COLLATED Insurance Digests

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SEC 1

G.R. No. 81026 April 3, 1990

PAN MALAYAN INSURANCE CORPORATION, petitioner,vs.COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER, respondents.

Facts:

On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of Makati against private respondentsErlinda Fabie and her driver. PANMALAY averred the following: that it insured a Mitsubishi Colt Lancer car with plate No.DDZ-431 and registered in the name of Canlubang Automotive Resources Corporation [CANLUBANG]; that on May 261985, due to the "carelessness, recklessness, and imprudence" of the unknown driver of a pick-up with plate no. PCR-220, the insured car was hit and suffered damages in the amount of P42,052.00; that PANMALAY defrayed the cost ofrepair of the insured car and, therefore, was subrogated to the rights of CANLUBANG against the driver of the pick-up andhis employer, Erlinda Fabie; and that, despite repeated demands, defendants, failed and refused to pay the claim ofPANMALAY.

Issue:

Whether or not the insurer PANMALAY may institute an action to recover the amount it had paid its assured in settlementof an insurance claim against private respondents as the parties allegedly responsible for the damage caused to theinsured vehicle.

Ruling:

Yes. Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property isdestroyed or damaged through the fault or negligence of a party other than the assured, then the insurer, upon paymentto the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurerhas been obligated to pay. Payment by the insurer to the assured operates as an equitable assignment to the former of alremedies which the latter may have against the third party whose negligence or wrongful act caused the loss.

G.R. No. 150094 August 18, 2004

FEDERAL EXPRESS CORPORATION, petitioner,vs.AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE COMPANY, INC., respondents.

Facts:

SMITHKLINE, USA delivered to BURLINGTON, an agent of FedEx, a shipment of 109 cartons of veterinary biologicals for

delivery to consignee SMITHKLINE and French Overseas Company in Makati. The shipment was covered by BurlingtonAirway Bill with the words, 'REFRIGERATE WHEN NOT IN TRANSIT' and 'PERISHABLE' stamp marked on its face. Thasame day, Burlington insured the cargoes in the amount of $39,339.00 with AHAC. The following day, Burlington turnedover the custody of said cargoes to FedEx which transported the same to Manila. The shipment arrived in Manila whichwas likewise immediately stored at Cargohaus' warehouse. Prior to the arrival of the cargoes, FedEx informed GETC, thecustoms broker hired by the consignee to facilitate the release of its cargoes from the Bureau of Customs. Twelve daysafter the cargoes arrived in Manila, a non-licensed custom's broker who was assigned by GETC to facilitate the release ofthe subject cargoes, found out, while the cargoes was about to be released, that the same were stored only in a room withtwo air conditioners running, to cool the place instead of a refrigerator. Thereafter, upon instructions from GETC, did notproceed with the withdrawal of the vaccines and instead, samples of the same were taken and brought to the Bureau ofAnimal Industry of the Department of Agriculture in the Philippines by SMITHKLINE for examination wherein it wasdiscovered that the 'ELISA reading of vaccinates sera are below the positive reference serum.' As a consequence of theforegoing result of the veterinary biologics test, SMITHKLINE abandoned the shipment and, declaring 'total loss' for the


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unusable shipment, filed a claim with AHAC through its representative in the Philippines, PHILAM, which recompensedSMITHKLINE for the whole insured amount of $39,339.00. Thereafter, respondents filed an action for damages againstthe petitioner imputing negligence on either or both of them in the handling of the cargo.

Issue:

Whether or not respondents have cause of action against the petitioner.

Ruling:

Yes. Upon receipt of the insurance proceeds, Smithkline executed a subrogation Receipt in favor of respondents. Thelatter were thus authorized "to file claims and begin suit against any such carrier, vessel, person, corporation orgovernment." Undeniably, the consignee had a legal right to receive the goods in the same condition it was delivered fortransport to petitioner. If that right was violated, the consignee would have a cause of action against the personresponsible therefore. Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods, theinsurer's entitlement to subrogationpro tanto -- being of the highest equity -- equips it with a cause of action in case of acontractual breach or negligence. "Further, the insurer's subrogatory right to sue for recovery under the bill of lading incase of loss of or damage to the cargo is jurisprudentially upheld."

G.R. No. L-27427 April 7, 1976

FIREMAN'S FUND INSURANCE COMPANY and FIRESTONE TIRE AND RUBBER COMPANY OF THEPHILIPPINES, plaintiffs-appellants,vs.JAMILA & COMPANY, INC. and FIRST QUEZON CITY INSURANCE CO., INC., defendants-appellees.

Facts:

Jamila Scouts Security Agency contracted to supply security guards to Firestone; that Jamila assumed responsibility forthe acts of its security guards; that First Quezon City Insurance Co., Inc. executed a bond in the sum of P20,000.00 toguarantee Jamila's obligations under that contract; that on May 18, 1963 properties of Firestone valued at P11,925.00were lost allegedly due to the acts of its employees who connived with Jamila's security guard; that Fireman's Fund, as

insurer, paid to Firestone the amount of the loss; that Fireman's Fund was subrogated to Firestone's right to getreimbursement from Jamila, and that Jamila and its surety, First Quezon City Insurance Co., Inc., failed to pay the amountof the loss in spite of repeated demands.

Issue:

Whether the complaint of Firestone and Fireman's Fund states a cause of action against Jamila.

Ruling:

Yes. Fireman's Fund's action against Jamila is squarely sanctioned by article 2207. As the insurer, Fireman's Fund isentitled to go after the person or entity that violated its contractual commitment to answer for the loss insured against.Subrogation is a normal incident of indemnity insurance. Upon payment of the loss, the insurer is entitled to besubrogatedpro tanto to any right of action which the insured may have against the third person whose negligence orwrongful act caused the loss.

FF Cruz and Co. Inc. v. CA (1988)

Nature: Petition to review the decision of the CA puts in issue the application of the common law doctrine res ipsa loquitur.

Facts:~ The furniture mnufacturing shop of petitioner in caloocan was situated adjacent to the residence of private respondents.Private respondents request the manager ofthe plant to build a firewall between the shop and the private respondent'sresidence. The request was repeated severl times bu they fell on deaf ears. Then a fire broke out in petitioners shop. Andthe fire spread to respondents house. Both the shop and the house were razed on the ground.


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that in the event that the property has been insured and the Insurance Company has paid the indemnity for the injury or

loss sustained, it "shall be subrogated to the rights of the insured against the wrong-doer or the person who has violated

the contract."

~ Plaintiff-appellant therefore cannot

recover from defendants an amount greater than that to which the consignee

Coukd lawfully lay claim. The management contract is clear. The amount is limited to Five Hundred Pesos (P500.00).

~ Plaintiff-appellant Rizal Surety and Insurance Company, having been subrogated merely to the rights of the consignee,

its recovery necessarily should be limited to what was recoverable by the insured.

The decision appealed from is affirmed. With costs against Rizal Surety and Insurance Company.

Pioneer Insurance v.CA

Facts:

~Jacob S. Lim was engaged in the airline business as owner-operator of Soutern Air Lines (SAL) a single proprietorship.

Japan Domestic Airlines (JAD) and Lim entered into and executed a sales contract for the sale and purchase of 2 DC-3A

type aircrafts and one set of necessary sare parts to be paid iin installments.

~Pioneer Insurance & Surety Corp, as a surety executed and issued it surety bond no. 6639 in favor of JDA, in behalf of

its principl, Lim, for the balance price of the aircraft & spare parts. It apears that Boarder Machinery & Heavy Equipment

Company Inc. (Bormaheco), the Cervanteses and Maglana contributed some funds used in the purchase of the aircraft &

spare parts. The funds were supposed to be their contributions to a new corporation proposed by Lim to expand hisairlines business. They executed 2 indemnity agreements in favor of the Pioneer.

~Lim executed in favor of Pioneer a deed of chattle mortgage as security for the latter's suretyship of the former. It was

stipulated therein that Lim transferand convey to te surety the 2 aircrafts.

~Lim defaulted on his subsequent installment payment prompting JDA to request payment from te surety.

~Pioneer ten filed a petition for extrajudicial foreclosure of the said chattles which was granted. Thereafter, te petitioner

again filed an action for judicial foreclosure with an application of a writ of preliminary attachment against Lim, Bormaheco

the Cervanteses and Maglana.

Ruling of the RTC and CA with modifications:

~both courts held, that Lim have to pay pioneer. The CA affirmed the decision but dismissed petitioners complaint against

all other defendants.

Issue:

~(1) Has Pioneer a cause of action against defendants with respect so much of its obligation to JDA as has been paid by

the reinsurrance company.

(2) If the answer is in the negative, has Pioneer still have any claim against defendants considering the amount it has

realized from the sale of the mortgaged property.

Held:

(1) Based on the findings ofthe trial court, it appearing that Pioneer reinsured its risk of liability under the surety bond it

had executed in favor of JDA, collected the proceeds of such reinsurance in the sum of 295,000.00 and paid with said

amount the bulk of its alleged liability to JDA under said surety bond, it is plain that on this score, it no longer has any rightto collect to the extent of the said amount.

(2) Hence the applicable law is Article 2207 of the new Civil Code, to wit:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the

injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to

the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the

insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency

from the person causing the loss or injury.

Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031


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[1957]) which we subsequently applied in Manila Mahogany Manufacturing Corporation v. Court of Appeals(154 SCRA

650 [1987]):

Note that if a property is insured and the owner receives the indemnity from the insurer, it is provided in said article that

the insurer is deemed subrogated to the rights of the insured against the wrongdoer and if the amount paid by the insurer

does not fully cover the loss, then the aggrieved party is the one entitled to recover the deficiency. Evidently, under this

legal provision, the real party in interest with regard to the portion of the indemnity paid is the insurer and not the insured.

It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer.

Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's complaint as against the

respondents for the reason that the petitioner was not the real party in interest in the complaint and, therefore, has no

cause of action against the respondents.

The instant petitions are DISMISSED.

COMPAIA MARITIMA vs INSURANCE COMPANY OF NORTH AMERICA

FACTS: Macleod and Company of the Philippines contracted by telephone the services of the Compaia Maritima, a

shipping corporation, for the shipment of 2,645 bales of hemp from the former's Sasa private pier at Davao City to Manila

and for their subsequent transhipment to Boston, Massachusetts, U.S.A. on board the S.S. Steel Navigator which was

subsequently evidenced by a formal and written booking. Upon loading of the cargo to the lighter of the carrier to be

loaded to the carriers vessel, the patron of the lighter issued a carriers receipt stating that they have received the carg o

in good condition.

Consequently, the lighter sank and the cargo was totally damaged. Macleod promptly notified the carrier's main office in

Manila and its branch in Davao advising it of its liability. The damaged hemp was brought to Odell Plantation in Madaum,

Davao, for cleaning, washing, reconditioning, and redrying. The total loss added up to P60,421.02.

All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT No. 1025, were insured with the

Insurance Company of North America against all losses and damages. Macleod filed a claim to the insurance company

which they granted and in fact became the subrogee of all the rights and claims of the shipper to the carrier. The

insurance company filed a claim against the carrier for the collection of the damages incurred by the shipper.

ISSUE:

1. WON there exists a contract of carriage between the shipper and carrier even if there is no bill of lading issued.

2. WON the insurance company is entitled to collect the damages as a subrogee to the rights and claims of the

shipper.

HELD:

1. The Supreme Court held that there exists a contract of carriage between the shipper and the carrier. The fact tha

the carrier sent its lighters free of charge to take the hemp from Macleod's wharf at Sasa preparatory to its loading

onto the ship Bowline Knot does not in any way impair the contract of carriage already entered into between the

carrier and the shipper, for that preparatory step is but part and parcel of said contract of carriage. The lighters

were merely employed as the first step of the voyage, but once that step was taken and the hemp delivered to thecarrier's employees, the rights and obligations of the parties attached thereby subjecting them to the principles

and usages of the maritime law. In other words, here we have a complete contract of carriage the consummation

of which has already begun: the shipper delivering the cargo to the carrier, and the latter taking possession

thereof by placing it on a lighter manned by its authorized employees, under which Macleod became entitled to

the privilege secured to him by law for its safe transportation and delivery, and the carrier to the full payment of its

freight upon completion of the voyage.

The receipt of goods by the carrier has been said to lie at the foundation of the contract to carry and deliver, and if

actually no goods are received there can be no such contract. The liability and responsibility of the carrier under a

contract for the carriage of goods commence on their actual delivery to, or receipt by, the carrier or an authorized

agent. ... and delivery to a lighter in charge of a vessel for shipment on the vessel, where it is the custom to


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meaning of the insurance policy and that recovery for damage to the car is not barred by the illegal use of the car by one

of the station boys. There need be no prior conviction for the crime of theft to make an insurer liable under the theft clause

of the policy. Upon the facts stipulated by the parties it is admitted that Catiben had taken the vehicle for a joy ride and

while the same was in his possession he bumped it against an electric post resulting in damages. The act is theft within a

policy of insurance. In a civil action for recovery on an automobile insurance, the question whether a person using a

certain automobile at the time of the accident stole it or not is to be determined by a fair preponderance of evidence and

not by the rule of criminal law requiring proof of guilt beyond reasonable doubt. Besides, there is no provision in the policy

requiring prior criminal conviction for theft.

FE DE JOYA LANDICHO, in her own behalf and as judicial guardian of her minor children, RAFAEL J. LANDICHOand MA. LOURDES EUGENIA LANDICHO, plaintiffs-appellees, vs. GOVERNMENT SERVICE INSURANCE SYSTEMdefendant-appellant

FACTS:* CFI ordered GSIS to pay Landicho P15,800, with interest, etc. GSIS appealed. SC affirmed.

- Flaviano Landicho is a civil engineer of the Bureau of Public Works, stationed at Mamburao, Mindoro Occidental.- F.Landicho filed an application for optional additional life insurance, by filing and signing a printed form of the GSIS;

Par. 7 (c,d,e) of the GSIS form states:c. That this application serves as a letter of authority to the Collecting Officer of our Office thru the GSIS to deduct

from my salary the monthly premium in the amount of P33.36, beginning the month of May, 1964, and every

month thereafter until notice of its discontinuance shall have been received from the System; .d. That the failure to deduct from my salary the month premiums shall not make the policy lapse, however, the

premium account shall be considered as indebtedness which, I bind myself to pay the System; .e. That my policy shall be made effective on the first day of the month next following the month the first premium

is paid; provided, that it is not more 90 days before or after the date of the medical examination was conducted ifrequired."- On June 1, 1964, GSIS issued in favor of Landicho the optional additional life insurance policy in the sum of P7,900.- On June 29, 1966, F.Landicho died in an airplane crash in Mindoro, while still under employment of the Bureau of PublicWorks.- Mrs. Landicho, et al then filed with the GSIS a claim for P15,800, as the double indemnity due under the policy, becauseof the untimely death of the insured owing to said accident.- GSIS denied the claim; Reason is, the application states, the policy (e) "shall be ... effective on the first day of the monthnext following the month the first premium is paid," and no premium had ever been paid on said policy.

- Mrs. Landicho et al filed this action in the CFI Manila.- Plaintiffs invoke the application forms subdivisions (c) and (d), Par. 7, stating that the same shall serve "as a letter ofauthority to the Collecting Officer of our Office" the Bureau of Public Works "thru the GSIS to deduct from my salary"and that "failure to deduct from my salary the monthly premiums shall notmake the policy lapse

ISSUE:The main issue therein is whether or not the insurance policy in question has ever been in force, not a single premiumhaving been paid thereon. (Verbatim)

RULING: (Yes)The language, of subdivisions (c), (d) and (e) is such as to create an ambiguity that should be resolved against

the party responsible therefor defendant GSIS, as the party who prepared and furnished the application form and infavor of the party misled thereby, the insured employee.

The equitable and ethical considerations justifying the foregoing view are bolstered up by two (2) factors, namely:(a) The aforementioned subdivision (c) states "that this application serves as a letter of authority to the Collecting Officerof our Office" the Bureau of Public Works "thru the GSIS to deduct from my salary the monthly premium in theamount of P33.36." No such deduction was made and, consequently, not even the first premium "paid" because thecollecting officer of the Bureau of Public Works was not advised by the GSIS to make it (the deduction) pursuant to saidauthority. Surely, this omission of the GSIS should not inure to its benefit. .(b) The GSIS had impliedly induced the insured to believe that Policy No. OG-136107 was in force, he having been paidby the GSIS the dividends corresponding to said policy. Had the insured had the slightest inkling that the latter was not, asyet, effective for non-payment of the first premium, he would have, in all probability, caused the same to be forthwithsatisfied.

SC affirmed.

Doctrines involved:


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Civil Code: The interpretation of obscure words or stipulations in a contract shall not favor the party who caused theobscurity.Settled rule: "Terms in an insurance policy, which are ambiguous, equivocal, or uncertain ... are to be construed strictlyand most strongly against the insurer, and liberally in favor of the insured.

MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES DEPARTMENT, petitioners, vs.CA, SOUTH SEA SURETY AND INSURANCE CO., INC. and the CHARTER INSURANCE CORPORATION,respondents.

FACTS:* RTC ruled in favor of petitioners; CA dismissed the complaint by Prescription; SC reinstated RTC decision.

- In 1983, Hongkong Government Supplies Department (Hongkong) contracted Mayer Steel Pipe Corporation (Mayer) tomanufacture and supply various steel pipes and fittings. From August to October, 1983, Mayer shipped the pipes

and fittings to Hongkong as evidenced by Invoices.- Prior to the shipping, Mayer insured the pipes and fittings against all risks with South Sea Surety and Insurance Co., Inc(South Sea) and Charter Insurance Corp. (Charter).- Industrial Inspector certified all the pipes and fittings to be in good order condition before they were loaded in the vessel

Nonetheless, when the goods reached Hongkong, it was discovered that a substantial portion thereof wasdamaged.- On April 17, 1986, petitioners filed a claim for indemnity under the insurance contract, but the respondents refused topay the total cost of repair of the damaged pipes.

- Trial court ruled in favor of petitioners. Reason: The damages are not due to manufacturing defects; that the insurancecovers all risks. The only exceptions (to the all risks are those excluded in the policy, or those sustained due tofraud or intentional misconduct on the part of the insured.)- Private respondents elevated the case to the CA.- CA agreed on the trial courts finding, however, CA dismissed the complaint. Reason: Prescription, since it was filed onlyon April 17, 1986, more than 2 years from the time the goods were unloaded from the vessel.

Section 3(6) of the Carriage of Goods by Sea Act provides that "the carrier and the ship shall bedischarged from all liability in respect of loss or damage unless suit is brought within one year after delivery of thegoods..."

ISSUE:WON the CA erred in holding that petitioners action had already prescribed; WON CA erred in dismissing the complaint.

RULING:Yes, CA erred.Under the provision, only the carrier's liability is extinguished if no suit is brought within one year. But the liability

of the insurer is not extinguished because the insurer's liability is based not on the contract of carriage but on the contractof insurance.

The insurer, like the shipper, may no longer file a claim against the carrier beyond the one-year period provided inthe law. But it does not mean that the shipper may no longer file a claim against the insurer because the basis of theinsurer's liability is the insurance contract.

Thus, when private respondents issued the "all risks" policies to petitioner Mayer, they bound themselves toindemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes in ten years, in accordancewith Article 1144 of the New Civil Code.

FYI:An insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to indemnifyanother for loss or damage which he may suffer from a specified peril.An "all risks" insurance policy covers all kinds of loss other than those due to willful and fraudulent act of the insured.

GREAT PACIFIC LIFE ASSURANCE CORP., petitioner, vs. CA AND MEDARDA V. LEUTERIO, respondents.

FACTS:* Devt Bank of the Phil is the creditor of one Wilfredo Leuterio who is insured under the GPLAC/Grepalife. RTC

adjudged the Grepalife to pay the DBP. CA affirmed. SC affirmed with modification, entitling the heirs, not DBP, theinsurance money.- A contract of group life insurance was executed between Grepalife and DBP). Grepalife agreed to insure the lives ofeligible housing loan mortgagors of DBP.


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AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. TANTUCO ENTERPRISES, INC., respondent.

[G.R. No. 138941. October 8, 2001]

Facts:

- Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining industry.

- It appears that respondent commenced its business operations with only one oil mill. In 1988, it started operating

its second oil mill (known later as new oil mill).

- The two oil mills were separately covered by fire insurance policies issued by petitioner American Home

Assurance Co., Philippine Branch. Official receipts indicating payment for the full amount of the premium were issued by

the petitioner's agent.

- A fire that broke out and consumed the new oil mill. Respondent immediately notified the petitioner of the incident

The latter then sent its appraisers who inspected the burned premises and the properties destroyed. Thereafter,

petitioner rejected respondents claim for the insurance proceeds on the ground that no policy was issued by it covering

the burned oil mill stating Our policy extend insurance coverage to your oil mill under Building No. 5, whilst the affected

oil mill was under Building No. 14.

- A complaint for specific performance and damages was consequently instituted by the respondent.

- The lower court rendered a Decision finding the petitioner liable on the insurance policy.

- American home appealed to the CA which was subsequently denied. MR was also denied, hence the petition.

Issue:

- Whether the oil mill gutted by fire is covered by the insurance policy.

Held:

- The petition is devoid of merit.

- The primary reason advanced by the petitioner in resisting the claim of the respondent is that the burned oil mill is

not covered by any insurance policy. According to it, the oil mill insured is specifically described in the policy by its

boundaries.

- However, it argues that this specific boundary description clearly pertains, not to the burned oil mill, but to the

other mill.

- What exacerbates respondents predicament, petitioner posits, is that it did not have the supposed wrong

description or mistake corrected. Despite the fact that the policy in question was issued way back in 1988, or about three

years before the fire, and despite the Important Notice in the policy that Please read and examine the policy and if

incorrect, return it immediately for alteration, respondent apparently did not call petitioners attention with respect to the

misdescription.

- In construing the words used descriptive of a building insured, the greatest liberality is shown by the courts in

giving effect to the insurance.[11] In view of the custom of insurance agents to examine buildings before writing policies

upon them, and since a mistake as to the identity and character of the building is extremely unlikely, the courts are

inclined to consider that the policy of insurance covers any building which the parties manifestly intended to insure,

however inaccurate the description may be.[12]


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- Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that what the parties

manifestly intended to insure was the new oil mill. This is obvious from the categorical statement embodied in the policy,

extending its protection:

- On machineries and equipment with complete accessories usual to a coconut oil mill including stocks of copra,

copra cake and copra mills whilst contained in thenew oil mill building, situate (sic) at UNNO. ALONG NATIONAL HIGH

WAY, BO. IYAM, LUCENA CITY UNBLOCKED.[13] (emphasis supplied.)

- If the parties really intended to protect the first oil mill, then there is no need to specify it as new.

- Indeed, it would be absurd to assume that respondent would protect its first oil mill for different amounts and leave

uncovered its second one.

RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS and TRANSWORLD KNITTINGMILLS, INC., respondents. [G.R. No. 112360. July 18, 2000]

Facts:

- Rizal Surety & Insurance Company (Rizal Insurance) issued Fire Insurance Policy in favor of Transworld KnittingMills, Inc. (Transworld), initially for One Million (P1,000,000.00) Pesos and eventually increased to One Million FiveHundred Thousand (P1,500,000.00) Pesos, covering the period from August 14, 1980 to March 13, 1981.

- Pertinent portions of subject policy on the buildings insured, and location thereof, read:"On stocks of finished and/or unfinished products, raw materials and supplies of every kind and description, the propertiesof the Insureds and/or held by them in trust, on commission or on joint account with others and/or for which they (sic)responsible in case of loss whilst contained and/or stored during the currency of this Policy in the premises occupied bythem forming part of the buildings situate (sic) within own Compound at MAGDALO STREET, BARRIO UGONG, PASIG,METRO MANILA, PHILIPPINES, BLOCK NO. 601.xxx...............xxx...............xxxSaid building of four-span lofty one storey in height with mezzanine portions is constructed of reinforced concrete andhollow blocks and/or concrete under galvanized iron roof and occupied as hosiery mills, garment and lingerie factorytransistor-stereo assembly plant, offices, warehouse and caretaker's quarters.- The same pieces of property insured with the petitioner were also insured with New India Assurance CompanyLtd., (New India).- On January 12, 1981, 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-storey building (behind said four-span building) wherefun and amusement machines and spare parts were stored, was also destroyed by the fire.- Transworld filed its insurance claims with Rizal Surety & Insurance Company and New India Assurance Companybut to no avail.- Private respondent brought against the said insurance companies an action for collection of sum of money anddamages,- Petitioner Rizal Insurance countered that its fire insurance policy sued upon covered only the contents of the four-span building, which was partly burned, and not the damage caused by the fire on the two- storey annex building.- The trial court rendered its decision Ordering defendant Rizal Surety And Insurance Company to pay TranswroldDismissing the case as against The New India Assurance Co., Ltd.- The decision of the court below is MODIFIED in that defendant New India Assurance Company and Rizal Suretyhas and is hereby required to pay plaintiff Transworld based on the actual losses sustained by it.- New India appealed to this Court theorizing inter alia that the private respondent could not be compensated forthe loss of the fun and amusement machines and spare parts stored at the two-storey building because it (Transworld)had no insurable interest in said goods or items.- The Court denied the appeal with finality. Petitioner Rizal Insurance and private respondent Transworldinterposed a Motion for Reconsideration which was denied, hence, the petition.

Issue:- Whether the two-storey building which was also destroyed by the fire is covered by the insurance policy..Ruling:

- The Petition is not impressed with merit.- The issues posited here hinges on the proper interpretation of the stipulation in subject fire insurance policyregarding its coverage, which reads:


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"xxx contained and/or stored during the currency of this Policy in the premises occupied by them forming part of thebuildings situate (sic) within own Compound xxx"Therefrom, it can be gleaned unerringly that the fire insurance policy in question did not limit its coverage to what werestored in the four-span building. As opined by the trial court of origin, two requirements must concur in order that the saidfun and amusement machines and spare parts would be deemed protected by the fire insurance policy under scrutiny, towit:"First, said properties must be contained and/or stored in the areas occupied by Transworld and second, said areas mustform part of the building described in the policy xxx"[14]'Said building of four-span lofty one storey in height with mezzanine portions is constructed of reinforced concrete andhollow blocks and/or concrete under galvanized iron roof and occupied as hosiery mills, garment and lingerie factorytransistor-stereo assembly plant, offices, ware house and caretaker's quarter.'- The Court is mindful of the well-entrenched doctrine that factual findings by the Court of Appeals are conclusiveon the parties and not reviewable by this Court, and the same carry even more weight when the Court of Appeals hasaffirmed the findings of fact arrived at by the lower court.[15]- In the case under consideration, both the trial court and the Court of Appeals 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 andconsequently, the machines and spare parts stored therein were covered by the fire insurance in dispute. The letter-reportof the Manila Adjusters and Surveyor's Company, which petitioner itself cited and invoked, describes the "annex" buildingas follows:"Two-storey building constructed of partly timber and partly concrete hollow blocks under g.i. roof which is adjoining andintercommunicating with the repair of the first right span of the lofty storey building and thence by property fence wall."[16]- Verily, the two-storey building involved, a permanent structure which adjoins and intercommunicates with the "firstright span of the lofty storey building",[17] formed part thereof, and meets the requisites for compensability under the fire

insurance policy sued upon.- After a careful study, the Court does not find any basis for disturbing what the lower courts found and arrived at.- Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has created a doubregarding the portions of the building insured thereby. Article 1377 of the New Civil Code provides:- "Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who causedthe obscurity"- Conformably, it stands to reason that the doubt should be resolved against the petitioner, Rizal Surety InsuranceCompany, whose lawyer or managers drafted the fire insurance policy contract under scrutiny. Citing the aforecitedprovision of law in point, the Court in Landicho vs. Government Service Insurance System,[19] ruled:"This is particularly true as regards insurance policies, in respect of which it is settled that the 'terms in an insurance policywhich are ambiguous, equivocal, or uncertain x x x are to be construed strictly and most strongly against the insurer, andliberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especiallywhere forfeiture is involved' (29 Am. Jur., 181), and the reason for this is that the 'insured usually has no voice in the

selection or arrangement of the words employed and that the language of the contract is selected with great care anddeliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company.

PERLA COMPANIA DE SEGUROS, INC., petitioner,vs.HONORABLE COURT OF APPEALS and MILAGROS CAYAS, respondents.G.R. No. 78860 May 28, 1990

Facts:- Private respondent Milagros Cayas was the registered owner of a Mazda bus which was insured with PerlaCompania de Seguros, Inc. (PCSI).- The bus figured in an accident in Naic, Cavite injuring several of its passengers. One of them, 19-year oldEdgardo Perea, sued Milagros Cayas for damages in the Court of First Instance of Cavite. (Civil Case No. NC-794)- For failure to appear, she was declared in default. After trial, the court rendered a decision in favor of Perea.- Milagros Cayas filed a complaint for a sum of money and damages against PCSI in the Court of First Instance ofCavite. She alleged therein that to satisfy the judgment in Civil Case No. NC-794, her house and lot were levied upon andsold at public auction and that to avoid numerous suits and the "detention" of the insured vehicle, she paid each of theinjured passengers. (3, Perea not included). That she could not have suffered said financial setback had the counsel forPCSI, who also represented her, appeared at the trial of Civil Case No. NC-794 and attended to the claims of the threeother victims.- In view of Milagros Cayas' failure to prosecute the case, the court motu propio ordered its dismissal withoutprejudice. Milagros Cayas moved for the reconsideration of the dismissal order. Said motion for reconsideration was actedupon favourably.- About two months later, Milagros Cayas filed a motion to declare PCSI in default for its failure to file an answerThe motion was granted and plaintiff was allowed to adduce evidence ex-parte. The court rendered judgment by defaultordering PCSI to pay Milagros Cayas.


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- Said decision was set aside after the PCSI filed a motion therefor.- Trial of the case ensued. In due course, the court promulgated a decision in favor of Milagros Cayas.- PCSI appealed to the Court of Appeals seeking to limit its liability only to the payment made by private respondento Perea and only up to the amount of P12,000.00. It altogether denies liability for the payments made by privaterespondents to the other three (3) injured passengers Rosario del Carmen, Ricardo Magsarili and Charlie Antolin in theamount of P4,000.00 each or a total of P12,000.00.- CA which affirmed the lower courts decision.

Issue:- Whether the liability of PCSI is limited only to the payment made by Milagros to Perea.

Held:- There is merit in petitioner's assertions.- The insurance policy involved explicitly limits petitioner's liability to P12,000.00 per person and to P50,000.00 peaccident.- We have ruled in Stokes vs. Malayan Insurance Co., Inc., 14 that the terms of the contract constitute the measureof the insurer's liability and compliance therewith is a condition precedent to the insured's right of recovery from theinsurer.- In the case at bar, the insurance policy clearly and categorically placed petitioner's liability for all damages arisingout of death or bodily injury sustained by one person as a result of any one accident at P12,000.00. Said amount compliedwith the minimum fixed by the law then prevailing, Section 377 of Presidential Decree No. 612 (which was retained by P.DNo. 1460, the Insurance Code of 1978), which provided that the liability of land transportation vehicle operators for bodilyinjuries sustained by a passenger arising out of the use of their vehicles shall not be less than P12,000. In other words

under the law, the minimum liability is P12,000 per passenger. Petitioner's liability under the insurance contract not beingless than P12,000.00, and therefore not contrary to law, morals, good customs, public order or public policy, saidstipulation must be upheld as effective, valid and binding as between the parties.- We observe that although Milagros Cayas was able to prove a total loss of only P44,000.00, petitioner was madeliable for the amount of P50,000.00, the maximum liability per accident stipulated in the policy. This is patent error. Aninsurance indemnity, being merely an assistance or restitution insofar as can be fairly ascertained, cannot be availed of byany accident victim or claimant as an instrument of enrichment by reason of an accident.

ZENITH INSURANCE CORPORATION, petitioner,vs.COURT OF APPEALS and LAWRENCE FERNANDEZ, respondents.NATURE OF THE CASE:Assailed in this petition is the decision of the Court of Appeals in CA-G.R. C.V. No. 13498 entitled, "Lawrence L.

Fernandez, plaintiff-appellee v. Zenith Insurance Corp., defendant-appellant" which affirmed in toto the decision of theRegional Trial Court of Cebu, Branch XX in Civil Case No. CEB-1215 and the denial of petitioner's Motion forReconsideration.

FACTS:

Private respondent Lawrence Fernandez insured his car for "own damage" under private car Policy No. 50459 withpetitioner Zenith Insurance Corporation.

The car figured in an accident and suffered actual damages in the amount of P3,640.00.

After allegedly being given a run around by Zenith for two (2) months, Fernandez filed a complaint with the Regional TrialCourt of Cebu for sum of money and damages resulting from the refusal of Zenith to pay the amount claimed.

Fernandez also prayed for moral damages in the amount of P10,000.00, exemplary damages of P5,000.00, attorney'sfees of P3,000.00 and litigation expenses of P3,000.00.

After trial, a decision was rendered by the trial court in favor of private respondent Fernandez ordering the defendant topay:

1. The amount of P3,640.00 representing the damage incurred plus interest at the rate of twice the prevailing interestrates;2. The amount of P20,000.00 by way of moral damages;3. The amount of P20,000.00 by way of exemplary damages;4. The amount of P5,000.00 as attorney's fees;5. The amount of P3,000.00 as litigation expenses; and


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6. Costs.

On appeal, the Court of Appeals rendered its decision affirming in toto the decision of the trial court. The Motion forReconsideration was also denied for lack of merit. Hence, the instant petition.

ISSUE:WON it is proper to award of moral damages, exemplary damages and attorney's fees?

RULING:

Under the Insurance Code, in case of unreasonable delay in the payment of the proceeds of an insurance policy, thedamages that may be awarded are: 1) attorney's fees; 2) other expenses incurred by the insured person by reason ofsuch unreasonable denial or withholding of payment; 3) interest at twice the ceiling prescribed by the Monetary Board ofthe amount of the claim due the injured; and 4) the amount of the claim.

As regards the award of moral and exemplary damages, the rules under the Civil Code of the Philippines shall govern.

"The purpose of moral damages is essentially indemnity or reparation, not punishment or correction. Moral damages areemphatically not intended to enrich a complainant at the expense of a defendant, they are awarded only to enable theinjured party to obtain means, diversions or amusements that will serve to alleviate the moral suffering he has undergoneby reason of the defendant's culpable action."

The act of petitioner of delaying payment for two months cannot be considered as so wanton or malevolent to justify an

award of P20,000.00 as moral damages, taking into consideration also the fact that the actual damage on the car wasonly P3,460. In the pre-trial of the case, it was shown that there was no total disclaimer by respondent. The reason forpetitioner's failure to indemnify private respondent within the two-month period was that the parties could not come to anagreement as regards the amount of the actual damage on the car. The amount of P10,000.00 prayed for by privaterespondent as moral damages is equitable.

On the other hand, exemplary or corrective damages are imposed by way of example or correction for the public good (Ar2229, New Civil Code of the Philippines). In this case, since the insurance compant had not acted in wanton, oppressiveor malevolent manner, exemplary damages were not awarded. Moreover, the amount of P5,000.00 awarded as attorney'sfees is justified under the circumstances of this case and as regards the actual damages incurred by private respondent,the amount of P3,640.00 had been established before the trial court and affirmed by the appellate court.

Therefore, the award of moral damages is reduced to P10,000.00 and the award of exemplary damages is hereby deleted

The awards due to private respondent Fernandez are as follows:

1) P3,640.00 as actual claim plus interest of twice the ceiling prescribed by the Monetary Board computed from the time ofsubmission of proof of loss;

2) P10,000.00 as moral damages;

3) P5,000.00 as attorney's fees;

4) P3,000.00 as litigation expenses; and

5) Costs.

ACCORDINGLY, the appealed decision is MODIFIED as above stated.

SEC. 3

DIONISIA, EULOGIO, MARINA, GUILLERMO and NORBERTO all surnamed GUINGON, plaintiffs-appellees,

vs.

ILUMINADO DEL MONTE, JULIO AGUILAR and CAPITAL INSURANCE and SURETY CO., INC., defendants.

CAPITAL INSURANCE and SURETY CO., INC., defendant-appellant.


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FACTS:

Julio Aguilar owned and operated several jeepneys, entered into a contract with the Capital Insurance & Surety Co., Incinsuring the operation of his jeepneys against accidents with third-party liability.

During the effectivity of such insurance policy Iluminado del Monte, one of the drivers of the jeepneys operated by Aguilar,

bumped in one Gervacio Guingon who had just alighted from another jeepney and as a consequence the latter died somedays thereafter.

A corresponding information for homicide thru reckless imprudence was filed against Iluminado del Monte, who pleadedguilty.

As a corollary to such action, the heirs of Gervacio Guingon filed an action for damages praying that the sum ofP82,771.80 be paid to them jointly and severally by the defendants, driver Iluminado del Monte, owner and operator JulioAguilar, and the Capital Insurance & Surety Co., Inc.

Capital Insurance & Surety Co., Inc. answered, alleging that the plaintiff has no cause of action against it.

The Court of First Instance of Manila rendered its judgment sentencing Iluminado del Monte and Julio Aguilar jointly andseverally to pay plaintiffs the sum of P8,572.95 as damages for the death of their father, plus P1,000.00 for attorney's feesplus costs. The defendant Capital Insurance and Surety Co., Inc. is sentenced to pay the plaintiffs the sum of FiveThousand (P5,000.00) Pesos plus Five Hundred (P500.00) Pesos as attorney's fees and costs. These sums of P5,000.00and P500.00 adjudged against Capital Insurance and Surety Co., Inc. shall be applied in partial satisfaction of thejudgment rendered against Iluminado del Monte and Julio Aguilar in this case.

ISSUES:

(1) Can plaintiffs sue the insurer at all?

(2) If so, can plaintiffs sue the insurer jointly with the insured?

RULING:

The policy in the present case, as aforequoted, is one whereby the insurer agreed to indemnify the insured "against allsums . . . which the Insured shall become legally liable to pay in respect of: a. death of or bodily injury to any person . . . ."

Clearly, therefore, it is one for indemnity against liability;1 from the fact then that the insured is liable to the third person,such third person is entitled to sue the insurer.1wph1.t

The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the contract ofinsurance is intended to benefit third persons also or only the insured. And the test applied has been this: Where the


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contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable, can suethe insurer. Where the contract is for indemnity against actual loss or payment, then third persons cannot proceed againstthe insurer, the contract being solely to reimburse the insured for liability actually discharged by him thru payment to thirdpersons, said third persons' recourse being thus limited to the insured alone.2

The next question is on the right of the third person to sue the insurer jointly with the insured. The policy requires, asafore-stated, that suit and final judgment be first obtained against the insured; that only "thereafter" can the person injuredrecover on the policy; it expressly disallows suing the insurer as a co-defendant of the insured in a suit to determine the

latter's liability. As adverted to before, the query is which procedure to follow that of the insurance policy or the Rules ofCourt.

The "no action" clause in the policy of insurance cannot prevail over the Rules of Court provision aimed at avoidingmultiplicity of suits. In a case squarely on the point, American Automobile Ins. Co. vs. Struwe, 218 SW 534 (Texas CCA),it was held that a "no action" clause in a policy of insurance cannot override procedural rules aimed at avoidance ofmultiplicity of suits. We quote:

The rule has often been announced in Texas that when two causes of action are connected with each other, or grow outof the same transaction, they may be properly joined, and in such suit all parties against whom the plaintiff asserts a

common or an alternative liability may be joined as defendants. . . . Even if appellants had presented any plea inabatement as to joinder of damages arising from a tort with those arising from a contract, it could not, under the facts ofthis case, be sustained, for the rule is that a suit may include an action for breach of contract and one for tort, providedthey are connected with each other or grew out of the same transaction.

Similarly, in the instant suit, Sec. 5 of Rule 2 on "Joinder of causes of action" and Sec. 6 of Rule 3 on "Permissive joinderof parties" cannot be superseded, at least with respect to third persons not a party to the contract, as herein, by a "noaction" clause in the contract of insurance.

Wherefore, the judgment appealed from is affirmed in toto. Costs against appellant. So ordered.

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,

vs.

THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.

THE NATURE OF THE CASE:

Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November 262004 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the insurer on theinsurance application be considered as approval of the application?

THE FACTS

Respondent Philippine American Life Insurance Company (Philamlife) entered into an agreement denominated asCreditor Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under thepolicy, the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. Theamount of insurance coverage depended upon the existing balance of the purchased burial lots. The policy was to beeffective for a period of one year, renewable on a yearly basis.


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Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of theapplication of each purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. In relationto the instant petition, Eternal complied by submitting a letter dated December 29, 1982,4 containing a list of insurablebalances of its lot buyers for October 1982. One of those included in the list as "new business" was a certain JohnChuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang died.

Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for Chuangs death.Attached to the claim were the following documents: (1) Chuangs Certificate of Death; (2) Identification Certificate stati ngthat Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician; and (5)Assureds Certificate.

In reply, Philamlife wrote Eternal a letter on November 12, 1984,6 requiring Eternal to submit the following documentsrelative to its insurance claim for Chuangs death: (1) Certificate of Claimant (with form attached); (2) Assureds Certifica te(with form attached); (3) Application for Insurance accomplished and signed by the insured, Chuang, while still living; and(4) Statement of Account showing the unpaid balance of Chuang before his death.

Eternal transmitted the required documents through a letter dated November 14, 1984,7 which was received by Philamlifeon November 15, 1984.

After more than a year, Philamlife had not furnished Eternal with any reply to the latters insurance claim. This promptedEternal to demand from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986.8

In response to Eternals demand, Philamlife denied Eternals insurance claim in a letter dated May 20, 1986,9 a portion ofwhich reads:

The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens Memorial Park inOctober 1982 for the total maximum insurable amount of P100,000.00 each. No application for Group Insurance wassubmitted in our office prior to his death on August 2, 1984.

Since no application had been submitted by the Insured/Assured, prior to his death, for our approval but was submittedinstead on November 15, 1984, after his death, Mr. John Uy Chuang was not covered under the Policy.

Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money againstPhilamlife which the trial court decided in favor of Eternal.

The RTC found that Eternal submitted Chuangs application for insurance which he accomplished before his death, astestified to by Eternals witness and evidenced by the letter dated December 29, 1982, stating, among others: "Encl: PhilAm Life Insurance Applica tion Forms & Cert."10 It further ruled that due to Philamlifes inaction from the submission of therequirements of the group insurance on December 29, 1982 to Chuangs death on August 2, 1984, as well as Philamlifesacceptance of the premiums during the same period, Philamlife was deemed to have approved Chuangs application. TheRTC said that since the contract is a group life insurance, once proof of death is submitted, payment must follow.


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Philamlife appealed to the CA, which REVERSED and SET ASIDE the decision of the RTC, and the complaint isDISMISSED.

Hence, this petition.

ISSUE:

WON Philamlife assumed the risk of loss without approving the application.

RULING:

This question must be answered in the affirmative.

As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920dated December 10, 1980. In the policy, it is provided that:

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However,there shall be no insurance if the application of the Lot Purchaser is not approved by the Company.

An examination of the above provision would show ambiguity between its two sentences. The first sentence appears tostate that the insurance coverage of the clients of Eternal already became effective upon contracting a loan with Eternalwhile the second sentence appears to require Philamlife to approve the insurance contract before the same can become

effective.

It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor ofthe insured and strictly against the insurer in order to safeguard the latters interest.

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

On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a partys purchase of amemorial lot on installment from Eternal, an insurance contract covering the lot purchaser is created and the same iseffective, valid, and binding until terminated by Philamlife by disapproving the insurance application. The second sentenceof Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition whichwould lead to the cessation of the insurance contract. Moreover, the mere inaction of the insurer on the insuranceapplication must not work to prejudice the insured; it cannot be interpreted as a termination of the insurance contract. Thetermination of the insurance contract by the insurer must be explicit and unambiguous.

As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at bestInsurance contracts are wholly prepared by the insurer with vast amounts of experience in the industry purposefully usedto its advantage. More often than not, insurance contracts are contracts of adhesion containing technical terms and


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conditions of the industry, confusing if at all understandable to laypersons, that are imposed on those who wish to avail ofinsurance. As such, insurance contracts are imbued with public interest that must be considered whenever the rights andobligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest of insuranceapplicants, insurance companies must be obligated to act with haste upon insurance applications, to either deny orapprove the same, or otherwise be bound to honor the application as a valid, binding, and effective insurance contract.21

WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810 is REVERSEDand SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife is hereby

ORDERED:

(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of Chuang;

(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time of extra-judicialdemand by Eternal until Philamlifes receipt of the May 29, 1996 RTC Decision on June 17, 1996;

(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June 17, 1996 unti

full payment of this award; and

(4) To pay Eternal attorneys fees in the amount of PhP 10,000.

No costs.

SO ORDERED.

Blue Cross Health Care, Inc. vs. Olivares 544 SCRA 580 (2008)

FACTS:

Respondent Neomi T. Olivares applied for a health care program with petitioner Blue Cross Health Care, Inc., a

health maintenance firm. For the period October 16, 2002 to October 15, 2003, she paid the amount of P11,117. For the

same period, she also availed of the additional service of limitless consultations for an additional amount of P1,000. She

paid these amounts in full on October 17, 2002. In the health care agreement, ailments due to pre-existing conditions

were excluded from the coverage.

Barely 38 days from the effectivity of her health insurance, respondent Neomi suffered a stroke and was admitted

at the Medical City which was one of the hospitals accredited by petitioner. She incurred hospital expenses amounting to

P34,217.20. Consequently, she requested from the representative of petitioner at Medical City a letter of authorization in

order to settle her medical bills. But petitioner refused to issue the letter and suspended payment pending the submission

of a certification from her attending physician that the stroke she suffered was not caused by a pre-existing condition.

When Blue Cross still refused to pay, she filed suit in the MTC. The health care company rebutted by saying that the

physician didnt disclose the condition due to the patients invocation of the doctor-client privilege. The MTC dismissed the

complaint for lack of cause of action.

On appeal, the RTC, reversed the ruling of MTC and held that it was the burden of petitioner to prove that the

stroke of respondent Neomi was excluded from the coverage of the health care program for being caused by a pre-

existing condition.


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Ruling: NO.

Certainly it would be obtuse for us to even entertain the idea that the insurance contract between Malayan and ABB

Koppel was actually constituted by the Marine Risk Note alone. We find guidance on this point in Aboitiz Shipping

Corporation v. Philippine American General Insurance, Co., where a trial court had relied on the contents of a marine risk

note, not the insurance policy itself, in dismissing a complaint. For this act, the Court faulted the trial court in [obviously

mistaking] said Marine Risk Note as an insurance policy when it is not. The Court proceeded to characterize the marine

risk note therein as an acknowledgment or declaration of the private respondent confirming the specific shipment covered

by its Marine Open Policy, the evaluation of the cargo, and the chargeable premium, a description that is reflective as

well of the present Marine Risk Note, if not of marine risk notes in this country in general.

Malayan correctly points out that the Marine Risk Note itself adverts to Marine Cargo Policy Number Open Policy -0001

00410 as well as to the standard Marine Cargo Policy and the Companys Marine Open Policy. What the Marine Risk

Note bears, as a matter of evidence, is that it is not apparently the contract of insurance by itself, but merely a

complementary or supplementary document to the contract of insurance that may have existed as between Malayan and

ABB Koppel. And while this observation may deviate from the tenor of the assailed Court of Appeals Decision, it does not

presage any ruling in favor of petitioner. Fundamentally, since Malayan failed to introduce in evidence the Marine

Insurance Policy itself as the main insurance contract, or even advert to said document in the complaint, ultimately then it

failed to establish its cause of action for restitution as a subrogee of ABB Koppel.

Eastern Shipping vs. Prudential Guarantee

FACTS: On November 1995, fifty-six cases of completely knock-down auto parts of Nissan motor vehicle (cargoes) were

loaded on board M/V Apollo Tujuh (carrier) at Nagoya, Japan, to be shipped to Manila. The carrier was owned and

operated by petitioner Eastern Shipping Lines, Inc.

On November 22, 1995, the shipment was then discharged from the vessel onto the custody of the arrastre operator,

Asian Terminals, Inc. (ATI), complete and in good condition, except for four cases.

A survey of the shipment was conducted by Tan-Gaute Adjustment Company, Inc. (surveyor) at Nissans warehouse. Thesurveyor submitted its report with a finding that there were short (missing) items in Cases Nos. 10/A26/T3K and

10/A26/7K and broken/scratched and broken items in Case No. 10/A26/70K; and that (i)n (its) opinion, the shortage

and damage sustained by the shipment were due to pilferage and improper handling, respectively while in the custody of

the vessel and/or Arrastre Contractors.

As a result, Nissan demanded the sum of P1,047,298.34 representing the cost of the damages sustained by the shipment

from petitioner, the owner of the vessel, and ATI, the arrastre operator. However, the demands were not heeded.

As insurer of the shipment against all risks per Marine Open Policy No. 86-168 and Marine Cargo Risk Note No. 3921/95

respondent Prudential Guarantee and Assurance Inc. paid Nissan the sum of P1,047,298.34.

October 1996, respondent sued petitioner and ATI for reimbursement of the amount it paid to Nissan before the

Regional Trial Court (RTC) of Makati City, Branch 148, docketed as Civil Case No. 96-1665, entitled Prudential Guarantee

and Assurance, Inc. v. Eastern Shipping Lines, Inc. Respondent claimed that it was subrogated to the rights of Nissan by

virtue of said payment.

ISSUE: Whether or not, a marine cargo risk note and a subrogation receipt, without the Marine Insurance Policy, are

sufficient to prove respondents right of subrogation.

RULING: NO.


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The Marine Risk Note relied upon by respondent as the basis for its claim for subrogation is insufficient to prove said

claim.

The Marine Risk Note was issued only on November 16, 1995; hence, without a copy of the marine insurance policy, i

would be impossible and simply guesswork to know whether the cargo was insured during the voyage which started on

November 8, 1995. Again, without the marine insurance policy, it would be impossible for this Court to know the following

first, the specifics of the Institute Cargo Clauses A and other terms and conditions per Marine Open Policy-86-168 as

alluded to in the Marine Risk Note; second, if the said terms and conditions were actually complied with before respondent

paid Nissans claim.

The marine risk note in the case at bar is questionable because: first, it is dated on the same day the cargoes arrived at

the port of Manila and not during the duration of the voyage; second, without the Marine Insurance Policy to elucidate on

the specifics of the terms and conditions alluded to in the marine risk note, it would be simply guesswork to know if the

same were complied with.

In conclusion, this Court rules that based on the applicable jurisprudence, because of the inadequacy of the Marine Cargo

Risk Note for the reasons already stated, it was incumbent on respondent to present in evidence the Marine Insurance

Policy, and having failed in doing so, its claim of subrogation must necessarily fail.

SEC. 7

Paramount Insurance v Remondeulaz

Facts:

Respondents insured with petitioner their 1994 Toyota Corolla sedan under a comprehensive motor vehicle insurancepolicy for one year.

During the effectivity of said insurance, respondents car was unlawfully taken. Hence, they immediately reported the theftto the PNP who made them accomplish a complaint sheet. In said complaint sheet, respondents alleged that a certain

Ricardo Sales (Sales) took possession of the subject vehicle to add accessories and improvements thereon, however,Sales failed to return the subject vehicle within the agreed three-day period.

As a result, respondents notified petitioner to claim for the reimbursement of their lost vehicle. However, petitioner refusedto pay.

Accordingly, respondents lodged a complaint for a sum of money against petitioner before the RTC of Makati City prayingfor the payment of the insured value of their car plus damages.

After presentation of respondents evidence, petitioner filed a Demurrer to Evidence.

Acting thereon, the trial court dismissed the complaint filed by respondents.

Not in conformity with the trial courts Order, respondents interposed an appeal to the Court of Appeals.

In its Decision, the appellate court reversed and set aside the Order issued by the trial court.

Consequently, petitioner filed a petition for review on certiorari before this Court.

Issue:whether or not petitioner is liable under the insurance policy for the loss of respondents vehicle.

Held:Adverse to petitioners claim, respondents policy clearly undertook to indemnify the insured against loss of or damage tothe scheduled vehicle when caused by theft.


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the Sworn Statement of Formal Claim earlier submitted, and the Certification made by Deputy Fire Chief/SeniorSuperintendent of the Bureau of Fire Protection. The Certification dated provides that no evidence was gathered to provethat the establishment was willfully, feloniously and intentionally set on fire. That the investigation of the fire incident isalready closed being ACCIDENTAL in nature.

In its Answer with Compulsory Counterclaim, CBIC admitted the issuance of the Insurance Policy to UMC but alleged thatUMCs claim was fraudulent because UMCs Statement of Inventory showed that it had no stocks in trade and that UMCssuspicious purchases did not even amount to P25,000,000.00. UMCs GIS and Financial Reports further revealed that ithad insufficient capital, which meant UMC could not afford the alleged P50,000,000.00 worth of stocks in trade.

In its Reply, UMC denied violation of Condition No. 15 of the Insurance Policy. UMC claimed that it did not make any falsedeclaration because the invoices were genuine and the Statement of Inventory was for internal revenue purposes only,not for its insurance claim.

During trial, UMC presented five witnesses. The first witness was Ebora, UMCs disbursing officer. Ebora testified thatUMCs stocks in trade, at the time of the fire. Ebora also presented UMCs Balance Sheet, Income Statement andStatement of Cash Flow.

The next witness, Pabustan, testified that her company provided about 25 workers to assemble and pack Christmas lightsfor UMC. The third witness, Metropolitan Bank Officer Martinez, stated that UMC opened letters of credit with MBTC forthe year 1995 only. The fourth witness presented was Luna, the delivery checker of Straight Commercial CargoForwarders. Luna affirmed the delivery of UMCs goods to its warehouse. Lastly, CRMs adjuster Victorio testified that heinspected UMCs warehouse and prepared preliminary reports in this connection.

On the other hand, CBIC presented the claims manager Caguindagan, a SEC representative, Atty. Cabrera and NBIInvestigator Lazaro. Caguindagan testified that he inspected the burned warehouse, took pictures of it and referred theclaim to an independent adjuster.

Cabrera and Lazaro testified that they were hired by Central Surety to investigate UMCs claim. They concluded thatarson was committed based from their interview with barangay officials and the pictures showing that blackened surfaceswere present at different parts of the warehouse. On cross-examination, Lazaro admitted that they did not conduct aforensic investigation of the warehouse, nor did they file a case for arson.

The RTC of Manila rendered a Decision in favor of UMC.

The RTC found no dispute as to UMCs fire insurance contract with CBIC. Thus, the RTC ruled for UMCs entitlement to

the insurance proceeds.

Hence, CBIC filed an appeal with the Court of Appeals (CA).

The CA promulgated its Decision in favor of CBIC.

The CA ruled that UMCs claim under the Insurance Policy is void. The CA found that the fire was intentional in origin,considering the array of evidence submitted by CBIC, particularly the pictures taken and the reports of Cabrera andLazaro, as opposed to UMCs failure to explain the details of the alleged fire accident. In addition, it found that UMCsclaim was overvalued through fraudulent transactions.

UMC filed a Motion for Reconsideration, which the CA denied in its Resolution. Hence, this petition.

Issue:whether UMC is entitled to claim from CBIC the full coverage of its fire insurance policy.

Held:

UMC contends that because it had already established a prima facie case against CBIC which failed to prove its defense,UMC is entitled to claim the full coverage under the Insurance Policy. On the other hand, CBIC contends that becausearson and fraud attended the claim, UMC is not entitled to recover under Condition No. 15 of the Insurance Policy.

Burden of proof is the duty of any party to present evidence to establish his claim or defense by the amount of evidencerequired by law, which is preponderance of evidence in civil cases. The party, whether plaintiff or defendant, who assertsthe affirmative of the issue has the burden of proof to obtain a favorable judgment. Particularly, in insurance cases, oncean insured makes out a prima facie case in its favor, the burden of evidence shifts to the insurer to controvert the


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insureds prima facie case. In the present case , UMC established a prima facie case against CBIC. CBIC does not disputethat UMCs stocks in trade were insured against fire under the Insurance Policy and that the warehouse, where UMCsstocks in trade were stored, was gutted by fire within the duration of the fire insurance. However, since CBIC alleged anexcepted risk, then the burden of evidence shifted to CBIC to prove such exception.

An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of establishingthat the loss comes within the purview of the exception or limitation. If loss is proved apparently within a contract ofinsurance, the burden is upon the insurer to establish that the loss arose from a cause of loss which is excepted or forwhich it is not liable, or from a cause which limits its liability. In the present case, CBIC failed to discharge its primordialburden of establishing that the damage or loss was caused by arson, a limitation in the policy.

In the present case, CBICs evidence d id not prove that the fire was intentionally caused by the insured. First, the findingsof CBICs witnesses, Cabrera and Lazaro, were based on an investigation conducted more than four months after the fire.The testimonies of Cabrera and Lazaro, as to the boxes doused with kerosene as told to them by barangay officials, arehearsay because the barangay officials were not presented in court. Cabrera and Lazaro even admitted that they did notconduct a forensic investigation of the warehouse nor did they file a case for arson. Second, the Sworn Statement ofFormal Claim submitted by UMC, through CRM, states that the cause of the fire was faulty electrical wiring/accidental innature. CBIC is bound by this evidence because in its Answer, it admitted that it designated CRM to evaluate UMCs lossThird, the Certification by the Bureau of Fire Protection states that the fire was accidental in origin. This Certificationenjoys the presumption of regularity, which CBIC failed to rebut.

Contrary to UMCs allegation, CBICs failure to prove arson does not mean that it also failed to prove fraud.

In the present case, arson and fraud are two separate grounds based on two different sets of evidence, either of whichcan void the insurance claim of UMC. The absence of one does not necessarily result in the absence of the other. Thus,on the allegation of fraud, we affirm the findings of the Court of Appeals.

In Uy Hu & Co. v. The Prudential Assurance Co., Ltd., the Court held that where a fire insurance policy provides that ifthe claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulentmeans or devices are used by the Insured or anyone acting on his behalf to obtain any benefit under this Policy, and th eevidence is conclusive that the proof of claim which the insured submitted was false and fraudulent both as to the kind,quality and amount of the goods and their value destroyed by the fire, such a proof of claim is a bar against the insuredfrom recovering on the policy even for the amount of his actual loss.

In the present case, as proof of its loss of stocks in trade amounting to P50,000,000.00, UMC submitted its SwornStatement of Formal Claim together with the following documents: (1) letters of credit and invoices for raw materials,

Christmas lights and cartons purchased; (2) charges for assembling the Christmas lights; and (3) delivery receipts of theraw materials. However, the charges for assembling the Christmas lights and delivery receipts could not support itsinsurance claim. The Insurance Policy provides that CBIC agreed to insure UMCs stocks in trade. UMC defined stock intrade as tangible personal property kept for sale or traffic. Applying UMCs definition, only the letters of credit and invoicesfor raw materials, Christmas lights and cartons may be considered.

The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade purchased for 1996amounts to P20,000,000.00 which were purchased in one month. Thus, UMC needs to prove purchases amounting toP30,000,000.00 worth of stocks in trade for 1995 and prior years. However, in the Statement of Inventory it submitted tothe BIR, which is considered an entry in official records, UMC stated that it had no stocks in trade as of 31 December1995. .

Thus, either amount in UMCs Income Statement or Financial Reports is twenty-five times the claim UMC seeks toenforce. The RTC itself recognized that UMC padded its claim.

The most liberal human judgment cannot attribute such difference to mere innocent error in estimating or counting but to adeliberate intent to demand from insurance companies payment for indemnity of goods not existing at the time of the fire.This constitutes the so-called fraudulent claim which, by express agreement between the insurers and the insured, is aground for the exemption of insurers from civil liability.

On UMCs allegation that it did not breach any warranty, it may be argued that the discrepancies do not, by themselves,amount to a breach of warranty. However, the Insurance Code provides that a policy may declare that a violation ofspecified provisions thereof shall avoid it.

Considering that all the circumstances point to the inevitable conclusion that UMC padded its claim and was guilty of fraudUMC violated Condition No. 15 of the Insurance Policy. Thus, UMC forfeited whatever benefits it may be entitled under


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the Insurance Policy, including its insurance claim.

While it is a cardinal principle of insurance law that a contract of insurance is to be construed liberally in favor of theinsured and strictly against the insurer company, contracts of insurance, like other contracts, are to be construedaccording to the sense and meaning of the terms which the parties themselves have used. If such terms are clear andunambiguous, they must be taken and understood in their plain, ordinary and popular sense. Courts are not permitted tomake contracts for the parties; the function and duty of the courts is simply to enforce and carry out the contracts actuallymade.

WHEREFORE, we DENY the petition. We AFFIRM the Decision and the Resolution of the Court of Appeals.

SEC. 8

RCBC v CA

FACTS: GOYU applied for credit facilities and accommodations with RCBC at its Binondo Branch. After due evaluation,RCBC Binondo Branch, through its key officers, petitioners recommended GOYUs application for approval by RCBCsexecutive committee. A credit facility was initially granted. Upon GOYUs application and Uys and Laos recommendation,RCBCs executive committee increased GOYUs credit facility to P50 million, then to P90 million, and finally to P117

million.

As security for its credit facilities with RCBC, GOYU executed two real estate mortgages and two chattel mortgages infavor of RCBC. Under each of these four mortgage contracts, GOYU committed itself to insure the mortgaged propertywith an insurance company approved by RCBC, and subsequently, to endorse and deliver the insurance policies to RCBC

GOYU obtained in its name a total of ten insurance policies from MICO. Alchester Insurance Agency, Inc., the insuranceagent where GOYU obtained the Malayan insurance policies, issued nine endorsements in favor of RCBC.

One of GOYUs factory buildings in Valenzuela was gutted by fire. Consequently, GOYU submitted its claim for indemnityon account of the loss insured against. MICO denied the claim on the ground that the insurance policies were eitherattached pursuant to writs of attachments/garnishments issued by various courts or that the insurance proceeds were alsoclaimed by other creditors of GOYU alleging better rights to the proceeds than the insured. GOYU filed a complaint for

specific performance and damages.

RCBC, one of GOYUs creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but saidclaims were also denied for the same reasons that MICO denied GOYUs claims.

The RTC of Manila confirmed that GOYUs other creditors, namely, Urban Bank, Alfredo Sebastian, and Philippine TrustCompany obtained their respective writs of attachments from various courts and ordered that the proceeds of the teninsurance policies be deposited with the said court. Accordingly, MICO deposited the amount of P50,505,594.60 with theManila RTC.

In the meantime, another notice of garnishment was handed down by another Manila RTC sala.

After trial, Manila RTC rendered judgment in favor of GOYU and against the defendant, Malayan Insurance Company, Inc

and Rizal Commercial Banking Corporation.

From this judgment, all parties interposed their respective appeals. GOYU was unsatisfied with the amounts awarded inits favor. MICO and RCBC disputed the trial courts findings of liability on their part. The Court of Appeals partly grantedGOYUs appeal, but sustained the findings of the trial court with respect to MICO and RCBCs liabilities.

RCBC and MICO are now before us, seeking review and consequent reversal of the above dispositions of the Court ofAppeals.

Issue:whether or not RCBC, as mortgagee, has any right over the insurance policies taken by GOYU, the mortgagor, in case ofthe occurrence of loss.


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Held:

It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same mortgagedproperty, such that each one of them may insure the same property for his own sole benefit. There is no question thatGOYU could insure the mortgaged property for its own exclusive benefit. In the present case, although it appears thatGOYU obtained the subject insurance policies naming itself as the sole payee, the intentions of the parties as shown bytheir contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity.

It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC. The Court is in aquandary how Alchester could arrive at the idea of endorsing any specific insurance policy in favor of any particularbeneficiary or payee other than the insured had not such named payee or beneficiary been specifically disclosed by theinsured itself. It is also significant that GOYU voluntarily and purposely took the insurance policies from MICO, a sistercompany of RCBC, and not just from any other insurance company. Alchester would not have found out that the subjectpieces of property were mortgaged to RCBC had not such information been voluntarily disclosed by GOYU itself. Had itnot been for GOYU, Alchester would not have known of GOYUs intention of obtaining insurance coverage in compliancewith its undertaking in the mortgage contracts with RCBC, and verily, Alchester would not have endorsed the policies toRCBC had it not been so directed by GOYU.

On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of mortgagorRCBC.

Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain Mr. Yam, she prepared inquadruplicate the nine endorsement documents for GOYUs nine insurance policies in favor of RCBC. The original copies

of each of these nine endorsement documents were sent to GOYU, and the others were sent to RCBC and MICO, whilethe fourth copies were retained for Alchesters file. GOYU has not denied having received from Alchester the originals ofthese endorsements.

RCBC, in good faith, relied upon the endorsement documents sent to it as this was only pursuant to the stipulation in themortgage contracts. We find such reliance to be justified under the circumstances of the case. GOYU failed to seasonablyrepudiate the authority of the person or persons who prepared such endorsements. Over and above this, GOYUcontinued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After the occurrence of theloss insured against, it was too late for GOYU to disown the endorsements for any imagined or contrived lack of authorityof Alchester to prepare and issue said endorsements. If there had not been actually an implied ratification of saidendorsements by virtue of GOYUs inaction in this case, GOYU is at the very least estopped from assailin g their operativeeffects. To permit GOYU to capitalize on its non-confirmation of these endorsements while it continued to enjoy thebenefits of the credit facilities of RCBC which believed in good faith that there was due endorsement pursuant to their

mortgage contracts, is to countenance grave contravention of public policy, fair dealing, good faith, and justice. Such anunjust situation, the Court cannot sanction. Under the peculiar circumstances obtaining in this case, the Court is bound torecognize RCBCs right to the proceeds of the insurance policies if not for the actual endorsement of the policies, at leaston the basis of the equitable principle of estoppel.

GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of insurance shallexclusively apply to the interest of the person in whose name or for whose benefit it is made. The peculiarity of thecircumstances obtaining in the instant case presents a justification to take exception to the strict application of saidprovision, it having been sufficiently established that it was the intention of the parties to designate RCBC as the party forwhose benefit the insurance policies were taken out.

This Court can not over stress the fact that upon receiving its copies of the endorsement documents prepared byAlchester, GOYU, despite the absence of its written conformity thereto, obviously considered said endorsement to besufficient compliance with its obligation under the mortgage contracts since RCBC accordingly continued to extend thebenefits of its credit facilities and GOYU continued to benefit therefrom. Just as plain too is the intention of the parties toconstitute RCBC as the beneficiary of the various insurance policies obtained by GOYU. The intention of the parties willhave to be given full force and effect in this particular case. The insurance proceeds may, therefore, be exclusivelyapplied to RCBC, which under the factual circumstances of the case, is truly the person or entity for whose benefit thepolicies were clearly intended.

WHEREFORE, the petitions are hereby GRANTED and the decision and resolution are hereby REVERSED and SETASIDE.


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Topics: Insurance; Insurable interest; Mortgage; compensation

Title: Palileo vs. Cosio, 97 Phil. 919 (1955) BAUTISTA ANGELO, J .

Facts: To secure the payment of the

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