVISION
report of the arrastre operator on the result thereof, as the arrastre operator [G.R. No. 124520. August 18, 1997]
had become aware of and had verified the facts giving rise to its liability. Hence, Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO.,
the arrastre operator suffered no prejudice by the lack of strict compliance with INC., petitioners, vs. COURT OF APPEALS and CKS DEVELOPMENT
the 15-day limitation to file the formal complaint.59 (Citations omitted) CORPORATION, respondents.
D E C I S I O N
In the present case, ATI was notified of the loss/damage to the subject shipment
as early as August 9, 1996 thru a Request for Bad Order Survey60 jointly prepared PADILLA, J.:
by the consignee’s broker, PROVEN, and the representatives of ATI. For having
submitted a provisional claim, GASI is thus deemed to have substantially complied This petition for review on certiorari under Rule 45 of the Rules of Court seeks
with the notice requirement to the arrastre operator notwithstanding that a to set aside a decision of respondent Court of Appeals.
formal claim was sent to the latter only on September 27, 1996. ATI was not
The undisputed facts of the case are as follows:
deprived the best opportunity to probe immediately the veracity of such claims.
Verily then, GASI, thru its subrogee FIRST LEPANTO, is not barred by filing the
1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease
herein action in court.
contract with private respondent CKS Development Corporation (hereinafter CKS),
as lessor, on 5 October 1988.
ATI cannot rely on the ruling in Prudentiat61 because the consignee therein made
no provisional claim thru request for bad order survey and instead filed a claim for
2. One of the stipulations of the one (1) year lease contract states:
the first time after four months from receipt of the shipment.

18. x x x. The LESSEE shall not insure against fire the chattels, merchandise,
Attorney's fees and interests
textiles, goods and effects placed at any stall or store or space in the leased
premises without first obtaining the written consent and approval of the
All told, ATI is liable to pay FIRST LEPANTO the amount of the Pl 65, 772.40
LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of
representing the insurance indemnity paid by the latter to GASI. Pursuant to
15
the LESSOR then the policy is deemed assigned and transferred to the LESSOR THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE
for its own benefit; x x x[1] THE CONTRACT OF LEASE ENTERED INTO AS A CONTRACT OF
ADHESION AND THEREFORE THE QUESTIONABLE PROVISION
3. Notwithstanding the above stipulation in the lease contract, the Cha spouses THEREIN TRANSFERRING THE PROCEEDS OF THE INSURANCE TO
insured against loss by fire their merchandise inside the leased premises for Five RESPONDENT MUST BE RULED OUT IN FAVOR OF PETITIONER
Hundred Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter
United) without the written consent of private respondents CKS. III

4. On the day that the lease contract was to expire, fire broke out inside the THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS
leased premises. OF AN INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE
SAID POLICY IN CONTRAVENTION OF THE INSURANCE LAW
5. When CKS learned of the insurance earlier procured by the Cha spouses
(without its consent), it wrote the insurer (United) a demand letter asking that the IV
proceeds of the insurance contract (between the Cha spouses and United) be paid
directly to CKS, based on its lease contract with Cha spouses. THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS
OF AN INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH
6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha IS VOID FOR BEING WITHOUT CONSIDERATION AND FOR BEING
spouses and United. TOTALLY DEPENDENT ON THE WILL OF THE RESPONDENT
CORPORATION.[2]
7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a
decision* ordering therein defendant United to pay CKS the amount of P335,063.11 The core issue to be resolved in this case is whether or not the aforequoted
and defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 paragraph 18 of the lease contract entered into between CKS and the Cha spouses
as attorneys fees and costs of suit. is valid insofar as it provides that any fire insurance policy obtained by the lessee
(Cha spouses) over their merchandise inside the leased premises is deemed assigned
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a or transferred to the lessor (CKS) if said policy is obtained without the prior written
decision** dated 11 January 1996, affirming the trial court decision, deleting of the latter.
however the awards for exemplary damages and attorneys fees. A motion for
It is, of course, basic in the law on contracts that the stipulations contained in
reconsideration by United was denied on 29 March 1996.
a contract cannot be contrary to law, morals, good customs, public order or public
policy.[3]
In the present petition, the following errors are assigned by petitioners to the
Court of Appeals: Sec. 18 of the Insurance Code provides:

I Sec. 18. No contract or policy of insurance on property shall be

enforceable except for the benefit of some person having an insurable
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE interest in the property insured.
THAT THE STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING
A non-life insurance policy such as the fire insurance policy taken by petitioner-
THE PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND
spouses over their merchandise is primarily a contract of indemnity. Insurable
VOID FOR BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY
interest in the property insured must exist at the time the insurance takes effect
and at the time the loss occurs.[4] The basis of such requirement of insurable
II interest in property insured is based on sound public policy: to prevent a person from
taking out an insurance policy on property upon which he has no insurable interest
and collecting the proceeds of said policy in case of loss of the property. In such a
16
case, the contract of insurance is a mere wager which is void under Section 25 of AUSTRIA-MARTINEZ,
the Insurance Code, which provides: CALLEJO, SR., and
CHICO-NAZARIO, JJ.
SECTION 25. Every stipulation in a policy of Insurance for the payment
of loss, whether the person insured has or has not any interest in the
INSURANCE COMPANY OF
property insured, or that the policy shall be received as proof of such
NORTH AMERICA, Promulgated:
interest, and every policy executed by way of gaming or wagering, is void.
Respondent. June 8, 2006
In the present case, it cannot be denied that CKS has no insurable interest in x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
the goods and merchandise inside the leased premises under the provisions of
Section 17 of the Insurance Code which provide.
D E C I S I O N
Section 17. The measure of an insurable interest in property is the
extent to which the insured might be damnified by loss of injury AUSTRIA-MARTINEZ, J.:
thereof."

Therefore, respondent CKS cannot, under the Insurance Code a special law be
validly a beneficiary of the fire insurance policy taken by the petitioner-spouses Before the Court is a petition for review on certiorari of the Decision[1] dated
over their merchandise. This insurable interest over said merchandise remains with October 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set
the insured, the Cha spouses. The automatic assignment of the policy to CKS under aside the Decision dated August 31, 1998 of the Regional Trial Court, Branch 138,
the provision of the lease contract previously quoted is void for being contrary to Makati (RTC) in Civil Case No. 92-322 and upheld the causes of action for damages
law and/or public policy. The proceeds of the fire insurance policy thus rightfully of Insurance Company of North America (respondent) against Gaisano Cagayan, Inc.
belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (petitioner); and the CA Resolution dated April 11, 2001 which denied petitioners
(United) cannot be compelled to pay the proceeds of the fire insurance policy to a motion for reconsideration.
person (CKS) who has no insurable interest in the property insured.
The factual background of the case is as follows:
The liability of the Cha spouses to CKS for violating their lease contract in that
Cha spouses obtained a fire insurance policy over their own merchandise, without the Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi
consent of CKS, is a separate and distinct issue which we do not resolve in this case. Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks
owned by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is
fire insurance policies with book debt endorsements. The insurance policies provide
SET ASIDE and a new decision is hereby entered, awarding the proceeds of the fire
for coverage on book debts in connection with ready-made clothing materials which
insurance policy to petitioners Nilo Cha and Stella Uy-Cha.
have been sold or delivered to various customers and dealers of the Insured
SO ORDERED. anywhere in the Philippines.[2] The policies defined book debts as the unpaid account
still appearing in the Book of Account of the Insured 45 days after the time of the
FIRST DIVISION
loss covered under this Policy.[3] The policies also provide for the following
conditions:

GAISANO CAGAYAN, INC. G.R. No. 147839

1. Warranted that the Company shall not be liable for any unpaid
Petitioner,
account in respect of the merchandise sold and delivered by
Present:
the Insured which are outstanding at the date of loss for a
period in excess of six (6) months from the date of the
PANGANIBAN, C.J.
covering invoice or actual delivery of the merchandise
(Chairperson)
whichever shall first occur.
- versus - *YNARES-SANTIAGO,
17
2. Warranted that the Insured shall submit to the Company within
twelve (12) days after the close of every calendar month all Dissatisfied, petitioner appealed to the CA.[9] On October 11, 2000, the CA
amount shown in their books of accounts as unpaid and thus rendered its decision setting aside the decision of the RTC. The dispositive portion
become receivable item from their customers and of the decision reads:
dealers. x x x[4]
WHEREFORE, in view of the foregoing, the appealed
xxxx decision is REVERSED and SET ASIDE and a new one is entered
ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
Petitioner is a customer and dealer of the products of IMC and LSPI.
On February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City, 1. the amount of P2,119,205.60 representing the amount
owned by petitioner, was consumed by fire. Included in the items lost or destroyed paid by the plaintiff-appellant to the insured Inter Capitol
in the fire were stocks of ready-made clothing materials sold and delivered by IMC Marketing Corporation, plus legal interest from the time of demand
and LSPI. until fully paid;

On February 4, 1992, respondent filed a complaint for damages against 2. the amount of P535,613.00 representing the amount
petitioner. It alleges that IMC and LSPI filed with respondent their claims under paid by the plaintiff-appellant to the insured Levi Strauss Phil.,
their respective fire insurance policies with book debt endorsements; that as of Inc., plus legal interest from the time of demand until fully paid.
February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of
ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it With costs against the defendant-appellee.
was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue
thereof, respondent was subrogated to their rights against petitioner; that SO ORDERED.[10]
respondent made several demands for payment upon petitioner but these went
unheeded.[5] The CA held that the sales invoices are proofs of sale, being detailed
statements of the nature, quantity and cost of the thing sold; that loss of the goods
In its Answer with Counter Claim dated July 4, 1995, petitioner contends in the fire must be borne by petitioner since the proviso contained in the sales
that it could not be held liable because the property covered by the insurance invoices is an exception under Article 1504 (1) of the Civil Code, to the general rule
policies were destroyed due to fortuities event or force majeure; that respondents that if the thing is lost by a fortuitous event, the risk is borne by the owner of the
right of subrogation has no basis inasmuch as there was no breach of contract thing at the time the loss under the principle of res perit domino; that petitioners
committed by it since the loss was due to fire which it could not prevent or foresee; obligation to IMC and LSPI is not the delivery of the lost goods but the payment of
that IMC and LSPI never communicated to it that they insured their properties; its unpaid account and as such the obligation to pay is not extinguished, even if the
that it never consented to paying the claim of the insured.[6] fire is considered a fortuitous event; that by subrogation, the insurer has the right
to go against petitioner; that, being a fire insurance with book debt endorsements,
At the pre-trial conference the parties failed to arrive at an amicable what was insured was the vendors interest as a creditor.[11]
settlement.[7] Thus, trial on the merits ensued.
Petitioner filed a motion for reconsideration[12] but it was denied by the CA
On August 31, 1998, the RTC rendered its decision dismissing respondents in its Resolution dated April 11, 2001.[13]
complaint.[8] It held that the fire was purely accidental; that the cause of the fire
was not attributable to the negligence of the petitioner; that it has not been Hence, the present petition for review on certiorari anchored on the
established that petitioner is the debtor of IMC and LSPI; that since the sales following Assignment of Errors:
invoices state that it is further agreed that merely for purpose of securing the
payment of purchase price, the above-described merchandise remains the property THE COURT OF APPEALS ERRED IN HOLDING THAT
of the vendor until the purchase price is fully paid, IMC and LSPI retained ownership THE INSURANCE IN THE INSTANT CASE WAS ONE OVER
of the delivered goods and must bear the loss. CREDIT.
18

THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK As a general rule, in petitions for review, the jurisdiction of this Court in
OVER THE SUBJECT GOODS IN THE INSTANT CASE HAD cases brought before it from the CA is limited to reviewing questions of law which
TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF. involves no examination of the probative value of the evidence presented by the
litigants or any of them.[18] The Supreme Court is not a trier of facts; it is not its
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE function to analyze or weigh evidence all over again.[19] Accordingly, findings of fact
WAS AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE of the appellate court are generally conclusive on the Supreme Court.[20]
CIVIL CODE IN FAVOR OF RESPONDENT.[14]
Nevertheless, jurisprudence has recognized several exceptions in which
factual issues may be resolved by this Court, such as: (1) when the findings are
Anent the first error, petitioner contends that the insurance in the present case grounded entirely on speculation, surmises or conjectures; (2) when the inference
cannot be deemed to be over credit since an insurance on credit belies not only the made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
nature of fire insurance but the express terms of the policies; that it was not credit discretion; (4) when the judgment is based on a misapprehension of facts; (5)
that was insured since respondent paid on the occasion of the loss of the insured when the findings of facts are conflicting; (6) when in making its findings the CA
goods to fire and not because of the non-payment by petitioner of any obligation; went beyond the issues of the case, or its findings are contrary to the admissions
that, even if the insurance is deemed as one over credit, there was no loss as the of both the appellant and the appellee; (7) when the findings are contrary to the
accounts were not yet due since no prior demands were made by IMC and LSPI trial court; (8) when the findings are conclusions without citation of specific
against petitioner for payment of the debt and such demands came from respondent evidence on which they are based; (9) when the facts set forth in the petition as
only after it had already paid IMC and LSPI under the fire insurance policies.[15] well as in the petitioners main and reply briefs are not disputed by the respondent;
(10) when the findings of fact are premised on the supposed absence of evidence
As to the second error, petitioner avers that despite delivery of the goods, and contradicted by the evidence on record; and (11) when the CA manifestly
petitioner-buyer IMC and LSPI assumed the risk of loss when they secured fire overlooked certain relevant facts not disputed by the parties, which, if properly
insurance policies over the goods. considered, would justify a different conclusion.[21] Exceptions (4), (5), (7), and
Concerning the third ground, petitioner submits that there is no subrogation (11) apply to the present petition.
in favor of respondent as no valid insurance could be maintained thereon by IMC and
LSPI since all risk had transferred to petitioner upon delivery of the goods; that At issue is the proper interpretation of the questioned insurance
petitioner was not privy to the insurance contract or the payment between policy. Petitioner claims that the CA erred in construing a fire insurance policy on
respondent and its insured nor was its consent or approval ever secured; that this book debts as one covering the unpaid accounts of IMC and LSPI since such insurance
lack of privity forecloses any real interest on the part of respondent in the obligation applies to loss of the ready-made clothing materials sold and delivered to petitioner.
to pay, limiting its interest to keeping the insured goods safe from fire.
The Court disagrees with petitioners stand.
For its part, respondent counters that while ownership over the ready- made clothing
materials was transferred upon delivery to petitioner, IMC and LSPI have insurable It is well-settled that when the words of a contract are plain and readily
interest over said goods as creditors who stand to suffer direct pecuniary loss from understood, there is no room for construction.[22] In this case, the questioned
its destruction by fire; that petitioner is liable for loss of the ready-made clothing insurance policies provide coverage for book debts in connection with ready-made
materials since it failed to overcome the presumption of liability under Article clothing materials which have been sold or delivered to various customers and
1265[16] of the Civil Code; that the fire was caused through petitioners negligence in dealers of the Insured anywhere in the Philippines.[23]; and defined book debts as
failing to provide stringent measures of caution, care and maintenance on its the unpaid account still appearing in the Book of Account of the Insured 45 days
property because electric wires do not usually short circuit unless there are defects after the time of the loss covered under this Policy.[24] Nowhere is it provided in the
in their installation or when there is lack of proper maintenance and supervision of questioned insurance policies that the subject of the insurance is the goods sold and
the property; that petitioner is guilty of gross and evident bad faith in refusing to delivered to the customers and dealers of the insured.
pay respondents valid claim and should be liable to respondent for contracted
lawyers fees, litigation expenses and cost of suit.[17]
19
Indeed, when the terms of the agreement are clear and explicit that they by concept of title, but whether insured has substantial economic interest in the
do not justify an attempt to read into it any alleged intention of the parties, the property.[28]
terms are to be understood literally just as they appear on the face of the
contract.[25] Thus, what were insured against were the accounts of IMC and LSPI Section 13 of our Insurance Code defines insurable interest as every
with petitioner which remained unpaid 45 days after the loss through fire, and not interest in property, whether real or personal, or any relation thereto, or liability in
the loss or destruction of the goods delivered. respect thereof, of such nature that a contemplated peril might directly damnify
the insured. Parenthetically, under Section 14 of the same Code, an insurable
Petitioner argues that IMC bears the risk of loss because it expressly interest in property may consist in: (a) an existing interest; (b) an inchoate interest
reserved ownership of the goods by stipulating in the sales invoices that [i]t is founded on existing interest; or (c) an expectancy, coupled with an existing interest
further agreed that merely for purpose of securing the payment of the purchase in that out of which the expectancy arises.
price the above described merchandise remains the property of the vendor until the
purchase price thereof is fully paid.[26] Therefore, an insurable interest in property does not necessarily imply a
property interest in, or a lien upon, or possession of, the subject matter of the
The Court is not persuaded. insurance, and neither the title nor a beneficial interest is requisite to the existence
of such an interest, it is sufficient that the insured is so situated with reference to
The present case clearly falls under paragraph (1), Article 1504 of the Civil the property that he would be liable to loss should it be injured or destroyed by the
Code: peril against which it is insured.[29] Anyone has an insurable interest in property who
derives a benefit from its existence or would suffer loss from its
ART. 1504. Unless otherwise agreed, the goods remain at
destruction.[30] Indeed, a vendor or seller retains an insurable interest in the
the sellers risk until the ownership therein is transferred to the
property sold so long as he has any interest therein, in other words, so long as he
buyer, but when the ownership therein is transferred to the buyer
would suffer by its destruction, as where he has a vendors lien.[31] In this case, the
the goods are at the buyers risk whether actual delivery has been
insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their
made or not, except that:
Books of Account 45 days after the time of the loss covered by the policies.
(1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the contract and The next question is: Is petitioner liable for the unpaid accounts?
the ownership in the goods has been retained by the seller
merely to secure performance by the buyer of his obligations Petitioners argument that it is not liable because the fire is a fortuitous
under the contract, the goods are at the buyers risk from the event under Article 1174[32] of the Civil Code is misplaced. As held earlier, petitioner
time of such delivery; (Emphasis supplied) bears the loss under Article 1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss
xxxx of goods by fire but for petitioners accounts with IMC and LSPI that remained
unpaid 45 days after the fire. Accordingly, petitioners obligation is for the payment
of money. As correctly stated by the CA, where the obligation consists in the
Thus, when the seller retains ownership only to insure that the buyer will payment of money, the failure of the debtor to make the payment even by reason of
pay its debt, the risk of loss is borne by the buyer.[27] Accordingly, petitioner bears a fortuitous event shall not relieve him of his liability.[33] The rationale for this is
the risk of loss of the goods delivered. that the rule that an obligor should be held exempt from liability when the loss
occurs thru a fortuitous event only holds true when the obligation consists in the
IMC and LSPI did not lose complete interest over the goods. They have an delivery of a determinate thing and there is no stipulation holding him liable even in
insurable interest until full payment of the value of the delivered goods. Unlike the case of fortuitous event. It does not apply when the obligation is pecuniary in
civil law concept of res perit domino, where ownership is the basis for consideration nature.[34]
of who bears the risk of loss, in property insurance, ones interest is not determined
20
Under Article 1263 of the Civil Code, [i]n an obligation to deliver a generic confirms the loss of Levis products in the amount of P535,613.00 in the fire that
thing, the loss or destruction of anything of the same kind does not extinguish the razed petitioners building on February 25, 1991.
obligation. If the obligation is generic in the sense that the object thereof is
designated merely by its class or genus without any particular designation or physical Moreover, there is no proof of full settlement of the insurance claim of
segregation from all others of the same class, the loss or destruction of anything of LSPI; no subrogation receipt was offered in evidence. Thus, there is no evidence
the same kind even without the debtors fault and before he has incurred in delay that respondent has been subrogated to any right which LSPI may have against
will not have the effect of extinguishing the obligation.[35] This rule is based on the petitioner. Failure to substantiate the claim of subrogation is fatal to petitioners
principle that the genus of a thing can never perish. Genus nunquan perit.[36] An case for recovery of the amount of P535,613.00.
obligation to pay money is generic; therefore, it is not excused by fortuitous loss of
any specific property of the debtor.[37] WHEREFORE, the petition is partly GRANTED. The assailed Decision
dated October 11, 2000 and Resolution dated April 11, 2001 of the Court of Appeals
Thus, whether fire is a fortuitous event or petitioner was negligent are in CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATION that the order
matters immaterial to this case. What is relevant here is whether it has been to pay the amount of P535,613.00 to respondent is DELETED for lack of factual
established that petitioner has outstanding accounts with IMC and LSPI. basis.

With respect to IMC, the respondent has adequately established its claim. No pronouncement as to costs.
Exhibits C to C-22[38] show that petitioner has an outstanding account with IMC in
the amount of P2,119,205.00. Exhibit E[39] is the check voucher evidencing payment SO ORDERED.
to IMC. Exhibit F[40] is the subrogation receipt executed by IMC in favor of
respondent upon receipt of the insurance proceeds. All these documents have been THIRD DIVISION
properly identified, presented and marked as exhibits in court. The subrogation
receipt, by itself, is sufficient to establish not only the relationship of respondent G.R. No. 211212, June 08, 2016
as insurer and IMC as the insured, but also the amount paid to settle the insurance
claim. The right of subrogation accrues simply upon payment by the insurance SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. MA. DAISY'S.
company of the insurance claim.[41] Respondents action against petitioner is squarely SIBYA, JESUS MANUEL S. SIBYA III, JAIME LUIS S. SIBYA, AND THE
sanctioned by Article 2207 of the Civil Code which provides: ESTATE OF THE DECEASED ATTY. JESUS SIBYA, JR., Respondents.

Art. 2207. If the plaintiffs property has been insured, and

D E C I S I O N
he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract
REYES, J.:
complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has
violated the contract. x x x Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules
of Court seeking to annul and set aside the Decision2 dated November 18, 2013 and
Resolution3 dated February 13, 2014 of the Court of Appeals (CA) in CA-G.R. CV.
No. 93269. In both instances, the CA affirmed the Decision4dated March 16, 2009
Petitioner failed to refute respondents evidence. of the Regional Trial Court (RTC) of Makati City, Branch 136, in Civil Case No. 01-
1506, ordering petitioner Sun Life of Canada (Philippines), Inc. (Sun Life) to pay
As to LSPI, respondent failed to present sufficient evidence to prove its Ma. Daisy S. Sibya (Ma. Daisy), Jesus Manuel S. Sibya III, and Jaime Luis S. Sibya
cause of action. No evidentiary weight can be given to Exhibit F Levi Strauss,[42] a (respondents) the amounts of P1,000,000.00 as death benefits, P100,000.00 as
letter dated April 23, 1991 from petitioners General Manager, Stephen S. Gaisano, moral damages, P100,000.00 as exemplary damages, and P100,000.00 as attorney's
Jr., since it is not an admission of petitioners unpaid account with LSPI. It only fees and costs of suit. Insofar as the charges for violation of Sections 241 and
21
242 of Presidential Decree No. 612, or the Insurance Code of the Philippines, Jr. was in good faith when he signed the insurance application and even authorized
however, the CA modified the decision of the RTC and absolved Sun Life therein. Sun Life to inquire further into his medical history for verification purposes.
According to them, the complaint is just a ploy to avoid the payment of insurance
Statement of Facts of the Case claims.12

On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life Ruling of the RTC
insurance with Sun Life. In his Application for Insurance, he indicated that he had
sought advice for kidney problems.5 Atty. Jesus Jr. indicated the following in his On March 16, 2009, the RTC issued its Decision13 dismissing the complaint for lack
application: of merit. The RTC held that Sun Life violated Sections 241, paragraph 1(b), (d),
chanRoblesvirtualLawlibrary and (e)14 and 24215 of the Insurance Code when it refused to pay the rightful claim
"Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus of the respondents. Moreover, the RTC ordered Sun Life to pay the amounts of
Benjamin Mendoza at National Kidney Institute, discharged after 3 days, no P1,000,000.00 as death benefits, P100,000.00 as moral damages, P100,000.00 as
recurrence as claimed."6ChanRoblesVirtualawlibrary exemplary damages, and P100,000.00 as attorney's fees and costs of suit.
On February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued
The RTC held that Atty. Jesus Jr. did not commit material concealment and
Insurance Policy No. 031097335. The policy indicated the respondents as
misrepresentation when he applied for life insurance with Sun Life. It observed
beneficiaries and entitles them to a death benefit of P1,000,000.00 should Atty.
that given the disclosures and the waiver and authorization to investigate executed
Jesus Jr. dies on or before February 5, 2021, or a sum of money if Atty. Jesus Jr.
by Atty. Jesus Jr. to Sun Life, the latter had all the means of ascertaining the
is still living on the endowment date.7
facts allegedly concealed by the applicant.16
On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San
Aggrieved, Sun Life elevated the case to the CA.
Joaquin, Iloilo. As such, Ma. Daisy filed a Claimant's Statement with Sun Life to
seek the death benefits indicated in his insurance policy.8
Ruling of the CA

In a letter dated August 27, 2001, however, Sun Life denied the claim on the
On appeal, the CA issued its Decision17 dated November 18, 2013 affirming the
ground that the details on Atty. Jesus Jr.'s medical history were not disclosed in
RTC decision in ordering Sun Life to pay death benefits and damages in favor of
his application. Simultaneously, Sun Life tendered a check representing the refund
the respondents. The CA, however, modified the RTC decision by absolving Sun Life
of the premiums paid by Atty. Jesus Jr.9
from the charges of violation of Sections 241 and 242 of the Insurance Code.18

The respondents reiterated their claim against Sun Life thru a letter dated
The CA ruled that the evidence on records show that there was no fraudulent
September 17, 2001. Sun Life, however, refused to heed the respondents'
intent on the part of Atty. Jesus Jr. in submitting his insurance application.
requests and instead filed a Complaint for Rescission before the RTC and prayed
Instead, it found that Atty. Jesus Jr. admitted in his application that he had
for judicial confirmation of Atty. Jesus Jr.'s rescission of insurance policy.10
sought medical treatment for kidney ailment.19

In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his
Sun Life filed a Motion for Partial Reconsideration20 dated December 11, 2013 but
insurance application his previous medical treatment at the National Kidney
the same was denied in a Resolution21 dated February 13, 2014.
Transplant Institute in May and August of 1994. According to Sun Life, the
undisclosed fact suggested that the insured was in "renal failure" and at a high risk
Undaunted, Sun Life filed an appeal by way of petition for review
medical condition. Consequently, had it known such fact, it would not have issued
on certiorari under Rule 45 of the Rules of Court before this Court.
the insurance policy in favor of Atty. Jesus Jr.11

The Issue
For their defense, the respondents claimed that Atty. Jesus Jr. did not commit
misrepresentation in his application for insurance. They averred that Atty. Jesus
Essentially, the main issue of the instant case is whether or not the CA erred when
22
it affirmed the RTC decision finding that there was no concealment or The decision in part states:
misrepresentation when Atty. Jesus Jr. submitted his insurance application with chanRoblesvirtualLawlibrary
Sun Life. Records show that in the Application for Insurance, [Atty. Jesus Jr.] admitted
that he had sought medical treatment for kidney ailment. When asked to provide
Ruling of the Court details on the said medication, [Atty. Jesus Jr.] indicated the following
information: year ("1987"), medical procedure ("undergone lithotripsy due to kidney
The petition has no merit. stone"), length of confinement ("3 days"), attending physician ("Dr. Jesus Benjamin
Mendoza") and the hospital ("National Kidney Institute").
In Manila Bankers Life Insurance Corporation v. Aban,22 the Court held that if the
insured dies within the two-year contestability period, the insurer is bound to make It appears that [Atty. Jesus Jr.] also signed the Authorization which gave [Sun
good its obligation under the policy, regardless of the presence or lack of Life] the opportunity to obtain information on the facts disclosed by [Atty. Jesus
concealment or misrepresentation. The Court held: Jr.] in his insurance application. x x x
chanRoblesvirtualLawlibrary
Section 48 serves a noble purpose, as it regulates the actions of both the insurer xxxx
and the insured. Under the provision, an insurer is given two years - from the
effectivity of a life insurance contract and while the insured is alive - to discover Given the express language of the Authorization, it cannot be said that [Atty.
or prove that the policy is void ab initio or is rescindible by reason of the Jesus Jr.] concealed his medical history since [Sun Life] had the means of
fraudulent concealment or misrepresentation of the insured or his agent. After ascertaining [Atty. Jesus Jr.'s] medical record.
the two-year period lapses, or when the insured dies within the period, the
insurer must make good on the policy, even though the policy was obtained by With regard to allegations of misrepresentation, we note that [Atty. Jesus Jr.]
fraud, concealment, or misrepresentation. This is not to say that insurance fraud was not a medical doctor, and his answer "no recurrence" may be construed as an
must be rewarded, but that insurers who recklessly and indiscriminately solicit and honest opinion. Where matters of opinion or judgment are called for, answers made
obtain business must be penalized, for such recklessness and lack of discrimination in good faith and without intent to deceive will not avoid a policy even though they
ultimately work to the detriment of bona fide takers of insurance and the public in are untrue.24 (Citations omitted and italics in the original)
general.23 (Emphasis ours)
Indeed, the intent to defraud on the part of the insured must be ascertained to
In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. merit rescission of the insurance contract. Concealment as a defense for the
Thus, it has two years from its issuance, to investigate and verify whether the insurer to avoid liability is an affirmative defense and the duty to establish such
policy was obtained by fraud, concealment, or misrepresentation. Upon the death defense by satisfactory and convincing evidence rests upon the provider or
of Atty. Jesus Jr., however, on May 11, 2001, or a mere three months from the insurer.25 In the present case, Sun Life failed to clearly and satisfactorily
issuance of the policy, Sun Life loses its right to rescind the policy. As discussed establish its allegations, and is therefore liable to pay the proceeds of the
in Manila Bankers, the death of the insured within the two-year period will render insurance.
the right of the insurer to rescind the policy nugatory. As such, the
incontestability period will now set in. Moreover, well-settled is the rule that this Court is not a trier of facts. Factual
findings of the lower courts are entitled to great weight and respect on appeal, and
Assuming, however, for the sake of argument, that the incontestability period has in fact accorded finality when supported by substantial evidence on the record.26
not yet set in, the Court agrees, nonetheless, with the CA when it held that Sun
Life failed to show that Atty. Jesus Jr. committed concealment and WHEREFORE, the petition for review is DENIED. The Decision dated November
misrepresentation. 18, 2013 and Resolution dated February 13, 2014 of the Court of Appeals in CA-
G.R. CV. No. 93269 are hereby AFFIRMED.
As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his
medical treatment for kidney ailment. Moreover, he executed an authorization in SO ORDERED.cralawlawlibrary
favor of Sun Life to conduct investigation in reference with his medical history.
23
Republic of the Philippines 3. The insured shall give notice to the Company of any insurance
SUPREME COURT or insurances already affected, or which may subsequently be
Manila effected, covering any of the property or properties consisting of
FIRST DIVISION stocks in trade, goods in process and/or inventories only hereby
insured, and unless such notice be given and the particulars of
G.R. No. 114427 February 6, 1995 such insurance or insurances be stated therein or endorsed in this
ARMANDO GEAGONIA, petitioner, policy pursuant to Section 50 of the Insurance Code, by or on
vs. behalf of the Company before the occurrence of any loss or
COURT OF APPEALS and COUNTRY BANKERS INSURANCE damage, all benefits under this policy shall be deemed
CORPORATION, respondents. forfeited, provided however, that this condition shall not apply
when the total insurance or insurances in force at the time of the
loss or damage is not more than P200,000.00.
DAVIDE, JR., J.:
On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the
1
Four our review under Rule 45 of the Rules of Court is the decision of the Court public market of San Francisco, Agusan del Sur. The petitioner's insured stock-in-
of Appeals in CA-G.R. SP No. 31916, entitled "Country Bankers Insurance trade were completely destroyed prompting him to file with the private respondent
Corporation versus Armando Geagonia," reversing the decision of the Insurance a claim under the policy. On 28 December 1990, the private respondent denied the
Commission in I.C. Case No. 3340 which awarded the claim of petitioner Armando claim because it found that at the time of the loss the petitioner's stocks-in-trade
Geagonia against private respondent Country Bankers Insurance Corporation. were likewise covered by fire insurance policies No. GA-28146 and No. GA-28144,
for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance
The petitioner is the owner of Norman's Mart located in the public market of San Co., Inc. (hereinafter PFIC). 3 These policies indicate that the insured was
Francisco, Agusan del Sur. On 22 December 1989, he obtained from the private "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause
respondent fire insurance policy No. F-146222 for P100,000.00. The period of the reading:
policy was from 22 December 1989 to 22 December 1990 and covered the
following: "Stock-in-trade consisting principally of dry goods such as RTW's for MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing
men and women wear and other usual to assured's business." Textiles, Cebu City as their interest may appear subject to the
terms of this policy. CO-INSURANCE DECLARED: P100,000. —
The petitioner declared in the policy under the subheading entitled CO- Phils. First CEB/F 24758.4
INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for
P50,000.00. From 1989 to 1990, the petitioner had in his inventory stocks The basis of the private respondent's denial was the petitioner's alleged violation
amounting to P392,130.50, itemized as follows: of Condition 3 of the policy.

Zenco Sales, Inc. P55,698.00 The petitioner then filed a complaint 5 against the private respondent with the
Insurance Commission (Case No. 3340) for the recovery of P100,000.00 under fire
F. Legaspi Gen. Merchandise 86,432.50
insurance policy No. F-14622 and for attorney's fees and costs of litigation. He
Cebu Tesing Textiles 250,000.00 (on credit) attached as Annex "AM"6 thereof his letter of 18 January 1991 which asked for
————— the reconsideration of the denial. He admitted in the said letter that at the time
P392,130.50 he obtained the private respondent's fire insurance policy he knew that the two
policies issued by the PFIC were already in existence; however, he had no
knowledge of the provision in the private respondent's policy requiring him to
The policy contained the following condition:
inform it of the prior policies; this requirement was not mentioned to him by the
private respondent's agent; and had it been mentioned, he would not have withheld
24
such information. He further asserted that the total of the amounts claimed under In addition, the premiums on both policies were paid for by
the three policies was below the actual value of his stocks at the time of loss, private respondent, not by the Tesing Textiles which is alleged to
which was P1,000,000.00. have taken out the other insurance without the knowledge of
private respondent. This is shown by Premium Invoices nos. 46632
In its answer,7 the private respondent specifically denied the allegations in the and 46630. (Annexes M and N). In both invoices, Tesing Textiles
complaint and set up as its principal defense the violation of Condition 3 of the is indicated to be only the mortgagee of the goods insured but
policy. the party to which they were issued were the "DISCOUNT MART
(MR. ARMANDO GEAGONIA)."
In its decision of 21 June 1993,8 the Insurance Commission found that the
petitioner did not violate Condition 3 as he had no knowledge of the existence of In is clear that it was the private respondent [petitioner herein]
the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing who took out the policies on the same property subject of the
Textiles which procured the PFIC policies without informing him or securing his insurance with petitioner. Hence, in failing to disclose the
consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on existence of these insurances private respondent violated
the stocks. These findings were based on the petitioner's testimony that he came Condition No. 3 of Fire Policy No. 1462. . . .
to know of the PFIC policies only when he filed his claim with the private
respondent and that Cebu Tesing Textile obtained them and paid for their Indeed private respondent's allegation of lack of knowledge of
premiums without informing him thereof. The Insurance Commission then decreed: the provisions insurances is belied by his letter to petitioner [of
18 January 1991. The body of the letter reads as follows;]
WHEREFORE, judgment is hereby rendered ordering the
respondent company to pay complainant the sum of P100,000.00 xxx xxx xxx
with legal interest from the time the complaint was filed until
fully satisfied plus the amount of P10,000.00 as attorney's fees. Please be informed that I have no knowledge of
With costs. The compulsory counterclaim of respondent is hereby the provision requiring me to inform your office
dismissed. about my
prior insurance under FGA-28146 and F-CEB-
Its motion for the reconsideration of the decision 9 having been denied by the 24758. Your representative did not mention
Insurance Commission in its resolution of 20 August 1993, 10 the private about said requirement at the time he was
respondent appealed to the Court of Appeals by way of a petition for review. The convincing me to insure with you. If he only die
petition was docketed as CA-G.R. SP No. 31916. or even inquired if I had other existing policies
covering my establishment, I would have told him
In its decision of 29 December 1993, 11 the Court of Appeals reversed the decision so. You will note that at the time he talked to me
of the Insurance Commission because it found that the petitioner knew of the until I decided to insure with your company the
existence of the two other policies issued by the PFIC. It said: two policies aforementioned were already in
effect. Therefore I would have no reason to
It is apparent from the face of Fire Policy GA 28146/Fire Policy withhold such information and I would have
No. 28144 that the insurance was taken in the name of private desisted to part with my hard earned peso to
respondent [petitioner herein]. The policy states that pay the insurance premiums [if] I know I could
"DISCOUNT MART (MR. ARMANDO GEAGONIA, PROP)" was the not recover anything.
assured and that "TESING TEXTILES" [was] only the mortgagee
of the goods. Sir, I am only an ordinary businessman
interested in protecting my investments. The
actual value of my stocks damaged by the fire
25
was estimated by the Police Department to be not have been considered in deciding the case. However, as correctly pointed out
P1,000,000.00 (Please see xerox copy of Police by the Court of Appeals, a copy of this letter was attached to the petitioner's
Report Annex "A"). My Income Statement as of complaint in I.C. Case No. 3440 as Annex "M" thereof and made integral part of
December 31, 1989 or five months before the the complaint. 12 It has attained the status of a judicial admission and since its due
fire, shows my merchandise inventory was execution and authenticity was not denied by the other party, the petitioner is
already some P595,455.75. . . . These will support bound by it even if it were not introduced as an independent evidence. 13
my claim that the amount claimed under the
three policies are much below the value of my As to the first issue, the Insurance Commission found that the petitioner had no
stocks lost. knowledge of the previous two policies. The Court of Appeals disagreed and found
otherwise in view of the explicit admission by the petitioner in his letter to the
xxx xxx xxx private respondent of 18 January 1991, which was quoted in the challenged decision
of the Court of Appeals. These divergent findings of fact constitute an exception
The letter contradicts private respondent's pretension that he to the general rule that in petitions for review under Rule 45, only questions of law
did not know that there were other insurances taken on the are involved and findings of fact by the Court of Appeals are conclusive and binding
stock-in-trade and seriously puts in question his credibility. upon this Court. 14

His motion to reconsider the adverse decision having been denied, the petitioner We agree with the Court of Appeals that the petitioner knew of the prior policies
filed the instant petition. He contends therein that the Court of Appeals acted issued by the PFIC. His letter of 18 January 1991 to the private respondent
with grave abuse of discretion amounting to lack or excess of jurisdiction: conclusively proves this knowledge. His testimony to the contrary before the
Insurance Commissioner and which the latter relied upon cannot prevail over a
A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF written admission made ante litem motam. It was, indeed, incredible that he did
THE INSURANCE COMMISSION, A QUASI-JUDICIAL BODY not know about the prior policies since these policies were not new or original.
CHARGED WITH THE DUTY OF DETERMINING INSURANCE Policy No. GA-28144 was a renewal of Policy No. F-24758, while Policy No. GA-
CLAIM AND WHOSE DECISION IS ACCORDED RESPECT AND 28146 had been renewed twice, the previous policy being F-24792.
EVEN FINALITY BY THE COURTS;
Condition 3 of the private respondent's Policy No. F-14622 is a condition which is
B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS not proscribed by law. Its incorporation in the policy is allowed by Section 75 of
WHICH WERE NOT PRESENTED AS EVIDENCE DURING THE the Insurance Code 15 which provides that "[a] policy may declare that a violation
HEARING OR TRIAL; AND of specified provisions thereof shall avoid it, otherwise the breach of an
immaterial provision does not avoid the policy." Such a condition is a provision which
C — . . . WHEN IT DISMISSED THE CLAIM OF THE invariably appears in fire insurance policies and is intended to prevent an increase
PETITIONER HEREIN AGAINST THE PRIVATE RESPONDENT. in the moral hazard. It is commonly known as the additional or "other insurance"
clause and has been upheld as valid and as a warranty that no other insurance
exists. Its violation would thus avoid the
The chief issues that crop up from the first and third grounds are (a) whether the
policy. 16 However, in order to constitute a violation, the other insurance must be
petitioner had prior knowledge of the two insurance policies issued by the PFIC
upon same subject matter, the same interest therein, and the same risk.17
when he obtained the fire insurance policy from the private respondent, thereby,
for not disclosing such fact, violating Condition 3 of the policy, and (b) if he had,
whether he is precluded from recovering therefrom. As to a mortgaged property, the mortgagor and the mortgagee have each an
independent insurable interest therein and both interests may be one policy, or
each may take out a separate policy covering his interest, either at the same or at
The second ground, which is based on the Court of Appeals' reliance on the
separate times. 18 The mortgagor's insurable interest covers the full value of the
petitioner's letter of reconsideration of 18 January 1991, is without merit. The
mortgaged property, even though the mortgage debt is equivalent to the full value
petitioner claims that the said letter was not offered in evidence and thus should
26
of the property.19 The mortgagee's insurable interest is to the extent of the debt, This is clearly a simple loss payable clause, not a standard mortgage clause.
since the property is relied upon as security thereof, and in insuring he is not
insuring the property but his interest or lien thereon. His insurable interest It must, however, be underscored that unlike the "other insurance" clauses
is prima facie the value mortgaged and extends only to the amount of the debt, not involved in General Insurance and Surety Corp. vs. Ng Hua 26 or in Pioneer
exceeding the value of the mortgaged property. 20 Thus, separate insurances Insurance & Surety Corp. vs. Yap, 27 which read:
covering different insurable interests may be obtained by the mortgagor and the
mortgagee. The insured shall give notice to the company of any insurance or
insurances already effected, or which may subsequently be
A mortgagor may, however, take out insurance for the benefit of the mortgagee, effected covering any of the property hereby insured, and unless
which is the usual practice. The mortgagee may be made the beneficial payee in such notice be given and the particulars of such insurance or
several ways. He may become the assignee of the policy with the consent of the insurances be stated in or endorsed on this Policy by or on behalf
insurer; or the mere pledgee without such consent; or the original policy may of the Company before the occurrence of any loss or damage, all
contain a mortgage clause; or a rider making the policy payable to the mortgagee benefits under this Policy shall be forfeited.
"as his interest may appear" may be attached; or a "standard mortgage clause,"
containing a collateral independent contract between the mortgagee and insurer, or in the 1930 case of Santa Ana vs. Commercial Union Assurance
may be attached; or the policy, though by its terms payable absolutely to the Co. 28 which provided "that any outstanding insurance upon the whole or a
mortgagor, may have been procured by a mortgagor under a contract duty to insure portion of the objects thereby assured must be declared by the insured in
for the mortgagee's benefit, in which case the mortgagee acquires an equitable writing and he must cause the company to add or insert it in the policy,
lien upon the proceeds. 21 without which such policy shall be null and void, and the insured will not be
entitled to indemnity in case of loss," Condition 3 in the private
In the policy obtained by the mortgagor with loss payable clause in favor of the respondent's policy No. F-14622 does not absolutely declare void any
mortgagee as his interest may appear, the mortgagee is only a beneficiary under violation thereof. It expressly provides that the condition "shall not apply
the contract, and recognized as such by the insurer but not made a party to the when the total insurance or insurances in force at the time of the loss or
contract himself. Hence, any act of the mortgagor which defeats his right will also damage is not more than P200,000.00."
defeat the right of the mortgagee. 22 This kind of policy covers only such interest
as the mortgagee has at the issuing of the policy.23 It is a cardinal rule on insurance that a policy or insurance contract is to be
interpreted liberally in favor of the insured and strictly against the company, the
On the other hand, a mortgagee may also procure a policy as a contracting party in reason being, undoubtedly, to afford the greatest protection which the insured
accordance with the terms of an agreement by which the mortgagor is to pay the was endeavoring to secure when he applied for insurance. It is also a cardinal
premiums upon such insurance. 24 It has been noted, however, that although the principle of law that forfeitures are not favored and that any construction which
mortgagee is himself the insured, as where he applies for a policy, fully informs the would result in the forfeiture of the policy benefits for the person claiming
authorized agent of his interest, pays the premiums, and obtains on the assurance thereunder, will be avoided, if it is possible to construe the policy in a manner
that it insures him, the policy is in fact in the form used to insure a mortgagor with which would permit recovery, as, for example, by finding a waiver for such
loss payable clause. 25 forfeiture. 29 Stated differently, provisions, conditions or exceptions in policies
which tend to work a forfeiture of insurance policies should be construed most
The fire insurance policies issued by the PFIC name the petitioner as the assured strictly against those for whose benefits they are inserted, and most favorably
and contain a mortgage clause which reads: toward those against whom they are intended to operate. 30 The reason for this is
that, except for riders which may later be inserted, the insured sees the contract
Loss, if any, shall be payable to MESSRS. TESING TEXTILES, already in its final form and has had no voice in the selection or arrangement of
Cebu City as their interest may appear subject to the terms of the words employed therein. On the other hand, the language of the contract was
this policy. carefully chosen and deliberated upon by experts and legal advisers who had acted
27
exclusively in the interest of the insurers and the technical language employed SECOND DIVISION
therein is rarely understood by ordinary laymen. 31
April 18, 2016
With these principles in mind, we are of the opinion that Condition 3 of the subject
policy is not totally free from ambiguity and must, perforce, be meticulously G.R. No. 195176
analyzed. Such analysis leads us to conclude that (a) the prohibition applies only to
double insurance, and (b) the nullity of the policy shall only be to the extent THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner,
exceeding P200,000.00 of the total policies obtained. vs.
PAZ Y. KHU, FELIPE Y. KHU, JR., and FREDERICK Y. KHU, Respondents.
The first conclusion is supported by the portion of the condition referring to other
insurance "covering any of the property or properties consisting of stocks in trade, D E C I S I O N
goods in process and/or inventories only hereby insured," and the portion regarding
the insured's declaration on the subheading CO-INSURANCE that the co-insurer DEL CASTILLO, J.:
is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance
exists where the same person is insured by several insurers separately in respect
The date of last reinstatement mentioned in Section 48 of the Insurance Code
of the same subject and interest. As earlier stated, the insurable interests of a
pertains to the date that the insurer approved· the application for reinstatement.
mortgagor and a mortgagee on the mortgaged property are distinct and separate.
However, in light of the ambiguity in the insurance documents to this case, this
Since the two policies of the PFIC do not cover the same interest as that covered
Court adopts the interpretation favorable to the insured in determining the date
by the policy of the private respondent, no double insurance exists. The non-
when the reinstatement was approved.
disclosure then of the former policies was not fatal to the petitioner's right to
recover on the private respondent's policy.
Assailed in this Petition for Review on Certiorari1 are the June 24, 2010 Decision2
of the Court of Appeals (CA), which dismissed the Petition in CA-GR. CV No. 81730,
Furthermore, by stating within Condition 3 itself that such condition shall not apply
and its December 13, 2010 Resolution3 which denied the petitioner Insular Life
if the total insurance in force at the time of loss does not exceed P200,000.00,
Assurance Company Ltd. 's (Insular Life) motion for partial reconsideration.4
the private respondent was amenable to assume a co-insurer's liability up to a loss
not exceeding P200,000.00. What it had in mind was to discourage over-insurance.
Factual Antecedents
Indeed, the rationale behind the incorporation of "other insurance" clause in fire
policies is to prevent over-insurance and thus avert the perpetration of fraud.
When a property owner obtains insurance policies from two or more insurers in a On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with
total amount that exceeds the property's value, the insured may have an Insular Life under the latter’s Diamond Jubilee Insurance Plan. Felipe accomplished
inducement to destroy the property for the purpose of collecting the insurance. the required medical questionnaire wherein he did not declare any illness or
The public as well as the insurer is interested in preventing a situation in which a adverse medical condition. Insular Life thereafter issued him Policy Number
fire would be profitable to the insured.32 A000015683 with a face value of P1 million. This took effect on June 22, 1997. 5

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court On June 23, 1999, Felipe’s policy lapsed due to non-payment of the premium
of Appeals in CA-G.R. SP No. 31916 is SET ASIDE and the decision of the covering the period from June 22, 1999 to June 23, 2000.6
Insurance Commission in Case No. 3340 is REINSTATED.
On September 7, 1999, Felipe applied for the reinstatement of his policy and paid
Costs against private respondent Country Bankers Insurance Corporation. P25,020.00 as premium. Except for the change in his occupation of being self-
employed to being the Municipal Mayor of Binuangan, Misamis Oriental, all the
other information submitted by Felipe in his application for reinstatement was
SO ORDERED.
virtually identical to those mentioned in his original policy.7
28
On October 12, 1999, Insular Life advised Felipe that his application for On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu
reinstatement may only be considered if he agreed to certain conditions such as (collectively, Felipe’s beneficiaries or respondents) filed with Insular Life a claim
payment of additional premium and the cancellation of the riders pertaining to for benefit under the reinstated policy. This claim was denied. Instead, Insular
Life advised Felipe’s beneficiaries that it had decided to rescind the reinstated
premium waiver and accidental death benefits. Felipe agreed to these policy on the grounds of concealment and misrepresentation by Felipe.
conditions8 and on December 27, 1999 paid the agreed additional premium of
P3,054.50.9 Hence, respondents instituted a complaint for specific performance with damages.
Respondents prayed that the reinstated life insurance policy be declared valid,
On January 7, 2000, Insular Life issued Endorsement No. PNA000015683, which enforceable and binding on Insular Life; and that the latter be ordered to pay unto
reads: Felipe’s beneficiaries the proceeds of this policy, among others.13

This certifies that as agreed by the Insured, the reinstatement of this policy has In its Answer, Insular Life countered that Felipe did not disclose the ailments
been approved by the Company on the understanding that the following changes are (viz., Type 2 Diabetes Mellitus, Diabetes Nephropathy and Alcoholic Liver Cirrhosis
made on the policy effective June 22, 1999: with Ascites) that he already had prior to his application for reinstatement of his
insurance policy; and that it would not have reinstated the insurance policy had
1. The EXTRA PREMIUM is imposed; and Felipe disclosed the material information on his adverse health condition. It
contended that when Felipe died, the policy was still
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM
DISABILITY (WPD) rider originally attached to and forming parts of this contestable.14
policy [are] deleted.
Ruling of the Regional Trial Court (RTC)
In consequence thereof, the premium rates on this policy are adjusted to
P28,000.00 annually, P14,843.00 semi-annually and P7,557.00 quarterly, Philippine On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found15 for
currency.10 Felipe’s beneficiaries, thus:

On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00 WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their] claim
covering the period from June 22, 2000 to June 22, 2001. And on July 2, 2001, he by preponderance of evidence, judgment is hereby rendered in their favor and
also paid the same amount as annual premium covering the period from June 22, against defendants, ordering the latter to pay jointly and severally the
2001 to June 21, 2002.11
sum of One Million (P1,000,000.00) Pesos with legal rate of interest from the date
On September 22, 2001, Felipe died. His Certificate of Death enumerated the of demand until it is fully paid representing the face value of Plan Diamond Jubilee
following as causes of death: No. PN-A000015683 issued to insured the late Felipe N. Khu[,] Sr; the sum of
P20,000.00 as moral damages; P30,000.00 as attorney’s fees; P10,000.00 as
Immediate cause: a. End stage renal failure, Hepatic failure litigation expenses.

Antecedent cause: b. Congestive heart failure, Diffuse myocardial SO ORDERED.16

ischemia.
In ordering Insular Life to pay Felipe’s beneficiaries, the RTC agreed with the
Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia. 12 latter’s claim that the insurance policy was reinstated on June 22, 1999. The RTC
cited the ruling in Malayan Insurance Corporation v. Court of
29
Appeals17 that any ambiguity in a contract of insurance should be resolved strictly In praying for the reversal of the CA Decision, Insular Life basically argues that
against the insurer upon the principle that an insurance contract is a contract of respondents should not be allowed to recover on the reinstated insurance policy
adhesion.18 The RTC also held that the reinstated insurance policy had already because the two-year contestability period had not yet lapsed inasmuch as the
become incontestable by the time of Felipe’s death on September 22, 2001 since insurance policy was reinstated only on December 27, 1999, whereas Felipe died on
more than two years had already lapsed from the date of the policy’s September 22, 2001;24 that the CA overlooked the fact that Felipe paid the
reinstatement on June 22, 1999. The RTC noted that since it was Insular Life additional extra premium only on December 27, 1999, hence, it is only upon this
itself that supplied all the pertinent forms relative to the reinstated policy, then it date that the reinstated policy had become effective; that the CA erred in
is barred from taking advantage of any ambiguity/obscurity perceived therein declaring that resort to the principles of statutory construction is still necessary
particularly as regards the date when the reinstated insurance policy became to resolve that question given that the Application for Reinstatement, the Letter
effective. of Acceptance and the Endorsement in and by themselves already embodied
unequivocal provisions stipulating that the two-year contestability clause should be
Ruling of the Court of Appeals reckoned from the date of approval of the reinstatement;25 and that Felipe’s
misrepresentation and concealment of material facts in regard to his health or
On June 24, 2010, the CA issued the assailed Decision19 which contained the adverse medical condition gave it (Insular Life) the right to rescind the contract
following decretal portion: of insurance and consequently, the right to deny the claim of Felipe’s beneficiaries
for death benefits under the disputed policy.26
WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the lower
court is AFFIRMED with the MODIFICATION that the award of moral damages, Respondents’ Arguments
attorney’s fees and litigation expenses [is] DELETED.
Respondents maintain that the phrase "effective June 22, 1999" found in both the
SO ORDERED. 20 Letter of Acceptance and in the Endorsement is unclear whether it refers to the
subject of the sentence, i.e., the "reinstatement of this policy" or to the
The CA upheld the RTC’s ruling on the non-contestability of the reinstated subsequent phrase "changes are made on the policy;" that granting that there was
insurance policy on the date the insured died. It declared that contrary to Insular any obscurity or ambiguity in the insurance policy, the same should be laid at the
Life’s contention, there in fact exists a genuine ambiguity or obscurity in the door of Insular Life as it was this insurance company that prepared the necessary
language of the two documents prepared by Insular Life itself, viz., Felipe’s Letter documents that make up the same;27 and that given the CA’s finding which
of Acceptance and Insular Life’s Endorsement; that given the obscurity/ambiguity effectively affirmed the RTC’s finding on this particular issue, it stands to reason
in the language of these two documents, the construction/interpretation that that the insurance policy had indeed become incontestable upon the date of
favors the insured’s right to recover should be adopted; and that in keeping with Felipe’s death.28
this principle, the insurance policy in dispute must be deemed reinstated as of
June 22, 1999.21 Our Ruling

Insular Life moved for partial reconsideration22 but this was denied by the CA in We deny the Petition.
its Resolution of December 13, 2010.23 Hence, the present Petition.
The Insurance Code pertinently provides that:
Issue
Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer
The fundamental issue to be resolved in this case is whether Felipe’s reinstated by any provision of this chapter, such right must be exercised previous to the
life insurance policy is already incontestable at the time of his death. commencement of an action on the contract.

Petitioner’s Arguments After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two years from the
30
date of its issue or of its last reinstatement, the insurer cannot prove that the To reinstate a policy means to restore the same to premium-paying status after it
policy is void ab initio or is rescindible by reason of the fraudulent concealment or has been permitted to lapse. x x x
misrepresentation of the insured or his agent.
xxxx
The rationale for this provision was discussed by the Court in Manila Bankers Life
Insurance Corporation v. Aban,29 In the instant case, Eulogio’s death rendered impossible full compliance with the
conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his
Section 48 regulates both the actions of the insurers and prospective takers of death, managed to file his Application for Reinstatement and deposit
life insurance. It gives insurers enough time to inquire whether the policy was
obtained by fraud, concealment, or misrepresentation; on the other hand, it the amount for payment of his overdue premiums and interests thereon with
forewarns scheming individuals that their attempts at insurance fraud would be Malaluan; but Policy No. 9011992 could only be considered reinstated after the
timely uncovered – thus deterring them from venturing into such nefarious Application for Reinstatement had been processed and approved by Insular Life
enterprise. At the same time, legitimate policy holders are absolutely protected during Eulogio’s lifetime and good health.31
from unwarranted denial of their claims or delay in the collection of insurance
proceeds occasioned by allegations of fraud, concealment, or misrepresentation by Thus, it is settled that the reinstatement of an insurance policy should be
insurers, claims which may no longer be set up after the two-year period expires as reckoned from the date when the same was approved by the insurer.
ordained under the law.
In this case, the parties differ as to when the reinstatement was actually
xxxx approved. Insular Life claims that it approved the reinstatement only on December
27, 1999. On the other hand, respondents contend that it was on June
The Court therefore agrees fully with the appellate court’s pronouncement that-
22, 1999 that the reinstatement took effect.
xxxx
The resolution of this issue hinges on the following documents: 1) Letter of
‘The insurer is deemed to have the necessary facilities to discover such fraudulent Acceptance; and 2) the Endorsement.
concealment or misrepresentation within a period of two (2) years. It is not fair
for the insurer to collect the premiums as long as the insured is still alive, only to The Letter of Acceptance32 wherein Felipe affixed his signature was actually
raise the issue of fraudulent concealment or misrepresentation when the insured drafted and prepared by Insular Life. This pro-forma document reads as follows:
dies in order to defeat the right of the beneficiary to recover under the policy.
LETTER OF ACCEPTANCE
At least two (2) years from the issuance of the policy or its last reinstatement,
the beneficiary is given the stability to recover under the policy when the insured Place: Cag. De [O]ro City
dies. The provision also makes clear when the two-year period should commence in
case the policy should lapse and is reinstated, that is, from the date of the last
The Insular Life Assurance Co., Ltd.
reinstatement’.
P.O. Box 128, MANILA

In Lalican v. The Insular Life Assurance Company, Limited,30 which coincidentally

Policy No. A000015683
also involves the herein petitioner, it was there held that the reinstatement of the
insured’s policy is to be reckoned from the date when the
Gentlemen:

application was processed and approved by the insurer. There, we stressed that:
31
Thru your Reinstatement Section, I/WE learned that this policy may be reinstated In consequence thereof, the PREMIUM RATES on this policy are adjusted to
provided I/we agree to the following condition/s indicated with a check mark: [P]28,000.00 annuallly, [P]14,843.00 semi-annually and [P]7,557.00 quarterly,
Philippine Currency.
[xx] Accept the imposition of an extra/additional extra premium of
[P]5.00 a year per thousand of insurance; effective June 22, 1999 Cagayan de Oro City, 07 January 2000.
RCV/
[ ] Accept the rating on the WPD at ____ at standard rates; the ABD at
_____ the standard rates; the SAR at P____ annually per thousand of (Signed) Authorized Signature
Insurance;
Based on the foregoing, we find that the CA did not commit any error in holding
[xx] Accept the cancellation of the Premium waiver & Accidental death that the subject insurance policy be considered as reinstated on June 22, 1999.
benefit. This finding must be upheld not only because it accords with the evidence, but also
because this is favorable to the insured who was not responsible for causing the
[] ambiguity or obscurity in the insurance contract.34

I am/we are agreeable to the above condition/s. Please proceed with the The CA expounded on this point thus –
reinstatement of the policy.
The Court discerns a genuine ambiguity or obscurity in the language of the two
Very truly yours, documents.

Felipe N. Khu, Sr. In the Letter of Acceptance, Khu declared that he was accepting "the imposition
of an extra/additional x x x premium of P5.00 a year per thousand of insurance;
After Felipe accomplished this form, Insular Life, through its Regional effective June 22, 1999". It is true that the phrase as used in this
Administrative Manager, Jesse James R. Toyhorada, issued an
Endorsement33 dated January 7, 2000. For emphasis, the Endorsement is again particular paragraph does not refer explicitly to the effectivity of the
quoted as follows: reinstatement. But the Court notes that the reinstatement was conditioned upon
the payment of additional premium not only prospectively, that is, to cover the
ENDORSEMENT
remainder of the annual period of coverage, but also retroactively, that is for the
PN-A000015683 period starting June 22, 1999. Hence, by paying the amount of P3,054.50 on
December 27, 1999 in addition to the P25,020.00 he had earlier paid on September
This certifies that as agreed to by the Insured, the reinstatement of this policy 7, 1999, Khu had paid for the insurance coverage starting June 22, 1999. At the
has been approved by the Company on the understanding that the following changes very least, this circumstance has engendered a true lacuna.
are made on the policy effective June 22, 1999:
In the Endorsement, the obscurity is patent. In the first sentence of the
1. The EXTRA PREMIUM is imposed; and Endorsement, it is not entirely clear whether the phrase "effective June 22, 1999"
refers to the subject of the sentence, namely "the reinstatement of this policy,"
or to the subsequent phrase "changes are made on the policy."
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM
DISABILITY (WPD) rider originally attached to and forming parts of this
policy is deleted. The court below is correct. Given the obscurity of the language, the construction
favorable to the insured will be adopted by the courts.
32
Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus, 2001.1âwphi1 As such, the subject insurance policy has already become
the period of contestability has lapsed.35 incontestable at the time of Felipe’s death.

In Eternal Gardens Memorial Park Corporation v. The Philippine American Life Finally, we agree with the CA that there is neither basis nor justification for the
Insurance Company,36 we ruled in favor of the insured and in favor of the RTC’s award of moral damages, attorney’s fees and litigation expenses; hence this
effectivity of the insurance contract in the midst of ambiguity in the insurance award must be deleted.
contract provisions. We held that:
WHEREFORE, the Petition is DENIED. The assailed .June 24, 2010 Decision and
It must be remembered that an insurance contract is a contract of adhesion which December 13, 2010 Resolution of the Court of Appeals in CA-GR. CV No. 81730
must be construed liberally in favor of the insured and strictly against the insurer are AFFIRMED.
in order to safeguard the latter’s interest. Thus, in MalayanInsurance Corporation
v. Court of Appeals, this Court held that: SO ORDERED.

Indemnity and liability insurance policies are construed in accordance with the THIRD DIVISION
general rule of resolving any ambiguity therein in favor of the insured, where the
contract or policy is prepared by the insurer. A contract of insurance, being a G.R. No. 60506 August 6, 1992
contract of adhesion, par excellence, any ambiguity therein should be resolved
against the insurer; in other words, it should be construed liberally in favor of the FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M.
insured and strictly against the insurer. Limitations of liability should be regarded MASESAR, LEONILA M. MALLARI, GILDA ANTONIO and the minors LEAH,
with extreme jealousy and must be construed in such a way as to preclude the LOPE, JR., and ELVIRA, all surnamed MAGLANA, herein represented by their
insurer from noncompliance with its obligations. mother, FIGURACION VDA. DE MAGLANA, petitioners,
vs.
xxxx HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City,
Branch II, and AFISCO INSURANCE CORPORATION, respondents.
As a final note, to characterize the insurer and the insured as contracting parties
on equal footing is inaccurate at best. Insurance contracts are wholly prepared by Jose B. Guyo for petitioners.
the insurer with vast amounts of experience in the industry
Angel E. Fernandez for private respondent.
purposefully used to its advantage. More often than not, insurance contracts are
contracts of adhesion containing technical terms and conditions of the industry, ROMERO, J.:
confusing if at all understandable to laypersons, that are imposed on those who
wish to avail of insurance. As such, insurance contracts are imbued with public
The nature of the liability of an insurer sued together with the insured/operator-
interest that must be considered whenever the rights and obligations of the
owner of a common carrier which figured in an accident causing the death of a
insurer and the insured are to be delineated. Hence, in order to protect the
third person is sought to be defined in this petition for certiorari.
interest of insurance applicants, insurance companies must be obligated to act with
haste upon insurance applications, to either deny or approve the same, or otherwise
The facts as found by the trial court are as follows:
be bound to honor the application as a valid, binding, and effective insurance
contract.37
. . . Lope Maglana was an employee of the Bureau of Customs
whose work station was at Lasa, here in Davao City. On December
Indeed, more than two years had lapsed from the time the subject insurance policy
20, 1978, early morning, Lope Maglana was on his way to his work
was reinstated on June 22, 1999 vis-a-vis Felipe’s death on September 22,
station, driving a motorcycle owned by the Bureau of Customs. At
33
Km. 7, Lanang, he met an accident that resulted in his death. He against the driver, accused Into; to pay plaintiffs the sum of
died on the spot. The PUJ jeep that bumped the deceased was P3,000.00 as attorney's fees and to pay the costs of suit.
driven by Pepito Into, operated and owned by defendant Destrajo.
From the investigation conducted by the traffic investigator, the The defendant insurance company is ordered to reimburse
PUJ jeep was overtaking another passenger jeep that was going defendant Destrajo whatever amounts the latter shall have paid
towards the city poblacion. While overtaking, the PUJ jeep of only up to the extent of its insurance coverage.
defendant Destrajo running abreast with the overtaken jeep,
bumped the motorcycle driven by the deceased who was going SO ORDERED. 3
towards the direction of Lasa, Davao City. The point of impact
was on the lane of the motorcycle and the deceased was thrown Petitioners filed a motion for the reconsideration of the second paragraph of the
from the road and met his untimely death. 1 dispositive portion of the decision contending that AFISCO should not merely be
held secondarily liable because the Insurance Code provides that the insurer's
Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for liability is "direct and primary and/or jointly and severally with the operator of the
damages and attorney's fees against operator Patricio Destrajo and the Afisco vehicle, although only up to the extent of the insurance coverage." 4 Hence, they
Insurance Corporation (AFISCO for brevity) before the then Court of First argued that the P20,000.00 coverage of the insurance policy issued by AFISCO,
Instance of Davao, Branch II. An information for homicide thru reckless should have been awarded in their favor.
imprudence was also filed against Pepito Into.
In its comment on the motion for reconsideration, AFISCO argued that since the
During the pendency of the civil case, Into was sentenced to suffer an Insurance Code does not expressly provide for a solidary obligation, the
indeterminate penalty of one (1) year, eight (8) months and one (1) day of prision presumption is that the obligation is joint.
correccional, as minimum, to four (4) years, nine (9) months and eleven (11) days
of prision correccional, as maximum, with all the accessory penalties provided by
In its Order of February 9, 1982, the lower court denied the motion for
law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of twelve reconsideration ruling that since the insurance contract "is in the nature of
thousand pesos (P12,000.00) with subsidiary imprisonment in case of insolvency, suretyship, then the liability of the insurer is secondary only up to the extent of
plus five thousand pesos (P5,000.00) in the concept of moral and exemplary the insurance coverage." 5
damages with costs. No appeal was interposed by accused who later applied for
probation. 2
Petitioners filed a second motion for reconsideration reiterating that the liability
of the insurer is direct, primary and solidary with the jeepney operator because
On December 14, 1981, the lower court rendered a decision finding that Destrajo the petitioners became direct beneficiaries under the provision of the policy
had not exercised sufficient diligence as the operator of the jeepney. The which, in effect, is a stipulation pour autrui. 6 This motion was likewise denied for
dispositive portion of the decision reads: lack of merit.

WHEREFORE, the Court finds judgment in favor of the plaintiffs Hence, petitioners filed the instant petition for certiorari which, although it does
against defendant Destrajo, ordering him to pay plaintiffs the not seek the reversal of the lower court's decision in its entirety, prays for the
sum of P28,000.00 for loss of income; to pay plaintiffs the sum of setting aside or modification of the second paragraph of the dispositive portion of
P12,000.00 which amount shall be deducted in the event judgment said decision. Petitioners reassert their position that the insurance company is
in Criminal Case No. 3527-D against the driver, accused Into, directly and solidarily liable with the negligent operator up to the extent of its
shall have been enforced; to pay plaintiffs the sum of P5,901.70 insurance coverage.
representing funeral and burial expenses of the deceased; to pay
plaintiffs the sum of P5,000.00 as moral damages which shall be
We grant the petition.
deducted in the event judgment (sic) in Criminal Case No. 3527-D
34
The particular provision of the insurance policy on which petitioners base their does not mean that the insurer can be held solidarily liable with
claim is as follows: the insured and/or the other parties found at fault. The liability
of the insurer is based on contract; that of the insured is based
Sec. 1 — LIABILITY TO THE PUBLIC on tort.

1. The Company will, subject to the Limits of Liability, pay all sums In the case at bar, petitioner as insurer of Sio Choy, is liable to
necessary to discharge liability of the insured in respect of respondent Vallejos (the injured third party), but it cannot, as
incorrectly held by the trial court, be made "solidarily" liable with
(a) death of or bodily injury to any THIRD PARTY the two principal tortfeasors, namely respondents Sio Choy and
San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily
liable with said, two (2) respondents by reason of the indemnity
(b) . . . .
contract against third party liability — under which an insurer can
be directly sued by a third party — this will result in a violation of
2. . . . .
the principles underlying solidary obligation and insurance
contracts. (emphasis supplied)
3. In the event of the death of any person entitled to indemnity
under this Policy, the Company will, in respect of the liability
The Court then proceeded to distinguish the extent of the liability and manner of
incurred to such person indemnify his personal representatives in
enforcing the same in ordinary contracts from that of insurance contracts. While
terms of, and subject to the terms and conditions hereof. 7
in solidary obligations, the creditor may enforce the entire obligation against one
of the solidary debtors, in an insurance contract, the insurer undertakes for a
The above-quoted provision leads to no other conclusion but that AFISCO can be
consideration to indemnify the insured against loss, damage or liability arising from
held directly liable by petitioners. As this Court ruled in Shafer vs. Judge, RTC of
an unknown or contingent event. 11 Thus, petitioner therein, which, under the
Olongapo City, Br. 75, "[w]here an insurance policy insures directly against liability,
insurance contract is liable only up to P20,000.00, can not be made solidarily liable
the insurer's liability accrues immediately upon the occurrence of the injury or
with the insured for the entire obligation of P29,013.00 otherwise there would
even upon which the liability depends, and does not depend on the recovery of
result "an evident breach of the concept of solidary obligation."
judgment by the injured party against the insured." 8 The underlying reason behind
the third party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance
Similarly, petitioners herein cannot validly claim that AFISCO, whose liability
is "to protect injured persons against the insolvency of the insured who causes
under the insurance policy is also P20,000.00, can be held solidarily liable with
such injury, and to give such injured person a certain beneficial interest in the
Destrajo for the total amount of P53,901.70 in accordance with the decision of the
proceeds of the policy . . ." 9 Since petitioners had received from AFISCO the sum
lower court. Since under both the law and the insurance policy, AFISCO's liability
of P5,000.00 under the no-fault clause, AFISCO's liability is now limited to
is only up to P20,000.00, the second paragraph of the dispositive portion of the
P15,000.00.
decision in question may have unwittingly sown confusion among the petitioners and
their counsel. What should have been clearly stressed as to leave no room for
However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo.
doubt was the liability of AFISCO under the explicit terms of the insurance
In Malayan Insurance Co., Inc. v. Court of Appeals, 10 this Court had the
contract.
opportunity to resolve the issue as to the nature of the liability of the insurer and
the insured vis-a-vis the third party injured in an accident. We categorically ruled
In fine, we conclude that the liability of AFISCO based on the insurance contract
thus:
is direct, but not solidary with that of Destrajo which is based on Article 2180 of
the Civil Code. 12 As such, petitioners have the option either to claim the P15,000
While it is true that where the insurance contract provides for
from AFISCO and the balance from Destrajo or enforce the entire judgment from
indemnity against liability to third persons, such third persons can
Destrajo subject to reimbursement from AFISCO to the extent of the insurance
directly sue the insurer, however, the direct liability of the
coverage.
insurer under indemnity contracts against third party liability
35
While the petition seeks a definitive ruling only on the nature of AFISCO's fathoms away[4] behind the stalled truck to serve as a warning for oncoming vehicles.
liability, we noticed that the lower court erred in the computation of the probable The trucks tail lights were also left on. It was about 12:00 a.m., March 16, 1987.
loss of income. Using the formula: 2/3 of (80-56) x P12,000.00, it awarded
At about 4:45 a.m., D Rough Riders passenger bus with plate number PBP-724
P28,800.00. 13 Upon recomputation, the correct amount is P192,000.00. Being a
driven by Virgilio Te Laspias was cruising along the national highway of Sitio Aggies,
"plain error," we opt to correct the same. 14 Furthermore, in accordance with
Poblacion, Compostela, Cebu. The passenger bus was also bound for Cebu City, and
prevailing jurisprudence, the death indemnity is hereby increased to P50,000.00. 15
had come from Maya, Daanbantayan, Cebu. Among its passengers were the Spouses
Pedro A. Arriesgado and Felisa Pepito Arriesgado, who were seated at the right side
WHEREFORE, premises considered, the present petition is hereby GRANTED. The
of the bus, about three (3) or four (4) places from the front seat.
award of P28,800.00 representing loss of income is INCREASED to P192,000.00
and the death indemnity of P12,000.00 to P50,000.00. As the bus was approaching the bridge, Laspias saw the stalled truck, which
was then about 25 meters away.[5] He applied the breaks and tried to swerve to the
SO ORDERED. left to avoid hitting the truck. But it was too late; the bus rammed into the trucks
left rear. The impact damaged the right side of the bus and left several passengers
SECOND DIVISION injured. Pedro Arriesgado lost consciousness and suffered a fracture in his right
colles.[6] His wife, Felisa, was brought to the Danao City Hospital. She was later
[G.R. No. 138060. September 1, 2004] transferred to the Southern Island Medical Center where she died shortly
WILLIAM TIU, doing business under the name and style of D Rough Riders, and thereafter.[7]
VIRGILIO TE LAS PIAS petitioners, vs. PEDRO A. ARRIESGADO, Respondent Pedro A. Arriesgado then filed a complaint for breach of contract
BENJAMIN CONDOR, SERGIO PEDRANO and PHILIPPINE PHOENIX of carriage, damages and attorneys fees before the Regional Trial Court of Cebu
SURETY AND INSURANCE, INC., respondents. City, Branch 20, against the petitioners, D Rough Riders bus operator William Tiu
and his driver, Virgilio Te Laspias on May 27, 1987. The respondent alleged that the
D E C I S I O N passenger bus in question was cruising at a fast and high speed along the national
road, and that petitioner Laspias did not take precautionary measures to avoid the
CALLEJO, SR., J.:
accident.[8] Thus:

This is a petition for review on certiorari under Rule 45 of the Rules of Court
6. That the accident resulted to the death of the plaintiffs wife, Felisa Pepito
from the Decision[1] of the Court of Appeals in CA-G.R. CV No. 54354 affirming with
Arriesgado, as evidenced by a Certificate of Death, a xerox copy of which is
modification the Decision[2] of the Regional Trial Court, 7th Judicial
hereto attached as integral part hereof and marked as ANNEX A, and physical
Region, Cebu City, Branch 20, in Civil Case No. CEB-5963 for breach of contract of
injuries to several of its passengers, including plaintiff himself who suffered a
carriage, damages and attorneys fees, and the Resolution dated February 26, 1999
COLLES FRACTURE RIGHT, per Medical Certificate, a xerox copy of which is
denying the motion for reconsideration thereof.
hereto attached as integral part hereof and marked as ANNEX B hereof.
The following facts are undisputed:
7. That due to the reckless and imprudent driving by defendant Virgilio Te Laspias
At about 10:00 p.m. of March 15, 1987, the cargo truck marked Condor Hollow
of the said Rough Riders passenger bus, plaintiff and his wife, Felisa Pepito
Blocks and General Merchandise bearing plate number GBP-675 was loaded with
Arriesgado, failed to safely reach their destination which was Cebu City, the
firewood in Bogo, Cebu and left for Cebu City. Upon reaching Sitio Aggies, Poblacion,
proximate cause of which was defendant-drivers failure to observe utmost
Compostela, Cebu, just as the truck passed over a bridge, one of its rear tires
diligence required of a very cautious person under all circumstances.
exploded. The driver, Sergio Pedrano, then parked along the right side of the
national highway and removed the damaged tire to have it vulcanized at a nearby
8. That defendant William Tiu, being the owner and operator of the said Rough
shop, about 700 meters away.[3] Pedrano left his helper, Jose Mitante, Jr. to keep
Riders passenger bus which figured in the said accident, wherein plaintiff and his
watch over the stalled vehicle, and instructed the latter to place a spare tire six
wife were riding at the time of the accident, is therefore directly liable for the
36
breach of contract of carriage for his failure to transport plaintiff and his wife was further alleged that the truck was parked in a slanted manner, its rear portion
safely to their place of destination which was Cebu City, and which failure in his almost in the middle of the highway, and that no early warning device was displayed.
obligation to transport safely his passengers was due to and in consequence of his Petitioner Laspias promptly applied the brakes and swerved to the left to avoid
failure to exercise the diligence of a good father of the family in the selection and hitting the truck head-on, but despite his efforts to avoid damage to property and
supervision of his employees, particularly defendant-driver Virgilio Te Laspias.[9] physical injuries on the passengers, the right side portion of the bus hit the cargo
trucks left rear. The petitioners further alleged, thus:
The respondent prayed that judgment be rendered in his favor and that the
petitioners be condemned to pay the following damages: 5. That the cargo truck mentioned in the aforequoted paragraph is owned and
registered in the name of the third-party defendant Benjamin Condor and was left
1). To pay to plaintiff, jointly and severally, the amount of P30,000.00 for the unattended by its driver Sergio Pedrano, one of the third-party defendants, at the
death and untimely demise of plaintiffs wife, Felisa Pepito Arriesgado; time of the incident;

2). To pay to plaintiff, jointly and severally, the amount of P38,441.50, 6. That third-party defendant Sergio Pedrano, as driver of the cargo truck with
representing actual expenses incurred by the plaintiff in connection with the marked (sic) Condor Hollow Blocks & General Merchandise, with Plate No. GBP-675
death/burial of plaintiffs wife; which was recklessly and imprudently parked along the national highway of
Compostela, Cebu during the vehicular accident in question, and third-party
3). To pay to plaintiff, jointly and severally, the amount of P1,113.80, representing defendant Benjamin Condor, as the registered owner of the cargo truck who failed
medical/hospitalization expenses incurred by plaintiff for the injuries sustained by to exercise due diligence in the selection and supervision of third-party defendant
him; Sergio Pedrano, are jointly and severally liable to the third-party plaintiffs for
whatever liability that may be adjudged against said third-party plaintiffs or are
4). To pay to plaintiff, jointly and severally, the amount of P50,000.00 for moral directly liable of (sic) the alleged death of plaintiffs wife;
damages;
7. That in addition to all that are stated above and in the answer which are
5). To pay to plaintiff, jointly and severally, the amount of P50,000.00 by way of intended to show reckless imprudence on the part of the third-party defendants,
exemplary damages; the third-party plaintiffs hereby declare that during the vehicular accident in
question, third-party defendant was clearly violating Section 34, par. (g) of the
Land Transportation and Traffic Code
6). To pay to plaintiff, jointly and severally, the amount of P20,000.00 for
attorneys fees;
10. That the aforesaid passenger bus, owned and operated by third-party plaintiff
William Tiu, is covered by a common carrier liability insurance with Certificate of
7). To pay to plaintiff, jointly and severally, the amount of P5,000.00 for litigation
Cover No. 054940 issued by Philippine Phoenix Surety and Insurance, Inc., Cebu
expenses.
City Branch, in favor of third-party plaintiff William Tiu which covers the period
from July 22, 1986 to July 22, 1987 and that the said insurance coverage was
PLAINTIFF FURTHER PRAYS FOR SUCH OTHER RELIEFS AND REMEDIES IN
valid, binding and subsisting during the time of the aforementioned incident (Annex
LAW AND EQUITY.[10]
A as part hereof);

The petitioners, for their part, filed a Third-Party Complaint[11] on August 21,
11. That after the aforesaid alleged incident, third-party plaintiff notified third-
1987 against the following: respondent Philippine Phoenix Surety and Insurance, Inc.
party defendant Philippine Phoenix Surety and Insurance, Inc., of the alleged
(PPSII), petitioner Tius insurer; respondent Benjamin Condor, the registered owner
incident hereto mentioned, but to no avail;
of the cargo truck; and respondent Sergio Pedrano, the driver of the truck. They
alleged that petitioner Laspias was negotiating the uphill climb along the national
12. That granting, et arguendo et arguendi, if herein third-party plaintiffs will be
highway of Sitio Aggies, Poblacion, Compostela, in a moderate and normal speed. It
adversely adjudged, they stand to pay damages sought by the plaintiff and
37
therefore could also look up to the Philippine Phoenix Surety and Insurance, Inc., The trial court also ruled that the absence of an early warning device near the
for contribution, indemnification and/or reimbursement of any liability or place where the truck was parked was not sufficient to impute negligence on the
obligation that they might [be] adjudged per insurance coverage duly entered into part of respondent Pedrano, since the tail lights of the truck were fully on, and the
by and between third-party plaintiff William Tiu and third-party defendant vicinity was well lighted by street lamps.[16] It also found that the testimony of
Philippine Phoenix Surety and Insurance, Inc.;[12] petitioner Tiu, that he based the selection of his driver Laspias on efficiency and in-
service training, and that the latter had been so far an efficient and good driver for
The respondent PPSII, for its part, admitted that it had an existing contract the past six years of his employment, was insufficient to prove that he observed the
with petitioner Tiu, but averred that it had already attended to and settled the diligence of a good father of a family in the selection and supervision of his
claims of those who were injured during the incident.[13] It could not accede to the employees.
claim of respondent Arriesgado, as such claim was way beyond the scheduled
After the petitioners motion for reconsideration of the said decision was
indemnity as contained in the contract of insurance. [14]
denied, the petitioners elevated the case to the Court of Appeals on the following
After the parties presented their respective evidence, the trial court ruled in issues:
favor of respondent Arriesgado. The dispositive portion of the decision reads:
I WHETHER THIRD PARTY DEFENDANT SERGIO PEDRANO WAS
RECKLESS AND IMPRUDENT WHEN HE PARKED THE CARGO TRUCK
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of IN AN OBLIQUE MANNER;
plaintiff as against defendant William Tiu ordering the latter to pay the plaintiff
the following amounts: II WHETHER THE THIRD PARTY DEFENDANTS ARE JOINTLY AND
SEVERALLY LIABLE DIRECTLY TO PLAINTIFF-APPELLEE OR TO
1 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages; DEFENDANTS-APPELLANTS FOR WHATEVER LIABILITY THAT
MAY BE ADJUDGED TO THE SAID DEFENDANTS-APPELLANTS;
2 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as exemplary damages; III WHETHER DEFENDANT-APPELLANT VIRGILIO TE LASPIAS WAS
GUILTY OF GROSS NEGLIGENCE;
3 - The sum of THIRTY-EIGHT THOUSAND FOUR HUNDRED FORTY-ONE
PESOS (P38,441.00) as actual damages; IV WHETHER DEFENDANT-APPELLANT WILLIAM TIU HAD
EXERCISED THE DUE DILIGENCE OF A GOOD FATHER OF A
FAMILY IN THE SELECTION AND SUPERVISION OF HIS
4 - The sum of TWENTY THOUSAND PESOS (P20,000.00) as attorneys fees;
DRIVERS;

5 - The sum of FIVE THOUSAND PESOS (P5,000.00) as costs of suit; V GRANTING FOR THE SAKE OF ARGUMENT THAT DEFENDANT-
APPELLANT WILLIAM TIU IS LIABLE TO PLAINTIFF-APPELLEE,
SO ORDERED.[15] WHETHER THERE IS LEGAL AND FACTUAL BASIS IN AWARDING
EXCESSIVE MORAL DAMAGES, EX[E]MPLARY DAMAGES,
According to the trial court, there was no dispute that petitioner William Tiu ATTORNEYS FEES AND LITIGATION EXPENSES TO PLAINTIFF-
was engaged in business as a common carrier, in view of his admission that D Rough APPELLEE;
Rider passenger bus which figured in the accident was owned by him; that he had
VI WHETHER THIRD PARTY DEFENDANT
been engaged in the transportation business for 25 years with a sole proprietorship;
PHILIPPINE PHOENIX SURETY AND INSURANCE, INC. IS LIABLE
and that he owned 34 buses. The trial court ruled that if petitioner Laspias had not
TO DEFENDANT- APPELLANT WILLIAM TIU.[17]
been driving at a fast pace, he could have easily swerved to the left to avoid hitting
the truck, thus, averting the unfortunate incident. It then concluded that petitioner The appellate court rendered judgment affirming the trial courts decision with
Laspias was negligent. the modification that the awards for moral and exemplary damages were reduced
to P25,000. The dispositive portion reads:
38
WHEREFORE, the appealed Decision dated November 6, 1995 is truck was parked in an oblique manner, its rear portion almost at the center of the
hereby MODIFIED such that the awards for moral and exemplary damages are road. As such, the proximate cause of the incident was the gross recklessness and
each reduced to P25,000.00 or a total of P50,000.00 for both. The judgment imprudence of respondent Pedrano, creating the presumption of negligence on the
is AFFIRMED in all other respects. part of respondent Condor in supervising his employees, which presumption was not
rebutted. The petitioners then contend that respondents Condor and Pedrano should
SO ORDERED.[18] be held jointly and severally liable to respondent Arriesgado for the payment of the
latters claim.
According to the appellate court, the action of respondent Arriesgado was The petitioners, likewise, aver that expert evidence should have been
based not on quasi-delict but on breach of contract of carriage. As a common carrier, presented to prove that petitioner Laspias was driving at a very fast speed, and that
it was incumbent upon petitioner Tiu to prove that extraordinary diligence was the CA could not reach such conclusion by merely considering the damages on the
observed in ensuring the safety of passengers during transportation. Since the cargo truck. It was also pointed out that petitioner Tiu presented evidence that he
latter failed to do so, he should be held liable for respondent Arriesgados claim. The had exercised the diligence of a good father of a family in the selection and
CA also ruled that no evidence was presented against the respondent PPSII, and as supervision of his drivers.
such, it could not be held liable for respondent Arriesgados claim, nor for
contribution, indemnification and/or reimbursement in case the petitioners were The petitioners further allege that there is no legal and factual basis to require
adjudged liable. petitioner Tiu to pay exemplary damages as no evidence was presented to show that
the latter acted in a fraudulent, reckless and oppressive manner, or that he had an
The petitioners now come to this Court and ascribe the following errors active participation in the negligent act of petitioner Laspias.
committed by the appellate court:
Finally, the petitioners contend that respondent PPSII admitted in its answer
I. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING that while it had attended to and settled the claims of the other injured passengers,
RESPONDENTS BENJAMIN CONDOR AND SERGIO PEDRANO respondent Arriesgados claim remained unsettled as it was beyond the scheduled
GUILTY OF NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT indemnity under the insurance contract. The petitioners argue that said respondent
PEDRO A. ARRIESGADO OR TO PETITIONERS FOR WHATEVER PPSII should have settled the said claim in accordance with the scheduled indemnity
LIABILITY THAT MAY BE ADJUDGED AGAINST THEM. instead of just denying the same.
II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING On the other hand, respondent Arriesgado argues that two of the issues raised
PETITIONERS GUILTY OF NEGLIGENCE AND HENCE, LIABLE TO by the petitioners involved questions of fact, not reviewable by the Supreme Court:
RESPONDENT PEDRO A. ARRIESGADO. the finding of negligence on the part of the petitioners and their liability to him; and
III. THE HONORABLE COURT OF APPEALS ERRED IN FINDING the award of exemplary damages, attorneys fees and litigation expenses in his favor.
PETITIONER WILLIAM TIU LIABLE FOR EXEMPLARY DAMAGES, Invoking the principle of equity and justice, respondent Arriesgado pointed out that
ATTORNEYS FEES AND LITIGATION EXPENSES. if there was an error to be reviewed in the CA decision, it should be geared towards
the restoration of the moral and exemplary damages to P50,000 each, or a total
IV.THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING of P100,000 which was reduced by the Court of Appeals to P25,000 each, or a total
RESPONDENT PHILIPPINE PHOENIX SURETY AND INSURANCE, of only P50,000.
INC. LIABLE TO RESPONDENT PEDRO A. ARRIESGADO OR TO
PETITIONER WILLIAM TIU.[19] Respondent Arriesgado also alleged that respondents Condor and Pedrano, and
respondent Phoenix Surety, are parties with whom he had no contract of carriage,
According to the petitioners, the appellate court erred in failing to appreciate and had no cause of action against. It was pointed out that only the petitioners
the absence of an early warning device and/or built-in reflectors at the front and needed to be sued, as driver and operator of the ill-fated bus, on account of their
back of the cargo truck, in clear violation of Section 34, par. (g) of the Land failure to bring the Arriesgado Spouses to their place of destination as agreed
Transportation and Traffic Code. They aver that such violation is only a proof of upon in the contract of carriage, using the utmost diligence of very cautious persons
respondent Pedranos negligence, as provided under Article 2185 of the New Civil with due regard for all circumstances.
Code. They also question the appellate courts failure to take into account that the
39
Respondents Condor and Pedrano point out that, as correctly ruled by the Court in the absence of expert evidence, the damage sustained by the truck[25] itself
of Appeals, the proximate cause of the unfortunate incident was the fast speed at supports the finding of both the trial court and the appellate court, that the D Rough
which petitioner Laspias was driving the bus owned by petitioner Tiu. According to Rider bus driven by petitioner Laspias was traveling at a fast pace. Since he saw the
the respondents, the allegation that the truck was not equipped with an early warning stalled truck at a distance of 25 meters, petitioner Laspias had more than enough
device could not in any way have prevented the incident from happening. It was also time to swerve to his left to avoid hitting it; that is, if the speed of the bus was only
pointed out that respondent Condor had always exercised the due diligence required 40 to 50 kilometers per hour as he claimed. As found by the Court of Appeals, it is
in the selection and supervision of his employees, and that he was not a party to the easier to believe that petitioner Laspias was driving at a very fast speed, since at
contract of carriage between the petitioners and respondent Arriesgado. 4:45 a.m., the hour of the accident, there were no oncoming vehicles at the opposite
direction. Petitioner Laspias could have swerved to the left lane with proper
Respondent PPSII, for its part, alleges that contrary to the allegation of
clearance, and, thus, could have avoided the truck.[26] Instinct, at the very least,
petitioner Tiu, it settled all the claims of those injured in accordance with the
would have prompted him to apply the breaks to avert the impending disaster which
insurance contract. It further avers that it did not deny respondent Arriesgados
he must have foreseen when he caught sight of the stalled truck. As we had occasion
claim, and emphasizes that its liability should be within the scheduled limits of
to reiterate:
indemnity under the said contract. The respondent concludes that while it is true
that insurance contracts are contracts of indemnity, the measure of the insurers
A man must use common sense, and exercise due reflection in all his acts; it is his
liability is determined by the insureds compliance with the terms thereof.
duty to be cautious, careful and prudent, if not from instinct, then through fear of
recurring punishment. He is responsible for such results as anyone might foresee
and for acts which no one would have performed except through culpable abandon.
The Courts Ruling Otherwise, his own person, rights and property, and those of his fellow beings,
would ever be exposed to all manner of danger and injury.[27]

At the outset, it must be stressed that this Court is not a trier of

We agree with the following findings of the trial court, which were affirmed
facts.[20] Factual findings of the Court of Appeals are final and may not be reviewed
on appeal by this Court, except when the lower court and the CA arrived at diverse by the CA on appeal:
factual findings.[21] The petitioners in this case assail the finding of both the trial
and the appellate courts that petitioner Laspias was driving at a very fast speed A close study and evaluation of the testimonies and the documentary proofs
before the bus owned by petitioner Tiu collided with respondent Condors stalled submitted by the parties which have direct bearing on the issue of negligence, this
truck. This is clearly one of fact, not reviewable by the Court in a petition for review Court as shown by preponderance of evidence that defendant Virgilio Te Laspias
under Rule 45.[22] failed to observe extraordinary diligence as a driver of the common carrier in this
case. It is quite hard to accept his version of the incident that he did not see at a
On this ground alone, the petition is destined to fail. reasonable distance ahead the cargo truck that was parked when the Rough Rider
[Bus] just came out of the bridge which is on an (sic) [more] elevated position than
However, considering that novel questions of law are likewise involved, the
the place where the cargo truck was parked. With its headlights fully on,
Court resolves to examine and rule on the merits of the case.
defendant driver of the Rough Rider was in a vantage position to see the cargo
Petitioner Laspias truck ahead which was parked and he could just easily have avoided hitting and
Was negligent in driving bumping the same by maneuvering to the left without hitting the said cargo truck.
The Ill-fated bus Besides, it is (sic) shown that there was still much room or space for the Rough
Rider to pass at the left lane of the said national highway even if the cargo truck
In his testimony before the trial court, petitioner Laspias claimed that he was had occupied the entire right lane thereof. It is not true that if the Rough Rider
traversing the two-lane road at Compostela, Cebu at a speed of only forty (40) to would proceed to pass through the left lane it would fall into a canal considering
fifty (50) kilometers per hour before the incident occurred.[23] He also admitted that there was much space for it to pass without hitting and bumping the cargo
that he saw the truck which was parked in an oblique position at about 25 meters truck at the left lane of said national highway. The records, further, showed that
before impact,[24] and tried to avoid hitting it by swerving to the left. However, even there was no incoming vehicle at the opposite lane of the national highway which
40
would have prevented the Rough Rider from not swerving to its left in order to destination safely and to observe extraordinary diligence with due regard for all
avoid hitting and bumping the parked cargo truck. But the evidence showed that circumstances.[37] Any injury suffered by the passengers in the course thereof is
the Rough Rider instead of swerving to the still spacious left lane of the national immediately attributable to the negligence of the carrier.[38] Upon the happening of
highway plowed directly into the parked cargo truck hitting the latter at its rear the accident, the presumption of negligence at once arises, and it becomes the duty
portion; and thus, the (sic) causing damages not only to herein plaintiff but to the of a common carrier to prove that he observed extraordinary diligence in the care
cargo truck as well.[28] of his passengers.[39] It must be stressed that in requiring the highest possible
degree of diligence from common carriers and in creating a presumption of
Indeed, petitioner Laspias negligence in driving the bus is apparent in the negligence against them, the law compels them to curb the recklessness of their
records. By his own admission, he had just passed a bridge and was traversing the drivers.[40]
highway of Compostela, Cebu at a speed of 40 to 50 kilometers per hour before the
While evidence may be submitted to overcome such presumption of negligence,
collision occurred. The maximum speed allowed by law on a bridge is only 30
it must be shown that the carrier observed the required extraordinary diligence,
kilometers per hour.[29] And, as correctly pointed out by the trial court, petitioner
which means that the carrier must show the utmost diligence of very cautious
Laspias also violated Section 35 of the Land Transportation and Traffic Code,
persons as far as human care and foresight can provide, or that the accident was
Republic Act No. 4136, as amended:
caused by fortuitous event.[41] As correctly found by the trial court, petitioner Tiu
failed to conclusively rebut such presumption. The negligence of petitioner Laspias
Sec. 35. Restriction as to speed. (a) Any person driving a motor vehicle on a as driver of the passenger bus is, thus, binding against petitioner Tiu, as the owner
highway shall drive the same at a careful and prudent speed, not greater nor less of the passenger bus engaged as a common carrier.[42]
than is reasonable and proper, having due regard for the traffic, the width of the
highway, and or any other condition then and there existing; and no person shall The Doctrine of
drive any motor vehicle upon a highway at such speed as to endanger the life, limb Last Clear Chance
and property of any person, nor at a speed greater than will permit him to bring Is Inapplicable in the
the vehicle to a stop within the assured clear distance ahead.[30] Case at Bar

Under Article 2185 of the Civil Code, a person driving a vehicle is presumed Contrary to the petitioners contention, the principle of last clear chance is
negligent if at the time of the mishap, he was violating any traffic regulation.[31] inapplicable in the instant case, as it only applies in a suit between the owners and
drivers of two colliding vehicles. It does not arise where a passenger demands
Petitioner Tiu failed to responsibility from the carrier to enforce its contractual obligations, for it would
Overcome the presumption be inequitable to exempt the negligent driver and its owner on the ground that the
Of negligence against him as other driver was likewise guilty of negligence.[43] The common law notion of last clear
One engaged in the business chance permitted courts to grant recovery to a plaintiff who has also been negligent
Of common carriage provided that the defendant had the last clear chance to avoid the casualty and
failed to do so. Accordingly, it is difficult to see what role, if any, the common law
The rules which common carriers should observe as to the safety of their of last clear chance doctrine has to play in a jurisdiction where the common law
passengers are set forth in the Civil Code, Articles 1733,[32] 1755[33] and 1756.[34] In concept of contributory negligence as an absolute bar to recovery by the plaintiff,
this case, respondent Arriesgado and his deceased wife contracted with petitioner has itself been rejected, as it has been in Article 2179 of the Civil Code.[44]
Tiu, as owner and operator of D Rough Riders bus service, for transportation from
Maya, Daanbantayan, Cebu, to Cebu City for the price of P18.00.[35] It is undisputed Thus, petitioner Tiu cannot escape liability for the death of respondent
that the respondent and his wife were not safely transported to the destination Arriesgados wife due to the negligence of petitioner Laspias, his employee, on this
agreed upon. In actions for breach of contract, only the existence of such contract, score.
and the fact that the obligor, in this case the common carrier, failed to transport
Respondents Pedrano and
his passenger safely to his destination are the matters that need to be
Condor were likewise
proved.[36] This is because under the said contract of carriage, the petitioners
Negligent
assumed the express obligation to transport the respondent and his wife to their
41
In Phoenix Construction, Inc. v. Intermediate Appellate Court,[45] where The petitioners were correct in invoking respondent Pedranos failure to
therein respondent Dionisio sustained injuries when his vehicle rammed against a observe Article IV, Section 34(g) of the Rep. Act No. 4136, which provides:
dump truck parked askew, the Court ruled that the improper parking of a dump truck
without any warning lights or reflector devices created an unreasonable risk for (g) Lights when parked or disabled. Appropriate parking lights or flares visible one
anyone driving within the vicinity, and for having created such risk, the truck driver hundred meters away shall be displayed at a corner of the vehicle whenever such
must be held responsible. In ruling against the petitioner therein, the Court vehicle is parked on highways or in places that are not well-lighted or is placed in
elucidated, thus: such manner as to endanger passing traffic.

In our view, Dionisios negligence, although later in point of time than the truck The manner in which the truck was parked clearly endangered oncoming traffic
drivers negligence, and therefore closer to the accident, was not an efficient on both sides, considering that the tire blowout which stalled the truck in the first
intervening or independent cause. What the petitioners describe as an intervening place occurred in the wee hours of the morning. The Court can only now surmise that
cause was no more than a foreseeable consequence of the risk created by the the unfortunate incident could have been averted had respondent Condor, the owner
negligent manner in which the truck driver had parked the dump truck. In other of the truck, equipped the said vehicle with lights, flares, or, at the very least, an
words, the petitioner truck driver owed a duty to private respondent Dionisio and early warning device.[49] Hence, we cannot subscribe to respondents Condor and
others similarly situated not to impose upon them the very risk the truck driver Pedranos claim that they should be absolved from liability because, as found by the
had created. Dionisios negligence was not that of an independent and overpowering trial and appellate courts, the proximate cause of the collision was the fast speed
nature as to cut, as it were, the chain of causation in fact between the improper at which petitioner Laspias drove the bus. To accept this proposition would be to
parking of the dump truck and the accident, nor to sever the juris vinculum of come too close to wiping out the fundamental principle of law that a man must
liability. respond for the foreseeable consequences of his own negligent act or omission.
Indeed, our law on quasi-delicts seeks to reduce the risks and burdens of living in
We hold that private respondent Dionisios negligence was only contributory, that society and to allocate them among its members. To accept this proposition would be
the immediate and proximate cause of the injury remained the truck drivers lack to weaken the very bonds of society.[50]
of due care.[46]
The Liability of
Respondent PPSII
In this case, both the trial and the appellate courts failed to consider that
as Insurer
respondent Pedrano was also negligent in leaving the truck parked askew without any
warning lights or reflector devices to alert oncoming vehicles, and that such failure
The trial court in this case did not rule on the liability of respondent PPSII,
created the presumption of negligence on the part of his employer, respondent
while the appellate court ruled that, as no evidence was presented against it, the
Condor, in supervising his employees properly and adequately. As we ruled in Poblete
insurance company is not liable.
v. Fabros:[47]
A perusal of the records will show that when the petitioners filed the Third-
It is such a firmly established principle, as to have virtually formed part of the law Party Complaint against respondent PPSII, they failed to attach a copy of the terms
itself, that the negligence of the employee gives rise to the presumption of of the insurance contract itself. Only Certificate of Cover No. 054940[51] issued in
negligence on the part of the employer. This is the presumed negligence in the favor of Mr. William Tiu, Lahug, Cebu City signed by Cosme H. Boniel was appended
selection and supervision of employee. The theory of presumed negligence, in to the third-party complaint. The date of issuance, July 22, 1986, the period of
contrast with the American doctrine of respondeat superior, where the negligence insurance, from July 22, 1986 to July 22, 1987, as well as the following items, were
of the employee is conclusively presumed to be the negligence of the employer, is also indicated therein:
clearly deducible from the last paragraph of Article 2180 of the Civil Code which
provides that the responsibility therein mentioned shall cease if the employers SCHEDULED VEHICLE
prove that they observed all the diligence of a good father of a family to prevent
damages. [48]
42
8. It has attended to the claims of Vincent Canales, Asuncion Batiancila and Neptali
MODEL MAKE TYPE OF COLOR BLT FILE
Palces who sustained injuries during the incident in question. In fact, it settled
BODY NO.
financially their claims per vouchers duly signed by them and they duly executed
Affidavit[s] of Desistance to that effect, xerox copies of which are hereto
Isuzu Forward Bus blue mixed attached as Annexes 1, 2, 3, 4, 5, and 6 respectively;

PLATE SERIAL/CHASSIS MOTOR AUTHORIZED UNLADEN 9. With respect to the claim of plaintiff, herein answering third party defendant
NO. PBP- NO. SER450- NO. CAPACITY 50 WEIGHT through its authorized insurance adjuster attended to said claim. In fact, there
724 1584124 677836 6Cyls. Kgs. were negotiations to that effect. Only that it cannot accede to the demand of said
claimant considering that the claim was way beyond the scheduled indemnity as per
SECTION 1/11 *LIMITS OF LIABILITY PREMIUMS contract entered into with third party plaintiff William Tiu and third party
P50,000.00 PAID defendant (Philippine Phoenix Surety and Insurance, Inc.). Third party Plaintiff
William Tiu knew all along the limitation as earlier stated, he being an old hand in
A. THIRD PARTY LIABILITY
the transportation business; 55

B. PASSENGER LIABILITY Per Person Per Accident P540.0052

Considering the admissions made by respondent PPSII, the existence of the
P12,000.00 P50,000
insurance contract and the salient terms thereof cannot be dispatched. It must be
noted that after filing its answer, respondent PPSII no longer objected to the
presentation of evidence by respondent Arriesgado and the insured petitioner Tiu.
In its Answer53 to the Third-Party Complaint, the respondent PPSII admitted Even in its Memorandum56 before the Court, respondent PPSII admitted the
the existence of the contract of insurance, in view of its failure to specifically deny existence of the contract, but averred as follows:
the same as required under then Section 8(a), Rule 8 of the Rules of Court, 54 which
reads:
Petitioner Tiu is insisting that PPSII is liable to him for contribution,
indemnification and/or reimbursement. This has no basis under the contract. Under
Sec. 8. How to contest genuineness of such documents. When an action or defense the contract, PPSII will pay all sums necessary to discharge liability of the insured
is founded upon a written instrument copied in or attached to the corresponding subject to the limits of liability but not to exceed the limits of liability as so
pleading as provided in the preceding section, the genuineness and due execution of stated in the contract. Also, it is stated in the contract that in the event of
the instrument shall be deemed admitted unless the adverse party, under oath, accident involving indemnity to more than one person, the limits of liability shall not
specifically denies them, and sets forth what he claims to be the facts; but the exceed the aggregate amount so specified by law to all persons to be indemnified.57
requirement of an oath does not apply when the adverse party does not appear to
be a party to the instrument or when compliance with an order for inspection of
As can be gleaned from the Certificate of Cover, such insurance contract was
the original instrument is refused.
issued pursuant to the Compulsory Motor Vehicle Liability Insurance Law. It was
expressly provided therein that the limit of the insurers liability for each person
In fact, respondent PPSII did not dispute the existence of such contract, and was P12,000, while the limit per accident was pegged at P50,000. An insurer in an
admitted that it was liable thereon. It claimed, however, that it had attended to and indemnity contract for third party liability is directly liable to the injured party up
settled the claims of those injured during the incident, and set up the following as to the extent specified in the agreement but it cannot be held solidarily liable
special affirmative defenses: beyond that amount.58 The respondent PPSII could not then just deny petitioner
Tius claim; it should have paid P12,000 for the death of Felisa Arriesgado,59 and
Third party defendant Philippine Phoenix Surety and Insurance, Inc. hereby respondent Arriesgados hospitalization expenses of P1,113.80, which the trial court
reiterates and incorporates by way of reference the preceding paragraphs and found to have been duly supported by receipts. The total amount of the claims, even
further states THAT:- when added to that of the other injured passengers which the respondent PPSII
43
claimed to have settled,60 would not exceed the P50,000 limit under the insurance their own passengers, they cannot help but simultaneously benefit pedestrians and
agreement. the passengers of other vehicles who are equally entitled to the safe and
convenient use of our roads and highways. The law seeks to stop and prevent the
Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is such
slaughter and maiming of people (whether passengers or not) on our highways and
that it is primarily intended to provide compensation for the death or bodily injuries
buses, the very size and power of which seem to inflame the minds of their drivers.
suffered by innocent third parties or passengers as a result of the negligent
Article 2231 of the Civil Code explicitly authorizes the imposition of exemplary
operation and use of motor vehicles. The victims and/or their dependents are
damages in cases of quasi-delicts if the defendant acted with gross negligence.66
assured of immediate financial assistance, regardless of the financial capacity of
motor vehicle owners.61 As the Court, speaking through Associate Justice Leonardo
The respondent Pedro A. Arriesgado, as the surviving spouse and heir of Felisa
A. Quisumbing, explained in Government Service Insurance System v. Court of
Arriesgado, is entitled to indemnity in the amount of P50,000.00.67
Appeals:62
The petitioners, as well as the respondents Benjamin Condor and Sergio
However, although the victim may proceed directly against the insurer for Pedrano are jointly and severally liable for said amount, conformably with the
indemnity, the third party liability is only up to the extent of the insurance policy following pronouncement of the Court in Fabre, Jr. vs. Court of Appeals:68
and those required by law. While it is true that where the insurance contract
provides for indemnity against liability to third persons, and such persons can The same rule of liability was applied in situations where the negligence of the
directly sue the insurer, the direct liability of the insurer under indemnity driver of the bus on which plaintiff was riding concurred with the negligence of a
contracts against third party liability does not mean that the insurer can be held third party who was the driver of another vehicle, thus causing an accident.
liable in solidum with the insured and/or the other parties found at fault. For the In Anuran v. Buo, Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate
liability of the insurer is based on contract; that of the insured carrier or vehicle Court, and Metro Manila Transit Corporation v. Court of Appeals, the bus company,
owner is based on tort. its driver, the operator of the other vehicle and the driver of the vehicle were
jointly and severally held liable to the injured passenger or the latters heirs. The
Obviously, the insurer could be held liable only up to the extent of what was basis of this allocation of liability was explained in Viluan v. Court of Appeals, thus:
provided for by the contract of insurance, in accordance with the CMVLI law. At
the time of the incident, the schedule of indemnities for death and bodily injuries, Nor should it make difference that the liability of petitioner [bus owner] springs
professional fees and other charges payable under a CMVLI coverage was provided from contract while that of respondents [owner and driver of other vehicle] arises
for under the Insurance Memorandum Circular (IMC) No. 5-78 which was approved from quasi-delict. As early as 1913, we already ruled in Gutierrez vs. Gutierrez, 56
on November 10, 1978. As therein provided, the maximum indemnity for death was Phil. 177, that in case of injury to a passenger due to the negligence of the driver
twelve thousand (P12,000.00) pesos per victim. The schedules for medical expenses of the bus on which he was riding and of the driver of another vehicle, the drivers
were also provided by said IMC, specifically in paragraphs (C) to (G).63 as well as the owners of the two vehicles are jointly and severally liable for
damages. Some members of the Court, though, are of the view that under the
Damages to be circumstances they are liable on quasi-delict.69
Awarded
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
The trial court correctly awarded moral damages in the amount of P50,000 in GRANTED. The Decision of the Court of Appeals is AFFIRMED with
favor of respondent Arriesgado. The award of exemplary damages by way of example MODIFICATIONS:
or correction of the public good,64 is likewise in order. As the Court ratiocinated
in Kapalaran Bus Line v. Coronado:65 (1) Respondent Philippine Phoenix Surety and Insurance, Inc. and petitioner
William Tiu are ORDERED to pay, jointly and severally, respondent Pedro A.
Arriesgado the total amount of P13,113.80;
While the immediate beneficiaries of the standard of extraordinary diligence are,
of course, the passengers and owners of cargo carried by a common carrier, they (2) The petitioners and the respondents Benjamin Condor and Sergio Pedrano
are not the only persons that the law seeks to benefit. For if common carriers are ORDERED to pay, jointly and severally, respondent Pedro A.
carefully observed the statutory standard of extraordinary diligence in respect of
44
Arriesgado P50,000.00 as indemnity; P26,441.50 as actual damages; P50,000.00 as To collect the premiums and other charges on the policies, respondent's agent,
moral damages; P50,000.00 as exemplary damages; and P20,000.00 as attorneys Trans-Pacific Underwriters Agency (Trans-Pacific), issued a statement of account
fees. to petitioner's company, Noah's Ark Merchandising (Noah's Ark).10 Noah's Ark
immediately processed the payments and issued a Far East Bank check dated
SO ORDERED
September 27, 1996 payable to Trans-Pacific on the same day.11 The check bearing
the amount of P140,893.50 represents payment for the three insurance policies,
THIRD DIVISION with P55,620.60 for the premium and other charges over the vehicle.12 However,
nobody from Trans-Pacific picked up the check that day (September 27) because
G.R. No. 190702, February 27, 2017 its president and general manager, Rolando Herradura, was celebrating his
birthday. Trans-Pacific informed Noah's Ark that its messenger would get the
JAIME T. GAISANO, Petitioner, v. DEVELOPMENT INSURANCE AND SURETY check the next day, September 28.13
CORPORATION, Respondent.
In the evening of September 27, 1996, while under the official custody of Noah's
D E C I S I O N Ark marketing manager Achilles Pacquing (Pacquing) as a service company vehicle,
the vehicle was stolen in the vicinity of SM Megamall at Ortigas, Mandaluyong City.
JARDELEZA, J.: Pacquing reported the loss to the Philippine National Police Traffic Management
Command at Camp Crame in Quezon City.14 Despite search and retrieval efforts,
This is a petition for review on certiorari1 seeking to nullify the Court of Appeals' the vehicle was not recovered.15
(CA) September 11, 2009 Decision2 and November 24, 2009 Resolution3 in CA-G.R.
CV No. 81225. The CA reversed the September 24, 2003 Decision4 of the Regional Oblivious of the incident, Trans-Pacific picked up the check the next day,
Trial Court (RTC) in Civil Case No. 97-85464. The RTC granted Jaime T. Gaisano's September 28. It issued an official receipt numbered 124713 dated September
(petitioner) claim on the proceeds of the comprehensive commercial vehicle policy 28, 1996, acknowledging the receipt of P55,620.60 for the premium and other
issued by Development Insurance and Surety Corporation charges over the vehicle.16 The check issued to Trans-Pacific for P140,893.50 was
(respondent), viz.:ChanRoblesVirtualawlibrary deposited with Metrobank for encashment on October 1, 1996.17

On October 1, 1996, Pacquing informed petitioner of the vehicle's loss.

IN VIEW OF THE FOREGOING, the decision appealed from is reversed, and the
Thereafter, petitioner reported the loss and filed a claim with respondent for the
defendant-appellant ordered to pay the plaintiff-appellee the sum of P55,620.60
insurance proceeds of P1,500,000.00.18 After investigation, respondent denied
with interest at 6 percent per annum from the date of the denial of the claim on
petitioner's claim on the ground that there was no insurance contract.19 Petitioner,
October 9, 1996 until payment.
through counsel, sent a final demand on July 7, 1997.20 Respondent, however,
refused to pay the insurance proceeds or return the premium paid on the vehicle.
SO ORDERED.5chanroblesvirtuallawlibrary
I On October 9, 1997, petitioner filed a complaint for collection of sum of money and
damages21 with the RTC where it sought to collect the insurance proceeds from
The facts are undisputed. Petitioner was the registered owner of a 1992 respondent. In its Answer,22 respondent asserted that the non-payment of the
Mitsubishi Montero with plate number GTJ-777 (vehicle), while respondent is a premium rendered the policy ineffective. The premium was received by the
domestic corporation engaged in the insurance business.6 On September 27, 1996, respondent only on October 2, 1996, and there was no known loss covered by the
respondent issued a comprehensive commercial vehicle policy7 to petitioner in the policy to which the payment could be applied.23
amount of P1,500,000.00 over the vehicle for a period of one year commencing on
September 27, 1996 up to September 27, 1997.8 Respondent also issued two other In its Decision24 dated September 24, 2003, the RTC ruled in favor of petitioner.
commercial vehicle policies to petitioner covering two other motor vehicles for the It considered the premium paid as of September 27, even if the check was
same period.9 received only on September 28 because (1) respondent's agent, Trans-Pacific,
acknowledged payment of the premium on that date, September 27, and (2) the
45
check that petitioner issued was honored by respondent in acknowledgment of the
authority of the agent to receive it.25 Instead of returning the premium, For failure of respondent to tile its comment to the petition, we declared
respondent sent a checklist of requirements to petitioner and assigned an respondent to have waived its right to file a comment in our June 15, 2011
underwriter to investigate the claim.26 The RTC ruled that it would be unjust and Resolution.44
inequitable not to allow a recovery on the policy while allowing respondent to retain
the premium paid.27 Thus, petitioner was awarded an indemnity of P1,500,000.00 The lone issue here is whether there is a binding insurance contract between
and attorney's fees of P50,000.00.28 petitioner and respondent.

After respondent's motion for reconsideration was denied,29 it filed a Notice of II

Appeal.30 Records were forwarded to the CA.31
We deny the petition.
The CA granted respondent's appeal.32 The CA upheld respondent's position that
an insurance contract becomes valid and binding only after the premium is paid Insurance is a contract whereby one undertakes for a consideration to indemnify
pursuant to Section 77 of the Insurance Code (Presidential Decree No. 612, as another against loss, damage or liability arising from an unknown or contingent
amended by Republic Act No. 10607).33 It found that the premium was not yet paid event.45 Just like any other contract, it requires a cause or consideration. The
at the time of the loss on September 27, but only a day after or on September 28, consideration is the premium, which must be paid at the time and in the way and
1996, when the check was picked up by Trans-Pacific.34 It also found that none of manner specified in the policy.46 If not so paid, the policy will lapse and be
the exceptions to Section 77 obtains in this case.35 Nevertheless, the CA ordered forfeited by its own terms.47
respondent to return the premium it received in the amount of P55,620.60, with
interest at the rate of 6% per annum from the date of the denial of the claim on The law, however, limits the parties' autonomy as to when payment of premium may
October 9, 1996 until payment.36 be made for the contract to take effect. The general rule in insurance laws is that
unless the premium is paid, the insurance policy is not valid and binding.48 Section
Hence petitioner filed this petition. He argues that there was a valid and binding 77 of the Insurance Code, applicable at the time of the issuance of the policy,
insurance contract between him and respondent.37 He submits that it comes within provides:ChanRoblesVirtualawlibrary
the exceptions to the rule in Section 77 of the Insurance Code that no contract of Sec. 77. An insurer is entitled to payment of the premium as soon as the thing
insurance becomes binding unless and until the premium thereof has been paid. The insured is exposed to the peril insured against. Notwithstanding any agreement to
prohibitive tenor of Section 77 does not apply because the parties stipulated for the contrary, no policy or contract of insurance issued by an insurance company is
the payment of premiums.38 The parties intended the contract of insurance to be valid and binding unless and until the premium thereof has been paid, except in the
immediately effective upon issuance, despite non-payment of the premium, because case of a life or an industrial life policy whenever the grace period provision
respondent trusted petitioner.39He adds that respondent waived its right to a pre- applies.
payment in full of the terms of the policy, and is in estoppel.40
In Tibay v. Court of Appeals,49 we emphasized the importance of this rule. We
explained that in an insurance contract, both the insured and insurer undertake
Petitioner also argues that assuming he is not entitled to recover insurance risks. On one hand, there is the insured, a member of a group exposed to a
proceeds, but only to the return of the premiums paid, then he should be able to particular peril, who contributes premiums under the risk of receiving nothing in
recover the full amount of P140,893.50, and not merely P55,620.60.41 The return in case the contingency does not happen; on the other, there is the insurer,
insurance policy covered three vehicles yet respondent's intention was merely to who undertakes to pay the entire sum agreed upon in case the contingency happens.
disregard the contract for only the lost vehicle.42 According to petitioner, the This risk-distributing mechanism operates under a system where, by prompt
principle of mutuality of contracts is violated, at his expense, if respondent is payment of the premiums, the insurer is able to meet its legal obligation to
allowed to be excused from performance on the insurance contract only for one maintain a legal reserve fund needed to meet its contingent obligations to the
vehicle, but not as to the two others, just because no loss is suffered as to the public. The premium, therefore, is the elixir vitae or source of life of the insurance
two. To allow this "would be to place exclusively in the hands of one of the business:ChanRoblesVirtualawlibrary
contracting parties the right to decide whether the contract should stand or not x
x x."43
46
In the desire to safeguard the interest of the assured, it must not be ignored that effect unless premium is paid. In UCPB General Insurance Co., Inc. v. Masagana
the contract of insurance is primarily a risk-distributing device, a mechanism by Telamart, Inc.,51 we said:ChanRoblesVirtualawlibrary
which all members of a group exposed to a particular risk contribute premiums to It can be seen at once that Section 77 does not restate the portion of Section 72
an insurer. From these contributory funds are paid whatever losses occur due to expressly permitting an agreement to extend the period to pay the premium. But
exposure to the peril insured against. Each party therefore takes a risk: the are there exceptions to Section 77?
insurer, that of being compelled upon the happening of the contingency to pay the
entire sum agreed upon, and the insured, that of parting with the amount required The answer is in the affirmative.
as premium. without receiving anything therefor in case the contingency does not
happen. To ensure payment tor these losses, the law mandates all insurance The first exception is provided by Section 77 itself, and that is, in case of a life or
companies to maintain a legal reserve fund in favor of those claiming under their industrial life policy whenever the grace period provision applies.
policies. It should be understood that the integrity of this fund cannot be secured
and maintained if by judicial fiat partial offerings of premiums were to be The second is that covered by Section 78 of the Insurance Code, which
construed as a legal nexus between the applicant and the insurer despite an provides:ChanRoblesVirtualawlibrary
express agreement to the contrary. For what could prevent the insurance applicant SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of
from deliberately or willfully holding back full premium payment and wait for the premium is conclusive evidence of its payment, so far as to make the policy binding,
risk insured against to transpire and then conveniently pass on the balance of the notwithstanding any stipulation therein that it shall not be binding until premium is
premium to be deducted from the proceeds of the insurance? x x x actually paid.
A third exception was laid down in Makati Tuscany Condominium Corporation vs.
xxx
Court of Appeals, wherein we ruled that Section 77 may not apply if the parties
have agreed to the payment in installments of the premium and partial payment has
And so it must be. For it cannot be disputed that premium is the elixir vitae of the
been made at the time of loss. We said therein, thus:ChanRoblesVirtualawlibrary
insurance business because by law the insurer must maintain a legal reserve fund to
We hold that the subject policies are valid even if the premiums were paid on
meet its contingent obligations to the public, hence, the imperative need for its
installments. The records clearly show that the petitioners and private respondent
prompt payment and full satisfaction. It must be emphasized here that all actuarial
intended subject insurance policies to be binding and effective notwithstanding the
calculations and various tabulations of probabilities of losses under the risks
staggered payment of the premiums. The initial insurance contract entered into in
insured against are based on the sound hypothesis of prompt payment of premiums.
1982 was renewed in 1983, then in 1984. In those three years, the insurer
Upon this bedrock insurance firms are enabled to other the assurance of security
accepted all the installment payments. Such acceptance of payments speaks loudly
to the public at favorable rates. x x x50(Citations omitted.)
of the insurer's intention to honor the policies it issued to petitioner. Certainly,
Here, there is no dispute that the check was delivered to and was accepted by basic principles of equity and fairness would not allow the insurer to continue
respondent's agent, Trans-Pacific, only on September 28, 1996. No payment of collecting and accepting the premiums, although paid on installments, and later
premium had thus been made at the time of the loss of the vehicle on September deny liability on the lame excuse that the premiums were not prepaid in full.
27, 1996. While petitioner claims that Trans-Pacific was informed that the check
Not only that. In Tuscany, we also quoted with approval the following
was ready for pick-up on September 27, 1996, the notice of the availability of the
pronouncement of the Court of Appeals in its Resolution denying the motion for
check, by itself, does not produce the effect of payment of the premium. Trans-
reconsideration of its decision:ChanRoblesVirtualawlibrary
Pacific could not be considered in delay in accepting the check because when it
While the import of Section 77 is that prepayment of premiums is strictly required
informed petitioner that it will only be able to pick-up the check the next day,
as a condition to the validity of the contract, We are not prepared to rule that the
petitioner did not protest to this, but instead allowed Trans-Pacific to do so. Thus,
request to make installment payments duly approved by the insurer would prevent
at the time of loss, there was no payment of premium yet to make the insurance
the entire contract of insurance from going into effect despite payment and
policy effective.
acceptance of the initial premium or first installment. Section 78 of the Insurance
Code in effect allows waiver by the insurer of the condition of prepayment by
There are, of course, exceptions to the rule that no insurance contract takes
making an acknowledgment in the insurance policy of receipt of premium as
conclusive evidence of payment so far as to make the policy binding despite the
47
fact that premium is actually unpaid. Section 77 merely precludes the parties from Petitioner argues that his case falls under the fourth and fifth exceptions because
stipulating that the policy is valid even if premiums are not paid, but docs not the parties intended the contract of insurance to be immediately effective upon
expressly prohibit an agreement granting credit extension, and such an agreement issuance, despite non-payment of the premium. This waiver to a pre-payment in full
is not contrary to morals, good customs, public order or public policy (De Leon,' of the premium places respondent in estoppel.
The Insurance Code, p. 175). So is an understanding to allow insured to pay
premiums in installments not so prescribed. At the very least, both parties should We do not agree with petitioner.
be deemed in estoppel to question the arrangement they have voluntarily accepted.
The fourth and fifth exceptions to Section 77 operate under the facts obtaining
By the approval of the aforequoted findings and conclusion of the Court of
in Makati Tuscany Condominium Corp. and UCPB General Insurance Co., Inc. Both
Appeals, Tuscany has provided a fourth exception to Section 77, namely, that the
contemplate situations where the insurers have consistently granted the insured a
insurer may grant credit extension for the payment of the premium. This simply
credit extension or term for the payment of the premium. Here, however,
means that if the insurer has granted the insured a credit term for the payment
petitioner failed to establish the fact of a grant by respondent of a credit term in
of the premium and loss occurs before the expiration of the term, recovery on the
his favor, or that the grant has been consistent. While there was mention of a
policy should be allowed even though the premium is paid after the loss but within
credit agreement between Trans-Pacific and respondent, such arrangement was not
the credit term.
proven and was internal between agent and principal.55 Under the principle of
relativity of contracts, contracts bind the parties who entered into it. It cannot
xxx
favor or prejudice a third person, even if he is aware of the contract and has acted
with knowledge.56
Finally in the instant case, it would be unjust and inequitable if recovery on the
policy would not be permitted against Petitioner, which had consistently granted a
We cannot sustain petitioner's claim that the parties agreed that the insurance
60- to 90-day credit term for the payment of premiums despite its full awareness
contract is immediately effective upon issuance despite non payment of the
of Section 77. Estoppel bars it from taking refuge under said Section, since
premiums. Even if there is a waiver of pre-payment of premiums, that in itself does
Respondent relied in good faith on such practice. Estoppel then is the fifth
not become an exception to Section 77, unless the insured clearly gave a credit
exception to Section 77.52 (Citations omitted.)
term or extension. This is the clear import of the fourth exception in the UCPB
In UCPB General Insurance Co., Inc., we summarized the exceptions as follows: (1) General Insurance Co., Inc. To rule otherwise would render nugatory the
in case of life or industrial life policy, whenever the grace period provision applies, requirement in Section 77 that "[n]otwithstanding any agreement to the contrary,
as expressly provided by Section 77 itself; (2) where the insurer acknowledged in no policy or contract of insurance issued by an insurance company is valid and
the policy or contract of insurance itself the receipt of premium, even if premium binding unless and until the premium thereof has been paid, x x x." Moreover, the
has not been actually paid, as expressly provided by Section 78 itself; (3) where policy itself states:ChanRoblesVirtualawlibrary
the parties agreed that premium payment shall be in installments and partial WHEREAS THE INSURED, by his corresponding proposal and declaration, and
payment has been made at the time of loss, as held in Makati Tuscany Condominium which shall be the basis of this Contract and deemed incorporated herein, has
Corp. v. Court of Appeals;53 (4) where the insurer granted the insured a credit applied to the company for the insurance hereinafter contained, subject to the
term for the payment of the premium, and loss occurs before the expiration of the payment of the Premium as consideration for such insurance.57 (Emphasis supplied.)
term, as held in Makati Tuscany Condominium Corp.; and (5) where the insurer is
The policy states that the insured's application for the insurance is subject to the
in estoppel as when it has consistently granted a 60 to 90-day credit term for the
payment of the premium. There is no waiver of pre-payment, in full or in
payment of premiums.
installment, of the premiums under the policy. Consequently, respondent cannot be
placed in estoppel.
The insurance policy in question does not fall under the first to third exceptions
laid out in UCPB General Insurance Co., Inc.: (1) the policy is not a life or industrial
Thus, we find that petitioner is not entitled to the insurance proceeds because no
life policy; (2) the policy does not contain an acknowledgment of the receipt of
insurance policy became effective for lack of premium payment.
premium but merely a statement of account on its face;54 and (3) no payment of an
installment was made at the time of loss on September 27.
The consequence of this declaration is that petitioner is entitled to a return of the
48
premium paid for the vehicle in the amount of P55,620.60 under the principle of On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a
unjust enrichment. There is unjust enrichment when a person unjustly retains a common carrier, entered into a contract with the petitioners whereby the former
benefit to the loss of another, or when a person retains money or property of would load and carry on board its barge Mable 10 about 422.18 cubic meters of logs
another against the fundamental principles of justice, equity and good from Malampaya Sound, Palawan to North Harbor, Manila. The petitioners insured
conscience.58Petitioner cannot claim the full amount of P140,893.50, which includes the logs against loss for P100,000.00 with respondent Pioneer Insurance and
the payment of premiums for the two other vehicles. These two policies are not Surety Corporation (Pioneer).
affected by our ruling on the policy subject of this case because they were issued
as separate and independent contracts of insurance.59 We, however, find that the On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at
award shall earn legal interest of 6% from the time of extrajudicial demand on Malampaya Sound, Palawan for carriage and delivery to North Harbor, Port of
July 7, 1997.60 Manila, but the shipment never reached its destination because Mable 10 sank with
the 811 pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila.
WHEREFORE, the petition is DENIED. The assailed Decision of the CA dated As alleged by the petitioners in their complaint and as found by both the trial and
September 11, 2009 and the Resolution dated November 24, 2009 appellate courts, the barge where the logs were loaded was not seaworthy such
are AFFIRMED with the MODIFICATION that respondent should return the that it developed a leak. The appellate court further found that one of the hatches
amount of P55,620.60 with the legal interest computed at the rate of 6% per was left open causing water to enter the barge and because the barge was not
annumreckoned from July 7, 1997 until finality of this judgment. Thereafter, the provided with the necessary cover or tarpaulin, the ordinary splash of sea waves
total amount shall earn interest at the rate of 6% per annum from the finality of brought more water inside the barge.
this judgment until its full satisfaction.
On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment
SO ORDERED.chanroblesvirtuallawlibrary of P150,000.00 for the loss of the shipment plus P100,000.00 as unrealized profits
but the latter ignored the demand. Another letter was sent to respondent Pioneer
FIRST DIVISION claiming the full amount of P100,000.00 under the insurance policy but respondent
refused to pay on the ground that its hability depended upon the "Total loss by
G.R. No. L-66935 November 11, 1985 Total Loss of Vessel only". Hence, petitioners commenced Civil Case No. 86599
against Manila Bay and respondent Pioneer.
ISABELA ROQUE, doing busines under the name and style of Isabela Roque
Timber Enterprises and ONG CHIONG, petitioners, After hearing, the trial court found in favor of the petitioners. The dispositive
vs. portion of the decision reads:
HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND
SURETY CORPORATION, respondent. FOR ALL THE FOREGOING, the Court hereby rendered judgment
as follows:

(a) Condemning defendants Manila Bay Lighterage Corporation and

GUTIERREZ, JR., J.: Pioneer Insurance and Surety Corporation to pay plaintiffs,
jointly and severally, the sum of P100,000.00;
This petition for certiorari asks for the review of the decision of the
Intermediate Appellate Court which absolved the respondent insurance company (b) Sentencing defendant Manila Bay Lighterage Corporation to
from liability on the grounds that the vessel carrying the insured cargo was pay plaintiff, in addition, the sum of P50,000.00, plus P12,500.00,
unseaworthy and the loss of said cargo was caused not by the perils of the sea but that the latter advanced to the former as down payment for
by the perils of the ship. transporting the logs in question;
49
(c) Ordering the counterclaim of defendant Insurance against II
plaintiffs, dismissed, for lack of merit, but as to its cross-claim
against its co-defendant Manila Bay Lighterage Corporation, the THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING
latter is ordered to reimburse the former for whatever amount it THAT THE LOSS OF THE CARGO IN THIS CASE WAS CAUSED
may pay the plaintiffs as such surety; BY "PERILS OF THE SHIP" AND NOT BY "PERILS OF THE SEA."

(d) Ordering the counterclaim of defendant Lighterage against III

plaintiffs, dismissed for lack of merit;
THE INTERMEDIATE APPELLATE COURT ERRED IN NOT
(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 ORDERING THE RETURN TO PETITIONER OF THE AMOUNT
as exemplary damages are ordered dismissed, for lack of merits; OF P8,000.00 WHICH WAS DEPOSITED IN THE TRIAL COURT
plaintiffs' claim for attorney's fees in the sum of P10,000.00 is AS SALVAGE VALUE OF THE LOGS THAT WERE RECOVERED.
hereby granted, against both defendants, who are, moreover
ordered to pay the costs; and In their first assignment of error, the petitioners contend that the implied
warranty of seaworthiness provided for in the Insurance Code refers only to the
(f) The sum of P150,000.00 award to plaintiffs, shall bear responsibility of the shipowner who must see to it that his ship is reasonably fit to
interest of six per cent (6%) from March 25, 1975, until amount make in safety the contemplated voyage.
is fully paid.
The petitioners state that a mere shipper of cargo, having no control over the ship,
Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did has nothing to do with its seaworthiness. They argue that a cargo owner has no
not appeal. According to the petitioners, the transportation company is no longer control over the structure of the ship, its cables, anchors, fuel and provisions, the
doing business and is without funds. manner of loading his cargo and the cargo of other shippers, and the hiring of a
sufficient number of competent officers and seamen. The petitioners' arguments
During the initial stages of the hearing, Manila Bay informed the trial court that it have no merit.
had salvaged part of the logs. The court ordered them to be sold to the highest
bidder with the funds to be deposited in a bank in the name of Civil Case No. There is no dispute over the liability of the common carrier Manila Bay. In fact, it
86599. did not bother to appeal the questioned decision. However, the petitioners state
that Manila Bay has ceased operating as a firm and nothing may be recovered from
On January 30, 1984, the appellate court modified the trial court's decision and it. They are, therefore, trying to recover their losses from the insurer.
absolved Pioneer from liability after finding that there was a breach of implied
warranty of seaworthiness on the part of the petitioners and that the loss of the The liability of the insurance company is governed by law. Section 113 of the
insured cargo was caused by the "perils of the ship" and not by the "perils of the Insurance Code provides:
sea". It ruled that the loss is not covered by the marine insurance policy.
In every marine insurance upon a ship or freight, or freightage, or
After the appellate court denied their motion for reconsideration, the petitioners upon any thing which is the subject of marine insurance, a
filed this petition with the following assignments of errors: warranty is implied that the ship is seaworthy.

I Section 99 of the same Code also provides in part.

THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING Marine insurance includes:

THAT IN CASES OF MARINE CARGO INSURANCE, THERE IS
A WARRANTY OF SEAWORTHINESS BY THE CARGO OWNER.
50
(1) Insurance against loss of or damage to: We are constrained to apply Section 113 of the Insurance Code to the facts of this
case. As stated by the private respondents:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes,
merchandise, ... In marine cases, the risks insured against are "perils of the sea"
(Chute v. North River Ins. Co., Minn—214 NW 472, 55 ALR 933).
From the above-quoted provisions, there can be no mistaking the fact that the The purpose of such insurance is protection against contingencies
term "cargo" can be the subject of marine insurance and that once it is so made, and against possible damages and such a policy does not cover a
the implied warranty of seaworthiness immediately attaches to whoever is insuring loss or injury which must inevitably take place in the ordinary
the cargo whether he be the shipowner or not. course of things. There is no doubt that the term 'perils of the
sea' extends only to losses caused by sea damage, or by the
As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society violence of the elements, and does not embrace all losses
of Canton (40 Phil. 40): happening at sea. They insure against losses from extraordinary
occurrences only, such as stress of weather, winds and waves,
The same conclusion must be reached if the question be discussed lightning, tempests, rocks and the like. These are understood to
with reference to the seaworthiness of the ship. It is universally be the "perils of the sea" referred in the policy, and not those
accepted that in every contract of insurance upon anything which ordinary perils which every vessel must encounter. "Perils of the
is the subject of marine insurance, a warranty is implied that the sea" has been said to include only such losses as are
ship shall be seaworthy at the time of the inception of the of extraordinary nature, or arise from some overwhelming power,
voyage. This rule is accepted in our own Insurance Law (Act No. which cannot be guarded against by the ordinary exertion of
2427, sec. 106). ... human skill and prudence. Damage done to a vessel by perils of the
sea includes every species of damages done to a vessel at sea, as
distinguished from the ordinary wear and tear of the voyage,
Moreover, the fact that the unseaworthiness of the ship was unknown to the
and distinct from injuries suffered by the vessel in consequence
insured is immaterial in ordinary marine insurance and may not be used by him as a
of her not being seaworthy at the outset of her voyage (as in this
defense in order to recover on the marine insurance policy.
case). It is also the general rule that everything which happens
thru the inherent vice of the thing, or by the act of the owners,
As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S.
master or shipper, shall not be reputed a peril, if not otherwise
406):
borne in the policy. (14 RCL on Insurance, Sec. 384, pp. 1203-
1204; Cia. de Navegacion v. Firemen's Fund Ins. Co., 277 US 66,
There was no look-out, and both that and the rate of speed were 72 L. ed. 787, 48 S. Ct. 459).
contrary to the Canadian Statute. The exception of losses
occasioned by unseaworthiness was in effect a warranty that a
With regard to the second assignment of error, petitioners maintain, that the loss
loss should not be so occasioned, and whether the fact of
of the cargo was caused by the perils of the sea, not by the perils of the ship
unseaworthiness were known or unknown would be immaterial.
because as found by the trial court, the barge was turned loose from the tugboat
east of Cabuli Point "where it was buffeted by storm and waves." Moreover,
Since the law provides for an implied warranty of seaworthiness in every contract petitioners also maintain that barratry, against which the cargo was also insured,
of ordinary marine insurance, it becomes the obligation of a cargo owner to look existed when the personnel of the tugboat and the barge committed a mistake by
for a reliable common carrier which keeps its vessels in seaworthy condition. The turning loose the barge from the tugboat east of Cabuli Point. The trial court also
shipper of cargo may have no control over the vessel but he has full control in the found that the stranding and foundering of Mable 10 was due to improper loading
choice of the common carrier that will transport his goods. Or the cargo owner may of the logs as well as to a leak in the barge which constituted negligence.
enter into a contract of insurance which specifically provides that the insurer
answers not only for the perils of the sea but also provides for coverage of perils
of the ship.
51
On the contention of the petitioners that the trial court found that the loss was The insurer undertakes to insure against perils of the sea and
occasioned by the perils of the sea characterized by the "storm and waves" which similar perils, not against perils of the ship. As was well said
buffeted the vessel, the records show that the court ruled otherwise. It stated: by Lord Herschell in Wilson, Sons & Co. v. Owners of Cargo per
the Xantho ([1887], 12 A. C., 503, 509), there must, in order to
xxx xxx xxx make the insurer liable, be some casualty, something which could
not be foreseen as one of the necessary incidents of the
... The other affirmative defense of defendant Lighterage, 'That adventure. The purpose of the policy is to secure an indemnity
the supposed loss of the logs was occasioned by force majeure... against accidents which may happen, not against events which
"was not supported by the evidence. At the time Mable 10 sank, must happen.
there was no typhoon but ordinary strong wind and waves, a
condition which is natural and normal in the open sea. The In the present case the entrance of the sea water into the ship's
evidence shows that the sinking of Mable 10 was due to improper hold through the defective pipe already described was not due to
loading of the logs on one side so that the barge was tilting on one any accident which happened during the voyage, but to the failure
side and for that it did not navigate on even keel; that it was no of the ship's owner properly to repair a defect of the existence
longer seaworthy that was why it developed leak; that the of which he was apprised. The loss was therefore more analogous
personnel of the tugboat and the barge committed a mistake when to that which directly results from simple unseaworthiness than
it turned loose the barge from the tugboat east of Cabuli point to that which result from the perils of the sea.
where it was buffeted by storm and waves, while the tugboat
proceeded to west of Cabuli point where it was protected by the xxx xxx xxx
mountain side from the storm and waves coming from the east
direction. ..." Suffice it to say that upon the authority of those cases there is
no room to doubt the liability of the shipowner for such a loss as
In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of occurred in this case. By parity of reasoning the insurer is not
defendant carrier developed a leak which allowed water to come in and that one of liable; for generally speaking, the shipowner excepts the perils of
the hatches of said barge was negligently left open by the person in charge the sea from his engagement under the bill of lading, while this is
thereof causing more water to come in and that "the loss of said plaintiffs' cargo the very perils against which the insurer intends to give
was due to the fault, negligence, and/or lack of skill of defendant carrier and/or protection. As applied to the present case it results that the
defendant carrier's representatives on barge Mable 10." owners of the damaged rice must look to the shipowner for
redress and not to the insurer.
It is quite unmistakable that the loss of the cargo was due to the perils of the ship
rather than the perils of the sea. The facts clearly negate the petitioners' claim Neither can petitioners allege barratry on the basis of the findings showing
under the insurance policy. In the case of Go Tiaoco y Hermanos v. Union Ins. negligence on the part of the vessel's crew.
Society of Canton, supra, we had occasion to elaborate on the term "perils of the
ship." We ruled: Barratry as defined in American Insurance Law is "any willful misconduct on the
part of master or crew in pursuance of some unlawful or fraudulent purpose
It must be considered to be settled, furthermore, that a loss without the consent of the owners, and to the prejudice of the owner's interest."
which, in the ordinary course of events, results from the natural (Sec. 171, U.S. Insurance Law, quoted in Vance, Handbook on Law of Insurance,
and inevitable action of the sea, from the ordinary wear and tear 1951, p. 929.)
of the ship, or from the negligent failure of the ship's owner to
provide the vessel with proper equipment to convey the cargo Barratry necessarily requires a willful and intentional act in its commission. No
under ordinary conditions, is not a peril of the sea. Such a loss is honest error of judgment or mere negligence, unless criminally gross, can be
rather due to what has been aptly called the "peril of the ship." barratry. (See Vance on Law of Insurance, p. 929 and cases cited therein.)
52
In the case at bar, there is no finding that the loss was occasioned by the willful or Before the RTC of Makati City, Manulife Philippines, Inc. (Manulife) instituted a
fraudulent acts of the vessel's crew. There was only simple negligence or lack of Complaint7 for Rescission of Insurance Contracts against Hermenegilda Ybañez
skill. Hence, the second assignment of error must likewise be dismissed. (Hermenegilda) and the BPI Family Savings Bank (BPI Family). This was docketed as
Civil Case No. 04-1119.
Anent the third assignment of error, we agree with the petitioners that the
amount of P8,000.00 representing the amount of the salvaged logs should have It is alleged in the Complaint that Insurance Policy Nos. 6066517-18 and 6300532-
been awarded to them. However, this should be deducted from the amounts which 69 (subject insurance policies) which Manulife issued on October 25, 2002 and on
have been adjudicated against Manila Bay Lighterage Corporation by the trial July 25, 2003, respectively, both in favor of Dr. Gumersindo Solidum Ybañez
court. (insured), were void due to concealment or misrepresentation of material facts in
the latter's applications for life insurance, particularly the forms entitled Non-
WHEREFORE, the decision appealed from is AFFIRMED with the modification that Medical Evidence dated August 28, 2002 (NME),10Medical Evidence Exam dated
the amount of P8,000.00 representing the value of the salvaged logs which was September 10, 2002 (MEE),11 and the Declaration of Insurability in the Application
ordered to be deposited in the Manila Banking Corporation in the name of Civil Case for Life Insurance (DOI) dated July 9, 2003;12 that He1menegilda, wife of the said
No. 86599 is hereby awarded and ordered paid to the petitioners. The liability insured, was revocably designated as beneficiary in the subject insurance policies;
adjudged against Manila Bay Lighterage Corporation in the decision of the trial that on November 17, 2003, when one of the subject insurance policies had been in
court is accordingly reduced by the same amount. force for only one year and three months, while the other for only four months,
the insured died; that on December 10, 2003, Hermenegilda, now widow to the said
SO ORDERED. insured, filed a Claimant's Statement-Death Claim13 with respect to the subject
insurance policies; that the Death Certificate dated November 17, 200314 stated
SECOND DIVISION that the insured had "Hepatocellular CA., Crd Stage 4, secondary to Uric Acid
Nephropathy; SAM Nephropathy recurrent malignant pleural effusion; NASCVC";
that Manulife conducted an investigation into the circumstances leading to the said
November 28, 2016
insured's death, in view of the aforementioned entries in the said insured's Death
Certificate; that Manulife thereafter concluded that the insured misrepresented
G.R. No. 204736
or concealed material facts at the time the subject insurance policies were applied
for; and that for this reason Manulife accordingly denied Hermenegilda's death
MANULIFE PHILIPPINES, INC.1, Petitioner claims and refunded the premiums that the insured paid on the subject insurance
vs. policies.15
HERMENEGILDA YBAÑEZ, Respondent
Manulife also set forth in said Complaint the details of the insured's supposed
D E C I S I O N misrepresentation/s or concealment/s, to wit:

DEL CASTILLO, J.: 2.6. On the basis of the authority granted by [Hermenegilda] in her Claimant's

Assailed in this Petition for Review on Certiorari2 are the April 26, 2012 Statement (Annex "H"), [Manulife] conducted an investigation [into] the Insured's
Decision3 of the Court of Appeals (CA) in CA-G.R. CV No. 95561 and its December medical records and history, and discovered that the Insured concealed material
10, 2012 Resolution4 which affirmed the April 22, 2008 Decision5 and the June 15, facts which the law, good faith, and fair dealing required him to reveal when he
2009 Order6 of the Regional Trial Court (RTC), Branch 57, Makati City in Civil Case answered the [NME] (Annex ''C"), [the MEE] (Annex "D"), and [the DOI] (Annex
No. 04-1119. "E"), as follows:

Factual Antecedents (1) Insured's confinement at the Cebu Doctors' Hospital [CDH] from 27 December
2000 to 3l December 2000, wherein he underwent total parotidectomy on 28
53
December 2000 due to the swelling of his right parotid gland and the presence of a 10. The four grounds for denial as enumerated in Annex "N" of the complaint are
tumor, and was found to have had a history of being hypertensive, and his kidneys refuted as follows:
have become atretic or shrunken. A copy of each of the Admission and Discharge
Record and PGIS' Interns' Progress Notes and Operative Record of the [CDH] is 1) [The insured's] hospital confinement on 27 December 2000 at [the CDH was]
attached hereto and made an integral part hereof as Annex "K", "K-1", and "K-2'', due to right parotid swelling secondary to tumor [for which he] underwent
respectively. Parotidectomy on 28 December 2000. (- There is an obvious scar and
disfigurement in the right side of [the insured's] face, in front, and below his ear.
(2) Insured's confinement at the CDH from 9 May 2002 to 14 May 2002, wherein This [ought to] have been easily noticed by [Manulife's company] physician, Dr.
he was diagnosed to have acute pancreatitis, in addition to being hypertensive. A [Winifredo] Lumapas.
copy [of] each of the Insured's Admission and Discharge Record and Doctor's
History/Progress Notes is attached hereto and made an integral part hereof as 2) [The insured's] history of Hypertension [has been] noted 03 years prior to [the
Annex "L" and "L-1", respectively. insured's] admission on 27 December 2000. (This is not something serious or fatal)

(3) Insured's diagnosis for leptospirosis in 2000. A copy [of] each of the Insured's 3) [The insured's] history of Leptospirosis in 2000. (This is not confirmed)
Admission and Discharge Record and History Sheet is attached hereto and made
an integral part hereof as Annex "M" and "M-1",respectively. 4) [The insured's] hospital confinement [at the CDH] on 09 May 2002 with findings
of Acute Pancreatitis (This is related to the gallstones of [the insured]. When the
x x xx gallbladder is diseased, distention is impossible and its pressure-regulating
function is lost - a fact that may explain high incidence of pancreatitis in patient
2.8. Due to the Insured's concealment of material facts at the time the subject with cholecystic disease. [The insured] had cholecystitis, so his acute pancreatitis
insurance policies were applied for and issued, [Manulife] exercised its right to is related to the cholecystitis and chol[e]lithiasis (gallstones).
rescind the subject insurance contracts and denied the claims on those policies.
x x xx
xxxx16
11. [Manulife] accepted [the insured's] application, and now that a claim for the
Manulife thus prayed that judgment be rendered finding its act of rescinding the benefits [is] made, [Manulife now] says that [the insured] misrepresented and
subject insurance policies proper; declaring these subject insurance policies null concealed his past illnesses[!] In the form filled up by [Dr. Winifredo F. Lumapas,]
and void; and discharging it from any obligation whatsoever under these policies.17 Manulife's [company] physician, dated 9/10/02, [the insured] checked the column
which says ''yes" [to] the following questions:
In her Answer, Hermenegilda countered that:
• Have you had electrocardiograms, when, why, result? ([Manulife's company
6. [Manulife's own insurance agent, Ms. Elvira Monteclaros herself] assured [the physician] wrote the answer which stated that result was normal.) ' .
insured,] that there would be no problem regarding the application for the
insurance policy. In fact, it was Monteclaros who filled up everything in the • Have you seen a doctor, or had treatment operation on hospital case during the
questionnaire (Annex "C" of the [C]omplaint), so that [all that the insured needed last five years?
to do was sign it,] and it's done. [It was also Ms. Monteclaros who herself] checked
in advance all the boxes in Annex "C," [that the insured himself was required to 12. x x x It is rather strange that [the insured's] parotidectomy was not included
answer or check]. in the report when the scar of that operation can not be concealed because it
caused a disfigurement in the right side. of his face in front and below his
xxxx ear. This is just too obvious to be overlooked by [Manulife's company physician]
who examined and interviewed [the insured] before accepting the policy. x x x
54
13. x x x [Undoubtedly, Manulife] had the option to inquire further [into the 26. The head and neck - vision, optic, fundi, hearing, speech, thyroid etc. Yes wears
insured's physical condition, because the insured had given it authority to do so] eyeglasses for reading. (This is where [Manulife's company physician] should have
based on the authority given by [the insured. And how come that Manulife] was written the scar of [the insured's] parotidectomy as shown in the picture).
able to gather all [these] information now and not before [the insured] was
ensured? x x x 32. From your knowledge of this person would you consider his/ her health to be
Average [] Below average[/] Poor []
xxxx
(Underscoring ours)
16. Moreover, in the comments of [the said] Dr. Lumapas, (Annex "D" of the
Complaint), he said the physical condition of [the] then prospective insurance policy 18. It is interesting to note that the answers in the insurance agent's form for
holder, [the insured, was] "below average". x x x [Estoppel now bars Manulife from [the insured] (Annex "C" of the Complaint) did not jibe with the answers [made by]
claiming the contrary.] Dr. Lumapas in Annex "D" of the Complaint. This only boosts Hermenegilda's claim
that x x x indeed, it was the Manulife's agent herself, (Ms. Montesclaros) who
17. [Especially] worth noting are the [following] comments of [the said Dr. Lumapas, checked all the items in the said form to speed up the insurance application and its
on the insured's answer to the questionnaires] - (Annex "D" of the Complaint ). [to approval, [so she could] get her commission as soon as possible.
wit:]
19. In fine, at the time when both insurance policies in question were submitted for
"4.d. Have you had any electrocardiograms, when, why, result. "Yes" approval to [Manulife, the latter had had all the forewarnings that should have put
it on guard or on notice that things were not what it wanted them to be, reason
- on June 2002 at CDH, Cebu City enough to bestir it into exercising greater prudence and caution to further inquire
into] the health or medical history of [the insured]. In particular, Manulife ought
= Cardiac clearance for surgery to have noted the fact that the insured was at that time already 65 years old, x x
x that he had a previous operation, and x x x that his health was "below average. x
= Result normal x x18

16. Have you seen a doctor, or had treatment, operation or hospital care during the On November 25, 2005, BPI Family filed a Manifestation19 praying that either it be
last 5 years? "Yes" admitted at [CDH,] Cebu City by Dr. Lamberto Garcia and Dr. dropped from the case or that the case be dismissed with respect to it (BPI
Jorge Ang for Chronic Calculous Chol[e]cystitis Family), because it no longer had any interest in the subject insurance policies as
asssignee because the insured’s obligation with it (BPI Family) had already been
settled or paid. Since no objection was interposed to this prayer by either
=Cholecystectomy done [J]une 7[,] 2002 by Dr. Ang
Manulife or Hermenegilda, the RTC granted this prayer in its Order of

=Biopsy: Gallbladder Chronic Calculous Cholestitis

November 25, 2005.20

=CBC, Hepatitis Panel done – all negative results except hepatitis antigen(+)
Then in the Second Order dated November 25, 2005,21 the RTC considered the
pre-trial as te1minated. Trial then ensued.
18. Do you consume alcohol beverages? If so, how much? Yes, consumes 1-2 shots
of whisky during socials.
Manulife presented its sole witness in the person of Ms. Jessiebelle Victoriano
(Victoriano ), the Senior Manager of its Claims and Settlements Department.22 The
25. The abdomen - Abnormality of any viscus, genitalia or evidence of hemia or
oral testimony of this witness chiefly involved identifying herself as the Senior
operation - post cholecystectomy scar.
Manager of Manulife's Claims and Settlements Department and also identifying the
following pieces of evidence;23 the subject insurance policies; NME, MEE, DOI; the
55
Assignment of Policy No. 6066517-1 to BPI Family as collateral, dated July 9, The RTC found no merit at all in Manulife's Complaint for rescission of the subject
2003; its Letter dated July 10, 2003 re: assignment of said Policy; death claim insurance policies because it utterly failed to prove that the insured had
filed by Hermenegilda on December 10, 2003; the insured's Death Certificate; the committed the alleged misrepresentation/s or concealment/s. In fact, Victoriano,
Marriage Contract between the insured and Hermenegilda; copies of CDH's the one and only witness that Manulife called to the witness stand, gave no first-
Admission and Discharge Records of the insured for December hand, direct evidence at all relative to the particulars of the alleged
2000 re: parotidectomy; copies of CDH's PGIS' Interns' Notes and CDH Operative misrepresentation/s or concealment/s that the insured allegedly practiced or
Record dated December 28, 2000 re: hypertension; copies of CDH's Admission and committed against it. This witness did not testify at all in respect to the
Discharge Record of the insured for May 2002, and the Doctor's History/Progress circumstances under which these documentary exhibits were executed, nor yet
Notes re: acute pancreatitis and hypertension; copies of CDH's Admission and about what these documentary exhibits purported to embody. The RTC stressed
Discharge Record of the insured for October 2003 re: leptospirosis; letters dated that the CDH medical records that might or could have established the insured's
March 24, 2004 to Hermenegilda and BPI Family; and BPI Checks deposited on misrepresentation/s or concealment/s were inadmissible for being hearsay,
April 10, 2004 and May 14, 2004 to the bank accounts of BPI Family and because Manulife did not present the physician or doctor, or any responsible
Hermenegilda, respectively, representing the premium refund. official of the CDH, who could confirm the due execution and authenticity of its
medical records; that if anything, Manulife itself admitted in its Reply29 that its
In its Order of October 2, 2006, 24
the RTC admitted all these exhibits. very own company physician, Dr. Winifredo Lumapas, had duly noted the insured's
scar, even as the same company physician also categorized in the MEE the
Like Manulife, Hermenegilda, in amplication of her case, also called only one witness insured's health as "below average"; and that in short, it is evident that Manulife
to the witness stand: her counsel of record, Atty. Edgardo Mayol (Atty. Mayol), thus had had ample opportunity to verify and to inquire further into the insured' s
whose testimony focused on his professional engagement with Hermenegilda and medical history commencing from the date of the MEE but opted not to do so; and
the monetary expenses he incurred in attending to the hearings in this that if things did not come up to its standards or expectations, it was totally at
case.25 Hermenegilda thereafter filed her Formal Offer of Evidence26 wherein she liberty to reject the insured's applications altogether, or it could have demanded a
proffered the following: NME, MEE, DOI, the insured's driver's license, her letter higher premium for the insurance coverage.
dated May 8, 2004 protesting the denial by Manulife of her insurance claim, the
contract of services between her and Atty. Mayol, the official receipts for plane The RTC further ruled that Hermenegilda was entitled to attorney's fees in the
tickets, terminal fees, and boarding passes, attesting to Atty. Mayol's plane sum of ₱l00,000.00 and actual expenses in the amount of ₱40,050.00, because she
travels to and from Cebu City to attend to this case. These were all admitted by was compelled to litigate to defend her interest against Manulife' s patently
the RTC.27 unjustified act in rejecting her clearly valid and lawful claim. The RTC also found
merit in Hermenegilda’s claims relative to the expenses she paid her Cebu-based
Ruling of the Regional Trial Court counsel.

After due proceedings, the RTC dismissed Manulife's Complaint, thus: In its Order of June 15, 2009,30 the RTC denied for lack of merit Manulife's
motion for reconsideration31 and Hermenegilda's motion for partial
WHEREFORE, premises duly considered, judgment is hereby rendered reconsideration.32
DISMISSING the instant case for insufficiency of evidence.
From the RTC's Decision, Manulife filed a Notice of Appeal33 which was given due
[Manulife] is hereby ordered to pay [Hermenegilda] actual expenses in the sum of course by the RTC in its Order of June 11, 2010.34
₱40,050.00 and attorney's fees in the sum of ₱l00,000.1âwphi1 [Hermenegilda's]
claim for moral and exemplary damages is denied for lack of evidence. Ruling of the Court of Appeals

SO .ORDERED.28 In its appellate review, the CA virtually adopted en toto the findings of facts made
by, and the conclusions of law arrived at, by the RTC. Thus, the CA decreed:
56
WHEREFORE, the instant appeal is DENIED. The assailed Decision dated April 22, embark upon the task of dissecting, analyzing, evaluating, calibrating or weighing all
2008 and Order dated June 15, 2009 of the Regional Trial Court of Makati, Branch over again the evidence, testimonial or documentary, that the parties adduced
57, are hereby AFFIRMED. during trial. Of course, there are exceptions to this rule, such as (1) when the
conclusion is grounded upon speculations, surmises or conjectures; (2) when the
SO ORDERED.35 inference is manifestly mistaken, absurd or impossible; (3) when there is a grave
abuse of discretion; (4) when the judgment is based on a misapprehension of facts;
The CA, like the RTC, found Manulife's Complaint bereft of legal and factual bases. (5) when the findings of fact are conflicting; (6) when there is no citation of
The CA ruled that it is settled that misrepresentation or concealment in insurance specific evidence on which the factual findings are based; (7) when the findings of
is an affirmative defense, which the insurer must establish by convincing evidence absence of facts is contradicted by the presence of evidence on record; (8) when
if it is to avoid liability; and that in this case the one and only witness presented by the findings of the CA are contrary to the findings of the RTC; (9) when the CA
Manulife utterly failed to prove the basic elements of the alleged manifestly overlooked certain relevant and undisputed facts that, if properly
misrepresentation/s or concealment/s of material facts imputed by Manulife considered, would justify a different conclusion; (10) when the findings of the CA
against the now deceased insured. The CA held that there is no basis for are beyond the issues of the case; and (11) when the CA’s findings are contrary to
Manulife's claim that it is exempted from the duty of proving the insured's the admission of both parties.38 We are satisfied that none of these exceptions
supposed misrepresentation/s or concealment/s, as these had allegedly been obtains in the Petition at bench. Thus, this Court must defer to the findings of
admitted already in Hermenegilda's Answer; that in the absence of authentication fact of the RTC – as affirmed or confirmed by the CA – that Manulife’s Complaint
by a competent witness, the purported CDH medical records of the insured are for rescission of the insurance policies in question was totally bereft of factual and
deemed hearsay hence, inadmissible, and devoid of probative value; and that the legal bases because it had utterly failed to prove that the insured had committed
medical certificate, even if admitted in evidence as an exception to the hearsay the alleged misrepresentation/s or concealment/s of material facts imputed
rule, was still without probative value because the physician or doctor or the against him. The RTC correctly held that the CDH’s medical records that might
hospital's official who issued it, was not called to the witness stand to validate it have established the insured’s purported misrepresentation/s or concealment/s
or to attest to it. was inadmissible for being hearsay, given the fact that Manulife failed to present
the physician or any responsible official of the CDH who could confirm or attest to
Manulife moved for reconsideration36 of the CA's Decision, but this was denied by the due execution and authenticity of the alleged medical records. Manulife had
the CA in its Resolution of December 10, 2012;37 hence, the present recourse. utterly failed to prove by convincing evidence that it had been beguiled, inveigled,
or cajoled into selling the insurance to the insured who purportedly with malice and
deceit passed himself off as thoroughly sound and healthy, and thus a fit and
Issue
proper applicant for life insurance. Manulife's sole witness gave no evidence at all
relative to the particulars of the purported concealment or misrepresentation
Whether the CA committed any reversible error in affirming the RTC Decision
allegedly perpetrated by the insured. In fact, Victoriano merely perfunctorily
dismissing Manulife's Complaint for rescission of insurance contracts for failure to
identified the documentary exhibits adduced by Manulife; she never testified in
prove concealment on the part of the insured.
regard to the circumstances attending the execution of these documentary
exhibits much less in regard to its contents. Of course, the mere mechanical act of
Our Ruling identifying these documentary exhibits, without the testimonies of the actual
participating parties thereto, adds up to nothing. These documentary exhibits did
The present recourse essentially challenges anew the findings of fact by both the not automatically validate or explain themselves. "The fraudulent intent on the part
RTC and the CA that the Complaint for rescission of the insurance policies in of the insured must be established to entitle the insurer to rescind the contract.
question will not prosper because Manulife failed to prove concealment on the part Misrepresentation as a defense of the insurer to avoid liability is an affirmative
of the insured. This is not allowed. It is horn-book law that in appeal defense and the duty to establish such defense by satisfactory and convincing
by certiorari to this Court under Rule 45 of the Revised Rules of Court, the evidence rests upon the insurer."39 For failure of Manulife to prove intent to
findings of fact by the CA, especially where such findings of fact are affirmatory defraud on the part of the insured, it cannot validly sue for rescission of insurance
or confirmatory of the findings of fact of the RTC, as in this case, are conclusive contracts.
upon this Court. The reason is simple: this Court not being a trial court, it does not
57
WHEREFORE, the Petition is DENIED. The assailed Decision of the Court of whether he had smoked cigarettes or cigars within the last 12 months prior to
Appeals dated April 26, 2012 in CA-G.R. CV No. 95561 and its December 10, 2012 filling out said application.8 However, the medical report of Dr. Anna Chua (Dr.
Resolution, are AFFIRMED. Chua), one of the several physicians that Norberto consulted for his illness, reveals
that he was a smoker and had only stopped smoking in August 1999. According to
SO ORDERED. petitioner, its underwriters would not have approved Norberto’s application for life
insurance had they been given the correct information. Believing that the policy is
SECOND DIVISION null and void, petitioner opined that its liability is limited to the refund of all the
premiums paid. Accordingly, it enclosed in the said letter a check for P13,080.93
G.R. No. 183272, October 15, 2014 representing the premium refund.

In a letter9 dated September 13, 2001, respondent Tan Kit refused to accept the
SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. SANDRA TAN KIT
check and insisted on the payment of the insurance proceeds.
AND THE ESTATE OF THE DECEASED NORBERTO TAN KIT, Respondents.

On October 4, 2002, petitioner filed a Complaint10 for Rescission of Insurance

D E C I S I O N
Contract before the Regional Trial Court (RTC) of Makati City.

DEL CASTILLO, J.: Ruling of the Regional Trial Court

The Court of Appeals’ (CA) imposition of 12% interest on the P13,080.93 premium In its November 30, 2005 Decision,11 the RTC noted that petitioner’s physician, Dr.
refund is the only matter in question in this case. Charity Salvador (Dr. Salvador), conducted medical examination on Norberto.
Moreover, petitioner’s agent, Irma Joy E. Javelosa (Javelosa), answered “NO” to
This Petition for Review on Certiorari1 assails the October 17, 2007 Decision2 of the question “Are you aware of anything about the life to be insured’s lifestyle,
CA in CA-G.R. CV No. 86923, which, among others, imposed a 12% per annum rate hazardous sports, habits, medical history, or any risk factor that would have an
of interest reckoned from the time of death of the insured until fully paid, on the adverse effect on insurability?” in her Agent’s Report. Javelosa also already knew
premium to be reimbursed by petitioner Sun Life of Canada (Philippines), Inc. Norberto two years prior to the approval of the latter’s application for insurance.
(petitioner) to respondents Sandra Tan Kit (respondent Tan Kit) and the Estate of The RTC concluded that petitioner, through the above-mentioned circumstances,
the Deceased Norberto Tan Kit (respondent estate). Likewise assailed in this had already cleared Norberto of any misrepresentation that he may have
Petition is the CA’s June 12, 2008 Resolution3 denying petitioner’s Motion for committed. The RTC also opined that the affidavit of Dr. Chua, presented as part
Reconsideration of the said Decision. of petitioner’s evidence and which confirmed the fact that the insured was a
smoker and only stopped smoking a year ago [1999], is hearsay since Dr. Chua did
Factual Antecedents not testify in court. Further, since Norberto had a subsisting insurance policy with
petitioner during his application for insurance subject of this case, it was
Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit incumbent upon petitioner to ascertain the health condition of Norberto
(Norberto), whose application for a life insurance policy,4 with face value of considering the additional burden that it was assuming. Lastly, petitioner did not
P300,000.00, was granted by petitioner on October 28, 1999. On February 19, comply with the requirements for rescission of insurance contract as held
2001, or within the two-year contestability period,5 Norberto died of disseminated in Philamcare Health Systems, Inc. v. Court of Appeals.12 Thus, the dispositive
gastric carcinoma.6 Consequently, respondent Tan Kit filed a claim under the portion of the RTC Decision:chanRoblesvirtualLawlibrary
subject policy.
WHEREFORE, in view of the foregoing considerations, this court hereby finds in
In a Letter7 dated September 3, 2001, petitioner denied respondent Tan Kit’s favor of the [respondents and] against the [petitioner], hence it hereby orders the
claim on account of Norberto’s failure to fully and faithfully disclose in his [petitioner] to pay the [respondent], Sandra Tan Kit, the sum of Philippine Pesos:
insurance application certain material and relevant information about his health and THREE HUNDRED THOUSAND (P300,000.00), representing the face value of the
smoking history. Specifically, Norberto answered “No” to the question inquiring insurance policy with interest at six percent (6%) per annum from October 4, 2002
58
until fully paid. rate of 12% per annum from the time of the death of the insured until fully
paid.
Cost de oficio.
SO ORDERED.18chanrobleslaw
13
SO ORDERED.
The parties filed their separate motions for reconsideration.19 While respondents
14 15
Petitioner moved for reconsideration, but was denied in an Order dated questioned the factual and legal bases of the CA Decision, petitioner, on the other
February 15, 2006. hand, assailed the imposition of interest on the premium ordered refunded to
respondents.
Hence, petitioner appealed to the CA.
However, the appellate court denied the motions in its June 12, 2008
Ruling of the Court of Appeals Resolution,20viz:chanRoblesvirtualLawlibrary

On appeal, the CA reversed and set aside the RTC’s ruling in its Decision16 dated WHEREFORE, the foregoing considered, the separate motions for reconsideration
October 17, 2007. filed by the [petitioner] and the [respondents] are hereby DENIED.

From the records, the CA found that prior to his death, Norberto had consulted SO ORDERED.21
two physicians, Dr. Chua on August 19, 2000, and Dr. John Ledesma (Dr. Ledesma)
on December 28, 2000, to whom he confided that he had stopped smoking only in Only petitioner appealed to this Court through the present Petition for Review
1999. At the time therefore that he applied for insurance policy on October 28, on Certiorari.
1999, there is no truth to his claim that he did not smoke cigarettes within 12
months prior to the said application. The CA thus held that Norberto is guilty of Issue
concealment which misled petitioner in forming its estimates of the risks of the
insurance policy. This gave petitioner the right to rescind the insurance contract The sole issue in this case is whether petitioner is liable to pay interest on the
which it properly exercised in this case. premium to be refunded to respondents.

In addition, the CA held that the content of Norberto’s medical records are The Parties’ Arguments
deemed admitted by respondents since they failed to deny the same despite having
received from petitioner a Request for Admission pursuant to Rule 26 of the Rules Petitioner argues that no interest should have been imposed on the premium to be
of Court.17 And since an admission is in the nature of evidence the legal effects of refunded because the CA Decision does not provide any legal or factual basis
which form part of the records, the CA discredited the RTC’s ruling that the therefor; that petitioner directly and timely tendered to respondents an amount
subject medical records and the affidavits executed by Norberto’s physicians representing the premium refund but they rejected it since they opted to pursue
attesting to the truth of the same were hearsay. their claim for the proceeds of the insurance policy; that respondents should bear
the consequence of their unsound decision of rejecting the refund tendered to
The dispositive portion of the CA Decision reads:chanRoblesvirtualLawlibrary them; and, that petitioner is not guilty of delay or of invalid or unjust rescission as
to make it liable for interest. Hence, following the ruling in Tio Khe Chio v. Court of
WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED Appeals,22 no interest can be assessed against petitioner.
and the appealed Decision REVERSED and SET ASIDE, and in lieu thereof, a
judgment is hereby rendered GRANTING the complaint a quo.
Respondents, on the other hand, contend that the reimbursement of premium is
clearly a money obligation or one that arises from forbearance of money, hence,
Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of the imposition of 12% interest per annum is just, proper and supported by
P13,080.93 representing the [premium] paid by the insured with interest at the jurisprudence. While they admit that they refused the tender of payment of the
59
premium refund, they aver that they only did so because they did not want to Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of
abandon their claim for the proceeds of the insurance policy. In any case, what P13,080.93 representing the [premium] paid by the insured with interest at the
petitioner should have done under the circumstances was to consign the amount of rate of 12% per annum from time of death of the insured until fully
payment in court during the pendency of the case. paid.30chanrobleslaw

Our Ruling
there can be no other conclusion than that the interest imposed by the appellate
court is in the nature of compensatory interest.
Tio Khe Chio is not applicable in this case.

The CA incorrectly imposed

Petitioner avers that Tio Khe Chio, albeit pertaining to marine insurance, is
compensatory interest on the premium
instructive on the issue of payment of interest. There, the Court pointed to
refund reckoned from the time of death
Sections 243 and 244 of the Insurance Code which explicitly provide for payment
of the insured until fully paid
of interest when there is unjustified refusal or withholding of payment of the
claim by the insurer, 23 and to Article 220924 of the New Civil Code which likewise
As a form of damages, compensatory interest is due only if the obligor is proven to
provides for payment of interest when the debtor is in delay.
have failed to comply with his obligation.31cralawlawlibrary

The Court finds, however, that Tio Khe Chio is not applicable here as it deals with
In this case, it is undisputed that simultaneous to its giving of notice to
payment of interest on the insurance proceeds in which the claim therefor was
respondents that it was rescinding the policy due to concealment, petitioner
either unreasonably denied or withheld or the insurer incurred delay in the
tendered the refund of premium by attaching to the said notice a check
payment thereof. In this case, what is involved is an order for petitioner to refund
representing the amount of refund. However, respondents refused to accept the
to respondents the insurance premium paid by Norberto as a consequence of the
same since they were seeking for the release of the proceeds of the policy.
rescission of the insurance contract on account of the latter’s concealment of
Because of this discord, petitioner filed for judicial rescission of the contract.
material information in his insurance application. Moreover, petitioner did not
Petitioner, after receiving an adverse judgment from the RTC, appealed to the CA.
unreasonably deny or withhold the insurance proceeds as it was satisfactorily
And as may be recalled, the appellate court found Norberto guilty of concealment
established that Norberto was guilty of concealment.
and thus upheld the rescission of the insurance contract and consequently decreed
the obligation of petitioner to return to respondents the premium paid by
Nature of interest imposed by the CA
Norberto. Moreover, we find that petitioner did not incur delay or unjustifiably
deny the claim.
There are two kinds of interest – monetary and compensatory.

Based on the foregoing, we find that petitioner properly complied with its
“Monetary interest refers to the compensation set by the parties for the use or
obligation under the law and contract. Hence, it should not be made liable to pay
forbearance of money.”25No such interest shall be due unless it has been expressly
compensatory interest.
stipulated in writing.26 “On the other hand, compensatory interest refers to the
penalty or indemnity for damages imposed by law or by the courts.”27 The interest
Considering the prevailing circumstances of the case, we hereby direct petitioner
mentioned in Articles 2209 and 221228 of the Civil Code applies to compensatory
to reimburse the premium paid within 15 days from date of finality of this
interest.29cralawlawlibrary
Decision. If petitioner fails to pay within the said period, then the amount shall be
deemed equivalent to a forbearance of credit.32 In such a case, the rate of
Clearly and contrary to respondents’ assertion, the interest imposed by the CA is
interest shall be 6% per annum.33cralawlawlibrary
not monetary interest because aside from the fact that there is no use or
forbearance of money involved in this case, the subject interest was not one which
WHEREFORE, the assailed October 17, 2007 Decision of the Court of Appeals in
was agreed upon by the parties in writing. This being the case and judging from the
CA-G.R. CV No. 86923 is MODIFIED in that petitioner Sun Life of Canada
tenor of the CA, to wit:chanRoblesvirtualLawlibrary
(Philippines), Inc. is ordered to reimburse to respondents Sandra Tan Kit and the
60
Estate of the Deceased Norberto Tan Kit the sum of P13,080.93 representing the
premium paid by the insured within fifteen (15) days from date of finality of this Aside from pension benefits, the comprehensive pension plan also provided
Decision. If the amount is not reimbursed within said period, the same shall earn life insurance coverage to Florendo.[4] This was covered by a Group Master Policy
interest of 6% per annum until fully paid. that Philippine American Life Insurance Company (Philam Life) issued to Philam
Plans.[5] Under the master policy, Philam Life was to automatically provide life
SO ORDERED.cralawred insurance coverage, including accidental death, to all who signed up for Philam Plans
comprehensive pension plan.[6] If the plan holder died before the maturity of the
THIRD DIVISION plan, his beneficiary was to instead receive the proceeds of the life insurance,
equivalent to the pre-need price. Further, the life insurance was to take care of any
unpaid premium until the pension plan matured, entitling the beneficiary to the
MA. LOURDES S. FLORENDO, G.R. No. 186983 maturity value of the pension plan.[7]
Petitioner,
Present: On October 30, 1997 Philam Plans issued Pension Plan Agreement
VELASCO, JR., J., Chairperson, PP43005584[8] to Manuel, with petitioner Ma. Lourdes S. Florendo, his wife, as
- versus - PERALTA, beneficiary. In time, Manuel paid his quarterly premiums.[9]
ABAD, Eleven months later or on September 15, 1998, Manuel died of blood
MENDOZA, and poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the payment of
PERLAS-BERNABE, JJ. the benefits under her husbands plan.[10] Because Manuel died before his pension
PHILAM PLANS, INC., plan matured and his wife was to get only the benefits of his life insurance, Philam
PERLA ABCEDE and Promulgated: Plans forwarded her claim to Philam Life.[11]
MA. CELESTE ABCEDE,
Respondents. February 22, 2012 On May 3, 1999 Philam Plans wrote Lourdes a letter,[12] declining her
claim. Philam Life found that Manuel was on maintenance medicine for his heart and
x --------------------------------------------------------------------------------------- x had an implanted pacemaker. Further, he suffered from diabetes mellitus and was
taking insulin. Lourdes renewed her demand for payment under the plan[13] but Philam
DECISION Plans rejected it,[14] prompting her to file the present action against the pension plan
company before the Regional Trial Court (RTC) of Quezon City.[15]
ABAD, J.:
On March 30, 2006 the RTC rendered judgment,[16] ordering Philam Plans,
Perla and Ma. Celeste, solidarily, to pay Lourdes all the benefits from her husbands
This case is about an insureds alleged concealment in his pension plan pension plan, namely: P997,050.00, the proceeds of his term insurance,
application of his true state of health and its effect on the life insurance portion of and P2,890,000.00 lump sum pension benefit upon maturity of his plan; P100,000.00
that plan in case of death. as moral damages; and to pay the costs of the suit. The RTC ruled that Manuel was
not guilty of concealing the state of his health from his pension plan application.
The Facts and the Case
On December 18, 2007 the Court of Appeals (CA) reversed the RTC
On October 23, 1997 Manuel Florendo filed an application for decision,[17] holding that insurance policies are traditionally contracts uberrimae
comprehensive pension plan with respondent Philam Plans, Inc. (Philam Plans) after fidae or contracts of utmost good faith. As such, it required Manuel to disclose to
some convincing by respondent Perla Abcede. The plan had a pre-need price Philam Plans conditions affecting the risk of which he was aware or material facts
of P997,050.00, payable in 10 years, and had a maturity value of P2,890,000.00 that he knew or ought to know.[18]
after 20 years.[1] Manuel signed the application and left to Perla the task of supplying
the information needed in the application.[2] Respondent Ma. Celeste Abcede, Perlas Issues Presented
daughter, signed the application as sales counselor.[3]
61
The issues presented in this case are: disorder or any other physical impairment in the last five
years.
1. Whether or not the CA erred in finding Manuel guilty of concealing his
illness when he kept blank and did not answer questions in his pension plan application (d) I am in good health and physical condition.
regarding the ailments he suffered from;
If your answer to any of the statements above reveal
2. Whether or not the CA erred in holding that Manuel was bound by the otherwise, please give details in the space provided for:
failure of respondents Perla and Ma. Celeste to declare the condition of Manuels
health in the pension plan application; and Date of confinement :
____________________________
3. Whether or not the CA erred in finding that Philam Plans approval of Name of Hospital or Clinic :
Manuels pension plan application and acceptance of his premium payments precluded ____________________________
it from denying Lourdes claim. Name of Attending Physician :
____________________________
Rulings of the Court Findings : ____________________________
Others: (Please specify) :
One. Lourdes points out that, seeing the unfilled spaces in Manuels pension plan ____________________________
application relating to his medical history, Philam Plans should have returned it to x x x x.[20] (Emphasis supplied)
him for completion. Since Philam Plans chose to approve the application just as it was, Since Manuel signed the application without filling in the details regarding
it cannot cry concealment on Manuels part. Further, Lourdes adds that Philam Plans his continuing treatments for heart condition and diabetes, the assumption is that
never queried Manuel directly regarding the state of his health. Consequently, it he has never been treated for the said illnesses in the last five years preceding his
could not blame him for not mentioning it.[19] application. This is implicit from the phrase If your answer to any of the statements
above (specifically, the statement: I have never been treated for heart condition or
But Lourdes is shifting to Philam Plans the burden of putting on the pension plan diabetes) reveal otherwise, please give details in the space provided for. But this is
application the true state of Manuels health. She forgets that since Philam Plans untrue since he had been on Coumadin, a treatment for venous thrombosis, [21] and
waived medical examination for Manuel, it had to rely largely on his stating the truth insulin, a drug used in the treatment of diabetes mellitus, at that time.[22]
regarding his health in his application. For, after all, he knew more than anyone that
he had been under treatment for heart condition and diabetes for more than five Lourdes insists that Manuel had concealed nothing since Perla, the soliciting
years preceding his submission of that application. But he kept those crucial facts agent, knew that Manuel had a pacemaker implanted on his chest in the 70s or about
from Philam Plans. 20 years before he signed up for the pension plan.[23] But by its tenor, the
responsibility for preparing the application belonged to Manuel. Nothing in it implies
Besides, when Manuel signed the pension plan application, he adopted as his own the that someone else may provide the information that Philam Plans needed. Manuel
written representations and declarations embodied in it. It is clear from these cannot sign the application and disown the responsibility for having it filled up. If he
representations that he concealed his chronic heart ailment and diabetes from furnished Perla the needed information and delegated to her the filling up of the
Philam Plans. The pertinent portion of his representations and declarations read as application, then she acted on his instruction, not on Philam Plans instruction.
follows:
I hereby represent and declare to the best of my knowledge that: Lourdes next points out that it made no difference if Manuel failed to
reveal the fact that he had a pacemaker implant in the early 70s since this did not
xxxx fall within the five-year timeframe that the disclosure contemplated.[24] But a
pacemaker is an electronic device implanted into the body and connected to the wall
(c) I have never been treated for heart condition, high blood of the heart, designed to provide regular, mild, electric shock that stimulates the
pressure, cancer, diabetes, lung, kidney or stomach contraction of the heart muscles and restores normalcy to the heartbeat.[25] That
Manuel still had his pacemaker when he applied for a pension plan in October 1997 is
62
an admission that he remained under treatment for irregular heartbeat within five
years preceding that application. I agree that the insurance coverage of this application
is based on the truth of the foregoing representations and is
Besides, as already stated, Manuel had been taking medicine for his heart subject to the provisions of the Group Life Insurance Policy issued
condition and diabetes when he submitted his pension plan application. These clearly by THE PHILIPPINE AMERICAN LIFE INSURANCE CO. to
fell within the five-year period. More, even if Perlas knowledge of Manuels PHILAM PLANS, INC.[30] (Emphasis supplied)
pacemaker may be applied to Philam Plans under the theory of imputed
knowledge,[26] it is not claimed that Perla was aware of his two other afflictions that As the Court said in New Life Enterprises v. Court of Appeals:[31]
needed medical treatments. Pursuant to Section 27[27] of the Insurance Code,
Manuels concealment entitles Philam Plans to rescind its contract of insurance with It may be true that x x x insured persons may accept policies
him. without reading them, and that this is not negligence per se. But,
Two. Lourdes contends that the mere fact that Manuel signed the application in this is not without any exception. It is and was incumbent upon
blank and let Perla fill in the required details did not make her his agent and bind petitioner Sy to read the insurance contracts, and this can be
him to her concealment of his true state of health. Since there is no evidence of reasonably expected of him considering that he has been a
collusion between them, Perlas fault must be considered solely her own and cannot businessman since 1965 and the contract concerns indemnity in
prejudice Manuel.[28] case of loss in his money-making trade of which important
consideration he could not have been unaware as it was precisely
But Manuel forgot that in signing the pension plan application, he certified that he the reason for his procuring the same.[32]
wrote all the information stated in it or had someone do it under his direction. Thus:
The same may be said of Manuel, a civil engineer and manager of a
APPLICATION FOR PENSION PLAN construction company.[33] He could be expected to know that one must read every
(Comprehensive) document, especially if it creates rights and obligations affecting him, before signing
the same. Manuel is not unschooled that the Court must come to his succor. It could
I hereby apply to purchase from PHILAM PLANS, INC. a Pension reasonably be expected that he would not trifle with something that would provide
Plan Program described herein in accordance with the General additional financial security to him and to his wife in his twilight years.
Provisions set forth in this application and hereby certify that the
date and other information stated herein are written by me or Three. In a final attempt to defend her claim for benefits under Manuels pension
under my direction. x x x.[29] (Emphasis supplied) plan, Lourdes points out that any defect or insufficiency in the information provided
by his pension plan application should be deemed waived after the same has been
Assuming that it was Perla who filled up the application form, Manuel is still approved, the policy has been issued, and the premiums have been collected. [34]
bound by what it contains since he certified that he authorized her action. Philam
Plans had every right to act on the faith of that certification. The Court cannot agree. The comprehensive pension plan that Philam Plans issued
contains a one-year incontestability period. It states:
Lourdes could not seek comfort from her claim that Perla had assured
Manuel that the state of his health would not hinder the approval of his application VIII. INCONTESTABILITY
and that what is written on his application made no difference to the insurance
company.But, indubitably, Manuel was made aware when he signed the pension plan After this Agreement has remained in force for one (1)
application that, in granting the same, Philam Plans and Philam Life were acting on year, we can no longer contest for health reasons any claim for
the truth of the representations contained in that application. Thus: insurance under this Agreement, except for the reason that
installment has not been paid (lapsed), or that you are not insurable
DECLARATIONS AND REPRESENTATIONS at the time you bought this pension program by reason of age. If
this Agreement lapses but is reinstated afterwards, the one (1)
xxxx
63
year contestability period shall start again on the date of approval Loadstar International Shipping, Inc.(Loadstar Shipping) and Philippine Associated
of your request for reinstatement.[35] Smelting and Refining Corporation (PASAR) entered into a Contract of
Affreightment for domestic bulk transport of the latter’s copper concentrates for
The above incontestability clause precludes the insurer from disowning a period of one year from November 1, 1998 to October 31, 1999. The contract was
liability under the policy it issued on the ground of concealment or misrepresentation extended up to the end of October 2000.
regarding the health of the insured after a year of its issuance.
On September 10, 2000, 5,065.47 wet metric tons (WMT) of copper concentrates
Since Manuel died on the eleventh month following the issuance of his were loaded in Cargo Hold Nos. 1 and 2 of MV "Bobcat", a marine vessel owned by
plan,[36] the one year incontestability period has not yet set in. Consequently, Philam Loadstar International Shipping Co., Inc. (Loadstar International) and operated by
Plans was not barred from questioning Lourdes entitlement to the benefits of her Loadstar Shipping under a charter party agreement. The shipper and consignee
husbands pension plan. under the Bill of Lading are Philex Mining Corporation (Philex) and PASAR,
respectively. The cargo was insured with Malayan Insurance Company, Inc.
WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of (Malayan) under Open Policy No. M/OP/2000/001-582. P & I Association is the
Appeals in CA-G.R. CV 87085 dated December 18, 2007. third party liability insurer of Loadstar Shipping.

SO ORDERED. On said date (September 10, 2000), MV "Bobcat" sailed from Poro Point, San
Fernando, La Union bound for Isabel, Leyte. On September 12, 2000, while in the
vicinity of Cresta de Gallo, the vessel’s chief officer on routine inspection found a
THIRD DIVISION crack on starboard sideof the main deck which caused seawater to enter and wet
the cargo inside Cargo Hold No. 2 forward/aft. The cracks at the top deck
G.R. No. 185565 November 26, 2014 starboard side of Cargo Hold No. 2, measuring 1.21 meters long x 0.39 meters wide,
and at top deck aft section starboard side on other point, measuring 0.82 meters
LOADSTAR SHIPPING COMPANY, INCORPORATED and LOADSTAR long x 0.32 meters wide, were welded.
INTERNATIONAL SHIPPING COMPANY, INCORPORATED, Petitioners,
vs. Immediately after the vessel arrived at Isabel, Leyte anchorage area, on
MALAYAN INSURANCE COMPANY, INCORPORATED, Respondent. September 13, 2000, PASAR and Philex’s representatives boarded and inspected
the vessel and undertook sampling of the copper concentrates. In its preliminary
DECISION report dated September 15, 2000, the Elite Adjusters and Surveyor, Inc. (Elite
Surveyor) confirmed that samples of copper concentrates from Cargo Hold No. 2
REYES, J.: were contaminated by seawater. Consequently, PASAR rejected 750 MT of the
2,300 MT cargo discharged from Cargo Hold No. 2.
This is a Petition for Review on Certiorari1 filed by Loadstai Shipping Company,
Incorporated and Loadstar International Shipping Company, Incorporated On November 6, 2000, PASAR sent a formal notice of claim in the amount of
(petitioners) against Malayan Insurance Company, Incorporated (Malayan) seeking [P]37,477,361.31 to Loadstar Shipping. In its final report dated November 16,
to set aside the Decision2 dated April 14, 2008 and Resolution3 dated December 11, 2000, Elite Surveyor recommended payment to the assured the amount of
2008 of the Court of Appeals (CA) in CA-G.R. CV No. 82758, which reversed and [P]32,351,102.32 as adjusted. On the basis of such recommendation, Malayan paid
set aside the Decision4 dated March 31, 2004 of the Regional Trial Court of PASAR the amount of [P]32,351,102.32.
Manila, Branch 34, in Civil Case No. 01-101885.
Meanwhile, on November 24, 2000, Malayan wrote Loadstar Shipping informing the
The facts as found by the CA, are as follows: latter of a prospective buyer for the damaged copper concentrates and the
opportunity to nominate/refer other salvage buyers to PASAR. On November 29,
2000, Malayan wrote Loadstar Shipping informing the latter of the acceptance of
64
PASAR’s proposal to take the damaged copper concentrates at a residual value of On March 31, 2004, the RTC rendered a judgment dismissing the complaint as well
US$90,000.00. On December 9, 2000, Loadstar Shipping wrote Malayan requesting as the counterclaim. The RTC was convinced that the vessel was seaworthy at the
for the reversal of its decision to accept PASAR’s proposal and the conduct of a time of loading and that the damage was attributable to the perils of the sea
public bidding to allow Loadstar Shipping to match or top PASAR’s bid by 10%. (natural disaster) and not due to the fault or negligence of Loadstar Shipping.

On January 23, 2001, PASAR signed a subrogation receipt in favor of Malayan. To The RTC found that although contaminated by seawater, the copper concentrates
recover the amount paid and in the exercise of its right of subrogation, Malayan can still be used. Itgave credence to the testimony of Francisco Esguerra,
demanded reimbursement from Loadstar Shipping, which refused to comply. defendants-appellees’ expert witness, that despite high chlorine content, the
Consequently, on September 19, 2001, Malayan instituted with the RTC a complaint copper concentrates remain intact and will not lose their value. The gold and silver
for damages. The complaint was later amended to include Loadstar International as remain with the grains/concentrates even if soaked with seawater and does not
party defendant. melt. The RTC observed that the purchase agreement between PASAR and Philex
contains a penalty clause and has no rejection clause. Despite this agreement, the
In its amended complaint, Malayan mainly alleged that as a direct and natural parties failed to sit down and assess the penalty.
consequence of the unseaworthiness of the vessel, PASAR suffered loss of the
cargo. It prayed for the amount of [P]33,934,948.75, representing actual damages The RTC also found that defendants-appellees were not afforded the opportunity
plus legal interest fromdate of filing of the complaint until fully paid, and to object or participate or nominate a participant in the sale of the contaminated
attorney’s fees in the amount of not less than [P]500,000.00. It also sought to copper concentrates to lessen the damages to be paid. No record was presented to
declare the bill of lading as void since it violates the provisions of Articles 1734 show that a public bidding was conducted. Malayan sold the contaminated copper
and 1745 of the Civil Code. concentrates to PASAR at a low price then paid PASAR the total value of the
damaged concentrate without deducting anything from the claim.
On October 30, 2002, Loadstar Shipping and Loadstar International filed their
answer with counterclaim, denying plaintiff appellant’s allegations and averring as Finally, the RTC denied the prayer to declare the Bill of Lading null and void for
follows: that they are not engaged in the business as common carriers but as lack of basis because what was attached to Malayan’s compliance was still an
private carriers; that the vessel was seaworthy and defendants-appellees unreadable machine copy thereof.5 (Citations omitted)
exercised the required diligence under the law; that the entry of water into Cargo
Hold No. 2 must have been caused by force majeureor heavy weather; that due to Ruling of the CA
the inherent nature of the cargo and the use of water in its production process,
the same cannot be considered damaged or contaminated; that defendants- On April 14, 2008, the CA rendered its Decision,6 the dispositive portion of which
appellees were denied reasonable opportunity to participate in the salvage sale; reads: WHEREFORE, the appeal is GRANTED. The Decision dated March 31, 2004
that the claim had prescribed in accordance with the bill of lading provisions and of the RTC, Branch 34, Manila in Civil Case No. 01-101885, is REVERSED and SET
the Code of Commerce; that plaintiff-appellant’s claim is excessive, grossly ASIDE. In lieu thereof, a new judgment is entered, ORDERING defendants-
overstated, unreasonable and unsubstantiated; that their liability, if any, should appellees to pay plaintiff-appellant ₱33,934,948.75 as actual damages, plus legal
not exceed the CIFvalue of the lost/damaged cargo as set forth in the bill of interest at 6% annually from the date of the trial court’s decision. Upon the
lading, charter party or customary rules of trade; and that the arbitration clause finality of the decision, the total amount of the judgment shall earn annual interest
in the contract of affreightment should be followed. at 12% until full payment.

After trial, and considering that the billof lading, which was marked as Exhibit "B", SO ORDERED.7
is unreadable, the RTC issued on February 17, 2004 an order directing the counsel
for Malayan to furnish it with a clearer copy of the same within three (3) days On December 11, 2008, the CA modified the above decision through a
from receipt of the order. On February 23, 2004, Malayan filed a compliance Resolution,8 the fallo thereof states:
attaching thereto copy of the bill of lading.
65
WHEREFORE, the Motion for Reconsiderationis PARTLY GRANTED. The decision THE HONORABLE COURT OFAPPEALS COMMITTED A REVERSIBLE ERROR IN
of this Court dated April 14, 2008 is PARTIALLY RECONSIDERED and RULING THAT RESPONDENT’S PAYMENT TO PASAR, ON THE BASIS OF THE
MODIFIED. Defendants-appellees are ORDERED to pay to plaintiff-appellant LATTER’S FRAUDULENT CLAIM, ENTITLED RESPONDENT AUTOMATIC RIGHT
₱33,934,948.74 as actual damages, less US$90,000.00, computed at the exchange OF RECOVERY BY VIRTUE OF SUBROGATION.13
rate prevailing on November 29, 2000, plus legal interest at 6% annually from the
date of the trial court’s decision. Upon the finality of the decision, the total Ruling of the Court
amount of the judgment shall earn annual interest at 12% until full payment.
I. Proof of actual damages
SO ORDERED.9
It is not disputed that the copper concentrates carried by M/V Bobcat from Poro
The CA discussed that the amount of US$90,000.00 should have been deducted Point, La Union to Isabel, Leyte were indeed contaminated with seawater. The issue
from Malayan’s claim against the petitioners in order to prevent undue enrichment lies on whether such contamination resulted to damage, and the costs thereof, if
on the part of Malayan. Otherwise, Malayan would recover from the petitioners not any,incurred by the insured PASAR.
merely the entire amount of 33,934,948.74 as actual damages, but would also end
up unjustly enriching itself in the amount of US$90,000.00 – the residual value of The petitioners argued that the copper concentrates, despite being dampened with
the subject copper concentrates it sold to Philippine Associated Smelting and seawater, is neither subject to penalty nor rejection. Under the Philex Mining
Refining Corporation (PASAR) on November 29, 2000.10 Issues Corporation (Philex)-PASAR Purchase Contract Agreement, there is no rejection
clause. Instead, there is a pre-agreed formula for the imposition of penalty in case
In sum, the grounds presented by the petitioners for the Court’s consideration are other elements exceeding the provided minimum level would be found on the
the following: concentrates.14 Since the chlorine content on the copper concentrates is still below
the minimum level provided under the Philex-PASAR purchase contract, no penalty
I. may be imposed against the petitioners.15

THE [CA] HAS NO BASIS IN REVERSING THE DECISION OF THE TRIAL Malayan opposed the petitioners’ invocation of the Philex-PASAR purchase
COURT. THERE IS NOTHING IN THE DECISION OF THE HONORABLE COURT agreement, stating that the contract involved in this case is a contract of
THAT REVERSED THE FACTUAL FINDINGS AND CONCLUSIONS OF THE affreightment between the petitioners and PASAR, not the agreement between
TRIAL COURT, THAT THERE WAS NO ACTUAL LOSS OR DAMAGE TO THE Philex and PASAR, which was a contract for the sale of copper concentrates.16
CARGO OF COPPER CONCENTRATES WHICH WOULD MAKE LOADSTAR AS THE
SHIPOWNER LIABLE FOR A CARGO CLAIM. CONSEQUENTLY, THERE IS NO On this score, the Court agrees withMalayan that contrary to the trial court’s
BASIS FOR THE COURT TO ORDER LOADSTAR TO PAY ACTUAL DAMAGES IN disquisition, the petitioners cannot validly invoke the penalty clause under the
THE AMOUNT OF PH₱33 MILLION.11 Philex-PASAR purchase agreement, where penalties are to be imposed by the buyer
PASAR against the seller Philex if some elements exceeding the agreed limitations
II. are found on the copper concentrates upon delivery. The petitioners are not privy
tothe contract of sale of the copper concentrates. The contract between PASAR
M/V BOBCAT IS A PRIVATE CARRIER, THE HONORABLE COURT HAD NO and the petitioners is a contract of carriage of goods and not a contract of sale.
BASIS IN RULING THAT IT IS A COMMON CARRIER. THE DECISION OF THE Therefore, the petitioners and PASAR are bound by the laws on transportation of
TRIAL COURT IS BEREFT OF ANY CATEGORICAL FINDING THAT M/V goods and their contract of affreightment. Since the Contract of
BOBCAT IS A COMMON CARRIER.12 Affreightment17 between the petitioners and PASAR is silent as regards the
computation of damages, whereas the bill of lading presented before the trial
III. court is undecipherable, the New Civil Code and the Code ofCommerce shall govern
the contract between the parties.
66
Malayan paid PASAR the amount of 32,351,102.32 covering the latter’s claim of Article 361. The merchandise shall be transported at the risk and venture of the
damage to the cargo.18 This is based on the recommendation of Elite Adjustors and shipper, if the contrary has not been expressly stipulated. As a consequence, all
Surveyors, Inc. (Elite) which both Malayan and PASAR agreed to. The computation the losses and deteriorations which the goods may suffer during the
of Elite is presented as follows: transportation by reason of fortuitous event, force majeure, or the inherent
nature and defect of the goods, shall be for the account and risk of the shipper.
Computation of Loss Payable.We computed for the insured value of the loss and Proof of these accidents is incumbent upon the carrier.
loss payable, based on the following pertinent data:
Article 362. Nevertheless, the carrier shall be liable for the losses and damages
1) Total quantity shipped - 5,065.47 wet metric tons and at risk or (Risk resulting from the causes mentioned in the preceding article if it is proved, as
Note and B/L) 4,568.907 dry metric tons against him, that they arose through his negligence or by reason of his having
failed to take the precautions which usage has established among careful persons,
2) Total sum insured - [P]212,032,203.77 (Risk Note and Endorsement) unless the shipper has committed fraud in the bill of lading, representing the goods
to be of a kind or quality different from what they really were.
3) Quantity damaged: 777.290 wet metric tons or (Pasar Laboratory Cert.
& 696.336 dry metric tons discharge & sampling Cert.dated September 21, If, notwithstanding the precautions referred to in this article, the goods
2000) transported run the risk of being lost, on account of their nature or by reason of
unavoidable accident, there being no time for their owners to dispose of them, the
Computation: carrier may proceed to sell them, placing them for this purpose at the disposal of
the judicial authority or of the officials designated by special provisions.

Total sum insured x Qty. damaged= Insured value of damage

xxxx

Total Qty. in DMT (DMT) (DMT)

Article 364. If the effect of the damage referred to in Article 361 is merely a
diminution in the value of the goods, the obligation of the carrier shall be reduced
[P] 212,032,203.77 x 696.336 DMT = [P]32,315,312.32
to the payment of the amount which, in the judgment of experts, constitutes such
difference in value.
4,568.907 DMT

Article 365. If, in consequence of the damage, the goods are rendered useless for
Insured value of damage = [P] 32,315,312.3219
sale and consumption for the purposes for which they are properly destined, the
consignee shall not be bound to receive them, and he may have them in the hands
Based on the preceding computation, the sum of ₱32,315,312.32 represents of the carrier, demanding of the latter their value at the current price on that
damages for the total loss ofthat portion of the cargo which were contaminated day.
with seawater and not merely the depreciation in its value. Strangely though, after
claiming damages for the total loss of that portion, PASAR bought back the
If among the damaged goods there should be some pieces in good condition and
contaminated copper concentrates from Malayan at the price of US$90,000.00.
without any defect, the foregoing provision shall be applicable with respect to
The fact of repurchase is enough to conclude that the contamination of the copper
those damaged and the consignee shall receive those which are sound, this
concentrates cannot be considered as total loss on the part of PASAR.
segregation to be made by distinct and separate pieces and without dividing a
single object, unless the consignee proves the impossibility of conveniently making
The following provisions of the Code of Commerce state how damages on goods use of them in this form.
delivered by the carrier should be appraised:
The same rule shall be applied to merchandise in bales or packages, separating
those parcels which appear sound.
67
From the above-cited provisions, if the goods are delivered but arrived at the Malayan’s claim against the petitioners is based on subrogation to the rights
destination in damaged condition, the remedies to be pursued by the consignee possessed by PASAR as consignee of the allegedly damaged goods. The right of
depend on the extent of damage on the goods. subrogation stems from Article 2207 of the New Civil Code which states:

If the goods are rendered useless for sale, consumption or for the intended Art. 2207. If the plaintiff’s property has been insured, and he has received
purpose, the consignee may reject the goods and demand the payment of such indemnity from the insurance company for the injury or loss arising out of the
goods at their marketprice on that day pursuant to Article 365. In case the wrong or breach of contract complained of, the insurance company shall be
damaged portion of the goods can be segregated from those delivered in good subrogated to the rights of the insured against the wrong doer or the person who
condition, the consignee may reject those in damaged condition and accept merely has violated the contract. If the amount paid by the insurance company does not
those which are in good condition. But if the consignee is able to prove that it is fully cover the injury or loss, the aggrieved party shall be entitled to recover the
impossible to use those goods which were delivered in good condition without the deficiency from the person causing the loss or injury.
others, then the entire shipment may be rejected. To reiterate, under Article 365,
the nature of damage must be such that the goods are rendered useless for sale, "The right of subrogation is not dependent upon, nor does it grow out of, any
consumption or intended purpose for the consignee to be able to validly reject privity of contract or upon written assignment of claim. It accrues simply upon
them. payment of the insurance claim by the insurer."20 The right of subrogation is
however, not absolute. "There are a few recognized exceptions to this rule. For
If the effect of damage on the goods consisted merely of diminution in value, the instance, if the assured by his own act releases the wrongdoer or third party liable
carrier is bound to pay only the difference between its price on that day and its for the loss or damage, from liability, the insurer’s right of subrogation is
depreciated value as provided under Article 364. defeated. x x x Similarly, where the insurer pays the assured the value of the
lostgoods without notifying the carrier who has in good faith settled the assured’s
Malayan, as the insurer of PASAR, neither stated nor proved that the goods are claim for loss, the settlement is binding on both the assured and the insurer, and
rendered useless or unfit for the purpose intended by PASAR due to contamination the latter cannot bring an action against the carrier on his right of subrogation. x
with seawater. Hence, there is no basis for the goods’ rejection under Article 365 x x And where the insurer pays the assured for a loss which is not a risk covered
of the Code of Commerce. Clearly, it is erroneous for Malayan to reimburse PASAR by the policy, thereby effecting ‘voluntary payment,’ the former has no right of
as though the latter suffered from total loss of goods in the absence of proof that subrogation against the third party liable for the loss x x x."21
PASAR sustained such kind of loss. Otherwise, there will be no difference inthe
indemnification of goods which were not delivered at all; or delivered but rendered The rights of a subrogee cannot be superior to the rights possessed by a subrogor.
useless, compared against those which were delivered albeit, there is diminution in "Subrogation is the substitution of one person in the place of another with
value. reference to a lawful claim or right, so that he who is substituted succeeds to the
rights of the other in relation to a debt or claim, including its remedies or
Malayan also failed to establish the legal basis of its decision to sell back the securities. The rights to which the subrogee succeeds are the same as, but not
rejected copper concentrates to PASAR. It cannot be ascertained how and when greaterthan, those of the person for whom he is substituted, that is, he cannot
Malayan deemed itself asthe owner of the rejected copper concentrates to have acquire any claim, security or remedy the subrogor did not have. In other words, a
these validly disposed of. If the goods were rejected, it only means there was no subrogee cannot succeed to a right not possessed by the subrogor. A subrogee in
acceptance on the part of PASAR from the carrier. Furthermore, PASAR and effect steps into the shoes of the insured and can recover only ifthe insured
Malayan simply agreed on the purchase price of US$90,000.00 without any likewise could have recovered."22 Consequently, an insurer indemnifies the insured
allegation or proof that the said price was the depreciated value based on the based on the loss or injury the latter actually suffered from. If there is no loss or
appraisal of experts as provided under Article 364 of the Code of Commerce. injury, then there is no obligation on the part of the insurer to indemnify the
insured. Should the insurer pay the insured and it turns out that indemnification is
II. Subrogation of Malayan to the rights of PASAR not due, or if due, the amount paid is excessive, the insurer takes the risk of not
being able to seek recompense from the alleged wrongdoer. This is because the
supposed subrogor did not possessthe right to be indemnified and therefore, no
68
right to collect is passed on to the subrogee. As regards the determination of WHEREFORE, the petition is GRANTED. The Decision dated April 14, 2008 and
actual damages, "[i]t is axiomatic that actual damages must be proved with Resolution dated December 11, 2008 of the Court of Appeals in CA-G.R. CV No.
reasonable degree of certainty and a party is entitled only to such compensation 82758 are hereby REVERSED and SET ASIDE. The Decision dated March 31, 2004
for the pecuniary loss that was duly proven."23 Article 2199 of the New Civil Code of the Regional Trial Comi of Manila, Branch 34 in Civil Case No·. 01-101885 is
speaks of how actual damages are awarded: REINSTATED.

Art. 2199. Except as provided by law or by stipulation, one is entitled to an SO ORDERED.

adequate compensation only for such pecuniary loss suffered by him as he has duly
proved. Such compensation is referred to as actual or compensatory damages. THIRD DIVISION

Whereas the CA modified its Decision dated April 14, 2008 by deducting the G.R. No. 198174 September 2, 2013
amount of US$90,000.00 fromthe award, the same is still iniquitous for the
petitioners because PASAR and Malayan never proved the actual damages ALPHA INSURANCE AND SURETY CO., PETITIONER,
sustained by PASAR. It is a flawed notion to merely accept that the salvage value vs.
of the goods is US$90,000.00, since the price was arbitrarily fixed between ARSENIA SONIA CASTOR, RESPONDENT.
PASAR and Malayan. Actual damages to PASAR, for example, could include the
diminution in value as appraised by experts or the expenses which PASAR incurred DECISION
for the restoration of the copper concentrates to its former condition, ifthere is
damage and rectification is still possible.
PERALTA, J.:

It is also note worthy that when the expert witness for the petitioners, Engineer
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
Francisco Esguerra (Esguerra), testified as regards the lack of any adverse effect
assailing the Decision1 dated May 31, 2011 and Resolution2 dated August 10, 2011 of
of seawater on copper concentrates, Malayan never presented evidence of its own
the Court of Appeals (CA) in CA-G.R. CV No. 93027.
in refutation to Esguerra’s testimony. And, even if the Court will disregard the
entirety of his testimony, the effect on Malayan’s cause of action is nil. As Malayan
The facts follow.
is claiming for actual damages, it bears the burden of proof to substantiate its
claim.
On February 21, 2007, respondent entered into a contract of insurance, Motor Car
Policy No. MAND/CV-00186, with petitioner, involving her motor vehicle, a Toyota
"The burden of proof is on the party who would be defeated if no evidence would
Revo DLX DSL. The contract of insurance obligates the petitioner to pay the
be presented on either side. The burden is to establish one’s case by a
respondent the amount of Six Hundred Thirty Thousand Pesos (₱630,000.00) in
preponderance of evidence which means that the evidence, as a whole, adduced by
case of loss or damage to said vehicle during the period covered, which is from
one side, is superior tothat of the other. Actual damages are not presumed. The
February 26, 2007 to February 26, 2008.
claimant must prove the actual amount of loss with a reasonable degree of
certainty premised upon competent proof and on the best evidence obtainable.
Specific facts that could afford a basis for measuring whatever compensatory or On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel
actual damages are borne must be pointed out. Actual damages cannot be anchored Salazar Lanuza (Lanuza), to bring the above-described vehicle to a nearby auto-
on mere surmises, speculations or conjectures."24 shop for a tune-up. However, Lanuza no longer returned the motor vehicle to
respondent and despite diligent efforts to locate the same, said efforts proved
futile. Resultantly, respondent promptly reported the incident to the police and
Having ruled that Malayan did not adduce proof of pecuniary loss to PASAR for
concomitantly notified petitioner of the said loss and demanded payment of the
which the latter was questionably indemnified, there is no necessity to expound
insurance proceeds in the total sum of ₱630,000.00.
further on the other issues raised by the petitioners and Malayan in this case.
69
In a letter dated July 5, 2007, petitioner denied the insurance claim of On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon
respondent, stating among others, thus: City’s decision. The fallo reads:

Upon verification of the documents submitted, particularly the Police Report and WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the
your Affidavit, which states that the culprit, who stole the Insure[d] unit, is Decision, dated December 19, 2008, of Branch 215 of the Regional Trial Court of
employed with you. We would like to invite you on the provision of the Policy under Quezon City, in Civil Case No. Q-07-61099, is hereby AFFIRMED in toto.
Exceptions to Section-III, which we quote:
SO ORDERED.4
1.) The Company shall not be liable for:
Petitioner filed a Motion for Reconsideration against said decision, but the same
xxxx was denied in a Resolution dated August 10, 2011.

(4) Any malicious damage caused by the Insured, any member of his family or by "A Hence, the present petition wherein petitioner raises the following grounds for the
PERSON IN THE INSURED’S SERVICE." allowance of its petition:

In view [of] the foregoing, we regret that we cannot act favorably on your claim. WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND
GROSSLY OR GRAVELY ABUSED ITS DISCRETION WHEN IT ADJUDGED IN
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her FAVOR OF THE PRIVATE RESPONDENT AND AGAINST THE PETITIONER AND
claim and argued that the exception refers to damage of the motor vehicle and not RULED THAT EXCEPTION DOES NOT COVER LOSS BUT ONLY DAMAGE
to its loss. However, petitioner’s denial of respondent’s insured claim remains firm. BECAUSE THE TERMS OF THE INSURANCE POLICY ARE [AMBIGUOUS]
EQUIVOCAL OR UNCERTAIN, SUCH THAT THE PARTIES THEMSELVES
Accordingly, respondent filed a Complaint for Sum of Money with Damages against DISAGREE ABOUT THE MEANING OF PARTICULAR PROVISIONS, THE POLICY
petitioner before the Regional Trial Court (RTC) of Quezon City on September 10, WILL BE CONSTRUED BY THE COURTS LIBERALLY IN FAVOR OF THE
2007. ASSURED AND STRICTLY AGAINST THE INSURER.

In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND
respondent in this wise: COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN TOTO
THE JUDGMENT OF THE TRIAL COURT.5
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff and against the defendant ordering the latter as follows: Simply, the core issue boils down to whether or not the loss of respondent’s vehicle
is excluded under the insurance policy.
To pay plaintiff the amount of ₱466,000.00 plus legal interest of 6% per annum
from the time of demand up to the time the amount is fully settled; We rule in the negative.

To pay attorney’s fees in the sum of ₱65,000.00; and Significant portions of Section III of the Insurance Policy states:

To pay the costs of suit. SECTION III – LOSS OR DAMAGE

All other claims not granted are hereby denied for lack of legal and factual basis.3 The Company will, subject to the Limits of Liability, indemnify the Insured against
loss of or damage to the Schedule Vehicle and its accessories and spare parts
Aggrieved, petitioner filed an appeal with the CA. whilst thereon:
70
(a) by accidental collision or overturning, or collision or overturning consequent from the insurance policy, since Section III thereof did not qualify as to who
upon mechanical breakdown or consequent upon wear and tear; would commit the theft. Thus:

(b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking Theft perpetrated by a driver of the insured is not an exception to the coverage
or theft; from the insurance policy subject of this case. This is evident from the very
provision of Section III – "Loss or Damage." The insurance company, subject to the
(c) by malicious act; limits of liability, is obligated to indemnify the insured against theft. Said provision
does not qualify as to who would commit the theft. Thus, even if the same is
(d) whilst in transit (including the processes of loading and unloading) incidental to committed by the driver of the insured, there being no categorical declaration of
such transit by road, rail, inland waterway, lift or elevator. exception, the same must be covered. As correctly pointed out by the plaintiff,
"(A)n insurance contract should be interpreted as to carry out the purpose for
xxxx which the parties entered into the contract which is to insure against risks of loss
or damage to the goods. Such interpretation should result from the natural and
reasonable meaning of language in the policy. Where restrictive provisions are open
EXCEPTIONS TO SECTION III
to two interpretations, that which is most favorable to the insured is adopted."
The defendant would argue that if the person employed by the insured would
The Company shall not be liable to pay for:
commit the theft and the insurer would be held liable, then this would result to an
absurd situation where the insurer would also be held liable if the insured would
Loss or Damage in respect of any claim or series of claims arising out of one event, commit the theft. This argument is certainly flawed. Of course, if the theft would
the first amount of each and every loss for each and every vehicle insured by this be committed by the insured himself, the same would be an exception to the
Policy, such amount being equal to one percent (1.00%) of the Insured’s estimate of coverage since in that case there would be fraud on the part of the insured or
Fair Market Value as shown in the Policy Schedule with a minimum deductible breach of material warranty under Section 69 of the Insurance Code.7
amount of Php3,000.00;
Moreover, contracts of insurance, like other contracts, are to be construed
Consequential loss, depreciation, wear and tear, mechanical or electrical according to the sense and meaning of the terms which the parties themselves
breakdowns, failures or breakages; have used. If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense.8 Accordingly, in interpreting
Damage to tires, unless the Schedule Vehicle is damaged at the same time; the exclusions in an insurance contract, the terms used specifying the excluded
classes therein are to be given their meaning as understood in common speech.9
Any malicious damage caused by the Insured, any member of his family or by a
person in the Insured’s service.6 Adverse to petitioner’s claim, the words "loss" and "damage" mean different things
in common ordinary usage. The word "loss" refers to the act or fact of losing, or
In denying respondent’s claim, petitioner takes exception by arguing that the word failure to keep possession, while the word "damage" means deterioration or injury
"damage," under paragraph 4 of "Exceptions to Section III," means loss due to to property.1âwphi1
injury or harm to person, property or reputation, and should be construed to cover
malicious "loss" as in "theft." Thus, it asserts that the loss of respondent’s vehicle Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the
as a result of it being stolen by the latter’s driver is excluded from the policy. insurance policy under paragraph 4 of "Exceptions to Section III," since the same
refers only to "malicious damage," or more specifically, "injury" to the motor
We do not agree. vehicle caused by a person under the insured’s service. Paragraph 4 clearly does
not contemplate "loss of property," as what happened in the instant case.
Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that
theft perpetrated by the driver of the insured is not an exception to the coverage
71
Further, the CA aptly ruled that "malicious damage," as provided for in the subject It must be remembered that an insurance contract is a contract of adhesion which
policy as one of the exceptions from coverage, is the damage that is the direct must be construed liberally in favor of the insured and strictly against the insurer
result from the deliberate or willful act of the insured, members of his family, and in order to safeguard the latter’s interest. Thus, in Malayan Insurance Corporation
any person in the insured’s service, whose clear plan or purpose was to cause v. Court of Appeals, this Court held that:
damage to the insured vehicle for purposes of defrauding the insurer, viz.:
Indemnity and liability insurance policies are construed in accordance with the
This interpretation by the Court is bolstered by the observation that the subject general rule of resolving any ambiguity therein in favor of the insured, where the
policy appears to clearly delineate between the terms "loss" and "damage" by using contract or policy is prepared by the insurer. A contract of insurance, being a
both terms throughout the said policy. x x x contract of adhesion, par excellence, any ambiguity therein should be resolved
against the insurer; in other words, it should be construed liberally in favor of the
xxxx insured and strictly against the insurer. Limitations of liability should be regarded
with extreme jealousy and must be construed in such a way as to preclude the
If the intention of the defendant-appellant was to include the term "loss" within insurer from non-compliance with its obligations.
the term "damage" then logic dictates that it should have used the term "damage"
alone in the entire policy or otherwise included a clear definition of the said term In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals,
as part of the provisions of the said insurance contract. Which is why the Court we reiterated the above ruling, stating that:
finds it puzzling that in the said policy’s provision detailing the exceptions to the
policy’s coverage in Section III thereof, which is one of the crucial parts in the When the terms of insurance contract contain limitations on liability, courts should
insurance contract, the insurer, after liberally using the words "loss" and "damage" construe them in such a way as to preclude the insurer from non-compliance with
in the entire policy, suddenly went specific by using the word "damage" only in the his obligation. Being a contract of adhesion, the terms of an insurance contract are
policy’s exception regarding "malicious damage." Now, the defendant-appellant to be construed strictly against the party which prepared the contract, the
would like this Court to believe that it really intended the word "damage" in the insurer. By reason of the exclusive control of the insurance company over the
term "malicious damage" to include the theft of the insured vehicle. terms and phraseology of the insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in favor of the insured, especially to
The Court does not find the particular contention to be well taken. avoid forfeiture.12

True, it is a basic rule in the interpretation of contracts that the terms of a WHEREFORE, premises considered, the instant Petition for Review on Certiorari is
contract are to be construed according to the sense and meaning of the terms DENIED. Accordingly, the Decision dated May 31, 2011 and Resolution dated
which the parties thereto have used. In the case of property insurance policies, August 10, 2011 of the Court of Appeals are hereby AFFIRMED.
the evident intention of the contracting parties, i.e., the insurer and the assured,
determine the import of the various terms and provisions embodied in the policy. SO ORDERED.
However, when the terms of the insurance policy are ambiguous, equivocal or FIRST DIVISION
uncertain, such that the parties themselves disagree about the meaning of January 16, 2017
particular provisions, the policy will be construed by the courts liberally in favor of G.R. No. 207277
the assured and strictly against the insurer.10 MALAYAN INSURANCE CO., INC., YVONNE S. YUCHENGCO, ATTY.
EMMANUEL G. VILLANUEVA, SONNY RUBIN,1 ENGR. FRANCISCO
Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the MONDELO, and MICHAEL REQUIJO,2 Petitioners.
insurance contract contain limitations on liability, courts should construe them in vs.
such a way as to preclude the insurer from non-compliance with his obligation. EMMA CONCEPCION L. LIN,3 Respondent.
Thus, in Eternal Gardens Memorial Park Corporation v. Philippine American Life
Insurance Company,11 this Court ruled – D E C I S I O N
72
DEL CASTILLO, J.: her; that her loans and mortgage to RCBC be deemed extinguished as of February
2008; that RCBC be enjoined from foreclosing the mortgage on the properties put
Assailed in this Petition for Review on Certiorari4 are the December 21, 2012 up as collaterals; and that petitioners he ordered to pay her ₱l,217,928.88 in the
Decision5 of the Court of Appeals (CA) and its May 22, 2013 Resolution6 in CA-GR. concept of filing foes, costs of suit,₱l million as exemplary damages, and
SP No. 118894, both of which found no grave abuse of discretion in the twin ₱500,000.00 as attorney’s fees.
Orders issued by the Regional Trial Court (RTC) of Manila, Branch 52, on
September 29, 20107 and on January 25, 20118 in Civil Case No. 10-122738. Some five months later, or on June 17, 2010, Lin filed before the IC an
administrative case 10 against Malayan, represented this time by Yvonne. This was
Factual Antecedents docketed as Administrative Case No. 431.

On January 4, 2010, Emma Concepcion L. Lin (Lin) filed a Complaint9 for Collection In this administrative case, Lin claimed that since it had been conclusively found
of Sum of Money with Damages against Malayan Insurance Co., Inc. (Malayan), that the cause of the fire was "accidental," the only issue left to be resolved is
Yvonne Yuchengco (Yvonne), Atty. Emmanuel Villanueva, Sonny Rubin, Engr. whether Malayan should be held liable for unfair claim settlement practice under
Francisco Mondelo, Michael Angelo Requijo (collectively, the petitioners), and the Section 241 in relation to Section 247 of the Insurance Code due to its unjustified
Rizal Commercial and Banking Corporation (RCBC). This was docketed as Civil Case refusal to settle her claim; and that in consequence of the foregoing failings,
No. 10-122738 of Branch 52 of the Manila RTC. Malayan's license to operate as a non-life insurance company should be revoked or
suspended, until such time that it fully complies with the IC Resolution ordering it
Lin alleged that she obtained various loans from RCBC secured by six clustered to accord more weight to the BFP's findings.
warehouses located at Plaridel, Bulacan; that the five warehouses were insured
with Malayan against fire for ₱56 million while the remaining warehouse was On August 17, 2010, Malayan filed a motion to dismiss Civil Case No. 10-122738
insured for ₱2 million; that on February 24, 2008, the five warehouses were gutted based on forum shopping. It argued that the administrative case was instituted to
by fire; that on April 8, 2008 the Bureau of Fire Protection (BFP) issued a Fire prompt or incite IC into ordering Malayan to pay her insurance claim; that the
Clearance Certification to her (April 8, 2008 FCC) after having determined that elements of forum shopping are present in these two cases because there exists
the cause of fire was accidental; that despite the foregoing, her demand for identity of parties since Malayan's individual officers who were impleaded in the
payment of her insurance claim was denied since the forensic investigators hired civil case are also involved in the administrative case; that the same interests are
by Malayan claimed that the cause of the fire was arson and not accidental; that shared and represented in both the civil and administrative cases; that there is
she sought assistance from the Insurance Commission (IC) which, after a meeting identity of causes of action and reliefs sought in the two cases since the
among the parties and a conduct of reinvestigation into the cause/s of the fire, administrative case is merely disguised as an unfair claim settlement charge,
recommended that Malayan pay Lin's insurance claim and/or accord great weight to although its real purpose is to allow Lin to recover her insurance claim from
the BFP's findings; that in defiance thereof, Malayan still denied or refused to pay Malayan; that Lin sought to obtain the same reliefs in the administrative case as in
her insurance claim; and that for these reasons, Malayan's corporate officers the civil case; that Lin did not comply with her sworn undertaking in the
should also be held liable for acquiescing to Malayan's unjustified refusal to pay Certification on Non-Forum Shopping which she attached to the civil case, because
her insurance claim. she deliberately failed to notify the RTC about the pending administrative case
within five days from the filing thereof.
As against RCBC, Lin averred that notwithstanding the loss of the mortgaged
11
properties, the bank refused to go after Malayan and instead insisted that she This motion to dismiss drew a Comment/Opposition, which Lin filed on August 31,
herself must pay the loans to RCBC, otherwise, foreclosure proceedings would 2010.
ensue; and that to add insult to injury, RCBC has been compounding the interest on
her loans, despite RCBC's failure or refusal to go after Malayan. Ruling of the Regional Trial Court

Lin thus prayed in Civil Case No. 10-122738 that judgment be rendered ordering In its Order of September 29, 2010,12 the RTC denied the Motion to Dismiss, thus:
petitioners to pay her insurance claim plus interest on the amounts due or owing
73
WHEREFORE, the MOTION TO DISMISS filed by [petitioners] is hereby same interest in both actions, (2) identity of rights asserted and reliefs prayed
DENIED for lack of merit. for, the relief being founded on the same facts, and (3) identity of the two
proceedings such that any judgment rendered in one action will, regardless of
Furnish the parties through their respective [counsels] with a copy each [of] the which party is successful, amount to res judicata in the other action under
Order. consideration, only the first element may be deemed present in the instant case.
The CA held that there is here identity of parties in the civil and administrative
SO ORDERED.13 cases because Lin is the complainant in both the civil and administrative cases, and
these actions were filed against the same petitioners, the same RCBC and the same
The RTC held that in the administrative case, Lin was seeking a relief clearly Malayan, represented by Yvonne, respectively. It held that there is however no
distinct from that sought in the civil case; that while in the administrative case Lin identity of rights asserted and reliefs prayed for because in the civil case, it was
prayed for the suspension or revocation of Malayan's license to operate as a non- Lin's assertion that petitioners had violated her rights to recover the full amount
life insurance company, in the civil case Lin prayed for the collection of a sum of of her insurance claim, which is why she prayed/demanded that petitioners pay her
money with damages; that it is abundantly clear that any judgment that would be insurance claim plus damages; whereas in the administrative case, Lin's assertion
obtained in either case would not be res judicata to the other, hence, there is no was that petitioners were guilty of unfair claim settlement practice, for which
forum shopping to speak of. reason she prayed that Malayan's license to operate as an insurance company be
revoked or suspended; that the judgment in the civil case, regardless of which
party is successful, would not amount to res judicata in the administrative case in
In its Order of January 25, 2011, 14 the RTC likewise denied, for lack of merit,
view of the different issues involved, the dissimilarity in the quantum of evidence
petitioners' Motion for Reconsideration.
required, and the distinct mode or procedure to be observed in each case.

Ruling of the Court of Appeals

Petitioners moved for reconsideration 18 of the CA's Decision, but this motion was
denied by the CA in its Resolution of May 22, 2013.19
Petitioners thereafter sued out a Petition for Certiorari and Prohibition15 before
the CA. However, in a Decision 16dated December 21, 2012, the CA upheld the RTC,
Issues
and disposed as follows:

Before this Court, petitioners instituted the present Petition,20 which raises the
WHEREFORE absent grave abuse of discretion on the part of respondent Judge,
following issues:
the Petition for Certiorari and Prohibition (with Temporary Restraining Order and
Preliminary Injunction) is DISMISSED.
The [CA] not only decided questions of substance contrary to law and the
applicable decisions of this Honorable Court, it also sanctioned a flagrant
SO ORDERED.17
departure from the accepted and usual course of judicial proceedings.

The CA, as did the RTC, found that Lin did not commit forum shopping chiefly for
A.The [CA] erred in not dismissing the Civil Case on the ground of willful and
the reason that the issues raised and the reliefs prayed for in the civil case were
deliberate [forum shopping] despite the fact that the civil case and the
essentially different from those in the administrative case, hence Lin had no duty
administrative case both seek the payment of the same fire insurance claim.
at all to inform the RTC about the institution or pendency of the administrative
case.
B.The [CA] erred in not dismissing the civil case for failure on the part of [Lin] to
comply with her undertaking in her verification and certification of non-forum
The CA ruled that forum shopping exists where the elements of litis
shopping appended to the civil complaint.21
pendentia concurred, and where a final judgment in one case will amount to res
judicata in the other. The CA held that of the three elements of forum
shopping viz., (l) identity of parties, or at least such parties as would represent the Petitioners' Arguments
74
In praying for the reversal of the CA Decision, petitioners argue that regardless whereas in the administrative case, it consists of Malayan's unfair claim
of nomenclature, it is Lin and no one else who filed the administrative case, and settlement practice; that the issue in the civil case is whether Malayan is liable to
that she is not a mere complaining witness therein; that it is settled that only pay Lin's insurance claim, while the issue in the administrative case is whether
substantial identity of parties is required for res judicata to apply; that the Malayan's license to operate should be revoked or suspended for engaging in unfair
sharing of the same interest is sufficient to constitute identity of parties; that Lin claim settlement practice; and that the relief sought in the civil case consists in
has not denied that the subject of both the administrative case and the civil case the payment of a sum of money plus damages, while the relief in the administrative
involved the same fire insurance claim; that there is here identity of causes of case consists of the revocation or suspension of Malayan's license to operate as an
action, too, because the ultimate objective of both the civil case and the insurance company. According to Lin, although in the administrative case she
administrative case is to compel Malayan to pay Lin's fire insurance claim; that prayed that the IC Resolution ordering Malayan to accord weight to the BFP's
although the reliefs sought in the civil case and those in the administrative case findings be declared final, this did not mean that she was therein seeking payment
are worded differently, Lin was actually asking for the payment of her insurance of her insurance claim, but rather that the IC can now impose the appropriate
claim in both cases; that it is well-entrenched that a party cannot escape the administrative sanctions upon Malayan; that if Malayan felt compelled to pay Lin's
operation of the principle in res judicata that a cause of action cannot be litigated insurance claim for fear that its license to operate as an insurance firm might be
twice just by varying the form of action or the method of presenting the case; suspended or revoked, then this is just a logical result of its failure or refusal to
that Go v. Office of the Ombudsman22is inapplicable because the issue in that case pay the insurance claim; that the judgment in the civil case will not amount to res
was whether there was unreasonable delay in withholding the insured's claims, judicata in the administrative case, and vice versa, pursuant to the case law ruling
which would warrant the revocation or suspension of the insurers' licenses, and not in Go v. Office of the Ombudsman25and in Almendras v. Office of the Insurance
whether the insurers should pay the insured's insurance claim; that Almendras Commission, 26 both of which categorically allowed the insurance clain1ants therein
Mining Corporation v. Office of the Insurance Commission 23does not apply to this to file both a civil and an administrative case against insurers; that the rule against
case either, because the parties in said case agreed to submit the case for forum shopping was designed to serve a noble purpose, viz., to be an instrument of
resolution on the sole issue of whether the revocation or suspension of the justice, hence, it can in no way be interpreted to subvert such a noble purpose.
insurer's license was justified; and that petitioners will suffer irreparable injury
as a consequence of having to defend themselves in a case which should have been Our Ruling
dismissed on the ground of forum shopping.
We deny this Petition. We hold that the case law rulings in
Respondents Arguments the Go and Almendras cases27 control and govern the case at bench.

Lin counters that as stressed in Go v. Office of the Ombudsman, 24 an First off, it is elementary that "an order denying a motion to dismiss is merely
administrative case for unfair claim settlement practice may proceed interlocutory and, therefore, not appealable, x x x to x x x avoid undue
simultaneously with, or independently of, the civil case for collection of the inconvenience to the appealing party by having to assail orders as they are
insurance proceeds filed by the same claimant since a judgment in one will not promulgated by the court, when all such orders may be contested in a single
amount to res judicata to the other, and vice versa, due to the variance or appeal."28
differences in the issues, in the quantum of evidence, and in the procedure to be
followed in prosecuting the cases; that in this case the CA cited the teaching in Go Secondly, petitioners herein utterly failed to prove that the RTC, in issuing the
v. Office of the Ombudsman that there was no grave abuse of discretion in the assailed Orders, acted with grave abuse of discretion amounting to lack or excess
RTC's dismissal of petitioners' motion to dismiss; that the CA correctly held that of jurisdiction. "It is well-settled that an act of a court or tribunal may only be
the RTC did not commit grave abuse of discretion in denying petitioners' motion to considered to have been done in grave abuse of discretion when the same was
dismiss because the elements of forum shopping were absent; that there is here no performed in a capricious or whimsical exercise of judgment which is equivalent to
identity of parties because while she (respondent) is the plaintiff in the civil case, lack or excess of jurisdiction."29 "[F]or grave abuse of discretion to exist, the
she is only a complaining witness in the administrative case since it is the IC that is abuse of discretion must be patent and gross so as to amount to an evasion of a
the real party in interest in the administrative case; that the cause of action in the positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all
civil case consists of Malayan's failure or refusal to pay her insurance claim, in contemplation of law."30
75
In the present case, petitioners basically insist that Lin committed willful and the dismissal of an action, the following requisites must concur: (a) identity of
deliberate forum shopping which warrants the dismissal of her civil case because it parties, or at least such parties who represent the same interests in both actions;
is not much different from the administrative case in terms of the parties (b) identity of rights asserted and relief prayed for, the relief being founded on
involved, the causes of action pleaded, and the reliefs prayed for. Petitioners also the same facts; and (c) the identity with respect to the two preceding particulars
posit that another ground warranting the dismissal of the civil case was Lin's in the two cases is such that any judgment that may be rendered in the pending
failure to notify the RTC about the pendency of the administrative case within five case, regardless of which party is successful, would amount to res judicata in the
days from the filing thereof. other case.31

These arguments will not avail. The proscription against forum shopping is found in Res judicata, in turn, has the following requisites: "(1) the former judgment must
Section 5, Rule 7 of the Rules of Court, which provides: be final; (2) it must have been rendered by a court having jurisdiction over the
subject matter and over the parties; (3) it must be a judgment on the merits; and
SEC. 5. Certification against forum shopping. --The plaintiff or principal party shall (4) there must be, between the first and second actions, (a) identity of parties, (b)
certify under oath in the complaint or other initiatory pleading asserting a claim identity of subject matter, and (c) identity of cause of action."32
for relief, or in a sworn certification annexed thereto and simultaneously filed
therewith; (a) that he has not theretofore commenced any action or filed any claim "The settled rule is that criminal and civil cases are altogether different from
involving the same issues in any court, tribunal or quasi-judicial agency and, to the administrative matters, such that the disposition in the first two will not inevitably
best of his knowledge, no such other action or claim is pending therein; (b) if there govern the third and vice versa."33In the context of the case at bar, matters
is such other pending action or claim, a complete statement of the present status handled by the IC are delineated as either regulatory or adjudicatory, both of
thereof; and (c) if he should thereafter learn that the same or similar action or which have distinct characteristics, as postulated in Almendras Mining Corporation
claim has been filed or is pending, he shall report that fact within five (5) days v. Office of the Insurance Commission:34
therefrom to the court wherein his aforesaid complaint or initiatory pleading has
been filed. The provisions of the Insurance Code (Presidential Decree [P.D.] No. 1460), as
amended, clearly indicate that the Office of the [IC] is an administrative agency
Failure to comply with the foregoing requirements shall not be curable by mere vested with regulatory power as well as with adjudicatory authority. Among the
amendment of the complaint or other initiatory pleading but shall be cause for the several regulatory or non-quasi-judicial duties of the Insurance Commissioner
dismissal of the case without prejudice, unless otherwise provided, upon motion and under the Insurance Code is the authority to issue, or refuse issuance of, a
after hearing. The submission of a false certification or non-compliance with any of Certificate of Authority to a person or entity desirous of engaging in insurance
the undertakings therein shall constitute indirect contempt of court, without business in the Philippines, and to revoke or suspend such Certificate of Authority
prejudice to the corresponding administrative and criminal actions. If the acts of upon a finding of the existence of statutory grounds for such revocation or
the party or his counsel clearly constitute willful and deliberate forum shopping, suspension. The grounds for revocation or suspension of an insurer's Certificate of
the same shall be ground for summary dismissal with prejudice and shall constitute Authority are set out in Section 241 and in Section 247 of the Insurance Code as
direct contempt, as well as a cause for administrative sanctions. (n) amended. The general regulatory authority of the Insurance Commissioner is
described in Section 414 of the Insurance Code, as amended, in the following
The above-stated rule covers the very essence of forum shopping itself, and the terms:
constitutive elements thereof viz., the cognate concepts of litis pendentia and res
judicata - 'Section 414. The Insurance Commissioner shall have the duty to see that all laws
relating to insurance, insurance companies and other insurance matters, mutual
x x x [T]he essence of forum shopping is the filing of multiple suits involving the benefit associations, and trusts for charitable uses are faithfully executed and to
same parties for the same cause of action, either simultaneously or successively, perform the duties imposed upon him by this Code, and shall, notwithstanding any
for the purpose of obtaining a favorable judgment. It exists where the elements existing laws to the contrary, have sole and exclusive authority to regulate the
of litis pendentia are present or where a final judgment in one case will amount issuance and sale of variable contracts as defined in section two hundred thirty-
to res judicata in another. On the other hand, for litis pendentia to be a ground for
76
two and to provide for the licensing of persons selling such contracts, and to issue Intermediate Appellate Court (now the Court of Appeals) in the manner provided
such reasonable rules and regulations governing the same. for in the Rules of Court for appeals from the Regional Trial Court to the
Intermediate Appellate Court (now the Court of Appeals)
The Commissioner may issue such rulings, instructions, circulars, orders[,] and
decisions as he may deem necessary to secure the enforcement of the provisions x x x x'
of this Code, subject to the approval of the Secretary of Finance [DOF
Secretary]. Except as otherwise specified, decisions made by the Commissioner It may be noted that under Section 9 (3) of B.P. Big. 129, appeals from a final
shall be appealable to the [DOF Secretary].' (Italics supplied) decision of the Insurance Commissioner rendered in the exercise of his
adjudicatory authority now fall within the exclusive appellate jurisdiction of
which Section also specifies the authority to which a decision of the Insurance the Court of Appeals.35
Commissioner rendered in the exercise of its regulatory function may be appealed.
Go v. Office of the Ombudsman36reiterated the above-stated distinctions vis-a-
The adjudicatory authority of the Insurance Commissioner is generally described vis the principles enunciating that a civil case before the trial court involving
in Section 416 of the Insurance Code, as amended, which reads as follows: recovery of payment of the insured's insurance claim plus damages, can proceed
simultaneously with an administrative case before the IC.37 Expounding on the
'Sec. 416. The Commissioner shall have the power to adjudicate claims and foregoing points, this Court said -
complaints involving any loss, damage or liability for which an insurer may be
answerable under any kind of policy or contract of insurance, or for which such **The findings of the trial court will not necessarily foreclose the administrative
insurer may be liable under a contract of suretyship, or for which a reinsurer may case before the [IC], or [vice versa]. True, the parties are the same, and both
be sued under any contract or reinsurance it may have entered into, or for which a actions are predicated on the same set of facts, and will require identical evidence.
mutual benefit association may be held liable under the membership certificates it But the issues to be resolved, the quantum of evidence, the procedure to be
has issued to its members, where the amount of any such loss, damage or liability, followed[,] and the reliefs to be adjudged by these two bodies are different.
excluding interests, cost and attorney’s fees, being claimed or sued upon any kind
of insurance, bond, reinsurance contract, or membership certificate does not Petitioner's causes of action in Civil Case No. Q-95-23135 are predicated on the
exceed in any single claim one hundred thousand pesos. insurers' refusal to pay her fire insurance claims despite notice, proofs of losses
and other supporting documents. Thus, petitioner prays in her complaint that the
xxxx insurers be ordered to pay the full-insured value of the losses, as embodied in
their respective policies. Petitioner also sought payment of interests and damages
The authority to adjudicate granted to the Commissioner under this section shall in her favor caused by the alleged delay and refusal of the insurers to pay her
be concurrent with that of the civil courts, but the filing of a complaint with the claims. The principal issue then that must be resolved by the trial court is whether
Commissioner shall preclude the civil courts from taking cognizance of a suit or not petitioner is entitled to the payment of her insurance claims and damages.
involving the same subject matter.' (Italics supplied) The matter of whether or not there is unreasonable delay or denial of the claims is
merely an incident to be resolved by the trial court, necessary to ascertain
Continuing, Section 416 (as amended by Batas Pambansa (B.P.) Blg. 874) also petitioner's right to claim damages, as prescribed by Section 244 of the Insurance
specifies the authority to which appeal may be taken from a final order or decision Code.
of the Commissioner given in the exercise of his adjudicatory or quasi-judicial
power: On the other hand, the core, if not the sole bone of contention in Adm. Case No.
RD-156, is the issue of whether or not there was unreasonable delay or denial of
'Any decision, order or ruling rendered by the Commissioner after a hearing shall the claims of petitioner, and if in the affirmative, whether or not that would
have the force and effect of a judgment. Any party may appeal from a final order, justify the suspension or revocation of the insurers' licenses.
ruling or decision of the Commissioner by filing with the Commissioner within thirty
days from receipt of copy of such order, ruling or decision a notice of appeal to the
77
Moreover, in Civil Case No. Q-95-23135, petitioner must establish her case by or excess of jurisdiction, which would justify the issuance of the extraordinary
a preponderance of evidence, or simply put, such evidence that is of greater writ of certiorari.39
weight, or more convincing than that which is offered in opposition to it. In Adm.
Case No. RD-156, the degree of proof required of petitioner to establish her claim WHEREFORE, the Petition is DENIED. The December 21, 2012 Decision and the
is substantial evidence, which has been defined as that amount of relevant May 22, 2013 Resolution of the Court of Appeals in CA-GR. SP No. 118894 are
evidence that a reasonable mind might accept as adequate to justify the hereby AFFIRMED.
conclusion.
Costs against petitioners.
In addition, the procedure to be followed by the trial court is governed by the
Rules of Court, while the [IC] has its own set of rules and it is not bound by the SO ORDERED.
rigidities of technical rules of procedure. These two bodies conduct independent
means of ascertaining the ultimate facts of their respective cases that will serve SECOND DIVISION
as basis for their respective decisions.1âwphi1

G.R. No. 175666 July 29, 2013

If, for example, the trial court finds that there was no unreasonable delay or
denial of her claims, it does not automatically mean that there was in fact no such
MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner.
unreasonable delay or denial that would justify the revocation or suspension of the
vs.
licenses of the concerned insurance companies. It only means that petitioner failed
CRESENCIA P. ABAN, Respondent.
to prove by preponderance of evidence that she is entitled to damages. Such
finding would not restrain the [IC], in the exercise of its regulatory power, from
DECISION
making its own finding of unreasonable delay or denial as long as it is supported by
substantial evidence.
DEL CASTILLO, J.:
While the possibility that these two bodies will come up with conflicting
resolutions on the same issue is not far-fetched, the finding or conclusion of one The ultimate aim of Section 48 of the Insurance Code is to compel insurers to
would not necessarily be binding on the other given the difference in the issues solicit business from or provide insurance coverage only to legitimate and bona fide
involved, the quantum of evidence required and the procedure to be followed. clients, by requiring them to thoroughly investigate those they insure within two
years from effectivity of the policy and while the insured is still alive. If they do
not, they will be obligated to honor claims on the policies they issue, regardless of
Moreover, public interest and public policy demand the speedy and inexpensive
fraud, concealment or misrepresentation. The law assumes that they will do just
disposition of administrative cases.
that and not sit on their laurels, indiscriminately soliciting and accepting insurance
business from any Tom, Dick and Harry.
Hence, Adm. Case No. RD-156 may proceed alongside Civil Case No. Q-95-23135.38

Assailed in this Petition for Review on Certiorari1 are the September 28, 2005
As the aforecited cases are analogous in many aspects to the present case, both in
Decision2 of the Court of Appeals' (CA) in CA-G.R. CV No. 62286 and its November
respect to their factual backdrop and in their jurisprudential teachings, the case
9, 2006 Resolution3 denying the petitioner’s Motion for Reconsideration.4
law ruling in the Almendras and in the Go cases must apply with implacable force to
the present case. Consistency alone demands - because justice cannot be
Factual Antecedents
inconsistent - that the final authoritative mandate in the cited cases must produce
an end result not much different from the present case.
On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Manila
Bankers Life Insurance Corporation (Bankers Life), designating respondent
All told, we find that the CA did not err in holding that the petitioners utterly
Cresencia P. Aban (Aban), her niece,5 as her beneficiary.
failed to prove that the RTC exhibited grave abuse of discretion, amounting to lack
78
Petitioner issued Insurance Policy No. 747411 (the policy), with a face value of After a policy of life insurance made payable on the death of the insured shall have
₱100,000.00, in Sotero’s favor on August 30, 1993, after the requisite medical been in force during the lifetime of the insured for a period of two years from the
examination and payment of the insurance premium.6 date of its issue or of its last reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindible by reason of the fraudulent concealment or
On April 10, 1996,7 when the insurance policy had been in force for more than two misrepresentation of the insured or his agent.
years and seven months, Sotero died. Respondent filed a claim for the insurance
proceeds on July 9, 1996. Petitioner conducted an investigation into the claim, 8 and During the proceedings on the Motion to Dismiss, petitioner’s investigator testified
came out with the following findings: in court, stating among others that the insurance underwriter who solicited the
insurance is a cousin of respondent’s husband, Dindo Aban,15 and that it was the
1. Sotero did not personally apply for insurance coverage, as she was respondent who paid the annual premiums on the policy.16
illiterate;
Ruling of the Regional Trial Court
2. Sotero was sickly since 1990;
On December 9, 1997, the trial court issued an Order17 granting respondent’s
3. Sotero did not have the financial capability to pay the insurance Motion to Dismiss, thus:
premiums on Insurance Policy No. 747411;
WHEREFORE, defendant CRESENCIA P. ABAN’s Motion to Dismiss is hereby
4. Sotero did not sign the July 3, 1993 application for insurance;9 and granted. Civil Case No. 97-867 is hereby dismissed.

5. Respondent was the one who filed the insurance application, and x x x SO ORDERED.18
designated herself as the beneficiary.10
In dismissing the case, the trial court found that Sotero, and not respondent, was
For the above reasons, petitioner denied respondent’s claim on April 16, 1997 and the one who procured the insurance; thus, Sotero could legally take out insurance
refunded the premiums paid on the policy.11 on her own life and validly designate – as she did – respondent as the beneficiary.
It held further that under Section 48, petitioner had only two years from the
On April 24, 1997, petitioner filed a civil case for rescission and/or annulment of effectivity of the policy to question the same; since the policy had been in force
the policy, which was docketed as Civil Case No. 97-867 and assigned to Branch 134 for more than two years, petitioner is now barred from contesting the same or
of the Makati Regional Trial Court. The main thesis of the Complaint was that the seeking a rescission or annulment thereof.
policy was obtained by fraud, concealment and/or misrepresentation under the
Insurance Code,12 which thus renders it voidable under Article 139013 of the Civil Petitioner moved for reconsideration, but in another Order19 dated October 20,
Code. 1998, the trial court stood its ground.

Respondent filed a Motion to Dismiss14 claiming that petitioner’s cause of action Petitioner interposed an appeal with the CA, docketed as CA-G.R. CV No. 62286.
was barred by prescription pursuant to Section 48 of the Insurance Code, which Petitioner questioned the dismissal of Civil Case No. 97-867, arguing that the trial
provides as follows: court erred in applying Section 48 and declaring that prescription has set in. It
contended that since it was respondent – and not Sotero – who obtained the
Whenever a right to rescind a contract of insurance is given to the insurer by any insurance, the policy issued was rendered void ab initio for want of insurable
provision of this chapter, such right must be exercised previous to the interest.
commencement of an action on the contract.
Ruling of the Court of Appeals
79
On September 28, 2005, the CA issued the assailed Decision, which contained the WHETHER THE COURT OF APPEALS ERRED IN DENYING PETITIONER’S
following decretal portion: MOTION FOR RECONSIDERATION.23

WHEREFORE, in the light of all the foregoing, the instant appeal is DISMISSED Petitioner’s Arguments
for lack of merit.
In praying that the CA Decision be reversed and that the case be remanded to the
SO ORDERED.20 trial court for the conduct of further proceedings, petitioner argues in its Petition
and Reply24 that Section 48 cannot apply to a case where the beneficiary under the
The CA thus sustained the trial court. Applying Section 48 to petitioner’s case, the insurance contract posed as the insured and obtained the policy under fraudulent
CA held that petitioner may no longer prove that the subject policy was void ab circumstances. It adds that respondent, who was merely Sotero’s niece, had no
initio or rescindible by reason of fraudulent concealment or misrepresentation insurable interest in the life of her aunt.
after the lapse of more than two years from its issuance. It ratiocinated that
petitioner was equipped with ample means to determine, within the first two years Relying on the results of the investigation that it conducted after the claim for
of the policy, whether fraud, concealment or misrepresentation was present when the insurance proceeds was filed, petitioner insists that respondent’s claim was
the insurance coverage was obtained. If it failed to do so within the statutory two- spurious, as it appeared that Sotero did not actually apply for insurance coverage,
year period, then the insured must be protected and allowed to claim upon the was unlettered, sickly, and had no visible source of income to pay for the insurance
policy. premiums; and that respondent was an impostor, posing as Sotero and fraudulently
obtaining insurance in the latter’s name without her knowledge and consent.
Petitioner moved for reconsideration,21 but the CA denied the same in its
November 9, 2006 Resolution.22 Hence, the present Petition. Petitioner adds that Insurance Policy No. 747411 was void ab initio and could not
have given rise to rights and obligations; as such, the action for the declaration of
Issues its nullity or inexistence does not prescribe.25

Petitioner raises the following issues for resolution: Respondent’s Arguments

I Respondent, on the other hand, essentially argues in her Comment26 that the CA is
correct in applying Section 48. She adds that petitioner’s new allegation in its
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE ORDER OF Petition that the policy is void ab initio merits no attention, having failed to raise
THE TRIAL COURT DISMISSING THE COMPLAINT ON THE GROUND OF the same below, as it had claimed originally that the policy was merely voidable.
PRESCRIPTION IN CONTRAVENTION (OF) PERTINENT LAWS AND
APPLICABLE JURISPRUDENCE. On the issue of insurable interest, respondent echoes the CA’s pronouncement that
since it was Sotero who obtained the insurance, insurable interest was present.
II Under Section 10 of the Insurance Code, Sotero had insurable interest in her own
life, and could validly designate anyone as her beneficiary. Respondent submits that
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE the CA’s findings of fact leading to such conclusion should be respected.
APPLICATION OF THE INCONTESTABILITY PROVISION IN THE INSURANCE
CODE BY THE TRIAL COURT. Our Ruling

III The Court denies the Petition.

80
The Court will not depart from the trial and appellate courts’ finding that it was proceeds occasioned by allegations of fraud, concealment, or misrepresentation by
Sotero who obtained the insurance for herself, designating respondent as her insurers, claims which may no longer be set up after the two-year period expires as
beneficiary. Both courts are in accord in this respect, and the Court is loath to ordained under the law.
disturb this. While petitioner insists that its independent investigation on the
claim reveals that it was respondent, posing as Sotero, who obtained the insurance, Thus, the self-regulating feature of Section 48 lies in the fact that both the
this claim is no longer feasible in the wake of the courts’ finding that it was Sotero insurer and the insured are given the assurance that any dishonest scheme to
who obtained the insurance for herself. This finding of fact binds the Court. obtain life insurance would be exposed, and attempts at unduly denying a claim
would be struck down. Life insurance policies that pass the statutory two-year
With the above crucial finding of fact – that it was Sotero who obtained the period are essentially treated as legitimate and beyond question, and the
insurance for herself – petitioner’s case is severely weakened, if not totally individuals who wield them are made secure by the thought that they will be paid
disproved. Allegations of fraud, which are predicated on respondent’s alleged promptly upon claim. In this manner, Section 48 contributes to the stability of the
posing as Sotero and forgery of her signature in the insurance application, are at insurance industry.
once belied by the trial and appellate courts’ finding that Sotero herself took out
the insurance for herself. "Fraudulent intent on the part of the insured must be Section 48 prevents a situation where the insurer knowingly continues to accept
established to entitle the insurer to rescind the contract."27 In the absence of annual premium payments on life insurance, only to later on deny a claim on the
proof of such fraudulent intent, no right to rescind arises. policy on specious claims of fraudulent concealment and misrepresentation, such as
what obtains in the instant case. Thus, instead of conducting at the first instance
Moreover, the results and conclusions arrived at during the investigation conducted an investigation into the circumstances surrounding the issuance of Insurance
unilaterally by petitioner after the claim was filed may simply be dismissed as self- Policy No. 747411 which would have timely exposed the supposed flaws and
serving and may not form the basis of a cause of action given the existence and irregularities attending it as it now professes, petitioner appears to have turned a
application of Section 48, as will be discussed at length below. blind eye and opted instead to continue collecting the premiums on the policy. For
nearly three years, petitioner collected the premiums and devoted the same to its
Section 48 serves a noble purpose, as it regulates the actions of both the insurer own profit. It cannot now deny the claim when it is called to account. Section 48
and the insured. Under the provision, an insurer is given two years – from the must be applied to it with full force and effect.
effectivity of a life insurance contract and while the insured is alive – to discover
or prove that the policy is void ab initio or is rescindible by reason of the The Court therefore agrees fully with the appellate court’s pronouncement that –
fraudulent concealment or misrepresentation of the insured or his agent. After
the two-year period lapses, or when the insured dies within the period, the insurer the "incontestability clause" is a provision in law that after a policy of life
must make good on the policy, even though the policy was obtained by fraud, insurance made payable on the death of the insured shall have been in force during
concealment, or misrepresentation. This is not to say that insurance fraud must be the lifetime of the insured for a period of two (2) years from the date of its issue
rewarded, but that insurers who recklessly and indiscriminately solicit and obtain or of its last reinstatement, the insurer cannot prove that the policy is void ab
business must be penalized, for such recklessness and lack of discrimination initio or is rescindible by reason of fraudulent concealment or misrepresentation of
ultimately work to the detriment of bona fide takers of insurance and the public in the insured or his agent.
general.
The purpose of the law is to give protection to the insured or his beneficiary by
Section 48 regulates both the actions of the insurers and prospective takers of limiting the rescinding of the contract of insurance on the ground of fraudulent
life insurance. It gives insurers enough time to inquire whether the policy was concealment or misrepresentation to a period of only two (2) years from the
obtained by fraud, concealment, or misrepresentation; on the other hand, it issuance of the policy or its last reinstatement.
forewarns scheming individuals that their attempts at insurance fraud would be
timely uncovered – thus deterring them from venturing into such nefarious The insurer is deemed to have the necessary facilities to discover such fraudulent
enterprise. At the same time, legitimate policy holders are absolutely protected concealment or misrepresentation within a period of two (2) years. It is not fair
from unwarranted denial of their claims or delay in the collection of insurance for the insurer to collect the premiums as long as the insured is still alive, only to
81
raise the issue of fraudulent concealment or misrepresentation when the insured more than two years later, naturally it was unable to detect the scheme. For its
dies in order to defeat the right of the beneficiary to recover under the policy. negligence and inaction, the Court cannot sympathize with its plight. Instead, its
case precisely provides the strong argument for requiring insurers to diligently
At least two (2) years from the issuance of the policy or its last reinstatement, conduct investigations on each policy they issue within the two-year period
the beneficiary is given the stability to recover under the policy when the insured mandated under Section 48, and not after claims for insurance proceeds are filed
dies. The provision also makes clear when the two-year period should commence in with them.
case the policy should lapse and is reinstated, that is, from the date of the last
reinstatement. Besides, if insurers cannot vouch for the integrity and honesty of their insurance
agents/salesmen and the insurance policies they issue, then they should cease
After two years, the defenses of concealment or misrepresentation, no matter how doing business. If they could not properly screen their agents or salesmen before
patent or well-founded, will no longer lie. taking them in to market their products, or if they do not thoroughly investigate
the insurance contracts they enter into with their clients, then they have only
Congress felt this was a sufficient answer to the various tactics employed by themselves to blame. Otherwise said, insurers cannot be allowed to collect
insurance companies to avoid liability. premiums on insurance policies, use these amounts collected and invest the same
through the years, generating profits and returns therefrom for their own
The so-called "incontestability clause" precludes the insurer from raising the benefit, and thereafter conveniently deny insurance claims by questioning the
defenses of false representations or concealment of material facts insofar as authority or integrity of their own agents or the insurance policies they issued to
health and previous diseases are concerned if the insurance has been in force for their premium-paying clients. This is exactly one of the schemes which Section 48
at least two years during the insured’s lifetime. The phrase "during the lifetime" aims to prevent.
found in Section 48 simply means that the policy is no longer considered in force
after the insured has died. The key phrase in the second paragraph of Section 48 Insurers may not be allowed to delay the payment of claims by filing frivolous
is "for a period of two years." cases in court, hoping that the inevitable may be put off for years – or even
decades – by the pendency of these unnecessary court cases. In the meantime,
As borne by the records, the policy was issued on August 30, 1993, the insured they benefit from collecting the interest and/or returns on both the premiums
died on April 10, 1996, and the claim was denied on April 16, 1997. The insurance previously paid by the insured and the insurance proceeds which should otherwise
policy was thus in force for a period of 3 years, 7 months, and 24 days. Considering go to their beneficiaries. The business of insurance is a highly regulated
that the insured died after the two-year period, the plaintiff-appellant is, commercial activity in the country,29 and is imbued with public interest.30 "An
therefore, barred from proving that the policy is void ab initio by reason of the insurance contract is a contract of adhesion which must be construed liberally in
insured’s fraudulent concealment or misrepresentation or want of insurable favor of the insured and strictly against the insurer in order to safeguard the
interest on the part of the beneficiary, herein defendant-appellee. former’s interest."31

Well-settled is the rule that it is the plaintiff-appellant’s burden to show that the WHEREFORE, the Petition is DENIED. The assailed September 28, 2005 Decision
factual findings of the trial court are not based on substantial evidence or that its and the November 9, 2006 Resolution of the Court of Appeals in CA-G.R. CV No.
conclusions are contrary to applicable law and jurisprudence. The plaintiff- 62286 are AFFIRMED.
appellant failed to discharge that burden.28
SO ORDERED.
Petitioner claims that its insurance agent, who solicited the Sotero account,
happens to be the cousin of respondent’s husband, and thus insinuates that both
connived to commit insurance fraud. If this were truly the case, then petitioner
would have discovered the scheme earlier if it had in earnest conducted an
investigation into the circumstances surrounding the Sotero policy. But because it
did not and it investigated the Sotero account only after a claim was filed thereon