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Fire Insurance Coverage Dispute

Rizal Surety issued a fire insurance policy to Transworld Knitting Mills covering property located within Transworld's compound. A fire destroyed portions of Transworld's four-span building as well as a two-story building located behind it. Rizal Surety argued that the policy only covered the contents of the four-span building. However, the court found that the two-story building was an integral part of the four-span building based on their interconnection. As Rizal Surety did not explicitly exclude the two-story building, and the policy language was ambiguous, the doubts had to be resolved against Rizal Surety as the drafter of the contract. Therefore, the court ruled that

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61 views2 pages

Fire Insurance Coverage Dispute

Rizal Surety issued a fire insurance policy to Transworld Knitting Mills covering property located within Transworld's compound. A fire destroyed portions of Transworld's four-span building as well as a two-story building located behind it. Rizal Surety argued that the policy only covered the contents of the four-span building. However, the court found that the two-story building was an integral part of the four-span building based on their interconnection. As Rizal Surety did not explicitly exclude the two-story building, and the policy language was ambiguous, the doubts had to be resolved against Rizal Surety as the drafter of the contract. Therefore, the court ruled that

Uploaded by

clarence esguerra
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Rizal Surety v.

CA

FACTS:
 Rizal Surety issued Fire Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc. for
P1.M covering the period from August 14, 1980 to March 13, 1981.
 The same pieces of property insured with petitioner were also insured with New India Assurance
Co. (New India).
 Fire broke out in the compound of Transworld, razing the middle portion of its four-span
building and partly gutting the left and right sections thereof. A two-story building behind the
four-span building was also destroyed by the fire.
 Transworld filed its insurance claims with Rizal Surety and New India.
 Transworld brought the insurance companies an action for collection of sum of money and
damages.
 Rizal Surety countered that its fire insurance policy covered only the contents of the four-span
building, which was party burned, and not the damage caused by the fire on the two-story
annex building.
 The trial court rendered judgment dismissing the case against New India and ordering Rizal
Surety to pay Transworld; CA modified such decision and, including New India, and decreasing
the amount to be paid by Rizal Surety.
 The stipulation in the subject fire insurance policy regarding its coverage reads:
“x x x contained and/or stored during the currency of the Policy in the premises occupied by them forming
part of the buildings situate (sic) within own Compound x x x”

ISSUE: W/N the fire insurance policy extended by Rizal Surety included the two-story building.

HELD: Yes.

From the aforementioned stipulation, it can be gleaned unerringly that the fire insurance policy
did not limit its coverage to what were stored in the four-span building.

Both the trial court and CA found that the so called “annex” was not an annex building but an
integral and inseparable part of the four-span building described in the policy and consequently, the
machines and spare parts stored therein were covered by the fire insurance in dispute. Verily, the two-
story building involved a permanent structure, which adjoins and intercommunicates with the “first right
span of the lofty story building,” formed part thereof, and meets the requisites for compensability under
the fire insurance policy sued upon.

Petitioner should have specifically excluded the said two-story building from the coverage of the
fire insurance if minded to exclude the same but it did not, and instead, went on to provide that such
fire insurance policy covers the products, raw materials and supplies stored within the premises of
respondent Transworld which was an integral part of the four-span building occupied by Transworld,
knowing fully well the existence of such building adjoining and intercommunicating with the right
section of the four-span building.
The stipulation as to the coverage of the fire insurance policy under controversy has created a
doubt regarding, the portions of the building insured thereby. Art. 1377 of the CC provides that “obscure
words or stipulations in a contract shall not favor the party who caused the obscurity.” It stands to
reason that the doubt should be resolved against Rizal Surety, whose lawyer or managers drafted the
fire insurance policy contract.

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