G.R. No.

L-31845 April 30, 1979

GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-31878 April 30, 1979
LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April
29, 1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases seek similar relief,
through these petitions for certiorari by way of appeal, from the amended decision of respondent
Court of Appeals which affirmed in toto the decision of the Court of First Instance of Cebu, ordering
"the defendants (herein petitioners Great Pacific Ligfe Assurance Company and Mondragon) jointly
and severally to pay plaintiff (herein private respondent Ngo Hing) the amount of P50,000.00 with
interest at 6% from the date of the filing of the complaint, and the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the Great
Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a twenty-year
endownment policy in the amount of P50,000.00 on the life of his one-year old daughter Helen Go.
Said respondent supplied the essential data which petitioner Lapulapu D. Mondragon, Branch
Manager of the Pacific Life in Cebu City wrote on the corresponding form in his own handwriting
(Exhibit I-M). Mondragon finally type-wrote the data on the application form which was signed by
private respondent Ngo Hing. The latter paid the annual premuim the sum of P1,077.75 going over
to the Company, but he reatined the amount of P1,317.00 as his commission for being a duly
authorized agebt of Pacific Life. Upon the payment of the insurance premuim, the binding deposit
receipt (Exhibit E) was issued to private respondent Ngo Hing. Likewise, petitioner Mondragon
handwrote at the bottom of the back page of the application form his strong recommendation for the
approval of the insurance application. Then on April 30, 1957, Mondragon received a letter from
Pacific Life disapproving the insurance application (Exhibit 3-M). The letter stated that the said life
insurance application for 20-year endowment plan is not available for minors below seven years old,
but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised that if the
offer is acceptable, the Juvenile Non-Medical Declaration be sent to the company.

The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by
petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote
back Pacific Life again strongly recommending the approval of the 20-year endowment insurance
plan to children, pointing out that since 1954 the customers, especially the Chinese, were asking for
such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza with
complication of bronchopneumonia. Thereupon, private respondent sought the payment of the
proceeds of the insurance, but having failed in his effort, he filed the action for the recovery of the
same before the Court of First Instance of Cebu, which rendered the adverse decision as earlier
refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E)
constituted a temporary contract of the life insurance in question; and (2) whether private respondent
Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered void the
aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a deposit is considered a
BINDING RECEIPT. These conditions state that:
A. If the Company or its agent, shan have received the premium deposit ... and the
insurance application, ON or PRIOR to the date of medical examination ... said
insurance shan be in force and in effect from the date of such medical examination,
for such period as is covered by the deposit ...,PROVIDED the company shall be
satisfied that on said date the applicant was insurable on standard rates under its
rule for the amount of insurance and the kind of policy requested in the application.
D. If the Company does not accept the application on standard rate for the amount of
insurance and/or the kind of policy requested in the application but issue, or offers to
issue a policy for a different plan and/or amount ..., the insurance shall not be in
force and in effect until the applicant shall have accepted the policy as issued
or offered by the Company and shall have paid the full premium thereof. If the
applicant does not accept the policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under Condition A above, and the
Company declines to approve the application the insurance applied for shall not
have been in force at any time and the sum paid be returned to the applicant upon
the surrender of this receipt. (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to
be merely a provisional or temporary insurance contract and only upon compliance of the following
conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates;
(2) that if the company does not accept the application and offers to issue a policy for a different
plan, the insurance contract shall not be binding until the applicant accepts the policy offered;
otherwise, the deposit shall be reftmded; and (3) that if the applicant is not ble according to the

standard rates, and the company disapproves the application, the insurance applied for shall not be
in force at any time, and the premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely
an acknowledgment, on behalf of the company, that the latter's branch office had received from the
applicant the insurance premium and had accepted the application subject for processing by the
insurance company; and that the latter will either approve or reject the same on the basis of whether
or not the applicant is "insurable on standard rates." Since petitioner Pacific Life disapproved the
insurance application of respondent Ngo Hing, the binding deposit receipt in question had never
become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does
not insure outright. As held by this Court, where an agreement is made between the applicant and
the agent, no liability shall attach until the principal approves the risk and a receipt is given by the
agent. The acceptance is merely conditional and is subordinated to the act of the company in
approving or rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt"
does not insure by itself (De Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M),
Pacific Life disapproved the insurance application in question on the ground that it is not offering the
twenty-year endowment insurance policy to children less than seven years of age. What it offered
instead is another plan known as the Juvenile Triple Action, which private respondent failed to
accept. In the absence of a meeting of the minds between petitioner Pacific Life and private
respondent Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in
favor of the latter's one-year old daughter, and with the non-compliance of the abovequoted
conditions stated in the disputed binding deposit receipt, there could have been no insurance
contract duly perfected between thenl Accordingly, the deposit paid by private respondent shall have
to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like
other contracts, must be assented to by both parties either in person or by their agents ... The
contract, to be binding from the date of the application, must have been a completed contract, one
that leaves nothing to be dione, nothing to be completed, nothing to be passed upon, or determined,
before it shall take effect. There can be no contract of insurance unless the minds of the parties have
met in agreement."
We are not impressed with private respondent's contention that failure of petitioner Mondragon to
communicate to him the rejection of the insurance application would not have any adverse effect on
the allegedly perfected temporary contract (Respondent's Brief, pp. 13-14). In this first place, there
was no contract perfected between the parties who had no meeting of their minds. Private
respondet, being an authorized insurance agent of Pacific Life at Cebu branch office, is indubitably
aware that said company does not offer the life insurance applied for. When he filed the insurance
application in dispute, private respondent was, therefore, only taking the chance that Pacific Life will
approve the recommendation of Mondragon for the acceptance and approval of the application in
question along with his proposal that the insurance company starts to offer the 20-year endowment
insurance plan for children less than seven years. Nonetheless, the record discloses that Pacific Life

had rejected the proposal and recommendation. Secondly, having an insurable interest on the life of
his one-year old daughter, aside from being an insurance agent and an offense associate of
petitioner Mondragon, private respondent Ngo Hing must have known and followed the progress on
the processing of such application and could not pretend ignorance of the Company's rejection of the
20-year endowment life insurance application.
At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate
Associate Justice Ruperto G. Martin who later came up to this Court, from his dissenting opinion to
the amended decision of the respondent court which completely reversed the original decision, the
following:
Of course, there is the insinuation that neither the memorandum of rejection (Exhibit
3-M) nor the reply thereto of appellant Mondragon reiterating the desire for
applicant's father to have the application considered as one for a 20-year endowment
plan was ever duly communicated to Ngo; Hing, father of the minor applicant. I am
not quite conninced that this was so. Ngo Hing, as father of the applicant herself, was
precisely the "underwriter who wrote this case" (Exhibit H-1). The unchallenged
statement of appellant Mondragon in his letter of May 6, 1957) (Exhibit 4-M),
specifically admits that said Ngo Hing was "our associate" and that it was the latter
who "insisted that the plan be placed on the 20-year endowment plan." Under these
circumstances, it is inconceivable that the progress in the processing of the
application was not brought home to his knowledge. He must have been duly
apprised of the rejection of the application for a 20-year endowment plan otherwise
Mondragon would not have asserted that it was Ngo Hing himself who insisted on the
application as originally filed, thereby implictly declining the offer to consider the
application under the Juvenile Triple Action Plan. Besides, the associate of
Mondragon that he was, Ngo Hing should only be presumed to know what kind of
policies are available in the company for minors below 7 years old. What he and
Mondragon were apparently trying to do in the premises was merely to prod the
company into going into the business of issuing endowment policies for minors just
as other insurance companies allegedly do. Until such a definite policy is however,
adopted by the company, it can hardly be said that it could have been bound at all
under the binding slip for a plan of insurance that it could not have, by then issued at
all. (Amended Decision, Rollo, pp- 52-53).
2. Relative to the second issue of alleged concealment. this Court is of the firm belief that private
respondent had deliberately concealed the state of health and piysical condition of his daughter
Helen Go. Wher private regpondeit supplied the required essential data for the insurance application
form, he was fully aware that his one-year old daughter is typically a mongoloid child. Such a
congenital physical defect could never be ensconced nor disguished. Nonetheless, private
respondent, in apparent bad faith, withheld the fact materal to the risk to be assumed by the
insurance compary. As an insurance agent of Pacific Life, he ought to know, as he surely must have
known. his duty and responsibility to such a material fact. Had he diamond said significant fact in the
insurance application fom Pacific Life would have verified the same and would have had no choice
but to disapprove the application outright.

The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute
and perfect candor or openness and honesty; the absence of any concealment or demotion,
however slight [Black's Law Dictionary, 2nd Edition], not for the alone but equally so for the insurer
(Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70). Concealment is a neglect to
communicate that which a partY knows aDd Ought to communicate (Section 25, Act No. 2427).
Whether intentional or unintentional the concealment entitles the insurer to rescind the contract of
insurance (Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs.
Philippine American Life Insurance Company, 7 SCRA 316). Private respondent appears guilty
thereof.
We are thus constrained to hold that no insurance contract was perfected between the parties with
the noncompliance of the conditions provided in the binding receipt, and concealment, as legally
defined, having been comraitted by herein private respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby
entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance Company
from their civil liabilities as found by respondent Court and ordering the aforesaid insurance
company to reimburse the amount of P1,077.75, without interest, to private respondent, Ngo Hing.
Costs against private respondent.
SO ORDERED.
G.R. No. L-38613 February 25, 1982
PACIFIC TIMBER EXPORT CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and WORKMEN'S INSURANCE COMPANY,
INC., respondents.

DE CASTRO, ** J.:
This petition seeks the review of the decision of the Court of Appeals reversing the decision of the
Court of First Instance of Manila in favor of petitioner and against private respondent which ordered
the latter to pay the sum of Pll,042.04 with interest at the rate of 12% interest from receipt of notice
of loss on April 15, 1963 up to the complete payment, the sum of P3,000.00 as attorney's fees and
the costs 1 thereby dismissing petitioner s complaint with costs. 2
The findings of the of fact of the Court of Appeals, which are generally binding upon this Court,
Except as shall be indicated in the discussion of the opinion of this Court the substantial correctness
of still particular finding having been disputed, thereby raising a question of law reviewable by this
Court 3 are as follows:
March 19, l963, the plaintiff secured temporary insurance from the defendant for its
exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to be

shipped from the Diapitan. Bay, Quezon Province to Okinawa and Tokyo, Japan. The
defendant issued on said date Cover Note No. 1010, insuring the said cargo of the
plaintiff "Subject to the Terms and Conditions of the WORKMEN'S INSURANCE
COMPANY, INC. printed Marine Policy form as filed with and approved by the Office
of the Insurance Commissioner (Exhibit A).
The regular marine cargo policies were issued by the defendant in favor of the
plaintiff on April 2, 1963. The two marine policies bore the numbers 53 HO 1032 and
53 HO 1033 (Exhibits B and C, respectively). Policy No. 53 H0 1033 (Exhibit B) was
for 542 pieces of logs equivalent to 499,950 board feet. Policy No. 53 H0 1033 was
for 853 pieces of logs equivalent to 695,548 board feet (Exhibit C). The total cargo
insured under the two marine policies accordingly consisted of 1,395 logs, or the
equivalent of 1,195.498 bd. ft.
After the issuance of Cover Note No. 1010 (Exhibit A), but before the issuance of the
two marine policies Nos. 53 HO 1032 and 53 HO 1033, some of the logs intended to
be exported were lost during loading operations in the Diapitan Bay. The logs were to
be loaded on the 'SS Woodlock' which docked about 500 meters from the shoreline
of the Diapitan Bay. The logs were taken from the log pond of the plaintiff and from
which they were towed in rafts to the vessel. At about 10:00 o'clock a. m. on March
29, 1963, while the logs were alongside the vessel, bad weather developed resulting
in 75 pieces of logs which were rafted together co break loose from each other. 45
pieces of logs were salvaged, but 30 pieces were verified to have been lost or
washed away as a result of the accident.
In a letter dated April 4, 1963, the plaintiff informed the defendant about the loss of 'appropriately 32
pieces of log's during loading of the 'SS Woodlock'. The said letter (Exhibit F) reads as follows:
April 4, 1963
Workmen's Insurance Company, Inc. Manila, Philippines
Gentlemen:
This has reference to Insurance Cover Note No. 1010 for shipment of 1,250,000 bd.
ft. Philippine Lauan and Apitong Logs. We would like to inform you that we have
received advance preliminary report from our Office in Diapitan, Quezon that we
have lost approximately 32 pieces of logs during loading of the SS Woodlock.
We will send you an accurate report all the details including values as soon as same
will be reported to us.
Thank you for your attention, we wish to remain.
Very respectfully yours,

PACIFIC TIMBER EXPORT CORPORATION

(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.
Although dated April 4, 1963, the letter was received in the office of the defendant
only on April 15, 1963, as shown by the stamp impression appearing on the left
bottom corner of said letter. The plaintiff subsequently submitted a 'Claim Statement
demanding payment of the loss under Policies Nos. 53 HO 1032 and 53 HO 1033, in
the total amount of P19,286.79 (Exhibit G).
On July 17, 1963, the defendant requested the First Philippine Adjustment
Corporation to inspect the loss and assess the damage. The adjustment company
submitted its 'Report on August 23, 1963 (Exhibit H). In said report, the adjuster
found that 'the loss of 30 pieces of logs is not covered by Policies Nos. 53 HO 1032
and 1033 inasmuch as said policies covered the actual number of logs loaded on
board the 'SS Woodlock' However, the loss of 30 pieces of logs is within the
1,250,000 bd. ft. covered by Cover Note 1010 insured for $70,000.00.
On September 14, 1963, the adjustment company submitted a computation of the
defendant's probable liability on the loss sustained by the shipment, in the total
amount of Pl1,042.04 (Exhibit 4).
On January 13, 1964, the defendant wrote the plaintiff denying the latter's claim, on
the ground they defendant's investigation revealed that the entire shipment of logs
covered by the two marines policies No. 53 110 1032 and 713 HO 1033 were
received in good order at their point of destination. It was further stated that the said
loss may be considered as covered under Cover Note No. 1010 because the said
Note had become 'null and void by virtue of the issuance of Marine Policy Nos. 53
HO 1032 and 1033'(Exhibit J-1). The denial of the claim by the defendant was
brought by the plaintiff to the attention of the Insurance Commissioner by means of a
letter dated March 21, 1964 (Exhibit K). In a reply letter dated March 30, 1964,
Insurance Commissioner Francisco Y. Mandanas observed that 'it is only fair and
equitable to indemnify the insured under Cover Note No. 1010', and advised early
settlement of the said marine loss and salvage claim (Exhibit L).
On June 26, 1964, the defendant informed the Insurance Commissioner that, on
advice of their attorneys, the claim of the plaintiff is being denied on the ground that
the cover note is null and void for lack of valuable consideration (Exhibit M). 4
Petitioner assigned as errors of the Court of Appeals, the following:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER NOTE WAS
NULL AND VOID FOR LACK OF VALUABLE CONSIDERATION BECAUSE THE
COURT DISREGARDED THE PROVEN FACTS THAT PREMIUMS FOR THE

COMPREHENSIVE INSURANCE COVERAGE THAT INCLUDED THE COVER

NOTE WAS PAID BY PETITIONER AND THAT INCLUDED THE COVER NOTE
WAS PAID BY PETITIONER AND THAT NO SEPARATE PREMIUMS ARE
COLLECTED BY PRIVATE RESPONDENT ON ALL ITS COVER NOTES.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT
WAS RELEASED FROM LIABILITY UNDER THE COVER NOTE DUE TO
UNREASONABLE DELAY IN GIVING NOTICE OF LOSS BECAUSE THE COURT
DISREGARDED THE PROVEN FACT THAT PRIVATE RESPONDENT DID NOT
PROMPTLY AND SPECIFICALLY OBJECT TO THE CLAIM ON THE GROUND OF
DELAY IN GIVING NOTICE OF LOSS AND, CONSEQUENTLY, OBJECTIONS ON
THAT GROUND ARE WAIVED UNDER SECTION 84 OF THE INSURANCE ACT. 5
1. Petitioner contends that the Cover Note was issued with a consideration when, by express
stipulation, the cover note is made subject to the terms and conditions of the marine policies, and the
payment of premiums is one of the terms of the policies. From this undisputed fact, We uphold
petitioner's submission that the Cover Note was not without consideration for which the respondent
court held the Cover Note as null and void, and denied recovery therefrom. The fact that no separate
premium was paid on the Cover Note before the loss insured against occurred, does not militate
against the validity of petitioner's contention, for no such premium could have been paid, since by
the nature of the Cover Note, it did not contain, as all Cover Notes do not contain particulars of the
shipment that would serve as basis for the computation of the premiums. As a logical consequence,
no separate premiums are intended or required to be paid on a Cover Note. This is a fact admitted
by an official of respondent company, Juan Jose Camacho, in charge of issuing cover notes of the
respondent company (p. 33, tsn, September 24, 1965).
At any rate, it is not disputed that petitioner paid in full all the premiums as called for by the
statement issued by private respondent after the issuance of the two regular marine insurance
policies, thereby leaving no account unpaid by petitioner due on the insurance coverage, which must
be deemed to include the Cover Note. If the Note is to be treated as a separate policy instead of
integrating it to the regular policies subsequently issued, the purpose and function of the Cover Note
would be set at naught or rendered meaningless, for it is in a real sense a contract, not a mere
application for insurance which is a mere offer. 6
It may be true that the marine insurance policies issued were for logs no longer including those
which had been lost during loading operations. This had to be so because the risk insured against is
not for loss during operations anymore, but for loss during transit, the logs having already been
safely placed aboard. This would make no difference, however, insofar as the liability on the cover
note is concerned, for the number or volume of logs lost can be determined independently as in fact
it had been so ascertained at the instance of private respondent itself when it sent its own adjuster to
investigate and assess the loss, after the issuance of the marine insurance policies.
The adjuster went as far as submitting his report to respondent, as well as its computation of
respondent's liability on the insurance coverage. This coverage could not have been no other than

what was stipulated in the Cover Note, for no loss or damage had to be assessed on the coverage
arising from the marine insurance policies. For obvious reasons, it was not necessary to ask
petitioner to pay premium on the Cover Note, for the loss insured against having already occurred,
the more practical procedure is simply to deduct the premium from the amount due the petitioner on
the Cover Note. The non-payment of premium on the Cover Note is, therefore, no cause for the
petitioner to lose what is due it as if there had been payment of premium, for non-payment by it was
not chargeable against its fault. Had all the logs been lost during the loading operations, but after the
issuance of the Cover Note, liability on the note would have already arisen even before payment of
premium. This is how the cover note as a "binder" should legally operate otherwise, it would serve
no practical purpose in the realm of commerce, and is supported by the doctrine that where a policy
is delivered without requiring payment of the premium, the presumption is that a credit was intended
and policy is valid. 7
2. The defense of delay as raised by private respondent in resisting the claim cannot be sustained.
The law requires this ground of delay to be promptly and specifically asserted when a claim on the
insurance agreement is made. The undisputed facts show that instead of invoking the ground of
delay in objecting to petitioner's claim of recovery on the cover note, it took steps clearly indicative
that this particular ground for objection to the claim was never in its mind. The nature of this specific
ground for resisting a claim places the insurer on duty to inquire when the loss took place, so that it
could determine whether delay would be a valid ground upon which to object to a claim against it.
As already stated earlier, private respondent's reaction upon receipt of the notice of loss, which was
on April 15, 1963, was to set in motion from July 1963 what would be necessary to determine the
cause and extent of the loss, with a view to the payment thereof on the insurance agreement. Thus it
sent its adjuster to investigate and assess the loss in July, 1963. The adjuster submitted his report
on August 23, 1963 and its computation of respondent's liability on September 14, 1963. From April
1963 to July, 1963, enough time was available for private respondent to determine if petitioner was
guilty of delay in communicating the loss to respondent company. In the proceedings that took place
later in the Office of the Insurance Commissioner, private respondent should then have raised this
ground of delay to avoid liability. It did not do so. It must be because it did not find any delay, as this
Court fails to find a real and substantial sign thereof. But even on the assumption that there was
delay, this Court is satisfied and convinced that as expressly provided by law, waiver can
successfully be raised against private respondent. Thus Section 84 of the Insurance Act provides:
Section 84.Delay in the presentation to an insurer of notice or proof of loss is
waived if caused by any act of his or if he omits to take objection promptly and
specifically upon that ground.
From what has been said, We find duly substantiated petitioner's assignments of error.
ACCORDINGLY, the appealed decision is set aside and the decision of the Court of First Instance is
reinstated in toto with the affirmance of this Court. No special pronouncement as to costs.
SO ORDERED.
G.R. No. L-8151

December 16, 1955

VIRGINIA CALANOC, petitioner,

vs.
COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE CO., respondents.
Lucio Javillonar for petitioner.
J. A. Wolfson, Manuel Y. Mecias, Emilio Abello and Anselmo A. Reyes for respondents.

BAUTISTA ANGELO, J.:

This suit involves the collection of P2,000 representing the value of a supplemental policy covering
accidental death which was secured by one Melencio Basilio from the Philippine American Life
Insurance Company. The case originated in the Municipal Court of Manila and judgment being
favorable to the plaintiff it was appealed to the court of first instance. The latter court affirmed the
judgment but on appeal to the Court of Appeals the judgment was reversed and the case is now
before us on a petition for review.
Melencio Basilio was a watchman of the Manila Auto Supply located at the corner of Avenida Rizal
and Zurbaran. He secured a life insurance policy from the Philippine American Life Insurance
Company in the amount of P2,000 to which was attached a supplementary contract covering death
by accident. On January 25, 1951, he died of a gunshot wound on the occasion of a robbery
committed in the house of Atty. Ojeda at the corner of Oroquieta and Zurbaan streets. Virginia
Calanoc, the widow, was paid the sum of P2,000, face value of the policy, but when she demanded
the payment of the additional sum of P2,000 representing the value of the supplemental policy, the
company refused alleging, as main defense, that the deceased died because he was murdered by a
person who took part in the commission of the robbery and while making an arrest as an officer of
the law which contingencies were expressly excluded in the contract and have the effect of
exempting the company from liability.
The pertinent facts which need to be considered for the determination of the questions raised are
those reproduced in the decision of the Court of Appeals as follows:
The circumstances surrounding the death of Melencio Basilio show that when he was killed
at about seven o'clock in the night of January 25, 1951, he was on duty as watchman of the
Manila Auto Supply at the corner of Avenida Rizal and Zurbaran; that it turned out that Atty.
Antonio Ojeda who had his residence at the corner of Zurbaran and Oroquieta, a block away
from Basilio's station, had come home that night and found that his house was well-lighted,
but with the windows closed; that getting suspicious that there were culprits in his house,
Atty. Ojeda retreated to look for a policeman and finding Basilio in khaki uniform, asked him
to accompany him to the house with the latter refusing on the ground that he was not a
policeman, but suggesting that Atty. Ojeda should ask the traffic policeman on duty at the
corner of Rizal Avenue and Zurbaran; that Atty. Ojeda went to the traffic policeman at said
corner and reported the matter, asking the policeman to come along with him, to which the
policeman agreed; that on the way to the Ojeda residence, the policeman and Atty. Ojeda
passed by Basilio and somehow or other invited the latter to come along; that as the tree

approached the Ojeda residence and stood in front of the main gate which was covered with
galvanized iron, the fence itself being partly concrete and partly adobe stone, a shot was
fired; that immediately after the shot, Atty. Ojeda and the policeman sought cover; that the
policeman, at the request of Atty. Ojeda, left the premises to look for reinforcement; that it
turned out afterwards that the special watchman Melencio Basilio was hit in the abdomen,
the wound causing his instantaneous death; that the shot must have come from inside the
yard of Atty. Ojeda, the bullet passing through a hole waist-high in the galvanized iron gate;
that upon inquiry Atty. Ojeda found out that the savings of his children in the amount of P30
in coins kept in his aparador contained in stockings were taken away, the aparador having
been ransacked; that a month thereafter the corresponding investigation conducted by the
police authorities led to the arrest and prosecution of four persons in Criminal Case No.
15104 of the Court of First Instance of Manila for 'Robbery in an Inhabited House and in
Band with Murder'.
It is contended in behalf of the company that Basilio was killed which "making an arrest as an officer
of the law" or as a result of an "assault or murder" committed in the place and therefore his death
was caused by one of the risks excluded by the supplementary contract which exempts the company
from liability. This contention was upheld by the Court of Appeals and, in reaching this conclusion,
made the following comment:
From the foregoing testimonies, we find that the deceased was a watchman of the Manila
Auto Supply, and, as such, he was not boud to leave his place and go with Atty. Ojeda and
Policeman Magsanoc to see the trouble, or robbery, that occurred in the house of Atty.
Ojeda. In fact, according to the finding of the lower court, Atty. Ojeda finding Basilio in
uniform asked him to accompany him to his house, but the latter refused on the ground that
he was not a policeman and suggested to Atty. Ojeda to ask help from the traffic policeman
on duty at the corner of Rizal Avenue and Zurbaran, but after Atty. Ojeda secured the help of
the traffic policeman, the deceased went with Ojeda and said traffic policeman to the
residence of Ojeda, and while the deceased was standing in front of the main gate of said
residence, he was shot and thus died. The death, therefore, of Basilio, although unexpected,
was not caused by an accident, being a voluntary and intentional act on the part of the one
wh robbed, or one of those who robbed, the house of Atty. Ojeda. Hence, it is out considered
opinion that the death of Basilio, though unexpected, cannot be considered accidental, for
his death occurred because he left his post and joined policeman Magsanoc and Atty. Ojeda
to repair to the latter's residence to see what happened thereat. Certainly, when Basilio
joined Patrolman Magsanoc and Atty. Ojeda, he should have realized the danger to which he
was exposing himself, yet, instead of remaining in his place, he went with Atty. Ojeda and
Patrolman Magsanoc to see what was the trouble in Atty. Ojeda's house and thus he was
fatally shot.
We dissent from the above findings of the Court of Appeals. For one thing, Basilio was a watchman
of the Manila Auto Supply which was a block away from the house of Atty. Ojeda where something
suspicious was happening which caused the latter to ask for help. While at first he declied the
invitation of Atty. Ojeda to go with him to his residence to inquire into what was going on because he
was not a regular policeman, he later agreed to come along when prompted by the traffic policeman,
and upon approaching the gate of the residence he was shot and died. The circumstance that he

was a mere watchman and had no duty to heed the call of Atty. Ojeda should not be taken as a
capricious desire on his part to expose his life to danger considering the fact that the place he was in
duty-bound to guard was only a block away. In volunteering to extend help under the situation, he
might have thought, rightly or wrongly, that to know the truth was in the interest of his employer it
being a matter that affects the security of the neighborhood. No doubt there was some risk coming to
him in pursuing that errand, but that risk always existed it being inherent in the position he was
holding. He cannot therefore be blamed solely for doing what he believed was in keeping with his
duty as a watchman and as a citizen. And he cannot be considered as making an arrest as an officer
of the law, as contended, simply because he went with the traffic policeman, for certainly he did not
go there for that purpose nor was he asked to do so by the policeman.
Much less can it be pretended that Basilio died in the course of an assault or murder considering the
very nature of these crimes. In the first place, there is no proof that the death of Basilio is the result
of either crime for the record is barren of any circumstance showing how the fatal shot was fired.
Perhaps this may be clarified in the criminal case now pending in court as regards the incident but
before that is done anything that might be said on the point would be a mere conjecture. Nor can it
be said that the killing was intentional for there is the possibility that the malefactor had fired the shot
merely to scare away the people around for his own protection and not necessarily to kill or hit the
victim. In any event, while the act may not excempt the triggerman from liability for the damage
done, the fact remains that the happening was a pure accident on the part of the victim. The victim
could have been either the policeman or Atty. Ojeda for it cannot be pretended that the malefactor
aimed at the deceased precisely because he wanted to take his life.
We take note that these defenses are included among the risks exluded in the supplementary
contract which enumerates the cases which may exempt the company from liability. While as a
general rule "the parties may limit the coverage of the policy to certain particular accidents and risks
or causes of loss, and may expressly except other risks or causes of loss therefrom" (45 C. J. S.
781-782), however, it is to be desired that the terms and phraseology of the exception clause be
clearly expressed so as to be within the easy grasp and understanding of the insured, for if the terms
are doubtful or obscure the same must of necessity be interpreted or resolved aganst the one who
has caused the obscurity. (Article 1377, new Civil Code) And so it has bene generally held that the
"terms in an insurance policy, which are ambiguous, equivacal, or uncertain . . . are to be construed
strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the
dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved"
(29 Am. Jur., 181), and the reason for this rule is that he "insured usually has no voice in the
selection or arrangement of the words employed and that the language of the contract is selected
with great care and deliberation by experts and legal advisers employed by, and acting exclusively in
the interest of, the insurance company." (44 C. J. S., p. 1174.)
Insurance is, in its nature, complex and difficult for the layman to understand. Policies are
prepared by experts who know and can anticipate the bearings and possible complications
of every contingency. So long as insurance companies insist upon the use of ambiguous,
intricate and technical provisions, which conceal rather than frankly disclose, their own
intentions, the courts must, in fairness to those who purchase insurance, construe every
ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA
1917A, 1237.)lawphi1.net

An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat
the very purpose for which the policy was procured. (Moore vs. Aetna Life Insurance Co.,
LRA 1915D, 264.)
We are therefore persuaded to conclude that the circumstances unfolded in the present case do not
warrant the finding that the death of the unfortunate victim comes within the purview of the exception
clause of the supplementary policy and, hence, do not exempt the company from liability.
Wherefore, reversing the decision appealed from, we hereby order the company to pay petitionerappellant the amount of P2,000, with legal interest from January 26, 1951 until fully paid, with costs.
G.R. No. 100970 September 2, 1992
FINMAN GENERAL ASSURANCE CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.
Aquino and Associates for petitioner.
Public Attorney's Office for private respondent.

NOCON, J.:
This is a petition for certiorari with a prayer for the issuance of a restraining order and preliminary
mandatory injunction to annul and set aside the decision of the Court of Appeals dated July 11,
1991, 1 affirming the decision dated March 20, 1990 of the Insurance Commission 2 in ordering petitioner
Finman General Assurance Corporation to pay private respondent Julia Surposa the proceeds of the
personal accident Insurance policy with interest.
It appears on record that on October 22, 1986, deceased, Carlie Surposa was insured with petitioner
Finman General Assurance Corporation under Finman General Teachers Protection Plan Master
Policy No. 2005 and Individual Policy No. 08924 with his parents, spouses Julia and Carlos Surposa,
and brothers Christopher, Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries. 3
While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on October
18, 1988 as a result of a stab wound inflicted by one of the three (3) unidentified men without
provocation and warning on the part of the former as he and his cousin, Winston Surposa, were
waiting for a ride on their way home along Rizal-Locsin Streets, Bacolod City after attending the
celebration of the "Maskarra Annual Festival."
Thereafter, private respondent and the other beneficiaries of said insurance policy filed a written
notice of claim with the petitioner insurance company which denied said claim contending that
murder and assault are not within the scope of the coverage of the insurance policy.

On February 24, 1989, private respondent filed a complaint with the Insurance Commission which
subsequently rendered a decision, the pertinent portion of which reads:
In the light of the foregoing. we find respondent liable to pay complainant the sum of
P15,000.00 representing the proceeds of the policy with interest. As no evidence was
submitted to prove the claim for mortuary aid in the sum of P1,000.00, the same
cannot be entertained.
WHEREFORE, judgment is hereby rendered ordering respondent to pay complainant
the sum of P15,000.00 with legal interest from the date of the filing of the complaint
until fully satisfied. With costs. 4
On July 11, 1991, the appellate court affirmed said decision.
Hence, petitioner filed this petition alleging grove abuse of discretion on the part of the appellate
court in applying the principle of "expresso unius exclusio alterius" in a personal accident insurance
policy since death resulting from murder and/or assault are impliedly excluded in said insurance
policy considering that the cause of death of the insured was not accidental but rather a deliberate
and intentional act of the assailant in killing the former as indicated by the location of the lone stab
wound on the insured. Therefore, said death was committed with deliberate intent which, by the very
nature of a personal accident insurance policy, cannot be indemnified.
We do not agree.
The terms "accident" and "accidental" as used in insurance contracts have not
acquired any technical meaning, and are construed by the courts in their ordinary
and common acceptation. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event that takes place
without one's foresight or expectation an event that proceeds from an unknown
cause, or is an unusual effect of a known cause and, therefore, not expected.
. . . The generally accepted rule is that, death or injury does not result from accident
or accidental means within the terms of an accident-policy if it is the natural result of
the insured's voluntary act, unaccompanied by anything unforeseen except the death
or injury. There is no accident when a deliberate act is performed unless some
additional, unexpected, independent, and unforeseen happening occurs which
produces or brings about the result of injury or death. In other words, where the
death or injury is not the natural or probable result of the insured's voluntary act, or if
something unforeseen occurs in the doing of the act which produces the injury, the
resulting death is within the protection of the policies insuring against death or injury
from accident. 5
As correctly pointed out by the respondent appellate court in its decision:

In the case at bar, it cannot be pretended that Carlie Surposa died in the course of an
assault or murder as a result of his voluntary act considering the very nature of these
crimes. In the first place, the insured and his companion were on their way home
from attending a festival. They were confronted by unidentified persons. The record
is barren of any circumstance showing how the stab wound was inflicted. Nor can it
be pretended that the malefactor aimed at the insured precisely because the killer
wanted to take his life. In any event, while the act may not exempt the unknown
perpetrator from criminal liability, the fact remains that the happening was a pure
accident on the part of the victim. The insured died from an event that took place
without his foresight or expectation, an event that proceeded from an unusual effect
of a known cause and, therefore, not expected. Neither can it be said that where was
a capricious desire on the part of the accused to expose his life to danger
considering that he was just going home after attending a festival. 6
Furthermore, the personal accident insurance policy involved herein specifically enumerated only ten
(10) circumstances wherein no liability attaches to petitioner insurance company for any injury,
disability or loss suffered by the insured as a result of any of the stimulated causes. The principle of
" expresso unius exclusio alterius" the mention of one thing implies the exclusion of another thing
is therefore applicable in the instant case since murder and assault, not having been expressly
included in the enumeration of the circumstances that would negate liability in said insurance policy
cannot be considered by implication to discharge the petitioner insurance company from liability for,
any injury, disability or loss suffered by the insured. Thus, the failure of the petitioner insurance
company to include death resulting from murder or assault among the prohibited risks leads
inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death.
Article 1377 of the Civil Code of the Philippines provides that:
The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.
Moreover,
it is well settled that contracts of insurance are to be construed liberally in favor of the
insured and strictly against the insurer. Thus ambiguity in the words of an insurance
contract should be interpreted in favor of its beneficiary. 7
WHEREFORE, finding no irreversible error in the decision of the respondent Court of Appeals, the
petition forcertiorari with restraining order and preliminary injunction is hereby DENIED for lack of
merit.
SO ORDERED.
G.R. No. 92383 July 17, 1992

SUN INSURANCE OFFICE, LTD., petitioner,

vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

CRUZ, J.:
The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of
P200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, his wife
Nerissa Lim sought payment on the policy but her claim was rejected. The petitioner agreed that
there was no suicide. It argued, however that there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6,
1982, at about 10 o'clock in the evening, after his mother's birthday party. According to Nalagon, Lim
was in a happy mood (but not drunk) and was playing with his handgun, from which he had
previously removed the magazine. As she watched television, he stood in front of her and pointed
the gun at her. She pushed it aside and said it might he loaded. He assured her it was not and then
pointed it to his temple. The next moment there was an explosion and Lim slumped to the floor. He
was dead before he fell. 1
The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was
sustained. 2 The petitioner was sentenced to pay her P200,000.00, representing the face value of the
policy, with interest at the legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary damages;
P5,000.00 as actual and compensatory damages; and P5,000.00 as attorney's fees, plus the costs of the
suit. This decision was affirmed on appeal, and the motion for reconsideration was denied. 3 The
petitioner then came to this Court to fault the Court of Appeals for approving the payment of the claim and
the award of damages.
The term "accident" has been defined as follows:
The words "accident" and "accidental" have never acquired any technical signification in law, and
when used in an insurance contract are to be construed and considered according to the ordinary
understanding and common usage and speech of people generally. In-substance, the courts are
practically agreed that the words "accident" and "accidental" mean that which happens by chance or
fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen. The
definition that has usually been adopted by the courts is that an accident is an event that takes place
without one's foresight or expectation an event that proceeds from an unknown cause, or is an
unusual effect of a known case, and therefore not expected. 4
An accident is an event which happens without any human agency or, if happening through human
agency, an event which, under the circumstances, is unusual to and not expected by the person to
whom it happens. It has also been defined as an injury which happens by reason of some violence
or casualty to the injured without his design, consent, or voluntary co-operation. 5

In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was
indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, 6 says that
"there is no accident when a deliberate act is performed unless some additional, unexpected,
independent and unforeseen happening occurs which produces or brings about their injury or death."
There was such a happening. This was the firing of the gun, which was the additional unexpected and
independent and unforeseen occurrence that led to the insured person's death.
The petitioner also cites one of the four exceptions provided for in the insurance contract and
contends that the private petitioner's claim is barred by such provision. It is there stated:
Exceptions
The company shall not be liable in respect of
1. Bodily injury
xxx xxx xxx
b. consequent upon
i) The insured person attempting to commit suicide or willfully exposing himself to
needless peril except in an attempt to save human life.
To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends
that the insured willfully exposed himself to needless peril and thus removed himself from the
coverage of the insurance policy.
It should be noted at the outset that suicide and willful exposure to needless peril are in pari
materia because they both signify a disregard for one's life. The only difference is in degree, as
suicide imports a positive act of ending such life whereas the second act indicates a reckless risking
of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one thousand
meters above the ground and without any safety device may not actually be intending to commit
suicide, but his act is nonetheless suicidal. He would thus be considered as "willfully exposing
himself to needless peril" within the meaning of the exception in question.
The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully
exposed himself to needless peril and so came under the exception. The theory is that a gun is per
se dangerous and should therefore be handled cautiously in every case.
That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the
magazine from the gun and believed it was no longer dangerous. He expressly assured her that the
gun was not loaded. It is submitted that Lim did not willfully expose himself to needless peril when he
pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. The act
was precisely intended to assure Nalagon that the gun was indeed harmless.
The contrary view is expressed by the petitioner thus:

Accident insurance policies were never intended to reward the insured for his
tendency to show off or for his miscalculations. They were intended to provide for
contingencies. Hence, when I miscalculate and jump from the Quezon Bridge into the
Pasig River in the belief that I can overcome the current, I have wilfully exposed
myself to peril and must accept the consequences of my act. If I drown I cannot go to
the insurance company to ask them to compensate me for my failure to swim as well
as I thought I could. The insured in the case at bar deliberately put the gun to his
head and pulled the trigger. He wilfully exposed himself to peril.
The Court certainly agrees that a drowned man cannot go to the insurance company to ask for
compensation. That might frighten the insurance people to death. We also agree that under the
circumstances narrated, his beneficiary would not be able to collect on the insurance policy for it is
clear that when he braved the currents below, he deliberately exposed himself to a known peril.
The private respondent maintains that Lim did not. That is where she says the analogy fails. The
petitioner's hypothetical swimmer knew when he dived off the Quezon Bridge that the currents below
were dangerous. By contrast, Lim did not know that the gun he put to his head was loaded.
Lim was unquestionably negligent and that negligence cost him his own life. But it should not
prevent his widow from recovering from the insurance policy he obtained precisely against accident.
There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity
agreed upon if the insured is shown to have contributed to his own accident. Indeed, most accidents
are caused by negligence. There are only four exceptions expressly made in the contract to relieve
the insurer from liability, and none of these exceptions is applicable in the case at bar. **
It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of
the assured. There is no reason to deviate from this rule, especially in view of the circumstances of
this case as above analyzed.
On the second assigned error, however, the Court must rule in favor of the petitioner. The basic
issue raised in this case is, as the petitioner correctly observed, one of first impression. It is evident
that the petitioner was acting in good faith then it resisted the private respondent's claim on the
ground that the death of the insured was covered by the exception. The issue was indeed debatable
and was clearly not raised only for the purpose of evading a legitimate obligation. We hold therefore
that the award of moral and exemplary damages and of attorney's fees is unjust and so must be
disapproved.
In order that a person may be made liable to the payment of moral damages, the law
requires that his act be wrongful. The adverse result of an action does not per
se make the act wrongful and subject the act or to the payment of moral damages.
The law could not have meant to impose a penalty on the right to litigate; such right
is so precious that moral damages may not be charged on those who may exercise it
erroneously. For these the law taxes costs. 7
The fact that the results of the trial were adverse to Barreto did not alone make his act in
bringing the action wrongful because in most cases one party will lose; we would be

imposing an unjust condition or limitation on the right to litigate. We hold that the award of
moral damages in the case at bar is not justified by the facts had circumstances as well
as the law.

If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses,
since it is not the fact of winning alone that entitles him to recover such damages of
the exceptional circumstances enumerated in Art. 2208. Otherwise, every time a
defendant wins, automatically the plaintiff must pay attorney's fees thereby putting a
premium on the right to litigate which should not be so. For those expenses, the law
deems the award of costs as sufficient. 8
WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far as it holds
the petitioner liable to the private respondent in the sum of P200,000.00 representing the face value
of the insurance contract, with interest at the legal rate from the date of the filing of the complaint
until the full amount is paid, but MODIFIED with the deletion of all awards for damages, including
attorney's fees, except the costs of the suit.
SO ORDERED.
G.R. No. 114427 February 6, 1995
ARMANDO GEAGONIA, petitioner,
vs.
COURT OF APPEALS and COUNTRY BANKERS INSURANCE CORPORATION, respondents.

DAVIDE, JR., J.:

Four our review under Rule 45 of the Rules of Court is the decision 1 of the Court of Appeals in CAG.R. SP No. 31916, entitled "Country Bankers Insurance Corporation versus Armando Geagonia,"
reversing the decision of the Insurance Commission in I.C. Case No. 3340 which awarded the claim of
petitioner Armando Geagonia against private respondent Country Bankers Insurance Corporation.
The petitioner is the owner of Norman's Mart located in the public market of San Francisco, Agusan
del Sur. On 22 December 1989, he obtained from the private respondent fire insurance policy No. F14622 2 for P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990 and
covered the following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and
women wear and other usual to assured's business."
The petitioner declared in the policy under the subheading entitled CO-INSURANCE that Mercantile
Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the petitioner had in his
inventory stocks amounting to P392,130.50, itemized as follows:

Zenco Sales, Inc.

F. Legaspi Gen. Merchandise

P55,698.00

86,432.50

Cebu Tesing Textiles

250,000.00 (on credit)

P392,130.50

The policy contained the following condition:

3. The insured shall give notice to the Company of any insurance or insurances
already affected, or which may subsequently be effected, covering any of the
property or properties consisting of stocks in trade, goods in process and/or
inventories only hereby insured, and unless such notice be given and the particulars
of such insurance or insurances be stated therein or endorsed in this policy pursuant
to Section 50 of the Insurance Code, by or on behalf of the Company before the
occurrence of any loss or damage, all benefits under this policy shall be deemed
forfeited, provided however, that this condition shall not apply when the total
insurance or insurances in force at the time of the loss or damage is not more than
P200,000.00.
On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San
Francisco, Agusan del Sur. The petitioner's insured stock-in-trade were completely destroyed
prompting him to file with the private respondent a claim under the policy. On 28 December 1990,
the private respondent denied the claim because it found that at the time of the loss the petitioner's
stocks-in-trade were likewise covered by fire insurance policies No. GA-28146 and No. GA-28144,
for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc.
(hereinafter PFIC). 3 These policies indicate that the insured was "Messrs. Discount Mart (Mr. Armando
Geagonia, Prop.)" with a mortgage clause reading:
MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu
City as their interest may appear subject to the terms of this policy. CO-INSURANCE
DECLARED: P100,000. Phils. First CEB/F 24758. 4
The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of
the policy.
The petitioner then filed a complaint 5 against the private respondent with the Insurance Commission
(Case No. 3340) for the recovery of P100,000.00 under fire insurance policy No. F-14622 and for
attorney's fees and costs of litigation. He attached as Annex "AM" 6 thereof his letter of 18 January 1991
which asked for the reconsideration of the denial. He admitted in the said letter that at the time he
obtained the private respondent's fire insurance policy he knew that the two policies issued by the PFIC
were already in existence; however, he had no knowledge of the provision in the private respondent's
policy requiring him to inform it of the prior policies; this requirement was not mentioned to him by the
private respondent's agent; and had it been mentioned, he would not have withheld such information. He

further asserted that the total of the amounts claimed under the three policies was below the actual value
of his stocks at the time of loss, which was P1,000,000.00.

In its answer, 7 the private respondent specifically denied the allegations in the complaint and set up as its
principal defense the violation of Condition 3 of the policy.
In its decision of 21 June 1993, 8 the Insurance Commission found that the petitioner did not violate
Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from the
PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies without informing him or securing
his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. These
findings were based on the petitioner's testimony that he came to know of the PFIC policies only when he
filed his claim with the private respondent and that Cebu Tesing Textile obtained them and paid for their
premiums without informing him thereof. The Insurance Commission then decreed:
WHEREFORE, judgment is hereby rendered ordering the respondent company to
pay complainant the sum of P100,000.00 with legal interest from the time the
complaint was filed until fully satisfied plus the amount of P10,000.00 as attorney's
fees. With costs. The compulsory counterclaim of respondent is hereby dismissed.
Its motion for the reconsideration of the decision 9 having been denied by the Insurance Commission in
its resolution of 20 August 1993, 10 the private respondent appealed to the Court of Appeals by way of a
petition for review. The petition was docketed as CA-G.R. SP No. 31916.
In its decision of 29 December 1993, 11 the Court of Appeals reversed the decision of the Insurance
Commission because it found that the petitioner knew of the existence of the two other policies issued by
the PFIC. It said:
It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the
insurance was taken in the name of private respondent [petitioner herein]. The policy
states that "DISCOUNT MART (MR. ARMANDO GEAGONIA, PROP)" was the
assured and that "TESING TEXTILES" [was] only the mortgagee of the goods.
In addition, the premiums on both policies were paid for by private respondent, not by
the Tesing Textiles which is alleged to have taken out the other insurance without the
knowledge of private respondent. This is shown by Premium Invoices nos. 46632
and 46630. (Annexes M and N). In both invoices, Tesing Textiles is indicated to be
only the mortgagee of the goods insured but the party to which they were issued
were the "DISCOUNT MART (MR. ARMANDO GEAGONIA)."
In is clear that it was the private respondent [petitioner herein] who took out the
policies on the same property subject of the insurance with petitioner. Hence, in
failing to disclose the existence of these insurances private respondent violated
Condition No. 3 of Fire Policy No. 1462. . . .
Indeed private respondent's allegation of lack of knowledge of the provisions
insurances is belied by his letter to petitioner [of 18 January 1991. The body of the
letter reads as follows;]
xxx xxx xxx
Please be informed that I have no knowledge of the provision
requiring me to inform your office about my

prior insurance under FGA-28146 and F-CEB-24758. Your

representative did not mention about said requirement at the time he
was convincing me to insure with you. If he only die or even inquired
if I had other existing policies covering my establishment, I would
have told him so. You will note that at the time he talked to me until I
decided to insure with your company the two policies aforementioned
were already in effect. Therefore I would have no reason to withhold
such information and I would have desisted to part with my hard
earned peso to pay the insurance premiums [if] I know I could not
recover anything.
Sir, I am only an ordinary businessman interested in protecting my
investments. The actual value of my stocks damaged by the fire was
estimated by the Police Department to be P1,000,000.00 (Please see
xerox copy of Police Report Annex "A"). My Income Statement as of
December 31, 1989 or five months before the fire, shows my
merchandise inventory was already some P595,455.75. . . . These
will support my claim that the amount claimed under the three
policies are much below the value of my stocks lost.
xxx xxx xxx
The letter contradicts private respondent's pretension that he did not know that there
were other insurances taken on the stock-in-trade and seriously puts in question his
credibility.
His motion to reconsider the adverse decision having been denied, the petitioner filed the instant
petition. He contends therein that the Court of Appeals acted with grave abuse of discretion
amounting to lack or excess of jurisdiction:
A . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE
COMMISSION, A QUASI-JUDICIAL BODY CHARGED WITH THE DUTY OF
DETERMINING INSURANCE CLAIM AND WHOSE DECISION IS ACCORDED
RESPECT AND EVEN FINALITY BY THE COURTS;
B . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT
PRESENTED AS EVIDENCE DURING THE HEARING OR TRIAL; AND
C . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN
AGAINST THE PRIVATE RESPONDENT.
The chief issues that crop up from the first and third grounds are (a) whether the petitioner had prior
knowledge of the two insurance policies issued by the PFIC when he obtained the fire insurance
policy from the private respondent, thereby, for not disclosing such fact, violating Condition 3 of the
policy, and (b) if he had, whether he is precluded from recovering therefrom.
The second ground, which is based on the Court of Appeals' reliance on the petitioner's letter of
reconsideration of 18 January 1991, is without merit. The petitioner claims that the said letter was
not offered in evidence and thus should not have been considered in deciding the case. However, as
correctly pointed out by the Court of Appeals, a copy of this letter was attached to the petitioner's
complaint in I.C. Case No. 3440 as Annex "M" thereof and made integral part of the complaint. 12 It
has attained the status of a judicial admission and since its due execution and authenticity was not denied

by the other party, the petitioner is bound by it even if it were not introduced as an independent
evidence. 13

As to the first issue, the Insurance Commission found that the petitioner had no knowledge of the
previous two policies. The Court of Appeals disagreed and found otherwise in view of the explicit
admission by the petitioner in his letter to the private respondent of 18 January 1991, which was
quoted in the challenged decision of the Court of Appeals. These divergent findings of fact constitute
an exception to the general rule that in petitions for review under Rule 45, only questions of law are
involved and findings of fact by the Court of Appeals are conclusive and binding upon this Court. 14
We agree with the Court of Appeals that the petitioner knew of the prior policies issued by the PFIC.
His letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His
testimony to the contrary before the Insurance Commissioner and which the latter relied upon cannot
prevail over a written admission madeante litem motam. It was, indeed, incredible that he did not
know about the prior policies since these policies were not new or original. Policy No. GA-28144 was
a renewal of Policy No. F-24758, while Policy No. GA-28146 had been renewed twice, the previous
policy being F-24792.
Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by
law. Its incorporation in the policy is allowed by Section 75 of the Insurance Code 15 which provides
that "[a] policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the
breach of an immaterial provision does not avoid the policy." Such a condition is a provision which
invariably appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It
is commonly known as the additional or "other insurance" clause and has been upheld as valid and as a
warranty that no other insurance exists. Its violation would thus avoid the
policy. 16 However, in order to constitute a violation, the other insurance must be upon same subject
matter, the same interest therein, and the same risk. 17
As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable
interest therein and both interests may be one policy, or each may take out a separate policy
covering his interest, either at the same or at separate times. 18 The mortgagor's insurable interest
covers the full value of the mortgaged property, even though the mortgage debt is equivalent to the full
value of the property. 19 The mortgagee's insurable interest is to the extent of the debt, since the property
is relied upon as security thereof, and in insuring he is not insuring the property but his interest or lien
thereon. His insurable interest is prima facie the value mortgaged and extends only to the amount of the
debt, not exceeding the value of the mortgaged property. 20 Thus, separate insurances covering different
insurable interests may be obtained by the mortgagor and the mortgagee.
A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual
practice. The mortgagee may be made the beneficial payee in several ways. He may become the
assignee of the policy with the consent of the insurer; or the mere pledgee without such consent; or
the original policy may contain a mortgage clause; or a rider making the policy payable to the
mortgagee "as his interest may appear" may be attached; or a "standard mortgage clause,"
containing a collateral independent contract between the mortgagee and insurer, may be attached;
or the policy, though by its terms payable absolutely to the mortgagor, may have been procured by a
mortgagor under a contract duty to insure for the mortgagee's benefit, in which case the mortgagee
acquires an equitable lien upon the proceeds. 21
In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his
interest may appear, the mortgagee is only a beneficiary under the contract, and recognized as such
by the insurer but not made a party to the contract himself. Hence, any act of the mortgagor which
defeats his right will also defeat the right of the mortgagee. 22 This kind of policy covers only such
interest as the mortgagee has at the issuing of the policy.23

On the other hand, a mortgagee may also procure a policy as a contracting party in accordance with
the terms of an agreement by which the mortgagor is to pay the premiums upon such insurance. 24 It
has been noted, however, that although the mortgagee is himself the insured, as where he applies for a
policy, fully informs the authorized agent of his interest, pays the premiums, and obtains on the assurance
that it insures him, the policy is in fact in the form used to insure a mortgagor with loss payable clause. 25
The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a
mortgage clause which reads:
Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their
interest may appear subject to the terms of this policy.
This is clearly a simple loss payable clause, not a standard mortgage clause.
It must, however, be underscored that unlike the "other insurance" clauses involved in General
Insurance and Surety Corp. vs. Ng Hua 26 or in Pioneer Insurance & Surety Corp. vs. Yap, 27 which read:
The insured shall give notice to the company of any insurance or insurances already
effected, or which may subsequently be effected covering any of the property hereby
insured, and unless such notice be given and the particulars of such insurance or
insurances be stated in or endorsed on this Policy by or on behalf of the Company
before the occurrence of any loss or damage, all benefits under this Policy shall be
forfeited.
or in the 1930 case of Santa Ana vs. Commercial Union Assurance
Co. 28 which provided "that any outstanding insurance upon the whole or a portion of the objects
thereby assured must be declared by the insured in writing and he must cause the company to
add or insert it in the policy, without which such policy shall be null and void, and the insured will
not be entitled to indemnity in case of loss," Condition 3in the private respondent's policy No. F14622 does not absolutely declare void any violation thereof. It expressly provides that the
condition "shall not apply when the total insurance or insurances in force at the time of the loss or
damage is not more than P200,000.00."
It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in
favor of the insured and strictly against the company, the reason being, undoubtedly, to afford the
greatest protection which the insured was endeavoring to secure when he applied for insurance. It is
also a cardinal principle of law that forfeitures are not favored and that any construction which would
result in the forfeiture of the policy benefits for the person claiming thereunder, will be avoided, if it is
possible to construe the policy in a manner which would permit recovery, as, for example, by finding
a waiver for such forfeiture. 29 Stated differently, provisions, conditions or exceptions in policies which
tend to work a forfeiture of insurance policies should be construed most strictly against those for whose
benefits they are inserted, and most favorably toward those against whom they are intended to
operate. 30 The reason for this is that, except for riders which may later be inserted, the insured sees the
contract already in its final form and has had no voice in the selection or arrangement of the words
employed therein. On the other hand, the language of the contract was carefully chosen and deliberated
upon by experts and legal advisers who had acted exclusively in the interest of the insurers and the
technical language employed therein is rarely understood by ordinary laymen. 31
With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally
free from ambiguity and must, perforce, be meticulously analyzed. Such analysis leads us to
conclude that (a) the prohibition applies only to double insurance, and (b) the nullity of the policy
shall only be to the extent exceeding P200,000.00 of the total policies obtained.

The first conclusion is supported by the portion of the condition referring to other insurance "covering
any of the property or properties consisting of stocks in trade, goods in process and/or inventories
only hereby insured," and the portion regarding the insured's declaration on the subheading COINSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A
double insurance exists where the same person is insured by several insurers separately in respect
of the same subject and interest. As earlier stated, the insurable interests of a mortgagor and a
mortgagee on the mortgaged property are distinct and separate. Since the two policies of the PFIC
do not cover the same interest as that covered by the policy of the private respondent, no double
insurance exists. The non-disclosure then of the former policies was not fatal to the petitioner's right
to recover on the private respondent's policy.
Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total
insurance in force at the time of loss does not exceed P200,000.00, the private respondent was
amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in
mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other
insurance" clause in fire policies is to prevent over-insurance and thus avert the perpetration of
fraud. When a property owner obtains insurance policies from two or more insurers in a total amount
that exceeds the property's value, the insured may have an inducement to destroy the property for
the purpose of collecting the insurance. The public as well as the insurer is interested in preventing a
situation in which a fire would be profitable to the insured. 32
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CAG.R. SP No. 31916 is SET ASIDE and the decision of the Insurance Commission in Case No. 3340
is REINSTATED.
Costs against private respondent Country Bankers Insurance Corporation.
SO ORDERED.
G.R. No. 115278 May 23, 1995
FORTUNE INSURANCE AND SURETY CO., INC., petitioner,
vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.

DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is
liable under the Money, Security, and Payroll Robbery policy it issued to the private respondent or
whether recovery thereunder is precluded under the general exceptions clause thereof. Both the trial
court and the Court of Appeals held that there should be recovery. The petitioner contends
otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by
private respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner
Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum
of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during a robbery of

Producer's armored vehicle while it was in transit to transfer the money from its Pasay City Branch to
its head office in Makati. The case was docketed as Civil Case No. 1817 and assigned to Branch
146 thereof.
After joinder of issues, the parties asked the trial court to render judgment based on the following
stipulation of facts:
1. The plaintiff was insured by the defendants and an insurance
policy was issued, the duplicate original of which is hereto attached
as Exhibit "A";
2. An armored car of the plaintiff, while in the process of transferring
cash in the sum of P725,000.00 under the custody of its teller,
Maribeth Alampay, from its Pasay Branch to its Head Office at 8737
Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was
robbed of the said cash. The robbery took place while the armored
car was traveling along Taft Avenue in Pasay City;
3. The said armored car was driven by Benjamin Magalong Y de
Vera, escorted by Security Guard Saturnino Atiga Y Rosete. Driver
Magalong was assigned by PRC Management Systems with the
plaintiff by virtue of an Agreement executed on August 7, 1983, a
duplicate original copy of which is hereto attached as Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn Security
Services, Inc. with the plaintiff by virtue of a contract of Security
Service executed on October 25, 1982, a duplicate original copy of
which is hereto attached as Exhibit "C";
5. After an investigation conducted by the Pasay police authorities,
the driver Magalong and guard Atiga were charged, together with
Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with
violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of
Pasay City. A copy of the complaint is hereto attached as Exhibit "D";
6. The Fiscal of Pasay City then filed an information charging the
aforesaid persons with the said crime before Branch 112 of the
Regional Trial Court of Pasay City. A copy of the said information is
hereto attached as Exhibit "E." The case is still being tried as of this
date;
7. Demands were made by the plaintiff upon the defendant to pay the
amount of the loss of P725,000.00, but the latter refused to pay as
the loss is excluded from the coverage of the insurance policy,
attached hereto as Exhibit "A," specifically under page 1 thereof,

"General Exceptions" Section (b), which is marked as Exhibit "A-1,"

and which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or
criminal act of the insured or any officer, employee,
partner, director, trustee or authorized
representative of the Insured whether acting alone or
in conjunction with others. . . .
8. The plaintiff opposes the contention of the defendant and contends
that Atiga and Magalong are not its "officer, employee, . . . trustee or
authorized representative . . . at the time of the robbery. 1
On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive portion
thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and against
defendant, and
(a) orders defendant to pay plaintiff the net amount of
P540,000.00 as liability under Policy No. 0207 (as
mitigated by the P40,000.00 special clause deduction
and by the recovered sum of P145,000.00), with
interest thereon at the legal rate, until fully paid;
(b) orders defendant to pay plaintiff the sum of
P30,000.00 as and for attorney's fees; and
(c) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It
Said:
The Court is satisfied that plaintiff may not be said to have selected and engaged
Magalong and Atiga, their services as armored car driver and as security guard
having been merely offered by PRC Management and by Unicorn Security and which

latter firms assigned them to plaintiff. The wages and salaries of both Magalong and
Atiga are presumably paid by their respective firms, which alone wields the power to
dismiss them. Magalong and Atiga are assigned to plaintiff in fulfillment of
agreements to provide driving services and property protection as such in a
context which does not impress the Court as translating into plaintiff's power to
control the conduct of any assigned driver or security guard, beyond perhaps entitling
plaintiff to request are replacement for such driver guard. The finding is accordingly
compelled that neither Magalong nor Atiga were plaintiff's "employees" in avoidance
of defendant's liability under the policy, particularly the general exceptions therein
embodied.
Neither is the Court prepared to accept the proposition that driver Magalong and
guard Atiga were the "authorized representatives" of plaintiff. They were merely an
assigned armored car driver and security guard, respectively, for the June 29, 1987
money transfer from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly
it was teller Maribeth Alampay who had "custody" of the P725,000.00 cash being
transferred along a specified money route, and hence plaintiff's then designated
"messenger" adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CV No.
32946. In its decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were
neither employees nor authorized representatives of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor of the insured
and strictly against the insurance company (New Life Enterprises vs. Court of
Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA
554). Contracts of insurance, like other contracts, are to be construed according to
the sense and meaning of the terms which the parties themselves have used. If such
terms are clear and unambiguous, they must be taken and understood in their plain,
ordinary and popular sense (New Life Enterprises Case, supra, p. 676; Sun
Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted stipulation is plain,
ordinary and simple. No other interpretation is necessary. The word "employee" must
be taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing with/and specifically designed to
protect labor and therefore its definition as to employer-employee relationships
insofar as the application/enforcement of said Code is concerned must necessarily
be inapplicable to an insurance contract which defendant-appellant itself had
formulated. Had it intended to apply the Labor Code in defining what the word
"employee" refers to, it must/should have so stated expressly in the insurance policy.

Said driver and security guard cannot be considered as employees of plaintiffappellee bank because it has no power to hire or to dismiss said driver and security
guard under the contracts (Exhs. 8 and C) except only to ask for their replacements
from the contractors. 5
On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and
the Court of Appeals erred in holding it liable under the insurance policy because the loss falls within
the general exceptions clause considering that driver Magalong and security guard Atiga were
Producers' authorized representatives or employees in the transfer of the money and payroll from its
branch office in Pasay City to its head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from
one branch to another, they effectively and necessarily became its authorized representatives in the
care and custody of the money. Assuming that they could not be considered authorized
representatives, they were, nevertheless, employees of Producers. It asserts that the existence of an
employer-employee relationship "is determined by law and being such, it cannot be the subject of
agreement." Thus, if there was in reality an employer-employee relationship between Producers, on
the one hand, and Magalong and Atiga, on the other, the provisions in the contracts of Producers
with PRC Management System for Magalong and with Unicorn Security Services for Atiga which
state that Producers is not their employer and that it is absolved from any liability as an employer,
would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon four standards: (1) the
manner of selection and engagement of the putative employee; (2) the mode of payment of wages;
(3) the presence or absence of a power to dismiss; and (4) the presence and absence of a power to
control the putative employee's conduct. Of the four, the right-of-control test has been held to be the
decisive factor. 6 It asserts that the power of control over Magalong and Atiga was vested in and
exercised by Producers. Fortune further insists that PRC Management System and Unicorn Security
Services are but "labor-only" contractors under Article 106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. There is "labor-only" contracting where the
person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such persons are performing
activities which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same manner and extent as
if the latter were directly employed by him.
Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling
in International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor is
equivalent to a finding that there is an employer-employee relationship between the owner of the project
and the employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not its employees since it had
nothing to do with their selection and engagement, the payment of their wages, their dismissal, and

the control of their conduct. Producers argued that the rule in International Timber Corp. is not
applicable to all cases but only when it becomes necessary to prevent any violation or circumvention
of the Labor Code, a social legislation whose provisions may set aside contracts entered into by
parties in order to give protection to the working man.
Producers further asseverates that what should be applied is the rule in American President Lines
vs. Clave, 8 to wit:
In determining the existence of employer-employee relationship, the following
elements are generally considered, namely: (1) the selection and engagement of the
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to
control the employee's conduct.
Since under Producers' contract with PRC Management Systems it is the latter which assigned
Magalong as the driver of Producers' armored car and was responsible for his faithful discharge of
his duties and responsibilities, and since Producers paid the monthly compensation of P1,400.00 per
driver to PRC Management Systems and not to Magalong, it is clear that Magalong was not
Producers' employee. As to Atiga, Producers relies on the provision of its contract with Unicorn
Security Services which provides that the guards of the latter "are in no sense employees of the
CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance
policy which is a form of casualty insurance. Section 174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising from
accident or mishap, excluding certain types of loss which by law or custom are
considered as falling exclusively within the scope of insurance such as fire or marine.
It includes, but is not limited to, employer's liability insurance, public liability
insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as written by non-life insurance
companies, and other substantially similar kinds of insurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no
other provisions applicable to casualty insurance or to robbery insurance in particular. These
contracts are, therefore, governed by the general provisions applicable to all types of insurance.
Outside of these, the rights and obligations of the parties must be determined by the terms of their
contract, taking into consideration its purpose and always in accordance with the general principles
of insurance law. 9
It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud
the insurer the moral hazard is so great that insurers have found it necessary to fill up their
policies with countless restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured against." 10 Persons frequently excluded
under such provisions are those in the insured's service and employment. 11 The purpose of the exception

is to guard against liability should the theft be committed by one having unrestricted access to the
property. 12 In such cases, the terms specifying the excluded classes are to be given their meaning as
understood in common speech. 13 The terms "service" and "employment" are generally associated with
the idea of selection, control, and compensation. 14

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved
against the insurer, 15 or it should be construed liberally in favor of the insured and strictly against the
insurer. 16 Limitations of liability should be regarded with extreme jealousy and must be construed
in such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goes without saying
then that if the terms of the contract are clear and unambiguous, there is no room for construction and
such terms cannot be enlarged or diminished by judicial construction. 18
An insurance contract is a contract of indemnity upon the terms and conditions specified therein. 19 It
is settled that the terms of the policy constitute the measure of the insurer's liability. 20 In the absence of
statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit their
liability and to impose whatever conditions they deem best upon their obligations not inconsistent with
public policy.
With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as
employees or authorized representatives of Producers under paragraph (b) of the general
exceptions clause of the policy which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or criminal act of the
insured or any officer, employee, partner, director, trustee or
authorized representative of the Insured whether acting alone or in
conjunction with others. . . . (emphases supplied)
There is marked disagreement between the parties on the correct meaning of the terms "employee"
and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from
protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons
granted or having unrestricted access to Producers' money or payroll. When it used then the term
"employee," it must have had in mind any person who qualifies as such as generally and universally
understood, or jurisprudentially established in the light of the four standards in the determination of
the employer-employee relationship, 21 or as statutorily declared even in a limited sense as in the case
of Article 106 of the Labor Code which considers the employees under a "labor-only" contract as
employees of the party employing them and not of the party who supplied them to the employer. 22
Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security
Services are "labor-only" contracts.

Producers, however, insists that by the express terms thereof, it is not the employer of
Magalong. Notwithstanding such express assumption of PRC Management Systems and
Unicorn Security Services that the drivers and the security guards each shall supply to
Producers are not the latter's employees, it may, in fact, be that it is because the contracts
are, indeed, "labor-only" contracts. Whether they are is, in the light of the criteria provided for
in Article 106 of the Labor Code, a question of fact. Since the parties opted to submit the
case for judgment on the basis of their stipulation of facts which are strictly limited to the
insurance policy, the contracts with PRC Management Systems and Unicorn Security
Services, the complaint for violation of P.D. No. 532, and the information therefor filed by the
City Fiscal of Pasay City, there is a paucity of evidence as to whether the contracts between
Producers and PRC Management Systems and Unicorn Security Services are "labor-only"
contracts.
But even granting for the sake of argument that these contracts were not "labor-only" contracts, and
PRC Management Systems and Unicorn Security Services were truly independent contractors, we
are satisfied that Magalong and Atiga were, in respect of the transfer of Producer's money from its
Pasay City branch to its head office in Makati, its "authorized representatives" who served as such
with its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the specific
duty to safely transfer the money to its head office, with Alampay to be responsible for its custody in
transit; Magalong to drive the armored vehicle which would carry the money; and Atiga to provide the
needed security for the money, the vehicle, and his two other companions. In short, for these
particular tasks, the three acted as agents of Producers. A "representative" is defined as one who
represents or stands in the place of another; one who represents others or another in a special
capacity, as an agent, and is interchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the
insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals in
CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court
of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case No.
1817 is DISMISSED.
No pronouncement as to costs.
SO ORDERED
G.R. No. L-47593 December 29, 1943
THE INSULAR LIFE ASSURANCE CO., LTD., petitioner,
vs.
SERAFIN D. FELICIANO ET AL., respondents.
Manuel Roxas and Araneta, Zaragoza, Araneta and Bautista for petitioner.
Deflfin Joven and Pablo Lorenzo for respondents.
Ramirez and Ortigas as amici curiae.

OZAETA, J.:
In a four-to-three decision promulgated on September 13, 1941, 1 this Court affirmed the judgment of
the Court of Appeals in favor of the respondents and against the petitioner for the sum of P25,000,
representing the value of two insurance policies issued by the petitioner on the life of Evaristo
Feliciano. A motion to reconsider and set aside said decision has been filed by the petitioner, and
both parties have submitted exhaustive and luminous written arguments in support of their
respective contentions.
The facts of the case are set forth in the majority and dissenting opinions heretofore handed down
by this Court, the salient points of which may be briefly restated as follows:
Evaristo Feliciano, who died on September 29, 1935, was suffering with advanced pulmonary
tuberculosis when he signed his applications for insurance with the petitioner on October 12, 1934.
On that same date Doctor Trepp, who had taken X-ray pictures of his lungs, informed the respondent
Dr. Serafin D. Feliciano, brother of Evaristo, that the latter "was already in a very serious ad
practically hopeless condition." Nevertheless the question contained in the application "Have you
ever suffered from any ailment or disease of the lungs, pleurisy, pneumonia or asthma?" appears
to have been answered , "No" And above the signature of the applicant, following the answers to the
various questions propounded to him, is the following printed statement:
1awphil.net

I declare on behalf of myself and of any person who shall have or claim any interest in any
policy issued hereunder, that each of the above answers is full, complete and true, and that
to the best of my knowledge and belief I am a proper subject for life insurance. (Exhibit K.)
The false answer above referred to, as well as the others, was written by the Company's soliciting
agent Romulo M. David, in collusion with the medical examiner Dr. Gregorio Valdez, for the purpose
of securing the Company's approval of the application so that the policy to be issued thereon might
be credited to said agent in connection with the inter-provincial contest which the Company was then
holding among its soliciting agents to boost the sales of its policies. Agent David bribed Medical
Examiner Valdez with money which the former borrowed from the applicant's mother by way of
advanced payment on the premium, according to the finding of the Court of Appeals. Said court also
found that before the insured signed the application he, as well as the members of his family, told the
agent and the medical examiner that he had been sick and coughing for some time and that he had
gone three times to the Santol Sanatorium and had X-ray pictures of his lungs taken; but that in spite
of such information the agent and the medical examiner told them that the applicant was a fit subject
for insurance.
Each of the policies sued upon contains the following stipulations:
This policy and the application herefor constitute the entire contract between the parties
hereto. . . . Only the President, or the Manager, acting jointly with the Secretary or Assistant
Secretary (and then only in writing signed by them) have power in behalf of the Company to
issue permits, or to modify this or any contract, or to extend the same time for making any

premium payment, and the Company shall not be bound by any promise or representation
heretofore or hereafter given by any person other than the above-named officials, and by
them only in writing and signed conjointly as stated.
The application contains, among others, the following statements:
18. I [the applicant] hereby declare that all the above statements and answers as well as
all those that I may make to the Company's Medical Examiner in continuation of this
application, to be complete, true and correct to the best of my knowledge and belief, and I
hereby agree as follows:
1. That his declaration, with the answers to be given by me to the Medical Examiner, shall be
the basis of the policy and form part of same.
xxx

xxx

xxx

3. That the said policy shall not take effect until the first premium has been paid and the
policy has been delivered to and accepted by me, while I am in good health.
4. That the agent taking this application has no authority to make, modify or discharge
contracts, or to waive any of the Company's rights or requirements.
5. My acceptance of any policy issued on this application will constitute a ratification by me of
any corrections in or additions to this application made by the Company in the space
provided "For Home Office Corrections or Additions Only." I agree that photographic copy of
this applications as corrected or added to shall constitute sufficient notice to me of the
changes made. (Emphasis added.)
The petitioner insists that upon the facts of the case the policies in question are null and void ab
initio and that all that the respondents are entitled to is the refund of the premiums paid thereon.
After a careful re-examination of the facts and the law, we are persuaded that petitioner's contention
is correct. To the reasons adduced in the dissenting opinion heretofore published, we only desire to
add the following considerations:
When Evaristo Feliciano, the applicant for insurance, signed the application in blank and authorized
the soliciting agent and/or medical examiner of the Company to write the answers for him, he made
them his own agents for that purpose, and he was responsible for their acts in that connection. If
they falsified the answers for him, he could not evade the responsibility for he falsification. He was
not supposed to sign the application in blank. He knew that the answers to the questions therein
contained would be "the basis of the policy," and for that every reason he was required with his
signature to vouch for truth thereof.
Moreover, from the facts of the case we cannot escape the conclusion that the insured acted in
connivance with the soliciting agent and the medical examiner of the Company in accepting the
policies in question. Above the signature of the applicant is the printed statement or representation: "
. . . I am a proper subject for life insurance." In another sheet of the same application and above

another signature of the applicant was also printed this statement: "That the said policy shall not take
effect until he first premium has been paid and the policy as been delivered to and accepted by me,
while I am in good health." When the applicant signed the application he was "having difficulty in
breathing, . . . with a very high fever." He had gone three times to the Santol Sanatorium and had Xray pictures taken of his lungs. He therefore knew that he was not "a proper subject for life
insurance." When he accepted the policy, he knew that he was not in good health. Nevertheless, he
not only accepted the first policy of P20,000 but then and there applied for and later accepted
another policy of P5,000.
We cannot bring ourselves to believe that the insured did not take the trouble to read the answers
contained in the photostatic copy of the application attached to and made a part of the policy before
he accepted it and paid the premium thereon. He must have notice that the answers to the questions
therein asked concerning his clinical history were false, and yet he accepted the first policy and
applied for another. In any event, he obligated himself to read the policy when he subscribed to this
statement: "My acceptance of any policy issued on this application will constitute a ratification by me
of any corrections in or additions to this application made by the Company . . ." By accepting the
policy he became charged with knowledge of its contents, whether he actually read it or not. He
could not ostrich-like hide his head from it in order to avoid his part of the bargain and at the same
time claim the benefit thereof. He knew, or was chargeable with knowledge, from the very terms of
the two policies sued upon (one of which is printed in English and the other in Spanish) that the
soliciting agent and the medical examiner had no power to bind the Company by any verbal promise
or oral representation. The insured, therefore, had no right to rely and we cannot believe he relied
in good faith upon the oral representation. The insured, therefore, had no right to rely and we
cannot believe he relied in good faith upon the oral representation of said agent and medical
examiner that he (the applicant) was a fit subject for insurance notwithstanding that he had been and
was still suffering with advanced pulmonary tuberculosis.
From all the facts and circumstances of this case, we are constrained to conclude that the insured
was a coparticipant, and coresponsible with Agent David and Medical Examiner Valdez, in the
fraudulent procurement of the policies in question and that by reason thereof said policies are
void ab initio.
Wheretofore, the motion for reconsideration is sustained and the judgment of the Court of Appeals is
hereby reversed. Let another judgment be entered in favor of the respondents and against the
petitioner for the refund of the premiums amounting to P1,389, with legal interest thereon from the
date of the complaint, and without any finding as to costs.
Moran, Paras and Bocobo, JJ., concur.

G.R. No. L-48563 May 25, 1979

VICENTE E. TANG, petitioner,
vs.

HON. COURT OF APPEALS and PHILIPPINE AMERICAN LIFE INSURANCE

COMPANY, respondents.
Ambrosio D. Go for petitioner.
Ferry, De la Rosa, Deligero Salonga & Associates for private respondent.

ABAD SANTOS, J.:

This is a petition to review on certiorari of the decision of the Court of Appeals (CA-G.R. No. 55407R, June 8, 1978) which affirmed the decision of the Court of First Instance of Manila in Civil Case
No. 90062 wherein the petitioner herein was the plaintiff and Philippine American Life Insurance Co.
the herein respondent was the defendant. The action was for the enforcement of two insurance
policies that had been issued by the defendant company under the following circumstances.
On September 25, 1965, Lee See Guat, a widow, 61 years old, and an illiterate who spoke only
Chinese, applied for an insurance on her life for P60,000 with the respondent Company. The
application consisted of two parts, both in the English language. The second part of her application
dealt with her state of health and because her answers indicated that she was healthy, the Company
issued her Policy No. 0690397, effective October 23, 1965, with her nephew Vicente E. Tang, herein
Petitioner, as her beneficiary,
On November 15, 1965, Lee See Guat again applied with the respondent Company for an additional
insurance on her life for P40,000. Considering that her first application had just been approved, no
further medical examination was made but she was required to accomplish and submit Part I of the
application which reads: "I/WE HEREBY DECLARE AND AGREE that all questions, statements
answers contained herein, as well as those made to or to be made to the Medical Examiner in Part II
are full, complete and true and bind all parties in interest under the policy herein applied for; that
there shall be no contract of insurance unless a policy is issued on this application and the fun first
premium thereon, according to the mode of payment specified in answer to question 4D above,
actually paid during the lifetime and good health of the Proposed Insured." Moreover, her answers in
Part II of her previous application were used in appraising her insurability for the second insurance.
On November 28, 1965, Policy No. 695632 was issued to Lee See Guat with the same Vicente E.
Tang as her beneficiary.
On April 20, 1966, Lee See Guat died of lung cancer. Thereafter, the beneficiary of the two policies,
Vicente E. Tang claimed for their face value in the amount of P100,000 which the insurance
company refused to pay on the ground that the insured was guilty of concealment and
misrepresentation at the time she applied for the two policies. Hence, the filing of Civil Case No.
90062 in the Court of First Instance of Manila which dismissed the claim because of the
concealment practised by the insured in violation of the Insurance Law.
On appeal, the Court of Appeals, affirmed the decision. In its decision, the Court of Appeals
stated, inter alia: "There is no doubt that she deliberately concealed material facts about her physical

condition and history and/or conspired with whoever assisted her in relaying false information to the
medical examiner, assuming that the examiner could not communicate directly with her."
The issue in this appeal is the application of Art. 1332 of the Civil Code which stipulates:
Art. 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained to
the former.
According to the Code Commission: "This rule is especially necessary in the Philippines where
unfortunately there is still a fairly large number of illiterates, and where documents are usually drawn
up in English or Spanish." (Report of the Code Commission, p. 136.) Art. 1332 supplements Art. 24
of the Civil Code which provides that " In all contractual, property or other relations, when one of the
parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the court must be vigilant for his protection.
It is the position of the petitioner that because Lee See Guat was illiterate and spoke only Chinese,
she could not be held guilty of concealment of her health history because the applications for
insurance were in English and the insurer has not proved that the terms thereof had been fully
explained to her.
It should be noted that under Art. 1332 above quoted, the obligation to show that the terms of the
contract had been fully explained to the party who is unable to read or understand the language of
the contract, when fraud or mistake is alleged, devolves on the party seeking to enforce it. Here the
insurance company is not seeking to enforce the contracts; on the contrary, it is seeking to avoid
their performance. It is petitioner who is seeking to enforce them even as fraud or mistake is not
alleged. Accordingly, respondent company was under no obligation to prove that the terms of the
insurance contracts were fully explained to the other party. Even if we were to say that the insurer is
the one seeking the performance of the contracts by avoiding paying the claim, it has to be noted as
above stated that there has been no imputation of mistake or fraud by the illiterate insured whose
personality is represented by her beneficiary the petitioner herein. In sum, Art. 1332 is inapplicable to
the case at bar. Considering the findings of both the CFI and Court of Appeals that the insured was
guilty of concealment as to her state of health, we have to affirm.
WHEREFORE, the decision of the Court of Appeals is hereby affirmed. No special pronouncement
as to costs.
SO ORDERED
G.R. No. 105135 June 22, 1995
SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,
vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA
BACANI, respondents.

QUIASON, J.:
This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to reverse and
set aside the Decision dated February 21, 1992 of the Court of Appeals in CA-G.R. CV No. 29068,
and its Resolution dated April 22, 1992, denying reconsideration thereof.
We grant the petition.
I
On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from
petitioner. He was issued Policy No. 3-903-766-X valued at P100,000.00, with double indemnity in
case of accidental death. The designated beneficiary was his mother, respondent Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim with
petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner conducted an
investigation and its findings prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclose
material facts relevant to the issuance of the policy, thus rendering the contract of insurance
voidable. A check representing the total premiums paid in the amount of P10,172.00 was attached to
said letter.
Petitioner claimed that the insured gave false statements in his application when he answered the
following questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner?
b) submitted to:
EGG?
X-rays?
blood tests?
other tests?
c) attended or been admitted to any hospital or other medical facility?
6. Have you ever had or sought advice for:
xxx xxx xxx
b) urine, kidney or bladder disorder? (Rollo, p. 53)

The deceased answered question No. 5(a) in the affirmative but limited his answer to a consultation
with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on February 1986, for
cough and flu complications. The other questions were answered in the negative (Rollo, p. 53).
Petitioner discovered that two weeks prior to his application for insurance, the insured was examined
and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During
his confinement, the deceased was subjected to urinalysis, ultra-sonography and hematology tests.
On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando
Bacani, filed an action for specific performance against petitioner with the Regional Trial Court,
Branch 191, Valenzuela, Metro Manila. Petitioner filed its answer with counterclaim and a list of
exhibits consisting of medical records furnished by the Lung Center of the Philippines.
On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for Summary
Judgment" where they manifested that they "have no evidence to refute the documentary evidence
of concealment/misrepresentation by the decedent of his health condition (Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the authenticity and due execution of several
documents as well as allegations regarding the health of the insured. Private respondents failed to
oppose said request or reply thereto, thereby rendering an admission of the matters alleged.
Petitioner then moved for a summary judgment and the trial court decided in favor of private
respondents. The dispositive portion of the decision is reproduced as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendant, condemning the latter to pay the former the amount of One Hundred
Thousand Pesos (P100,000.00) the face value of insured's Insurance Policy No.
3903766, and the Accidental Death Benefit in the amount of One Hundred Thousand
Pesos (P100,000.00) and further sum of P5,000.00 in the concept of reasonable
attorney's fees and costs of suit.
Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).
In ruling for private respondents, the trial court concluded that the facts concealed by the insured
were made in good faith and under a belief that they need not be disclosed. Moreover, it held that
the health history of the insured was immaterial since the insurance policy was "non-medical".
Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The
appellate court ruled that petitioner cannot avoid its obligation by claiming concealment because the
cause of death was unrelated to the facts concealed by the insured. It also sustained the finding of
the trial court that matters relating to the health history of the insured were irrelevant since petitioner
waived the medical examination prior to the approval and issuance of the insurance policy.
Moreover, the appellate court agreed with the trial court that the policy was "non-medical" (Rollo, pp.
4-5).
Petitioner's motion for reconsideration was denied; hence, this petition.

II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the appellate court are binding on this Court is
not absolute and admits of exceptions, such as when the judgment is based on a misappreciation of
the facts (Geronimo v. Court of Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court concluded that indeed there was concealment
and misrepresentation, however, the same was made in "good faith" and the facts concealed or
misrepresented were irrelevant since the policy was "non-medical". We disagree.
Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has no means of ascertaining.
Said Section provides:
A neglect to communicate that which a party knows and ought to communicate, is
called concealment.
Materiality is to be determined not by the event, but solely by the probable and reasonable influence
of the facts upon the party to whom communication is due, in forming his estimate of the
disadvantages of the proposed contract or in making his inquiries (The Insurance Code, Sec. 31).
The terms of the contract are clear. The insured is specifically required to disclose to the insurer
matters relating to his health.
The information which the insured failed to disclose were material and relevant to the approval and
issuance of the insurance policy. The matters concealed would have definitely affected petitioner's
action on his application, either by approving it with the corresponding adjustment for a higher
premium or rejecting the same. Moreover, a disclosure may have warranted a medical examination
of the insured by petitioner in order for it to reasonably assess the risk involved in accepting the
application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the
information withheld does not depend on the state of mind of the insured. Neither does it depend on
the actual or physical events which ensue.
Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that he
was hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about
his bonafides. It appears that such concealment was deliberate on his part.
The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v. Philippine
American Life Insurance Company, 7 SCRA 316 (1963), that " . . . the waiver of a medical
examination [in a non-medical insurance contract] renders even more material the information

required of the applicant concerning previous condition of health and diseases suffered, for such
information necessarily constitutes an important factor which the insurer takes into consideration in
deciding whether to issue the policy or not . . . "
Moreover, such argument of private respondents would make Section 27 of the Insurance Code,
which allows the injured party to rescind a contract of insurance where there is concealment,
ineffective (See Vda. de Canilang v. Court of Appeals, supra).
Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is
well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is
sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the
proposed insurance policy or in making inquiries (Henson v. The Philippine American Life Insurance
Co., 56 O.G. No. 48 [1960]).
We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance by
reason of the concealment employed by the insured. It must be emphasized that rescission was
exercised within the two-year contestability period as recognized in Section 48 of The Insurance
Code.
WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED
and SET ASIDE.
SO ORDERED.
ollows:
Sec. 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.
xxx xxx xxx
Sec. 28. Each party to a contract of insurance must communicate to the other, in
good faith, all factorswithin his knowledge which are material to the contract and as
to which he makes no warranty, and which the other has not the means of
ascertaining. (Emphasis supplied)
Under the foregoing provisions, the information concealed must be information which the concealing
party knew and "ought to [have] communicate[d]," that is to say, information which was "material to
the contract." The test of materiality is contained in Section 31 of the Insurance Code of 1978 which
reads:
Sec. 31. Materially is to be determined not by the event, but solely by the probable
and reasonable influence of the facts upon the party to whom the communication is
due, in forming his estimate of the disadvantages of the proposed contract, or in
making his inquiries. (Emphasis supplied)

"Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per
minute." 13 The symptoms of this condition include pounding in the chest and sometimes faintness and
weakness of the person affected. The following elaboration was offered by Great Pacific and set out by
the Court of Appeals in its Decision:
Sinus tachycardia is defined as sinus-initiated; heart rate faster than 100 beats per
minute. (Harrison' s Principles of Internal Medicine, 8th ed. [1978], p. 1193.) It is,
among others, a common reaction to heart disease, including myocardial
infarction, and heart failure per se. (Henry J.L. Marriot, M.D.,Electrocardiography, 6th
ed., [1977], p. 127.) The medication prescribed by Dr. Claudio for treatment of
Canilang's ailment on June 18, 1982, indicates the condition that said physician was
trying to manage. Thus, he prescribed Trazepam, (Philippine Index of Medical
Specialties (PIMS), Vol. 14, No. 3, Dec. 1985, p. 112) which is anti-anxiety, anticonvulsant, muscle-relaxant; and Aptin, (Idem, p. 36) a cardiac drug, for palpitations
and nervous heart. Such treatment could have been a very material information to
the insurer in determining the action to be take on Canilang's application for life
insurance coverage. 14
We agree with the Court of Appeals that the information which Jaime Canilang failed to disclose was
material to the ability of Great Pacific to estimate the probable risk he presented as a subject of life
insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made and medicines
prescribed by such doctor, in the insurance application, it may be reasonably assumed that Great
Pacific would have made further inquiries and would have probably refused to issue a non-medical
insurance policy or, at the very least, required a higher premium for the same coverage. 15 The
materiality of the information withheld by Great Pacific did not depend upon the state of mind of Jaime
Canilang. A man's state of mind or subjective belief is not capable of proof in our judicial process, except
through proof of external acts or failure to act from which inferences as to his subjective belief may be
reasonably drawn. Neither does materiality depend upon the actual or physical events which ensue.
Materiality relates rather to the "probable and reasonable influence of the facts" upon the party to whom
the communication should have been made, in assessing the risk involved in making or omitting to make
further inquiries and in accepting the application for insurance; that "probable and reasonable influence of
the facts" concealed must, of course, be determined objectively, by the judge ultimately.
The insurance Great Pacific applied for was a "non-medical" insurance policy. In Saturnino v.
Philippine-American Life Insurance Company, 16 this Court held that:
. . . if anything, the waiver of medical examination [in a non-medical insurance
contract] renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer takes into consideration
in deciding whether to issue the policy or not . . . . 17 (Emphasis supplied)
The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain
information to the insurer was not "intentional" in nature, for the reason that Jaime Canilang believed
that he was suffering from minor ailment like a common cold. Section 27 of the Insurance Code of
1978 as it existed from 1974 up to 1985, that is, throughout the time range material for present
purposes, provided that:

Sec. 27. A concealment entitles the injured party to rescind a contract of insurance.
The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:
Sec. 26. A concealment, whether intentional or unintentional, entitles the injured
party to rescind a contract of insurance. (Emphasis supplied)
Upon the other hand, in 1985, the Insurance Code of 1978 was amended by
B.P. Blg. 874. This subsequent statute modified Section 27 of the Insurance Code of 1978 so as to
read as follows:
Sec. 27. A concealment whether intentional or unintentional entitles the injured party
to rescind a contract of insurance. (Emphasis supplied)
The unspoken theory of the Insurance Commissioner appears to have been that by deleting the
phrase "intentional or unintentional," the Insurance Code of 1978 (prior to its amendment by B.P.
Blg. 874) intended to limit the kinds of concealment which generate a right to rescind on the part of
the injured party to "intentional concealments." This argument is not persuasive. As a simple matter
of grammar, it may be noted that "intentional" and "unintentional" cancel each other out. The net
result therefore of the phrase "whether intentional or unitentional" is precisely to leave
unqualified the term "concealment." Thus, Section 27 of the Insurance Code of 1978 is properly read
as referring to "any concealment" without regard to whether such concealment is intentional or
unintentional. The phrase "whether intentional or unintentional" was in fact superfluous. The deletion
of the phrase "whether intentional or unintentional" could not have had the effect of imposing an
affirmative requirement that a concealment must be intentional if it is to entitle the injured party to
rescind a contract of insurance. The restoration in 1985 by B.P. Blg. 874 of the phrase "whether
intentional or unintentional" merely underscored the fact that all throughout (from 1914 to 1985), the
statute did not require proof that concealment must be "intentional" in order to authorize rescission
by the injured party.
In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such that the
failure to communicate must have been intentional rather than merely inadvertent. For Jaime
Canilang could not have been unaware that his heart beat would at times rise to high and alarming
levels and that he had consulted a doctor twice in the two (2) months before applying for nonmedical insurance. Indeed, the last medical consultation took place just the day before the insurance
application was filed. In all probability, Jaime Canilang went to visit his doctor precisely because of
the discomfort and concern brought about by his experiencing "sinus tachycardia."
We find it difficult to take seriously the argument that Great Pacific had waived inquiry into the
concealment by issuing the insurance policy notwithstanding Canilang's failure to set out answers to
some of the questions in the insurance application. Such failure precisely constituted concealment
on the part of Canilang. Petitioner's argument, if accepted, would obviously erase Section 27 from
the Insurance Code of 1978.
It remains only to note that the Court of Appeals finding that the parties had not agreed in the pretrial
before the Insurance Commission that the relevant issue was whether or not Jaime Canilang

had intentionally concealed material information from the insurer, was supported by the evidence of
record, i.e., the Pre-trial Order itself dated 17 October 1984 and the Minutes of the Pre-trial
Conference dated 15 October 1984, which "readily shows that the word "intentional" does not
appear in the statement or definition of the issue in the said Order and Minutes." 18
WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the Court of
Appeals dated 16 October 1989 in C.A.-G.R. SP No. 08696 is hereby AFFIRMED. No
pronouncement as to the costs.
SO ORDERED.
G.R. No. 48049 June 29, 1989
EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondents.
O.F. Santos & P.C. Nolasco for petitioners.
Ferry, De la Rosa and Associates for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the Court of Appeals' decision affirming the decision of the
Insurance Commissioner which dismissed the petitioners' complaint against respondent Philippine
American Life Insurance Company for the recovery of the proceeds from their late father's policy.
The facts of the case as found by the Court of Appeals are:
Petitioners appeal from the Decision of the Insurance Commissioner dismissing
herein petitioners' complaint against respondent Philippine American Life Insurance
Company for the recovery of the proceeds of Policy No. 1082467 in the amount of P
80,000.00.
On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for life
insurance in the amount of P 80,000.00 with respondent company. Said application
was approved and Policy No. 1082467 was issued effective November 6,1973, with
petitioners the beneficiaries thereof (Exhibit A).
On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then filed
with respondent company their claim for the proceeds of the life insurance policy.
However, in a letter dated September 11, 1975, respondent company denied
petitioners' claim and rescinded the policy by reason of the alleged misrepresentation
and concealment of material facts made by the deceased Tan Lee Siong in his

application for insurance (Exhibit 3). The premiums paid on the policy were
thereupon refunded .
Alleging that respondent company's refusal to pay them the proceeds of the policy
was unjustified and unreasonable, petitioners filed on November 27, 1975, a
complaint against the former with the Office of the Insurance Commissioner,
docketed as I.C. Case No. 218.
After hearing the evidence of both parties, the Insurance Commissioner rendered
judgment on August 9, 1977, dismissing petitioners' complaint. (Rollo, pp. 91-92)
The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's decision
for lack of merit
Hence, this petition.
The petitioners raise the following issues in their assignment of errors, to wit:
A. The conclusion in law of respondent Court that respondent insurer has the right to
rescind the policy contract when insured is already dead is not in accordance with
existing law and applicable jurisprudence.
B. The conclusion in law of respondent Court that respondent insurer may be allowed
to avoid the policy on grounds of concealment by the deceased assured, is contrary
to the provisions of the policy contract itself, as well as, of applicable legal provisions
and established jurisprudence.
C. The inference of respondent Court that respondent insurer was misled in issuing
the policy are manifestly mistaken and contrary to admitted evidence. (Rollo, p. 7)
The petitioners contend that the respondent company no longer had the right to rescind the contract
of insurance as rescission must allegedly be done during the lifetime of the insured within two years
and prior to the commencement of action.
The contention is without merit.
The pertinent section in the Insurance Code provides:
Section 48. Whenever a right to rescind a contract of insurance is given to the insurer
by any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two years from the date
of its issue or of its last reinstatement, the insurer cannot prove that the policy is

void ab initio or is rescindable by reason of the fraudulent concealment or

misrepresentation of the insured or his agent.
According to the petitioners, the Insurance Law was amended and the second paragraph of Section
48 added to prevent the insurance company from exercising a right to rescind after the death of the
insured.
The so-called "incontestability clause" precludes the insurer from raising the defenses of false
representations or concealment of material facts insofar as health and previous diseases are
concerned if the insurance has been in force for at least two years during the insured's lifetime. The
phrase "during the lifetime" found in Section 48 simply means that the policy is no longer considered
in force after the insured has died. The key phrase in the second paragraph of Section 48 is "for a
period of two years."
As noted by the Court of Appeals, to wit:
The policy was issued on November 6,1973 and the insured died on April 26,1975.
The policy was thus in force for a period of only one year and five months.
Considering that the insured died before the two-year period had lapsed, respondent
company is not, therefore, barred from proving that the policy is void ab initio by
reason of the insured's fraudulent concealment or misrepresentation. Moreover,
respondent company rescinded the contract of insurance and refunded the premiums
paid on September 11, 1975, previous to the commencement of this action on
November 27,1975. (Rollo, pp. 99-100)
xxx xxx xxx
The petitioners contend that there could have been no concealment or misrepresentation by their
late father because Tan Lee Siong did not have to buy insurance. He was only pressured by insistent
salesmen to do so. The petitioners state:
Here then is a case of an assured whose application was submitted because of
repeated visits and solicitations by the insurer's agent. Assured did not knock at the
door of the insurer to buy insurance. He was the object of solicitations and visits.
Assured was a man of means. He could have obtained a bigger insurance, not just P
80,000.00. If his purpose were to misrepresent and to conceal his ailments in
anticipation of death during the two-year period, he certainly could have gotten a
bigger insurance. He did not.
Insurer Philamlife could have presented as witness its Medical Examiner Dr. Urbano
Guinto. It was he who accomplished the application, Part II, medical. Philamlife did
not.
Philamlife could have put to the witness stand its Agent Bienvenido S. Guinto, a
relative to Dr. Guinto, Again Philamlife did not. (pp. 138139, Rollo)

xxx xxx xxx

This Honorable Supreme Court has had occasion to denounce the pressure and
practice indulged in by agents in selling insurance. At one time or another most of us
have been subjected to that pressure, that practice. This court took judicial
cognizance of the whirlwind pressure of insurance selling-especially of the agent's
practice of 'supplying the information, preparing and answering the
application, submitting the application to their companies, concluding the
transactions and otherwisesmoothing out all difficulties.
We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73 Phil. 201; at
page 205:
It is of common knowledge that the selling of insurance today is subjected to the
whirlwind pressure of modern salesmanship.
Insurance companies send detailed instructions to their agents to solicit and procure
applications.
These agents are to be found all over the length and breadth of the land. They are
stimulated to more active efforts by contests and by the keen competition offered by
the other rival insurance companies.
They supply all the information, prepare and answer the applications, submit the
applications to their companies, conclude the transactions, and otherwise smooth
out all difficulties.
The agents in short do what the company set them out to do.
The Insular Life case was decided some forty years ago when the pressure of
insurance salesmanship was not overwhelming as it is now; when the population of
this country was less than one-fourth of what it is now; when the insurance
companies competing with one another could be counted by the fingers. (pp. 140142, Rollo)
xxx xxx xxx
In the face of all the above, it would be unjust if, having been subjected to the
whirlwind pressure of insurance salesmanship this Court itself has long denounced,
the assured who dies within the two-year period, should stand charged of fraudulent
concealment and misrepresentation." (p. 142, Rollo)
The legislative answer to the arguments posed by the petitioners is the "incontestability clause"
added by the second paragraph of Section 48.

The insurer has two years from the date of issuance of the insurance contract or of its last
reinstatement within which to contest the policy, whether or not, the insured still lives within such
period. After two years, the defenses of concealment or misrepresentation, no matter how patent or
well founded, no longer lie. Congress felt this was a sufficient answer to the various tactics employed
by insurance companies to avoid liability. The petitioners' interpretation would give rise to the
incongruous situation where the beneficiaries of an insured who dies right after taking out and
paying for a life insurance policy, would be allowed to collect on the policy even if the insured
fraudulently concealed material facts.
The petitioners argue that no evidence was presented to show that the medical terms were
explained in a layman's language to the insured. They state that the insurer should have presented
its two medical field examiners as witnesses. Moreover, the petitioners allege that the policy intends
that the medical examination must be conducted before its issuance otherwise the insurer "waives
whatever imperfection by ratification."
We agree with the Court of Appeals which ruled:
On the other hand, petitioners argue that no evidence was presented by respondent
company to show that the questions appearing in Part II of the application for
insurance were asked, explained to and understood by the deceased so as to prove
concealment on his part. The same is not well taken. The deceased, by affixing his
signature on the application form, affirmed the correctness of all the entries and
answers appearing therein. It is but to be expected that he, a businessman, would
not have affixed his signature on the application form unless he clearly understood its
significance. For, the presumption is that a person intends the ordinary consequence
of his voluntary act and takes ordinary care of his concerns. [Sec. 5(c) and (d), Rule
131, Rules of Court].
The evidence for respondent company shows that on September 19,1972, the
deceased was examined by Dr. Victoriano Lim and was found to be diabetic and
hypertensive; that by January, 1973, the deceased was complaining of progressive
weight loss and abdominal pain and was diagnosed to be suffering from hepatoma,
(t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr. Wenceslao Vitug,
testified that the deceased came to see him on December 14, 1973 for consolation
and claimed to have been diabetic for five years. (t.s.n., Aug. 23,1976, p. 5; Exhibit 6)
Because of the concealment made by the deceased of his consultations and
treatments for hypertension, diabetes and liver disorders, respondent company was
thus misled into accepting the risk and approving his application as medically
standard (Exhibit 5- C) and dispensing with further medical investigation and
examination (Exhibit 5-A). For as long as no adverse medical history is revealed in
the application form, an applicant for insurance is presumed to be healthy and
physically fit and no further medical investigation or examination is conducted by
respondent company. (t.s.n., April 8,1976, pp. 6-8). (Rollo, pp. 96-98)
There is no strong showing that we should apply the "fine print" or "contract of adhesion" rule in this
case. (Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The petitioners cite:

It is a matter of common knowledge that large amounts of money are collected from
ignorant persons by companies and associations which adopt high sounding titles
and print the amount of benefits they agree to pay in large black-faced type, following
such undertakings by fine print conditions which destroy the substance of the
promise. All provisions, conditions, or exceptions which in any way tend to work a
forfeiture of the policy should be construed most strongly against those for whose
benefit they are inserted, and most favorably toward those against whom they are
meant to operate. (Trinidad v. Orient Protective Assurance Assn., 67 Phil. 184)
There is no showing that the questions in the application form for insurance regarding the insured's
medical history are in smaller print than the rest of the printed form or that they are designed in such
a way as to conceal from the applicant their importance. If a warning in bold red letters or a boxed
warning similar to that required for cigarette advertisements by the Surgeon General of the United
States is necessary, that is for Congress or the Insurance Commission to provide as protection
against high pressure insurance salesmanship. We are limited in this petition to ascertaining whether
or not the respondent Court of Appeals committed reversible error. It is the petitioners' burden to
show that the factual findings of the respondent court are not based on substantial evidence or that
its conclusions are contrary to applicable law and jurisprudence. They have failed to discharge that
burden.
WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of the Court
of Appeals is AFFIRMED.
SO ORDERED.
G.R. No. 198588

July 11, 2012

UNITED MERCHANTS CORPORATION, Petitioner,

vs.
COUNTRY BANKERS INSURANCE CORPORATION, Respondent.
DECISION
CARPIO, J.:
The Case
This Petition for Review on Certiorari1 seeks to reverse the Court of Appeals Decision2 dated 16
June 2011 and its Resolution3 dated 8 September 2011 in CA-G.R. CV No. 85777. The Court of
Appeals reversed the Decision4of the Regional Trial Court (RTC) of Manila, Branch 3, and ruled that
the claim on the Insurance Policy is void.
The Facts
The facts, as culled from the records, are as follows:

Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and
manufacturing Christmas lights. UMC leased a warehouse at 19-B Dagot Street, San Jose
Subdivision, Barrio Manresa, Quezon City, where UMC assembled and stored its products.
On 6 September 1995, UMCs General Manager Alfredo Tan insured UMCs stocks in trade of
Christmas lights against fire with defendant Country Bankers Insurance Corporation (CBIC)
for P15,000,000.00. The Fire Insurance Policy No. F-HO/95-576 (Insurance Policy) and Fire Invoice
No. 12959A, valid until 6 September 1996, states:
AMOUNT OF INSURANCE:

FIFTEEN
MILLION PESOS
PHILIPPINE
CURRENCY
xxx

PROPERTY INSURED: On stocks in trade only, consisting of Christmas Lights, the properties of the
Assured or held by them in trust, on commissions, or on joint account with others and/or for which
they are responsible in the event of loss and/or damage during the currency of this policy, whilst
contained in the building of one lofty storey in height, constructed of concrete and/or hollow blocks
with portion of galvanized iron sheets, under galvanized iron rood, occupied as Christmas lights
storage.5
On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire Invoice No. 16583A to
form part of the Insurance Policy. Endorsement F/96-154 provides that UMCs stocks in trade were
insured against additional perils, to wit: "typhoon, flood, ext. cover, and full earthquake." The sum
insured was also increased toP50,000,000.00 effective 7 May 1996 to 10 January 1997. On 9 May
1996, CBIC issued Endorsement F/96-157 where the name of the assured was changed from
Alfredo Tan to UMC.
On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM Adjustment
Corporation (CRM) to investigate and evaluate UMCs loss by reason of the fire. CBICs reinsurer,
Central Surety, likewise requested the National Bureau of Investigation (NBI) to conduct a parallel
investigation. On 6 July 1996, UMC, through CRM, submitted to CBIC its Sworn Statement of
Formal Claim, with proofs of its loss.
On 20 November 1996, UMC demanded for at least fifty percent (50%) payment of its claim from
CBIC. On 25 February 1997, UMC received CBICs letter, dated 10 January 1997, rejecting UMCs
claim due to breach of Condition No. 15 of the Insurance Policy. Condition No. 15 states:
If the claim be in any respect fraudulent, or if any false declaration be made or used in support
thereof, or if any fraudulent means or devices are used by the Insured or anyone acting in his behalf
to obtain any benefit under this Policy; or if the loss or damage be occasioned by the willful act, or
with the connivance of the Insured, all the benefits under this Policy shall be forfeited. 6
On 19 February 1998, UMC filed a Complaint7 against CBIC with the RTC of Manila. UMC anchored
its insurance claim on the Insurance Policy, the Sworn Statement of Formal Claim earlier submitted,
and the Certification dated 24 July 1996 made by Deputy Fire Chief/Senior Superintendent Bonifacio
J. Garcia of the Bureau of Fire Protection. The Certification dated 24 July 1996 provides that:

This is to certify that according to available records of this office, on or about 6:10 P.M. of July 3,
1996, a fire broke out at United Merchants Corporation located at 19-B Dag[o]t Street, Brgy.
Manresa, Quezon City incurring an estimated damage of Fifty-Five Million Pesos (P55,000,000.00)
to the building and contents, while the reported insurance coverage amounted to Fifty Million Pesos
(P50,000,000.00) with Country Bankers Insurance Corporation.
The Bureau further certifies that no evidence was gathered to prove that the establishment was
willfully, feloniously and intentionally set on fire.
That the investigation of the fire incident is already closed being ACCIDENTAL in nature. 8
In its Answer with Compulsory Counterclaim9 dated 4 March 1998, CBIC admitted the issuance of
the Insurance Policy to UMC but raised the following defenses: (1) that the Complaint states no
cause of action; (2) that UMCs claim has already prescribed; and (3) that UMCs fire claim is tainted
with fraud. CBIC alleged that UMCs claim was fraudulent because UMCs Statement of Inventory
showed that it had no stocks in trade as of 31 December 1995, and that UMCs suspicious
purchases for the year 1996 did not even amount to P25,000,000.00. UMCs GIS and Financial
Reports further revealed that it had insufficient capital, which meant UMC could not afford the
allegedP50,000,000.00 worth of stocks in trade.
In its Reply10 dated 20 March 1998, UMC denied violation of Condition No. 15 of the Insurance
Policy. UMC claimed that it did not make any false declaration because the invoices were genuine
and the Statement of Inventory was for internal revenue purposes only, not for its insurance claim.
During trial, UMC presented five witnesses. The first witness was Josie Ebora (Ebora), UMCs
disbursing officer. Ebora testified that UMCs stocks in trade, at the time of the fire, consisted of: (1)
raw materials for its Christmas lights; (2) Christmas lights already assembled; and (3) Christmas
lights purchased from local suppliers. These stocks in trade were delivered from August 1995 to May
1996. She stated that Straight Cargo Commercial Forwarders delivered the imported materials to the
warehouse, evidenced by delivery receipts. However, for the year 1996, UMC had no importations
and only bought from its local suppliers. Ebora identified the suppliers as Fiber Technology
Corporation from which UMC bought stocks worth P1,800,000.00 on 20 May 1996; Fuze Industries
Manufacturer Philippines from which UMC bought stocks worth P19,500,000.00 from 20 January
1996 to 23 February 1996; and Tomco Commercial Press from which UMC bought several
Christmas boxes. Ebora testified that all these deliveries were not yet paid. Ebora also presented
UMCs Balance Sheet, Income Statement and Statement of Cash Flow. Per her testimony, UMCs
purchases amounted to P608,986.00 in 1994;P827,670.00 in 1995; and P20,000,000.00 in 1996.
Ebora also claimed that UMC had sales only from its fruits business but no sales from its Christmas
lights for the year 1995.
The next witness, Annie Pabustan (Pabustan), testified that her company provided about 25 workers
to assemble and pack Christmas lights for UMC from 28 March 1996 to 3 July 1996. The third
witness, Metropolitan Bank and Trust Company (MBTC) Officer Cesar Martinez, stated that UMC
opened letters of credit with MBTC for the year 1995 only. The fourth witness presented was Ernesto
Luna (Luna), the delivery checker of Straight Commercial Cargo Forwarders. Luna affirmed the
delivery of UMCs goods to its warehouse on 13 August 1995, 6 September 1995, 8 September
1995, 24 October 1995, 27 October 1995, 9 November 1995, and 19 December 1995. Lastly, CRMs
adjuster Dominador Victorio testified that he inspected UMCs warehouse and prepared preliminary
reports in this connection.
On the other hand, CBIC presented the claims manager Edgar Caguindagan (Caguindagan), a
Securities and Exchange Commission (SEC) representative, Atty. Ernesto Cabrera (Cabrera), and

NBI Investigator Arnold Lazaro (Lazaro). Caguindagan testified that he inspected the burned
warehouse on 5 July 1996, took pictures of it and referred the claim to an independent adjuster. The
SEC representatives testimony was dispensed with, since the parties stipulated on the existence of
certain documents, to wit: (1) UMCs GIS for 1994-1997; (2) UMCs Financial Report as of 31
December 1996; (3) SEC Certificate that UMC did not file GIS or Financial Reports for certain years;
and (4) UMCs Statement of Inventory as of 31 December 1995 filed with the BIR.
Cabrera and Lazaro testified that they were hired by Central Surety to investigate UMCs claim. On
19 November 1996, they concluded that arson was committed based from their interview
with barangay officials and the pictures showing that blackened surfaces were present at different
parts of the warehouse. On cross-examination, Lazaro admitted that they did not conduct a forensic
investigation of the warehouse, nor did they file a case for arson.
For rebuttal, UMC presented Rosalinda Batallones (Batallones), keeper of the documents of UCPB
General Insurance, the insurer of Perfect Investment Company, Inc., the warehouse owner. When
asked to bring documents related to the insurance of Perfect Investment Company, Inc., Batallones
brought the papers of Perpetual Investment, Inc.
The Ruling of the Regional Trial Court
On 16 June 2005, the RTC of Manila, Branch 3, rendered a Decision in favor of UMC, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and ordering defendant to pay
plaintiff:
a) the sum of P43,930,230.00 as indemnity with interest thereon at 6% per annum from
November 2003 until fully paid;
b) the sum of P100,000.00 for exemplary damages;
c) the sum of P100,000.00 for attorneys fees; and
d) the costs of suit.
Defendants counterclaim is denied for lack of merit.
SO ORDERED.11
The RTC found no dispute as to UMCs fire insurance contract with CBIC. Thus, the RTC ruled for
UMCs entitlement to the insurance proceeds, as follows:
Fraud is never presumed but must be proved by clear and convincing evidence. (see Alonso v. Cebu
Country Club, 417 SCRA 115 [2003]) Defendant failed to establish by clear and convincing evidence
that the documents submitted to the SEC and BIR were true. It is common business practice for
corporations to have 2 sets of reports/statements for tax purposes. The stipulated documents of
plaintiff (Exhs. 2 8) may not have been accurate.
The conflicting findings of defendants adjuster, CRM Adjustment [with stress] and that made by Atty.
Cabrera & Mr. Lazaro for Central Surety shall be resolved in favor of the former. Definitely the
formers finding is more credible as it was made soon after the fire while that of the latter was done 4

months later. Certainly it would be a different situation as the site was no longer the same after the
clearing up operation which is normal after a fire incident. The Christmas lights and parts could have
been swept away. Hence the finding of the latter appears to be speculative to benefit the reinsurer
and which defendant wants to adopt to avoid liability.
The CRM Adjustment report found no arson and confirmed substantial stocks in the burned
warehouse (Exhs. QQQ) [underscoring supplied]. This is bolstered by the BFP certification that there
was no proof of arson and the fire was accidental (Exhs. PPP). The certification by a government
agency like BFP is presumed to be a regular performance of official duty. "Absent convincing
evidence to the contrary, the presumption of regularity in the performance of official functions has to
be upheld." (People vs. Lapira, 255 SCRA 85) The report of UCPB General Insurances adjuster also
found no arson so that the burned warehouse owner PIC was indemnified. 12
Hence, CBIC filed an appeal with the Court of Appeals (CA).
The Ruling of the Court of Appeals
On 16 June 2011, the CA promulgated its Decision in favor of CBIC. The dispositive portion of the
Decision reads:
WHEREFORE, in view of the foregoing premises, the instant appeal is GRANTED and the Decision
of the Regional Trial Court, of the National Judicial Capital Region, Branch 3 of the City of Manila
dated June 16, 2005 in Civil Case No. 98-87370 is REVERSED and SET ASIDE. The plaintiffappellees claim upon its insurance policy is deemed avoided.
SO ORDERED.13
The CA ruled that UMCs claim under the Insurance Policy is void. The CA found that the fire was
intentional in origin, considering the array of evidence submitted by CBIC, particularly the pictures
taken and the reports of Cabrera and Lazaro, as opposed to UMCs failure to explain the details of
the alleged fire accident. In addition, it found that UMCs claim was overvalued through fraudulent
transactions. The CA ruled:
We have meticulously gone over the entirety of the evidence submitted by the parties and have
come up with a conclusion that the claim of the plaintiff-appellee was indeed overvalued by
transactions which were fraudulently concocted so that the full coverage of the insurance policy will
have to be fully awarded to the plaintiff-appellee.
First, We turn to the backdrop of the plaintiff-appellees case, thus, [o]n September 6, 1995 its
stocks-in-trade were insured for Fifteen Million Pesos and on May 7, 1996 the same was increased
to 50 Million Pesos. Two months thereafter, a fire gutted the plaintiff-appellees warehouse.
Second, We consider the reported purchases of the plaintiff-appellee as shown in its financial report
dated December 31, 1996 vis--vis the testimony of Ms. Ebora thus:
1994 - P608,986.00
1995 - P827,670.00
1996 - P20,000,000.00 (more or less) which were purchased for a period of one month.

Third, We shall also direct our attention to the alleged true and complete purchases of the plaintiffappellee as well as the value of all stock-in-trade it had at the time that the fire occurred. Thus:

Exhibit

Source

Amount
(pesos)

Dates
Covered

Exhs. "P"-"DD",
inclusive

Fuze Industries
Manufacturer Phils.

19,550,400.00

January 20,
1996
January 31,
1996
February 12,
1996
February 20,
1996
February 23,
1996

Exhs. "EE"-"HH",
inclusive

Tomco Commercial
Press

1,712,000.00

December 19,
1995
January 24,
1996
February 21,
1996
November 24,
1995

Exhs. "II"-"QQ",
inclusive

Precious Belen
Trading

2,720,400.00

January 13,
1996
January 19,
1996
January 26,
1996
February 3,
1996
February 13,
1996
February 20,
1996
February 27,
1996

Exhs. "RR""EEE", inclusive

Wisdom Manpower
Services

361,966.00

April 3, 1996
April 12, 1996
April 19, 1996
April 26, 1996
May 3, 1996
May 10, 1996
May 17, 1996
May 24, 1996
June 7, 1996
June 14, 1996
June 21, 1996

June 28, 1996

July 5, 1996
Exhs. "GGG""NNN", inclusive

Costs of Letters of
Credit for
imported raw
materials

Exhs. "GGG-11"
SCCFI statements
- "GGG-24",
of account
"HHH-12", "HHH-22",
"III-11", "III-14",
"JJJ-13", "KKK-11",
"LLL-5"

TOTAL

15,159,144.71

May 29, 1995

June 15, 1995
July 5, 1995
September 4,
1995
October 2,
1995
October 27,
1995
January 8,
1996
March 19,
1996

384,794.38

June 15, 1995

June 28, 1995
August 1, 1995
September 4,
1995
September 8,
1995
September 11,
1995
October 30,
199[5]
November 10,
1995
December 21,
1995

44,315,024.31

Fourth, We turn to the allegation of fraud by the defendant-appellant by thoroughly looking through
the pieces of evidence that it adduced during the trial. The latter alleged that fraud is present in the
case at bar as shown by the discrepancy of the alleged purchases from that of the reported
purchases made by plaintiff-appellee. It had also averred that fraud is present when upon verification
of the address of Fuze Industries, its office is nowhere to be found. Also, the defendant-appellant
expressed grave doubts as to the purchases of the plaintiff-appellee sometime in 1996 when such
purchases escalated to a high 19.5 Million Pesos without any contract to back it up. 14
On 7 July 2011, UMC filed a Motion for Reconsideration,15 which the CA denied in its Resolution
dated 8 September 2011. Hence, this petition.
The Issues
UMC seeks a reversal and raises the following issues for resolution:
I.

WHETHER THE COURT OF APPEALS MADE A RULING INCO[N]SISTENT WITH LAW,

APPLICABLE JURISPRUDENCE AND EVIDENCE AS TO THE EXISTENCE OF ARSON
AND FRAUD IN THE ABSENCE OF "MATERIALLY CONVINCING EVIDENCE."
II.
WHETHER THE COURT OF APPEALS MADE A RULING INCONSISTENT WITH LAW,
APPLICABLE JURISPRUDENCE AND EVIDENCE WHEN IT FOUND THAT PETITIONER
BREACHED ITS WARRANTY.16
The Ruling of the Court
At the outset, CBIC assails this petition as defective since what UMC ultimately wants this Court to
review are questions of fact. However, UMC argues that where the findings of the CA are in conflict
with those of the trial court, a review of the facts may be made. On this procedural issue, we find
UMCs claim meritorious.
A petition for review under Rule 45 of the Rules of Court specifically provides that only questions of
law may be raised. The findings of fact of the CA are final and conclusive and this Court will not
review them on appeal,17subject to exceptions as when the findings of the appellate court conflict
with the findings of the trial court.18Clearly, the present case falls under the exception. Since UMC
properly raised the conflicting findings of the lower courts, it is proper for this Court to resolve such
contradiction.
Having settled the procedural issue, we proceed to the primordial issue which boils down to whether
UMC is entitled to claim from CBIC the full coverage of its fire insurance policy.
UMC contends that because it had already established a prima facie case against CBIC which failed
to prove its defense, UMC is entitled to claim the full coverage under the Insurance Policy. On the
other hand, CBIC contends that because arson and fraud attended the claim, UMC is not entitled to
recover under Condition No. 15 of the Insurance Policy.
Burden of proof is the duty of any party to present evidence to establish his claim or defense by the
amount of evidence required by law,19 which is preponderance of evidence in civil cases.20 The party,
whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof to
obtain a favorable judgment.21Particularly, in insurance cases, once an insured makes out a prima
facie case in its favor, the burden of evidence shifts to the insurer to controvert the insureds prima
facie case.22 In the present case, UMC established a prima facie case against CBIC. CBIC does not
dispute that UMCs stocks in trade were insured against fire under the Insurance Policy and that the
warehouse, where UMCs stocks in trade were stored, was gutted by fire on 3 July 1996, within the
duration of the fire insurance. However, since CBIC alleged an excepted risk, then the burden of
evidence shifted to CBIC to prove such exception.
1wphi1

An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the
burden of establishing that the loss comes within the purview of the exception or limitation. 23 If loss is
proved apparently within a contract of insurance, the burden is upon the insurer to establish that the
loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which
limits its liability.24 In the present case, CBIC failed to discharge its primordial burden of establishing
that the damage or loss was caused by arson, a limitation in the policy.

In prosecutions for arson, proof of the crime charged is complete where the evidence establishes:
(1) the corpus delicti, that is, a fire caused by a criminal act; and (2) the identity of the defendants as
the one responsible for the crime.25 Corpus delicti means the substance of the crime, the fact that a
crime has actually been committed.26This is satisfied by proof of the bare occurrence of the fire and
of its having been intentionally caused.27
In the present case, CBICs evidence did not prove that the fire was intentionally caused by the
insured. First, the findings of CBICs witnesses, Cabrera and Lazaro, were based on an investigation
conducted more than four months after the fire. The testimonies of Cabrera and Lazaro, as to the
boxes doused with kerosene as told to them by barangay officials, are hearsay because
the barangay officials were not presented in court. Cabrera and Lazaro even admitted that they did
not conduct a forensic investigation of the warehouse nor did they file a case for arson. 28 Second, the
Sworn Statement of Formal Claim submitted by UMC, through CRM, states that the cause of the fire
was "faulty electrical wiring/accidental in nature." CBIC is bound by this evidence because in its
Answer, it admitted that it designated CRM to evaluate UMCs loss. Third, the Certification by the
Bureau of Fire Protection states that the fire was accidental in origin. This Certification enjoys the
presumption of regularity, which CBIC failed to rebut.
Contrary to UMCs allegation, CBICs failure to prove arson does not mean that it also failed to prove
fraud. Qua Chee Gan v. Law Union29 does not apply in the present case. In Qua Chee Gan,30 the
Court dismissed the allegation of fraud based on the dismissal of the arson case against the insured,
because the evidence was identical in both cases, thus:
While the acquittal of the insured in the arson case is not res judicata on the present civil action, the
insurers evidence, to judge from the decision in the criminal case, is practically identical in both
cases and must lead to the same result, since the proof to establish the defense of connivance at
the fire in order to defraud the insurer "cannot be materially less convincing than that required in
order to convict the insured of the crime of arson" (Bachrach vs. British American Assurance Co., 17
Phil. 536). 31
In the present case, arson and fraud are two separate grounds based on two different sets of
evidence, either of which can void the insurance claim of UMC. The absence of one does not
necessarily result in the absence of the
other. Thus, on the allegation of fraud, we affirm the findings of the Court of Appeals.
Condition No. 15 of the Insurance Policy provides that all the benefits under the policy shall be
forfeited, if the claim be in any respect fraudulent, or if any false declaration be made or used in
support thereof, to wit:
15. If the claim be in any respect fraudulent, or if any false declaration be made or used in support
thereof, or if any fraudulent means or devices are used by the Insured or anyone acting in his behalf
to obtain any benefit under this Policy; or if the loss or damage be occasioned by the willful act, or
with the connivance of the Insured, all the benefits under this Policy shall be forfeited.
In Uy Hu & Co. v. The Prudential Assurance Co., Ltd.,32 the Court held that where a fire insurance
policy provides that "if the claim be in any respect fraudulent, or if any false declaration be made or
used in support thereof, or if any fraudulent means or devices are used by the Insured or anyone
acting on his behalf to obtain any benefit under this Policy," and the evidence is conclusive that the
proof of claim which the insured submitted was false and fraudulent both as to the kind, quality and
amount of the goods and their value destroyed by the fire, such a proof of claim is a bar against the
insured from recovering on the policy even for the amount of his actual loss.

In the present case, as proof of its loss of stocks in trade amounting to P50,000,000.00, UMC
submitted its Sworn Statement of Formal Claim together with the following documents: (1) letters of
credit and invoices for raw materials, Christmas lights and cartons purchased; (2) charges for
assembling the Christmas lights; and (3) delivery receipts of the raw materials. However, the
charges for assembling the Christmas lights and delivery receipts could not support its insurance
claim. The Insurance Policy provides that CBIC agreed to insure UMCs stocks in trade. UMC
defined stock in trade as tangible personal property kept for sale or traffic.33 Applying UMCs
definition, only the letters of credit and invoices for raw materials, Christmas lights and cartons may
be considered.
The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade
purchased for 1996 amounts to P20,000,000.00 which were purchased in one month. Thus, UMC
needs to prove purchases amounting to P30,000,000.00 worth of stocks in trade for 1995 and prior
years. However, in the Statement of Inventory it submitted to the BIR, which is considered an entry
in official records,34 UMC stated that it had no stocks in trade as of 31 December 1995. In its
defense, UMC alleged that it did not include as stocks in trade the raw materials to be assembled as
Christmas lights, which it had on 31 December 1995. However, as proof of its loss, UMC submitted
invoices for raw materials, knowing that the insurance covers only stocks in trade.
Equally important, the invoices (Exhibits "P"-"DD") from Fuze Industries Manufacturer Phils. were
suspicious. The purchases, based on the invoices and without any supporting contract, amounted
to P19,550,400.00 worth of Christmas lights from 20 January 1996 to 23 February 1996. The
uncontroverted testimony of Cabrera revealed that there was no Fuze Industries Manufacturer Phils.
located at "55 Mahinhin St., Teachers Village, Quezon City," the business address appearing in the
invoices and the records of the Department of Trade & Industry. Cabrera testified that:
A: Then we went personally to the address as I stated a while ago appearing in the record furnished
by the United Merchants Corporation to the adjuster, and the adjuster in turn now, gave us our basis
in conducting investigation, so we went to this place which according to the records, the address of
this company but there was no office of this company.
Q: You mentioned Atty. Cabrera that you went to Diliman, Quezon City and discover the address
indicated by the United Merchants as the place of business of Fuze Industries Manufacturer, Phils.
was a residential place, what then did you do after determining that it was a residential place?
A: We went to the owner of the alleged company as appearing in the Department of Trade & Industry
record, and as appearing a certain Chinese name Mr. Huang, and the address as appearing there is
somewhere in Binondo. We went personally there together with the NBI Agent and I am with them
when the subpoena was served to them, but a male person approached us and according to him,
there was no Fuze Industries Manufacturer, Phils., company in that building sir.35
In Yu Ban Chuan v. Fieldmens Insurance, Co., Inc.,36 the Court ruled that the submission of false
invoices to the adjusters establishes a clear case of fraud and misrepresentation which voids the
insurers liability as per condition of the policy. Their falsity is the best evidence of the fraudulent
character of plaintiffs claim.37 InVerendia v. Court of Appeals,38 where the insured presented a
fraudulent lease contract to support his claim for insurance benefits, the Court held that by its false
declaration, the insured forfeited all benefits under the policy provision similar to Condition No. 15 of
the Insurance Policy in this case.
Furthermore, UMCs Income Statement indicated that the purchases or costs of sales
are P827,670.00 for 1995 and P1,109,190.00 for 1996 or a total of P1,936,860.00.39 To corroborate
this fact, Ebora testified that:

Q: Based on your 1995 purchases, how much were the purchases made in 1995?
A: The purchases made by United Merchants Corporation for the last year 1995 is P827,670.[00] sir
Q: And how about in 1994?
A: In 1994, its P608,986.00 sir.
Q: These purchases were made for the entire year of 1995 and 1994 respectively, am I correct?
A: Yes sir, for the year 1994 and 1995.40 (Emphasis supplied)
In its 1996 Financial Report, which UMC admitted as existing, authentic and duly executed during
the 4 December 2002 hearing, it had P1,050,862.71 as total assets and P167,058.47 as total
liabilities.41
Thus, either amount in UMCs Income Statement or Financial Reports is twenty-five times the claim
UMC seeks to enforce. The RTC itself recognized that UMC padded its claim when it only
allowed P43,930,230.00 as insurance claim. UMC supported its claim of P50,000,000.00 with the
Certification from the Bureau of Fire Protection stating that "x x x a fire broke out at United
Merchants Corporation located at 19-B Dag[o]t Street, Brgy. Manresa, Quezon City incurring an
estimated damage of Fifty- Five Million Pesos (P55,000,000.00) to the building and contents x x x."
However, this Certification only proved that the estimated damage of P55,000,000.00 is shared by
both the building and the stocks in trade.
It has long been settled that a false and material statement made with an intent to deceive or
defraud voids an insurance policy.42 In Yu Cua v. South British Insurance Co.,43 the claim was
fourteen times bigger than the real loss; in Go Lu v. Yorkshire Insurance Co,44 eight times; and
in Tuason v. North China Insurance Co.,45 six times. In the present case, the claim is twenty five
times the actual claim proved.
The most liberal human judgment cannot attribute such difference to mere innocent error in
estimating or counting but to a deliberate intent to demand from insurance companies payment for
indemnity of goods not existing at the time of the fire.46 This constitutes the so-called "fraudulent
claim" which, by express agreement between the insurers and the insured, is a ground for the
exemption of insurers from civil liability.47
In its Reply, UMC admitted the discrepancies when it stated that "discrepancies in its statements
were not covered by the warranty such that any discrepancy in the declaration in other instruments
or documents as to matters that may have some relation to the insurance coverage voids the
policy."48
On UMCs allegation that it did not breach any warranty, it may be argued that the discrepancies do
not, by themselves, amount to a breach of warranty. However, the Insurance Code provides that "a
policy may declare that a violation of specified provisions thereof shall avoid it." 49 Thus, in fire
insurance policies, which contain provisions such as Condition No. 15 of the Insurance Policy, a
fraudulent discrepancy between the actual loss and that claimed in the proof of loss voids the
insurance policy. Mere filing of such a claim will exonerate the insurer.50

Considering that all the circumstances point to the inevitable conclusion that UMC padded its claim
and was guilty of fraud, UMC violated Condition No. 15 of the Insurance Policy. Thus, UMC forfeited
whatever benefits it may be entitled under the Insurance Policy, including its insurance claim.
While it is a cardinal principle of insurance law that a contract of insurance is to be construed
liberally in favor of the insured and strictly against the insurer company,51 contracts of insurance, like
other contracts, are to be construed according to the sense and meaning of the terms which the
parties themselves have used.52 If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense. Courts are not permitted to make contracts for
the parties; the function and duty of the courts is simply to enforce and carry out the contracts
actually made.53
WHEREFORE, we DENY the petition. We AFFIRM the 16 June 2011 Decision and the 8
September 2011 Resolution of the Court of Appeals in CA-G.R. CV No. 85777.
SO ORDERED.
G.R. No. L-52756 October 12, 1987
MANILA MAHOGANY MANUFACTURING CORPORATION, petitioner,
vs.
COURT OF APPEALS AND ZENITH INSURANCE CORPORATION, respondents.

PADILLA, J:
Petition to review the decision * of the Court of Appeals, in CA-G.R. No. SP-08642, dated 21 March 1979, ordering petitioner
Manila Mahogany Manufacturing Corporation to pay private respondent Zenith Insurance Corporation the sum of Five Thousand Pesos
(P5,000.00) with 6% annual interest from 18 January 1973, attorney's fees in the sum of five hundred pesos (P500.00), and costs of suit, and
the resolution of the same Court, dated 8 February 1980, denying petitioner's motion for reconsideration of it's decision.

From 6 March 1970 to 6 March 1971, petitioner insured its Mercedes Benz 4-door sedan with
respondent insurance company. On 4 May 1970 the insured vehicle was bumped and damaged by a
truck owned by San Miguel Corporation. For the damage caused, respondent company paid
petitioner five thousand pesos (P5,000.00) in amicable settlement. Petitioner's general manager
executed a Release of Claim, subrogating respondent company to all its right to action against San
Miguel Corporation.
On 11 December 1972, respondent company wrote Insurance Adjusters, Inc. to demand
reimbursement from San Miguel Corporation of the amount it had paid petitioner. Insurance
Adjusters, Inc. refused reimbursement, alleging that San Miguel Corporation had already paid
petitioner P4,500.00 for the damages to petitioner's motor vehicle, as evidenced by a cash voucher
and a Release of Claim executed by the General Manager of petitioner discharging San Miguel
Corporation from "all actions, claims, demands the rights of action that now exist or hereafter [sic]
develop arising out of or as a consequence of the accident."
Respondent insurance company thus demanded from petitioner reimbursement of the sum of
P4,500.00 paid by San Miguel Corporation. Petitioner refused; hence, respondent company filed suit

in the City Court of Manila for the recovery of P4,500.00. The City Court ordered petitioner to pay
respondent P4,500.00. On appeal the Court of First Instance of Manila affirmed the City Court's
decision in toto, which CFI decision was affirmed by the Court of Appeals, with the modification that
petitioner was to pay respondent the total amount of P5,000.00 that it had earlier received from the
respondent insurance company.
Petitioner now contends it is not bound to pay P4,500.00, and much more, P5,000.00 to respondent
company as the subrogation in the Release of Claim it executed in favor of respondent was
conditioned on recovery of the total amount of damages petitioner had sustained. Since total
damages were valued by petitioner at P9,486.43 and only P5,000.00 was received by petitioner from
respondent, petitioner argues that it was entitled to go after San Miguel Corporation to claim the
additional P4,500.00 eventually paid to it by the latter, without having to turn over said amount to
respondent. Respondent of course disputes this allegation and states that there was no qualification
to its right of subrogation under the Release of Claim executed by petitioner, the contents of said
deed having expressed all the intents and purposes of the parties.
To support its alleged right not to return the P4,500.00 paid by San Miguel Corporation, petitioner
cites Art. 2207 of the Civil Code, which states:
If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of
contract complained of the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss the
aggrieved party shall be entitled to recover the deficiency from the person causing
the loss or injury.
Petitioner also invokes Art. 1304 of the Civil Code, stating.
A creditor, to whom partial payment has been made, may exercise his right for the
remainder, and he shall be preferred to the person who has been subrogated in his
place in virtue of the partial payment of the same credit.
We find petitioners arguments to be untenable and without merit. In the absence of any other
evidence to support its allegation that a gentlemen's agreement existed between it and respondent,
not embodied in the Release of Claim, such ease of Claim must be taken as the best evidence of the
intent and purpose of the parties. Thus, the Court of Appeals rightly stated:
Petitioner argues that the release claim it executed subrogating Private respondent
to any right of action it had against San Miguel Corporation did not preclude Manila
Mahogany from filing a deficiency claim against the wrongdoer. Citing Article 2207,
New Civil Code, to the effect that if the amount paid by an insurance company does
not fully cover the loss, the aggrieved party shall be entitled to recover the deficiency
from the person causing the loss, petitioner claims a preferred right to retain the
amount coming from San Miguel Corporation, despite the subrogation in favor of
Private respondent.

Although petitioners right to file a deficiency claim against San Miguel Corporation is
with legal basis, without prejudice to the insurer's right of subrogation, nevertheless
when Manila Mahogany executed another release claim (Exhibit K) discharging San
Miguel Corporation from "all actions, claims, demands and rights of action that now
exist or hereafter arising out of or as a consequence of the accident" after the insurer
had paid the proceeds of the policy- the compromise agreement of P5,000.00 being
based on the insurance policy-the insurer is entitled to recover from the insured the
amount of insurance money paid (Metropolitan Casualty Insurance Company of New
York vs. Badler, 229 N.Y.S. 61, 132 Misc. 132 cited in Insurance Code and
Insolvency Law with comments and annotations, H.B. Perez 1976, p. 151). Since
petitioner by its own acts released San Miguel Corporation, thereby defeating private
respondents, the right of subrogation, the right of action of petitioner against the
insurer was also nullified. (Sy Keng & Co. vs. Queensland Insurance Co., Ltd., 54
O.G. 391) Otherwise stated: private respondent may recover the sum of P5,000.00 it
had earlier paid to petitioner. 1
As held in Phil. Air Lines v. Heald Lumber Co., 2
If a property is insured and the owner receives the indemnity from the insurer, it is
provided in [Article 2207 of the New Civil Code] that the insurer is deemed
subrogated to the rights of the insured against the wrongdoer and if the amount paid
by the insurer does not fully cover the loss, then the aggrieved party is the one
entitled to recover the deficiency. ... Under this legal provision, the real party in
interest with regard to the portion of the indemnity paid is the insurer and not the
insured 3 (Emphasis supplied)
The decision of the respondent court ordering petitioner to pay respondent company, not the
P4,500.00 as originally asked for, but P5,000.00, the amount respondent company paid petitioner as
insurance, is also in accord with law and jurisprudence. In disposing of this issue, the Court of
Appeals held:
... petitioner is entitled to keep the sum of P4,500.00 paid by San Miguel Corporation
under its clear right to file a deficiency claim for damages incurred, against the
wrongdoer, should the insurance company not fully pay for the injury caused (Article
2207, New Civil Code). However, when petitioner released San Miguel Corporation
from any liability, petitioner's right to retain the sum of P5,000.00 no longer existed,
thereby entitling private respondent to recover the same. (Emphasis supplied)
As has been observed:
... The right of subrogation can only exist after the insurer has paid the otherwise the
insured will be deprived of his right to full indemnity. If the insurance proceeds are not
sufficient to cover the damages suffered by the insured, then he may sue the party
responsible for the damage for the the [sic] remainder. To the extent of the amount
he has already received from the insurer enjoy's [sic] the right of subrogation.

Since the insurer can be subrogated to only such rights as the insured may
have, should the insured, after receiving payment from the insurer, release the
wrongdoer who caused the loss, the insurer loses his rights against the latter. But in
such a case, the insurer will be entitled to recover from the insured whatever it has
paid to the latter, unless the release was made with the consent of the
insurer. 4 (Emphasis supplied.)
And even if the specific amount asked for in the complaint is P4,500.00 only and not P5,000.00, still,
the respondent Court acted well within its discretion in awarding P5,000.00, the total amount paid by
the insurer. The Court of Appeals rightly reasoned as follows:
It is to be noted that private respondent, in its companies, prays for the recovery, not
of P5,000.00 it had paid under the insurance policy but P4,500.00 San Miguel
Corporation had paid to petitioner. On this score, We believe the City Court and
Court of First Instance erred in not awarding the proper relief. Although private
respondent prays for the reimbursement of P4,500.00 paid by San Miguel
Corporation, instead of P5,000.00 paid under the insurance policy, the trial court
should have awarded the latter, although not prayed for, under the general prayer in
the complaint "for such further or other relief as may be deemed just or equitable,
(Rule 6, Sec. 3, Revised Rules of Court; Rosales vs. Reyes Ordoveza, 25 Phil. 495 ;
Cabigao vs. Lim, 50 Phil. 844; Baguiro vs. Barrios Tupas, 77 Phil 120).
WHEREFORE, premises considered, the petition is DENIED. The judgment appealed from is hereby
AFFIRMED with costs against petitioner.
SO ORDERED.
G.R. No. 127897

November 15, 2001

DELSAN TRANSPORT LINES, INC., petitioner,

vs.
THE HON. COURT OF APPEALS and AMERICAN HOME ASSURANCE
CORPORATION, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV
No. 39836 promulgated on June 17, 1996, reversing the decision of the Regional Trial Court of
Makati City, Branch 137, ordering petitioner to pay private respondent the sum of Five Million NinetySix Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) and costs
and the Resolution2 dated January 21, 1997 which denied the subsequent motion for
reconsideration.
The facts show that Caltex Philippines (Caltex for brevity) entered into a contract of affreightment
with the petitioner, Delsan Transport Lines, Inc., for a period of one year whereby the said common
carrier agreed to transport Caltexs industrial fuel oil from the Batangas-Bataan Refinery to different

parts of the country. Under the contract, petitioner took on board its vessel, MT Maysun 2,277.314
kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in Zamboanga City.
The shipment was insured with the private respondent, American Home Assurance Corporation.
On August 14, 1986, MT Maysum set sail from Batangas for Zamboanga City. Unfortunately, the
vessel sank in the early morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the
entire cargo of fuel oil.
Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six Thousand Six
Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.67) representing the insured
value of the lost cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code,
the private respondent demanded of the petitioner the same amount it paid to Caltex.
1wphi1.nt

Due to its failure to collect from the petitioner despite prior demand, private respondent filed a
complaint with the Regional Trial Court of Makati City, Branch 137, for collection of a sum of money.
After the trial and upon analyzing the evidence adduced, the trial court rendered a decision on
November 29, 1990 dismissing the complaint against herein petitioner without pronouncement as to
cost. The trial court found that the vessel, MT Maysum, was seaworthy to undertake the voyage as
determined by the Philippine Coast Guard per Survey Certificate Report No. M5-016-MH upon
inspection during its annual dry-docking and that the incident was caused by unexpected inclement
weather condition or force majeure, thus exempting the common carrier (herein petitioner) from
liability for the loss of its cargo.3
The decision of the trial court, however, was reversed, on appeal, by the Court of Appeals. The
appellate court gave credence to the weather report issued by the Philippine Atmospheric,
Geophysical and Astronomical Services Administration (PAGASA for brevity) which showed that from
2:00 oclock to 8:oo oclock in the morning on August 16, 1986, the wind speed remained at 10 to 20
knots per hour while the waves measured from .7 to two (2) meters in height only in the vicinity of
the Panay Gulf where the subject vessel sank, in contrast to herein petitioners allegation that the
waves were twenty (20) feet high. In the absence of any explanation as to what may have caused
the sinking of the vessel coupled with the finding that the same was improperly manned, the
appellate court ruled that the petitioner is liable on its obligation as common carrier 4 to herein private
respondent insurance company as subrogee of Caltex. The subsequent motion for reconsideration
of herein petitioner was denied by the appellate court.
Petitioner raised the following assignments of error in support of the instant petition, 5 to wit:
I
THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL
TRIAL COURT.
II
THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED IN REBUTTING THE
LEGAL PRESUMPTION THAT THE VESSEL MT "MAYSUN" WAS SEAWORTHY.

III
THE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF THE
SUPREME COURT IN THE CASE OF HOME INSURANCE CORPORATION V. COURT OF
APPEALS.
Petitioner Delsan Transport Lines, Inc. invokes the provision of Section 113 of the Insurance Code of
the Philippines, which states that in every marine insurance upon a ship or freight, or freightage, or
upon any thin which is the subject of marine insurance there is an implied warranty by the shipper
that the ship is seaworthy. Consequently, the insurer will not be liable to the assured for any loss
under the policy in case the vessel would later on be found as not seaworthy at the inception of the
insurance. It theorized that when private respondent paid Caltex the value of its lost cargo, the act of
the private respondent is equivalent to a tacit recognition that the ill-fated vessel was seaworthy;
otherwise, private respondent was not legally liable to Caltex due to the latters breach of implied
warranty under the marine insurance policy that the vessel was seaworthy.
The petitioner also alleges that the Court of Appeals erred in ruling that MT Maysun was not
seaworthy on the ground that the marine officer who served as the chief mate of the vessel,
Francisco Berina, was allegedly not qualified. Under Section 116 of the Insurance Code of the
Philippines, the implied warranty of seaworthiness of the vessel, which the private respondent
admitted as having been fulfilled by its payment of the insurance proceeds to Caltex of its lost cargo,
extends to the vessels complement. Besides, petitioner avers that although Berina had merely a
2nd officers license, he was qualified to act as the vessels chief officer under Chapter IV(403),
Category III(a)(3)(ii)(aa) of the Philippine Merchant Marine Rules and Regulations. In fact, all the
crew and officers of MT Maysun were exonerated in the administrative investigation conducted by
the Board of Marine Inquiry after the subject accident.6
In any event, petitioner further avers that private respondent failed, for unknown reason, to present
in evidence during the trial of the instant case the subject marine cargo insurance policy it entered
into with Caltex. By virtue of the doctrine laid down in the case of Home Insurance Corporation vs.
CA,7 the failure of the private respondent to present the insurance policy in evidence is allegedly fatal
to its claim inasmuch as there is no way to determine the rights of the parties thereto.
Hence, the legal issues posed before the Court are:
I
Whether or not the payment made by the private respondent to Caltex for the insured value
of the lost cargo amounted to an admission that the vessel was seaworthy, thus precluding
any action for recovery against the petitioner.
II
Whether or not the non-presentation of the marine insurance policy bars the complaint for
recovery of sum of money for lack of cause of action.

We rule in the negative on both issues.

The payment made by the private respondent for the insured value of the lost cargo operates as
waiver of its (private respondent) right to enforce the term of the implied warranty against Caltex
under the marine insurance policy. However, the same cannot be validly interpreted as an automatic
admission of the vessels seaworthiness by the private respondent as to foreclose recourse against
the petitioner for any liability under its contractual obligation as a common carrier. The fact of
payment grants the private respondent subrogatory right which enables it to exercise legal remedies
that would otherwise be available to Caltex as owner of the lost cargo against the petitioner common
carrier.8 Article 2207 of the New civil Code provides that:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.
The right of subrogation has its roots in equity. It is designed to promote and to accomplish justice
and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice
and good conscience ought to pay.9 It is not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply upon payment by the insurance
company of the insurance claim.10 Consequently, the payment made by the private respondent
(insurer) to Caltex (assured) operates as an equitable assignment to the former of all the remedies
which the latter may have against the petitioner.
From the nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of passengers
transported by them, according to all the circumstance of each case.11 In the event of loss,
destruction or deterioration of the insured goods, common carriers shall be responsible unless the
same is brought about, among others, by flood, storm, earthquake, lightning or other natural disaster
or calamity.12 In all other cases, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence.13
In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex, petitioner
attributes the sinking of MT Maysun to fortuitous even or force majeure. From the testimonies of
Jaime Jarabe and Francisco Berina, captain and chief mate, respectively of the ill-fated vessel, it
appears that a sudden and unexpected change of weather condition occurred in the early morning of
August 16, 1986; that at around 3:15 oclock in the morning a squall ("unos") carrying strong winds
with an approximate velocity of 30 knots per hour and big waves averaging eighteen (18) to twenty
(20) feet high, repeatedly buffeted MT Maysun causing it to tilt, take in water and eventually sink with
its cargo.14 This tale of strong winds and big waves by the said officers of the petitioner however, was
effectively rebutted and belied by the weather report 15 from the Philippine Atmospheric, Geophysical
and Astronomical Services Administration (PAGASA), the independent government agency charged
with monitoring weather and sea conditions, showing that from 2:00 oclock to 8:00 oclock in the

morning on August 16, 1986, the wind speed remained at ten (10) to twenty (20) knots per hour
while the height of the waves ranged from .7 to two (2) meters in the vicinity of Cuyo East Pass and
Panay Gulf where the subject vessel sank. Thus, as the appellate court correctly ruled, petitioners
vessel, MT Maysun, sank with its entire cargo for the reason that it was not seaworthy. There was no
squall or bad weather or extremely poor sea condition in the vicinity when the said vessel sank.
The appellate court also correctly opined that the petitioners witnesses, Jaime Jarabe and Francisco
Berina, ship captain and chief mate, respectively, of the said vessel, could not be expected to testify
against the interest of their employer, the herein petitioner common carrier.
Neither may petitioner escape liability by presenting in evidence certificates 16 that tend to show that
at the time of dry-docking and inspection by the Philippine Coast Guard, the vessel MT Maysun, was
fit for voyage. These pieces of evidence do not necessarily take into account the actual condition of
the vessel at the time of the commencement of the voyage. As correctly observed by the Court of
appeals:
At the time of dry-docking and inspection, the ship may have appeared fit. The certificates
issued, however, do not negate the presumption of unseaworthiness triggered by an
unexplained sinking. Of certificates issued in this regard, authorities are likewise clear as to
their probative value, (thus):
Seaworthiness relates to a vessels actual condition. Neither the granting of
classification or the issuance of certificates established seaworthiness. (2-A Benedict
on Admiralty, 7-3, Sec. 62).
And also:
Authorities are clear that diligence in securing certificates of seaworthiness does not
satisfy the vessel owners obligation. Also securing the approval of the shipper of the
cargo, or his surveyor, of the condition of the vessel or her stowage does not
establish due diligence if the vessel was in fact unseaworthy, for the cargo owner has
no obligation in relation to seaworthiness. (Ibid.) 17
Additionally, the exoneration of MT Maysuns officers and crew by the Board of Marine Inquiry merely
concerns their respective administrative liabilities. It does not in any way operate to absolve the
petitioner common carrier from its civil liabilities. It does not in any way operate to absolve the
petitioner common carrier from its civil liability arising from its failure to observe extraordinary
diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions
of its employees, the determination of which properly belongs to the courts. 18 In the case at bar,
petitioner is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for
its failure to rebut the presumption of fault or negligence as common carrier 19 occasioned by the
unexplained sinking of its vessel, MT Maysun, while in transit.
Anent the second issue, it is our view and so hold that the presentation in evidence of the marine
insurance policy is not indispensable in this case before the insurer may recover from the common
carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation

receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as
insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount
paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.20
The presentation of the insurance policy was necessary in the case of Home Insurance Corporation
v. CA21 (a case cited by petitioner) because the shipment therein (hydraulic engines) passed through
several stages with different parties involved in each stage. First, from the shipper to the port of
departure; second, from the port of departure to the M/S Oriental Statesman; third, from the M/S
Oriental Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the port or
arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to the
hauler, Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the
consignee. We emphasized in that case that in the absence of proof of stipulations to the contrary,
the hauler can be liable only for any damage that occurred from the time it received the cargo until it
finally delivered it to the consignee. Ordinarily, it cannot be held responsible for the handling of the
cargo before it actually received it. The insurance contract, which was not presented in evidence in
that case would have indicated the scope of the insurers liability, if any, since no evidence was
adduced indicating at what stage in the handling process the damage to the cargo was sustained.
Hence, our ruling on the presentation of the insurance policy in the said case of Home Insurance
Corporation is not applicable to the case at bar. In contrast, there is no doubt that the cargo of
industrial fuel oil belonging to Caltex, in the case at bar, was lost while on board petitioners vessel,
MT Maysun, which sank while in transit in the vicinity of Panay Gulf and Cuyo East Pass in the early
morning of August 16, 1986.
WHEREFORE, the instant petition is DENIED. The Decision dated June 17, 1996 of the Court of
Appeals in CA-G.R. CV No. 39836 is AFFIRMED. Costs against the petitioner.
SO ORDERED
G.R. No. 132607 May 5, 1999
CEBU SHIPYARD AND ENGINEERING WORKS, INC., petitioner,
vs.
WILLIAM LINES, INC. and PRUDENTIAL GUARANTEE and ASSURANCE COMPANY,
INC., respondents.

PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court seeking a
reversal of the decision of the Court of Appeal 1 which affirmed the decision of the trial court of origin
finding the petitioner herein, Cebu Shipyard and Engineering Works, Inc. (CSEW) negligent and liable for
damages to the private respondent, William Lines, Inc., and to the insurer, Prudential Guarantee
Assurance Company, Inc.

The antecedent facts that matter are as follows:

Cebu Shipyard and Engineering Works, Inc. (CSEW) is a domestic corporation engaged in the
business of dry-docking and repairing of marine vessels while the private respondent, Prudential
Guarantee and Assurance, Inc. (Prudential), also a domestic corporation is in the non-life insurance
business.
William Lines, Inc. (plaintiff below) is in the shipping business. It the owner of M/V Manila City, a
luxury passenger-cargo vessel, which caught fire and sank on February 16, 1991. At the time of the
unfortunate occurrence sued upon, subject vessel was insured with Prudential for P45,000,000.00
pesos for hull and machinery. The Hull Policy included an "Additional Perils (INCHMAREE)" Clause
covering loss of or damage to the vessel through the negligence of, among others, ship repairmen.
The Policy provided as follows:
Subject to the conditions of this Policy, this insurance also covers loss of or damage
to Vessel directly caused by the following:
xxx xxx xxx
Negligence of Charterers and/or Repairers, provided such Charterers and/or
Repairers are not an Assured hereunder.
xxx xxx xxx
provided such loss or damage has not resulted from want of due diligence by the
Assured, the Owners or Managers of the Vessel, of any of them Masters, Officers,
Crew or Pilots are not to be considered Owners within the meaning of this Clause
should they hold shares in the Vessel. 2
Petitioner CSEW was also insured by Prudential for third party liability under a Shiprepairer's Legal
Liability Insurance Policy. The policy was for P10 million only, under the limited liability clause, to wit:
7. Limit of Liability
The limit of liability under this insurance, in respect of any one accident or series of
accidents, arising out of one occurrence, shall be [P10 million], including liability for
costs and expense which are either:
(a) incurred with the written consent of the underwriters hereon, or
(b) awarded against the Assured. 3
On February 5, 1991, William Lines, Inc. brought its vessel, M/V Manila City, to the Cebu Shipyard in
Lapulapu City for annual dry-docking and repair.

On February 6, 1991, an arrival conference was held between representatives of William Lines, Inc.
and CSEW to discuss the work to be undertaken on the M/V Manila City.
The contracts, denominated as Work Orders, were signed thereafter, with the following stipulations:
10. The Contractor shall replace at its own work and at its own cost any work or
material which can be shown to be defective and which is communicated in writing
within one (1) month of redelivery of the vessel or if the vessel was not in the
Contractor's Possession, the withdrawal of the Contractor's workmen, or at its option
to pay a sum equal to the cost of such replacement at its own works. These
conditions shall apply to any such replacements.
11. Save as provided in Clause 10, the Contractor shall not be under any liability to
the Customer either in contract or for delict or quasi-delict or otherwise except for
negligence and such liability shall itself be subject to the following overriding
limitations and exceptions, namely:
(a) The total liability of the Contractor to the Customer (over and
above the liability to replace under Clause 10) or of any subcontractor shall be limited in respect of any defect or event (and a
series of accidents arising out of the same defect or event shall
constitute one defect or event) to the sum of Pesos Philippine
Currency One Million only.
(b) In no circumstance whatsoever shall the liability of the Contractor
or any Sub-Contractor include any sum in respect of loss of profit or
loss of use of the vessel or damages consequential on such loss of
use
xxx xxx xxx
20. The insurance on the vessel should be maintained by the customer and/or owner
of the vessel during the period the contract is in effect. 4
While the M/V Manila City was undergoing dry-docking and repairs within the premises of CSEW,
the master, officers and crew of M/V Manila City stayed in the vessel using their cabins as living
quarters. Other employees hired by William Lines to do repairs and maintenance work on the vessel
were also present during the dry-docking.
On February 16, 1991, after subject vessel was transferred to the docking quay, it caught fire and
sank, resulting to its eventual total loss.
On February 21, 1991, William Lines, Inc. filed a complaint for damages against CSEW, alleging that
the fire which broke out in M/V Manila City was caused by CSEW's negligence and lack of care.

On July 15, 1991 was filed an Amended Complaint impleading Prudential as co-plaintiff, after the
latter had paid William Lines, Inc. the value of the hull and machinery insurance on the M/V Manila
City. As a result of such payment Prudential was subrogated to the claim of P45 million, representing
the value of the said insurance it paid.
On June 10, 1994, the trial court a quo came out with a judgment against CSEW, disposing as
follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendant, ordering the latter.
1. To pay unto plaintiff Prudential Guarantee and Assurance Inc., the subrogee, the
amount of Forty-five Million (P45 million) Pesos, with interest at the legal rate until full
payment is made.
2. To pay unto plaintiff, William Lines, Inc., the amount of Fifty-six Million Seven
Hundred Fifteen Thousand (P56,715,000.00) Pesos representing loss of income of
M/V MANILA CITY, with interest at the legal rate until full payment is made.
3. To pay unto plaintiff, William Lines, Inc. the amount of Eleven Million (P11 million)
as payment, in addition to what it received from the insurance company to fully cover
the injury or loss, in order to replace the M/V MANILA CITY, with interest at the legal
rate until full payment is made;
4. To pay unto plaintiff, William Lines, Inc. the sum of Nine Hundred Twenty-Seven
Thousand Thirty-nine (P927,039.00) Pesos for the loss of fuel and lub (sic) oil on
board the vessel when she was completely gutted by fire at defendant, Cebu
Shipyard's quay, with interest at the legal rate until full payment is made;
5. To pay unto plaintiff, William Lines, Inc. the sum of Three Million Fifty-four
Thousand Six Hundred Seventy-seven Pesos and Ninety-five centavos
(P3,054.677.95) as payment for the spare parts and materials used in the M/V
MANILA CITY during dry-docking with interest at the legal rate until full payment is
made;
6. To pay unto plaintiff William Lines, Inc., the sum of Five Hundred Thousand
(P500,000 00) Pesos in moral damages;
7. To pay unto plaintiff, William Lines, Inc. the amount of Ten Million (P10,000.000.00)
Pesos in attorney's fees; and to pay the costs of this suit.
CSEW (defendant below) appealed the aforesaid decision to the Court of Appeals. During the
pendency of the appeal, CSEW and William Lines presented a "Joint Motion for Partial Dismissal"
with prejudice, on the basis of the amicable settlement inked between Cebu Shipyard and William
Lines only.

On July 31, 1996, the Court of Appeals ordered the partial dismissal of the case insofar as CSEW
and William Lines were concerned.
On September 3, 1997, the Court of Appeals affirmed the appealed decision of the trial court, ruling
thus:
WHEREFORE, the judgment of the lower court ordering the defendant, Cebu
Shipyard and Engineering Works, Inc. to pay the plaintiff Prudential Guarantee and
Assurance, Inc., the subrogee, the sum of P45 Million, with interest at the legal rate
until full payment is made, as contained in the decision of Civil Case No. CEB-9935
is hereby AFFIRMED.
With the denial of its motion for reconsideration by the Court of Appeal's Resolution dated February
13, 1998, CSEW found its way to this court via the present petition, contending that:
I. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN HOLDING
THAT CSEW HAD "MANAGEMENT AND SUPERVISORY CONTROL" OF THE M/V
MANILA CITY AT THE TIME THE FIRE BROKE OUT.
II THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN APPLYING
THE DOCTRINE OFRES IPSA LOQUITUR AGAINST CSEW.
III THE COURT OF APPEALS RULING HOLDING CSEW NEGLIGENT AND
THEREBY LIABLE FOR THE LOSS OF THE M/V MANILA CITY IS BASED
FINDINGS OF FACT NOT SUPPORTED BY EVIDENCE.
IV THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING
CSEW'S EXPERT EVIDENCE AS INADMISSIBLE OR OF NO PROBATIVE VALUE.
V THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING
THAT PRUDENTIAL HAS THE RIGHT OF SUBROGATION AGAINST ITS OWN
INSURED.
VI ASSUMING ARGUENDO THAT PRUDENTIAL HAS THE RIGHT OF
SUBROGATION AND THAT CSEW WAS NEGLIGENT IN THE PERFORMANCE OF
ITS OBLIGATIONS UNDER THE SHIPREPAIR CONTRACTS. THE CONTRACTUAL
PROVISIONS LIMITING CSEW'S LIABILITY FOR NEGLIGENCE TO A MAXIMUM
OF P 1 MILLION IS NOT VALID, CONTRARY TO THE APPLICABLE RULINGS OF
THIS HONORABLE COURT.
Petitioner's version of the events that led to the fire runs as follows:
On February 13, 1991, the CSEW completed the drydocking of M/V Manila City at its
grave dock. It was then transferred to the docking quay of CSEW where the
remaining repair to be done was the replating of the top of Water Ballast Tank No. 12
(Tank Top No. 12) which was subcontracted by CSEW to JNB General Services.

Tank Top No. 12 was at the rear section of the vessel, on level with the flooring of the
crew cabins located on the vessel's second deck.
At around seven o'clock in the morning of February 16, 1991, the JNB workers
trimmed and cleaned the tank framing which involved minor hotworks
(welding/cutting works). The said work was completed at about 10:00 a.m. The JNB
workers then proceeded to rig the steel plates, after which they had their lunch break.
The rigging was resumed at 1:00 p.m.
While in the process of rigging the second steel plate, the JNB workers noticed
smoke coming from the passageway along the crew cabins. When one of the
workers, Mr. Casas, proceeded to the passageway to ascertain the origin of the
smoke, he noticed that smoke was gathering on the ceiling of the passageway but
did not see any fire as the crew cabins on either side of the passageway were
locked. He immediately sought out the proprietor of JNB, Mr. Buenavista, and the
Safety officer CSEW, Mr. Aves, who sounded the fire alarm. CSEW's fire brigade
immediately responded as well as the other fire fighting units in Metro Cebu.
However, there were no WLI representative, officer or crew to guide the firemen
inside the vessel.
Despite the combined efforts of the firemen of the Lapulapu City Fire Department,
Mandaue Fire Cordova Fire Department, Emergency Rescue Unit Foundation, and
fire brigade of CSEW, the fire was not controlled until 2:00 a.m., of the following day,
February 17, 1991.
On the early morning of February 17, 1991, gusty winds rekindled the flames on the
vessel and fire again broke out. Then the huge amounts of water pumped into the
vessel, coupled with the strong current, caused the vessel to tilt until it capsized and
sank.
When M/V Manila City capsized, steel and angle bars were noticed to have been
newly welded along the port side of the hull of the vessel, at the level of the crew
cabins. William Lines did not previously apply for a permit to do hotworks on the said
portion of the ship as it should have done pursuant to its work order with CSEW. 5
Respondent Prudential, on the other hand, theorized that the fire broke out in the following manner:
At around eleven o'clock in the morning of February 16, 1991, the Chief Mate of M/V
Manila City was inspecting the various works being done by CSEW on the vessel,
when he saw that some workers of CSEW were cropping out steel plates Tank Top
No. 12 using acetylene, oxygen and welding torch. He also observed that the rubber
insulation wire coming out of the air-conditioning unit was already burning, prompting
him to scold the workers.
At 2:45 in the afternoon of the same day, witnesses saw smoke coming from Tank
No. 12. The vessel's reeferman reported such occurence to the Chief Mate who

immediately assembled the crew members to put out the fire. When it was too hot for
them to stay on board and seeing that the fire cannot be controlled, the vessel's crew
were forced to withdraw from CSEW's docking quay.
In the morning of February 17, 1991, M/V Manila City sank. As the vessel was
insured with Prudential Guarantee, William Lines filed a claim for constructive loss,
and after a thorough investigation of the surrounding circumstances of the tragedy,
Prudential Guaranteed found the said insurance claim to be meritorious and issued a
check in favor of William Lines in the amount of P 45 million pesos representing the
total value of M/V Manila City's hull and machinery insurance. 6
The petition is unmeritorious.
Petitioner CSEW faults the Court of Appeals for adjudging it negligent and liable for damages for the
respondents, William Lines, Inc., and Prudential for the loss of M/V Manila City. It is petitioner's
submission that the finding of negligence by the Court of Appeals is not supported by the evidence
on record, and contrary to what the Court of Appeals found, petitioner did not have management and
control over M/V Manila City. Although it was brought to the premises of CSEW for annual repair,
William Lines, Inc. retained control over the vessel as the ship captain remained in command and
the ship's crew were still present. While it imposed certain rules and regulations on William Lines, it
was in the exercise of due diligence and not an indication of CSEW's exclusive control over subject
vessel. Thus, CSEW maintains that it did not have exclusive control over the M/V Manila City and
the trial court and the Court of Appeals erred in applying the doctrine of res ipsa loquitur.
Time and again, this Court had occasion to reiterate the well-established rule that factual findings by
the Court of Appeals are conclusive on the parties and are not reviewable by this Court. They are
entitled to great weight and respect, even finality, especially when, as in this case, the Court of
Appeals affirmed the factual findings arrived at by the trial court. 7 When supported by sufficient
evidence, findings of fact by the Court of Appeals affirming those of the trial court, are not to be disturbed
on appeal. The rationale behind this doctrine is that review of the findings of fact of the Court of Appeals is
not a function that the Supreme Court normally undertakes. 8
Here, the Court of Appeals and the Cebu Regional Trial Court of origin are agreed that the fire which
caused the total loss of subject M/V Manila City was due to the negligence of the employees and
workers of CSEW. Both courts found that the M/V Manila City was under the custody and control of
petitioner CSEW, when the ill-fated vessel caught fire. The decisions of both the lower court and the
Court of Appeals set forth clearly the evidence sustaining their finding of actionable negligence on
the part of CSEW. This factual finding is conclusive on the parties. The court discerns no basis for
disturbing such finding firmly anchored on enough evidence. As held in the case of Roblett Industrial
Construction Corporation vs. Court of Appeals, "in the absence of any showing that the trial court
failed to appreciate facts and circumstances of weight and substance that would have altered its
conclusion, no compelling reason exists for the Court to impinge upon matters more appropriately
within its province. 9
Furthermore, in petitions for review on certiorari, only questions of law may be put into issue.
Questions of fact cannot be entertained. The finding of negligence by the Court of Appeals is a

question which this Court cannot look into as it would entail going into factual matters on which the
finding of negligence was based. Such an approach cannot be allowed by this Court in the absence
of clear showing that the case falls under any of the exceptions 10 to the well-established principle.
The finding by the trial court and the Court of Appeals that M/V Manila City caught fire and sank by
reason of the negligence of the workers of CSEW, when the said vessel was under the exclusive
custody and control of CSEW is accordingly upheld. Under the circumstances of the case, the
doctrine of res ipsa loquitur applies. For the doctrine of res ipsa loquitur to apply to a given situation,
the following conditions must concur (1) the accident was of a kind which does not ordinarily occur
unless someone is negligent; and (2) that the instrumentality or agency which caused the injury was
under the exclusive control of the person charged with negligence.
The facts and evidence on record reveal the concurrence of said conditions in the case under
scrutiny. First, the fire that occurred and consumed M/V Manila City would not have happened in the
ordinary course of things if reasonable care and diligence had been exercised. In other words, some
negligence must have occurred. Second, the agency charged with negligence, as found by the trial
court and the Court of Appeals and as shown by the records, is the herein petitioner, Cebu Shipyard
and Engineering Works, Inc., which had control over subject vessel when it was docketed for annual
repairs. So also, as found by the regional trial court, "other responsible causes, including the conduct
of the plaintiff, and third persons, are sufficiently eliminated by the evidence. 11
What is more, in the present case the trial court found direct evidence to prove that the workers
and/or employees of CSEW were remiss in their duty of exercising due diligence in the care of
subject vessel. The direct evidence substantiates the conclusion that CSEW was really negligent.
Thus, even without applying the doctrine of res ipsa loquitur, in light of the direct evidence on record,
the ineluctable conclusion is that the petitioner, Cebu Shipyard and Engineering Works, Inc., was
negligent and consequently liable for damages to the respondent, William Lines, Inc.
Neither is there tenability in the contention of petitioner that the Court of Appeals erroneously ruled
on the inadmissibility of the expert testimonies it (petitioner) introduced on the probable cause and
origin of the fire. Petitioner maintains that the Court of Appeals erred in disregarding the testimonies
of the fire experts, Messrs. David Grey and Gregory Michael Southeard, who testified on the
probable origin of the fire in M/V Manila City. Petitioner avers that since the said fire experts were
one in their opinion that the fire did not originate in the area of Tank Top No. 12 where the JNB
workers were doing hotworks but on the crew accommodation cabins on the portside No. 2 deck, the
trial court and the Court of Appeals should have given weight to such finding based on the
testimonies of fire experts; petitioner argues.
But courts are not bound by the testimonies of expert witnesses. Although they may have probative
value, reception in evidence of expert testimonies is within the discretion of the court. Section 49,
Rule 130 of the Revised Rules of Court, provides:
Sec. 49. Opinion of expert witness. The opinion of a witness on a matter requiring
special knowledge, skill, experience or training which he is shown to possess, may
be received in evidence.

The word "may" signifies that the use of opinion of an expert witness as evidence is a
prerogative of the courts. It is never mandatory for judges to give substantial weight to expert
testimonies. If from the facts and evidence on record, a conclusion is readily ascertainable,
there is no need for the judge to resort to expert opinion evidence. In the case under
consideration, the testimonies of the fire experts were not the only available evidence on the
probable cause and origin of the fire. There were witnesses who were actually on board the
vessel when the fire occurred. Between the testimonies of the fire experts who merely based
their findings and opinions on interviews and the testimonies of those present during the fire,
the latter are of more probative value. Verily, the trial court and the Court of Appeals did not
err in giving more weight to said testimonies.
On the issue of subrogation, petitioner contends that Prudential is not entitled to be subrogated to
the rights of William Lines, Inc., theorizing that (1) the fire which gutted M/V Manila City was an
excluded risk and (2) it is a co-assured under the Marine Hull Insurance Policy.
It is petitioner's submission that the loss of M/V Manila City or damage thereto is expressly excluded
from the coverage of the insurance because the same resulted from "want of due diligence by the
Assured, Owners or Managers" which is not included in the risks insured against. Again, this theory
of petitioner is bereft of any factual or legal basis. It proceeds from a wrong premise that the fire
which gutted subject vessel was caused by the negligence of the employees of William Lines, Inc. To
repeat, the issue of who between the parties was negligent has already been resolved against Cebu
Shipyard and Engineering Works, Inc. Upon proof of payment by Prudential to William Lines, Inc. the
former was subrogated to the right of the latter to indemnification from CSEW. As aptly ruled by the
Court of Appeals, the law on the manner is succinct and clear, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss the
aggrieved party shall be entitled to recover the deficiency from the person causing
the loss or injury. 12
Thus, when Prudential, after due verification of the merit and validity of the insurance claim of
William Lines, Inc., paid the latter the total amount covered by its insurance policy, it was subrogated
to the right of the latter to recover the insured loss from the liable party, CSEW.
Petitioner theorizes further that there can be no right of subrogation as it is deemed a co-assured
under the subject insurance policy. To buttress its stance that it is a co-assured, petitioner placed
reliance on Clause 20 of the Work Order which states:
20 The insurance on the vessel should be maintained by the customer and/or owner
of the vessel during the period the contract is in effect. 13

According to petitioner, under the aforecited clause, William Lines, Inc., agreed to assume
the risk of loss of the vessel while under dry-dock or repair and to such extent, it is benefited
and effectively constituted as a co-assured under the policy.
This theory of petitioner is devoid of sustainable merit. Clause 20 of the Work Order in question is
clear in the sense that it requires William Lines to maintain insurance on the vessel during the period
of dry-docking or repair. Concededly, such a stipulation works to the benefit of CSEW as the ship
repairer. However, the fact that CSEW benefits from the said stipulation does not automatically make
it as a co-assured of William Lines. The intention of the parties to make each other a co-assured
under an insurance policy is to be gleaned principally from the insurance contract or policy itself and
not from any other contract or agreement because the insurance policy denominates the assured
and the beneficiaries of the insurance. The hull and machinery insurance procured by William Lines,
Inc. from Prudential named only "William Lines, Inc." as the assured. There was no manifestation of
any intention of William Lines, Inc. to constitute CSEW as a co-assured under subject policy. It is
axiomatic that when the terms of a contract are clear its stipulations control. 14 Thus, when the
insurance policy involved named only William Lines, Inc. as the assured thereunder, the claim of CSEW
that it is a co-assured is unfounded.
Then too, in the Additional Perils Clause of the same Marine Insurance Policy, it is provided that:
Subject to the conditions of this Policy, this insurance also covers loss of or damage
to vessel directly caused by the following:
xxx xxx xxx
Negligence of Charterers and/or Repairers, provided such Charterers and/or
Repairers are not an Assured hereunder 15 (emphasis supplied).
As correctly pointed out by respondent Prudential, if CSEW were deemed a co-assured under the
policy, it would nullify any claim of William Lines, Inc. from Prudential for any loss or damage caused
by the negligence of CSEW. Certainly, no shipowner would agree to make a shiprepairer a coassured under such insurance policy; otherwise, any claim for loss or damage under the policy
would be invalidated. Such result could not have been intended by William Lines, Inc.
Finally, CSEW argues that even assuming that it was negligent and therefore liable to William Lines
Inc., by stipulation in the Contract or Work Order its liability is limited to One Million (P1,000,000.00)
Pesos only, and Prudential a mere subrogee of William Lines, Inc., should only be entitled to collect
the sum stipulated in the said contract.
Although in this jurisdiction, contracts of adhesion have been consistently upheld as valid per se; as
binding as an ordinary contract, the Court recognizes instances when reliance on such contracts
cannot be favored especially where the facts and circumstances warrant that subject stipulations be
disregarded. 16 Thus, in ruling on the validity and applicability of the stipulation limiting the liability of
CSEW for negligence to One Million (P1,000,000.00) Pesos only, the facts and circumstances vis-avis the nature of the provision sought to be enforced should be considered, bearing in mind the principles
of equity and fair play.

It is worthy to note that M/V Manila City was insured with Prudential for Forty Five Million
(P45,000,000.00) Pesos. To determine the validity and sustainability of the claim of William Lines,
Inc., for a total loss, Prudential conducted its own inquiry. Upon thorough investigation by its hull
surveyor, M/V Manila City was found to be beyond economical salvage and repair. 17 The evaluation
of the average adjuster also reported a constructive total loss. 18 The said claim of William Lines, Inc., was
then found to be valid and compensable such that Prudential paid the latter the total value of its insurance
claim. Furthermore, it was ascertained that the replacement cost of the vessel (the price of a vessel
similar to M/V Manila City), amounts to Fifty Million (P 50,000,000.00) Pesos. 19
Considering the aforestated circumstances, let alone the fact that negligence on the part of petitioner
has been sufficiently proven, it would indeed be unfair and inequitable to limit the liability of petitioner
to One Million Pesos only. As aptly held by the trial court, "it is rather unconscionable if not
overstrained." To allow CSEW to limit its liability to One Million Pesos notwithstanding the fact that
the total loss suffered by the assured and paid for by Prudential amounted to Forty Five Million
(P45,000,000.00) Pesos would sanction the exercise of a degree of diligence short of what is
ordinarily required because, then, it would not be difficult for petitioner to escape liability by the
simple expedient of paying an amount very much lower than the actual damage or loss suffered by
William Lines, Inc.
WHEREFORE, for want of merit, the petition is hereby DENIED and the decision, dated September
3, 1997, and Resolution, dated February 13, 1998, of the Court of Appeals AFFIRMED. No
pronouncement as to costs.
1wphi1.nt

SO ORDERED
G.R. Nos. 180880-81

September 18, 2012

KEPPEL CEBU SHIPYARD, INC., Petitioner,

vs.
PIONEER INSURANCE AND SURETY CORPORATION, Respondent.
x-----------------------x
PIONEER INSURANCE AND SURETY CORPORATION, Petitioner,
vs.
KEPPEL CEBU SHIPYARD, INC., Respondent.
BERSAMIN,*
VILLARAMA,**
RESOLUTION
its full satisfaction. The arbitration costs shall be borne by both parties on at pro rata basis.

54

A final point. As both ECSI and WG&A are equally responsible for the loss of Superferry 3, questions
arises should the liability of Pioneer to WG&A be proportionately limited? Is Pioneer entitled to any
refund? Whether or not Pioneer is entitled to the restitution of any excess payment is a question that

cannot be adjudicated in this case. The Court cannot make a final finding or pronouncement on the
matter because WG&A is not a party In this case. WG&A should be heard in this regard as it may
have defenses to fend off the possible claim for refund by Pioneer. It should be stressed that their
relationship is governed by their contract of insurance, where their respective rights and obligations
are defined, and by their subsequent settlement or arrangement, if any. Due process dictates that
these should be threshed out in a separate action. Deedless to state, this decision is without
prejudice to such action.
WHEREFORE, the September 25, 2009 Decision of the Third Division is hereby MODIFIED.
Accordingly, Keppel Cebu Shipyard, Inc. is ordered to pay Pioneer Insurance and Surety
Corporation the amount of P 50,000,000.00 plus interest at the rate of 6% per annum from the filing
of the case until the award becomes final and executory. Thereafter, the rate of interest shall be 12%
per annum. From the date the award becomes final and executory until its fall satisfaction.
The arbitration costs shall be borne by both parties on a pro rata basis.
SO ORDERED.
JOSE CATRAL MENDOZA
Associate Justice
WE CONCUR:
MARIA LOURDES P. A. SERENO
Chief Justice
ANTONIO T. CARPIO
Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

ARTURO D. BRION
Associate Justice

DIOSDADO M. PERALTA
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

ROBERTO A. ABAD
Associate Justice

(On Official Leave)

MARTIN S. VILLARAMA, JR.
Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

BIENVENIDO L. REYES
Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

C E R TI F I C ATI O N

Pursuant to Section 13, Article VIII of the Constitution, l hereby certify that the conclusions in the
above Resolution had been reached in consultation before the case was assigned to the writer of the
opinion of the Court.
MARIA LOURDES P. A. SERENO
Chief Justice

Footnotes
54

Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, July 12, 1994, 234 SCRA
78, 97.

The Lawphil Project - Arellano Law Foundation

G.R. Nos. 180880-81

September 18, 2012

KEPPEL CEBU SHIPYARD, INC., petitioner,

vs.
PIONEER INSURANCE AND SURETY CORPORATION, respondent.
x-----------------------x
G.R. Nos. 180896-97
PIONEER INSURANCE AND SURETY CORPORATION, petitioner,
vs.
KEPPEL CEBU SHIPYARD, INC., respondent.
DISSENTING OPINION
BRION, J.:
I maintain my dissent, based on my objections against the reopening of the final judgment in this
case and its acceptance by the Court En Banc for its review on the merits. Thus, I vote to DENY
what effectively is the third motion for reconsideration in this case.
In a September 25, 2009 Decision, the Second Division of the Supreme Court, thru Justice Antonio
Eduardo B. Nachura, modified the Court of Appeals (CAs) December 20, 2007 amended decision in

CA G.R. SP Nos. 74018 and 73934. It ordered Keppel Cebu Shipyard, Inc. (KCSI) to pay Pioneer
Insurance and Surety Corporation (Pioneer) P 329,747,351.91, with 6% interest per annum from the
time the Request for Arbitration was filed until the Decisions finality, plus 12% interest per annum on
the said amount or any balance thereof from the Decisions finality until it is paid.
In a June 21, 2010 Resolution, the Court denial with finality KCSIs first motion for reconsideration.
KSCI requested that the cases be referred to the Court En Banc, and set for oral arguments its
second motion for reconsideration and its July 30, 2010 letter. KCSIs September 29, 2010 letter
requested for the status of its July 30, 2010 letter.
For all these resons, I vote to DENY KCSIs third motion for reconsideration for lack of jurisdiction,
and to reiterate the finality of the Decision of the Second Division dated September 25, 2009.
ARTURO D. BRION
Associate Justice

The Lawphil Project - Arellano Law Foundation

G.R. Nos. 180880-81

September 18, 2010

KEPPEL CEBU SHIPYARD, INC., petitioner,

vs.
PIONEER INSURANCE AND SURETY CORPORATION, respondent.
x-----------------------x
G.R. Nos. 180896-97
PIONEER INSURANCE AND SURETY CORPORATION, petitioner,
vs.
KEPPEL CEBU SHIPYARD, INC., respondent.
DISSENTING OPINION
REYES, J.:
I find myself unable to concur in the majority opinion. I would like to emphasize the applicability of
Cebu Shipyard and Engineering Works, Inc. v. William Lines, Inc.1 in this case.
Below is a summary of Cebu Shipyard insofar as it is relevant to Keppel Cebu Shipyard, Inc. v.
Pioneer Insurance and Surety Corporation.2

M/V Manila City, a luxury passenger cargo vessel owned by William Lines, Inc. (William Lines), was
insured with Prudential Guarantee and Assurance Company, Inc. (Prudential) for P 45,000,000.00
for hull and machinery. Among others, the policy provided as follows:
Subject to the conditions of the Policy, the insurance also covers loss of or damage to Vessel directly
caused by the following:
xxx
Negligence of Charterers and/or Repairers, provided such Charterers and/or Repairers are not an
Assured hereunder.
xxx
provided such loss or damage has not resulted from want of due diligence by the Assured, the
Owners or Managers of the Vessel, of any of them. Masters, Officers, Crew or Pilots are not to be
considered Owners within the meaning of this Clause should they hold shares in the Vessel. 3
During the effectivity of the insurance, M/V Manila City caught fire and sank on February 16, 1991
while it was undergoing dry-docking and repair within the premises of Cebu Shipyard and
Engineering Works, Inc. (Cebu Shipyard). On February 5, 1991, William Lines brought M/V Manila
City to Cebu Shipyard for dry-docking and repair. The Work Orders executed by William Lines and
Cebu Shipyard contain the following stipulations:
11. Save as provided in Clause 10, the Contractor shall not be under any liability to the Customer
either in contract or for delict or quasi-delict or otherwise except for negligence and such liability
shall itself be subject to the following overriding limitations and exceptions, namely:
(a) The total liability of the Contractor to the Customer (over and above the liability to replace under
Clause 10) or of any sub-contractor shall be limited in respect of any defect or event (and a series of
accidents arising out of the same defect or event shall constitute one defect or event) to the sum of
Pesos Philippine Currency One Million only.
xxxx
20. The insurance on the vessel should be maintained by the customer and/or owner of the vessel
during the period the contract is in effect.4
After M/V Manila City caught fire and sank, William Lines filed a complaint with the Regional Trial
Court (RTC) of Cebu City against Cebu Shipyard, alleging that the loss of the vessel was due to the
latters fault and negligence.
Subsequently, Prudential paid William Lines the value of the vessels hull and machinery, resulting to
Prudentials subrogation to the claims of William Lines against Cebu Shipyard. An amended
complaint was filed to include Prudential as a co-plaintiff.
In its Decision dated June 10, 1994, the RTC ruled that it was Cebu Shipyards negligence that
caused the total loss of the vessel. Cebu Shipyard was ordered to pay Prudential the amount
of P 45,000,000.00, representing the amount the latter paid to William Lines.
On appeal, the Court of Appeals (CA) affirmed the RTC decision.

Cebu Shipyard filed a Petition for Review with this Court, claiming, among others, that: (a) it is a coassured under the insurance contract between William Lines and Prudential by virtue of Clause 20 of
the Work Orders; thus, its supposed negligence is an excluded risk; and (b) on the assumption that
its negligence was the cause of the vessels total loss, its liability is limited to P 1,000,000.00.
In a Decision dated May 5, 1999 penned by Justice Fidel P. Purisima, this Court denied the petition
finding no merit in any of Cebu Shipyards claims. First, this Court, not being a trier of facts, is bound
by the factual findings of the RTC and the CA that Cebu Shipyards negligence was the cause of the
loss. Second, the loss took place while the Cebu Shipyard had custody and control of the vessel,
thus, the principle of res ipsa loquitor applies. Third, Clause 20 of the Work Orders does not make
Cebu Shipyard a co-assured under the insurance contract between Prudential and William Lines.
While William Lines is required to maintain an insurance contract while the vessel is being drydocked and repaired by Cebu Shipyard and such coverage benefits Cebu Shipyard, this does not
automatically make Cebu Shipyard a co-assured. It is only William Lines who was designated as
"assured" in the insurance contract and:
The intention of the parties to make each other a co-assured under an insurance policy is to be
gleaned principally from the insurance contract or policy itself and not from any other contract or
agreement because the insurance policy denominates the assured and the beneficiaries of the
insurance. x x x.5
Fourth, the Work Orders are in the nature of adhesion contract, which is recognized as valid in this
jurisdiction but reliance thereon is unfavored given a certain factual milieu. In this case, it is unfair
and inequitable to limit the liability of Cebu Shipyard to P 1,000,000.00 in view of the proven fact that
its failure to exercise the required diligence was the proximate cause of the loss.
It is evident that the Decision dated September 25, 2009 of this Court in Keppel Cebu Shipyard
shares a parallelism with its Decision dated May 5, 1999 in Cebu Shipyard. As to the validity of
Clause 20, the limited liability clause of the Ship Repair Agreement between WG & A Jebsens Ship
Management, Inc. (Aboitiz), this Court held that:
Indeed, the assailed clauses amount to a contract of adhesion imposed on WG&A on a "take-it-orleave-it" basis. A contract of adhesion is so-called because its terms are prepared by only one party,
while the other party merely affixes his signature signifying his adhesion thereto. Although not
invalid, per se, a contract of adhesion is void when the weaker party is imposed upon in dealing with
the dominant bargaining party, and its option is reduced to the alternative of "taking it or leaving it,"
completely depriving such party of the opportunity to bargain on equal footing.
xxxx
Likewise, Clause 20 is a stipulation that may be considered contrary to public policy. To allow KCSI
to limit its liability to only P 50,000,000.00, notwithstanding the fact that there was a constructive total
loss in the amount of [P]360,000,000.00, would sanction the exercise of a degree of diligence short
of what is ordinarily required. It would not be difficult for a negligent party to escape liability by the
simple expedient of paying an amount very much lower than the actual damage or loss sustained by
the other.6
As to the validity of Clause 22(a), the provision in the Ship Repair Agreement that required Aboitiz to
maintain an insurance cover on the vehicle while it is being dry-docked and repaired by Keppel Cebu
Shipyard, Inc. (KCSI), invoked by KCSI to claim that it is a co-assured in the insurance contract
between Aboitiz and Pioneer Insurance and Surety Corporation (Pioneer), this Court held that:

Along the same vein, Clause 22(a) cannot be upheld. The intention of the parties to make each other
a co-assured under an insurance policy is to be gleaned principally from the insurance contract or
policy itself and not from any other contract or agreement, because the insurance policy
denominates the assured and the beneficiaries of the insurance contract. Undeniably, the hull and
machinery insurance procured by WG&A from Pioneer named only the former as the assured. There
was no manifest intention on the part of WG&A to constitute KCSI as a co-assured under the
policies. To have deemed KCSI as a co-assured under the policies would have had the effect of
nullifying any claim of WG&A from Pioneer for any loss or damage caused by the negligence of
KCSI. No ship owner would agree to make a ship repairer a co-assured under such insurance policy.
Otherwise, any claim for loss or damage under the policy would be rendered nugatory. WG&A could
not have intended such a result.7
The re-opening of our Decision dated September 25, 2009 despite the fact that this had already
become final and executory, raises the presumption that there will be a reversal in KCSIs favor.
At the onset, it bears stressing that the conclusions made by this Court in Keppel Cebu Shipyard
was consistent with the principles enunciated in Cebu Shipyard and in observance of the principle of
stare decisis. In fact, even without having to go through the rigorous exercise of determining whether
Aboitiz consented to the limited liability clause (a supposed fine-print in the Ship Repair Agreement),
the conclusion would be the same and KCSIs liability to Pioneer would still be within the range
of P 350,000,000.00 considering the pronouncement in Cebu Shipyard that a limitation of liability in
that form is void for being against public policy.
The same is true with respect to the issue on whether KCSI can be considered a co-assured in the
insurance contract between Pioneer and Aboitiz. Even if KCSIs being a co-assured is expressly
stipulated in the Ship Repair Agreement (compared to the Work Orders in Cebu Shipyard, which was
not that explicit), that would not suffice to make it so. Keppel Cebu Shipyard echoed the
pronouncements in Cebu Shipyard that one can only claim to be a co-assured if he is designated as
one in the insurance contract itself, and no other contract where the insurer is not a party can be
invoked.
Therefore, to hold that KCSIs liability to Pioneer is limited only to P 50,000,000.00 is tantamount to a
reversal of the doctrine espoused in Cebu Shipyard; and if such is the intention then a categorical
statement to that effect should be made. For several years, ship owners had relied on this
formulation that any attempt on the part of the ship repairer and owner of docking facilities to limit
their liability to a certain amount, which is way below that actual value of the ship, is an exercise in
futility. This holds true even if the ship owner had consented to a contract where such limitation on
liability has been stipulated.
It is not without reason that limited liability provisions had been struck down as void for being against
public policy. It is indeed distasteful and an affront to ones sense of justice and fairness that: (a) ship
owners would render themselves unqualified to the services of ship repairers and owners of docking
facilities should they refuse to accede to a limited liability clause; and (b) ship repairers and owners
of docking facilities would be relieved of liability to a significant degree even if it was by their fault or
negligence that the vessel was placed in utter ruin. The consent of a ship owner to a limited liability
clause is not freely given in a certain sense, most especially if the ship owner is confronted with no
choice but to engage the services of that ship repairer for being the only one available. Such
cutthroat practice is what this Court would intend to avoid by declaring such a limited liability clause
invalid.
In light of the foregoing, and on the ground of immutability of judgment, I register my DISSENT. I
vote to AFFIRM the Decision dated September 25, 2009 of the Court in this case.

BIENVENIDO L. REYES
Associate Justice
G.R. No. 76101-02 September 30, 1991
TIO KHE CHIO, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and EASTERN ASSURANCE AND SURETY
CORPORATION,respondents.
Rodolfo M. Morelos for petitioner.
Ferrer, Mariano, Sangalang & Gatdula for private respondent.

FERNAN, C.J.:p
The issue in this petition for certiorari and prohibition is the legal rate of interest to be imposed in
actions for damages arising from unpaid insurance claims. Petitioner Tio Khe Chio claims that it
should be twelve (12%) per cent pursuant to Articles 243 and 244 of the Insurance Code while
private respondent Eastern Assurance and Surety Corporation (EASCO) claims that it should be six
(6%) per cent under Article 2209 of the Civil Code.
The facts are as follows: On December 18, 1978, petitioner Tio Khe Chio imported one thousand
(1,000) bags of fishmeal valued at $36,000.30 from Agro Impex, U.S.A. Dallas, Texas, U.S.A. The
goods were insured with respondent EASCO and shipped on board the M/V Peskov, a vessel owned
by Far Eastern Shipping Company. When the goods reached Manila on January 28, 1979, they were
found to have been damaged by sea water which rendered the fishmeal useless. Petitioner filed a
claim with EASCO and Far Eastern Shipping. Both refused to pay. Whereupon, petitioner sued them
before the then Court of First Instance of Cebu, Branch II for damages. EASCO, as the insurer, filed
a counterclaim against the petitioner for the recovery of P18,387.86 representing the unpaid
insurance premiums.
On June 30, 1982, the trial court rendered judgment ordering EASCO and Far Eastern Shipping to
pay petitioner solidarily the sum of P105,986.68 less the amount of P18,387.86 for unpaid premiums
with interest at the legal rate from the filing of the complaint, the sum of P15,000.00 as attorney's
fees and the costs. 1
The judgment became final as to EASCO but the shipping company appealed to the Court of
Appeals and was absolved from liability by the said court in AC-G.R. No. 00161, entitled "Tio Khe
Chio vs. Eastern Assurance and Surety Corporation."
The trial court, upon motion by petitioner, issued a writ of execution against EASCO. The sheriff
enforcing the writ reportedly fixed the legal rate of interest at twelve (12%). Respondent EASCO
moved to quash the writ alleging that the legal interest to be computed should be six (6%) per cent

per annum in accordance with Article 2209 of the Civil Code and not twelve (12%) per cent as
insisted upon by petitioner's counsel. In its order of July 30, 1986, the trial court denied EASCO's
motion. EASCO then filed a petition for certiorari and prohibition before the Court of Appeals.
On July 30, 1986, the Appellate Court rendered the assailed judgment, the dispositive part of which
states:
WHEREFORE, the order dated July 30, 1986 is hereby SET ASIDE in so far as it fixes the interest at
12% on the principal amount of P87,598.82 from the date of filing of the complaint until the full
payment of the amount, and the interest that the private respondent is entitled to collect from the
petitioner is hereby reduced to 6% per annum.
No pronouncement as to costs. 2
In disputing the aforesaid decision of the Court of Appeals, petitioner maintains that not only is it
unjust and unfair but it is also contrary to the correct interpretation of the fixing of interest rates under
Sections 243 and 244 of the Insurance Code. And since petitioner's claims is based on an insurance
contract, then it is the Insurance Code which must govern and not the Civil Code.
We rule for respondent EASCO. The legal rate of interest in the case at bar is six (6%) per annum as
correctly held by the Appellate Court.
Section 243 of the Insurance Code provides:
The amount of any loss or damage for which an insurer may be liable, under any
policy other than life insurance policy, shall be paid within thirty days after proof of
loss is received by the insurer and ascertainment of the loss or damage is made
either by agreement between the insured and the insurer or by arbitration; but if such
ascertainment is not had or made within sixty days after such receipt by the insurer
of the proof of loss, then the loss or damage shall be paid within ninety days after
such receipt. Refusal or failure to pay the loss or damage within the time prescribed
herein will entitle the assured to collect interest on the proceeds of the policy for the
duration of the delay at the rate of twice the ceiling prescribed by the Monetary
Board, unless such failure or refusal to pay is based on the ground that the claim is
fraudulent.
Section 244 of the aforementioned Code also provides:
In case of any litigation for the enforcement of any policy or contract of insurance, it
shall be the duty of the Commissioner or the Court, as the case may be, to make a
finding as to whether the payment of the claim of the insured has been unreasonably
denied or withheld; and in the affirmative case, the insurance company shall be
adjudged to pay damages which shall consist of attorney's fees and other expenses
incurred by the insured person by reason of such undeniable denial or withholding of
payment plus interest of twice the ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the date following the time prescribed in

section two hundred forty-two or in section two hundred forty-three, as the case may
be, until the claim is fully satisfied; Provided, That the failure to pay any such claim
within the time prescribed in said sections shall be considered prima facie evidence
of unreasonable delay in payment.
In the case at bar, the Court of Appeals made no finding that there was an unjustified refusal or
withholding of payment on petitioner's claim. In fact, respondent court had this to say on EASCO's
refusal to settle the claim of petitioner:
... EASCO's refusal to settle the claim to Tio Khe Chio was based on some ground
which, while not sufficient to free it from liability under its policy, nevertheless is
sufficient to negate any assertion that in refusing to pay, it acted unjustifiably.
xxx xxx xxx
The case posed some genuine issues of interpretation of the terms of the policy as to
which persons may honestly differ. This is the reason the trial court did not say
EASCO's refusal was unjustified. 3
Simply put, the aforecited sections of the Insurance Code are not pertinent to the instant case. They
apply only when the court finds an unreasonable delay or refusal in the payment of the claims.
Neither does Circular No. 416 of the Central Bank which took effect on July 29, 1974 pursuant to
Presidential Decree No. 116 (Usury Law) which raised the legal rate of interest from six (6%) to
twelve (12%) per cent apply to the case at bar as by the petitioner. The adjusted rate mentioned in
the circular refers only to loans or forbearances of money, goods or credits and court judgments
thereon but not to court judgments for damages arising from injury to persons and loss of property
which does not involve a loan. 4
In the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, 143 SCRA
158, the Court declared that the legal rate of interest is six (6%) per cent per annum, and not twelve
(12%) per cent, where a judgment award is based on an action for damages for personal injury, not
use or forbearance of money, goods or credit. In the same vein, the Court held in GSIS vs. Court of
Appeals, G.R. No. 52478, October 30, 1986, 145 SCRA 311, that the rates under the Usury Law
(amended by P.D. 116) are applicable only to interest by way of compensation for the use or
forbearance of money, interest by way of damages is governed by Article 2209 of the Civil Code.
Clearly, the applicable law is Article 2209 of the Civil Code which reads:
If the obligation consists in the payment of a sum of money and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be
the payment of interest agreed upon, and in the absence of stipulation, the legal
interest which is six per cent per annum.

And in the light of the fact that the contending parties did not allege the rate of interest stipulated in
the insurance contract, the legal interest was properly pegged by the Appellate Court at six (6%) per
cent.
WHEREFORE, in view of the foregoing, the petition is DENIED for lack of merit.
SO ORDERED.
G.R. No. 92383 July 17, 1992
SUN INSURANCE OFFICE, LTD., petitioner,
vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

CRUZ, J.:
The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of
P200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, his wife
Nerissa Lim sought payment on the policy but her claim was rejected. The petitioner agreed that
there was no suicide. It argued, however that there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6,
1982, at about 10 o'clock in the evening, after his mother's birthday party. According to Nalagon, Lim
was in a happy mood (but not drunk) and was playing with his handgun, from which he had
previously removed the magazine. As she watched television, he stood in front of her and pointed
the gun at her. She pushed it aside and said it might he loaded. He assured her it was not and then
pointed it to his temple. The next moment there was an explosion and Lim slumped to the floor. He
was dead before he fell. 1
The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was
sustained. 2 The petitioner was sentenced to pay her P200,000.00, representing the face value of the
policy, with interest at the legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary damages;
P5,000.00 as actual and compensatory damages; and P5,000.00 as attorney's fees, plus the costs of the
suit. This decision was affirmed on appeal, and the motion for reconsideration was denied. 3 The
petitioner then came to this Court to fault the Court of Appeals for approving the payment of the claim and
the award of damages.
The term "accident" has been defined as follows:
The words "accident" and "accidental" have never acquired any technical signification in law, and
when used in an insurance contract are to be construed and considered according to the ordinary
understanding and common usage and speech of people generally. In-substance, the courts are
practically agreed that the words "accident" and "accidental" mean that which happens by chance or
fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen. The

definition that has usually been adopted by the courts is that an accident is an event that takes place
without one's foresight or expectation an event that proceeds from an unknown cause, or is an
unusual effect of a known case, and therefore not expected. 4
An accident is an event which happens without any human agency or, if happening through human
agency, an event which, under the circumstances, is unusual to and not expected by the person to
whom it happens. It has also been defined as an injury which happens by reason of some violence
or casualty to the injured without his design, consent, or voluntary co-operation. 5
In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was
indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, 6 says that
"there is no accident when a deliberate act is performed unless some additional, unexpected,
independent and unforeseen happening occurs which produces or brings about their injury or death."
There was such a happening. This was the firing of the gun, which was the additional unexpected and
independent and unforeseen occurrence that led to the insured person's death.
The petitioner also cites one of the four exceptions provided for in the insurance contract and
contends that the private petitioner's claim is barred by such provision. It is there stated:
Exceptions
The company shall not be liable in respect of
1. Bodily injury
xxx xxx xxx
b. consequent upon
i) The insured person attempting to commit suicide or willfully exposing himself to
needless peril except in an attempt to save human life.
To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends
that the insured willfully exposed himself to needless peril and thus removed himself from the
coverage of the insurance policy.
It should be noted at the outset that suicide and willful exposure to needless peril are in pari
materia because they both signify a disregard for one's life. The only difference is in degree, as
suicide imports a positive act of ending such life whereas the second act indicates a reckless risking
of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one thousand
meters above the ground and without any safety device may not actually be intending to commit
suicide, but his act is nonetheless suicidal. He would thus be considered as "willfully exposing
himself to needless peril" within the meaning of the exception in question.

The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully
exposed himself to needless peril and so came under the exception. The theory is that a gun is per
se dangerous and should therefore be handled cautiously in every case.
That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the
magazine from the gun and believed it was no longer dangerous. He expressly assured her that the
gun was not loaded. It is submitted that Lim did not willfully expose himself to needless peril when he
pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. The act
was precisely intended to assure Nalagon that the gun was indeed harmless.
The contrary view is expressed by the petitioner thus:
Accident insurance policies were never intended to reward the insured for his
tendency to show off or for his miscalculations. They were intended to provide for
contingencies. Hence, when I miscalculate and jump from the Quezon Bridge into the
Pasig River in the belief that I can overcome the current, I have wilfully exposed
myself to peril and must accept the consequences of my act. If I drown I cannot go to
the insurance company to ask them to compensate me for my failure to swim as well
as I thought I could. The insured in the case at bar deliberately put the gun to his
head and pulled the trigger. He wilfully exposed himself to peril.
The Court certainly agrees that a drowned man cannot go to the insurance company to ask for
compensation. That might frighten the insurance people to death. We also agree that under the
circumstances narrated, his beneficiary would not be able to collect on the insurance policy for it is
clear that when he braved the currents below, he deliberately exposed himself to a known peril.
The private respondent maintains that Lim did not. That is where she says the analogy fails. The
petitioner's hypothetical swimmer knew when he dived off the Quezon Bridge that the currents below
were dangerous. By contrast, Lim did not know that the gun he put to his head was loaded.
Lim was unquestionably negligent and that negligence cost him his own life. But it should not
prevent his widow from recovering from the insurance policy he obtained precisely against accident.
There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity
agreed upon if the insured is shown to have contributed to his own accident. Indeed, most accidents
are caused by negligence. There are only four exceptions expressly made in the contract to relieve
the insurer from liability, and none of these exceptions is applicable in the case at bar. **
It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of
the assured. There is no reason to deviate from this rule, especially in view of the circumstances of
this case as above analyzed.
On the second assigned error, however, the Court must rule in favor of the petitioner. The basic
issue raised in this case is, as the petitioner correctly observed, one of first impression. It is evident
that the petitioner was acting in good faith then it resisted the private respondent's claim on the
ground that the death of the insured was covered by the exception. The issue was indeed debatable
and was clearly not raised only for the purpose of evading a legitimate obligation. We hold therefore

that the award of moral and exemplary damages and of attorney's fees is unjust and so must be
disapproved.
In order that a person may be made liable to the payment of moral damages, the law
requires that his act be wrongful. The adverse result of an action does not per
se make the act wrongful and subject the act or to the payment of moral damages.
The law could not have meant to impose a penalty on the right to litigate; such right
is so precious that moral damages may not be charged on those who may exercise it
erroneously. For these the law taxes costs. 7
The fact that the results of the trial were adverse to Barreto did not alone make his act in
bringing the action wrongful because in most cases one party will lose; we would be
imposing an unjust condition or limitation on the right to litigate. We hold that the award of
moral damages in the case at bar is not justified by the facts had circumstances as well
as the law.

If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses,
since it is not the fact of winning alone that entitles him to recover such damages of
the exceptional circumstances enumerated in Art. 2208. Otherwise, every time a
defendant wins, automatically the plaintiff must pay attorney's fees thereby putting a
premium on the right to litigate which should not be so. For those expenses, the law
deems the award of costs as sufficient. 8
WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far as it holds
the petitioner liable to the private respondent in the sum of P200,000.00 representing the face value
of the insurance contract, with interest at the legal rate from the date of the filing of the complaint
until the full amount is paid, but MODIFIED with the deletion of all awards for damages, including
attorney's fees, except the costs of the suit.
SO ORDERED
G.R. No. 89741 March 13, 1991
SUN INSURANCE OFFICE, LTD., petitioner,
vs.
COURT OF APPEALS and EMILIO TAN, respondents.
Alfonso Felix, Jr., for petitioner.
William B. Devilles for private respondent.

PARAS, J.:p

This is a petition for review on certiorari of the June 20, 1989 decision 1 of the Court of Appeals in CAG.R. SP. Case No. 13848 affirming the November 3, 1987 and January 14, 1988 orders of the Regional
Trial Court 2 of Iloilo, Branch 27, in Civil Case No. 16817, denying the motion to dismiss and the
subsequent motion for reconsideration; and the August 22, 1989 resolution of the same court denying the
motion for reconsideration.
On August 15, 1983, herein private respondent Emilio Tan took from herein petitioner a P300,000.00
property insurance policy to cover his interest in the electrical supply store of his brother housed in a
building in Iloilo City. Four (4) days after the issuance of the policy, the building was burned including
the insured store. On August 20, 1983, Tan filed his claim for fire loss with petitioner, but on February
29, 1984, petitioner wrote Tan denying the latter's claim. On April 3, 1984, Tan wrote petitioner,
seeking reconsideration of the denial of his claim. On September 3, 1985, Tan's counsel wrote the
Insurer inquiring about the status of his April 3, 1984 request for reconsideration. Petitioner
answered the letter on October 11, 1985, advising Tan's counsel that the Insurer's denial of Tan's
claim remained unchanged, enclosing copies of petitioners' letters of February 29, 1984 and May 17,
1985 (response to petition for reconsideration). On November 20, 1985, Tan filed Civil Case No.
16817 with the Regional Trial Court of Iloilo, Branch 27 but petitioner filed a motion to dismiss on the
alleged ground that the action had already prescribed. Said motion was denied in an order dated
November 3, 1987; and petitioner's motion for reconsideration was also denied in an order dated
January 14, 1988.
Petitioner went to the Court of Appeals and sought the nullification of the said Nov. 3, 1987 and
January 14, 1988 orders, but the Court of Appeals, in its June 20, 1989 decision denied the petition
and held that the court a quomay continue until its final termination.
A motion for reconsideration was filed, but the same was denied by the Court of Appeals in its
resolution of August 22, 1989 (Rollo, pp. 42-43).
Hence, the instant petition.
The Second Division of this Court, in its resolution of December 18, 1989 resolved to give due
course to the petition and to require the parties to submit simultaneous memoranda (Ibid., p. 56).
Petitioner raised two (2) issues which may be stated in substance, as follows:
I
WHETHER OR NOT THE FILING OF A MOTION FOR RECONSIDERATION
INTERRUPTS THE TWELVE (12) MONTHS PRESCRIPTIVE PERIOD TO
CONTEST THE DENIAL OF THE INSURANCE CLAIM; and
II
WHETHER OR NOT THE REJECTION OF THE CLAIM SHALL BE DEEMED FINAL
ONLY IF IT CONTAINS WORDS TO THE EFFECT THAT THE DENIAL IS FINAL.

The answer to the first issue is in the negative.

While it is a cardinal principle of insurance law that a policy or contract of insurance is to be
construed liberally in favor of the insured and strictly against the insurer company, yet, contracts of
insurance, like other contracts, are to be construed according to the sense and meaning of the terms
which the parties themselves have used. If such terms are clear and unambiguous, they must be
taken and understood in their plain, ordinary and popular sense (Pacific Banking Corp. v. Court of
Appeals, 168 SCRA 1 [1988]).
Condition 27 of the Insurance Policy, which is the subject of the conflicting contentions of the parties,
reads:
27. Action or suit clause If a claim be made and rejected and an action or suit be
not commenced either in the Insurance Commission or in any court of competent
jurisdiction within twelve (12) months from receipt of notice of such rejection, or in
case of arbitration taking place as provided herein, within twelve (12) months after
due notice of the award made by the arbitrator or arbitrators or umpire, then the claim
shall for all purposes be deemed to have been abandoned and shall not thereafter be
recoverable hereunder.
As the terms are very clear and free from any doubt or ambiguity whatsoever, it must be taken and
understood in its plain, ordinary and popular sense pursuant to the above-cited principle laid down
by this Court.
Respondent Tan, in his letter addressed to the petitioner insurance company dated April 3, 1984
(Rollo, pp. 50-52), admitted that he received a copy of the letter of rejection on April 2, 1984. Thus,
the 12-month prescriptive period started to run from the said date of April 2, 1984, for such is the
plain meaning and intention of Section 27 of the insurance policy.
While the question of whether or not the insured was definitely advised of the rejection of his claim
through the letter (Rollo, pp. 48-49) of petitioner dated February 29, 1984, may arise, the certainty of
the denial of Tan's claim was clearly manifested in said letter, the pertinent portion of which reads:
We refer to your claim for fire loss of 20th August, 1983 at Huervana St., La Paz,
Iloilo City.
We now have the report of our adjusters and after a thorough and careful review of
the same and the accompanying documents at hand, we are rejecting, much to our
regrets, liability for the claim under our policies for one or more of the following
reasons:
1. xxx xxx xxx
2. xxx xxx xxx

For your information, we have referred all these matters to our lawyers for their
opinion as to the compensability of your claim, particularly referring to the above
violations. It is their opinion and in fact their strong recomendation to us to deny your
claim. By this letter, we do not intend to waive or relinquish any of our rights or
defenses under our policies of insurance.
It is also important to note the principle laid down by this Court in the case of Ang v. Fulton Fire
Insurance Co., (2 SCRA 945 [1961]), to wit:
The condition contained in an insurance policy that claims must be presented within
one year after rejection is not merely a procedural requirement but an important
matter essential to a prompt settlement of claims against insurance companies as it
demands that insurance suits be brought by the insured while the evidence as to the
origin and cause of destruction have not yet disappeared.
In enunciating the above-cited principle, this Court had definitely settled the rationale for the
necessity of bringing suits against the Insurer within one year from the rejection of the claim. The
contention of the respondents that the one-year prescriptive period does not start to run until the
petition for reconsideration had been resolved by the insurer, runs counter to the declared purpose
for requiting that an action or suit be filed in the Insurance Commission or in a court of competent
jurisdiction from the denial of the claim. To uphold respondents' contention would contradict and
defeat the very principle which this Court had laid down. Moreover, it can easily be used by insured
persons as a scheme or device to waste time until any evidence which may be considered against
them is destroyed.
It is apparent that Section 27 of the insurance policy was stipulated pursuant to Section 63 of the
Insurance Code, which states that:
Sec. 63. A condition, stipulation or agreement in any policy of insurance, limiting the
time for commencing an action thereunder to a period of less than one year from the
time when the cause of action accrues, is void.
The crucial issue in this case is: When does the cause of action accrue?
In support of private respondent's view, two rulings of this Court have been cited, namely, the case
of Eagle Star Insurance Co. vs. Chia Yu (96 Phil. 696 (1955]), where the Court held:
The right of the insured to the payment of his loss accrues from the happening of the
loss. However, the cause of action in an insurance contract does not accrue until the
insured's claim is finally rejected by the insurer. This is because before such final
rejection there is no real necessity for bringing suit.
and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151 [1968], holding
that:

Since "cause of action" requires as essential elements not only a legal right of the
plaintiff and a correlated obligation of the defendant in violation of the said legal right,
the cause of action does not accrue until the party obligated (surety) refuses,
expressly or impliedly, to comply with its duty (in this case to pay the amount of the
bond).
Indisputably, the above-cited pronouncements of this Court may be taken to mean that the insured's
cause of action or his right to file a claim either in the Insurance Commission or in a court of
competent jurisdiction commences from the time of the denial of his claim by the Insurer, either
expressly or impliedly.
But as pointed out by the petitioner insurance company, the rejection referred to should be construed
as the rejection, in the first instance, for if what is being referred to is a reiterated rejection conveyed
in a resolution of a petition for reconsideration, such should have been expressly stipulated.
Thus, to allow the filing of a motion for reconsideration to suspend the running of the prescriptive
period of twelve months, a whole new body of rules on the matter should be promulgated so as to
avoid any conflict that may be brought by it, such as:
a) whether the mere filing of a plea for reconsideration of a denial is sufficient or must
it be supported by arguments/affidavits/material evidence;
b) how many petitions for reconsideration should be permitted?
While in the Eagle Star case (96 Phil. 701), this Court uses the phrase "final rejection", the same
cannot be taken to mean the rejection of a petition for reconsideration as insisted by respondents.
Such was clearly not the meaning contemplated by this Court. The Insurance policy in said case
provides that the insured should file his claim, first, with the carrier and then with the insurer. The
"final rejection" being referred to in said case is the rejection by the insurance company.
PREMISES CONSIDERED, the questioned decision of the Court of Appeals is REVERSED and SET
ASIDE, and Civil Case No. 16817 filed with the Regional Trial Court is hereby DISMISSED.
SO ORDERED.
G.R. No. 103883 November 14, 1996
JACQUELINE JIMENEZ VDA. DE GABRIEL, petitioner,
vs.
HON. COURT OF APPEALS and FORTUNE INSURANCE & SURETY COMPANY,
INC., respondents.

VITUG, J.:

The petition for review on certiorari in this case seeks the reversal of the decision 1 of the Court of
Appeals setting aside the judgment of the Regional Trial Court of Manila, Branch 55, which has ordered
private respondent Fortune Insurance & Surety Company, Inc., to pay petitioner Jacqueline Jimenez vda.
de Gabriel, the surviving spouse and beneficiary in an accident (group) insurance of her deceased
husband, the amount of P100,000.00, plus legal interest.
Marcelino Gabriel, the insured, was employed by Emerald Construction & Development Corporation
("ECDC") at its construction project in Iraq. He was covered by a personal accident insurance in the
amount of P100,000.00 under a group policy 2 procured from private respondent by ECDC for its
overseas workers. The insured risk was for "(b)odily injury caused by violent accidental external and
visible means which injury (would) solely and independently of any other cause" 3 result in death or
disability.
On 22 May 1982, within the life of the policy, Gabriel died in Iraq. A year later, or on 12 July 1983,
ECDC reported Gabriel's death to private respondent by telephone. 4 Among the documents thereafter
submitted to private respondent were a copy of the death certificate 5 issued by the Ministry of Health of
the Republic of Iraq which stated
REASON OF DEATH: UNDER EXAMINATION NOW NOT YET KNOWN 6
and an autopsy report 7 of the National Bureau of Investigation ("NBI") to the effect that "(d)ue to
advanced state of postmortem decomposition, cause of death (could) not be
determined." 8 Private respondent referred the insurance claim to Mission Adjustment Service,
Inc.
Following a series of communications between petitioner and private respondent, the latter, on 22
September 1983, ultimately denied the claim of ECDC on the ground of prescription. 9 Petitioner went
to the Regional Trial Court of Manila. In her complaint against ECDC and private respondent, she averred
that her husband died of electrocution while in the performance of his work and prayed for the recovery of
P100,000.00 for insurance indemnification and of various other sums by way of actual, moral, and
exemplary damages, plus attorney's fees and costs of suit.
Private respondent filed its answer, which was not verified, admitting the genuineness and due
execution of the insurance policy; it alleged, however, that since both the death certificate issued by
the Iraqi Ministry of Health and the autopsy report of the NBI failed to disclose the cause of Gabriel's
death, it denied liability under the policy. In addition, private respondent raised the defense of
"prescription," invoking Section 384 10 of the Insurance Code. Later, private respondent filed an
amended answer, still unverified, reiterating its original defenses but, this time, additionally putting up a
counterclaim and a crossclaim.
The trial court dismissed the case against ECDC for the failure of petitioner to take steps to cause
the service of the fourth alias summons on ECDC. The dismissal was without prejudice.
The case proceeded against private respondent alone. On 28 May 1987, the trial court rendered its
decision 11 in favor (partly) of petitioner's claim. In arriving at its conclusion, the trial court held that private
respondent was deemed to have waived the defense, i.e., that the cause of Gabriel's death was not
covered by the policy, when the latter failed to impugn by evidence petitioner's averment on the matter.

With regard to the defense of prescription, the court considered the complaint to have been timely filed or
within one (1) year from private respondent's denial of the claim.

Petitioner and private respondent both appealed to the Court of Appeals. Petitioner contended that
the lower court should have awarded all the claims she had asked for. Private respondent asserted,
on its part, that the lower court erred in ruling (a) that the insurer had waived the defense that
Gabriel's death was not caused by the insured peril ("violent accidental external and visible means")
specified in the policy and (b) that the cause of action had not prescribed.
The Court of Appeals, on 18 September 1991, reversed the decision of the lower court. The
appellate court held that petitioner had failed to substantiate her allegation that her husband's death
was caused by a risk insured against. The appellate court observed that the only evidence
presented by petitioner, in her attempt to show the circumstances that led to the death of the
insured, were her own affidavit and a letter allegedly written by a co-worker of the deceased in Iraq
which, unfortunately for her, were held to be both
hearsay. 12
The motion for reconsideration was denied.

13

Petitioner's recourse to this Court must also fail.

On the issue of "prescription," private respondent correctly invoked Section 384 of the Insurance
Code; viz:
Sec. 384. 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 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 Commissioner or the Courts within one year from
denial of the claim, otherwise, the claimant's right of action shall prescribe.
The notice of death was given to private respondent, concededly, more than a year after the
death of petitioner's husband. Private respondent, in invoking prescription, was not referring
to the one-year period from the denial of the claim within which to file an action against an
insurer but obviously to the written notice of claim that had to be submitted within six months
from the time of the accident.
Petitioner argues that private respondent must be deemed to have waived its right to controvert the
claim, that is, to show that the cause of death is an excepted peril, by failing to have its answers (to
the Request for Admission sent by petitioner) duly verified. It is true that a matter of which a written
request for admission is made shall be deemed impliedly admitted "unless, within a period
designated in the request, which shall not be less than ten (10) days after service thereof, or within
such further time as the court may allow on motion and notice, the party to whom the request is
directed serves upon the party requesting the admission a sworn statement either denying

specifically the matters of which an admission is requested or setting forth in detail the reasons why
he cannot truthfully either admit or deny those matters;" 14 however, the verification, like in most cases
required by the rules of procedure, is a formal, not jurisdictional, requirement, and mainly intended to
secure an assurance that matters which are alleged are done in good faith or are true and correct and not
of mere speculation. When circumstances warrant, the court may simply order the correction of unverified
pleadings or act on it and waive strict compliance with the rules in order that the ends of justice may
thereby be served. 15 In the case of answers to written requests for admission particularly, the court can
allow the party making the admission, whether made expressly or deemed to have been made impliedly,
"to withdraw or amend it upon such terms as may be just." 16
The appellate court acted neither erroneously nor with grave abuse of discretion when it seconded
the court a quoand ruled:
As to the allegation of the plaintiff-appellant that the matters requested by her to be
admitted by the defendant-appellant under the Request for Admission were already
deemed admitted by the latter for its failure to answer it under oath, has already been
properly laid to rest when the lower court in its Order of May 28, 1987 correctly ruled:
At the outset, it must be stressed that the defendant indeed filed a
written answer to the request for admission, sans verification. The
case of Motor Service Co., Inc. vs. Yellow Taxicab Co., Inc., et al.
may not therefore be controlling, or actually opposite. In said case,
there was an absolute failure on the part of the defendant to answer
the request for admission, and thus the court was justified in
rendering a summary judgment. Here, however, as clearly intimated
elsewhere above, the defendant answered in writing practically every
question posed in the request for admission. The Court believes,
under the peculiar circumstance, that the more controlling
jurisprudence on the mater would be those cited by the defendant in
its memorandum, particularly the case of Quimpo vs. de la Victoria,
46 SCRA 139.
Prescinding from the foregoing, there is absolutely no basis in fact and in law for the
lower court to hold that the appellant insurance company was deemed to have
waived the defense, that the death of plaintiff-appellant's husband was not caused by
violent accidental external and visible means' as contemplated in the insurance
policy. The Death Certificate (Exh. 9) and the Autopsy Report (Exh. 10), more than
controverted the allegation of the plaintiff-appellant as to the cause of death of her
husband. 17
The insurance policy expressly provided that to be compensable, the injury or death should be
caused by "violent accidental external and visible means." In attempting to prove the cause of her
husband's death, all that petitioner could submit were a letter sent to her by her husband's coworker, stating that Gabriel died when he tried to haul water out of a tank while its submerged motor
was still functioning, 18 and petitioner's sinumpaang
salaysay 19 which merely confirmed the receipt and stated contents of the letter. Said the appellate court
in this regard:

. . . . It must be noted that the only evidence presented by her to prove the
circumstances surrounding her husband's death were her purported affidavit and the
letter allegedly written by the deceased co-worker in Iraq. The said affidavit however
suffers from procedural infirmity as it was not even testified to or identified by the
affiant (plaintiff-appellant) herself. This self-serving affidavit therefore is a mere
hearsay under the rules, . . . .
xxx xxx xxx
In like manner, the letter allegedly written by the deceased's co-worker which was
never identified to in court by the supposed author, suffers from the same defect as
the affidavit of the plaintiff-appellant. 20
Not one of the other documents submitted, to wit, the POEA decision, dated 06 June
1984, 21 the death certificate issued by the Ministry of Health of Iraq and the NBI autopsy
report, 22 could give any probative value to petitioner's claim. The POEA decision did not make
any categorical holding on the specific cause of Gabriel's death. Neither did the death certificate
issued by the health authorities in Iraq nor the NBI autopsy report provide any clue on the cause
of death. All that appeared to be clear was the fact of Gabriel's demise on 22 May 1982 in Iraq.
Evidence, in fine, is utterly wanting to establish that the insured suffered from an accidental death,
the risk covered by the policy. In an accident insurance, the insured's beneficiary has the burden of
proof in demonstrating that the cause of death is due to the covered peril. Once that fact is
established, the burden then shifts to the insurer to show any excepted peril that may have been
stipulated by the parties. An "accident insurance" is not thus to be likened to an ordinary life
insurance where the insured's death, regardless of the cause thereof, would normally be
compensable. The latter is akin in property insurance to an "all risk" coverage where the insured, on
the aspect of burden of proof, has merely to show the condition of the property insured when the
policy attaches and the fact of loss or damage during the period of the policy and where, thereafter,
the burden would be on the insurer to show any "excluded peril." When, however, the insured risk is
specified, like in the case before us, it lies with the claimant of the insurance proceeds to initially
prove that the loss is caused by the covered peril.
While petitioner did fail in substantiating her allegation that the death of her husband was due to an
accident, considering, however, the uncertainty on the real cause of death, private respondent might
find its way clear into still taking a second look on the matter and perhaps help ease the load of
petitioner's loss.
WHEREFORE, the decision appealed from is AFFIRMED. No costs.
SO ORDERED.
G.R. No. 105562 September 27, 1993
LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON, DINA LORENA AYO, CELIA
CALUMBAG and LUCIA LONTOK, petitioners,

vs.
HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE COMPANY,
LIMITED, respondents.
Mariano V. Ampil, Jr. for petitioners.
Ramon S. Caguiao for private respondent.

DAVIDE, JR., J.:

This is an appeal by certiorari to review and set aside the Decision of the public respondent Court of
Appeals in CA-G.R. SP No. 22950 1 and its Resolution denying the petitioners' motion for
reconsideration. 2 The challenged decision modified the decision of the Insurance Commission in IC Case
No. RD-058. 3
The petitioners were the complainants in IC Case No. RD-058, an administrative complaint against
private respondent Insular Life Assurance Company, Ltd. (hereinafter Insular Life), which was filed
with the Insurance Commission on 20 September 1989. 4 They prayed therein that after due
proceedings, Insular Life "be ordered to pay the claimants their insurance claims" and that "proper
sanctions/penalties be imposed on" it "for its deliberate, feckless violation of its contractual obligations to
the complainants, and of the Insurance Code." 5 Insular Life's motion to dismiss the complaint on the
ground that "the claims of complainants are all respectively beyond the jurisdiction of the Insurance
Commission as provided in Section 416 of the Insurance Code," 6 having been denied in the Order of 14
November 1989, 7 it filed its answer on 5 December 1989. 8 Thereafter, hearings were conducted on
various dates.
On 20 June 1990, the Commission rendered its decision 9 in favor of the complainants, the dispositive
portion of which reads as follows:
WHEREFORE, this Commission merely orders the respondent company to:
a) Pay a fine of FIVE HUNDRED PESOS (P500.00) a day from the receipt of a copy
of this Decision until actual payment thereof;
b) Pay and settle the claims of DINA AYO and LUCIA LONTOK, for P50,000.00 and
P40,000.00, respectively;
c) Notify henceforth it should notify individual beneficiaries designated under any
Group Policy, in the event of the death of insured(s), where the corresponding claims
are filed by the Policyholder;
d) Show cause within ten days why its other responsible officers who have handled
this case should not be subjected to disciplinary and other administrative sanctions
for deliberately releasing to Capt. Nuval the check intended for spouses ALARCON,

in the absence of any Special Power of Attorney for that matter, and for negligence
with respect to the release of the other five checks.
SO ORDERED. 10
In holding for the petitioners, the Insurance Commission made the following findings and
conclusions:
After taking into consideration the evidences [sic], testimonial and documentary for
the complainants and the respondent, the Commission finds that; First: The
respondent erred in appreciating that the powers of attorney executed by five (5) of
the several beneficiaries convey absolute authority to Capt. Nuval, to demand,
receive, receipt and take delivery of insurance proceeds from respondent Insular
Life. A cursory reading of the questioned powers of authority would disclosed [sic]
that they do not contain in unequivocal and clear terms authority to Capt. Nuval to
obtain, receive, receipt from respondent company insurance proceeds arising from
the death of the seaman-insured. On the contrary, the said powers of attorney are
couched in terms which could easily arouse suspicion of an ordinary
man. . . .
Second: The testimony of the complainants' rebuttal witness,
Mrs. Trinidad Alarcon, who declared in no uncertain terms that neither she nor her
husband, executed a special power of attorney in favor of Captain Rosendo Nuval,
authorizing him to claim, receive, receipt and take delivery of any insurance proceeds
from Insular Life arising out of the death of their insured/seaman son, is not
convincingly refuted.
Third: Respondent Insular Life did not observe Section 180 of the Insurance Code,
when it issued or released two checks in the amount of P150,000.00 for the three
minor children (P50,000.00 each) of complainant, Dina Ayo and another check of
P40,000.00 for minor beneficiary Marissa Lontok, daughter of another complainant
Lucia Lontok, there being no showing of any court authorization presented or the
requisite bond posted.
Section 180 is quotes [sic] partly as follows:
. . . In the absence of a judicial guardian, the father, or in the latter's
absence or incapacity, the mother of any minor, who is an insured or
a beneficiary under a contract of life, health or accident insurance,
may exercise, in behalf of said minor, any right, under the policy,
without necessity of court authority or the giving of a bond where the
interest of the minor in the particular act involved does not exceed
twenty thousand pesos . . . . 11
Insular Life appealed the decision to the public respondent which docketed the case as CA-G.R. SP
No. 22950. The appeal urged the appellate court to reverse the decision because the Insurance

Commission (a) had no jurisdiction over the case considering that the claims exceeded
P100,000.00,
(b) erred in holding that the powers of attorney relied upon by Insular Life were insufficient to convey
absolute authority to Capt. Nuval to demand, receive and take delivery of the insurance proceeds
pertaining to the petitioners, (c) erred in not giving credit to the version of Insular Life that the power
of attorney supposed to have been executed in favor of the Alarcons was missing, and
(d) erred in holding that Insular Life was liable for violating Section 180 of the Insurance Code for
having released to the surviving mothers the insurance proceeds pertaining to the beneficiaries who
were still minors despite the failure of the former to obtain a court authorization or to post a bond.
On 10 October 1991, the public respondent rendered a decision,

12

the decretal portion of which reads:

WHEREFORE, the decision appealed from is modified by eliminating therefrom the

award to Dina Ayo and Lucia Lontok in the amounts of P50,000.00 and P40,000.00,
respectively. 13
It found the following facts to have been duly established:
It appears that on 23 September 1983, Prime Marine Services, Inc. (PMSI, for
brevity), a crewing/manning outfit, procured Group PoIicy
No. G-004694 from respondent-appellant Insular Life Assurance Co., Ltd. to provide
life insurance coverage to its sea-based employees enrolled under the plan. On 17
February 1986, during the effectivity of the policy, six covered employees of the PMSI
perished at sea when their vessel, M/V Nemos, a Greek cargo vessel, sunk
somewhere in El Jadida, Morocco. They were survived by complainants-appellees,
the beneficiaries under the policy.
Following the tragic demise of their loved ones, complainants-appellees sought to
claim death benefits due them and, for this purpose, they approached the President
and General Manager of PMSI, Capt. Roberto Nuval. The latter evinced willingness
to assist complainants-appellees to recover Overseas Workers Welfare
Administration (OWWA) benefits from the POEA and to work for the increase of their
PANDIMAN and other benefits arising from the deaths of their husbands/sons. They
were thus made to execute, with the exception of the spouses Alarcon, special
powers of attorney authorizing Capt. Nuval to, among others, "follow up, ask,
demand, collect and receive" for their benefit indemnities of sums of money due
them relative to the sinking of M/V Nemos. By virtue of these written powers of
attorney, complainants-appellees were able to receive their respective death
benefits. Unknown to them, however, the PMSI, in its capacity as employer and
policyholder of the life insurance of its deceased workers, filed with respondentappellant formal claims for and in behalf of the beneficiaries, through its President,
Capt. Nuval. Among the documents submitted by the latter for the processing of the
claims were five special powers of attorney executed by complainants-appellees. On
the basis of these and other documents duly submitted, respondent-appellant drew
against its account with the Bank of the Philippine Islands on 27 May 1986 six (6)
checks, four for P200,00.00 each, one for P50,000.00 and another for P40,00.00,

payable to the order of complainants-appellees. These checks were released to the

treasurer of PMSI upon instructions of
Capt. Nuval over the phone to Mr. Mariano Urbano, Assistant Department Manager
for Group Administration Department of respondent-appellant. Capt. Nuval, upon
receipt of these checks from the treasurer, who happened to be his son-in-law,
endorsed and deposited them in his account with the Commercial Bank of Manila,
now Boston Bank.
On 3 July 1989, after complainants-appellees learned that they were entitled, as
beneficiaries, to life insurance benefits under a group policy with respondentappellant, they sought to recover these benefits from Insular Life but the latter denied
their claim on the ground that the liability to complainants-appellees was already
extinguished upon delivery to and receipt by PMSI of the six (6) checks issued in
their names. 14
On the basis thereof, the public respondent held that the Insurance Commission had jurisdiction over
the case on the ground that although some of the claims exceed P100,000.00, the petitioners had
asked for administrative sanctions against Insular Life which are within the Commission's jurisdiction
to grant; hence, "there was merely a misjoinder of causes of action . . . and, like misjoinder of
parties, it is not a ground for the dismissal of the action as it does not affect the other reliefs prayed
for." 15 It also rejected Insular Life's claim that the Alarcons had submitted a special power of attorney
which they (Insular Life) later misplaced.
On the other hand, the public respondent ruled that the powers of attorney, Exhibits "1" to "5," relied
upon by Insular Life were sufficient to authorize Capt. Nuval to receive the proceeds of the insurance
pertaining to the beneficiaries. It stated:
When the officers of respondent-appellant read these written powers, they must have
assumed Capt. Nuval indeed had authority to collect the insurance proceeds in
behalf of the beneficiaries who duly affixed their signatures therein. The written
power is specific enough to define the authority of the agent to collect any sum of
money pertaining to the sinking of the fatal vessel. Respondent-appellant interpreted
this power to include the collection of insurance proceeds in behalf of the
beneficiaries concerned. We believe this is a reasonable interpretation even by an
officer of respondent-appellant unschooled in the law. Had respondent appellant,
consulted its legal department it would not have received a contrary view. There is
nothing in the law which mandates a specific or special power of attorney to be
executed to collect insurance proceeds. Such authority is not included in the
enumeration of Art. 1878 of the New Civil Code. Neither do we perceive collection of
insurance claims as an act of strict dominion as to require a special power of
attorney. Moreover, respondent-appellant had no reason to doubt Capt. Nuval. Not
only was he armed with a seemingly genuine authorization, he also appeared to be
the proper person to deal with respondent-appellant being the President and General
Manager of the PMSI, the policyholder with whom respondent-appellant always
dealt. The fact that there was a verbal agreement between complainants-appellees
and Capt. Nuval limiting the authority of the latter to claiming specified death benefits

cannot prejudice the insurance company which relied on the terms of the powers of
attorney which on their face do not disclose such limitation. Under the circumstances,
it appearing that complainants-appellees have failed to point to a positive provision of
law or stipulation in the policy requiring a specific power of attorney to be presented,
respondents-appellant's reliance on the written powers was in order and it cannot be
penalized for such an act. 16
Insofar as the minor children of Dina Ayo and Lucia Lontok were concerned, it ruled that the
requirement in Section 180 of the Insurance Code which provides in part that:
In the absence of a judicial guardian, the father, or in the latter's absence or
incapacity, the mother, of any minor, who is an insured or a beneficiary under a
contract of life, health or accident insurance, may exercise, in behalf of said minor,
any right under the policy, without necessity of court authority or the giving of a bond,
where the interest of the minor in the particular act involved does not exceed twenty
thousand pesos. Such a right, may include, but shall not be limited to, obtaining a
policy loan, surrendering the policy, receiving the proceeds of the policy, and giving
the minor's consent to any transaction on the policy.
has been amended by the Family Code 17 which grants the father and mother joint legal
guardianship over the property of their unemancipated common child without the necessity of a
court appointment; however, when the market value of the property or the annual income of the
child exceeds P50,000.00, the parent concerned shall be required to put up a bond in such
amount as the court may determine.
Hence, this petition for review on certiorari which we gave due course after the private respondent
had filed the required comment thereon and the petitioners their reply to the comment.
We rule for the petitioners.
We have carefully examined the specific powers of attorney, Exhibits "1" to "5," which were executed
by petitioners Luz Pineda, Lucia B. Lontok, Dina Ayo, Celia Calumag, and Marilyn Montenegro,
respectively, on 14 May 1986 18and uniformly granted to Capt. Rosendo Nuval the following powers:
To follow-up, ask, demand, collect and receipt for my benefit indemnities or sum of
money due me relative to the sinking of M.V. NEMOS in the vicinity of El Jadida,
Casablanca, Morocco on the evening of February 17, 1986; and
To sign receipts, documents, pertinent waivers of indemnities or other writings of
whatsoever nature with any and all third persons, concerns and entities, upon terms
and conditions acceptable to my said attorney.
We agree with the Insurance Commission that the special powers of attorney "do not contain in
unequivocal and clear terms authority to Capt. Nuval to obtain, receive, receipt from respondent
company insurance proceeds arising from the death of the seaman-insured. On the contrary, the

said powers of attorney are couched in terms which could easily arouse suspicion of an ordinary
man." 19 The holding of the public respondent to the contrary is principally premised on its opinion that:
[t]here is nothing in the law which mandates a specific or special power of attorney to
be executed to collect insurance proceeds. Such authority is not included in the
enumeration of art. 1878 of the New Civil Code. Neither do we perceive collection of
insurance claims as an act of strict dominion as to require a special power of
attorney.
If this be so, then they could not have been meant to be a general power of attorney since
Exhibits "1" to "5" are special powers of attorney. The execution by the principals of special
powers of attorney, which clearly appeared to be in prepared forms and only had to be filled
up with their names, residences, dates of execution, dates of acknowledgment and others,
excludes any intent to grant a general power of attorney or to constitute a universal agency.
Being special powers of attorney, they must be strictly construed.
Certainly, it would be highly imprudent to read into the special powers of attorney in question the
power to collect and receive the insurance proceeds due the petitioners from Group Policy No. G004694. Insular Life knew that a power of attorney in favor of Capt. Nuval for the collection and
receipt of such proceeds was a deviation from its practice with respect to group policies. Such
practice was testified to by Mr. Marciano Urbano, Insular Life's Assistant Manager of the Group
Administrative Department, thus:
ATTY. CAGUIOA:
Can you explain to us why in this case, the claim was filed by a
certain Capt. Noval [sic]?
WITNESS:
a The practice of our company in claim pertaining to group insurance,
the policyholder is the one who files the claim for the beneficiaries of
the deceased. At that time, Capt. Noval [sic] is the President and
General Manager of Prime Marine.
q What is the reason why policyholders are the ones who file the
claim and not the designated beneficiaries of the employees of the
policyholders?
a Yes because group insurance is normally taken by the employer as
an employee-benefit program and as such, the benefit should be
awarded by the policyholder to make it appear that the benefit really
is given by the employer. 20
On cross-examination, Urbano further elaborated that even payments, among other things, are
coursed through the policyholder:

q What is the corporate concept of group insurance insofar as Insular

Life is concerned?
WITNESS:
a Group insurance is a contract where a group of individuals are
covered under one master contract. The individual underwriting
characteristics of each individual is not considered in the
determination of whether the individual is insurable or not. The
contract is between the policyholder and the insurance company. In
our case, it is Prime Marine and Insular Life. We do not have
contractual obligations with the individual employees; it is between
Prime Marine and Insular Life.
q And so it is part of that concept that all inquiries, follow-up, payment
of claims, premium billings, etc. should always be coursed thru the
policyholder?
a Yes that is our practice.
q And when you say claim payments should always be coursed thru
the policyholder, do you require a power of attorney to be presented
by the policyholder or not?
a Not necessarily.
q In other words, under a group insurance policy like the one in this
case, Insular Life could pay the claims to the policyholder himself
even without the presentation of any power of attorney from the
designated beneficiaries?
xxx xxx xxx
WITNESS:
a No. Sir.
ATTY. AMPIL:
q Why? Is this case, the present case different from the cases which
you answered that no power of attorney is necessary in claims
payments?
WITNESS:
a We did not pay Prime Marine; we paid the beneficiaries.

q Will you now tell the Honorable Commission why you did not pay
Prime Marine and instead paid the beneficiaries, the designated
beneficiaries?
xxx xxx xxx
ATTY. AMPIL:
I will rephrase the question.
q Will you tell the Commission what circumstances led you to pay the
designated beneficiaries, the complainants in this case, instead of the
policyholder when as you answered a while ago, it is your practice in
group insurance that claims payments, etc., are coursed thru the
policyholder?
WITNESS:
a It is coursed but, it is not paid to the policyholder.
q And so in this case, you gave the checks to the policyholder only
coursing them thru said policyholder?
a That is right, Sir.
q Not directly to the designated beneficiaries?
a Yes, Sir. 21
This practice is usual in the group insurance business and is consistent with the jurisprudence
thereon in the State of California from whose laws our Insurance Code has been mainly patterned
which holds that the employer-policyholder is the agent of the insurer.
Group insurance is a comparatively new form of insurance. In the United States, the first modern
group insurance policies appear to have been issued in 1911 by the Equitable Life Assurance
Society. 22 Group insurance is essentially a single insurance contract that provides coverage for many
individuals. In its original and most common form, group insurance provides life or health insurance
coverage for the employees of one employer.
The coverage terms for group insurance are usually stated in a master agreement or policy that is
issued by the insurer to a representative of the group or to an administrator of the insurance
program, such as an employer. 23The employer acts as a functionary in the collection and payment of
premiums and in performing related duties. Likewise falling within the ambit of administration of a group
policy is the disbursement of insurance payments by the employer to the employees. 24 Most policies,
such as the one in this case, require an employee to pay a portion of the premium, which the employer
deducts from wages while the remainder is paid by the employer. This is known as a contributory plan as
compared to a non-contributory plan where the premiums are solely paid by the employer.

Although the employer may be the titular or named insured, the insurance is actually related to the
life and health of the employee. Indeed, the employee is in the position of a real party to the master
policy, and even in a non-contributory plan, the payment by the employer of the entire premium is a
part of the total compensation paid for the services of the employee. 25 Put differently, the labor of the
employees is the true source of the benefits, which are a form of additional compensation to them.
It has been stated that every problem concerning group insurance presented to a court should be
approached with the purpose of giving to it every legitimate opportunity of becoming a social agency
of real consequence considering that the primary aim is to provide the employer with a means of
procuring insurance protection for his employees and their families at the lowest possible cost, and
in so doing, the employer creates goodwill with his employees, enables the employees to carry a
larger amount of insurance than they could otherwise, and helps to attract and hold a permanent
class of employees. 26
In Elfstrom vs. New York Life Insurance Company, 27 the California Supreme Court explicitly ruled that
in group insurance policies, the employer is the agent of the insurer. Thus:
We are convinced that the employer is the agent of the insurer in performing the
duties of administering group insurance policies. It cannot be said that the employer
acts entirely for its own benefit or for the benefit of its employees in undertaking
administrative functions. While a reduced premium may result if the employer
relieves the insurer of these tasks, and this, of course, is advantageous to both the
employer and the employees, the insurer also enjoys significant advantages from the
arrangement. The reduction in the premium which results from employeradministration permits the insurer to realize a larger volume of sales, and at the
same time the insurer's own administrative costs are markedly reduced.
xxx xxx xxx
The most persuasive rationale for adopting the view that the employer acts as the
agent of the insurer, however, is that the employee has no knowledge of or control
over the employer's actions in handling the policy or its administration. An agency
relationship is based upon consent by one person that another shall act in his behalf
and be subject to his control. It is clear from the evidence regarding procedural
techniques here that the insurer-employer relationship meets this agency test with
regard to the administration of the policy, whereas that between the employer and its
employees fails to reflect true agency. The insurer directs the performance of the
employer's administrative acts, and if these duties are not undertaken properly the
insurer is in a position to exercise more constricted control over the employer's
conduct.
In Neider vs. Continental Assurance Company, 28 which was cited in Elfstrom, it was held that:
[t]he employer owes to the employee the duty of good faith and due care in attending
to the policy, and that the employer should make clear to the employee anything
required of him to keep the policy in effect, and the time that the obligations are due.

In its position as administrator of the policy, we feel also that the employer should be
considered as the agent of the insurer, and any omission of duty to the employee in
its administration should be attributable to the insurer.
The ruling in Elfstrom was subsequently reiterated in the cases of Bass vs. John Hancock Mutual
Life Insurance Co. 29 and Metropolitan Life Insurance Co. vs. State Board of Equalization. 30
In the light of the above disquisitions and after an examination of the facts of this case, we hold that
PMSI, through its President and General Manager, Capt. Nuval, acted as the agent of Insular Life.
The latter is thus bound by the misconduct of its agent.
Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-fact of the petitioners.
Unfortunately, through its official, Mr. Urbano, it acted imprudently and negligently in the premises by
relying without question on the special power of attorney. In Strong vs. Repide, 31 this Court ruled that
it is among the established principles in the civil law of Europe as well as the common law of American
that third persons deal with agents at their peril and are bound to inquire as to the extent of the power of
the agent with whom they contract. And in Harry E. Keller Electric Co. vs. Rodriguez,32 this Court,
quoting Mechem on Agency, 33 stated that:
The person dealing with an agent must also act with ordinary prudence and
reasonable diligence. Obviously, if he knows or has good reason to believe that the
agent is exceeding his authority, he cannot claim protection. So if the suggestions of
probable limitations be of such a clear and reasonable quality, or if the character
assumed by the agent is of such a suspicious or unreasonable nature, or if the
authority which he seeks to exercise is of such an unusual or improbable character,
as would suffice to put an ordinarily prudent man upon his guard, the party dealing
with him may not shut his eyes to the real state of the case, but should either refuse
to deal with the agent at all, or should ascertain from the principal the true condition
of affairs. (emphasis supplied)
Even granting for the sake of argument that the special powers of attorney were in due form, Insular
Life was grossly negligent in delivering the checks, drawn in favor of the petitioners, to a party who is
not the agent mentioned in the special power of attorney.
Nor can we agree with the opinion of the public respondent that since the shares of the minors in the
insurance proceeds are less than P50,000.00, then under Article 225 of the Family Code their
mothers could receive such shares without need of either court appointments as guardian or the
posting of a bond. It is of the view that said Article had repealed the third paragraph of Section 180 of
the Insurance Code. 34 The pertinent portion of Article 225 of the Family Code reads as follows:
Art. 225. The father and the mother shall jointly exercise legal guardianship over the
property of their unemancipated common child without the necessity of a court
appointment. In case of disagreement, the father's decision shall prevail, unless
there is judicial order to the contrary.

Where the market value of the property or the annual income of the child exceeds
P50,000, the parent concerned shall be required to furnish a bond in such amount as
the court may determine, but not less than ten per centum (10%) of the value of the
property or annual income, to guarantee the performance of the obligations
prescribed for general guardians.
It is clear from the said Article that regardless of the value of the unemancipated common child's
property, the father and mother ipso jure become the legal guardian of the child's property. However,
if the market value of the property or the annual income of the child exceeds P50,000.00, a bond has
to be posted by the parents concerned to guarantee the performance of the obligations of a general
guardian.
It must, however, be noted that the second paragraph of Article 225 of the Family Code speaks of
the "market value of the property or the annual income of the child," which means, therefore, the
aggregate of the child's property or annual income; if this exceeds P50,000.00, a bond is required.
There is no evidence that the share of each of the minors in the proceeds of the group policy in
question is the minor's only property. Without such evidence, it would not be safe to conclude that,
indeed, that is his only property.
WHEREFORE, the instant petition is GRANTED. The Decision of
10 October 1991 and the Resolution of 19 May 1992 of the public respondent in CA-G.R. SP No.
22950 are SET ASIDE and the Decision of the Insurance Commission in IC Case No. RD-058 is
REINSTATED.
Costs against the private respondent.
SO ORDERED.
G.R. No. 113899 October 13, 1999
GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,
vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court, assails the Decision 1 dated May 17,
1993, of the Court of Appeals and its Resolution 2 dated January 4, 1994 in CA-G.R. CV No. 18341. The
appellate court affirmed in toto the judgment of the Misamis Oriental Regional Trial Court, Branch 18, in
an insurance claim filed by private respondent against Great Pacific Life Assurance Co. The dispositive
portion of the trial court's decision reads:
WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC LIFE
ASSURANCE CORPORATION as insurer under its Group policy No. G-1907, in
relation to Certification B-18558 liable and ordered to pay to the DEVELOPMENT
BANK OF THE PHILIPPINES as creditor of the insured Dr. Wilfredo Leuterio, the

amount of EIGHTY SIX THOUSAND TWO HUNDRED PESOS (P86,200.00);

dismissing the claims for damages, attorney's fees and litigation expenses in the
complaint and counterclaim, with costs against the defendant and dismissing the
complaint in respect to the plaintiffs, other than the widow-beneficiary, for lack of
cause of action. 3
The facts, as found by the Court of Appeals, are as follows:
A contract of group life insurance was executed between petitioner Great Pacific Life Assurance
Corporation (hereinafter Grepalife) and Development Bank of the Philippines (hereinafter DBP).
Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for
membership in the group life insurance plan. In an application form, Dr. Leuterio answered questions
concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart condition,
high blood pressure, cancer, diabetes, lung; kidney or stomach
disorder or any other physical impairment?
Answer: No. If so give details _____________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [x] Yes [ ] NO. 4
On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr.
Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two
hundred (P86,200.00) pesos.
1wphi1.nt

On August 6, 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP
submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not
physically healthy when he applied for an insurance coverage on November 15, 1983. Grepalife
insisted that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his
death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a
complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for
"Specific Performance with Damages." 5 During the trial, Dr. Hernando Mejia, who issued the death
certificate, was called to testify. Dr. Mejia's findings, based partly from the information given by the
respondent widow, stated that Dr. Leuterio complained of headaches presumably due to high blood
pressure. The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes
were not ruled out.

On February 22, 1988, the trial court rendered a decision in favor of respondent widow and against
Grepalife. On May 17, 1993, the Court of Appeals sustained the trial court's decision. Hence, the
present petition. Petitioners interposed the following assigned errors:
1. THE LOWER COURT ERRED IN HOLDING DEFENDANTAPPELLANT LIABLE TO THE DEVELOPMENT BANK OF THE
PHILIPPINES (DBP) WHICH IS NOT A PARTY TO THE CASE FOR
PAYMENT OF THE PROCEEDS OF A MORTGAGE REDEMPTION
INSURANCE ON THE LIFE OF PLAINTIFF'S HUSBAND WILFREDO
LEUTERIO ONE OF ITS LOAN BORROWERS, INSTEAD OF
DISMISSING THE CASE AGAINST DEFENDANT-APPELLANT
[Petitioner Grepalife] FOR LACK OF CAUSE OF ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE
FOR WANT OF JURISDICTION OVER THE SUBJECT OR NATURE
OF THE ACTION AND OVER THE PERSON OF THE DEFENDANT.
3. THE LOWER COURT ERRED IN ORDERING DEFENDANTAPPELLANT TO PAY TO DBP THE AMOUNT OF P86,200.00 IN THE
ABSENCE OF ANY EVIDENCE TO SHOW HOW MUCH WAS THE
ACTUAL AMOUNT PAYABLE TO DBP IN ACCORDANCE WITH ITS
GROUP INSURANCE CONTRACT WITH DEFENDANTAPPELLANT.
4. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS
NO CONCEALMENT OF MATERIAL INFORMATION ON THE PART
OF WILFREDO LEUTERIO IN HIS APPLICATION FOR
MEMBERSHIP IN THE GROUP LIFE INSURANCE PLAN BETWEEN
DEFENDANT-APPELLANT OF THE INSURANCE CLAIM ARISING
FROM THE DEATH OF WILFREDO LEUTERIO. 6
Synthesized below are the assigned errors for our resolution:
1. Whether the Court of Appeals erred in holding petitioner liable to
DBP as beneficiary in a group life insurance contract from a
complaint filed by the widow of the decedent/mortgagor?
2. Whether the Court of Appeals erred in not finding that Dr. Leuterio
concealed that he had hypertension, which would vitiate the
insurance contract?
3. Whether the Court of Appeals erred in holding Grepalife liable in
the amount of eighty six thousand, two hundred (P86,200.00) pesos
without proof of the actual outstanding mortgage payable by the
mortgagor to DBP.

Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in
interest, hence the trial court acquired no jurisdiction over the case. It argues that when the Court of
Appeals affirmed the trial court's judgment, Grepalife was held liable to pay the proceeds of
insurance contract in favor of DBP, the indispensable party who was not joined in the suit.
To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties
to this type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as
the "mortgage redemption insurance," is a device for the protection of both the mortgagee and the
mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the
event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract,
the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby
relieving the heirs of the mortgagor from paying the obligation. 7 In a similar vein, ample protection is
given to the mortgagor under such a concept so that in the event of death; the mortgage obligation will be
extinguished by the application of the insurance proceeds to the mortgage indebtedness. 8 Consequently,
where the mortgagor pays the insurance premium under the group insurance policy, making the loss
payable to the mortgagee, the insurance is on the mortgagor's interest, and the mortgagor continues to
be a party to the contract. In this type of policy insurance, the mortgagee is simply an appointee of the
insurance fund, such loss-payable clause does not make the mortgagee a party to the contract. 9
Sec. 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property effects insurance in his
own name providing that the loss shall be payable to the mortgagee, or assigns a
policy of insurance to a mortgagee, the insurance is deemed to be upon the interest
of the mortgagor, who does not cease to be a party to the original contract, and any
act of his, prior to the loss, which would otherwise avoid the insurance, will have the
same effect, although the property is in the hands of the mortgagee, but any act
which, under the contract of insurance, is to be performed by the mortgagor, may be
performed by the mortgagee therein named, with the same effect as if it had been
performed by the mortgagor.
The insured private respondent did not cede to the mortgagee all his rights or interests in the
insurance, the policy stating that: "In the event of the debtor's death before his indebtedness with the
Creditor [DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall first
be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the
beneficiary/ies designated by the debtor." 10 When DBP submitted the insurance claim against
petitioner, the latter denied payment thereof, interposing the defense of concealment committed by the
insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of
foreclosure on the residential lot of private respondent. 11 In Gonzales La O vs. Yek Tong Lin Fire &
Marine Ins. Co. 12 we held:
Insured, being the person with whom the contract was made, is primarily the proper
person to bring suit thereon. * * * Subject to some exceptions, insured may thus sue,
although the policy is taken wholly or in part for the benefit of another person named
or unnamed, and although it is expressly made payable to another as his interest
may appear or otherwise. * * * Although a policy issued to a mortgagor is taken out
for the benefit of the mortgagee and is made payable to him, yet the mortgagor may

sue thereon in his own name, especially where the mortgagee's interest is less than
the full amount recoverable under the policy, * * *.
And in volume 33, page 82, of the same work, we read the following:
Insured may be regarded as the real party in interest, although he has assigned the
policy for the purpose of collection, or has assigned as collateral security any
judgment he may obtain. 13
And since a policy of insurance upon life or health may pass by transfer, will or succession to any
person, whether he has an insurable interest or not, and such person may recover it whatever the
insured might have recovered,14 the widow of the decedent Dr. Leuterio may file the suit against the
insurer, Grepalife.
The second assigned error refers to an alleged concealment that the petitioner interposed as its
defense to annul the insurance contract. Petitioner contends that Dr. Leuterio failed to disclose that
he had hypertension, which might have caused his death. Concealment exists where the assured
had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he
should communicate it to the assured, but he designedly and intentionally withholds the same. 15
Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as
supported by the information given by the widow of the decedent. Grepalife asserts that Dr. Mejia's
technical diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital record, and
that the widow's declaration that her husband had "possible hypertension several years ago" should
not be considered as hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an
autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated that he had no
knowledge of Dr. Leuterio's any previous hospital confinement. 16 Dr. Leuterio's death certificate stated
that hypertension was only "the possible cause of death." The private respondent's statement, as to the
medical history of her husband, was due to her unreliable recollection of events. Hence, the statement of
the physician was properly considered by the trial court as hearsay.
The question of whether there was concealment was aptly answered by the appellate court, thus:
The insured, Dr. Leuterio, had answered in his insurance application that he was in
good health and that he had not consulted a doctor or any of the enumerated
ailments, including hypertension; when he died the attending physician had certified
in the death certificate that the former died of cerebral hemorrhage, probably
secondary to hypertension. From this report, the appellant insurance company
refused to pay the insurance claim. Appellant alleged that the insured had concealed
the fact that he had hypertension.
Contrary to appellant's allegations, there was no sufficient proof that the insured had
suffered from hypertension. Aside from the statement of the insured's widow who
was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the

appellant had not proven nor produced any witness who could attest to Dr. Leuterio's
medical history . . .
xxx xxx xxx
Appellant insurance company had failed to establish that there was concealment
made by the insured, hence, it cannot refuse payment of the claim. 17
The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind
the contract.18 Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and
the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. 19 In
the case at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore
liable to pay the proceeds of the insurance.
1wphi1.nt

And that brings us to the last point in the review of the case at bar. Petitioner claims that there was
no evidence as to the amount of Dr. Leuterio's outstanding indebtedness to DBP at the time of the
mortgagor's death. Hence, for private respondent's failure to establish the same, the action for
specific performance should be dismissed. Petitioner's claim is without merit. A life insurance policy
is a valued policy. 20 Unless the interest of a person insured is susceptible of exact pecuniary
measurement, the measure of indemnity under a policy of insurance upon life or health is the sum fixed in
the policy. 21 The mortgagor paid the premium according to the coverage of his insurance, which states
that:
The policy states that upon receipt of due proof of the Debtor's death during the
terms of this insurance, a death benefit in the amount of P86,200.00 shall be paid.
In the event of the debtor's death before his indebtedness with the creditor shall have
been fully paid, an amount to pay the outstanding indebtedness shall first be paid to
the Creditor and the balance of the Sum Assured, if there is any shall then be paid to
the beneficiary/ies designated by the debtor."22 (Emphasis omitted)
However, we noted that the Court of Appeals' decision was promulgated on May 17, 1993. In private
respondent's memorandum, she states that DBP foreclosed in 1995 their residential lot, in
satisfaction of mortgagor's outstanding loan. Considering this supervening event, the insurance
proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries. Equity
dictates that DBP should not unjustly enrich itself at the expense of another (Nemo cum alterius
detrimenio protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed on
the mortgage. The proceeds now rightly belong to Dr. Leuterio's heirs represented by his widow,
herein private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court of Appeals
in CA-G.R. CV 18341 is AFFIRMED with MODIFICATION that the petitioner is ORDERED to pay the
insurance proceeds amounting to Eighty-six thousand, two hundred (P86,200.00) pesos to the heirs
of the insured, Dr. Wilfredo Leuterio (deceased), upon presentation of proof of prior settlement of
mortgagor's indebtedness to Development Bank of the Philippines. Costs against petitioner.
1wphi1.nt

SO ORDERED.

G.R. No. L-25579 March 29, 1972

EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN, GIL T. BIAGTAN and
GRACIA T. BIAGTAN,plaintiffs-appellees,
vs.
THE INSULAR LIFE ASSURANCE COMPANY, LTD., defendant-appellant.
Tanopo, Millora, Serafica, and Saez for plaintiff-appellees.
Araneta, Mendoza and Papa for defendant-appellant.

MAKALINTAL, J.:p
This is an appeal from the decision of the Court of First Instance of Pangasinan in its Civil Case No.
D-1700.
The facts are stipulated. Juan S. Biagtan was insured with defendant InsularLife Assurance
Company under Policy No. 398075 for the sum of P5,000.00 and, under a supplementary contract
denominated "Accidental Death Benefit Clause, for an additional sum of P5,000.00 if "the death of
the Insured resulted directly from bodily injury effected solely through external and violent means
sustained in an accident ... and independently of all other causes." The clause, however,expressly
provided that it would not apply where death resulted from an injury"intentionally inflicted by another
party."
On the night of May 20, 1964, or during the first hours of the following day a band of robbers entered
the house of the insured Juan S. Biagtan. What happened then is related in the decision of the trial
court as follows:
...; that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said
life policy and supplementary contract were in full force and effect, the house of
insured Juan S. Biagtan was robbed by a band of robbers who were charged in and
convicted by the Court of First Instance of Pangasinan for robbery with homicide; that
in committing the robbery, the robbers, on reaching the staircase landing on the
second floor, rushed towards the door of the second floor room, where they suddenly
met a person near the door of oneof the rooms who turned out to be the insured
Juan S. Biagtan who received thrusts from their sharp-pointed instruments, causing
wounds on the body of said Juan S. Biagtan resulting in his death at about 7 a.m. on
the same day, May 21, 1964;
Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance company paid
the basic amount of P5,000.00 but refused to pay the additional sum of P5,000.00 under the
accidental death benefit clause, on the ground that the insured's death resulted from injuries
intentionally inflicted by third parties and therefore was not covered. Plaintiffs filed suit to recover,

and after due hearing the court a quo rendered judgment in their favor. Hence the present appeal by
the insurer.
The only issue here is whether under the facts are stipulated and found by the trial court the wounds
received by the insured at the hands of the robbers nine in all, five of them mortal and four nonmortal were inflicted intentionally. The court, in ruling negatively on the issue, stated that since the
parties presented no evidence and submitted the case upon stipulation, there was no "proof that the
act of receiving thrust (sic) from the sharp-pointed instrument of the robbers was intended to inflict
injuries upon the person of the insured or any other person or merely to scare away any person so
as to ward off any resistance or obstacle that might be offered in the pursuit of their main objective
which was robbery."
The trial court committed a plain error in drawing the conclusion it did from the admitted facts. Nine
wounds were inflicted upon the deceased, all by means of thrusts with sharp-pointed instruments
wielded by the robbers. This is a physical fact as to which there is no dispute. So is the fact that five
of those wounds caused the death of the insured. Whether the robbers had the intent to kill or
merely to scare the victim or to ward off any defense he might offer, it cannot be denied that the act
itself of inflicting the injuries was intentional. It should be noted that the exception in the accidental
benefit clause invoked by the appellant does not speak of the purpose whether homicidal or not
of a third party in causing the injuries, but only of the fact that such injuries have been
"intentionally" inflicted this obviously to distinguish them from injuries which, although received at
the hands of a third party, are purely accidental. This construction is the basic idea expressed in the
coverage of the clause itself, namely, that "the death of the insured resulted directly from bodily
injury effected solely through external and violent means sustained in an accident ... and
independently of all other causes." A gun which discharges while being cleaned and kills a
bystander; a hunter who shoots at his prey and hits a person instead; an athlete in a competitive
game involving physical effort who collides with an opponent and fatally injures him as a result:
these are instances where the infliction of the injury is unintentional and therefore would be within
the coverage of an accidental death benefit clause such as thatin question in this case. But where a
gang of robbers enter a house and coming face to face with the owner, even if unexpectedly, stab
him repeatedly, it is contrary to all reason and logic to say that his injuries are not intentionally
inflicted, regardless of whether they prove fatal or not. As it was, in the present case they did prove
fatal, and the robbers have been accused and convicted of the crime of robbery with homicide.
The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the trial court in support of
its decision. The facts in that case, however, are different from those obtaining here. The insured
there was a watchman in a certain company, who happened to be invited by a policeman to come
along as the latter was on his way to investigate a reported robbery going on in a private house. As
the two of them, together with the owner of the house, approached and stood in front of the main
gate, a shot was fired and it turned out afterwards that the watchman was hit in the abdomen, the
wound causing his death. Under those circumstances this Court held that it could not be said that
the killing was intentional for there was the possibility that the malefactor had fired the shot to scare
people around for his own protection and not necessarrily to kill or hit the victim. A similar possibility
is clearly ruled out by the facts in the case now before Us. For while a single shot fired from a
distance, and by a person who was not even seen aiming at the victim, could indeed have been fired
without intent to kill or injure, nine wounds inflicted with bladed weapons at close range cannot

conceivably be considered as innocent insofar as such intent is concerned. The manner of execution
of the crime permits no other conclusion.
Court decisions in the American jurisdiction, where similar provisions in accidental death benefit
clauses in insurance policies have been construed, may shed light on the issue before Us. Thus, it
has been held that "intentional" as used in an accident policy excepting intentional injuries inflicted
by the insured or any other person, etc., implies the exercise of the reasoning faculties,
consciousness and volition. 1 Where a provision of the policy excludes intentional injury, it is the intention
of the person inflicting the injury that is controlling. 2 If the injuries suffered by the insured clearly resulted
from the intentional act of a third person the insurer is relieved from liability as stipulated. 3
In the case of Hutchcraft's Ex'r v. Travelers' Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am. St. Rep. 484,
the insured was waylaid and assassinated for the purpose of robbery. Two (2) defenses were
interposed to the action to recover indemnity, namely: (1) that the insured having been killed by
intentional means, his death was not accidental, and (2) that the proviso in the policy expressly
exempted the insurer from liability in case the insured died from injuries intentionally inflicted by
another person. In rendering judgment for the insurance company the Court held that while the
assassination of the insured was as to him an unforeseen event and therefore accidental, "the
clause of the proviso that excludes the (insurer's) liability, in case death or injury is intentionally
inflicted by another person, applies to this case."
In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811, the insured was
shot three times by a person unknown late on a dark and stormy night, while working in the coal
shed of a railroad company. The policy did not cover death resulting from "intentional injuries inflicted
by the insured or any other person." The inquiry was as to the question whether the shooting that
caused the insured's death was accidental or intentional; and the Court found that under the facts,
showing that the murderer knew his victim and that he fired with intent to kill, there could be no
recovery under the policy which excepted death from intentional injuries inflicted by any person.
WHEREFORE, the decision appealed from is reversed and the complaint dismissed, without
pronouncement as to costs.
Zaldivar, Castro, Fernando and Villamor, JJ., concur.
G.R. No. 167330

June 12, 2008

PHILIPPINE HEALTH CARE PROVIDERS, INC., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
CORONA, J.:
Is a health care agreement in the nature of an insurance contract and therefore subject to the
documentary stamp tax (DST) imposed under Section 185 of Republic Act 8424 (Tax Code of
1997)?

This is an issue of first impression. The Court of Appeals (CA) answered it affirmatively in its August
16, 2004 decision1 in CA-G.R. SP No. 70479. Petitioner Philippine Health Care Providers, Inc.
believes otherwise and assails the CA decision in this petition for review under Rule 45 of the Rules
of Court.
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and
operate a prepaid group practice health care delivery system or a health maintenance organization
to take care of the sick and disabled persons enrolled in the health care plan and to provide for the
administrative, legal, and financial responsibilities of the organization." 2 Individuals enrolled in its
health care programs pay an annual membership fee and are entitled to various preventive,
diagnostic and curative medical services provided by its duly licensed physicians, specialists and
other professional technical staff participating in the group practice health delivery system at a
hospital or clinic owned, operated or accredited by it.3
The pertinent part of petitioner's membership or health care agreement 4 provides:
VII BENEFITS
Subject to paragraphs VIII [on pre-existing medical condition] and X [on claims for
reimbursement] of this Agreement, Members shall have the following Benefits under this
Agreement:
In-Patient Services. In the event that a Member contract[s] sickness or suffers injury which
requires confinement in a participating Hospital[,] the services or benefits stated below shall
be provided to the Member free of charge, but in no case shall [petitioner] be liable to pay
more than P75,000.00 in benefits with respect to anyone sickness, injury or related causes.
If a member has exhausted such maximum benefits with respect to a particular sickness,
injury or related causes, all accounts in excess of P75,000.00 shall be borne by the enrollee.
It is[,] however, understood that the payment by [petitioner] of the said maximum in In-Patient
Benefits to any one member shall preclude a subsequent payment of benefits to such
member in respect of an unrelated sickness, injury or related causes happening during the
remainder of his membership term.
(a) Room and Board
(b) Services of physician and/or surgeon or specialist
(c) Use of operating room and recovery room
(d) Standard Nursing Services
(e) Drugs and Medication for use in the hospital except those which are used to
dissolve blood clots in the vascular systems (i.e., trombolytic agents)
(f) Anesthesia and its administration
(g) Dressings, plaster casts and other miscellaneous supplies
(h) Laboratory tests, x-rays and other necessary diagnostic services
(i) Transfusion of blood and other blood elements

Condition for in-Patient Care. The provision of the services or benefits mentioned in the
immediately preceding paragraph shall be subject to the following conditions:
(a) The Hospital Confinement must be approved by [petitioner's] Physician,
Participating Physician or [petitioner's] Medical Coordinator in that Hospital prior to
confinement.
(b) The confinement shall be in a Participating Hospital and the accommodation shall
be in accordance with the Member[']s benefit classification.
(c) Professional services shall be provided only by the [petitioner's] Physicians or
Participating Physicians.
(d) If discharge from the Hospital has been authorized by [petitioner's] attending
Physician or Participating Physician and the Member shall fail or refuse to do so,
[petitioner] shall not be responsible for any charges incurred after discharge has
been authorized.
Out-Patient Services. A Member is entitled free of charge to the following services or
benefits which shall be rendered or administered either in [petitioner's] Clinic or in a
Participating Hospital under the direction or supervision of [petitioner's] Physician,
Participating Physician or [petitioner's] Medical Coordinator.
(a) Gold Plan Standard Annual Physical Examination on the anniversary date of
membership, to be done at [petitioner's] designated hospital/clinic, to wit:
(i) Taking a medical history
(ii) Physical examination
(iii) Chest x-ray
(iv) Stool examination
(v) Complete Blood Count
(vi) Urinalysis
(vii) Fasting Blood Sugar (FBS)
(viii) SGPT
(ix) Creatinine
(x) Uric Acid
(xi) Resting Electrocardiogram
(xii) Pap Smear (Optional for women 40 years and above)

(b) Platinum Family Plan/Gold Family Plan and Silver Annual Physical Examination.
The following tests are to be done as part of the Member[']s Annual check-up
program at [petitioner's] designated clinic, to wit:
1) Routine Physical Examination
2) CBC (Complete Blood Count)
* Hemoglobin * Hematocrit
* Differential * RBC/WBC
3) Chest X-ray
4) Urinalysis
5) Fecalysis
(c) Preventive Health Care, which shall include:
(i) Periodic Monitoring of Health Problems
(ii) Family planning counseling
(iii) Consultation and advices on diet, exercise and other healthy habits
(iv) Immunization but excluding drugs for vaccines used
(d) Out-Patient Care, which shall include:
(i) Consultation, including specialist evaluation
(ii) Treatment of injury or illness
(iii) Necessary x-ray and laboratory examination
(iv) Emergency medicines needed for the immediate
relief of symptoms
(v) Minor surgery not requiring confinement
Emergency Care. Subject to the conditions and limitations in this Agreement and those
specified below, a Member is entitled to receive emergency care [in case of emergency. For
this purpose, all hospitals and all attending physician(s) in the Emergency Room
automatically become accredited. In participating hospitals, the member shall be entitled to
the following services free of charge: (a) doctor's fees, (b) emergency room fees, (c)
medicines used for immediate relief and during treatment, (d) oxygen, intravenous fluids and
whole blood and human blood products, (e) dressings, casts and sutures and (f) x-rays,

laboratory and diagnostic examinations and other medical services related to the emergency
treatment of the patient.]5 Provided, however, that in no case shall the total amount payable
by [petitioner] for said Emergency, inclusive of hospital bill and professional fees, exceed
P75,000.00.
If the Member received care in a non-participating hospital, [petitioner] shall reimburse
[him]6 80% of the hospital bill or the amount of P5,000.00[,] whichever is lesser, and 50% of
the professional fees of non-participating physicians based on [petitioner's] schedule of fees
provided that the total amount[,] inclusive of hospital bills and professional fee shall not
exceed P5,000.00.
On January 27, 2000, respondent Commissioner of Internal Revenue sent petitioner a formal
demand letter and the corresponding assessment notices demanding the payment of deficiency
taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total amount
of P224,702,641.18. The assessment represented the following:

Value Added Tax (VAT)

1996

1997

45,767,596.23

DST

54,738,434.03

100,506,030.26

55,746,352.19

68,450,258.73

124,196,610.92

The deficiency DST assessment was imposed on petitioner's health care agreement with the
members of its health care program pursuant to Section 185 of the 1997 Tax Code which provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. - On all policies of
insurance or bonds or obligations of the nature of indemnity for loss, damage, or
liability made or renewed by any person, association or company or corporation
transacting the business of accident, fidelity, employer's liability, plate, glass, steam boiler,
burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine,
inland, and fire insurance), and all bonds, undertakings, or recognizances, conditioned for
the performance of the duties of any office or position, for the doing or not doing of anything
therein specified, and on all obligations guaranteeing the validity or legality of any bond or
other obligations issued by any province, city, municipality, or other public body or
organization, and on all obligations guaranteeing the title to any real estate, or guaranteeing
any mercantile credits, which may be made or renewed by any such person, company or
corporation, there shall be collected a documentary stamp tax of fifty centavos (P0.50) on
each four pesos (P4.00), or fractional part thereof, of the premium charged. (emphasis
supplied)
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act
on the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the
cancellation of the deficiency VAT and DST assessments.

On April 5, 2002, the CTA rendered a decision,7 the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY
GRANTED. Petitioner is hereby ORDERED to PAY the deficiency VAT amounting
to P22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20, 1997 until
fully paid for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge plus
20% interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly,
VAT Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997
deficiency DST assessment against petitioner is hereby CANCELLED AND SET ASIDE.
Respondent is ORDERED to DESIST from collecting the said DST deficiency tax.
SO ORDERED.8
Respondent appealed the CTA decision to the CA9 insofar as it cancelled the DST assessment. He
claimed that petitioner's health care agreement was a contract of insurance subject to DST under
Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision.10 It held that petitioner's health care agreement
was in the nature of a non-life insurance contract subject to DST:
WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax
Appeals, insofar as it cancelled and set aside the 1996 and 1997 deficiency documentary
stamp tax assessment and ordered petitioner to desist from collecting the same is
REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as
deficiency Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for
late payment and 20% interest per annum from January 27, 2000, pursuant to Sections 248
and 249 of the Tax Code, until the same shall have been fully paid.
SO ORDERED.11
Petitioner moved for reconsideration but the CA denied it. Hence, this petition.
Petitioner essentially argues that its health care agreement is not a contract of insurance but a
contract for the provision on a prepaid basis of medical services, including medical check-up, that
are not based on loss or damage. Petitioner also insists that it is not engaged in the insurance
business. It is a health maintenance organization regulated by the Department of Health, not an
insurance company under the jurisdiction of the Insurance Commission. For these reasons,
petitioner asserts that the health care agreement is not subject to DST.
We do not agree.
The DST is levied on the exercise by persons of certain privileges conferred by law for the creation,
revision, or termination of specific legal relationships through the execution of specific
instruments.12 It is an excise upon the privilege, opportunity, or facility offered at exchanges for the
transaction of the business.13 In particular, the DST under Section 185 of the 1997 Tax Code is
imposed on the privilege of making or renewing any policy of insurance (except life, marine,
inland and fire insurance), bond or obligation in the nature of indemnity for loss, damage, or
liability.

Under the law, a contract of insurance is an agreement whereby one undertakes for a consideration
to indemnify another against loss, damage or liability arising from an unknown or contingent
event.14 The event insured against must be designated in the contract and must either be unknown
or contingent.15
Petitioner's health care agreement is primarily a contract of indemnity. And in the recent case of Blue
Cross Healthcare, Inc. v. Olivares,16 this Court ruled that a health care agreement is in the nature of a
non-life insurance policy.
Contrary to petitioner's claim, its health care agreement is not a contract for the provision of medical
services. Petitioner does not actually provide medical or hospital services but merely arranges for
the same17 and pays for them up to the stipulated maximum amount of coverage. It is also incorrect
to say that the health care agreement is not based on loss or damage because, under the said
agreement, petitioner assumes the liability and indemnifies its member for hospital, medical and
related expenses (such as professional fees of physicians). The term "loss or damage" is broad
enough to cover the monetary expense or liability a member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and professional services to the
member in case of sickness, injury or emergency or his availment of so-called "out-patient services"
(including physical examination, x-ray and laboratory tests, medical consultations, vaccine
administration and family planning counseling) is the contingent event which gives rise to liability on
the part of the member. In case of exposure of the member to liability, he would be entitled to
indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses
arising from the stipulated contingencies belies its claim that its services are prepaid. The expenses
to be incurred by each member cannot be predicted beforehand, if they can be predicted at all.
Petitioner assumes the risk of paying for the costs of the services even if they are significantly and
substantially more than what the member has "prepaid." Petitioner does not bear the costs alone but
distributes or spreads them out among a large group of persons bearing a similar risk, that is, among
all the other members of the health care program. This is insurance.
Petitioner's health care agreement is substantially similar to that involved in Philamcare Health
Systems, Inc. v. CA.18 The health care agreement in that case entitled the subscriber to avail of the
hospitalization benefits, whether ordinary or emergency, listed therein. It also provided for "outpatient benefits" such as annual physical examinations, preventive health care and other out-patient
services. This Court ruled in Philamcare Health Systems, Inc.:
[T]he insurable interest of [the subscriber] in obtaining the health care agreement was his
own health. The health care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity. Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingency, the health care
provider must pay for the same to the extent agreed upon under the contract. 19 (emphasis
supplied)
Similarly, the insurable interest of every member of petitioner's health care program in obtaining the
health care agreement is his own health. Under the agreement, petitioner is bound to indemnify any
member who incurs hospital, medical or any other expense arising from sickness, injury or other
stipulated contingency to the extent agreed upon under the contract.

Petitioner's contention that it is a health maintenance organization and not an insurance company is
irrelevant. Contracts between companies like petitioner and the beneficiaries under their plans are
treated as insurance contracts.20
Moreover, DST is not a tax on the business transacted but an excise on the privilege, opportunity, or
facility offered at exchanges for the transaction of the business. 21 It is an excise on the facilities
used in the transaction of the business, separate and apart from the business itself.22
WHEREFORE, the petition is hereby DENIED. The August 16, 2004 decision of the Court of Appeals
in CA-G.R. SP No. 70479 is AFFIRMED.
Petitioner is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency
documentary stamp tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and
20% interest per annum from January 27, 2000 until full payment thereof.
Costs against petitioner.
SO ORDERED.
G.R. No. 115278 May 23, 1995
FORTUNE INSURANCE AND SURETY CO., INC., petitioner,
vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.

DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is
liable under the Money, Security, and Payroll Robbery policy it issued to the private respondent or
whether recovery thereunder is precluded under the general exceptions clause thereof. Both the trial
court and the Court of Appeals held that there should be recovery. The petitioner contends
otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by
private respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner
Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum
of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during a robbery of
Producer's armored vehicle while it was in transit to transfer the money from its Pasay City Branch to
its head office in Makati. The case was docketed as Civil Case No. 1817 and assigned to Branch
146 thereof.
After joinder of issues, the parties asked the trial court to render judgment based on the following
stipulation of facts:

1. The plaintiff was insured by the defendants and an insurance

policy was issued, the duplicate original of which is hereto attached
as Exhibit "A";
2. An armored car of the plaintiff, while in the process of transferring
cash in the sum of P725,000.00 under the custody of its teller,
Maribeth Alampay, from its Pasay Branch to its Head Office at 8737
Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was
robbed of the said cash. The robbery took place while the armored
car was traveling along Taft Avenue in Pasay City;
3. The said armored car was driven by Benjamin Magalong Y de
Vera, escorted by Security Guard Saturnino Atiga Y Rosete. Driver
Magalong was assigned by PRC Management Systems with the
plaintiff by virtue of an Agreement executed on August 7, 1983, a
duplicate original copy of which is hereto attached as Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn Security
Services, Inc. with the plaintiff by virtue of a contract of Security
Service executed on October 25, 1982, a duplicate original copy of
which is hereto attached as Exhibit "C";
5. After an investigation conducted by the Pasay police authorities,
the driver Magalong and guard Atiga were charged, together with
Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with
violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of
Pasay City. A copy of the complaint is hereto attached as Exhibit "D";
6. The Fiscal of Pasay City then filed an information charging the
aforesaid persons with the said crime before Branch 112 of the
Regional Trial Court of Pasay City. A copy of the said information is
hereto attached as Exhibit "E." The case is still being tried as of this
date;
7. Demands were made by the plaintiff upon the defendant to pay the
amount of the loss of P725,000.00, but the latter refused to pay as
the loss is excluded from the coverage of the insurance policy,
attached hereto as Exhibit "A," specifically under page 1 thereof,
"General Exceptions" Section (b), which is marked as Exhibit "A-1,"
and which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or

criminal act of the insured or any officer, employee,
partner, director, trustee or authorized
representative of the Insured whether acting alone or
in conjunction with others. . . .
8. The plaintiff opposes the contention of the defendant and contends
that Atiga and Magalong are not its "officer, employee, . . . trustee or
authorized representative . . . at the time of the robbery. 1
On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive portion
thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and against
defendant, and
(a) orders defendant to pay plaintiff the net amount of
P540,000.00 as liability under Policy No. 0207 (as
mitigated by the P40,000.00 special clause deduction
and by the recovered sum of P145,000.00), with
interest thereon at the legal rate, until fully paid;
(b) orders defendant to pay plaintiff the sum of
P30,000.00 as and for attorney's fees; and
(c) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It
Said:
The Court is satisfied that plaintiff may not be said to have selected and engaged
Magalong and Atiga, their services as armored car driver and as security guard
having been merely offered by PRC Management and by Unicorn Security and which
latter firms assigned them to plaintiff. The wages and salaries of both Magalong and
Atiga are presumably paid by their respective firms, which alone wields the power to
dismiss them. Magalong and Atiga are assigned to plaintiff in fulfillment of
agreements to provide driving services and property protection as such in a
context which does not impress the Court as translating into plaintiff's power to
control the conduct of any assigned driver or security guard, beyond perhaps entitling
plaintiff to request are replacement for such driver guard. The finding is accordingly
compelled that neither Magalong nor Atiga were plaintiff's "employees" in avoidance

of defendant's liability under the policy, particularly the general exceptions therein
embodied.
Neither is the Court prepared to accept the proposition that driver Magalong and
guard Atiga were the "authorized representatives" of plaintiff. They were merely an
assigned armored car driver and security guard, respectively, for the June 29, 1987
money transfer from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly
it was teller Maribeth Alampay who had "custody" of the P725,000.00 cash being
transferred along a specified money route, and hence plaintiff's then designated
"messenger" adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CV No.
32946. In its decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were
neither employees nor authorized representatives of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor of the insured
and strictly against the insurance company (New Life Enterprises vs. Court of
Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA
554). Contracts of insurance, like other contracts, are to be construed according to
the sense and meaning of the terms which the parties themselves have used. If such
terms are clear and unambiguous, they must be taken and understood in their plain,
ordinary and popular sense (New Life Enterprises Case, supra, p. 676; Sun
Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted stipulation is plain,
ordinary and simple. No other interpretation is necessary. The word "employee" must
be taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing with/and specifically designed to
protect labor and therefore its definition as to employer-employee relationships
insofar as the application/enforcement of said Code is concerned must necessarily
be inapplicable to an insurance contract which defendant-appellant itself had
formulated. Had it intended to apply the Labor Code in defining what the word
"employee" refers to, it must/should have so stated expressly in the insurance policy.
Said driver and security guard cannot be considered as employees of plaintiffappellee bank because it has no power to hire or to dismiss said driver and security
guard under the contracts (Exhs. 8 and C) except only to ask for their replacements
from the contractors. 5
On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and
the Court of Appeals erred in holding it liable under the insurance policy because the loss falls within
the general exceptions clause considering that driver Magalong and security guard Atiga were

Producers' authorized representatives or employees in the transfer of the money and payroll from its
branch office in Pasay City to its head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from
one branch to another, they effectively and necessarily became its authorized representatives in the
care and custody of the money. Assuming that they could not be considered authorized
representatives, they were, nevertheless, employees of Producers. It asserts that the existence of an
employer-employee relationship "is determined by law and being such, it cannot be the subject of
agreement." Thus, if there was in reality an employer-employee relationship between Producers, on
the one hand, and Magalong and Atiga, on the other, the provisions in the contracts of Producers
with PRC Management System for Magalong and with Unicorn Security Services for Atiga which
state that Producers is not their employer and that it is absolved from any liability as an employer,
would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon four standards: (1) the
manner of selection and engagement of the putative employee; (2) the mode of payment of wages;
(3) the presence or absence of a power to dismiss; and (4) the presence and absence of a power to
control the putative employee's conduct. Of the four, the right-of-control test has been held to be the
decisive factor. 6 It asserts that the power of control over Magalong and Atiga was vested in and
exercised by Producers. Fortune further insists that PRC Management System and Unicorn Security
Services are but "labor-only" contractors under Article 106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. There is "labor-only" contracting where the
person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such persons are performing
activities which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same manner and extent as
if the latter were directly employed by him.
Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling
in International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor is
equivalent to a finding that there is an employer-employee relationship between the owner of the project
and the employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not its employees since it had
nothing to do with their selection and engagement, the payment of their wages, their dismissal, and
the control of their conduct. Producers argued that the rule in International Timber Corp. is not
applicable to all cases but only when it becomes necessary to prevent any violation or circumvention
of the Labor Code, a social legislation whose provisions may set aside contracts entered into by
parties in order to give protection to the working man.
Producers further asseverates that what should be applied is the rule in American President Lines
vs. Clave, 8 to wit:

In determining the existence of employer-employee relationship, the following

elements are generally considered, namely: (1) the selection and engagement of the
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to
control the employee's conduct.
Since under Producers' contract with PRC Management Systems it is the latter which assigned
Magalong as the driver of Producers' armored car and was responsible for his faithful discharge of
his duties and responsibilities, and since Producers paid the monthly compensation of P1,400.00 per
driver to PRC Management Systems and not to Magalong, it is clear that Magalong was not
Producers' employee. As to Atiga, Producers relies on the provision of its contract with Unicorn
Security Services which provides that the guards of the latter "are in no sense employees of the
CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance
policy which is a form of casualty insurance. Section 174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising from
accident or mishap, excluding certain types of loss which by law or custom are
considered as falling exclusively within the scope of insurance such as fire or marine.
It includes, but is not limited to, employer's liability insurance, public liability
insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as written by non-life insurance
companies, and other substantially similar kinds of insurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no
other provisions applicable to casualty insurance or to robbery insurance in particular. These
contracts are, therefore, governed by the general provisions applicable to all types of insurance.
Outside of these, the rights and obligations of the parties must be determined by the terms of their
contract, taking into consideration its purpose and always in accordance with the general principles
of insurance law. 9
It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud
the insurer the moral hazard is so great that insurers have found it necessary to fill up their
policies with countless restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured against." 10 Persons frequently excluded
under such provisions are those in the insured's service and employment. 11 The purpose of the exception
is to guard against liability should the theft be committed by one having unrestricted access to the
property. 12 In such cases, the terms specifying the excluded classes are to be given their meaning as
understood in common speech. 13 The terms "service" and "employment" are generally associated with
the idea of selection, control, and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved
against the insurer, 15 or it should be construed liberally in favor of the insured and strictly against the
insurer. 16 Limitations of liability should be regarded with extreme jealousy and must be construed
in such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goes without saying

then that if the terms of the contract are clear and unambiguous, there is no room for construction and
such terms cannot be enlarged or diminished by judicial construction. 18

An insurance contract is a contract of indemnity upon the terms and conditions specified therein. 19 It
is settled that the terms of the policy constitute the measure of the insurer's liability. 20 In the absence of
statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit their
liability and to impose whatever conditions they deem best upon their obligations not inconsistent with
public policy.
With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as
employees or authorized representatives of Producers under paragraph (b) of the general
exceptions clause of the policy which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or criminal act of the
insured or any officer, employee, partner, director, trustee or
authorized representative of the Insured whether acting alone or in
conjunction with others. . . . (emphases supplied)
There is marked disagreement between the parties on the correct meaning of the terms "employee"
and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from
protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons
granted or having unrestricted access to Producers' money or payroll. When it used then the term
"employee," it must have had in mind any person who qualifies as such as generally and universally
understood, or jurisprudentially established in the light of the four standards in the determination of
the employer-employee relationship, 21 or as statutorily declared even in a limited sense as in the case
of Article 106 of the Labor Code which considers the employees under a "labor-only" contract as
employees of the party employing them and not of the party who supplied them to the employer. 22
Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security
Services are "labor-only" contracts.
Producers, however, insists that by the express terms thereof, it is not the employer of
Magalong. Notwithstanding such express assumption of PRC Management Systems and
Unicorn Security Services that the drivers and the security guards each shall supply to
Producers are not the latter's employees, it may, in fact, be that it is because the contracts
are, indeed, "labor-only" contracts. Whether they are is, in the light of the criteria provided for
in Article 106 of the Labor Code, a question of fact. Since the parties opted to submit the
case for judgment on the basis of their stipulation of facts which are strictly limited to the
insurance policy, the contracts with PRC Management Systems and Unicorn Security

Services, the complaint for violation of P.D. No. 532, and the information therefor filed by the
City Fiscal of Pasay City, there is a paucity of evidence as to whether the contracts between
Producers and PRC Management Systems and Unicorn Security Services are "labor-only"
contracts.
But even granting for the sake of argument that these contracts were not "labor-only" contracts, and
PRC Management Systems and Unicorn Security Services were truly independent contractors, we
are satisfied that Magalong and Atiga were, in respect of the transfer of Producer's money from its
Pasay City branch to its head office in Makati, its "authorized representatives" who served as such
with its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the specific
duty to safely transfer the money to its head office, with Alampay to be responsible for its custody in
transit; Magalong to drive the armored vehicle which would carry the money; and Atiga to provide the
needed security for the money, the vehicle, and his two other companions. In short, for these
particular tasks, the three acted as agents of Producers. A "representative" is defined as one who
represents or stands in the place of another; one who represents others or another in a special
capacity, as an agent, and is interchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the
insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals in
CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court
of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case No.
1817 is DISMISSED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-66935 November 11, 1985
ISABELA ROQUE, doing busines under the name and style of Isabela Roque Timber
Enterprises and ONG CHIONG, petitioners,
vs.
HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND SURETY
CORPORATION,respondent.

GUTIERREZ, JR., J.:

This petition for certiorari asks for the review of the decision of the Intermediate Appellate Court
which absolved the respondent insurance company from liability on the grounds that the vessel
carrying the insured cargo was unseaworthy and the loss of said cargo was caused not by the perils
of the sea but by the perils of the ship.

On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a common carrier,
entered into a contract with the petitioners whereby the former would load and carry on board its
barge Mable 10 about 422.18 cubic meters of logs from Malampaya Sound, Palawan to North
Harbor, Manila. The petitioners insured the logs against loss for P100,000.00 with respondent
Pioneer Insurance and Surety Corporation (Pioneer).
On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at Malampaya Sound,
Palawan for carriage and delivery to North Harbor, Port of Manila, but the shipment never reached
its destination because Mable 10 sank with the 811 pieces of logs somewhere off Cabuli Point in
Palawan on its way to Manila. As alleged by the petitioners in their complaint and as found by both
the trial and appellate courts, the barge where the logs were loaded was not seaworthy such that it
developed a leak. The appellate court further found that one of the hatches was left open causing
water to enter the barge and because the barge was not provided with the necessary cover or
tarpaulin, the ordinary splash of sea waves brought more water inside the barge.
On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of P150,000.00
for the loss of the shipment plus P100,000.00 as unrealized profits but the latter ignored the
demand. Another letter was sent to respondent Pioneer claiming the full amount of P100,000.00
under the insurance policy but respondent refused to pay on the ground that its hability depended
upon the "Total loss by Total Loss of Vessel only". Hence, petitioners commenced Civil Case No.
86599 against Manila Bay and respondent Pioneer.
After hearing, the trial court found in favor of the petitioners. The dispositive portion of the decision
reads:
FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:
(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer
Insurance and Surety Corporation to pay plaintiffs, jointly and severally, the sum of
P100,000.00;
(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in
addition, the sum of P50,000.00, plus P12,500.00, that the latter advanced to the
former as down payment for transporting the logs in question;
(c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed, for
lack of merit, but as to its cross-claim against its co-defendant Manila Bay Lighterage
Corporation, the latter is ordered to reimburse the former for whatever amount it may
pay the plaintiffs as such surety;
(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed
for lack of merit;
(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary
damages are ordered dismissed, for lack of merits; plaintiffs' claim for attorney's fees

in the sum of P10,000.00 is hereby granted, against both defendants, who are,
moreover ordered to pay the costs; and
(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent (6%)
from March 25, 1975, until amount is fully paid.
Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not appeal.
According to the petitioners, the transportation company is no longer doing business and is without
funds.
During the initial stages of the hearing, Manila Bay informed the trial court that it had salvaged part
of the logs. The court ordered them to be sold to the highest bidder with the funds to be deposited in
a bank in the name of Civil Case No. 86599.
On January 30, 1984, the appellate court modified the trial court's decision and absolved Pioneer
from liability after finding that there was a breach of implied warranty of seaworthiness on the part of
the petitioners and that the loss of the insured cargo was caused by the "perils of the ship" and not
by the "perils of the sea". It ruled that the loss is not covered by the marine insurance policy.
After the appellate court denied their motion for reconsideration, the petitioners filed this petition with
the following assignments of errors:
I
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES
OF MARINE CARGO INSURANCE, THERE IS A WARRANTY OF
SEAWORTHINESS BY THE CARGO OWNER.
II
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE LOSS
OF THE CARGO IN THIS CASE WAS CAUSED BY "PERILS OF THE SHIP" AND
NOT BY "PERILS OF THE SEA."
III
THE INTERMEDIATE APPELLATE COURT ERRED IN NOT ORDERING THE
RETURN TO PETITIONER OF THE AMOUNT OF P8,000.00 WHICH WAS
DEPOSITED IN THE TRIAL COURT AS SALVAGE VALUE OF THE LOGS THAT
WERE RECOVERED.
In their first assignment of error, the petitioners contend that the implied warranty of seaworthiness
provided for in the Insurance Code refers only to the responsibility of the shipowner who must see to
it that his ship is reasonably fit to make in safety the contemplated voyage.

The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to do
with its seaworthiness. They argue that a cargo owner has no control over the structure of the ship,
its cables, anchors, fuel and provisions, the manner of loading his cargo and the cargo of other
shippers, and the hiring of a sufficient number of competent officers and seamen. The petitioners'
arguments have no merit.
There is no dispute over the liability of the common carrier Manila Bay. In fact, it did not bother to
appeal the questioned decision. However, the petitioners state that Manila Bay has ceased operating
as a firm and nothing may be recovered from it. They are, therefore, trying to recover their losses
from the insurer.
The liability of the insurance company is governed by law. Section 113 of the Insurance Code
provides:
In every marine insurance upon a ship or freight, or freightage, or upon any thing
which is the subject of marine insurance, a warranty is implied that the ship is
seaworthy.
Section 99 of the same Code also provides in part.
Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...
From the above-quoted provisions, there can be no mistaking the fact that the term "cargo" can be
the subject of marine insurance and that once it is so made, the implied warranty of seaworthiness
immediately attaches to whoever is insuring the cargo whether he be the shipowner or not.
As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40
Phil. 40):
The same conclusion must be reached if the question be discussed with reference to
the seaworthiness of the ship. It is universally accepted that in every contract of
insurance upon anything which is the subject of marine insurance, a warranty is
implied that the ship shall be seaworthy at the time of the inception of the voyage.
This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). ...
Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is immaterial in
ordinary marine insurance and may not be used by him as a defense in order to recover on the
marine insurance policy.
As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406):

There was no look-out, and both that and the rate of speed were contrary to the
Canadian Statute. The exception of losses occasioned by unseaworthiness was in
effect a warranty that a loss should not be so occasioned, and whether the fact of
unseaworthiness were known or unknown would be immaterial.
Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine
insurance, it becomes the obligation of a cargo owner to look for a reliable common carrier which
keeps its vessels in seaworthy condition. The shipper of cargo may have no control over the vessel
but he has full control in the choice of the common carrier that will transport his goods. Or the cargo
owner may enter into a contract of insurance which specifically provides that the insurer answers not
only for the perils of the sea but also provides for coverage of perils of the ship.
We are constrained to apply Section 113 of the Insurance Code to the facts of this case. As stated by
the private respondents:
In marine cases, the risks insured against are "perils of the sea" (Chute v. North
River Ins. Co., Minn214 NW 472, 55 ALR 933). The purpose of such insurance is
protection against contingencies and against possible damages and such a policy
does not cover a loss or injury which must inevitably take place in the ordinary
course of things. There is no doubt that the term 'perils of the sea' extends only to
losses caused by sea damage, or by the violence of the elements, and does not
embrace all losses happening at sea. They insure against losses from extraordinary
occurrences only, such as stress of weather, winds and waves, lightning, tempests,
rocks and the like. These are understood to be the "perils of the sea" referred in the
policy, and not those ordinary perils which every vessel must encounter. "Perils of the
sea" has been said to include only such losses as are of extraordinarynature,
or arise from some overwhelming power, which cannot be guarded against by the
ordinary exertion of human skill and prudence. Damage done to a vessel by perils of
the sea includes every species of damages done to a vessel at sea, as distinguished
from the ordinary wear and tear of the voyage, and distinct from injuries suffered by
the vessel in consequence of her not being seaworthy at the outset of her voyage (as
in this case). It is also the general rule that everything which happens thru the
inherent vice of the thing, or by the act of the owners, master or shipper, shall not be
reputed a peril, if not otherwise borne in the policy. (14 RCL on Insurance, Sec. 384,
pp. 1203- 1204; Cia. de Navegacion v. Firemen's Fund Ins. Co., 277 US 66, 72 L. ed.
787, 48 S. Ct. 459).
With regard to the second assignment of error, petitioners maintain, that the loss of the cargo was
caused by the perils of the sea, not by the perils of the ship because as found by the trial court, the
barge was turned loose from the tugboat east of Cabuli Point "where it was buffeted by storm and
waves." Moreover, petitioners also maintain that barratry, against which the cargo was also insured,
existed when the personnel of the tugboat and the barge committed a mistake by turning loose the
barge from the tugboat east of Cabuli Point. The trial court also found that the stranding and
foundering of Mable 10 was due to improper loading of the logs as well as to a leak in the barge
which constituted negligence.

On the contention of the petitioners that the trial court found that the loss was occasioned by the
perils of the sea characterized by the "storm and waves" which buffeted the vessel, the records show
that the court ruled otherwise. It stated:
xxx xxx xxx
... The other affirmative defense of defendant Lighterage, 'That the supposed loss of
the logs was occasioned by force majeure... "was not supported by the evidence. At
the time Mable 10 sank, there was no typhoon but ordinary strong wind and waves, a
condition which is natural and normal in the open sea. The evidence shows that the
sinking of Mable 10 was due to improper loading of the logs on one side so that the
barge was tilting on one side and for that it did not navigate on even keel; that it was
no longer seaworthy that was why it developed leak; that the personnel of the
tugboat and the barge committed a mistake when it turned loose the barge from the
tugboat east of Cabuli point where it was buffeted by storm and waves, while the
tugboat proceeded to west of Cabuli point where it was protected by the mountain
side from the storm and waves coming from the east direction. ..."
In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of defendant carrier
developed a leak which allowed water to come in and that one of the hatches of said barge was
negligently left open by the person in charge thereof causing more water to come in and that "the
loss of said plaintiffs' cargo was due to the fault, negligence, and/or lack of skill of defendant carrier
and/or defendant carrier's representatives on barge Mable 10."
It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the
perils of the sea. The facts clearly negate the petitioners' claim under the insurance policy. In the
case of Go Tiaoco y Hermanos v. Union Ins. Society of Canton, supra, we had occasion to elaborate
on the term "perils of the ship." We ruled:
It must be considered to be settled, furthermore, that a loss which, in the ordinary
course of events, results from the natural and inevitable action of the sea, from the
ordinary wear and tear of the ship, or from the negligent failure of the ship's owner to
provide the vessel with proper equipment to convey the cargo under ordinary
conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly
called the "peril of the ship." The insurer undertakes to insure against perils of the
sea and similar perils, not against perils of the ship. As was well said by Lord
Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A. C.,
503, 509), there must, in order to make the insurer liable, be some casualty,
something which could not be foreseen as one of the necessary incidents of the
adventure. The purpose of the policy is to secure an indemnity against accidents
which may happen, not against events which must happen.
In the present case the entrance of the sea water into the ship's hold through the
defective pipe already described was not due to any accident which happened during
the voyage, but to the failure of the ship's owner properly to repair a defect of the
existence of which he was apprised. The loss was therefore more analogous to that

which directly results from simple unseaworthiness than to that which result from the
perils of the sea.
xxx xxx xxx
Suffice it to say that upon the authority of those cases there is no room to doubt the
liability of the shipowner for such a loss as occurred in this case. By parity of
reasoning the insurer is not liable; for generally speaking, the shipowner excepts the
perils of the sea from his engagement under the bill of lading, while this is the very
perils against which the insurer intends to give protection. As applied to the present
case it results that the owners of the damaged rice must look to the shipowner for
redress and not to the insurer.
Neither can petitioners allege barratry on the basis of the findings showing negligence on the part of
the vessel's crew.
Barratry as defined in American Insurance Law is "any willful misconduct on the part of master or
crew in pursuance of some unlawful or fraudulent purpose without the consent of the owners, and to
the prejudice of the owner's interest." (Sec. 171, U.S. Insurance Law, quoted in Vance, Handbook on
Law of Insurance, 1951, p. 929.)
Barratry necessarily requires a willful and intentional act in its commission. No honest error of
judgment or mere negligence, unless criminally gross, can be barratry. (See Vance on Law of
Insurance, p. 929 and cases cited therein.)
In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent acts of
the vessel's crew. There was only simple negligence or lack of skill. Hence, the second assignment
of error must likewise be dismissed.
Anent the third assignment of error, we agree with the petitioners that the amount of P8,000.00
representing the amount of the salvaged logs should have been awarded to them. However, this
should be deducted from the amounts which have been adjudicated against Manila Bay Lighterage
Corporation by the trial court.
WHEREFORE, the decision appealed from is AFFIRMED with the modification that the amount of
P8,000.00 representing the value of the salvaged logs which was ordered to be deposited in the
Manila Banking Corporation in the name of Civil Case No. 86599 is hereby awarded and ordered
paid to the petitioners. The liability adjudged against Manila Bay Lighterage Corporation in the
decision of the trial court is accordingly reduced by the same amount.
SO ORDERED.
G.R. No. 85141 November 28, 1989

FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,

vs.
COURT OF APPEALS and CHOA TIEK SENG, respondents.
Balgos & Perez Law Offices for petitioner.
Lapuz Law office for private respondent.

REGALADO, J.:
This is a review of the decision of the Court of Appeals, promulgated on July 19,1988, the dispositive
part of which reads:
WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant
Filipino Merchants Insurance Company to pay the plaintiff the sum of P51,568.62
with interest at legal rate from the date of filing of the complaint, and is modified with
respect to the third party complaint in that (1) third party defendant E. Razon, Inc. is
ordered to reimburse third party plaintiff the sum of P25,471.80 with legal interest
from the date of payment until the date of reimbursement, and (2) the third-party
complaint against third party defendant Compagnie Maritime Des Chargeurs Reunis
is dismissed. 1
The facts as found by the trial court and adopted by the Court of Appeals are as follows:
This is an action brought by the consignee of the shipment of fishmeal loaded on
board the vessel SS Bougainville and unloaded at the Port of Manila on or about
December 11, 1976 and seeks to recover from the defendant insurance company the
amount of P51,568.62 representing damages to said shipment which has been
insured by the defendant insurance company under Policy No. M-2678. The
defendant brought a third party complaint against third party defendants Compagnie
Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the
third (sic) defendants in case Judgment is rendered against the third party plaintiff. It
appears from the evidence presented that in December 1976, plaintiff insured said
shipment with defendant insurance company under said cargo Policy No. M-2678 for
the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in
new gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks
under warehouse to warehouse terms. Actually, what was imported was 59.940
metric tons not 600 tons at $395.42 a ton CNF Manila. The fishmeal in 666 new
gunny bags were unloaded from the ship on December 11, 1976 at Manila unto the
arrastre contractor E. Razon, Inc. and defendant's surveyor ascertained and certified
that in such discharge 105 bags were in bad order condition as jointly surveyed by
the ship's agent and the arrastre contractor. The condition of the bad order was
reflected in the turn over survey report of Bad Order cargoes Nos. 120320 to 120322,
as Exhibit C-4 consisting of three (3) pages which are also Exhibits 4, 5 and 6-

Razon. The cargo was also surveyed by the arrastre contractor before delivery of the
cargo to the consignee and the condition of the cargo on such delivery was reflected
in E. Razon's Bad Order Certificate No. 14859, 14863 and 14869 covering a total of
227 bags in bad order condition. Defendant's surveyor has conducted a final and
detailed survey of the cargo in the warehouse for which he prepared a survey report
Exhibit F with the findings on the extent of shortage or loss on the bad order bags
totalling 227 bags amounting to 12,148 kilos, Exhibit F-1. Based on said computation
the plaintiff made a formal claim against the defendant Filipino Merchants Insurance
Company for P51,568.62 (Exhibit C) the computation of which claim is contained
therein. A formal claim statement was also presented by the plaintiff against the
vessel dated December 21, 1976, Exhibit B, but the defendant Filipino Merchants
Insurance Company refused to pay the claim. Consequently, the plaintiff brought an
action against said defendant as adverted to above and defendant presented a third
party complaint against the vessel and the arrastre contractor. 2
The court below, after trial on the merits, rendered judgment in favor of private respondent, the
decretal portion whereof reads:
WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the
plaintiff and against the defendant Filipino Merchant's (sic) Insurance Co., ordering
the defendants to pay the plaintiff the following amount:
The sum of P51,568.62 with interest at legal rate from the date of the filing of the
complaint;
On the third party complaint, the third party defendant Compagnie Maritime Des
Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to pay to the
third party plaintiff jointly and severally reimbursement of the amounts paid by the
third party plaintiff with legal interest from the date of such payment until the date of
such reimbursement.
Without pronouncement as to costs. 3
On appeal, the respondent court affirmed the decision of the lower court insofar as the award on the
complaint is concerned and modified the same with regard to the adjudication of the third-party
complaint. A motion for reconsideration of the aforesaid decision was denied, hence this petition with
the following assignment of errors:
1. The Court of Appeals erred in its interpretation and application of the "all risks"
clause of the marine insurance policy when it held the petitioner liable to the private
respondent for the partial loss of the cargo, notwithstanding the clear absence of
proof of some fortuitous event, casualty, or accidental cause to which the loss is
attributable, thereby contradicting the very precedents cited by it in its decision as
well as a prior decision of the same Division of the said court (then composed of
Justices Cacdac, Castro-Bartolome, and Pronove);

2. The Court of Appeals erred in not holding that the private respondent had no
insurable interest in the subject cargo, hence, the marine insurance policy taken out
by private respondent is null and void;
3. The Court of Appeals erred in not holding that the private respondent was guilty of
fraud in not disclosing the fact, it being bound out of utmost good faith to do so, that it
had no insurable interest in the subject cargo, which bars its recovery on the policy. 4
On the first assignment of error, petitioner contends that an "all risks" marine policy has a technical
meaning in insurance in that before a claim can be compensable it is essential that there must be
"some fortuity, " "casualty" or "accidental cause" to which the alleged loss is attributable and the
failure of herein private respondent, upon whom lay the burden, to adduce evidence showing that
the alleged loss to the cargo in question was due to a fortuitous event precludes his right to recover
from the insurance policy. We find said contention untenable.
The "all risks clause" of the Institute Cargo Clauses read as follows:
5. This insurance is against all risks of loss or damage to the subject-matter insured
but shall in no case be deemed to extend to cover loss, damage, or expense
proximately caused by delay or inherent vice or nature of the subject-matter insured.
Claims recoverable hereunder shall be payable irrespective of percentage. 5
An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses
by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance
contracts, have not acquired any technical meaning. They are construed by the courts in their
ordinary and common acceptance. Thus, the terms have been taken to mean that which happens by
chance or fortuitously, without intention and design, and which is unexpected, unusual and
unforeseen. An accident is an event that takes place without one's foresight or expectation; an event
that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not
expected. 6
The very nature of the term "all risks" must be given a broad and comprehensive meaning as
covering any loss other than a willful and fraudulent act of the insured. 7 This is pursuant to the very
purpose of an "all risks" insurance to give protection to the insured in those cases where difficulties of
logical explanation or some mystery surround the loss or damage to property. 8 An "all asks" policy has
been evolved to grant greater protection than that afforded by the "perils clause," in order to assure that
no loss can happen through the incidence of a cause neither insured against nor creating liability in the
ship; it is written against all losses, that is, attributable to external causes. 9
The term "all risks" cannot be given a strained technical meaning, the language of the clause under
the Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all
damages/losses suffered by the insured cargo except (a) loss or damage or expense proximately
caused by delay, and (b) loss or damage or expense proximately caused by the inherent vice or
nature of the subject matter insured.

Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but
under an "all risks" policy the burden is not on the insured to prove the precise cause of loss or
damage for which it seeks compensation. The insured under an "all risks insurance policy" has the
initial burden of proving that the cargo was in good condition when the policy attached and that the
cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer
to show the exception to the coverage. 10 As we held in Paris-Manila Perfumery Co. vs. Phoenix
Assurance Co., Ltd. 11 the basic rule is that the insurance company has the burden of proving that the loss
is caused by the risk excepted and for want of such proof, the company is liable.
Coverage under an "all risks" provision of a marine insurance policy creates a special type of
insurance which extends coverage to risks not usually contemplated and avoids putting upon the
insured the burden of establishing that the loss was due to the peril falling within the policy's
coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly
excludes the loss from coverage. 12 A marine insurance policy providing that the insurance was to be
"against all risks" must be construed as creating a special insurance and extending to other risks than are
usually contemplated, and covers all losses except such as arise from the fraud of the insured. 13 The
burden of the insured, therefore, is to prove merely that the goods he transported have been lost,
destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was due to
excepted perils. To impose on the insured the burden of proving the precise cause of the loss or damage
would be inconsistent with the broad protective purpose of "all risks" insurance.
In the present case, there being no showing that the loss was caused by any of the excepted perils,
the insurer is liable under the policy. As aptly stated by the respondent Court of Appeals, upon due
consideration of the authorities and jurisprudence it discussed
... it is believed that in the absence of any showing that the losses/damages were
caused by an excepted peril, i.e. delay or the inherent vice or nature of the subject
matter insured, and there is no such showing, the lower court did not err in holding
that the loss was covered by the policy.
There is no evidence presented to show that the condition of the gunny bags in
which the fishmeal was packed was such that they could not hold their contents in
the course of the necessary transit, much less any evidence that the bags of cargo
had burst as the result of the weakness of the bags themselves. Had there been
such a showing that spillage would have been a certainty, there may have been good
reason to plead that there was no risk covered by the policy (See Berk vs. Style
[1956] cited in Marine Insurance Claims, Ibid, p. 125). Under an 'all risks' policy, it
was sufficient to show that there was damage occasioned by some accidental cause
of any kind, and there is no necessity to point to any particular cause. 14
Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the
policy. The agreement has the force of law between the parties. The terms of the policy constitute
the measure of the insurer's liability. If such terms are clear and unambiguous, they must be taken
and understood in their plain, ordinary and popular sense. 15

Anent the issue of insurable interest, we uphold the ruling of the respondent court that private
respondent, as consignee of the goods in transit under an invoice containing the terms under "C & F
Manila," has insurable interest in said goods.
Section 13 of the Insurance Code defines insurable interest in property as every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured. In principle, anyone has an insurable interest
in property who derives a benefit from its existence or would suffer loss from its destruction whether
he has or has not any title in, or lien upon or possession of the property y. 16 Insurable interest in
property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or
(c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. 17
Herein private respondent, as vendee/consignee of the goods in transit has such existing interest
therein as may be the subject of a valid contract of insurance. His interest over the goods is based
on the perfected contract of sale. 18 The perfected contract of sale between him and the shipper of the
goods operates to vest in him an equitable title even before delivery or before be performed the
conditions of the sale. 19 The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case,
is immaterial in the determination of whether the vendee has an insurable interest or not in the goods in
transit. The perfected contract of sale even without delivery vests in the vendee an equitable title, an
existing interest over the goods sufficient to be the subject of insurance.
Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the
seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier,
whether named by the buyer or not, for, the purpose of transmission to the buyer is deemed to be a
delivery of the goods to the buyer, the exceptions to said rule not obtaining in the present case. The
Court has heretofore ruled that the delivery of the goods on board the carrying vessels partake of the
nature of actual delivery since, from that time, the foreign buyers assumed the risks of loss of the
goods and paid the insurance premium covering them. 20
C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum
the cost of the goods and freight to the named destination. 21 It simply means that the seller must pay
the costs and freight necessary to bring the goods to the named destination but the risk of loss or damage
to the goods is transferred from the seller to the buyer when the goods pass the ship's rail in the port of
shipment. 22
Moreover, the issue of lack of insurable interest was not among the defenses averred in petitioners
answer. It was neither an issue agreed upon by the parties at the pre-trial conference nor was it
raised during the trial in the court below. It is a settled rule that an issue which has not been raised in
the court a quo cannot be raised for the first time on appeal as it would be offensive to the basic
rules of fair play, justice and due process. 23 This is but a permuted restatement of the long settled rule
that when a party deliberately adopts a certain theory, and the case is tried and decided upon that theory
in the court below, he will not be permitted to change his theory on appeal because, to permit him to do
so, would be unfair to the adverse party. 24
If despite the fundamental doctrines just stated, we nevertheless decided to indite a disquisition on
the issue of insurable interest raised by petitioner, it was to put at rest all doubts on the matter under

the facts in this case and also to dispose of petitioner's third assignment of error which consequently
needs no further discussion.
WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of
Appeals is AFFIRMED in toto.
SO ORDERED.
G.R. No. 181300

September 18, 2009

MALAYAN INSURANCE CO., INC., Petitioner,

vs.
JARDINE DAVIES TRANSPORT SERVICES, INC. and ASIAN TERMINALS, INC., Respondents.
DECISION
CARPIO MORALES, J.:
On July 23, 1994, Petrosul International (Petrosul) shipped on board the vessel "MV Hoegh
Merchant" (MV Hoegh) from Vancouver, Canada yellow crude sulphur "said to weigh 6,599.23 metric
tons as per draft survey" for transportation to Manila, consigned to LMG Chemicals Corporation
(LMG).1
Upon arrival of the MV Hoegh in Manila on September 5, 1994, the stevedores of respondent Asian
Terminals, Inc. (ATI) undertook discharging operations of the shipment or cargo from the vessel
directly onto the steel barges of Creed Customs Brokerage, Inc. (CCBI), which barges were later
towed upriver and arrived at the consignee LMGs storage area in Pasig, Manila.
The consignees hired workers thereupon received and unloaded the cargo with the use of an
overhead crane and clamshell grab.
During the discharge of the cargo "ex vessel" onto CCBIs barges, SMS Average Surveyors and
Adjusters, Inc. (SMS), LMGs appointed surveyors, reported the Outturn Quantity/Weight of the
cargo at 6,247.199 Metric Tons (MT),2 hence, given that as indicated in the Bill of Lading the weight
was 6,599.23 MT, there was a shortage of352.031 MT.
Once on board the barges, the weight of the cargo was again taken and recorded at 6,122.023
MT,3 thus reflecting a shortage of 477.207 MT.
The weight of the cargo, taken a third time upon discharge at LMGs storage area, was recorded at
6,206.748 MT4 to thus reflect a shortage of 392.482 MT.
The cargo having been insured, LMG filed a claim for the value of shortage of cargo with its insurer
Malayan Insurance Co., Inc., (petitioner) which paid LMG the sum of P1,144,108.43 in February
19955 and was accordingly subrogated to the rights of LMG.

For failing to heed demands to pay for the value of the cargo loss and on the basis of Marine Risk
Note RN-0001-175516 and Marine Insurance Policy No. 001-0343,7 petitioner as subrogee8 filed on
September 5, 1995 a Complaint9 against herein respondents ATI and Jardine Davies Transport
Services, Inc. (Jardine Davies), as alleged shipagent of MV Hoegh, together with CCBI and the
"Unknown Owner and Unknown Shipagent" of the MV Hoegh, before the Regional Trial Court (RTC)
of Manila, for recovery of the amount it paid to LMG. As the identities and addresses of CCBI and
the "Unknown Owner and Unknown Shipagent" could not be ascertained, only Jardine Davies and
ATI were served with summons.10
ATI filed its Answer with Compulsory Counterclaim and Crossclaim 11 denying any liability for the
value of the loss of part of the cargo, claiming that it had exercised due care and diligence in the
discharge of the cargo from the vessel onto CCBIs barges; that its participation was limited to
supplying the stevedores who undertook the discharging operations from the vessel to the barges;
and that any loss to the cargo was sustained either prior to its discharge from the vessel or due to
the negligence of CCBI.
Jardine Davies likewise filed its Answer with Compulsory Counterclaim and Crossclaim 12 claiming
that it was not the shipagent of the MV Hoegh but a mere commercial agent; that any loss sustained
by the cargo was due to the inherent vice or defect of the goods and unrecovered spillages, among
other things; and that the complaint failed to state a cause of action as there was no valid
subrogation.
By Decision of September 9, 2004, Branch 52 of the Manila RTC found for petitioner, disposing as
follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff ordering
the defendants Jardine Davies Transport Services, Inc. and Asian Terminals, Inc. to pay in solidum
the former, the following:
(a) P1,144,108.43 representing the unpaid principal obligation plus legal interest thereon
from the time of demand until fully paid;
(b) 25% of the amount due as and by way of attorneys fees;
(c) costs of suit; and
(d) Defendant Creed Customs Brokerage, Inc. and the unknown Owner and Unknown
Shipagent of M/V "Hoegh Merchant" are ordered DROPPED from the complaint as the court
has not acquired jurisdiction over their persons.
SO ORDERED.13 (Underscoring supplied)
Discussing in two paragraphs the basis for holding herein respondents Jardine Davies and ATI
solidarily liable for the loss, the trial court stated:

It must be emphasized that the loss occurred while the cargo was in the possession, custody and
control of the defendants. Absent any proof of exercise of due diligence required by law in the
vigilance over the cargo,defendants are presumed to be at fault or to have acted negligently. Such
presumption, the defendants failed to overturn to the satisfaction of this court.
Moreover, defendants cannot escape liability by raising as a defense any defect in the contract of
insurance as they are not privies thereto. Besides, whatever defect found therein is deemed to have
been waived by the subsequent payment made by the plaintiff of consignees claim (Compania
Maritima v. Insurance Co. of North America, 12 SCRA 213).
x x x x14 (Underscoring supplied)
On respondents appeal, the Court of Appeals, by Decision of January 14, 2008, 15 vacated the trial
courts decision and dismissed the complaint. It, however, upheld the dropping from the complaint of
CCBI and the "Unknown Owner and Unknown Shipagent" of M/V Hoegh.
Thus the appellate court disposed:
WHEREFORE, the assailed Decision is MODIFIED, in that portions (a), (b), and (c) of the same are
VACATED and SET ASIDE. Accordingly, judgment is hereby rendered DISMISSING the complaint
against Asian Terminals, Inc. and Jardine Davies Transport Services, Inc. in Civil Case No. 9575224. Costs against Malayan Insurance Corp., Inc.
SO ORDERED.16
In sustaining respondents appeal, the appellate court held that petitioner failed to establish the fact
of shortage in the cargo, doubts having arisen from the disparity in quantity as stated the bill of
lading (6,559.23 MT) and the shipment invoice17 (6,477.81 MT), as well as the discrepancy in
quantity as reflected in SMSs Report of Survey18and the Comparison of Outturns19 incorporated
therein; that the same Report shows that inaccuracies or errors in the manner of/or equipment used
in measuring the weight of the cargo might have resulted in variances in the outturn quantity; and
that the testimonies of petitioners witnesses, Eutiquiano Patiag 20 and Emmanuel Gotladera,21 relative
to the contents of the bill of lading may not be credited since they were not present at the actual
weighing and loading of the cargo.
In fine, the appellate court held that the presumption accorded to a bill of lading - as prima facie
evidence of the goods described therein, had been sufficiently rebutted.
Since the right of subrogation in favor of an insurer arises only upon payment of a valid insurance
claim, the appellate court held that petitioner was not entitled to restitution, the insurance policy
between LMG and petitioner having already expired on December 31, 199322 or seven (7) months
prior to the loading of the shipment on July 23, 1994; and that the premium for Marine Risk Note RN0001-17551 and/or the Endorsements23 which purportedly extended the effectivity of the policy was
paid only on October 6, 1994 or a month after the arrival of the cargo. 24

The appellate court went on to note that petitioner also failed to prove that respondent Jardine
Davies was the local shipagent of the MV Hoegh given that such vessel was sub-chartered by
LMGs shipper Petrosul from Jardine Davies principal Pacific Commerce Line (PCL), thereby
making Petrosul the carrier which undertook to transport LMGs cargo.
The appellate court thus concluded that liability could not be imputed to Jardine Davies, its principal
PCL not being the carrier of the cargo and no privity of contract existed between it (Jardine Davies)
and Petrosul.
Respecting ATI, the appellate court held that no evidence that any shortage occurred since neither
LMG nor its surveyors lodged any protest on the manner by which ATIs stevedores carried out the
discharging operations.25
Hence, the present petition raising the following issues:
I
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT (THE)
PRESUMPTION ACCORDED ON THE BILL OF LADING HAS BEEN REBUTTED.
II
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT MALAYAN
IS NOT ENTITLED TO REIMBURSEMENT SINCE THERE WAS NO VALID SUBROGATION.
III
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT
DEFENDANT ASIAN TERMINALS, INC. IS NOT SOLIDARILY LIABLE WITH DEFENDANT
JARDINE DAVIES.
IV
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT PLAINTIFF
DID NOT CONSIDER JARDINE DAVIES AS "M/V HOEGHS" LOCAL SHIPAGENT.26
The issue boils down to whether petitioner discharged its burden of proving by clear, competent and
convincing evidence that there was shortage in the shipment of yellow crude sulphur to the
consignee LMG.
The Court holds not.
Before proceeding to the substantive issues, the Court deems it fit to first resolve a procedural issue
raised by respondents in their respective Comments27 that the present petition seeks to pass upon
questions of fact which is not allowed in a certiorari petition whose province is confined to questions
of law.

While it is settled that the Courts jurisdiction in a petition for review on certiorari under Rule 45 of the
Revised Rules of Court is limited to a review of errors of law and does not, as a rule, involve the reexamination of the evidence presented by the parties, the Court has recognized several exceptions,
viz:
The rule in our jurisdiction is that only questions of law may be entertained by this Court in a petition
for review oncertiorari. This rule, however, is not ironclad and admits certain exceptions, such as
when (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the inference is
manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is
based on a misapprehension of facts; (5) the findings of fact are conflicting; (6) there is no citation of
specific evidence on which the factual findings are based; (7) the findings of absence of facts are
contradicted by the presence of evidence on record; (8) the findings of the CA are contrary to those
of the trial court; (9) the CA manifestly overlooked certain relevant and undisputed facts that, if
properly considered, would justify a different conclusion; (10) the findings of the CA are beyond the
issues of the case; and (11) such findings are contrary to the admissions of both parties. 28 (Emphasis
supplied)
Given the bold-faced exceptions in the immediately-quoted ruling of the Court, which are present in
the case at bar, not to mention the fact that the trial courts conclusion "that the loss occurred while
the cargo was in the possession, custody and control of the defendants" is bereft of any reference to
specific evidence on record upon which it was based, the Court takes a second, hard look at the
evidence.29
Petitioner argues, in the main, that the appellate court erred in failing to consider the bill of lading as
a binding contract between the carrier and shipper or consignee insofar as the accuracy of the
weight of the cargo is concerned. It insists:
x x x [T]here is no need to confirm the correctness of its contents by other evidence outside the Bill
of Lading as it is already conclusive upon the parties. To argue otherwise would be to allow an
anomalous situation since defendant carrier can opt not to honor the terms and conditions of the bill
of lading which they themselves [sic] prepared by simply questioning the disparity of the quantity
between the bill of lading and the invoice. x x x30
The presumption that the bill of lading, which petitioner relies upon to support its claim for restitution,
constitutes prima facie evidence of the goods therein described was correctly deemed by the
appellate court to have been rebutted in light of abundant evidence casting doubts on its veracity.
That MV Hoegh undertook, under the bill of lading, to transport 6,599.23 MT of yellow crude sulphur
on a "said to weigh" basis is not disputed. Under such clause, the shipper is solely responsible for
the loading of the cargo while the carrier is oblivious of the contents of the shipment. 31 Nobody really
knows the actual weight of the cargo inasmuch as what is written on the bill of lading, as well as on
the manifest, is based solely on the shippers declaration.32
The bill of lading carried an added clause the shipments weight, measure, quantity, quality,
condition, contents and value unknown." Evidently, the weight of the cargo could not be gauged from
the bill of lading.

As observed by the Court of Appeals, there were also significant differences in shipment quantity
at various stages of transit. These disparities in the quantity at various stages of the cargos transfer
after its arrival to its final destinations in Manila are reflected in the Comparison of
Outturns33 embodied in SMSs Report of Survey, the pertinent portions of which read:
GENERAL REMARKS
The resultant variations among the foregoing figures per stage of transit as compared against the Bill
of Lading Quantity/Weight could probably be attributed to any and/or a confluence of the following
factors:
1. Variance in moisture content; evaporation and/or absorption of moisture due to exposure
of the subject shipment to the elements otherwise atmospheric change, attendant all
throughout the stages of transit from port of loading/origin to final destination at consignees
receiving terminal;
2. Unrecovered spillages during unloading of the subject shipment from vessel to barges,
and during receiving at LMG Terminal from barges to stock pile area;
3. Shortage of about 352.031 Metric Tons as established on completion of discharging the
subject shipment per vessels draft, and/or 477.207 Metric Tons as established based on
quantity/weight received by barges at shipside per displacement method;
4. Probable error/oversight aboard vessel and barges due rough sea condition prevailing at
the time of initial and final draft surveys; and
5. Variance due to inaccuracies or errors in manner, procedure, method, and/or equipments
used or applied in determining the outturn quantity/weight of the subject shipment per stage
of transit from port of loading/origin to final port of destination at consignees designated
receiving terminal.34 (Underscoring supplied)
In the absence of clear, convincing and competent evidence to prove that the cargo indeed weighed,
albeit the Bill of Lading qualified it by the phrase "said to weigh," 6,599.23 MT at the port of origin
when it was loaded onto the MV Hoegh, the fact of loss or shortage in the cargo upon its arrival in
Manila cannot be definitively established. The legal basis for attributing liability to either of the
respondents is thus sorely wanting.
Petitioner points out, however, that the shipment was covered not only by the Marine Risk Note but
also by Open Marine Insurance Policy which, it explains, means that the value of the thing insured
has not been agreed upon but left to be ascertained in the event of loss and, therefore, covered by a
continuing insurance long before the cargo even loaded on board; and that Jardine Davies cannot
set up any defect in the insurance policy as a defense since it is not privy to the contract of
insurance between it (petitioner) and LMG.
These matters pointed out by petitioner are closely intertwined with the terms and conditions
embodied in the insurance contract between petitioner and LMG such that petitioners right to

recovery unquestionably derives from contractual subrogation as an incident to an insurance

relationship.35
Jurisprudence mandates the presentation in evidence of the marine insurance policy so that its
terms and conditions can be scrutinized and the extent of coverage 36 can be determined.
Respondents were thus well within their rights to scrutinize the contents thereof for the purpose of
determining the terms of its validity or effectivity,among other things.
1avvphi1

Given that it is respondents who stand to be prejudiced by any claims for restitution arising from
petitioners right of subrogation under the open policy, it is, at best specious to insist that they are
barred from invoking any contractual defect as a defense under the pretext that they were not privy
to the insurance contract.
Recall that petitioners main cause of action under the complaint was based on both the Marine Risk
Note and the Open Policy. The Subrogation Receipt37 clearly states that the amount paid was in full
settlement of LMGs claim under petitioners Marine Risk Note Number RN-001-17551. The Marine
Risk Note, however, is not the insurance policy. It merely constitutes an acknowledgment or
declaration of the shipper about the specific shipment covered by the marine insurance policy, the
evaluation of the cargo and the chargeable premium. 38 The marine open policy is the blanket
insurance to be undertaken by the insurer on all goods to be shipped by the consignee during the
existence of the contract.
Apart from not being a legal source of subrogation, the Marine Risk Note is invalid for, as earlier
stated, it was issued only on July 20, 1994 or after the main insurance contract had already lapsed
(by the end of December 1993), and the insurance premium on this risk note was paid only on
October 6, 199439 or a month after the shipment had already arrived in Manila, a peculiarity that none
of petitioners witnesses has endeavored to explain.
Petitioners marine insurance policy explicitly states under its effectivity clause that it shall cover "all
shipments effective January 10, 1993 sailings and all shipments made thereafter until December 31,
1993 sailings."40Coverage had, therefore, expired almost seven (7) months prior to the loading of the
shipment on July 23, 1994.
Petitioner can take no refuge in its claim that the Endorsement dated December 29, 1993 41 proves
that the subject insurance policy was amended or renewed. The said Endorsement was never
adverted to in the complaint filed before the trial court, its existence coming to light only at the close
of the testimony on cross of petitioners witness Emmanuel Gotladera on the expired marine
insurance policy.42 In fact, said witness did not identify the signatory to the Endorsement nor on its
genuineness and due execution, thus rendering his testimony thereon as mere hearsay.
A final note. It bears stressing that there is nothing in the records showing that ATI was negligent in
its handling of the cargo when its stevedores discharged the same from the vessel directly onto the
steel barges of CCBI.
Contrary to the trial courts findings, ATI was never in custody or possession of the shipment, its
participation having been limited to where "the stevedores of Asian Terminals, Inc. (ATI) undertook

the discharging operations of the shipment ex vessel to barges thru the use of vessels cargo gears,
and clamshell/ grab,"43 a fact confirmed by petitioners own witness Eutiquiano Patiag.
More importantly, representatives of SMS, the consignees assigned surveyors, were present
throughout the entire discharging operations - from the time the cargo was unloaded from the MV
Hoegh until its discharge at LMGs chemical terminal - and never reported any mishap or incidence
of mishandling on the part of ATI.44
WHEREFORE, the assailed Court of Appeals January 14, 2008 Decision in connection with CA-G.R.
CV No. 84139 is AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. 76452 July 26, 1994
PHILIPPINE AMERICAN LIFE INSURANCE COMPANY and RODRIGO DE LOS
REYES, petitioners,
vs.
HON. ARMANDO ANSALDO, in his capacity as Insurance Commissioner, and RAMON
MONTILLA PATERNO, JR., respondents.
Ponce Enrile, Cayetano, Reyes and Manalastas for petitioners.
Oscar Z. Benares for private respondent.

QUIASON, J.:
This is a petition for certiorari and prohibition under Rule 65 of the Revised Rules of Court, with
preliminary injunction or temporary restraining order, to annul and set aside the Order dated
November 6, 1986 of the Insurance Commissioner and the entire proceedings taken in I.C. Special
Case No. 1-86.
We grant the petition.
The instant case arose from a letter-complaint of private respondent Ramon M. Paterno, Jr. dated
April 17, 1986, to respondent Commissioner, alleging certain problems encountered by agents,
supervisors, managers and public consumers of the Philippine American Life Insurance Company
(Philamlife) as a result of certain practices by said company.
In a letter dated April 23, 1986, respondent Commissioner requested petitioner Rodrigo de los
Reyes, in his capacity as Philamlife's president, to comment on respondent Paterno's letter.

In a letter dated April 29, 1986 to respondent Commissioner, petitioner De los Reyes suggested that
private respondent "submit some sort of a 'bill of particulars' listing and citing actual cases, facts,
dates, figures, provisions of law, rules and regulations, and all other pertinent data which are
necessary to enable him to prepare an intelligent reply" (Rollo, p. 37). A copy of this letter was sent
by the Insurance Commissioner to private respondent for his comments thereon.
On May 16, 1986, respondent Commissioner received a letter from private respondent maintaining
that his letter-complaint of April 17, 1986 was sufficient in form and substance, and requested that a
hearing thereon be conducted.
Petitioner De los Reyes, in his letter to respondent Commissioner dated June 6, 1986, reiterated his
claim that private respondent's letter of May 16, 1986 did not supply the information he needed to
enable him to answer the letter-complaint.
On July 14, a hearing on the letter-complaint was held by respondent Commissioner on the validity
of the Contract of Agency complained of by private respondent.
In said hearing, private respondent was required by respondent Commissioner to specify the
provisions of the agency contract which he claimed to be illegal.
On August 4, private respondent submitted a letter of specification to respondent Commissioner
dated July 31, 1986, reiterating his letter of April 17, 1986 and praying that the provisions on charges
and fees stated in the Contract of Agency executed between Philamlife and its agents, as well as the
implementing provisions as published in the agents' handbook, agency bulletins and circulars, be
declared as null and void. He also asked that the amounts of such charges and fees already
deducted and collected by Philamlife in connection therewith be reimbursed to the agents, with
interest at the prevailing rate reckoned from the date when they were deducted.
Respondent Commissioner furnished petitioner De los Reyes with a copy of private respondent's
letter of July 31, 1986, and requested his answer thereto.
Petitioner De los Reyes submitted an Answer dated September 8, 1986, stating inter alia that:
(1) Private respondent's letter of August 11, 1986 does not contain any of the
particular information which Philamlife was seeking from him and which he promised
to submit.
(2) That since the Commission's quasi-judicial power was being invoked with regard
to the complaint, private respondent must file a verified formal complaint before any
further proceedings.
In his letter dated September 9, 1986, private respondent asked for the resumption of the hearings
on his complaint.
On October 1, private respondent executed an affidavit, verifying his letters of April 17, 1986, and
July 31, 1986.

In a letter dated October 14, 1986, Manuel Ortega, Philamlife's Senior Assistant Vice-President and
Executive Assistant to the President, asked that respondent Commission first rule on the questions
of the jurisdiction of the Insurance Commissioner over the subject matter of the letters-complaint and
the legal standing of private respondent.
On October 27, respondent Commissioner notified both parties of the hearing of the case on
November 5, 1986.
On November 3, Manuel Ortega filed a Motion to Quash Subpoena/Notice on the following grounds;
1. The Subpoena/Notice has no legal basis and is premature because:
(1) No complaint sufficient in form and contents has been filed;
(2) No summons has been issued nor
received by the respondent De los
Reyes, and hence, no jurisdiction has
been acquired over his person;
(3) No answer has been filed, and
hence, the hearing scheduled on
November 5, 1986 in the
Subpoena/Notice, and wherein the
respondent is required to appear, is
premature and lacks legal basis.
II. The Insurance Commission has no jurisdiction over;
(1) the subject matter or nature of the action; and
(2) over the parties involved (Rollo, p. 102).
In the Order dated November 6, 1986, respondent Commissioner denied the Motion to Quash. The
dispositive portion of said Order reads:
NOW, THEREFORE, finding the position of complainant thru counsel tenable and
considering the fact that the instant case is an informal administrative litigation falling
outside the operation of the aforecited memorandum circular but cognizable by this
Commission, the hearing officer, in open session ruled as it is hereby ruled to deny
the Motion to Quash Subpoena/Notice for lack of merit (Rollo, p. 109).
Hence, this petition.
II

The main issue to be resolved is whether or not the resolution of the legality of the Contract of
Agency falls within the jurisdiction of the Insurance Commissioner.
Private respondent contends that the Insurance Commissioner has jurisdiction to take cognizance of
the complaint in the exercise of its quasi-judicial powers. The Solicitor General, upholding the
jurisdiction of the Insurance Commissioner, claims that under Sections 414 and 415 of the Insurance
Code, the Commissioner has authority to nullify the alleged illegal provisions of the Contract of
Agency.
III
The general regulatory authority of the Insurance Commissioner is described in Section 414 of the
Insurance Code, to wit:
The Insurance Commissioner shall have the duty to see that all laws relating to
insurance, insurance companies and other insurance matters, mutual benefit
associations and trusts for charitable uses are faithfully executed and to perform the
duties imposed upon him by this Code, . . .
On the other hand, Section 415 provides:
In addition to the administrative sanctions provided elsewhere in this Code, the
Insurance Commissioner is hereby authorized, at his discretion, to impose upon
insurance companies, their directors and/or officers and/or agents, for any willful
failure or refusal to comply with, or violation of any provision of this Code, or any
order, instruction, regulation or ruling of the Insurance Commissioner, or any
commission of irregularities, and/or conducting business in an unsafe and unsound
manner as may be determined by the the Insurance Commissioner, the following:
(a) fines not in excess of five hundred pesos a day; and
(b) suspension, or after due hearing,
removal of directors and/or officers
and/or agents.
A plain reading of the above-quoted provisions show that the Insurance Commissioner has the
authority to regulate the business of insurance, which is defined as follows:
(2) The term "doing an insurance business" or "transacting an insurance business,"
within the meaning of this Code, shall include
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation
and not as merely incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the meaning of
this Code; (d) doing or proposing to do any business in substance equivalent to any

of the foregoing in a manner designed to evade the provisions of this

Code. (Insurance Code, Sec. 2[2]; Emphasis supplied).
Since the contract of agency entered into between Philamlife and its agents is not included within the
meaning of an insurance business, Section 2 of the Insurance Code cannot be invoked to give
jurisdiction over the same to the Insurance Commissioner. Expressio unius est exclusio alterius.
With regard to private respondent's contention that the quasi-judicial power of the Insurance
Commissioner under Section 416 of the Insurance Code applies in his case, we likewise rule in the
negative. Section 416 of the Code in pertinent part, provides:
The Commissioner shall have the power to adjudicate claims and complaints
involving any loss, damage or liability for which an insurer may be answerable under
any kind of policy or contract of insurance, or for which such insurer may be liable
under a contract of suretyship, or for which a reinsurer may be used under any
contract or reinsurance it may have entered into, or for which a mutual benefit
association may be held liable under the membership certificates it has issued to its
members, where the amount of any such loss, damage or liability, excluding interest,
costs and attorney's fees, being claimed or sued upon any kind of insurance, bond,
reinsurance contract, or membership certificate does not exceed in any single claim
one hundred thousand pesos.
A reading of the said section shows that the quasi-judicial power of the Insurance Commissioner is
limited by law "to claims and complaints involving any loss, damage or liability for which an insurer
may be answerable under any kind of policy or contract of insurance, . . ." Hence, this power does
not cover the relationship affecting the insurance company and its agents but is limited to
adjudicating claims and complaints filed by the insured against the insurance company.
While the subject of Insurance Agents and Brokers is discussed under Chapter IV, Title I of the
Insurance Code, the provisions of said Chapter speak only of the licensing requirements and
limitations imposed on insurance agents and brokers.
The Insurance Code does not have provisions governing the relations between insurance
companies and their agents. It follows that the Insurance Commissioner cannot, in the exercise of its
quasi-judicial powers, assume jurisdiction over controversies between the insurance companies and
their agents.
We have held in the cases of Great Pacific Life Assurance Corporation v. Judico, 180 SCRA 445
(1989), andInvestment Planning Corporation of the Philippines v. Social Security Commission, 21
SCRA 904 (1962), that an insurance company may have two classes of agents who sell its
insurance policies: (1) salaried employees who keep definite hours and work under the control and
supervision of the company; and (2) registered representatives, who work on commission basis.
Under the first category, the relationship between the insurance company and its agents is governed
by the Contract of Employment and the provisions of the Labor Code, while under the second

category, the same is governed by the Contract of Agency and the provisions of the Civil Code on
the Agency. Disputes involving the latter are cognizable by the regular courts.
WHEREFORE, the petition is GRANTED. The Order dated November 6, 1986 of the Insurance
Commission is SET ASIDE.
SO ORDERED.
G.R. No. 71905 August 13, 1986
MIDLAND INSURANCE CORPORATION, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, & SISENANDO VILLAREAL, respondent.
Reynaldo P. Melendres for respondent Sisenando Villareal.

ALAMPAY, J.:
The petition for review on certiorari in this case seeks the nullification of the Order of the respondent
Intermediate Appellate Court under date August 14, 1985, dismissing the appeal of herein petitioner
despite respondent Court's letter-advice, dated February 8, 1985 directing the filing of petitionerappellant's brief.
The factual background of this case indicates that on October 1, 1984, a judgment was rendered by
the Insurance Commission in favor of complaint-appellee, Sisenando Villareal, and against herein
petitioner Midland Insurance Corporation. Petitioner received a copy of the decision on October 5,
1984 and it filed a motion for reconsideration of said judgment on October 17, 1984. This motion was
denied in an Order dated October 26, 1984. On November 7, 1984, petitioner filed with the
Insurance Commission its notice of appeal from the subject decision to respondent Intermediate
Appellate Court (IAC). This appeal was docketed as AC-G.R. SP No. 04928 of said court.
Petitioner's appeal was initially-accepted by the IAC as can be gleaned from the letter-advice dated
February 8, 1985, notifying petitioner's counsel to file appellant's brief. However, a Motion to Dismiss
appeal dated March 1, 1985 was filed by the complainant-appellee on the ground that the petitioner
herein, as the appellant in said AC-G.R. SP No. 04928 failed to perfect its appeal within the
reglementary period. Despite the opposition thereto interposed by petitioner Midland Insurance
Corporation, the Respondent IAC, on August 14, 1985 granted the stated Motion to Dismiss on the
ground that by said court's computation of the elapsed period from the date of receipt by herein
petitioner of the decision of the Insurance Commission to the time the notice of appeal was filed
before said Commission and notice of appeal and manifestation submitted to the IAC on December
5, 1984, it would appear that petitioner's appeal was belatedly made.
Respondent court in dismissing the petition said:

Respondent-appellant's contention that under Batas Pambansa Blg. 129 the

reglementary period of 15 days from receipt of the decision or judgment within which
to file an appeal is not applicable to quasi-judicial agencies such as the Insurance
Commission, is gratuitous. The applicable rule is explicit in No. 12(c)**, providing for
appellate procedure under the Interim Rules which state that 'appeals to the
Intermediate Appellate Court from quasi-judicial bodies shall continue to be governed
by the provisions of Republic Act No. 5434 insofar as the same is not inconsistent
with the provisions of B.P. Blg. 129. The pertinent provisions in Rep. Act No. 5434
provide:
SEC. 2. Appeals to the Court of Appeals shall be filed within the fifteen (15) days
from notice of the ruling, award, order, decision or judgment ... .
xxx xxx xxx
There is no conflict between the period to appeal in R.A. No. 5434 and Sec. 39, B.P.
129 which provides:
Appeals. The period for appeal from final orders, resolutions, awards, judgments,
or decisions of any court in all cases shall be fifteen (15) days counted from the
notice of the final order, resolution, award, judgment, or decision appealed from:
Provided, however, That in habeas corpus cases, the period for appeal shall be fortyeight (48) hours from the notice of the judgment appeal from.
xxx xxx xxx
(Decision, AC-G.R. SP No. 04928, p. 92, Rollo, p. 16)
The petitioner's case, however, rests on the assumption that it had timely filed its appeal on
November 7, 1984 because Section 2 of Republic Act No. 5434 which governs appeals originating
from quasi-judicial bodies grants a party ten (10) days from notice of the resolution denying a Motion
for Reconsideration. As notice of the denial of petitioner's motion for reconsideration by the
Insurance Commission was received by petitioner on October 30, 1984, the latter maintains that it
had ten (10) days thereafter or until November 9, 1984 within which to file its appeal and this was
filed with the IAC on November 7, 1984. Petitioner's submission is that the appeal was thus filed
within the reglementary period.
We find the petition impressed with merit and fully agree with the petitioner's submission regarding
the timeliness of its appeal.
It can be gleaned from the powers and duties of the Insurance Commissioner enumerated in
Sections 414-416, 187, and 241 of the Insurance Code performs quasi-judicial functions a term
which applies to the action, discretion, etc., of public administrative officers or bodies, who are
required to investigate facts, or ascertain the existence of facts, hold hearings, and draw conclusions
from them, as a basis for their official action and to exercise discretion of a judicial nature (Black's
Law Dictionary, Fifth Ed., 1979, p. l121).

It is paragraph 22(c) of the Interim Rules and Guidelines, relative to the Implementation of the
Judiciary Reorganization Act of 1981 (Batas Pambansa Blg. 129) which prescribes the procedure to
be taken in the Appellate Court with respect to appeals originating from Quasi-Judicial Bodies. It
reads as follows:
Paragraph 22(c) Appeals from Quasi-Judicial Bodies.-The appeals to the
Intermediate Appellate Court from quasi-judicial bodies shall continue to be governed
by the provisions of Republic Act No. 5434 insofar as the same is not inconsistent
with the provisions of B.P. Blg. 129.
Section 2 of R.A. 5434 explicitly provides:
Sec. 2. Appeals to the Court of Appeals shall be filed within fifteen (15) days from
notice of the ruling, award, order, decision or judgment or from the date of its last
publication if required by law for its effectivity or in case a motion for reconsideration
is filed within that period of fifteen (15) days, then within ten (10) days from Notice or
publication when required by law, of the resolution denying the motion for
reconsideration. No more than one motion for reconsideration shall be allowed by
any part. ... . (Emphasis supplied)
We find that petitioner herein is correct in maintaining that its appeal was timely filed. Petitioner's
motion for reconsideration was denied by the Insurance Commission and advice of such denial was
received by petitioner on October 30, 1984. As petitioner would then have ten (10) days from
October 30, 1984 or until November 9, 1984, its appeal was well within the ten day period within
which an appeal can be made to the respondent Intermediate Appellate Court.
What We note is that Respondent IAC fell into error because it failed to consider and apply the
pivotal Section 2 of R.A. 5434, which recites that "in case a motion for reconsideration is filed within
that period of fifteen (15) days, then within ten (10) days from Notice or publication, when required
by law, of the resolution denying the motion for reconsideration ... ." Respondent's court's failure to
do so led to its erroneous conclusion.
It should be considered that while Section 39 of B.P. Blg. 129, in conjunction with Section 19(a) of
the Interim Rules, fixes a uniform fifteen (15) day period for appeal from notice of the final order,
resolution, award, judgment or decision of any court Section 22(c) of the Interim Rules, however,
applies in particular to appeals to the Intermediate Appellate Court from quasi-judicial bodies. Said
Section 22(c) explicitly refers to the provisions of R.A. 5434, of which Section 2 thereof, had already
been above cited. There is no inconsistency between said section and B.P. 129 or its implementing
guidelines. B.P. 129 may not be said to have repealed said provision of R.A. 5434 for the Interim
Rules even expressly refer to said Section 2 of R.A. 5434. Said Section 2 should, therefore, be
applied.
It should be stressed that the provision in Section 2 of R.A. No. 5434 which allows an additional ten
(10) days from notice of the denial of the motion for reconsideration does not extend the period for
appeal but merely furnishes an automatic ten-day allowance in the event that a motion for
reconsideration is interposed within the appeal period. In other words, this particular provision

becomes operative only if a motion for reconsideration is filedduring the fifteen-day period. The
period for appeal remains untouched by Section 2 of R.A. 5434. Private respondent's submission,
therefore, that this interpretation runs counter to the avowed intent of the Judiciary Reorganization
Act to set a uniform and thus shorter period for appeals does not possess a persuasive ring.
Furthermore, even if viewed in the light of Section 416, paragraph 7 of the Insurance Code (P.D.
612, as amended), which decrees that "... any party may appeal from a final order, ruling or decision
of the Commissioner by filing with the Commissioner within thirty (30) days from receipt of copy of
such order, ruling or decision a notice of appeal ...," the timeliness of the petitioner's appeal to the
Intermediate Appellate Court stands unassailable. Petitioner received notice of the decision of the
Insurance Commissioner on October 5, 1984 and filed a motion for reconsideration on October 17,
1984, thereby availing of eleven (11) days of the thirty (30) days limit in Section 416, par. 7, adverted
to above. Consequently, when petitioner received a copy of the Order denying said motion for
reconsideration on October 30, 1984, petitioner still had in its favor a total of nineteen (19) days from
the aforestated date inasmuch as the motion for reconsideration would suspend the running of the
thirty-day period prescribed for filing notice of appeal with the Insurance Commission (Rule 41,
Section 3, Rules of Court). Obviously, the filing of the notice of appeal on November 7, 1984 did not
exceed the remaining nineteen (19) days afforded to petitioner.
Thus, whether it be B.P. 129 or R.A. 5434 or the provisions of the Insurance Code, P.D. 612, as
amended, that should be considered and applied, the appeal in subject case made by Midland
Insurance Corporation must be deemed to be still timely filed.
It is also significant to note that in the recent decision of this Court in Gimenez Stockbrokerage and
Co. Inc., vs. Securities and Exchange Commission, No. L-68568, December 26, 1984, 133 SCRA
840-841, We therein held
... the SEC erred in holding that the thirty-day period provided for in section 6 of
Presidential Decree No. 902-A was modified by section 39 of the Judiciary Revamp
Law, Batas Pambansa Big. 129, which provides for a period of fifteen days for
appealing from final orders, resolutions, awards, judgments or decisions of any court.
The SEC is not a Court. It is an administrative agency.
In the same manner that the SEC was held to be an administrative agency, with quasi-judicial
functions, the same consideration would apply to the Insurance Commission. Consequently, the
period of appeal from final orders, decisions, resolutions or awards of said Insurance Commission
may not be necessarily modified or limited by section 39 of Batas Pambansa Blg. 129.
IN VIEW OF ALL THE FOREGOING, the Order of the respondent Intermediate Appellate Court,
dated August 14, 1985, dismissing petitioner's appeal is hereby SET ASIDE and it is directed to give
due course to the petitioner's appeal in accordance with the rules and procedure prescribed therefor
by said court.
No pronouncement as to costs.
G.R. No.72878 April 15, 1988

ALMENDRAS MINING CORPORATION, petitioner,

vs.
OFFICE OF THE INSURANCE COMMISSION and COUNTRY BANKERS INSURANCE
CORPORATION,respondents.
Augusto G. Gatmaytan for petitioner.
Romeo G. Velasquez for respondents.
RESOLUTION

FELICIANO, J.:
At about two-thirty in the morning of 3 September 1984, the marine cargo vessel LCT "Don Paulo,"
while on a voyage from Davao to Mariveles, Bataan, was forced ground somewhere in the vicinity of
Sogod, Tablas Island, Romblon after having been hit by strong winds and tidal waves brought about
by tropical typhoon "Nitang." Later that same day, petitioner Almendras Mining Corporation
("Almendras"), owner of the vessel, executed and filed the corresponding Marine
Protest. 1 Subsequently, in a letter dated 6 September 1984, 2 petitioner Almendras formally notified the
vessel's insurer, private respondent Country Bankers Insurance Corporation ("Bankers"), of its intention to
file a provisional claim for indemnity for damages sustained by the vessel. 3
Immediately following the marine casualty, private respondent Bankers commissioned the services
of Audemus Adjustment Corporation, which estimated the insurer's liability at P2,187,983.00, or the
equivalent of seventy percent (70%) of all expenses necessary for the repair of the vessel. Private
respondent accepted and approved this estimate.
Salvage operations on the LCT "Don Paulo" were commenced on 5 September 1984. By 24
September 1984, the vessel had been towed to and docked at the Philippine National Oil
Corporation (PNOC) marine facility in Bauan, Batangas where repair work on the same was
subsequently performed by the PNOC Marine Corporation.
Delay, however, overtook the repair work on the LCT 'Don Paulo.' Private respondent Bankers
explained that the delay was due to the unavailability of spare parts needed in the repair of the
vessel's four (4) damaged engines. Notwithstanding this explanation, petitioner Almendras, on 18
April 1985, filed with the public respondent office of the Insurance Commission an administrative
complaint 4 (docketed as Administrative Case No. 006) against private respondent Bankers. In its
complaint, petitioner Almendras sought (1) revocation or suspension of private respondent Bankers'
Certificate of Authority to engage in the insurance business; (2) an administrative directive ordering
immediate completion of all repair work on and delivery to petitioner of the LCT "Don Paulo;" and (3)
damages.
At the initial hearings on Administrative Case No. 006 held before public respondent Commission,
private respondent Bankers agreed to replace the four (4) damaged engines of the LCT "Don Paulo"

with one (1) brand new engine and three (3) reconditioned engines. This entailed a total additional
cost of P3,000,000.00, seventy percent (70%) of which private respondent Bankers had previously
obligated itself, as insurer, to shoulder. For its part, petitioner Almendras agreed to pay a thirty
percent (30%) share in the cost, but only after it had inspected one of the proposed replacement
engines a brand new Caterpillar D-3408 marine engine which petitioner had claimed was not a
suitable replacement for the vessel's damaged main engine.
Inspection of the Caterpillar D-3408 engine took place at the premises of the Actrade Machinery
Corporation (supplier of the engine) on 16 July 1985 in the presence of representatives of both
petitioner and private respondent. Engineers of the PNOC Marine Corporation who conducted the
inspection found said engine to have met the engineering requirements of the LCT "Don Paulo;"
private respondent Bankers thus anticipated a favorable response in this regard from petitioner
Almendras.
The following day, however, petitioner Almendras, reiterating its claim that the proposed Caterpillar
D-3408 engine was not at par with the vessel's original but damaged main engine, demanded
instead cash settlement of its insurance claim. This unexpected turn of events moved the Insurance
Commissioner to terminate the hearing then in progress and to require private respondent Bankers
to submit its Answer to the complaint of petitioner Almendras.
Meanwhile, on 13 August 1985, petitioner Almendras filed a separate civil action for damages
(docketed as Civil Case No. 3120-P) with the Regional Trial Court of Pasay City. 5
At the 23 August 1985 Commission hearing both parties agreed to submit Administrative Case No.
006 for resolution on a single issuei.e,whether or not revocation or suspension of private
respondent Bankers' Certificate of Authority to engage in the insurance business was justified and
proper under the circumstances of this case.
On 23 October 1985, public respondent Commission, through the Insurance Commissioner, issued a
Resolution 6ordering the dismissal of petitioner Almendras' complaint. It was found by the Insurance
Commissioner that failure by private respondent Bankers to settle promptly and expeditiously the
insurance claim of petitioner Almendras was attributable to the latter's own act of insisting on cash
settlement thereof, even after the parties had already agreed upon outright replacement of the vessel's
damaged engines. The Insurance Commissioner also stated in his resolution that, assuming that private
respondent Bankers had incurred in delay in the repair of the LCT "Don Paulo," nevertheless, there was
nothing in the record of the case to show that such delay was unreasonable or was the result of any unfair
claim settlement practice as defined under the Insurance Code, as amended as would warrant
revocation or suspension of private respondent's Certificate of Authority.
Petitioner Almendras' Motion for Reconsideration was denied for lack of merit by public respondent
Commission on 11 November 1985. 7
In the present Petition for certiorari filed with this Court on 28 November 1985, petitioner Almendras
presents only one issue for determination-i.e., whether or not there the valid and substantial grounds
to revoke or suspend private respondent Bankers' Certificate of Authority to engage in the insurance
business. Public respondent Commission would, however, raise as an additional issue the argument
that the present Petition for certiorari is improperly filed, that appeal to the Secretary of Finance from

public respondent Commission's disputed Resolution and Order is the proper recourse for petitioner
under the facts and circumstances of this case. 8
Viewed in the light of the facts obtaining in Administrative Case No. 006 and the pertinent legal
provisions on the matter, we hold that the Court has no jurisdiction to try and decide the instant
Petition.
The provisions of the Insurance Code (Presidential Decree No. 1460), as amended, clearly indicate
that the Office of the Insurance Commission is an administrative agency vested
with regulatory power as well as with adjudicatoryauthority. Among the several regulatory or nonquasi-judicial duties of the Insurance Commissioner under the Insurance Code is the authority to
issue, or refuse issuance of, a Certificate of Authority to a person or entity desirous of engaging in
insurance business in the Philippines, 9 and to revoke or suspend such Certificate of Authority upon a
finding of the existence of statutory grounds for such revocation or suspension. The grounds for
revocation or suspension of an insurer's Certificate of Authority are set out in Section 241 10 and in Section
247 11 of the Insurance Code as amended. The general regulatory authority of the Insurance
Commissioneris described in Section 414 of the Insurance Code, as amended, in the following terms:
Section 414. The Insurance Commissioner shall have the duty to see that all laws
relating to insurance, insurance companies and other insurance matters, mutual
benefit associations, and trusts for charitable uses are faithfully executed and to
perform the duties imposed upon him by this Code, and shall, not withstanding any
existing laws to contrary, have sole and exclusive authority to regulate the issuance
and sale of variable contracts as defined in section two hundred thirty-two and to
provide for the licensing of persons selling such contracts, and to issue such
reasonable rules and regulations governing the same.
The Commissioner may issue such rulings, instructions, circulars, orders and
decisions as he may deem necessary to secure the enforcement of the provisions of
this Code, subject to the approval of the Secretary of Finance. Except as otherwise
specified decisions made by the Commissioner shall be appealable to the Secretary
of Finance. (Emphasis supplied)
which Section also specifies the authority to which a decision of the Insurance Commissioner
rendered in the exercise of its regulatory function may be appealed.
The adjudicatory authority of the Insurance Commissioner is generally described in Section 416 of
the Insurance Code, as amended, which reads as follows:
Sec. 416. The Commissioner shall have the power to adjudicate claims and
complaints involving any loss, damage or liability for which an insurer may be
answerable under any kind of policy or contract of insurance, or for which such
insurer may be liable under a contract of membership, or for which a reinsurer may
be sued under any contract or reinsurance it may have entered into, or for which a
mutual benefit association may be held liable under the membership certificates it
has issued to its members, where the amount of any such loss, damage or liability,

excluding interests, cost and attorney's fees, being claimed or sued upon any kind of
insurance, bond, reinsurance contract, or membership certificate does not exceed in
any single claim one hundred thousand pesos.
xxx xxx xxx
The authority to adjudicate granted to the Commissioner under this section shall be
concurrent with that of the civil courts, but the filing of a complaint with the
Commissioner shall preclude the civil courts from taking cognizance of a suit
involving the same subject matter. (Emphasis supplied)
Continuing, Section 416 (as amended by B.P. Blg. 874) also specifies the authority to which appeal
may be taken from a final order or decision of the Commissioner given in the exercise of his
adjuclicatory or quasi-judicial power:
Any decision, order or ruling rendered by the Commissioner after a hearing shall
have the force and effect of a judgment. Any party may appeal from a final order,
ruling or decision of the Commissioner by filing with the Commissioner within thirty
days from receipt of copy of such order, ruling or decision a notice of appeal to the
Intermediate Appellate Court (now the Court of appeals) in the manner provided for
in the Rules of Court for appeals from the Regional Trial Court to the Intermediate
Appellate Court (now the Court of Appeals).
xxx xxx xxx (Emphasis supplied)
It may be noted that under Section 9 (3) of B.P. Blg. 129, appeals from a final decision of the
Insurance Commissioner rendered in the exercise of his adjudicatory authority now fall within
the exclusive appellate jurisdiction of the Court of Appeals.
Petitioner Almendras in his Complaint filed with the Insurance Commission, originally sought
remedies which would have required the Insurance Commissioner to adjudicate on matters
pertaining to performance and satisfaction by private respondent Bankers of its legal obligations
under its Contract of Insurance (policy No. MH-HO/84-305) with petitioner Almendras. The Court
observes, however, that both parties had agreed at the 23 August 1985 hearing before the
Insurance Commissioner to submit the case for resolution on the sole issue of whether or not
revocation or suspension of private respondent Bankers' Certificate of Authority to engage in
insurance business was justified. The scope of the issues involved having been so limited the
Insurance Commissioner was left with the task of determining whether or not private respondent
Bankers was guilty of an act or acts constituting a statutory ground for revocation or suspension of
its Certificate of Authority. Clearly, therefore, the Insurance Commissioner's disputed Resolution and
Order was issued in the performance of administrative and regulatory duties and fucntion and should
have been appealed by petitioner to the Office of the Secretary of Finance.
Petitioner Almendras in effect invoked only the Commissioner's regulatory authority to determine
whether or not private respondent Bankers had violated provisions of the Insurance Code, as
amended. Petitioner had chosen to litigate the substantive aspects of its insurance claim against

Bankers in a different forum a judicial one for it instituted a separate civil action for damages
before the Regional Trial Court of Pasay City, on 13 August 1985, that is, after efforts at amicable
settlement of Administrative Case No. 006 had failed. Petitioner Almendras had in fact to go before a
judicial forum and to limit the proceedings before the Insurance Commissioner to regulatory, nonjudicial, matters; the claim of petitioner Almendras was in excess of P100,000.00 and, therefore, fen
outside the quasi-judicial jurisdiction of the Insurance Commissioner under Section 416 of the
Insurance Code, as amended.
We conclude that petitioner Almendras remedy after its Motion for Reconsideration in Administrative
Case No. 006 had been denied by public respondent Commission was to interpose an appeal to the
Secretary of Finance. The present Petition for certiorari is neither proper nor an appropriate
substitute for such an appeal.
WHEREFORE, the Petition for certiorari is DISMISSED. Costs against petitioner.
SO ORDERED.