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G.R. No.

L-25317 August 6, 1979


PHILIPPINE PHOENIX SURETY & INSURANCE COMPANY, plaintiff-appellee,
vs.
WOODWORKS, INC., defendant-appellant.
Zosimo Rivas for appellant.
Manuel O. Chan for appellee.

MELENCIO-HERRERA, J.:
This case was certified to this Tribunal by the Court of Appeals in its Resolution of October 4, 1965 on a pure
question of law and "because the issues raised are practically the same as those in CA-G.R. No. 32017-R" between
the same parties, which case had been forwarded to us on April 1, 1964. The latter case, "Philippine Phoenix Surety
& Insurance Inc. vs. Woodworks, Inc.," docketed in this Court as L-22684, was decided on August 31, 1967 and has
been reported in 20 SCRA 1270.
Specifically, this action is for recovery of unpaid premium on a fire insurance policy issued by plaintiff, Philippine
Phoenix Surety & Insurance Company, in favor of defendant Woodworks, Inc.
The following are the established facts:
On July 21, 1960, upon defendant's application, plaintiff issued in its favor Fire Insurance Policy No. 9749 for
P500,000.00 whereby plaintiff insured defendant's building, machinery and equipment for a term of one year from
July 21, 1960 to July 21, 1961 against loss by fire. The premium and other charges including the margin fee
surcharge of P590.76 and the documentary stamps in the amount of P156.60 affixed on the Policy, amounted to
P10,593.36.
It is undisputed that defendant did not pay the premium stipulated in the Policy when it was issued nor at any time
thereafter.
On April 19, 1961, or before the expiration of the one-year term, plaintiff notified defendant, through its Indorsement
No. F-6963/61, of the cancellation of the Policy allegedly upon request of defendant. 1 The latter has denied having made
such a request. In said Indorsement, plaintiff credited defendant with the amount of P3,110.25 for the unexpired period of 94 days,
and claimed the balance of P7,483.11 representing ,learned premium from July 21, 1960 to 18th April 1961 or, say 271 days." On
July 6, 1961, plaintiff demanded in writing for the payment of said amount. 2Defendant, through counsel, disclaimed any liability in its
reply- letter of August 15, 1961, contending, in essence, that it need not pay premium "because the Insurer did not stand liable for
any indemnity during the period the premiums were not paid." 3

On January 30, 1962, plaintiff commenced action in the Court of First Instance of Manila, Branch IV (Civil Case No.
49468), to recover the amount of P7,483.11 as "earned premium." Defendant controverted basically on the theory
that its failure "to pay the premium after the issuance of the policy put an end to the insurance contract and rendered
the policy unenforceable." 4
On September 13, 1962, judgment was rendered in plaintiff's favor "ordering defendant to pay plaintiff the sum of
P7,483.11, with interest thereon at the rate of 6%, per annum from January 30, 1962, until the principal shall have
been fully paid, plus the sum of P700.00 as attorney's fees of the plaintiff, and the costs of the suit." From this
adverse Decision, defendant appealed to the Court of Appeals which, as heretofore stated, certified the case to us on
a question of law.

The errors assigned read:


1. The lower court erred in sustaining that Fire Insurance Policy, Exhibit A, was a binding contract
even if the premium stated in the policy has not been paid.
2. That the lower court erred in sustaining that the premium in Insurance Policy, Exhibit B, became
an obligation which was demandable even after the period in the Policy has expired.
3. The lower court erred in not deciding that a premium not paid is not a debt enforceable by action
of the insurer.
We find the appeal meritorious.
Insurance is "a contract whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event." 5 The consideration is the "premium". "The premium must be paid at
the time and in the way and manner specified in the policy and, if not so paid, the policy will lapse and be forfeited by its own
terms." 6

The provisions on premium in the subject Policy read:


THIS POLICY OF INSURANCE WITNESSETH, THAT in consideration of MESSRS.
WOODWORKS, INC. hereinafter called the Insured, paying to the PHILIPPINE PHOENIX
SURETY AND INSURANCE, INC., hereinafter called the Company, the sum of PESOS NINE
THOUSAND EIGHT HUNDRED FORTY SIX ONLY the Premium for the first period hereinafter
mentioned. ...
xxx xxx xxx
THE COMPANY HEREBY AGREES with the Insured ... that if the Property above described, or any
part thereof, shall be destroyed or damaged by Fire or Lightning after payment of Premium, at any
time between 4:00 o'clock in the afternoon of the TWENTY FIRST day of JULY One Thousand Nine
Hundred and SIXTY and 4:00 o'clock in the afternoon of the TWENTY FIRST day of JULY One
Thousand Nine Hundred and SIXTY ONE. ... (Emphasis supplied)
Paragraph "2" of the Policy further contained the following condition:
2. No payment in respect of any premium shall be deemed to be payment to the Company unless a
printed form of receipt for the same signed by an Official or duly-appointed Agent of the Company
shall have been given to the Insured.
Paragraph "10" of the Policy also provided:
10. This insurance may be terminated at any time at the request of the Insured, in which case the
Company will retain the customary short period rate for the time the policy has been in force. This
insurance may also at any time be terminated at the option of the Company, on notice to that effect
being given to the Insured, in which case the Company shall be liable to repay on demand a ratable
proportion of the premium for the unexpired term from the date of the cancelment.
Clearly, the Policy provides for pre-payment of premium. Accordingly; "when the policy is tendered the insured must
pay the premium unless credit is given or there is a waiver, or some agreement obviating the necessity for
prepayment." 7 To constitute an extension of credit there must be a clear and express agreement therefor." 8

From the Policy provisions, we fail to find any clear agreement that a credit extension was accorded defendant. And
even if it were to be presumed that plaintiff had extended credit from the circumstances of the unconditional delivery
of the Policy without prepayment of the premium, yet it is obvious that defendant had not accepted the insurer's offer
to extend credit, which is essential for the validity of such agreement.
An acceptance of an offer to allow credit, if one was made, is as essential to make a valid
agreement for credit, to change a conditional delivery of an insurance policy to an unconditional
delivery, as it is to make any other contract. Such an acceptance could not be merely a mental act
or state of mind, but would require a promise to pay made known in some manner to defendant. 9
In this respect, the instant case differs from that involving the same parties entitled Philippine Phoenix Surety &
Insurance Inc. vs. Woodworks, Inc., 10 where recovery of the balance of the unpaid premium was allowed inasmuch as in that
case "there was not only a perfected contract of insurance but a partially performed one as far as the payment of the agreed
premium was concerned." This is not the situation obtaining here where no partial payment of premiums has been made
whatsoever.

Since the premium had not been paid, the policy must be deemed to have lapsed.
The non-payment of premiums does not merely suspend but put, an end to an insurance contract,
since the time of the payment is peculiarly of the essence of the contract. 11
... the rule is that under policy provisions that upon the failure to make a payment of a premium or
assessment at the time provided for, the policy shall become void or forfeited, or the obligation of
the insurer shall cease, or words to like effect, because the contract so prescribes and because
such a stipulation is a material and essential part of the contract. This is true, for instance, in the
case of life, health and accident, fire and hail insurance policies. 12
In fact, if the peril insured against had occurred, plaintiff, as insurer, would have had a valid defense against recovery
under the Policy it had issued. Explicit in the Policy itself is plaintiff's agreement to indemnify defendant for loss by fire
only "after payment of premium," supra. Compliance by the insured with the terms of the contract is a condition
precedent to the right of recovery.
The burden is on an insured to keep a policy in force by the payment of premiums, rather than on
the insurer to exert every effort to prevent the insured from allowing a policy to elapse through a
failure to make premium payments. The continuance of the insurer's obligation is conditional upon
the payment of premiums, so that no recovery can be had upon a lapsed policy, the contractual
relation between the parties having ceased. 13
Moreover, "an insurer cannot treat a contract as valid for the purpose of collecting premiums and invalid for the
purpose of indemnity." 14
The foregoing findings are buttressed by section 77 of the Insurance Code (Presidential Decree No. 612,
promulgated on December 18, 1974), which now provides that no contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has been paid, notwithstanding any agreement to
the contrary.
WHEREFORE, the judgment appealed from is reversed, and plaintiff's complaint hereby dismissed.
G.R. No. 137172 June 15, 1999

UCPB GENERAL INSURANCE CO., INC., petitioner,


vs.
MASAGANA TELAMART, INC., respondent.

PARDO, J.:
The case is an appeal via certiorari seeking to set aside the decision of the Court of Appeals, 1 affirming with modification
that of the Regional Trial Court, Branch 58, Makati, ordering petitioner to pay respondent the sum of P18,645,000.00, as the
proceeds of the insurance coverage of respondent's property razed by fire; 25% of the total amount due as attorney's fees and
P25,000.00 as litigation expenses, and costs.

The facts are undisputed and may be related as follows:


On April 15, 1991, petitioner issued five (5) insurance policies covering respondent's various property described
therein against fire, for the period from May 22, 1991 to May 22, 1992.
In March 1992, petitioner evaluated the policies and decided not to renew them upon expiration of their terms on May
22, 1992. Petitioner advised respondent's broker, Zuellig Insurance Brokers, Inc. of its intention not to renew the
policies.
On April 6, 1992, petitioner gave written notice to respondent of the non-renewal of the policies at the address stated
in the policies.
On June 13, 1992, fire razed respondent's property covered by three of the insurance policies petitioner issued.
On July 13, 1992, respondent presented to petitioner's cashier at its head office five (5) manager's checks in the total
amount of P225,753.95, representing premium for the renewal of the policies from May 22, 1992 to May 22, 1993. No
notice of loss was filed by respondent under the policies prior to July 14, 1992.
On July 14, 1992, respondent filed with petitioner its formal claim for indemnification of the insured property razed by
fire.
On the same day, July 14, 1992, petitioner returned to respondent the five (5) manager's checks that it tendered, and
at the same time rejected respondent's claim for the reasons (a) that the policies had expired and were not renewed,
and (b) that the fire occurred on June 13, 1992, before respondent's tender of premium payment.
On July 21, 1992, respondent filed with the Regional Trial Court, Branch 58, Makati City, a civil complaint against
petitioner for recovery of P18,645,000.00, representing the face value of the policies covering respondent's insured
property razed by fire, and for attorney's fees. 2
On October 23, 1992, after its motion to dismiss had been denied, petitioner filed an answer to the complaint. It
alleged that the complaint "fails to state a cause of action"; that petitioner was not liable to respondent for insurance
proceeds under the policies because at the time of the loss of respondent's property due to fire, the policies had long
expired and were not renewed. 3
After due trial, on March 10, 1993, the Regional Trial Court, Branch 58, Makati, rendered decision, the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendant, as follows:

(1) Authorizing and allowing the plaintiff to consign/deposit with this Court the sum of P225,753.95
(refused by the defendant) as full payment of the corresponding premiums for the replacementrenewal policies for Exhibits A, B, C, D and E;
(2) Declaring plaintiff to have fully complied with its obligation to pay the premium thereby rendering
the replacement-renewal policy of Exhibits A, B, C, D and E effective and binding for the duration
May 22, 1992 until May 22, 1993; and, ordering defendant to deliver forthwith to plaintiff the said
replacement-renewal policies;
(3) Declaring Exhibits A & B, in force from August 22, 1991 up to August 23, 1992 and August 9,
1991 to August 9, 1992, respectively; and
(4) Ordering the defendant to pay plaintiff the sums of: (a) P18,645,000.00 representing the latter's
claim for indemnity under Exhibits A, B & C and/or its replacement-renewal policies; (b) 25% of the
total amount due as and for attorney's fees; (c) P25,000.00 as necessary litigation expenses; and,
(d) the costs of suit.
All other claims and counterclaims asserted by the parties are denied and/or dismissed, including
plaintiff's claim for interests.
SO ORDERED.
Makati, Metro-Manila, March 10, 1993.
ZOSIMO Z. ANGELES.
Judge. 4
In due time, petitioner appealed to the Court of Appeals. 5
On September 7, 1998, the Court of Appeals promulgated its decision 6 affirming that of the Regional Trial Court with the
modification that item No. 3 of the dispositive portion was deleted, and the award of attorney's fees was reduced to 10% of the total
amount due. 7

The Court of Appeals held that following previous practise, respondent was allowed a sixty (60) to ninety (90) day
credit term for the renewal of its policies, and that the acceptance of the late premium payment suggested an
understanding that payment could be made later.
Hence, this appeal.
By resolution adopted on March 24, 1999, we required respondent to comment on the petition, not to file a motion to
dismiss within ten (10) days from notice. 8 On April 22, 1999, respondent filed its comment. 9
Respondent submits that the Court of Appeals correctly ruled that no timely notice of non-renewal was sent. The
notice of non-renewal sent to broker Zuellig which claimed that it verbally notified the insurance agency but not
respondent itself did not suffice. Respondent submits further that the Court of Appeals did not err in finding that there
existed a sixty (60) to ninety (90) days credit agreement between UCPB and Masagana, and that, finally, the
Supreme Court could not review factual findings of the lower court affirmed by the Court of Appeals. 10
We give due course to the appeal.

The basic issue raised is whether the fire insurance policies issued by petitioner to the respondent covering the
period May 22, 1991 to May 22, 1992, had expired on the latter date or had been extended or renewed by an implied
credit arrangement though actual payment of premium was tendered on a later date after the occurrence of the risk
(fire) insured against.
The answer is easily found in the Insurance Code. No, an insurance policy, other than life, issued originally or on
renewal, is not valid and binding until actual payment of the premium. Any agreement to the contrary is void. 11The
parties may not agree expressly or impliedly on the extension of creditor time to pay the premium and consider the policy binding
before actual payment.

The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo, 12 cited by the Court of Appeals, is not applicable. In that case,
payment of the premium was in fact actually made on December 24, 1981, and the fire occurred on January 18, 1982. Here, the
payment of the premium for renewal of the policies was tendered on July 13, 1992, a month after the fire occurred on June 13,
1992. The assured did not even give the insurer a notice of loss within a reasonable time after occurrence of the fire.

WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals in CA-G.R. CV
No. 42321. In lieu thereof the Court renders judgment dismissing respondent's complaint and petitioner's
counterclaims thereto filed with the Regional Trial Court, Branch 58, Makati City, in Civil Case No. 92-2023. Without
costs.
1wphi1.nt

SO ORDERED.
G.R. No. L-22684

August 31, 1967

PHILIPPINE PHOENIX SURETY & INSURANCE, INC., plaintiff-appellee,


vs.
WOODWORKS, INC., defendant-appellant.
Zosimo Rivas for defendant-appellant.
Manuel O. Chan for plaintiff-appellee.
DIZON, J.:
Appeal upon a question of law taken by Woodworks, Inc. from the judgment of the Court of First Instance of Manila in
Civil Case No. 50710 "ordering the defendant, Woodworks, Inc. to pay to the plaintiff, Philippine Phoenix Surety &
Insurance, Inc., the sum of P3,522.09 with interest thereon at the legal rate of 6% per annum from the date of the
filing of the complaint until fully paid, and costs of the suit."
Appellee Philippine Phoenix Surety & Insurance Co., Inc. commenced this action in the Municipal Court of Manila to
recover from appellant Woodworks, Inc. the sum of P3,522.09, representing the unpaid balance of the premiums on a
fire insurance policy issued by appellee in favor of appellant for a term of one year from April 1, 1960 to April 1, 1961.
From an adverse decision of said court, Woodworks, Inc. appealed to the Court of First Instance of Manila (Civil Case
No. 50710) where the parties submitted the following stipulation of facts, on the basis of which the appealed decision
was rendered:
That plaintiff and defendant are both corporations duly organized and existing under and by virtue of the
laws of the Philippines;
That on April 1, 1960, plaintiff issued to defendant Fire Policy No. 9652 for the amount of P300,000.00,
under the terms and conditions therein set forth in said policy a copy of which is hereto attached and made a
part hereof as Annex "A";

That the premiums of said policy as stated in Annex "A" amounted to P6,051.95; the margin fee pursuant to
the adopted plan as an implementation of Republic Act 2609 amounted to P363.72, copy of said adopted
plan is hereto attached as Annex "B" and made a part hereof, the documentary stamps attached to the
policy was P96.42;
That the defendant paid P3,000.00 on September 22, 1960 under official receipt No. 30245 of plaintiff;
That plaintiff made several demands on defendant to pay the amount of P3,522.09.

1wph1.t

In the present appeal, appellant claims that the court a quo committed the following errors:
I. The lower court erred in stating that in fire insurance policies the risk attached upon the issuance and
delivery of the policy to the insured.
II. The lower court erred in deciding that in a perfected contract of insurance non-payment of premium does
not cancel the policy.
III. The lower court erred in deciding that the premium in the policy was still collectible when the complaint
was filed.
IV. The lower court erred in deciding that a partial payment of the premium made the policy effective during
the whole period of the policy.
It is clear from the foregoing that on April 1, 1960 Fire Insurance Policy No. 9652 was issued by appellee and
delivered to appellant, and that on September 22 of the same year, the latter paid to the former the sum of P3,000.00
on account of the total premium of P6,051.95 due thereon. There is, consequently, no doubt at all that, as between
the insurer and the insured, there was not only a perfected contract of insurance but a partially performed one as far
as the payment of the agreed premium was concerned. Thereafter the obligation of the insurer to pay the insured the
amount for which the policy was issued in case the conditions therefor had been complied with, arose and became
binding upon it, while the obligation of the insured to pay the remainder of the total amount of the premium due
became demandable.
We can not agree with appellant's theory that non-payment by it of the premium due, produced the cancellation of the
contract of insurance. Such theory would place exclusively in the hands of one of the contracting parties the right to
decide whether the contract should stand or not. Rather the correct view would seem to be this: as the contract had
become perfected, the parties could demand from each other the performance of whatever obligations they had
assumed. In the case of the insurer, it is obvious that it had the right to demand from the insured the completion of the
payment of the premium due or sue for the rescission of the contract. As it chose to demand specific performance of
the insured's obligation to pay the balance of the premium, the latter's duty to pay is indeed indubitable.
Having thus resolved that the fourth and last assignment of error submitted in appellant's brief is without merit, the
first three assignments of error must likewise be overruled as lacking in merit.
Wherefore, the appealed decision being in accordance with law and the evidence, the same is hereby affirmed, with
costs.

Tibay v CA G.R. No. 119655. May 24, 1996


J. Bellosillo:
Facts:

Fortune Life issued a fire insurance Policy to Tibay on her two-storey residential building at Zobel Street, Makati
City. The insurance was for P600,000.00 covering the period from January 23, 1987 to January 23, 1988. On
January 23 1987, Tibay only paid P600.00 of 3,000 peso premium and left a balance.
The insured building was completely destroyed by fire. Tibay then paid the balance. On the same day, she filed
a claim on the policy. Her claim was accordingly referred to the adjuster, Goodwill, which immediately wrote Violeta
requesting her to furnish it with the necessary documents for the investigation and processing of her claim. Petitioner
complied, and she signed a non-waiver agreement.
Fortune denied the claim for violation of the Insurance Code. Tibay sued for damages in the amount of P600,000.00
representing the total coverage of the policy.
The trial court ruled for petitioners and made fortune liable for the total value of the insured building and personal
properties. The Court of Appeals reversed the court by removing liability from Fortune after returning the premium.
Hence this petition for review.
The petitioner contended that Fortune remained liable under the subject fire insurance policy in spite of the failure of
petitioners to pay their premium in full.
Issue: May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium?
Held: No. Petition dismissed.
Ratio:
The pertinent provisions read:
2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the premium has
been fully paid to and duly receipted by the Company in the manner provided herein.
This policy shall be deemed effective, valid and binding upon the Company only when the premiums therefor have
actually been paid in full and duly acknowledged in a receipt signed by any authorized official of the company
Where the premium has only been partially paid and the balance paid only after the peril insured against has
occurred, the insurance contract did not take effect and the insured cannot collect at all on the policy. The
Insurance Code which says that no policy or contract of insurance issued by an insurance company is valid and
binding unless and until the premium has been paid.
What does unless and until the premium thereof has been paid mean?
Escosura v. San Miguel- the legislative practice was to interpret with pay in accordance to the intention of
distinguish between full and partial payment, where the modifying term is used.
Petitioners used Philippine Phoenix v. Woodworks, where partial payment of the premium made the policy effective
during the whole period of the policy.
The SC didnt consider the 1967 Phoenix case as persuasive due to the different factual scenario.
In Makati Tuscany v CA, the parties mutually agreed that the premiums could be paid in installments, hence, this
Court refused to invalidate the insurance policy.
Nothing in Article 77 of the Code suggested that the parties may not agree to allow payment of the premiums in
installment, or to consider the contract as valid and binding upon payment of the first premium.
Phoenix and Tuscany demonstrated the waiver of prepayment in full by the insurer. In this case however, there was
no waiver. There was a stipulation that the policy wasnt in force until the premium has been fully paid and receipted.
There was no juridical tie of indemnification from the fractional payment of premium. The insurance contract itself
expressly provided that the policy would be effective only when the premium was paid in full.

Verily, it is elemental law that the payment of premium is requisite to keep the policy of insurance in force. If the
premium is not paid in the manner prescribed in the policy as intended by the parties the policy is ineffective. Partial
payment even when accepted as a partial payment will not keep the policy alive.
South Sea v CA stipulated 2 exceptions to the requirement of payment of the entire premium as a prerequisite to the
validity of the insurance contract. These are when in case the insurancecoverage relates to life or insurance when a
grace period applies, and when the insurer makes a written acknowledgment of the receipt of premium to be
conclusive evidence of payment.
Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds
of the policy.
The terms of the insurance policy constitute the measure of the insurers liability. 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.
Dissent:
J. Vitug
All the calculations of the company are based on the hypothesis of prompt payments. They not only calculate on the
receipt of the premiums when due, but on the compounding interest upon them. It is on this basis that they are
enabled to offer assurance at the favorable rates they do.
The failure of appellants to fully pay their premium prevented the contract of insurance from becoming binding an
Fortune. This series of acts is tainted with misrepresentation and violates the uberrimae fidae principle of insurance
contracts.
Tibay had entered into a "Non-Waiver Agreement" with the adjuster which permitted Fortune toclaim non-payment of
premium as a defense.
The law neither requires, nor measures the strength of the vinculum juris by any specific amount of premium
payment. Payment on the premium, partly or in full, is made by the insured which the insurer accepts. In fine, it is
either that a juridical tie exists (by such payment) or that it is not extant at all (by an absence thereof). Once the
juridical relation comes into being, the full efficacy follows. This is a partially performed contract.
The non-payment of the balance shouldnt result in an automatic cancellation of the contract; otherwise, the right to
decide the effectivity of the contract would become potestative.
Instead, the parties should be able to demand from each other the performance of whatever obligations they had
assumed or, if desired, sue timely for the rescission of the contract.
In the meanwhile, the contract endures, and an occurrence of the risk insured riggers the insurer's liability. Also, legal
compensation arises where insurer's liability to the insured would simply be reduced by the balance of the premium.
It must here be noted that the insured had made, and the insurer had accepted partial premium payment on the
policy weeks before the risk insured against took place. An insurance is an aleatory contract effective upon its
perfection although the occurrence of a condition or event may later dictate the demandability of certain obligations.
Fortunes stipulation that insurance shall not "be . . . in force until the premium has been fully paid," and that it "shall
be deemed effective, valid and binding upon the company only when the premiums therefor have actually been paid
in full and duly acknowledged," override the efficaciousness of the insurance contract despite the payment and
acceptance.
Article 78 of the Insurance Code An acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it
shall not be binding until the premium is actually paid

Even if a portion was paid in the premium, the insurance coverage becomes effective and binding, any stipulation in
the policy to the contrary notwithstanding.
G.R. No. 95546 November 6, 1992
MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO., represented by American International
Underwriters (Phils.), Inc., respondent.

BELLOSILLO, J.:
This case involves a purely legal question: whether payment by installment of the premiums due on an insurance
policy invalidates the contract of insurance, in view of Sec. 77 of P.D. 612, otherwise known as the Insurance Code,
as amended, which provides:
Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing is exposed to the
peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an industrial life policy whenever the grace
period provision applies.
Sometime in early 1982, private respondent American Home Assurance Co. (AHAC), represented by American
International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany Condominium Corporation
(TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's building and premises, for a period beginning 1
March 1982 and ending 1 March 1983, with a total premium of P466,103.05. The premium was paid on installments
on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of which were accepted by private
respondent.
On 10 February 1983, private respondent issued to petitioner Insurance Policy No. AH-CPP-9210596, which replaced
and renewed the previous policy, for a term covering 1 March 1983 to 1 March 1984. The premium in the amount of
P466,103.05 was again paid on installments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September 1983, and
21 November 1983. All payments were likewise accepted by private respondent.
On 20 January 1984, the policy was again renewed and private respondent issued to petitioner Insurance Policy No.
AH-CPP-9210651 for the period 1 March 1984 to 1 March 1985. On this renewed policy, petitioner made two
installment payments, both accepted by private respondent, the first on 6 February 1984 for P52,000.00 and the
second, on 6 June 1984 for P100,000.00. Thereafter, petitioner refused to pay the balance of the premium.
Consequently, private respondent filed an action to recover the unpaid balance of P314,103.05 for Insurance Policy
No. AH-CPP-9210651.
In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy No. AH-CPP-9210651. It
explained that it discontinued the payment of premiums because the policy did not contain a credit clause in its favor
and the receipts for the installment payments covering the policy for 1984-85, as well as the two (2) previous policies,
stated the following reservations:
2. Acceptance of this payment shall not waive any of the company rights to deny liability on any
claim under the policy arising before such payments or after the expiration of the credit clause of
the policy; and

3. Subject to no loss prior to premium payment. If there be any loss such is not covered.
Petitioner further claimed that the policy was never binding and valid, and no risk attached to the policy. It then
pleaded a counterclaim for P152,000.00 for the premiums already paid for 1984-85, and in its answer with amended
counterclaim, sought the refund of P924,206.10 representing the premium payments for 1982-85.
After some incidents, petitioner and private respondent moved for summary judgment.
On 8 October 1987, the trial court dismissed the complaint and the counterclaim upon the following findings:
While it is true that the receipts issued to the defendant contained the aforementioned reservations,
it is equally true that payment of the premiums of the three aforementioned policies (being sought
to be refunded) were made during the lifetime or term of said policies, hence, it could not be said,
inspite of the reservations, that no risk attached under the policies. Consequently, defendant's
counterclaim for refund is not justified.
As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view of the
reservation in the receipts ordinarily issued by the plaintiff on premium payments the only plausible
conclusion is that plaintiff has no right to demand their payment after the lapse of the term of said
policy on March 1, 1985. Therefore, the defendant was justified in refusing to pay the same. 1
Both parties appealed from the judgment of the trial court. Thereafter, the Court of Appeals rendered a
decision 2modifying that of the trial court by ordering herein petitioner to pay the balance of the premiums due on Policy No. AHCPP-921-651, or P314,103.05 plus legal interest until fully paid, and affirming the denial of the counterclaim. The appellate court
thus explained

The obligation to pay premiums when due is ordinarily as indivisible obligation to pay the entire
premium. Here, the parties herein agreed to make the premiums payable in installments, and there
is no pretense that the parties never envisioned to make the insurance contract binding between
them. It was renewed for two succeeding years, the second and third policies being a
renewal/replacement for the previous one. And the insured never informed the insurer that it was
terminating the policy because the terms were unacceptable.
While it may be true that under Section 77 of the Insurance Code, the parties may not agree to
make the insurance contract valid and binding without payment of premiums, there is nothing in
said section which suggests that the parties may not agree to allow payment of the premiums in
installment, or to consider the contract as valid and binding upon payment of the first premium.
Otherwise, we would allow the insurer to renege on its liability under the contract, had a loss
incurred (sic) before completion of payment of the entire premium, despite its voluntary acceptance
of partial payments, a result eschewed by a basic considerations of fairness and equity.
To our mind, the insurance contract became valid and binding upon payment of the first premium,
and the plaintiff could not have denied liability on the ground that payment was not made in full, for
the reason that it agreed to accept installment payment. . . . 3
Petitioner now asserts that its payment by installment of the premiums for the insurance policies for 1982, 1983 and
1984 invalidated said policies because of the provisions of Sec. 77 of the Insurance Code, as amended, and by the
conditions stipulated by the insurer in its receipts, disclaiming liability for loss for occurring before payment of
premiums.
It argues that where the premiums is not actually paid in full, the policy would only be effective if there is an
acknowledgment in the policy of the receipt of premium pursuant to Sec. 78 of the Insurance Code. The absence of

an express acknowledgment in the policies of such receipt of the corresponding premium payments, and petitioner's
failure to pay said premiums on or before the effective dates of said policies rendered them invalid. Petitioner thus
concludes that there cannot be a perfected contract of insurance upon mere partial payment of the premiums
because under Sec. 77 of the Insurance Code, no contract of insurance is valid and binding unless the premium
thereof has been paid, notwithstanding any agreement to the contrary. As a consequence, petitioner seeks a refund
of all premium payments made on the alleged invalid insurance policies.
We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show
that petitioner and private respondent intended subject insurance policies to be binding and effective notwithstanding
the staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983,
then in 1984. In those three (3) years, the insurer accepted all the installment payments. Such acceptance of
payments speaks loudly of the insurer's intention to honor the policies it issued to petitioner. Certainly, basic principles
of equity and fairness would not allow the insurer to continue collecting and accepting the premiums, although paid
on installments, and later deny liability on the lame excuse that the premiums were not prepared in full.
We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and conclusion of the
appellate court contained in its Resolution denying the motion to reconsider its Decision
While the import of Section 77 is that prepayment of premiums is strictly required as a condition to
the validity of the contract, We are not prepared to rule that the request to make installment
payments duly approved by the insurer, would prevent the entire contract of insurance from going
into effect despite payment and acceptance of the initial premium or first installment. Section 78 of
the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making
an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of
payment so far as to make the policy binding despite the fact that premium is actually unpaid.
Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums
are not paid, but does not expressly prohibit an agreement granting credit extension, and such an
agreement is not contrary to morals, good customs, public order or public policy (De Leon, the
Insurance Code, at p. 175). So is an understanding to allow insured to pay premiums in
installments not so proscribed. At the very least, both parties should be deemed in estoppel to
question the arrangement they have voluntarily accepted. 4
The reliance by petitioner on Arce vs. Capital Surety and Insurance
Co. 5 is unavailing because the facts therein are substantially different from those in the case at bar. In Arce, no payment was made
by the insured at all despite the grace period given. In the case before Us, petitioner paid the initial installment and thereafter made
staggered payments resulting in full payment of the 1982 and 1983 insurance policies. For the 1984 policy, petitioner paid two (2)
installments although it refused to pay the balance.

It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance contracts
valid, effective and binding, petitioner may not be allowed to renege on its obligation to pay the balance of the
premium after the expiration of the whole term of the third policy (No. AH-CPP-9210651) in March 1985. Moreover, as
correctly observed by the appellate court, where the risk is entire and the contract is indivisible, the insured is not
entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for any period, however brief
or momentary.
WHEREFORE, finding no reversible error in the judgment appealed from, the same is AFFIRMED. Costs against
petitioner.
SO ORDERED.
G.R. No. 165585

November 20, 2013

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,


vs.
PRUDENTIAL GUARANTEE AND ASSURANCE, INC., DEVELOPMENT BANK OF THE PHILIPPINES and LAND
BANK OF THE PHILIPPINES, Respondents.
x-----------------------x
G.R. No. 176982
GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,
vs.
PRUDENTIAL GUARANTEE AND ASSURANCE, INC., Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in these consolidated petitions for review on Certiorari are separate issuances of the Court of Appeals (CA)
in relation to the complaint for sum of money filed by Prudential Guarantee and Assurance, Inc. (PGAI) against the
Government Service Insurance System (GSIS) before the Regional Trial Court of Makati City, Branch 149 (RTC),
docketed as Civil Case No. 01-1634.
1

In particular, the petition in G.R. No. 165585 assails the Decision dated May 26, 2004 and Resolution dated October
6, 2004 of the CA in CA-G.R. SP No. 69289 which affirmed the Order dated February 14, 2002, as well as the
Order, Notices of Garnishment, and Writ of Execution, all dated February 19, 2002, issued by the RTC authorizing
execution pending appeal.
2

On the other hand, the petition in G.R. No. 176982 assails the Decision dated October 30, 2006 and
Resolution dated March 12, 2007 of the CA in CA-G.R. CV No. 73965 which dismissed the appeal filed by GSIS,
affirming with modification the Order dated January 11, 2002 of the RTC rendering judgment on the pleadings.
8

10

The Facts
Sometime in March 1999, the National Electrification Administration (NEA) entered into a Memorandum of
Agreement (MOA) with GSIS insuring all real and personal properties mortgaged to it by electrical cooperatives
under an Industrial All Risks Policy (IAR policy). The total sum insured under the IAR policy wasP16,731,141,166.80,
out of which, 95% or P15,894,584,108.40 was reinsured by GSIS with PGAI for a period of one year or from March 5,
1999 to March 5, 2000. As reflected in Reinsurance Request Note No. 99-150 (reinsurance cover) and the
Reinsurance Binder dated April 21, 1999 (reinsurance binder), GSIS agreed to pay PGAI reinsurance premiums in
the amount of P32,885,894.52 per quarter or a total of P131,543,578.08. While GSIS remitted to PGAI the
reinsurance premiums for the first three quarters, it, however, failed to pay the fourth and last reinsurance premium
due on December 5, 1999 despite demands. This prompted PGAI to file, on November 15, 2001, a Complaint for
sum of money (complaint) against GSIS before the RTC, docketed as Civil Case No. 01-1634.
11

12

13

14

15

16

17

In its complaint, PGAI alleged, among others, that: (a) after it had issued the IAR policy, it further reinsured the risks
covered under the said reinsurance with reputable reinsurers worldwide such as Lloyds of London, Copenhagen Re,
Cigna Singapore, CCR, Generali, and Arig; (b) the first three reinsurance premiums were paid to PGAI by GSIS and,
in the same vein, NEA paid the first three reinsurance premiums due to GSIS; (c) GSIS failed to pay PGAI the fourth
and last reinsurance premium due on December 5, 1999; (d) the IAR policy remained in full force and effect for the
entire insurable period and, in fact, the losses/damages on various risks reinsured by PGAI were paid and
accordingly settled by it; (e) PGAI is under continuous pressure from its reinsurers in the international market to
18

19

20

21

settle the matter; and (f) GSIS acknowledged its obligation to pay the last reinsurance premium as it, in turn,
demanded from NEA the fourth and last reinsurance premium.
22

23

In its Answer, GSIS admitted, among others, that: (a) its request for reinsurance cover was accepted by PGAI in a
reinsurance binder; (b) it remitted to PGAI the first three reinsurance premiums which were paid by NEA; and (c) it
failed to remit the fourth and last reinsurance premium to PGAI. It, however, denied, inter alia, that: (a) it had
acknowledged its obligation to pay the last quarters reinsurance premium to PGAI; and (b) the IAR policy remained
in full force and effect for the entire insurable period of March 5, 1999 to March 5, 2000. GSIS also proffered the
following affirmative defenses: (a) the complaint states no cause of action against GSIS because the non-payment of
the last reinsurance premium only renders the reinsurance contract ineffective, and does not give PGAI a right of
action to collect; (b) pursuant to the regulations issued by the Commission on Audit, GSIS is prohibited from
advancing payments to PGAI occasioned by the failure of the principal insured, NEA, to pay the insurance
premium; and (c) PGAIs cause of action lies against NEA since GSIS merely acted as a conduit. By way of
counterclaim, GSIS prayed that PGAI be ordered to pay exemplary damages, including litigation expenses, and costs
of suit.
24

25

26

27

28

29

30

31

32

33

On December 18, 2001, PGAI filed a Motion for Judgment on the Pleadings averring that GSIS essentially admitted
the material allegations of the complaint, such as: (a) the existence of the MOA between NEA and GSIS; (b) the
existence of the reinsurance binder between GSIS and PGAI; (c) the remittance by GSIS to PGAI of the first three
quarterly reinsurance premiums; and (d) the failure/refusal of GSIS to remit the fourth and last reinsurance
premium. Hence, PGAI prayed that the RTC render a judgment on the pleadings pursuant to Section 1, Rule 34 of
the Rules of Court (Rules). GSIS opposed the foregoing motion by reiterating the allegations and defenses in its
Answer.
34

35

36

On January 11, 2002, the RTC issued an Order (January 11, 2002 Order) granting PGAIs Motion for Judgment on
the Pleadings. It observed that the admissions of GSIS that it paid the first three quarterly reinsurance premiums to
PGAI affirmed the validity of the contract of reinsurance between them. As such, GSIS cannot now renege on its
obligation to remit the last and remaining quarterly reinsurance premium. It further pointed out that while it is true that
the payment of the premium is a requisite for the validity of an insurance contract as provided under Section 77 of
Presidential Decree No. (PD) 612, otherwise known as "The Insurance Code," it was held in Makati Tuscany
Condominium Corp. v. CA (Makati Tuscany) that insurance policies are valid even if the premiums were paid in
installments, as in this case. Thus, in view of the foregoing, the RTC ordered GSIS to pay PGAI the last quarter
reinsurance premium in the sum of P32,885,894.52, including interests amounting toP6,519,515.91 as of July 31,
2000 until full payment, attorneys fees, and costs of suit. Dissatisfied, GSIS filed a notice of appeal.
37

38

39

40

41

42

43

Meanwhile, PGAI filed a Motion for Execution Pending Appeal based on the following reasons: (a) GSIS appeal was
patently dilatory since it already acknowledged the validity of PGAIs claim; (b) GSIS posted no valid defense as its
Answer raised no genuine issues; and (c) PGAI would suffer serious and irreparable injury as it may be blacklisted
as a consequence of the non-payment of premiums due. PGAI also manifested its willingness to post a sufficient
surety bond to answer for any resulting damage to GSIS. The latter opposed the motion asserting that there lies no
sufficient ground or urgency to justify execution pending appeal. It also claimed that all its funds and properties are
exempted from execution citing Section 39 of Republic Act No. (RA) 8291, otherwise known as "The Government
Service Insurance System Act of 1997."
44

45

46

47

48

49

50

51

On February 14, 2002, the RTC issued an Order (February 14, 2002 Order) granting PGAIs Motion for Execution
Pending Appeal, conditioned on the posting of a bond. It further held that only the GSIS Social Insurance Fund is
exempt from execution. Accordingly, PGAI duly posted a surety bond which the RTC approved through an
Order dated February 19, 2002, resulting to the issuance of a writ of execution and notices of
garnishment (February 19, 2002 issuances), all of even date, against GSIS.
52

53

54

55

The CA Proceedings Antecedent to G.R. No. 165585

Aggrieved by the RTCs February 14, 2002 Order, as well as the February 19, 2002 issuances, GSIS without first
filing a motion for reconsideration (from the said order of execution) or a sufficient supersedeas bond filed on
February 26, 2002 a petition for certiorari before the CA, docketed as CA-G.R. SP No. 69289, against the RTC and
PGAI. It also impleaded in the said petition the Land Bank of the Philippines (LBP) and the Development Bank of the
Philippines (DBP) as nominal parties so as to render them subject to the writs and processes of the CA.
56

57

58

In its petition, GSIS argued that: (a) none of the grounds proffered by PGAI justifies the issuance of a writ of
execution pending appeal; and (b) all funds and assets of GSIS are exempt from execution and levy in accordance
with RA 8291.
59

60

On April 4, 2002, the CA issued a temporary restraining order (TRO) enjoining the garnishment of GSIS funds with
LBP and DBP. Nevertheless, since the TROs effectivity lapsed, GSIS funds with the LBP were eventually garnished.
61

62

On May 26, 2004, the CA rendered a Decision dismissing GSIS petition, upholding, among others, the validity of the
execution pending appeal pursuant to the RTCs February 14, 2002 Order as well as the February 19, 2002
issuances. It found that the impending blacklisting of PGAI constitutes a good reason for allowing the execution
pending appeal (also known as "discretionary execution") considering that the imposition of international sanctions on
any single local insurance company puts in grave and immediate jeopardy not only the viability of that company but
also the integrity of the entire local insurance system including that of the state insurance agency. It pointed out that
the insurance business thrives on credibility which is maintained by honoring financial commitments.
63

On the claimed exemption of GSIS funds from execution, the CA held that such exemption only covers funds under
the Social Insurance Fund which remains liable for the payment of benefits like retirement, disability and death
compensation and not those covered under the General Insurance Fund, as in this case, which are meant for
investment in the business of insurance and reinsurance.
64

GSIS motion for reconsideration was denied by the CA in a Resolution dated October 6, 2004. Hence, the petition
for review on certiorari in G.R. No. 165585.
65

66

67

The CA Proceedings Antecedent to G.R. No. 176982


Separately, GSIS also assailed the RTCs January 11, 2002 Order which granted PGAIs Motion for Judgment on the
Pleadings through an appeal filed on October 7, 2002, docketed as CA G.R. CV No. 73965.
68

GSIS averred that the RTC gravely erred in: (a) rendering judgment on the pleadings since it specifically denied the
material allegations in PGAIs complaint; (b) ordering execution pending appeal since there are no justifiable reasons
for the same; and (c) effecting execution against funds and assets of GSIS given that RA 8291 exempts the same
from levy, execution and garnishment.
69

For its part, PGAI maintained that: (a) the judgment on the pleadings was in order given that GSIS never disputed the
facts as alleged in its complaint; (b) the discretionary execution was proper in view of the dilatory methods employed
by GSIS in order to evade the payment of a valid obligation; and (c) the general insurance fund of GSIS, which was
attached and garnished by the RTC, is not exempt from execution.
70

In a Decision dated October 30, 2006, the CA sustained the RTCs January 11, 2002 Order but deleted the awards
of interest and attorneys fees for lack of factual and legal basis.
71

72

The CA ruled that judgment on the pleadings was proper since GSIS did not specifically deny the genuineness, due
execution, and perfection of its reinsurance contract with PGAI. In fact, PGAI even settled reinsurance claims during
the covering period rendering the reinsurance contract not only perfected but partially executed as well.
73

74

Passing on the issue of the exemption from execution of GSIS funds, the CA, citing Rubia v. GSIS (Rubia), held that
the exemption provided for by RA 8291 is not absolute since it only pertains to the social security benefits of its
members; thus, funds used by the GSIS for business investments and commercial ventures, as in this case, may be
attached and garnished.
75

76

GSIS motion for reconsideration was denied by the CA in a Resolution dated March 12, 2007. Hence, the present
petition for review on certiorari in G.R. No. 176982.
77

78

79

The Issues Before the Court


In these consolidated petitions, the essential issues are the following: (a) in G.R. No. 165585, whether the CA erred in
(1) upholding the RTCs February 14, 2002 Order authorizing execution pending appeal, and (2) ruling that only the
Social Insurance Fund and not the General Fund of the GSIS is exempt from garnishment; and (b) in G.R. No.
176982, whether the CA erred in sustaining the RTCs January 11, 2002 Order rendering judgment on the pleadings.
The Courts Ruling
The petitions are partly meritorious.
A. Good reasons to allow execution pending appeal and the nature of the exemption under Section 39 of RA 8291.
The execution of a judgment pending appeal is an exception to the general rule that only a final judgment may be
executed. In order to grant the same pursuant to Section 2, Rule 39 of the Rules, the following requisites must
concur: (a) there must be a motion by the prevailing party with notice to the adverse party; (b) there must be a good
reason for execution pending appeal; and (c) the good reason must be stated in a special order.
80

81

82

Good reasons call for the attendance of compelling circumstances warranting immediate execution for fear that
favorable judgment may yield to an empty victory. In this regard, the Rules do not categorically and strictly define
what constitutes "good reason," and hence, its presence or absence must be determined in view of the peculiar
circumstances of each case. As a guide, jurisprudence dictates that the "good reason" yardstick imports a superior
circumstance that will outweigh injury or damage to the adverse party. Corollarily, the requirement of "good reason"
does not necessarily entail unassailable and flawless basis but at the very least, an invocation thereof must be
premised on solid footing.
83

84

In the case at bar, the RTC, as affirmed by the CA, granted PGAIs motion for execution pending appeal on the
ground that the impending sanctions against it by foreign underwriters/reinsurers constitute good reasons therefor. It
must, however, be observed that PGAI has not proffered any evidence to substantiate its claim, as it merely
presented bare allegations thereon. It is hornbook doctrine that mere allegations do not constitute proof. As held in
Real v. Belo, "it is basic in the rule of evidence that bare allegations, unsubstantiated by evidence, are not equivalent
to proof. In short, mere allegations are not evidence." Hence, without any sufficient basis to support the existence of
its alleged "good reasons," it cannot be said that the second requisite to allow an execution pending appeal exists. To
reiterate, the requirement of "good reasons" must be premised on solid footing so as to ensure that the "superior
circumstance" which would impel immediate execution is not merely contrived or based on speculation. This,
however, PGAI failed to demonstrate in the present case. In fine, the Court therefore holds that the CAs affirmance of
the RTCs February 14, 2002 Order authorizing execution pending appeal, as well as the February 19, 2002
issuances related thereto, was improper.
85

86

Nevertheless, while an execution pending appeal should not lie in view of the above-discussed reasons, it must be
noted that the funds and assets of GSIS may after the resolution of the appeal and barring any provisional
injunction thereto be subject to execution, attachment, garnishment or levy since the exemption under Section 39 of
RA 8291 does not operate to deny private entities from properly enforcing their contractual claims against
GSIS. This has been established in the case of Rubia wherein the Court held as follows:
87

88

The declared policy of the State in Section 39 of the GSIS Charter granting GSIS an exemption from tax, lien,
attachment, levy, execution, and other legal processes should be read together with the grant of power to the GSIS to
invest its "excess funds" under Section 36 of the same Act. Under Section 36, the GSIS is granted the ancillary power
to invest in business and other ventures for the benefit of the employees, by using its excess funds for investment
purposes. In the exercise of such function and power, the GSIS is allowed to assume a character similar to a private
corporation. Thus, it may sue and be sued, as also explicitly granted by its charter.
Needless to say, where proper, under Section 36, the GSIS may be held liable for the contracts it has entered into in
the course of its business investments. For GSIS cannot claim a special immunity from liability in regard to its
business ventures under said Section.
Nor can it deny contracting parties, in our view, the right of redress and the enforcement of a claim, particularly as it
arises from a purely contractual relationship of a private character between an individual and the GSIS. (Emphases
supplied and citations omitted)
89

Thus, the petition in G.R. No. 165585 is partly granted.


B. Propriety of judgment on the pleadings.
Judgment on the pleadings is appropriate when an answer fails to tender an issue, or otherwise admits the material
allegations of the adverse partys pleading. The rule is stated in Section 1, Rule 34 of the Rules which reads as
follows:
Sec. 1. Judgment on the pleadings. Where an answer fails to tender an issue, or otherwise admits the material
allegations of the adverse partys pleading, the court may, on motion of that party, direct judgment on such pleading. x
x x.
In this relation, jurisprudence dictates that an answer fails to tender an issue if it does not comply with the
requirements of a specific denial as set out in Sections 8 and 10, Rule 8 of the Rules, resulting in the admission of
the material allegations of the adverse partys pleadings.
90

91

92

As such, it is a form of judgment that is exclusively based on the submitted pleadings without the introduction of
evidence as the factual issues remain uncontroverted.
93

In this case, records disclose that in its Answer, GSIS admitted the material allegations of PGAIs complaint
warranting the grant of the relief prayed for. In particular, GSIS admitted that: (a) it made a request for reinsurance
cover which PGAI accepted in a reinsurance binder effective for one year; (b) it remitted only the first three
reinsurance premium payments to PGAI; (c) it failed to pay PGAI the fourth and final reinsurance premium
installment; and (d) it received demand letters from PGAI. It also did not refute the allegation of PGAI that it settled
reinsurance claims during the reinsured period. On the basis of these admissions, the Court finds that the CA did not
err in affirming the propriety of a judgment on the pleadings.
94

95

96

97

GSIS affirmative defense that the non-payment of the last reinsurance premium merely rendered the contract
ineffective pursuant to Section 77 of PD 612 no longer involves any factual issue, but stands solely as a mere
question of law in the light of the foregoing admissions hence allowing for a judgment on the pleadings. Besides, in
the case of Makati Tuscany, the Court already ruled that the non-payment of subsequent installment premiums would
not prevent the insurance contract from taking effect; that the parties intended to make the insurance contract valid
and binding is evinced from the fact that the insured paid and the insurer received several reinsurance premiums
due thereon, although the former refused to pay the remaining balance, viz:
98

We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show
that petitioner and private respondent intended subject insurance policies to be binding and effective notwithstanding

the staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983,
then in 1984. In those three (3) years, the insurer accepted all the installment payments. Such acceptance of
payments speaks loudly of the insurers intention to honor the policies it issued to petitioner. Certainly, basic
principles of equity and fairness would not allow the insurer to continue collecting and accepting the premiums,
although paid on installments, and later deny liability on the lame excuse that the premiums were not prepaid in full.
We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and conclusion of the
appellate court contained in its Resolution denying the motion to reconsider its Decision
While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the
contract, We are not prepared to rule that the request to make installment payments duly approved by the insurer,
would prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial
premium or first installment . Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition
of prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of
payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77 merely
precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly
prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs,
public order or public policy (De Leon, the Insurance Code, at p. 175). So is an understanding to allow insured to pay
premiums in installments not so proscribed. At the very least, both parties should be deemed in estoppel to question
the arrangement they have voluntarily accepted.
[I]n the case before Us, petitioner paid the initial installment and thereafter made staggered payments resulting in full
payment of the 1982 and 1983 insurance policies. For the 1984 policy, petitioner paid two (2) installments although it
refused to pay the balance.
1wphi1

It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance contracts
valid, effective and binding, petitioner may not be allowed to renege on its obligation to pay the balance of the
premium after the expiration of the whole term of the third policy (No. AH-CPP-9210651) in March 1985. Moreover, as
correctly observed by the appellate court, where the risk is entire and the contract is indivisible, the insured is not
entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for any period, however brief
or momentary. (Emphases supplied and citation omitted)
99

Thus, owing to the identical complexion of Makati Tuscany with the present case, the Court upholds PGAIs right to
be paid by GSIS the amount of the fourth and last reinsurance premium pursuant to the reinsurance contract between
them. All told, the petition in G.R. No. 176982 is denied.
WHEREFORE, the petition in G.R. No. 165585 is PARTLY GRANTED. The Decision dated May 26, 2004 and
Resolution dated October 6, 2004 of the Court of Appeals in CA-G.R. SP No. 69289 are MODIFIED only insofar as it
upheld the validity of Prudential Guarantee and Assurance, Inc.s execution pending appeal. In this respect, the Order
dated February 14, 2002 of the Regional Trial Court of Makati, Branch 149 as well as all other issuances related
thereto are set aside.
On the other hand, the petition in G.R. No. 176982 is DENIED. The Decision dated October 30, 2006 and Resolution
dated March 12, 2007 in CA-G.R. CV No. 73965 are hereby AFFIRMED.
SO ORDERED.

DBP Pool of Accredited insurance vs Radio Mindanao Network (2006)

Facts:

In the evening of July 27, 1988, the radio station of Radio Mindanao Network located at the SSS Building in Bacolod
City was burned down causing damage in the amount of over one million pesos. Respondent sought to recover under
two insurance policies but the claims were denied on the basis that the case of the loss was an excepted risk under
condition no. 6 (c) and (d), to wit:
6. This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or
indirectly, of any of the following consequences, namely:
(c) War, invasion, act of foreign enemies, hostilities, or warlike operations (whether war be declared or not), civic war.
(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power.
The insurers maintained that based on witnesses and evidence gathered at the site, the fire was caused by the
members of the Communist Party of the Philippines/New Peoples Army. Hence the refusal to honor their obligations.
The trial court and the CA found in favor of the respondent. In its findings, both courts mentioned the fact that there
was no credible evidence presented that the CCP/NPA did in fact cause the fire that gutted the radio station in
Bacolod.
Issue:
WON the insurance companies are liable to pay Radio Mindanao Network under the insurance policies?
Held: Yes.
The Court will not disturb the factual findings of the appellant and trial courts absent compelling reason. Under this
mode of review, the jurisdiction of the court is limited to reviewing only errors of law.
Particularly in cases of insurance disputes with regard to excepted risks, it is the insurance companies which have
the burden to prove that the loss comes within the purview of the exception or limitation set up. It is sufficient for the
insured to prove the fact of damage or loss. Once the insured makes out a prima facie case in its favor, the duty or
burden of evidence shifts to the insurer to controvert said prima facie case.
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
alleged P50,000,000.00 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 plaintiff-appellees 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 plaintiff-appellee 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

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

Exhs. "GGG-11"
- "GGG-24",
"HHH-12", "HHH-22", "III11", "III-14",
"JJJ-13", "KKK-11", "LLL5"

SCCFI statements of
account

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

TOTAL

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. 184300

July 11, 2012

MALAYAN INSURANCE CO., INC., Petitioner,


vs.
PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER SERVICES, INC., Respondents.
DECISION
REYES, J.:
Before the Court is a petitiOn for review on certiorari filed by petitioner Malayan Insurance Co., lnc. (Malayan)
assailing the Decision1 dated February 29, 2008 and Resolution2 dated August 28, 2008 of the Court of Appeals (CA)
in CA-G.R. CV No. 71204 which affirmed with modification the decision of the Regional Trial Court (RTC), Branch 38
of Manila.
Antecedent Facts

Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services, Inc. (Reputable) had
been annually executing a contract of carriage, whereby the latter undertook to transport and deliver the formers
products to its customers, dealers or salesmen.3
On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from respondent Philippines
First Insurance Co., Inc. (Philippines First) to secure its interest over its own products. Philippines First thereby
insured Wyeths nutritional, pharmaceutical and other products usual or incidental to the insureds business while the
same were being transported or shipped in the Philippines. The policy covers all risks of direct physical loss or
damage from any external cause, if by land, and provides a limit of P6,000,000.00 per any one land vehicle.
On December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. It turned out, however, that the
contract was not signed by Wyeths representative/s.4 Nevertheless, it was admittedly signed by Reputables
representatives, the terms thereof faithfully observed by the parties and, as previously stated, the same contract of
carriage had been annually executed by the parties every year since 1989.5
Under the contract, Reputable undertook to answer for "all risks with respect to the goods and shall be liable to the
COMPANY (Wyeth), for the loss, destruction, or damage of the goods/products due to any and all causes
whatsoever, including theft, robbery, flood, storm, earthquakes, lightning, and other force majeure while the
goods/products are in transit and until actual delivery to the customers, salesmen, and dealers of the COMPANY". 6
The contract also required Reputable to secure an insurance policy on Wyeths goods.7 Thus, on February 11, 1994,
Reputable signed a Special Risk Insurance Policy (SR Policy) with petitioner Malayan for the amount of
P1,000,000.00.
On October 6, 1994, during the effectivity of the Marine Policy and SR Policy, Reputable received from Wyeth 1,000
boxes of Promil infant formula worth P2,357,582.70 to be delivered by Reputable to Mercury Drug Corporation in
Libis, Quezon City. Unfortunately, on the same date, the truck carrying Wyeths products was hijacked by about 10
armed men. They threatened to kill the truck driver and two of his helpers should they refuse to turn over the truck
and its contents to the said highway robbers. The hijacked truck was recovered two weeks later without its cargo.
On March 8, 1995, Philippines First, after due investigation and adjustment, and pursuant to the Marine Policy, paid
Wyeth P2,133,257.00 as indemnity. Philippines First then demanded reimbursement from Reputable, having been
subrogated to the rights of Wyeth by virtue of the payment. The latter, however, ignored the demand.
Consequently, Philippines First instituted an action for sum of money against Reputable on August 12, 1996.8 In its
complaint, Philippines First stated that Reputable is a "private corporation engaged in the business of a common
carrier." In its answer,9 Reputable claimed that it is a private carrier. It also claimed that it cannot be made liable under
the contract of carriage with Wyeth since the contract was not signed by Wyeths representative and that the cause of
the loss was force majeure, i.e., the hijacking incident.
Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to collect the amount covered in the
SR Policy. According to Reputable, "it was validly insured with Malayan for P1,000,000.00 with respect to the lost
products under the latters Insurance Policy No. SR-0001-02577 effective February 1, 1994 to February 1, 1995" and
that the SR Policy covered the risk of robbery or hijacking.10
Disclaiming any liability, Malayan argued, among others, that under Section 5 of the SR Policy, the insurance does
not cover any loss or damage to property which at the time of the happening of such loss or damage is insured by
any marine policy and that the SR Policy expressly excluded third-party liability.
After trial, the RTC rendered its Decision11 finding Reputable liable to Philippines First for the amount of indemnity it
paid to Wyeth, among others. In turn, Malayan was found by the RTC to be liable to Reputable to the extent of the
policy coverage. The dispositive portion of the RTC decision provides:

WHEREFORE, on the main Complaint, judgment is hereby rendered finding [Reputable] liable for the loss of the
Wyeth products and orders it to pay Philippines First the following:
1. the amount of P2,133,257.00 representing the amount paid by Philippines First to Wyeth for the loss of
the products in question;
2. the amount of P15,650.00 representing the adjustment fees paid by Philippines First to hired
adjusters/surveyors;
3. the amount of P50,000.00 as attorneys fees; and
4. the costs of suit.
On the third-party Complaint, judgment is hereby rendered finding
Malayan liable to indemnify [Reputable] the following:
1. the amount of P1,000,000.00 representing the proceeds of the insurance policy;
2. the amount of P50,000.00 as attorneys fees; and
3. the costs of suit.
SO ORDERED.12
Dissatisfied, both Reputable and Malayan filed their respective appeals from the RTC decision.
Reputable asserted that the RTC erred in holding that its contract of carriage with Wyeth was binding despite Wyeths
failure to sign the same. Reputable further contended that the provisions of the contract are unreasonable, unjust,
and contrary to law and public policy.
For its part, Malayan invoked Section 5 of its SR Policy, which provides:
Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover any loss or damage to property
which at the time of the happening of such loss or damage is insured by or would but for the existence of this policy,
be insured by any Fire or Marine policy or policies except in respect of any excess beyond the amount which would
have been payable under the Fire or Marine policy or policies had this insurance not been effected.
Malayan argued that inasmuch as there was already a marine policy issued by Philippines First securing the same
subject matter against loss and that since the monetary coverage/value of the Marine Policy is more than enough to
indemnify the hijacked cargo, Philippines First alone must bear the loss.
Malayan sought the dismissal of the third-party complaint against it. In the alternative, it prayed that it be held liable
for no more than P468,766.70, its alleged pro-rata share of the loss based on the amount covered by the policy,
subject to the provision of Section 12 of the SR Policy, which states:
12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening to any property hereby insured,
there be any other subsisting insurance or insurances, whether effected by the insured or by any other person or
persons, covering the same property, the company shall not be liable to pay or contribute more than its ratable
proportion of such loss or damage.

On February 29, 2008, the CA rendered the assailed decision sustaining the ruling of the RTC, the decretal portion of
which reads:
WHEREFORE, in view of the foregoing, the assailed Decision dated 29 September 2000, as modified in the Order
dated 21 July 2001, is AFFIRMED with MODIFICATION in that the award of attorneys fees in favor of Reputable is
DELETED.
SO ORDERED.13
The CA ruled, among others, that: (1) Reputable is estopped from assailing the validity of the contract of carriage on
the ground of lack of signature of Wyeths representative/s; (2) Reputable is liable under the contract for the value of
the goods even if the same was lost due to fortuitous event; and (3) Section 12 of the SR Policy prevails over Section
5, it being the latter provision; however, since the ratable proportion provision of Section 12 applies only in case of
double insurance, which is not present, then it should not be applied and Malayan should be held liable for the full
amount of the policy coverage, that is, P1,000,000.00.14
On March 14, 2008, Malayan moved for reconsideration of the assailed decision but it was denied by the CA in its
Resolution dated August 28, 2008.15
Hence, this petition.
Malayan insists that the CA failed to properly resolve the issue on the "statutory limitations on the liability of common
carriers" and the "difference between an other insurance clause and an over insurance clause."
Malayan also contends that the CA erred when it held that Reputable is a private carrier and should be bound by the
contractual stipulations in the contract of carriage. This argument is based on its assertion that Philippines First
judicially admitted in its complaint that Reputable is a common carrier and as such, Reputable should not be held
liable pursuant to Article 1745(6) of the Civil Code.16 Necessarily, if Reputable is not liable for the loss, then there is no
reason to hold Malayan liable to Reputable.
Further, Malayan posits that there resulted in an impairment of contract when the CA failed to apply the express
provisions of Section 5 (referred to by Malayan as over insurance clause) and Section 12 (referred to by Malayan as
other insurance clause) of its SR Policy as these provisions could have been read together there being no actual
conflict between them.
Reputable, meanwhile, contends that it is exempt from liability for acts committed by thieves/robbers who act with
grave or irresistible threat whether it is a common carrier or a private/special carrier. It, however, maintains the
correctness of the CA ruling that Malayan is liable to Philippines First for the full amount of its policy coverage and not
merely a ratable portion thereof under Section 12 of the SR Policy.
Finally, Philippines First contends that the factual finding that Reputable is a private carrier should be accorded the
highest degree of respect and must be considered conclusive between the parties, and that a review of such finding
by the Court is not warranted under the circumstances. As to its alleged judicial admission that Reputable is a
common carrier, Philippines First proffered the declaration made by Reputable that it is a private carrier. Said
declaration was allegedly reiterated by Reputable in its third party complaint, which in turn was duly admitted by
Malayan in its answer to the said third-party complaint. In addition, Reputable even presented evidence to prove that
it is a private carrier.
As to the applicability of Sections 5 and 12 in the SR Policy, Philippines First reiterated the ruling of the CA.
Philippines First, however, prayed for a slight modification of the assailed decision, praying that Reputable and
Malayan be rendered solidarily liable to it in the amount of P998,000.00, which represents the balance from the
P1,000.000.00 coverage of the SR Policy after deducting P2,000.00 under Section 10 of the said SR Policy.17

Issues
The liability of Malayan under the SR Policy hinges on the following issues for resolution:
1) Whether Reputable is a private carrier;
2) Whether Reputable is strictly bound by the stipulations in its contract of carriage with Wyeth, such that it
should be liable for any risk of loss or damage, for any cause whatsoever, including that due to theft or
robbery and other force majeure;
3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and Section 12 of the SR Policy; and
4) Whether Reputable should be held solidarily liable with Malayan for the amount of P998,000.00 due to
Philippines First.
The Courts Ruling
On the first issue Reputable is a private carrier.
The Court agrees with the RTC and CA that Reputable is a private carrier. Well-entrenched in jurisprudence is the
rule that factual findings of the trial court, especially when affirmed by the appellate court, are accorded the highest
degree of respect and considered conclusive between the parties, save for certain exceptional and meritorious
circumstances, none of which are present in this case.18
Malayan relies on the alleged judicial admission of Philippines First in its complaint that Reputable is a common
carrier.19 Invoking Section 4, Rule 129 of the Rules on Evidence that "an admission verbal or written, made by a party
in the course of the proceeding in the same case, does not require proof," it is Malayans position that the RTC and
CA should have ruled that
Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the Civil Code, the liability of Reputable
for the loss of Wyeths goods should be dispensed with, or at least diminished.
It is true that judicial admissions, such as matters alleged in the pleadings do not require proof, and need not be
offered to be considered by the court. "The court, for the proper decision of the case, may and should consider,
without the introduction of evidence, the facts admitted by the parties."20 The rule on judicial admission, however, also
states that such allegation, statement, or admission is conclusive as against the pleader,21 and that the facts alleged
in the complaint are deemed admissions of the plaintiff and binding upon him.22 In this case, the pleader or the plaintiff
who alleged that Reputable is a common carrier was Philippines First. It cannot, by any stretch of imagination, be
made conclusive as against Reputable whose nature of business is in question.
It should be stressed that Philippines First is not privy to the SR Policy between Wyeth and Reputable; rather, it is a
mere subrogee to the right of Wyeth to collect from Reputable under the terms of the contract of carriage. Philippines
First is not in any position to make any admission, much more a definitive pronouncement, as to the nature of
Reputables business and there appears no other connection between Philippines First and Reputable which
suggests mutual familiarity between them.
Moreover, records show that the alleged judicial admission of Philippines First was essentially disputed by Reputable
when it stated in paragraphs 2, 4, and 11 of its answer that it is actually a private or special carrier.23In addition,
Reputable stated in paragraph 2 of its third-party complaint that it is "a private carrier engaged in the carriage of
goods."24 Such allegation was, in turn, admitted by Malayan in paragraph 2 of its answer to the third-party
complaint.25 There is also nothing in the records which show that Philippines First persistently maintained its stance

that Reputable is a common carrier or that it even contested or proved otherwise Reputables position that it is a
private or special carrier.
Hence, in the face of Reputables contrary admission as to the nature of its own business, what was stated by
Philippines First in its complaint is reduced to nothing more than mere allegation, which must be proved for it to be
given any weight or value. The settled rule is that mere allegation is not proof.26
More importantly, the finding of the RTC and CA that Reputable is a special or private carrier is warranted by the
evidence on record, primarily, the unrebutted testimony of Reputables Vice President and General Manager, Mr.
William Ang Lian Suan, who expressly stated in open court that Reputable serves only one customer, Wyeth.27
Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or associations engaged in
the business of carrying or transporting passenger or goods, or both by land, water or air for compensation, offering
their services to the public. On the other hand, a private carrier is one wherein the carriage is generally undertaken by
special agreement and it does not hold itself out to carry goods for the general public.28 A common carrier becomes a
private carrier when it undertakes to carry a special cargo or chartered to a special person only.29 For all intents and
purposes, therefore, Reputable operated as a private/special carrier with regard to its contract of carriage with Wyeth.
On the second issue Reputable is bound by the terms of the contract of carriage.
The extent of a private carriers obligation is dictated by the stipulations of a contract it entered into, provided its
stipulations, clauses, terms and conditions are not contrary to law, morals, good customs, public order, or public
policy. "The Civil Code provisions on common carriers should not be applied where the carrier is not acting as such
but as a private carrier. Public policy governing common carriers has no force where the public at large is not
involved."30
Thus, being a private carrier, the extent of Reputables liability is fully governed by the stipulations of the contract of
carriage, one of which is that it shall be liable to Wyeth for the loss of the goods/products due to any and all causes
whatsoever, including theft, robbery and other force majeure while the goods/products are in transit and until actual
delivery to Wyeths customers, salesmen and dealers.31
On the third issue other insurance vis--vis over insurance.
Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to Section 12 as a "modified other
insurance clause".32 In rendering inapplicable said provisions in the SR Policy, the CA ruled in this wise:
Since Sec. 5 calls for Malayans complete absolution in case the other insurance would be sufficient to cover the
entire amount of the loss, it is in direct conflict with Sec. 12 which provides only for a pro-rated contribution between
the two insurers. Being the later provision, and pursuant to the rules on interpretation of contracts, Sec. 12 should
therefore prevail.
xxxx
x x x The intention of both Reputable and Malayan should be given effect as against the wordings of Sec. 12 of their
contract, as it was intended by the parties to operate only in case of double insurance, or where the benefits of the
policies of both plaintiff-appellee and Malayan should pertain to Reputable alone. But since the court a quo correctly
ruled that there is no double insurance in this case inasmuch as Reputable was not privy thereto, and therefore did
not stand to benefit from the policy issued by plaintiff-appellee in favor of Wyeth, then Malayans stand should be
rejected.
To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable which,
despite paying premiums for a P1,000,000.00 insurance coverage, would not be entitled to recover said amount for

the simple reason that the same property is covered by another insurance policy, a policy to which it was not a party
to and much less, from which it did not stand to benefit. Plainly, this unfair situation could not have been the intention
of both Reputable and Malayan in signing the insurance contract in question.33
In questioning said ruling, Malayan posits that Sections 5 and 12 are separate provisions applicable under distinct
circumstances. Malayan argues that "it will not be completely absolved under Section 5 of its policy if it were the
assured itself who obtained additional insurance coverage on the same property and the loss incurred by Wyeths
cargo was more than that insured by Philippines Firsts marine policy. On the other hand, Section 12 will not
completely absolve Malayan if additional insurance coverage on the same cargo were obtained by someone besides
Reputable, in which case Malayans SR policy will contribute or share ratable proportion of a covered cargo loss."34
Malayans position cannot be countenanced.
Section 5 is actually the other insurance clause (also called "additional insurance" and "double insurance"), one akin
to Condition No. 3 in issue in Geagonia v. CA,35 which validity was upheld by the Court as a warranty that no other
insurance exists. The Court ruled that Condition No. 336 is a condition which is not proscribed by law as its
incorporation in the policy is allowed by Section 75 of the Insurance Code. It was also the Courts finding that unlike
the other insurance clauses, Condition No. 3 does not absolutely declare void any violation thereof but 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."
In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity of the SR Policy but
simply limits the liability of Malayan only up to the excess of the amount that was not covered by the other insurance
policy. In interpreting the "other insurance clause" in Geagonia, the Court ruled that the prohibition applies only in
case of double insurance. The Court ruled that in order to constitute a violation of the clause, the other insurance
must be upon same subject matter, the same interest therein, and the same risk. Thus, even though the multiple
insurance policies involved were all issued in the name of the same assured, over the same subject matter and
covering the same risk, it was ruled that there was no violation of the "other insurance clause" since there was no
double insurance.
Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly, it covers the situation
where there is over insurance due to double insurance. In such case, Section 15 provides that Malayan shall "not be
liable to pay or contribute more than its ratable proportion of such loss or damage." This is in accord with the principle
of contribution provided under Section 94(e) of the Insurance Code,37 which states that "where the insured is over
insured by double insurance, each insurer is bound, as between himself and the other insurers, to contribute ratably
to the loss in proportion to the amount for which he is liable under his contract."
Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal question that now arises
is whether there is double insurance in this case such that either Section 5 or Section 12 of the SR Policy may be
applied.
By the express provision of Section 93 of the Insurance Code, double insurance exists where the same person is
insured by several insurers separately in respect to the same subject and interest. The requisites in order for double
insurance to arise are as follows:38
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and

5. There is identity of the risk or peril insured against.


In the present case, while it is true that the Marine Policy and the SR Policy were both issued over the same subject
matter, i.e. goods belonging to Wyeth, and both covered the same peril insured against, it is, however, beyond cavil
that the said policies were issued to two different persons or entities. It is undisputed that Wyeth is the recognized
insured of Philippines First under its Marine Policy, while Reputable is the recognized insured of Malayan under the
SR Policy. The fact that Reputable procured Malayans SR Policy over the goods of Wyeth pursuant merely to the
stipulated requirement under its contract of carriage with the latter does not make Reputable a mere agent of Wyeth
in obtaining the said SR Policy.
The interest of Wyeth over the property subject matter of both insurance contracts is also different and distinct from
that of Reputables. The policy issued by Philippines First was in consideration of the legal and/or equitable interest of
Wyeth over its own goods. On the other hand, what was issued by Malayan to Reputable was over the latters
insurable interest over the safety of the goods, which may become the basis of the latters liability in case of loss or
damage to the property and falls within the contemplation of Section 15 of the Insurance Code.39
Therefore, even though the two concerned insurance policies were issued over the same goods and cover the same
risk, there arises no double insurance since they were issued to two different persons/entities having distinct
insurable interests. Necessarily, over insurance by double insurance cannot likewise exist. Hence, as correctly ruled
by the RTC and CA, neither Section 5 nor Section 12 of the SR Policy can be applied.
Apart from the foregoing, the Court is also wont to strictly construe the controversial provisions of the SR Policy
against Malayan. This is in keeping with the rule that:
1wphi1

"Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any
ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer;
in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of
liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer
from noncompliance with its obligations."40
Moreover, the CA correctly ruled that:
To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable which,
despite paying premiums for a P1,000,000.00 insurance coverage, would not be entitled to recover said amount for
the simple reason that the same property is covered by another insurance policy, a policy to which it was not a party
to and much less, from which it did not stand to benefit. x x x41
On the fourth issue Reputable is not solidarily liable with Malayan.
There is solidary liability only when the obligation expressly so states, when the law so provides or when the nature of
the obligation so requires.
In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc.,42 the Court ruled that:
Where the insurance contract provides for indemnity against liability to third persons, the liability of the insurer is
direct and such third persons can directly sue the insurer. The direct liability of the insurer under indemnity contracts
against third party[- ]liability does not mean, however, that the insurer can be held solidarily liable with the insured
and/or the other parties found at fault, since they are being held liable under different obligations. The liability of the
insured carrier or vehicle owner is based on tort, in accordance with the provisions of the Civil Code; while that of the
insurer arises from contract, particularly, the insurance policy:43 (Citation omitted and emphasis supplied)

Suffice it to say that Malayan's and Reputable's respective liabilities arose from different obligations- Malayan's is
based on the SR Policy while Reputable's is based on the contract of carriage.
All told, the Court finds no reversible error in the judgment sought to be reviewed.
WHEREFORE, premises considered, the petition is DENIED. The Decision dated February 29, 2008 and Resolution
dated August 28, 2008 of the Court of Appeals in CA-G.R. CV No. 71204 are hereby AFFIRMED.
Cost against petitioner Malayan Insurance Co., Inc.
SO ORDERED.

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