SECOND DIVISION

[G.R. No. 156167. May 16, 2005]

GULF RESORTS, INC., petitioner, vs. PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.

D E C I S I O N

PUNO, J.:

Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court by petitioner GULF RESORTS, INC., against respondent PHILIPPINE CHARTER INSURANCE CORPORATION. Petitioner assails the appellate court decision[1] which dismissed its two appeals and affirmed the judgment of the trial court.

For review are the warring interpretations of petitioner

and respondent on the scope of the insurance companys liability for earthquake damage to petitioners properties. Petitioner avers that, pursuant to its earthquake shock endorsement rider, Insurance Policy No. 31944 covers all damages to the properties within its resort caused by earthquake. Respondent contends that the rider limits its liability for loss to the two swimming pools of petitioner.

The facts as established by the court a quo, and affirmed by the appellate court are as follows:

[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said resort insured originally with the American Home Assurance Company (AHAC-AIU). In the first four insurance policies issued by AHAC-AIU from 1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs. C, D, E and F; also Exhs. 1, 2, 3 and 4 respectively), the risk of loss from earthquake shock was

extended only to plaintiffs two swimming pools, thus, earthquake shock endt. (Item 5 only) (Exhs. C-1; D-1, and E and two (2) swimming pools only (Exhs. C-1; D-1, E and F-1). Item 5 in those policies referred to the two (2) swimming pools only (Exhs. 1-B, 2-B, 3-B and F-2); that subsequently AHAC(AIU) issued in plaintiffs favor Policy No. 206-4182383-0 covering the period March 14, 1988 to March 14, 1989 (Exhs. G also G-1) and in said policy the earthquake endorsement clause as indicated in Exhibits C-1, D-1, Exhibits E and F-1 was deleted and the entry under

Endorsements/Warranties at the time of issue read that plaintiff renewed its policy with AHAC (AIU) for the period of March 14, 1989 to March 14, 1990 under Policy No. 206-4568061-9 (Exh. H) which carried the entry under Endorsement/Warranties at Time of Issue, which read Endorsement to Include Earthquake Shock (Exh. 6-B-1) in the amount of P10,700.00 and paid P42,658.14 (Exhs. 6-A and 6-B) as premium thereof, computed as follows:

Item -P7,691,000.00 - on the Clubhouse only

@ .392%; 1,500,000.00 - on the furniture, etc.

contained in the building above-mentioned@ .490%;

393,000.00- on the two swimming pools, only (against the peril of earthquake shock only) @ 0.100%

116,600.00- other buildings include as follows:

a) Tilter House- P19,800.00- 0.551% b) Power House- P41,000.00- 0.551% c) House Shed- P55,000.00 -0.540% P100,000.00 for furniture, fixtures,

lines air-con and operating equipment

that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU) Policy No. 206-4568061-9 (Exh. H) provided that the policy wording and rates in said policy be copied in the policy to be issued by defendant; that defendant issued Policy No. 31944 to plaintiff covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92 (Exh. I); that in the computation of the premium, defendants Policy No. 31944 (Exh. I), which is the policy in question, contained on the right-hand upper

portion of page 7 thereof, the following:

Rate-Various

Premium - P37,420.60 F/L 2,061.52 Typhoon 1,030.76 EC 393.00 ES

Doc. Stamps 3,068.10 F.S.T. 776.89

Prem. Tax 409.05 TOTAL 45,159.92;

that the above break-down of premiums shows that plaintiff paid only P393.00 as premium against earthquake shock (ES); that in all the six insurance policies (Exhs. C, D, E, F, G and H), the premium against the peril of earthquake shock is the same, that is P393.00 (Exhs. C and 1-B; 2-B and 3-B-1 and 3-B-2; F-02 and 4-A-1; G-2 and 5-C-1; 6-C-1; issued by AHAC (Exhs. C, D, E, F, G and H) and in Policy No. 31944 issued by defendant, the shock endorsement provide(sic):

In consideration of the payment by the insured to the company of the sum included additional premium the Company agrees, notwithstanding what is stated in the printed conditions of this policy due to the contrary, that this insurance covers loss or damage to shock to any of the

property insured by this Policy occasioned by or through or in consequence of earthquake (Exhs. 1-D, 2-D, 3-A, 4-B, 5-A, 6-D and 7-C);

that in Exhibit 7-C the word included above the underlined portion was deleted; that on July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiffs properties covered by Policy No. 31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort were damaged.[2]

After the earthquake, petitioner advised respondent that it would be making a claim under its Insurance Policy No. 31944 for damages on its properties. Respondent instructed petitioner to file a formal claim, then assigned the investigation of the claim to an independent claims adjuster, Bayne Adjusters and Surveyors, Inc.[3] On July 30, 1990, respondent, through its adjuster, requested petitioner to submit various documents in support of its claim. On August 7, 1990, Bayne Adjusters and Surveyors,

Inc., through its Vice-President A.R. de Leon,[4]rendered a preliminary report[5] finding extensive damage caused by the earthquake to the clubhouse and to the two swimming pools. Mr. de Leon stated that except for the swimming pools, all affected items have no coverage for earthquake shocks.[6] On August 11, 1990, petitioner filed its formal demand[7] for settlement of the damage to all its properties in the Agoo Playa Resort. On August 23, 1990, respondent denied petitioners claim on the ground that its insurance policy only afforded earthquake shock coverage to the two swimming pools of the resort.[8] Petitioner and respondent failed to arrive at a settlement.[9] Thus, on January 24, 1991, petitioner filed a complaint[10] with the regional trial court of Pasig praying for the payment of the following:

1.) The sum of P5,427,779.00, representing losses sustained by the insured properties, with interest

thereon, as computed under par. 29 of the policy (Annex B) until fully paid;

2.) The sum of P428,842.00 per month, representing continuing losses sustained by plaintiff on account of defendants refusal to pay the claims;

3.) The sum of P500,000.00, by way of exemplary damages;

4.) The sum of P500,000.00 by way of attorneys fees and expenses of litigation;

5.) Costs.[11]

Respondent filed its Answer with Special and Affirmative Defenses with Compulsory Counterclaims.[12]

On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:

The above schedule clearly shows that plaintiff paid only a

premium of P393.00 against the peril of earthquake shock, the same premium it paid against earthquake shock only on the two swimming pools in all the policies issued by AHAC(AIU) (Exhibits C, D, E, F and G). From this fact the Court must consequently agree with the position of defendant that the endorsement rider (Exhibit 7-C) means that only the two swimming pools were insured against earthquake shock.

Plaintiff correctly points out that a policy of insurance is a

contract of adhesion hence, where the language used in an insurance contract or application is such as to create ambiguity the same should be resolved against the party responsible therefor, i.e., the insurance company which prepared the contract. To the mind of [the] Court, the language used in the policy in litigation is clear and

unambiguous hence there is no need for interpretation or construction but only application of the provisions therein.

From the above observations the Court finds that only the two (2) swimming pools had earthquake shock coverage and were heavily damaged by the earthquake which struck on July 16, 1990. Defendant having admitted that the damage to the swimming pools was appraised by defendants adjuster at P386,000.00, defendant must, by virtue of the contract of insurance, pay plaintiff said

amount.

Because it is the finding of the Court as stated in the immediately preceding paragraph that defendant is liable only for the damage caused to the two (2) swimming pools and that defendant has made known to plaintiff its willingness and readiness to settle said liability, there is no basis for the grant of the other damages prayed for by plaintiff. As to the counterclaims of defendant, the Court does not agree that the action filed by plaintiff is baseless

and highly speculative since such action is a lawful exercise of the plaintiffs right to come to Court in the honest belief that their Complaint is meritorious. The prayer, therefore, of defendant for damages is likewise denied.

WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of THREE HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00) representing damage to the two (2) swimming pools, with interest at 6% per annum from the date of the filing of the Complaint until defendants obligation to plaintiff is fully paid.

No pronouncement as to costs.[13]

Petitioners Motion for Reconsideration was denied. Thus, petitioner filed an appeal with the Court of Appeals based on the following assigned errors:[14]

A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY RECOVER FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS FIRE POLICY NO. 31944, CONSIDERING ITS PROVISIONS, THE CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID POLICY AND THE ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE OF JULY 16, 1990.

B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANTS RIGHT TO RECOVER UNDER DEFENDANT-

APPELLEES POLICY (NO. 31944; EXH I) BY LIMITING ITSELF TO A CONSIDERATION OF THE SAID POLICY ISOLATED FROM THE CIRCUMSTANCES SURROUNDING ITS ISSUANCE AND THE ACTUATIONS OF THE PARTIES AFTER THE EARTHQUAKE OF JULY 16, 1990.

C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS ENTITLED TO THE DAMAGES CLAIMED, WITH INTEREST COMPUTED AT 24% PER ANNUM ON CLAIMS ON PROCEEDS OF POLICY.

On the other hand, respondent filed a partial appeal, assailing the lower courts failure to award it attorneys fees and damages on its compulsory counterclaim.

After review, the appellate court affirmed the decision of the trial court and ruled, thus:

However, after carefully perusing the documentary evidence of both parties, We are not convinced that the last two (2) insurance contracts (Exhs. G and H), which

the plaintiff-appellant had with AHAC (AIU) and upon which the subject insurance contract with Philippine Charter Insurance Corporation is said to have been based and copied (Exh. I), covered an extended earthquake shock insurance on all the insured properties.

x x x

We also find that the Court a quo was correct in not granting the plaintiff-appellants prayer for the imposition of interest 24% on the insurance claim and 6% on loss of income allegedly amounting toP4,280,000.00. Since the defendant-appellant has expressed its willingness to pay the damage caused on the two (2) swimming pools, as the Court a quo and this Court correctly found it to be liable only, it then cannot be said that it was in default and therefore liable for interest.

Coming to the defendant-appellants prayer for an attorneys fees, long-standing is the rule that the award thereof is subject to the sound discretion of the court. Thus, if such discretion is well-exercised, it will not be disturbed on appeal (Castro et al. v. CA, et al., G.R. No. 115838, July 18, 2002). Moreover, being the award thereof an exception rather than a rule, it is necessary for the court to make findings of facts and law that would bring the case within the exception and justify the grant of such award (Country Bankers Insurance Corp. v. Lianga Bay and

Community Multi-Purpose Coop., Inc., G.R. No. 136914, January 25, 2002). Therefore, holding that the plaintiff-appellants action is not baseless and highly speculative, We find that the Court a quo did not err in granting the same.

WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and judgment of the Trial Court hereby AFFIRMED in toto. No costs.[15]

Petitioner filed the present petition raising the following issues:[16]

A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER RESPONDENTS INSURANCE POLICY NO. 31944, ONLY THE TWO (2) SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVERED

THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.

B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONERS PRAYER FOR DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED, ATTORNEYS FEES AND EXPENSES OF LITIGATION.

Petitioner contends:

First, that the policys earthquake shock endorsement

clearly covers all of the properties insured and not only the swimming pools. It used the words any property insured by this policy, and it should be interpreted as all inclusive.

Second, the unqualified and unrestricted nature of the earthquake shock endorsement is confirmed in the body of the insurance policy itself, which states that it is [s]ubject to: Other Insurance Clause, Typhoon Endorsement, Earthquake Shock Endt., Extended Coverage Endt., FEA Warranty & Annual Payment Agreement On Long Term Policies.[17]

Third, that the qualification referring to the two swimming pools had already been deleted in the earthquake shock endorsement.

Fourth, it is unbelievable for respondent to claim that it only made an inadvertent omission when it deleted the said qualification.

Fifth, that the earthquake shock endorsement rider should be given precedence over the wording of the

insurance policy, because the rider is the more deliberate expression of the agreement of the contracting parties.

Sixth, that in their previous insurance policies, limits were placed on the endorsements/warranties enumerated at the time of issue.

Seventh, any ambiguity in the earthquake shock endorsement should be resolved in favor of petitioner and

against respondent. It was respondent which caused the ambiguity when it made the policy in issue.

Eighth, the qualification of the endorsement limiting the earthquake shock endorsement should be interpreted as a caveat on the standard fire insurance policy, such as to remove the two swimming pools from the coverage for the risk of fire. It should not be used to limit the respondents liability for earthquake shock to the two swimming pools only.

Ninth, there is no basis for the appellate court to hold that the additional premium was not paid under the extended coverage. The premium for the earthquake shock coverage was already included in the premium paid for the policy.

Tenth, the parties contemporaneous and subsequent acts show that they intended to extend earthquake shock coverage to all insured properties. When it secured an insurance policy from respondent, petitioner told respondent that it wanted an exact replica of its latest

insurance policy from American Home Assurance Company (AHAC-AIU), which covered all the resorts properties for earthquake shock damage and respondent agreed. After the July 16, 1990 earthquake, respondent assured petitioner that it was covered for earthquake shock. Respondents insurance adjuster, Bayne Adjusters and Surveyors, Inc., likewise requested petitioner to submit the necessary documents for its building claims and other repair costs. Thus, under the doctrine of equitable estoppel, it cannot deny that the insurance policy it issued

to petitioner covered all of the properties within the resort.

Eleventh, that it is proper for it to avail of a petition for review by certiorari under Rule 45 of the Revised Rules of Court as its remedy, and there is no need for calibration of the evidence in order to establish the facts upon which this petition is based.

On the other hand, respondent made the following counter arguments:[18]

First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended coverage against earthquake shock to petitioners insured properties other than on the two swimming pools. Petitioner admitted that from 1984 to 1988, only the two swimming pools were insured against earthquake shock. From 1988 until 1990, the provisions in its policy were practically identical to its earlier policies, and there was no increase in the premium

paid. AHAC-AIU, in a letter[19] by its representative Manuel C. Quijano, categorically stated that its previous policy, from which respondents policy was copied, covered only earthquake shock for the two swimming pools.

Second, petitioners payment of additional premium in the amount of P393.00 shows that the policy only covered earthquake shock damage on the two swimming pools. The amount was the same amount paid by petitioner for earthquake shock coverage on the two swimming pools

from 1990-1991. No additional premium was paid to warrant coverage of the other properties in the resort.

Third, the deletion of the phrase pertaining to the limitation of the earthquake shock endorsement to the two swimming pools in the policy schedule did not expand the earthquake shock coverage to all of petitioners properties. As per its agreement with petitioner, respondent copied its policy from the AHAC-AIU policy provided by petitioner. Although the first five policies contained the said qualification in their riders title, in the last two policies,

this qualification in the title was deleted. AHAC-AIU, through Mr. J. Baranda III, stated that such deletion was a mere inadvertence. This inadvertence did not make the policy incomplete, nor did it broaden the scope of the endorsement whose descriptive title was merely enumerated. Any ambiguity in the policy can be easily resolved by looking at the other provisions, specially the

enumeration of the items insured, where only the two swimming pools were noted as covered for earthquake shock damage.

Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, the phrase Item 5 P393,000.00 on the two swimming pools only (against the peril of earthquake shock only) meant that only the swimming pools were insured for earthquake damage. The same phrase is used in toto in the policies from 1989 to 1990, the only difference being the designation of the two

swimming pools as Item 3.

Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid for all the properties covered. In all of its seven insurance policies, petitioner only paidP393.00 as premium for coverage of the swimming pools against earthquake shock. No other premium was paid for earthquake shock coverage on the other properties. In addition, the use of the qualifier ANY instead of ALL to describe the property covered was done

deliberately to enable the parties to specify the properties included for earthquake coverage.

Sixth, petitioner did not inform respondent of its requirement that all of its properties must be included in the earthquake shock coverage. Petitioners own evidence shows that it only required respondent to follow the exact provisions of its previous policy from AHAC-AIU. Respondent complied with this requirement. Respondents only deviation from the agreement was when it modified the provisions regarding the replacement cost

endorsement. With regard to the issue under litigation, the riders of the old policy and the policy in issue are identical.

Seventh, respondent did not do any act or give any assurance to petitioner as would estop it from maintaining that only the two swimming pools were covered for earthquake shock. The adjusters letter notifying petitioner to present certain documents for its building claims and

repair costs was given to petitioner before the adjuster knew the full coverage of its policy.

Petitioner anchors its claims on AHAC-AIUs inadvertent deletion of the phrase Item 5 Only after the descriptive name or title of the Earthquake Shock Endorsement. However, the words of the policy reflect the parties clear intention to limit earthquake shock coverage to the two swimming pools.

Before petitioner accepted the policy, it had the

opportunity to read its conditions. It did not object to any deficiency nor did it institute any action to reform the policy. The policy binds the petitioner.

Eighth, there is no basis for petitioner to claim damages, attorneys fees and litigation expenses. Since respondent was willing and able to pay for the damage caused on the two swimming pools, it cannot be considered to be in default, and therefore, it is not liable for interest.

We hold that the petition is devoid of merit.

In Insurance Policy No. 31944, four key items are important in the resolution of the case at bar.

First, in the designation of location of risk, only the two swimming pools were specified as included, viz:

ITEM 3 393,000.00 On the two (2) swimming pools only (against the peril of earthquake shock only)[20]

Second, under the breakdown for premium

payments,[21] it was stated that:

PREMIUM RECAPITULATION

ITEM NOS. AMOUNT RATES PREMIUM

x x x

3 393,000.00 0.100%-E/S 393.00[22]

Third, Policy Condition No. 6 stated:

6. This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly of any of the following occurrences, namely:--

(a) Earthquake, volcanic eruption or other convulsion of nature. [23]

Fourth, the rider attached to the policy, titled Extended Coverage Endorsement (To Include the Perils of Explosion, Aircraft, Vehicle and Smoke), stated, viz:

ANNUAL PAYMENT AGREEMENT ON LONG TERM POLICIES

THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS INSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A DISCOUNT OF 5% OR 7

% OF THE NET PREMIUM x x x POLICY HEREBY UNDERTAKES TO CONTINUE THE INSURANCE UNDER THE ABOVE NAMED x x x AND TO PAY THE PREMIUM.

Earthquake Endorsement

In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . . . . . . . . . . additional premium the Company agrees, notwithstanding what is stated in the printed conditions of this Policy to the contrary, that this insurance covers loss or damage (including loss or damage by fire) to any of the property insured by this Policy occasioned by or through or in consequence of Earthquake.

Provided always that all the conditions of this Policy shall apply (except in so far as they may be hereby expressly varied) and that any reference therein to loss or damage

by fire should be deemed to apply also to loss or damage occasioned by or through or in consequence of Earthquake.[24]

Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the earthquake shock coverage. Thus, the policy extended earthquake shock coverage to all of the insured properties.

It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance with

each other.[25] All its parts are reflective of the true intent of the parties. The policy cannot be construed piecemeal. Certain stipulations cannot be segregated and then made to control; neither do particular words or phrases necessarily determine its character. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other provisions. All the provisions and riders, taken and interpreted together, indubitably show the intention of the parties to extend earthquake shock coverage to the two swimming pools only.

A careful examination of the premium recapitulation will show that it is the clear intent of the parties to extend earthquake shock coverage only to the two swimming pools. Section 2(1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. Thus, an insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and

5. In consideration of the insurer's promise, the insured pays a premium.[26] (Emphasis ours)

An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril.[27] In fire, casualty, and marine insurance, the premium payable becomes a debt as soon as the risk attaches.[28] In the subject policy, no premium payments were made with regard to earthquake shock coverage, except on the two swimming pools. There is no mention of any premium payable for the other resort properties with regard to earthquake shock. This is consistent with the history of petitioners previous insurance policies from AHAC-AIU. As borne out by petitioners witnesses:

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 12-13

Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policy during the period from March 4, 1984 to March 4, 1985 the coverage on earthquake shock was limited to the two swimming pools only?

A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty, there is a provision here that it was only for item 5.

Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two swimming pools only?

A. Yes, sir.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 23-26

Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange for the procurement of this policy?

A. Yes, sir.

Q. Did you also do this through your insurance agency?

A. If you are referring to Forte Insurance Agency, yes.

Q. Is Forte Insurance Agency a department or division of your company?

A. No, sir. They are our insurance agency.

Q. And they are independent of your company insofar as operations are concerned?

A. Yes, sir, they are separate entity.

Q. But insofar as the procurement of the insurance

policy is concerned they are of course subject to your instruction, is that not correct?

A. Yes, sir. The final action is still with us although they can recommend what insurance to take.

Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14, 1989, did you give written instruction to Forte Insurance Agency advising it that the earthquake shock coverage must extend to all properties of Agoo Playa Resort

in La Union?

A. No, sir. We did not make any written instruction, although we made an oral instruction to that effect of extending the coverage on (sic) the other properties of the company.

Q. And that instruction, according to you, was very important because in April 1987 there was an earthquake tremor in La Union?

A. Yes, sir.

Q. And you wanted to protect all your properties against similar tremors in the [future], is that correct?

A. Yes, sir.

Q. Now, after this policy was delivered to you did you

bother to check the provisions with respect to your instructions that all properties must be covered again by earthquake shock endorsement?

A. Are you referring to the insurance policy issued by American Home Assurance Company marked Exhibit G?

Atty. Mejia: Yes.

Witness:

A. I examined the policy and seeing that the warranty on the earthquake shock endorsement has no more limitation referring to the two swimming pools only, I was contented already that the previous limitation pertaining to the two swimming pools was already removed.

Petitioner also cited and relies on the attachment of the phrase Subject to: Other Insurance Clause, Typhoon Endorsement, Earthquake Shock Endorsement, Extended

Coverage Endorsement, FEA Warranty & Annual Payment Agreement on Long Term Policies[29] to the insurance policy as proof of the intent of the parties to extend the coverage for earthquake shock. However, this phrase is merely an enumeration of the descriptive titles of the riders, clauses, warranties or endorsements to which the policy is subject, as required under Section 50, paragraph 2 of the Insurance Code.

We also hold that no significance can be placed on the deletion of the qualification limiting the coverage to the two swimming pools. The earthquake shock endorsement cannot stand alone. As explained by the testimony of Juan Baranda III, underwriter for AHAC-AIU:

DIRECT EXAMINATION OF JUAN BARANDA III[30] TSN, August 11, 1992

pp. 9-12

Atty. Mejia:

We respectfully manifest that the same exhibits C to H inclusive have been previously marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to review of (sic) these six (6) policies issued by your company [in favor] of Agoo Playa Resort?

WITNESS:

Yes[,] I remember having gone over these policies

at one point of time, sir.

Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H respectively carries an earthquake shock endorsement[?] My question to you is, on the basis on (sic) the wordings indicated in Exhibits C to H respectively what was the extent of the coverage [against] the peril of earthquake shock as provided for in each of the six (6) policies?

x x x

WITNESS:

The extent of the coverage is only up to the two (2) swimming pools, sir.

Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?

A. Yes, sir.

ATTY. MEJIA:

What is your basis for stating that the coverage against earthquake shock as provided for in each of the six (6) policies extend to the two (2) swimming pools only?

WITNESS:

Because it says here in the policies, in the enumeration Earthquake Shock Endorsement, in

the Clauses and Warranties: Item 5 only (Earthquake Shock Endorsement), sir.

ATTY. MEJIA:

Witness referring to Exhibit C-1, your Honor.

WITNESS:

We do not normally cover earthquake shock endorsement on stand alone basis. For swimming pools we do cover earthquake shock. For building we covered it for full earthquake coverage which includes earthquake shock

COURT:

As far as earthquake shock endorsement you do not have a specific coverage for other things other than swimming pool? You are covering building? They are covered by a general insurance?

WITNESS:

Earthquake shock coverage could not stand alone. If we are covering building or another we can issue earthquake shock solely but that the moment I see this, the thing that comes to my mind is either insuring a swimming pool, foundations, they are normally affected by earthquake but not by fire, sir.

DIRECT EXAMINATION OF JUAN BARANDA III TSN, August 11, 1992

pp. 23-25

Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E and F inclusive [remained] its coverage against earthquake shock to two (2) swimming pools only but that Exhibits G and H respectively entend the coverage against earthquake shock to all the properties indicated in

the respective schedules attached to said policies, what can you say about that testimony of plaintiffs witness?

WITNESS:

As I have mentioned earlier, earthquake shock cannot stand alone without the other half of it. I assure you that this one covers the two swimming pools with respect to earthquake shock endorsement. Based on it, if we are going to look

at the premium there has been no change with respect to the rates. Everytime (sic) there is a renewal if the intention of the insurer was to include the earthquake shock, I think there is a substantial increase in the premium. We are not only going to consider the two (2) swimming pools of the other as stated in the policy. As I see, there is no increase in the amount of the premium. I must say that the coverage was not broaden (sic) to include the other items.

COURT:

They are the same, the premium rates?

WITNESS:

They are the same in the sence (sic), in the amount of the coverage. If you are going to do

some computation based on the rates you will arrive at the same premiums, your Honor.

CROSS-EXAMINATION OF JUAN BARANDA III TSN, September 7, 1992

pp. 4-6

ATTY. ANDRES:

Would you as a matter of practice [insure] swimming pools for fire insurance?

WITNESS:

No, we dont, sir.

Q. That is why the phrase earthquake shock to the two (2) swimming pools only was placed, is it not?

A. Yes, sir.

ATTY. ANDRES:

Will you not also agree with me that these exhibits, Exhibits G and H which you have pointed

to during your direct-examination, the phrase Item no. 5 only meaning to (sic) the two (2) swimming pools was deleted from the policies issued by AIU, is it not?

x x x

ATTY. ANDRES:

As an insurance executive will you not attach any significance to the deletion of the qualifying

phrase for the policies?

WITNESS:

My answer to that would be, the deletion of that particular phrase is inadvertent. Being a company underwriter, we do not cover. . it was inadvertent because of the previous policies that we have

issued with no specific attachments, premium rates and so on. It was inadvertent, sir.

The Court also rejects petitioners contention that respondents contemporaneous and subsequent acts to the issuance of the insurance policy falsely gave the petitioner assurance that the coverage of the earthquake shock endorsement included all its properties in the resort. Respondent only insured the properties as intended by the petitioner. Petitioners own witness testified to this agreement, viz:

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, January 14, 1992

pp. 4-5

Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did you tell Atty. Omlas (sic) to copy from Exhibit H for purposes of procuring the policy from Philippine Charter Insurance Corporation?

A. I told him that the insurance that they will have to get will have the same provisions as this American Home Insurance Policy No. 206-4568061-9.

Q. You are referring to Exhibit H of course?

A. Yes, sir, to Exhibit H.

Q. So, all the provisions here will be the same except that of the premium rates?

A. Yes, sir. He assured me that with regards to the

insurance premium rates that they will be charging will be limited to this one. I (sic) can even be lesser.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, January 14, 1992

pp. 12-14

Atty. Mejia:

Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the provisions and scope of coverage of Exhibits I and H sometime in the third week of March, 1990 or thereabout?

A. Yes, sir, about that time.

Q. And at that time did you notice any discrepancy or difference between the policy wordings as well as scope of coverage of Exhibits I and H respectively?

A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that the policy wordings and rates were copied from the insurance policy I sent them but it was only when this case erupted that we discovered some discrepancies.

Q. With respect to the items declared for insurance coverage did you notice any discrepancy at any time between those indicated in Exhibit I and

those indicated in Exhibit H respectively?

A. With regard to the wordings I did not notice any difference because it was exactly the same P393,000.00 on the two (2) swimming pools only against the peril of earthquake shock which I understood before that this provision will have to be placed here because this particular provision under the peril of earthquake shock only is requested because this is an insurance policy and therefore cannot be insured against fire, so this has to be placed.

The verbal assurances allegedly given by respondents representative Atty. Umlas were not proved. Atty. Umlas categorically denied having given such assurances.

Finally, petitioner puts much stress on the letter of respondents independent claims adjuster, Bayne Adjusters

and Surveyors, Inc. But as testified to by the representative of Bayne Adjusters and Surveyors, Inc., respondent never meant to lead petitioner to believe that the endorsement for earthquake shock covered properties other than the two swimming pools, viz:

DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and Surveyors, Inc.) TSN, January 26, 1993

pp. 22-26

Q. Do you recall the circumstances that led to your discussion regarding the extent of coverage of the policy issued by Philippine Charter Insurance Corporation?

A. I remember that when I returned to the office after the inspection, I got a photocopy of the insurance coverage policy and it was indicated under Item 3 specifically that the coverage is only for earthquake shock. Then, I remember I had a

talk with Atty. Umlas (sic), and I relayed to him what I had found out in the policy and he confirmed to me indeed only Item 3 which were the two swimming pools have coverage for earthquake shock.

x x x

Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except for the

swimming pools all affected items have no coverage for earthquake shock?

x x x

A. I based my statement on my findings, because upon my examination of the policy I found out that under Item 3 it was specific on the wordings that

on the two swimming pools only, then enclosed in parenthesis (against the peril[s] of earthquake shock only), and secondly, when I examined the summary of premium payment only Item 3 which refers to the swimming pools have a computation for premium payment for earthquake shock and all the other items have no computation for payment of premiums.

In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the

general rule that insurance contracts are contracts of adhesion which should be liberally construed in favor of the insured and strictly against the insurer company which usually prepares it.[31] A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto. Through the years, the courts have held that in these type of contracts, the parties do not bargain on equal footing, the weaker party's participation being reduced to the

alternative to take it or leave it. Thus, these contracts are viewed as traps for the weaker party whom the courts of justice must protect.[32] Consequently, any ambiguity therein is resolved against the insurer, or construed liberally in favor of the insured.[33]

The case law will show that this Court will only rule out blind adherence to terms where facts and circumstances will show that they are basically one-sided.[34] Thus, we have called on lower courts to remain careful in

scrutinizing the factual circumstances behind each case to determine the efficacy of the claims of contending parties. In Development Bank of the Philippines v. National Merchandising Corporation, et al.,[35] the parties, who were acute businessmen of experience, were presumed to have assented to the assailed documents with full knowledge.

We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot claim it did not know the provisions of the policy. From the inception of the policy, petitioner had required the respondent to copy verbatim the provisions and terms of its latest insurance policy from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct participant in securing the insurance policy of petitioner, is reflective of petitioners knowledge, viz:

DIRECT EXAMINATION OF LEOPOLDO MANTOHAC[36] TSN, September 23, 1991

pp. 20-21

Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those facilities in Agoo Playa?

A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine Charter Insurance Corporation as long as it will follow the same or

exact provisions of the previous insurance policy we had with American Home Assurance Corporation.

Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in the American Home Insurance policy are to be incorporated in the PCIC policy?

A. Yes, sir.

Q. What steps did you take?

A. When I examined the policy of the Philippine Charter Insurance Corporation I specifically told him that the policy and wordings shall be copied from the AIU Policy No. 206-4568061-9.

Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-4568061-9 in

drafting its Insurance Policy No. 31944. It is true that there was variance in some terms, specifically in the replacement cost endorsement, but the principal provisions of the policy remained essentially similar to AHAC-AIUs policy. Consequently, we cannot apply the "fine print" or "contract of adhesion" rule in this case as the parties intent to limit the coverage of the policy to the two swimming pools only is not ambiguous.[37]

IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition for certiorari is dismissed.

No costs.

SO ORDERED.

Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

FIRST DIVISION

[G.R. No. 82036. May 22, 1997]

TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner, vs. HON. COURT OF APPEALS and VICENTE MENDOZA, respondents.

D E C I S I O N

HERMOSISIMA, JR., J.:

The petition herein seeks the review and reversal of the decision[1] of respondent Court of Appeals[2] affirming in toto the judgment[3] of the Regional Trial Court[4] in an action for damages[5] filed by private respondent Vicente

Mendoza, Jr. as heir of his mother who was killed in a vehicular accident.

Before the trial court, the complainant lumped the erring taxicab driver, the owner of the taxicab, and the alleged insurer of the vehicle which featured in the vehicular accident into one complaint. The erring taxicab was allegedly covered by a third-party liability insurance policy issued by petitioner Travellers Insurance & Surety Corporation.

The evidence presented before the trial court established the following facts:

At about 5:30 oclock in the morning of July 20, 1980, a 78-year old woman by the name of Feliza Vineza de Mendoza was on her way to hear mass at the Tayuman Cathedral. While walking along Tayuman corner Gregorio Perfecto Streets, she was bumped by a taxi that was running fast. Several persons witnessed the accident, among whom were Rolando Marvilla, Ernesto Lopez and

Eulogio Tabalno. After the bumping, the old woman was seen sprawled on the pavement. Right away, the good Samaritan that he was, Marvilla ran towards the old woman and held her on his lap to inquire from her what had happened, but obviously she was already in shock and could not talk. At this moment, a private jeep stopped. With the driver of that vehicle, the two helped board the old woman on the jeep and brought her to the Mary Johnston Hospital in Tondo.

x x x Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street from Pritil, Tondo, to Rizal Avenue and vice-versa, also witnessed the incident. It was on his return trip from Rizal Avenue when Lopez saw the plaintiff and his brother who were crying near the scene of the accident. Upon learning that the two were the sons of the old woman, Lopez told them what had happened. The Mendoza brothers were then able to trace their mother at

the Mary Johnston Hospital where they were advised by the attending physician that they should bring the patient to the National Orthopedic Hospital because of her fractured bones. Instead, the victim was brought to the U.S.T. Hospital where she expired at 9:00 oclock that same morning. Death was caused by traumatic shock as a result of the severe injuries she sustained x x x x.

x x x The evidence shows that at the moment the victim was bumped by the vehicle, the latter was running fast, so

much so that because of the strong impact the old woman was thrown away and she fell on the pavement. x x x In truth, in that related criminal case against defendant Dumlao x x x the trial court found as a fact that therein accused was driving the subject taxicab in a careless, reckless and imprudent manner and at a speed greater than what was reasonable and proper without taking the necessary precaution to avoid accident to persons x x x considering the condition of the traffic at the place at the time aforementioned x x x. Moreover, the driver fled from

the scene of the accident and without rendering assistance to the victim. x x x

x x x Three (3) witnesses who were at the scene at the time identified the taxi involved, though not necessarily the driver thereof. Marvilla saw a lone taxi speeding away just after the bumping which, when it passed by him, said witness noticed to be a Lady Love Taxi with Plate No. 438, painted maroon, with baggage bar attached on the baggage compartment and with an antenae[sic] attached at the right rear side.The same descriptions were revealed by Ernesto Lopez, who further described the taxi to have x x x reflectorized decorations on the edges of the glass at the back. x x x A third witness in the person of Eulogio Tabalno x x x made similar descriptions although, because of the fast speed of the taxi, he was only able to detect the last digit of the plate number which is 8. x x x [T]he police proceeded to the garage of Lady Love Taxi and then and

there they took possession of such a taxi and later impounded it in the impounding area of the agency concerned. x x x [T]he eyewitnesses x x x were unanimous in pointing to that Lady Love Taxi with Plate No. 438, obviously the vehicle involved herein.

x x x During the investigation, defendant Armando Abellon, the registered owner of Lady Love Taxi bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact that the vehicle was driven last July 20, 1980 by one Rodrigo Dumlao x x

x x x x It was on the basis of this affidavit of the registered owner that caused the police to apprehend Rodrigo Dumlao, and consequently to have him prosecuted and eventually convicted of the offense x x x. x x x [S]aid Dumlao absconded in that criminal case, specially at the time of the promulgation of the judgment therein so much so that he is now a fugitive from justice.[6]

Private respondent filed a complaint for damages against Armando Abellon as the owner of the Lady Love

Taxi and Rodrigo Dumlao as the driver of the Lady Love taxicab that bumped private respondents mother. Subsequently, private respondent amended his complaint to include petitioner as the compulsory insurer of the said taxicab under Certificate of Cover No. 1447785-3.

After trial, the trial court rendered judgment in favor of private respondent, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more particularly the Heirs of the late Feliza Vineza de Mendoza, and against defendants Rodrigo Dumlao, Armando Abellon and Travellers Insurance and Surety Corporation, by ordering the latter to pay, jointly and severally, the former the following amounts:

(a) The sum of P2,924.70, as actual and compensatory damages, with interest thereon at the rate of 12% per

annum from October 17, 1980, when the complaint was filed, until the said amount is fully paid;

(b) P30,000.00 as death indemnity;

(c) P25,000.00 as moral damages;

(d) P10,000.00 as by way of corrective or exemplary damages; and

(e) Another P10,000.00 by way of attorneys fees and other

litigation expenses.

Defendants are further ordered to pay, jointly and severally, the costs of this suit.

SO ORDERED.[7]

Petitioner appealed from the aforecited decision to the respondent Court of Appeals. The decision of the trial court was affirmed by respondent appellate

court. Petitioners Motion for Reconsideration[8] of September 22, 1987 was denied in a Resolution[9] dated February 9, 1988.

Hence this petition.

Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer of the Lady Love Taxi and that, assuming arguendo that it had indeed covered said taxicab for third-party liability insurance, private respondent failed to file a written notice of claim

with petitioner as required by Section 384 of P.D. No. 612, otherwise known as the Insurance Code.

We find the petition to be meritorious.

I

When private respondent filed his amended complaint to implead petitioner as party defendant and therein alleged that petitioner was the third-party liability insurer

of the Lady Love taxicab that fatally hit private respondents mother, private respondent did not attach a copy of the insurance contract to the amended complaint. Private respondent does not deny this omission.

It is significant to point out at this juncture that the right of a third person to sue the insurer depends on whether the contract of insurance is intended to benefit third persons also or only the insured.

[A] policy x x x whereby the insurer agreed to indemnify

the insured against all sums x x x which the Insured shall become legally liable to pay in respect of: a. death of or bodily injury to any person x x x is one for indemnity against liability; from the fact then that the insured is liable to the third person, such third person is entitled to sue the insurer.

The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the contract of insurance is intended to benefit third persons also or on

the insured. And the test applied has been this: Where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable can sue the insurer. Where the contract is for indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him thru payment to third persons, said third persons recourse being thus limited to the insured alone.[10]

Since private respondent failed to attach a copy of the insurance contract to his complaint, the trial court could not have been able to apprise itself of the real nature and pecuniary limits of petitioners liability. More importantly, the trial court could not have possibly ascertained the right of private respondent as third person to sue petitioner as insurer of the Lady Love taxicab because the trial court

never saw nor read the insurance contract and learned of its terms and conditions.

Petitioner, understandably, did not volunteer to present any insurance contract covering the Lady Love taxicab that fatally hit private respondents mother, considering that petitioner precisely presented the defense of lack of insurance coverage before the trial court. Neither did the trial court issue a subpoena duces tecum to have the insurance contract produced before it under pain of contempt.

We thus find hardly a basis in the records for the trial court to have validly found petitioner liable jointly and severally with the owner and the driver of the Lady Love taxicab, for damages accruing to private respondent.

Apparently, the trial court did not distinguish between the private respondents cause of action against the owner and the driver of the Lady Love taxicab and his cause of action against petitioner. The former is based on torts and quasi-delicts while the latter is based on

contract. Confusing these two sources of obligations as they arise from the same act of the taxicab fatally hitting private respondents mother, and in the face of overwhelming evidence of the reckless imprudence of the driver of the Lady Love taxicab, the trial court brushed aside its ignorance of the terms and conditions of the insurance contract and forthwith found all three - the driver of the taxicab, the owner of the taxicab, and the alleged insurer of the taxicab - jointly and severally liable for actual, moral and exemplary damages as well as

attorneys fees and litigation expenses. This is clearly a misapplication of the law by the trial court, and respondent appellate court grievously erred in not having reversed the trial court on this ground.

While it is true that where the insurance contract provides for indemnity against liability to third persons, such third

persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against third-party liability does not mean that the insurer can be held solidarily liable with 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 on tort.[11]

Applying this principle underlying solidary obligation and insurance contracts, we ruled in one case that:

In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors. On the other hand, insurance is defined as a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.

In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the qualification that

petitioners liability is only up to P20,000.00. In the context of a solidary obligation, petitioner may be compelled by respondent Vallejos to pay the entire obligation of P29,103.00, notwithstanding the qualification made by the trial court. But, how can petitioner be obliged to pay the entire obligation when the amount stated in its insurance policy with respondent Sio Choy for indemnity against third-party liability is only P20,000.00? Moreover, the qualification made in the decision of the trial court to the effect that petitioner is sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is made solidary is an evident breach of the concept of a solidary obligation.[12]

The above principles take on more significance in the light of the counter-allegation of petitioner that, assuming arguendo that it is the insurer of the Lady Love taxicab in question, its liability is limited to

only P50,000.00, this being its standard amount of coverage in vehicle insurance policies. It bears repeating that no copy of the insurance contract was ever proffered before the trial court by the private respondent, notwithstanding knowledge of the fact that the latters complaint against petitioner is one under a written contract. Thus, the trial court proceeded to hold petitioner liable for an award of damages exceeding its limited liability of P50,000.00. This only shows beyond doubt that the trial court was under the erroneous presumption that

petitioner could be found liable absent proof of the contract and based merely on the proof of reckless imprudence on the part of the driver of the Lady Love taxicab that fatally hit private respondents mother.

II

Petitioner did not tire in arguing before the trial court and the respondent appellate court that, assuming arguendo that it had issued the insurance contract over the Lady Love taxicab, private respondents

cause of action against petitioner did not successfully accrue because he failed to file with petitioner a written notice of claim within six (6) months from the date of the accident as required by Section 384 of the Insurance Code.

At the time of the vehicular incident which resulted in the death of private respondents mother, during which time the Insurance Code had not yet been amended by Batas Pambansa (B.P.) Blg. 874, Section 384 provided as follows:

Any person having any claim upon the policy issued pursuant to this chapter shall, without any unnecessary delay, present to the insurance company concerned a written notice of claim setting forth the amount of his loss, and/or the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within six months from date of the

accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought in proper cases, with the Commission or the Courts within one year from date of accident, otherwise the claimants right of action shall prescribe [emphasis and underscoring supplied].

In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De Guzman,[13] we ruled that the one year prescription period to bring suit in court against the

insurer should be counted from the time that the insurer rejects the written claim filed therewith by the insured, the beneficiary or the third person interested under the insurance policy. We explained:

It is very obvious that petitioner company is trying to use Section 384 of the Insurance Code as a cloak to hide itself from its liabilities. The facts of these cases evidently reflect the deliberate efforts of petitioner company to prevent the filing of a formal action against it. Bearing in

mind that if it succeeds in doing so until one year lapses from the date of the accident it could set up the defense of prescription, petitioner company made private respondents believe that their claims would be settled in order that the latter will not find it necessary to immediately bring suit. In violation of its duties to adopt and implement reasonable standards for the prompt investigation of claims and to effectuate prompt, fair and equitable settlement of claims, and with manifest bad faith, petitioner company devised means and ways of stalling the settlement proceedings. x x x [N]o steps were taken to process the claim and no rejection of said claim was ever made even if private respondent had already complied with all the requirements. x x x

This Court has made the observation that some insurance companies have been inventing excuses to avoid their just obligations and it is only the State that can give the

protection which the insuring public needs from possible abuses of the insurers.[14]

It is significant to note that the aforecited Section 384 was amended by B.P. Blg. 874 to categorically provide that action or suit for recovery of damage due to loss or injury must be brought in proper cases, with the Commissioner or the Courts within one year from denial of the claim, otherwise the claimants right of action shall prescribe [emphasis ours].[15]

We have certainly ruled with consistency that the prescriptive period to bring suit in court under an insurance policy, begins to run from the date of the insurers rejection of the claim filed by the insured, the beneficiary or any person claiming under an insurance contract. This ruling is premised upon the compliance by the persons suing under an insurance contract, with the indispensable requirement of having filed the written claim mandated by Section 384 of the Insurance Code before and after its amendment. Absent such written claim filed

by the person suing under an insurance contract, no cause of action accrues under such insurance contract, considering that it is the rejection of that claim that triggers the running of the one-year prescriptive period to bring suit in court, and there can be no opportunity for the insurer to even reject a claim if none has been filed in the first place, as in the instant case.

The one-year period should instead be counted from the date of rejection by the insurer as this is the time when the cause of action accrues. x x x

In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled:

The plaintiffs cause of action did not accrue until his claim was finally rejected by the insurance company. This is

because, before such final rejection, there was no real necessity for bringing suit.

The philosophy of the above pronouncement was pointed out in the case of ACCFA vs. Alpha Insurance and Surety Co., viz.:

Since a cause of action requires, as essential elements, not only a legal right of the plaintiff and a correlative obligation of the defendant but also an act or omission of the defendant in violation of said legal right, the cause of action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty.[16]

When petitioner asseverates, thus, that no written claim was filed by private respondent and rejected by petitioner, and private respondent does not dispute such asseveration through a denial in his pleadings, we are constrained to rule that respondent appellate court committed reversible error in finding petitioner liable under an insurance contract the existence of which had not at all been proven

in court. Even if there were such a contract, private respondents cause of action can not prevail because he failed to file the written claim mandated by Section 384 of the Insurance Code. He is deemed, under this legal provision, to have waived his rights as against petitioner-insurer.

WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 09416 and the decision of the Regional Trial Court in Civil Case No. 135486 are REVERSED and SET ASIDE insofar as Travellers Insurance & Surety Corporation was found jointly and severally liable to pay actual, moral and exemplary damages, death indemnity, attorneys fees and litigation expenses in Civil Case No. 135486. The complaint against Travellers Insurance & Surety Corporation in said case is hereby ordered dismissed.

No pronouncement as to costs.

SO ORDERED.

Bellosillo, Vitug, and Kapunan, JJ., concur. Padilla, (Chairman), J., on leave.

Republic of the Philippines SUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-44059 October 28, 1977

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee, vs. CARPONIA T. EBRADO and PASCUALA VDA. DE

EBRADO, defendants-appellants.

MARTIN, J.:

This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life insurance policy of a legally married man claim the proceeds thereof in case of death of the latter?

On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy No. 009929 on a whole-life for P5,882.00 with a, rider for Accidental Death for the same amount Buenaventura C. Ebrado designated T. Ebrado as the revocable beneficiary in his policy. He to her as his wife.

On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing branch of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage in the total amount of P11,745.73, representing the face value of the policy in the amount of P5,882.00 plus the additional benefits for accidental death also in the amount of P5,882.00 and the refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums and interest thereon due for January and February, 1969, in the sum of P36.27.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were merely living as husband and wife without the benefit of marriage.

Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is the one entitled to the insurance proceeds, not the common-law

wife, Carponia T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co., Ltd. commenced an action for Interpleader before the Court of First Instance of Rizal on April 29, 1970.

After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trial order was entered reading as follows: ñé+.£ªwph!1

During the pre-trial conference, the parties manifested to the court. that there is no possibility of amicable settlement. Hence, the Court proceeded to have the parties submit their evidence for the purpose of the pre-trial and make admissions for the purpose of pretrial. During this conference, parties Carponia T.

Ebrado and Pascuala Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was married to Pascuala Ebrado with whom she has six — (legitimate) namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the lifetime of the deceased, he was insured with Insular Life Assurance Co. Under Policy No. 009929 whole life plan, dated September 1, 1968 for the sum of P5,882.00 with the rider for

accidental death benefit as evidenced by Exhibits A for plaintiffs and Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the lifetime of Buenaventura Ebrado, he was living with his common-wife, Carponia Ebrado, with whom she had 2 children although he was not legally separated from his legal wife; 4) that Buenaventura in accident on October 21, 1969 as evidenced by the death Exhibit 3 and affidavit of the police report of his

death Exhibit 5; 5) that complainant Carponia Ebrado filed claim with the Insular Life Assurance Co. which was contested by Pascuala Ebrado who also filed claim for the proceeds of said policy 6) that in view ofthe adverse claims the insurance company filed this action against the two herein claimants Carponia and Pascuala Ebrado; 7) that there is now due from the Insular Life Assurance Co. as proceeds of the policy P11,745.73; 8) that the beneficiary designated by the insured in the

policy is Carponia Ebrado and the insured made reservation to change the beneficiary but although the insured made the option to change the beneficiary, same was never changed up to the time of his death and the wife did not have any opportunity to write the company that there was reservation to change the designation of the parties agreed that a decision be rendered based

on and stipulation of facts as to who among the two claimants is entitled to the policy.

Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from the receipt of this order.

SO ORDERED.

On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebrado disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and directing the payment of the insurance proceeds to the estate of the deceased insured. The trial court held: ñé+.£ªwph!1

It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction for adultery or concubinage is not essential in order to establish the disqualification mentioned therein. Neither is it also necessary that a finding

of such guilt or commission of those acts be made in a separate independent action brought for the purpose. The guilt of the donee (beneficiary) may be proved by preponderance of evidence in the same proceeding (the action brought to declare the nullity of the donation).

It is, however, essential that such adultery or concubinage exists at the time defendant Carponia T. Ebrado was made beneficiary in the

policy in question for the disqualification and incapacity to exist and that it is only necessary that such fact be established by preponderance of evidence in the trial. Since it is agreed in their stipulation above-quoted that the deceased insured and defendant Carponia T. Ebrado were living together as husband and wife without

being legally married and that the marriage of the insured with the other defendant Pascuala Vda. de Ebrado was valid and still existing at the time the insurance in question was purchased there is no question that defendant Carponia T. Ebrado is disqualified from becoming the beneficiary of the policy in question and as such she is not entitled to the proceeds of the insurance upon the death of the insured.

From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the Appellate Court certified the case to Us as involving only questions of law.

We affirm the judgment of the lower court.

1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD No. 612, as amended) does not contain any specific provision grossly resolutory of the prime question at hand. Section 50 of the Insurance Act which provides that "(t)he

insurance shag be applied exclusively to the proper interest of the person in whose name it is made" 1 cannot be validly seized upon to hold that the mm includes the beneficiary. The word "interest" highly suggests that the provision refers only to the "insured" and not to the beneficiary, since a contract of insurance is personal in character. 2 Otherwise, the prohibitory laws against illicit relationships especially on property and descent will be rendered nugatory, as the same could easily be circumvented by modes of insurance. Rather, the general rules of civil law should be applied to resolve this void in the Insurance Law. Article 2011 of the New Civil Code states: "The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code." When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules

of the civil law regulating contracts. 3 And under Article 2012 of the same Code, "any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a fife insurance policy by the person who cannot make a donation to him. 4 Common-law spouses are, definitely, barred from receiving donations from each other. Article 739 of the new Civil Code provides: ñé+.£ªwph!1

The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the time of donation;

Those made between persons found guilty of the same criminal offense, in consideration thereof;

3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donee may be proved by preponderance of evidence in the same action.

2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded upon the same consideration: liberality. A

beneficiary is like a donee, because from the premiums of the policy which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurance policy

of the person who cannot make the donation.5 Under American law, a policy of life insurance is considered as a testament and in construing it, the courts will, so far as possible treat it as a will and determine the effect of a clause designating the beneficiary by rules under which wins are interpreted. 6

3. Policy considerations and dictates of morality rightly justify the institution of a barrier between common law spouses in record to Property relations since such hip

ultimately encroaches upon the nuptial and filial rights of the legitimate family There is every reason to hold that the bar in donations between legitimate spouses and those between illegitimate ones should be enforced in life insurance policies since the same are based on similar consideration As above pointed out, a beneficiary in a fife insurance policy is no different from a donee. Both are recipients of pure beneficence. So long as manage remains the threshold of family laws, reason and morality dictate that the impediments imposed upon married couple should

likewise be imposed upon extra-marital relationship. If legitimate relationship is circumscribed by these legal disabilities, with more reason should an illicit relationship be restricted by these disabilities. Thus, in Matabuena v. Cervantes, 7 this Court, through Justice Fernando, said: ñé+.£ªwph!1

If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court (Court of Appeals), 'to prohibit donations in favor of the other consort and his descendants because of and undue and improper pressure and influence upon the donor, a prejudice deeply rooted in our ancient law;" por-que no se enganen desponjandose el uno al otro por amor que han de consuno' (According to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore invicem

spoliarentur' the Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem); then there is very reason to apply the same prohibitive policy to persons living together as husband and wife without the benefit of nuptials. For it is not to be doubted that assent to such irregular connection for thirty years bespeaks greater influence of one party over the other, so that the danger that the law seeks to avoid is correspondingly increased. Moreover, as already pointed out by Ulpian (in his

lib. 32 ad Sabinum, fr. 1), 'it would not be just that such donations should subsist, lest the condition 6f those who incurred guilt should turn out to be better.' So long as marriage remains the cornerstone of our family law, reason and morality alike demand that the disabilities attached to marriage should likewise attach to concubinage.

It is hardly necessary to add that even in the

absence of the above pronouncement, any other conclusion cannot stand the test of scrutiny. It would be to indict the frame of the Civil Code for a failure to apply a laudable rule to a situation which in its essentials cannot be distinguished. Moreover, if it is at all to be differentiated the policy of the law which embodies a deeply rooted notion of what is just and what is right would be nullified if such irregular relationship instead of being visited with disabilities would be attended

with benefits. Certainly a legal norm should not be susceptible to such a reproach. If there is every any occasion where the principle of statutory construction that what is within the spirit of the law is as much a part of it as what is written, this is it. Otherwise the basic purpose discernible in such codal provision would not be attained. Whatever omission may be apparent in

an interpretation purely literal of the language used must be remedied by an adherence to its avowed objective.

4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739 may effectuate. More specifically, with record to the disability on "persons who were guilty of adultery or concubinage at the time of the donation," Article 739 itself provides: ñé+.£ªwph!1

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilty of the donee may be proved by preponderance of evidence in the same action.

The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. In fact, it cannot even be from the aforequoted provision that a prosecution is needed. On the contrary, the law plainly

states that the guilt of the party may be proved "in the same acting for declaration of nullity of donation. And, it would be sufficient if evidence preponderates upon the guilt of the consort for the offense indicated. The quantum of proof in criminal cases is not demanded.

In the caw before Us, the requisite proof of common-law relationship between the insured and the beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial conference of the case. It case

agreed upon and stipulated therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate children; that during his lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado, with whom he has two children. These stipulations are nothing less thanjudicial admissions which, as a consequence, no

longer require proof and cannot be contradicted. 8 A fortiori, on the basis of these admissions, a judgment may be validly rendered without going through the rigors of a trial for the sole purpose of proving the illicit liaison between the insured and the beneficiary. In fact, in that pretrial, the parties even agreed "that a decision be rendered based on this agreement and stipulation of facts as to who among the two claimants is entitled to the policy."

ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the proceeds of the policy are hereby held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado.

SO ORDERED.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-6114 October 30, 1954

SOUTHERN LUZON EMPLOYEES' ASSOCIATION, plaintiff,

vs. JUANITA GOLPEO, ET AL., defendants-appellants; AQUILINO MALOLES , ET AL., defendants-appellees; ELSIE HICBAN, ET AL., defendants; MARCELINO CONCEPCION, ET AL., intervenors-appellants.

Enrique Al. Capistrano, Pio O. Golfeo, Jose E. Erfe and Hilario Mutuc for appellants.

Manuel Alvero and Elden B. Brion for appellees. Juan A. Baes for defendant Elsie Hicban.

PARAS, C.J.:

The plaintiff, Southern Luzon Employees' Association is composed of laborers and employees of Laguna tayabas Bus Co., and Batangas Transportation Company, and one of its purposes is mutual aid of its members and their defendants in case of death. Roman A. Concepcion was a member until his death on December 13, 1950. The association adopted on September 17, 1949 the following resolution:

RESOLVED: That a family record card of each member be printed wherein the members will put down his dependents and/or beneficiaries.

BE IT RESOLVED, FURTHER, that a member may, if he chooses, put down his common-law wife as his beneficiary and/or children had with her as the case

may be; that in case of a widower, he may put down his legitimate children with the first marriage who are below 21 years of age, single, and may at the same time, also name his common-law wife, if he has any, as dependents and/or beneficiaries; and

BE IT RESOLVED: That such person so named by the member will be sole persons to be recognized by the Association regarding claims for condolence contributions.

In the form required by the association to be accomplished by its members, with reference to the death benefit, Roman A. Concepcion listed as his beneficiaries Aquilina Maloles, Roman M. Concepcion, Jr., Estela M. Concepcion, Rolando M. Concepcion and Robin M. Concepcion. After the death of Roman A. Concepcion, the association was able to collect voluntary contributions from its members

amounting to P2,5055. Three sets of claimants presented themselves, namely, (1) Juanita Golpeo, legal wife of Roman A. Concepcion, and her children, named beneficiaries by the deceased; and (3) Elsie Hicban, another common law wife of Roman A. Concepcion, and her child. The plaintiff association was accordingly constrained to institute in the Court of First Instance of Laguna the present action for interpleading against the three conflicting claimants as defendants. Marcelino and Josefina Concepcion, children of the deceased Roman A.

Concepcion with Juanita Golpeo, intervened in their own rights, aligning themselves with the defendants, Juanita Golpeo and her minor children. After hearing, the court rendered a decision, declaring the defendants Aquilina Maloles and her children the sole beneficiaries of the sum of P2,505.00, and ordering the plaintiff to deliver said amount to them. From this decision only the defendants Juanita Golpeo and her minor children and the intervenors Marcelino and Josefina Concepcion have appealed to this court.

The decision is based mainly on the theory that the contract between the plaintiff and the deceased Roman A. Concepcion partook of the nature of an insurance and that, therefore, the amount in question belonged exclusively to the beneficiaries, invoking the following pronouncements of this Court in the case of Del Val vs. Del Val, 29 Phil., 534:

With the finding of the trial court that the proceeds of the life-insurance policy belongs exclusively to the defendant as his individual and separate property, we agree. That the proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate of the person whose life was insured, and that such proceeds are the separate and individual property of the beneficiary, and not of the heirs of the person whose life was insured, is the doctrine in America. We

believe that the same doctrine obtains in these Islands by virtue of section 428 of the Code of Commerce, which reads:

"The amounts which the underwriter must deliver to the person insured, in fulfillment of the contract, shall be the property creditors of any kind whatsoever of the person who effected the insurance in favor of the formers."

It is claimed by the attorney for the plaintiffs that the section just quoted in subordinated to the provisions of the civil code as found in article 10035. This article reads:

"An heir by force of law surviving with others of the same character to a succession must bring into the hereditary estate the property or securities he may bring into the hereditary estate the property or securities he may have been received from the deceased during the life of the same, by way of dowry,

gift, or for any good consideration, in order to compute it in fixing the legal portions and in the amount of the division."

Counsel also claims that the proceed of the insurance policy were donation or gift made by the father during his lifetime to the defendant and that, as such, its ultimate destination is determined by those provisions of the Civil Code which relate to donations, especially article 819. This article provides that "gifts made to

children which are not betterments shall be considered as part of their legal portion."

We cannot agree with these contention. The contract of life insurance is a special contract and the destination of the proceeds thereof is determined by special laws which deal exclusively with that subject.

The Civil Code has no provisions which relate directly and specifically to life-insurance contract or to the destination of life-insurance proceeds. That subject is regulate exclusively by the Code of Commerce which provides for the terms of the contract, the relations of the parties and the destination of the proceeds of the policy. (Supra, pp. 540-541.)

It is argued for the appellants, however, that the Insurance Law is not applicable because the plaintiff is a

mutual benefit association as defined in section 1628 of the Revised Administrative Code. This argument evidently ignore the fact that the trial court has no considered the plaintiff as a regular insurance company but merely ruled that the death benefit in question is analogous to an insurance. Moreover, section 1628 of the Revised Administrative Code defines a mutual benefit association as one, among others, "providing for any method of accident or life insurance among its members out of dues or assessments collected from the membership." The

comparison made in the appealed decision is, therefore, well taken.

Appellant also contend that the stipulation between the plaintiff and the deceased Roman A. Concepcion regarding the specification of the latter's beneficiaries, and the resolution of September 17, 1949, are void for the being contrary to law, moral or public policy. Specifically, the appellants cite article 2012 of the new Civil Code providing that "Any person who is forbidden from receiving any donation under article 739 cannot be named beneficiary of a life insurance policy and by the person who cannot make any donation to him, according to said article." Inasmuch as, according to article 739 of the new Civil Code, a donation is valid when made "between persons who are guilty or adultery or concubinage at the time of the donation," it is alleged that the defendant-appellee Aquilina Maloles, cannot be named a beneficiary, every

assuming that the insurance law is applicable. Without considering the intimation in the brief for the defendant appellees that appellant Juanita Golpeo, by her silence and actions, had acquiesced in the illicit relations between her husband and appellee Aquilina Maloles, appellant argument would certainly not apply to the children of Aquilina likewise named beneficiaries by the deceased Roman A. Concepcion. As a matter of a fact the new Civil Code recognized certain successional rights of illegitimate children. (Article 287.)

The other contention advanced rather exhaustively by counsel for appellants, and the citations in support there of are either negative or rendered inapplicable by the decisive considerations already stated. In this connection it is noteworthy that the estate of the deceased Roman A. Concepcion was not entirely left without anything legally due it since it is an admitted fact that the sum of P2,500 was paid by Laguna Tayabas Bus Co., employer of the deceased to the appellants under the Workmen's

Compensation Act. Wherefore, the appealed decision is affirmed, and it is so ordered without costs.

Bengzon, Jugo and Bautista Angelo, JJ., concur. Padilla and Reyes, A., JJ., concur in the result.

EN BANC

[G.R. No. L-12189. April 29, 1960.]

FRANCISCA GALLARDO, Plaintiff-Appellee, v. HERMENEGILDA S. MORALES, Defendant-Appellant.

Cajulis & Dolorfino for Appellee.

Filemon Cajator for Appellant.

SYLLABUS 1. EXECUTION EXEMPTION; PROCEEDS FROM INSURANCE CONTRACTS AGAINST LOSS OF LIFE DUE TO ACCIDENTAL CAUSES OR TO WILLFUL AND CRIMINAL ACT OF ANOTHER. — The exemption from execution established in section 12, subdivision (k), Rule 39 of the Rules of Court, applies to ordinary life insurance contracts, as well as to those which, although intended primarily to indemnify for risks

arising from accident, likewise, insure against loss of life due, either to accidental causes, or to the willful and criminal act of another, which, as such, is not strictly accidental in nature.

D E C I S I O N

CONCEPCION, J.:

The issue before us is whether a personal accident insurance which "insures for injuries and/or death as a result of murder or assault or attempt thereat" is a life insurance, within the purview of Rule 39, section 12, subdivision (k), of the Rules of Court, exempting from execution. "All moneys, benefits, privileges, or annuities accruing or

in any manner growing out of any life insurance, if the annual premiums paid do not exceed five hundred pesos, and if they exceed that sum a like exemption shall exist which shall bear the same proportion to the moneys, benefits, privileges, and annuities so accruing or growing out of such insurance that said five hundred pesos bears to the whole annual premiums paid."cralaw virtua1aw library

In accordance with a compromise agreement between the parties in the above-entitled case, a decision was rendered therein by the Court of First Instance of Manila, on February 3, 1956, sentencing defendant Hermenegilda S. Morales to pay to plaintiff Francisca Gallardo the sum of Seven Thousand Pesos (P7,000.00). In due course, the corresponding writ of execution was issued and delivered to the Sheriff of Manila, who, on August 8, 1956, garnished and levied execution on the sum of P7,000.00, out of the P30,000.00 due from the Capital Insurance & Surety Co.,

Inc., to said defendant, as beneficiary under a personal accident policy issued by said company to defendant’s husband, Luis Morales, who died, on August 26, 1950, by assassination. Invoking the above-quoted provision of the Rules of Court, defendant asked the sheriff to quash and lift said garnishment or levy on execution. Upon denial of this request by the sheriff, defendant filed a motion praying that the aforementioned sum of P7,000.00 be declared exempt from execution under said provision of the Rules of Court, and that the Sheriff of Manila be

ordered to quash or lift said garnishment or levy on execution. This motion was denied by an order dated October 18, 1956. Hence, the present appeal by the defendant, who maintains that the policy in question is a life insurance policy, within the purview of the aforementioned exemption, for it insured her husband." . . for injuries and/or death as a result of murder or assault or attempt thereat."cralaw virtua1aw library In its order denying the claim for exemption set up by the

defendant, the lower court expressed itself as follows:jgc:chanrobles.com.ph "Upon a perusal of the authorities cited by the parties, this Court is fully convinced that there is a fundamental distinction between life insurance and accident insurance, and the insurance policy issued to Luis G. Morales, husband of herein defendant, was undoubtedly an accident

insurance, as distinguished from a life insurance. As conceded by the facts appearing in the pleadings, the personal accident policy, part of the proceeds of which is under garnishment, was for P50,000.00 and yet the annual premium was for only Pl50.00. If it were an ordinary life insurance policy, taking into account that the insured, Luis G. Morales, was 38 years of age and the amount of the policy was for P50,000.00 the annual premium would have been around P1,206.00. Besides, the period for the policy was stipulated for one year, and considerations as to age,

health, occupation and other personal circumstances were not taken into account in an accident insurance policy. Even the certification issued by the insurance commissioner on August 23, 1956, marked as Annex ‘1’ of the opposition, shows that the Capital Insurance and Surety Company Inc. is a non-life insurance company and that the only authority granted to it to transact business covers fire, marine, surety, fidelity, accident, motor car, and miscellaneous insurance, except life insurance. From this circumstance alone, not to mention many others, there

are abundant indications that there exists a fundamental distinction between life insurance and accident insurance. As counsel for oppositor has clearly pointed out, an accident policy merely insures the person from injury and or death resulting from murder, assault, or an attempt threat, while in life insurance policy, what is insured is the life of the subject for a definite number of years. From the authorities quoted by the oppositor, this Court is fully convinced that an accident policy is fundamentally different from a life insurance policy, especially if this

Court takes into account that accident insurance is an indemnity or casualty contract, while life insurance is an investment contract."cralaw virtua1aw library It is not disputed that a life insurance is, generally speaking, distinct and different from an accident insurance. However, when one of the risks insured in the latter is the death of the insured by accident, then there

are authorities to the effect that such accident insurance may, also, be regarded as a life insurance. "‘Life insurance’ is a contract whereby one party insures a person against loss by the death of another. Petition of Robbins, 140 A. 366, 367, 126 Me. 555."cralaw virtua1aw library "An insurance on life is a contract by which the insurer, for a stipulated sum, engages to pay a certain amount of

money if another dies within the time limited by the policy. Cason v. Owens, 26 S. E. 75, 76, 100 Ga. 142."cralaw virtua1aw library "‘Life insurance includes all policies of insurance in which the payment of the insurance money is contingent upon the loss of life. Bowless v. Mutual Ben. Health & Accident Ass’n, C.C.A. Va. 99F. 2d 44, 48, 49."cralaw virtua1aw library

"A contract for life insurance is really a contract for insurance for one year in consideration of an advanced premium, with the right of assured to continue it from year to year upon payment of a premium as stipulated. Mutual Life Ins. Co. v. Girard Life Ins. Co., 100 Pa 172, 180."cralaw virtua1aw library "In its broader sense, ‘life insurance’ includes accident insurance, since life is insured under either contract. American Trust & Banking Co. v. Lessly, 106 S.W. 2d. 551,

552, 171 Tenn. 561, 111 A.L.R. 59.." "Under statute providing that ‘any life insurance’ on life of husband shall insure to benefit of widow and children exempt from husband’s debts, proceeds of policy insuring against death by accident insured to widow’s benefit free from husband’s debts. Code 1932, B 8456. American Trust & Banking Co. v. Lessly, 106 S.W. 2d 551, 171 Tenn. 511

III A.L.R. 59."cralaw virtua1aw library "Insurance policy, providing for payment in case of accidental death, is ‘life insurance policy’ to such extent within state statute prescribing in-contestable period for such policies. Code S.C. 1932 ss 7986, 7987. Pacific Mut. Life Ins. Co. of California v. Parker, C.C.A.S.C., 71 F. 2d 872, 875.’ "‘Life insurance’ includes all policies of insurance in which

pay ment of insurance money is contingent upon loss of life. . . . Smith v. Equitable Life Assur. Soc. of U.S., 89 S.W. 2d 165, 167, 169 Tenn. 477."cralaw virtua1aw library "Insurance policy including a death benefit and a health or accident disability benefit constituted a ‘life insurance policy’ within meaning of laws 1926, c. 118, S. 134, imposing privilege tax on insurance companies with different rates as between life insurance companies and other companies, in view of provisions of Code 1906, ss

2576, 2598 (Hemingway’s Code 1927, ss 5830, 5856), and Law 1924, c. 191, s I (Hemingway’s Code 1927, s 5995); it being immaterial that in some policy forms the health and disability feature was more valuable asent a showing that death provision was inserted to avoid the higher tax. Universal Life Ins. Co. v. State, 121 So. 849, 850, 155 Miss. 358." (25 Words & Phrases 260, 261, 262.) "When the application was made, Harris W. Rimmer carried life insurance with the Equitable Life Assurance

Society for $10,000, payable upon proof of death, with a provision that upon death by accident the amount of insurance payable would be increased to $20,000. The plaintiff insisted that this was life insurance, a disclosure of which was not called for in question 10, while the defendant insisted it was accident insurance that should have been disclosed and further insisted that, it being a fact material to the risk the failure to disclose the policy in

the Equitable Life Assurance Society rendered the policy issued to the applicant void. . . . "The court might have gone further and held that the failure of the applicant to characterize the insurance in the Equitable Life Assurance Society as accident insurance did not constitute a false answer to the inquiry of what accident or health insurance he was carrying. The policy in the Equitable Life Assurance Society covered loss of life from natural as well as external and accidental causes, and

was life insurance. The mere addition of the double indemnity clause providing for increased insurance upon proof of death by accident did not divest the policy of its character of insurance on life, or make the contract other than life insurance, for insurance on life includes all policies of insurance in which the payment of the insurance money is contingent upon the loss of life. Logan v. Fidelity & Casualty Co., 146 Mo. 114, 47 S.W. 948. See also Johnson v. Fidelity & Guaranty Co., 148 Mich. 406, 151 N.W. 593, L.R.A. 1916A, 475; Zimmer v. Central Accidental

Co., 207 Pa. 472, 56 A. 1003; Wright v. Fraternities Health & Accident Ass’n. 107 Me. 418, 78A. 475, 32 L.R.A. (N.S. )461; Metropolitan Life Ins. Co. v. Ins. Com’r 208 Mass. 386, 94 N.E. 477; Standard Life & Accident Ins. Co. v. Caroll, 86 F. 567, 41 L.R.A. 194; Wahl v. Interstate Business Men’s Accident Ass’n 201 Iowa; 1355, 207 N.W. 395, 50 A.L.R. 1377." (Provident Life & Accident Ins. Co. v. Rimmer, 12 S. W. 2d Series, 365, 367.) For this reason, and because the above-quoted provision

of the Rules of Court makes reference to "any life insurance," we are inclined to believe that the exemption there established applies to ordinary life insurance contracts, as well as to those which, although intended primarily to indemnify for risks arising from accident, likewise, insure against loss of life due, either to accidental causes, or to the willful and criminal act of another, which, as such, is not strictly accidental in nature.

Indeed, it has been held that statutes of this nature seek to enable the head of the family to secure his widow and children from becoming a burden upon the community and, accordingly, should merit a liberal interpretation. "The object of this statue was to enable a husband, when death deprived wife and children of his support, to secure them from want and to prevent them from becoming a charge upon the public. Necessities of the wife and children and the public interest are none the less if the

death of the husband be brought about by accident rather than by disease. The intent of the legislature in the enactment of this statute would not be advanced by the construction of the law upon which the petitioners insist." (American Trust & Banking Co. v. Lessly Et. Al., Supreme Court of Tenn., 106 S.W. 2d, 551, 552.) "Under statutes providing to that effect, the proceeds of life insurance are exempt from the claims of creditors, a limitation being sometimes imposed as to amount, see

infra Sec. 40, or as to the beneficiaries entitled to the exemption, see infra subdivision of this section. Statutes exempting life insurance are regarded as exemption laws, and not as part of the insurance law of the state, nor as designed simply to protect insurer from harassing litigation. Such statutes should be construed liberally and in the light of, and to give effect to, their purpose of enabling an individual to provide a fund after his death for his family which will be free from the claims of creditors. The exemption privilege is created not by contract but by

legislative grant, and grounds for the exemption of the proceeds of insurance policies must be found in the statutes." (35 C.J.S., pp. 53- 54.) "By weight of authority, exemption statutes or rules should be liberally construed with a view to giving effect to their beneficent and humane purpose. To this end, every reasonable doubt as to whether a given property is or is

not exempt should be resolved in favor of exemption." (Comments on the Rules of Court by Moran [1957 ed. ] Vol. I, p. 564.) Wherefore, the order appealed from is reversed, and the garnishment in dispute hereby set aside and quashed, with the costs of this instance against plaintiff Francisca Gallardo. It is so ordered. Paras, C.J., Bengzon, Bautista Angelo, Labrador, Endencia

Barrera, and Gutiérrez David, JJ., concur.