SECOND DIVISION

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

GULF RESORTS, INC., petitioner, vs. PHILIPPINE CHARTER

INSURANCE CORPORATION, respondent.
DECISION
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
[1]
appellate court decision 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 C1, 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. 2064568061-9 (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. 2064568061-9 (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, 5A, 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 PLAINTIFFAPPELLANT 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 PLAINTIFFAPPELLANTS RIGHT TO RECOVER UNDER DEFENDANTAPPELLEES 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.
xxx

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 plaintiffappellants 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
[21]
payments,
it was stated that:
PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM
xxx

for

premium

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?
xxx
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?
xxx
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.
xxx
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?
xxx
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.
DECISION
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
established the following facts:

the

trial

court

At about 5:30 oclock in the morning of July 20, 1980, a 78year 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. 14477853.
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 petitionerinsurer.
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., plaintiffappellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE
EBRADO, defendants-appellants.

MARTIN, J.:
This is a novel question in insurance law: Can a commonlaw 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: +.wph!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: +.wph!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: +.wph!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: +.wph!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: +.wph!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.
DECISION
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 defendants
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
Assn, 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 husbands debts, proceeds of policy insuring
against death by accident insured to widows benefit free
from husbands 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 (Hemingways Code 1927, ss 5830, 5856), and
Law 1924, c. 191, s I (Hemingways 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 Assn. 107 Me. 418, 78A. 475, 32 L.R.A. (N.S.
)461; Metropolitan Life Ins. Co. v. Ins. Comr 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 Mens Accident Assn 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 Gutirrez David, JJ., concur.