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FACTS: White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity
coverage for its vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited
(Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer).
Subsequently, White Gold was issued a Certificate of Entry and Acceptance. Pioneer also issued
receipts evidencing payments for the coverage. When White Gold failed to fully pay its accounts,
Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to
recover the latter's unpaid balance. White Gold on the other hand, filed a complaint before the
Insurance Commission claiming that Steamship Mutual violated Sections 186 and 187 of the
Insurance Code, while Pioneer violated Sections 299, 300 and 301 in relation to Sections 302
and 303, thereof. The Insurance Commission dismissed the complaint. It said that there was no
need for Steamship Mutual to secure a license because it was not engaged in the insurance
business. It explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club).
Likewise, Pioneer need not obtain another license as insurance agent and/or a broker for
Steamship Mutual because Steamship Mutual was not engaged in the insurance business.
Moreover, Pioneer was already licensed, hence, a separate license solely as agent/broker of
Steamship Mutual was already superfluous.
ISSUE: WON Steamship Mutual, a P & I Club, engaged in the insurance business in the
Philippines? |||
HELD: YES. Section 2(2) of the Insurance Code enumerates what constitutes "doing an
insurance business" or "transacting an insurance business". These are: (a) making or proposing
to make, as insurer, any insurance contract; (b) making, or proposing to make, as surety, any
contract of suretyship as a vocation and not as merely incidental to any other legitimate
business or activity of the surety; (c) doing any kind of business, including a reinsurance
business, specifically recognized as constituting the doing of an insurance business within the
meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any
of the foregoing in a manner designed to evade the provisions of this Code.
The test to determine if a contract is an insurance contract or not, depends on the nature of the
promise, the act required to be performed, and the exact nature of the agreement in the light of
the occurrence, contingency, or circumstances under which the performance becomes requisite.
It is not by what it is called. Basically, an insurance contract is a contract of indemnity. In it, one
undertakes for a consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event. In particular, a marine insurance undertakes to indemnify the
assured against marine losses, such as the losses incident to a marine adventure
FACTS: The two consolidated cases involved herein stemmed from the issuance by Fidelity and
Surety Insurance Company of the Philippines (Fidelity for short) of its Fire Insurance Policy No. F-
18876 effective between June 23, 1980 and June 23, 1981 covering Rafael (Rex) Verendia's
residential building located at Tulip Drive, Beverly Hills, Antipolo, Rizal in the
amount of P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings
Bank. Verendia also insured the same building with two other companies, namely, The Country
Bankers Insurance for P56,000.00 under Policy No. PDB-80-1913 expiring on May 12, 1981, and
The Development Insurance for P400,000.00 under Policy No. F-48867 expiring on June 30, 1981.
While the three fire insurance policies were in force, the insured property was completely
destroyed by fire on the early morning of December 28, 1980. Fidelity was accordingly
informed of the loss and despite demands, refused payment under its policy, thus

prompting Verendia to file a complaint with the then Court of First Instance of Quezon City,
praying for payment of P385,000.00, legal interest thereon, plus attorney's fees and litigation
expenses. The complaint was later amended to include Monte de Piedad as an "unwilling
defendant Answering the complaint, Fidelity, among other things, averred that the policy was
avoided by reason of over-insurance, that Verendia maliciously represented that the building at
the time of the fire was leased under a contract executed on June 25, 1980 to a certain Roberto
Garcia, when actually it was a Marcelo Garcia who was the lessee.
ISSUE: Whether or not Verendia can claim on the insurance despite the misrepresentation as to
the lessee and the over- insurance.
HELD: NO. The contract of lease upon which Verendia relies to support his claim for insurance
benefits, was entered into between him and one Robert Garcia, married to Helen Cawinian, on
June 25, 1980, a couple of days after the effectivity of the insurance policy. When the rented
residential building was razed to the ground on December 28, 1980, it appears that Robert
Garcia (or Roberto Garcia) was still within the premises. However, according to the investigation
report prepared by Pat. Eleuterio M. Buenviaje of the Antipolo police, the building appeared to
have "no occupant" and that Mr. Roberto Garcia was "renting on the otherside (sic) portion ofsaid
These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo Garcia whom
he considered as the real lessee, was occupying the building when it was burned. Robert Garcia
disappeared after the fire. It was only on October 9, 1981 that an adjuster was able to locate
him. Robert Garcia then executed an affidavit before the National Intelligence and Security
Authority (NISA) to the effect that he was not the lessee of Verendia's house and that his
signature on the contract of lease was a complete forgery.
Basically a contract of indemnity, an insurance contract is the law between the parties. Its terms
and conditions constitute the measure of the insurer's liability and compliance therewith is a
condition precedent to the insured's right to recovery from the. As it is also a
contract of adhesion, an insurance contract should be liberally construed in favor of the insured
and strictly against the insurer company which usually prepares it.
Considering, however, the foregoing discussion pointing to the fact that Verendia used a false
lease contract to support his claim under Fire Insurance Policy No. F-18876, the terms of the
policy should be strictly construed against the insured. Verendia failed to live by the terms of the
policy, specifically Section 13 thereof which is expressed in terms that are clear and
unambiguous, that all 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, or if any fraudulent
means or devises are used by the Insured or anyone acting in his behalf to obtain any benefit
under the policy". Verendia, having presented a false declaration to support his claim for benefits
in the form of a fraudulent lease contract, he forfeited all benefits therein by virtue of Section
13 of the policy in the absence of proof that Fidelity waived such provision Worse yet, by
presenting a false lease contract, Verendia reprehensibly disregarded the principle that insurance
contracts are uberrimae fidae and demand the most abundant good faith.
There is also no reason to conclude that by submitting the subrogation receipt as evidence
in court, Fidelity bound itself to a "mutual agreement" to settle Verendia's claims in
consideration of the amount of P142,685.77. While the said receipt appears to have been a filled-
up form of Fidelity, no representative of Fidelity had signed it. It is even incomplete as the blank
spaces for a witness and his address are not filled up. More significantly, the same receipt states
that Verendia had received the aforesaid amount. However, that Verendia had not received the
amount stated therein, is proven by the fact that Verendia himself filed the complaint for the full
amount of P385,000.00 stated in the policy. It might be that there had been efforts to

settle Verendia's claims, but surely, the subrogation receipt by itself does not prove that a
settlement had been arrived at and enforced. Thus, to interpret Fidelity's presentation of the
subrogation receipt in evidence as indicative of its accession to its "terms" is not only wanting in
rational basis but would be substituting the will of the Court for that of the parties.
FACTS: Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care
coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he
answered no to the following question: Have you or any of your family members ever consulted
or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or
peptic ulcer? (If Yes, give details).
The application was approved for a period of one year from March 1, 1988 to March 1, 1989.
Under the agreement, respondent's husband was entitled to avail of hospitalization benefits,
whether ordinary or emergency, listed therein. He was also entitled to avail of out-patient
benefits" such as annual physical examinations, preventive health care and other out-patient
services. Upon the termination of the agreement, the same was extended for another year from
March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The
amount of coverage was increased to a maximum sum of P75,000.00 per disability.
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila
Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the
hospital, respondent tried to claim the benefits under the health care agreement. However,
petitioner denied her claim saying that the HealthCare Agreement was void. According to
petitioner, there was a concealment regarding Ernani's medical history. Doctors at the MMC
allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic and
asthmatic, contrary to his answer in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about P76,000.00. After her husband was
discharged from the MMC, he was attended by a physical therapist at home. Later, he was
admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent
brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was
feeling very weak. Respondent was constrained to bring him back to the Chinese General
Hospital where he died on the same day.
Petitioner argues that the agreement grants "living benefits," such as medical check-ups and
hospitalization which a member may immediately enjoy so long as he is alive upon
effectivity of the agreement until its expiration one-year thereafter. Petitioner also points out that
only medical and hospitalization benefits are given under the agreement without any
indemnification, unlike in an insurance contract where the insured is indemnified for his loss.
Moreover, since Health Care Agreements are only for a period of one year, as compared to
insurance contracts which last longer, 7 petitioner argues that the incontestability clause does
not apply, as the same requires an effectivity period of at least two years. Petitioner further
argues that it is not an insurance company, which is governed by the Insurance Commission, but
a Health Maintenance Organization under the authority of the Department of Health.
ISSUE: WON the health care agreement between the parties is an insurance contract.
HELD: YES. Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. An insurance contract exists where the
following elements concur: 1. The insured has an insurable interest; 2. The insured is subject to a
risk of loss by the happening of the designated peril; 3. The insurer assumes the risk; 4. Such
assumption of risk is part of a general scheme to distribute actual losses among a large

group of persons bearing a similar risk; and 5. In consideration of the insurer's promise, the
insured pays a premium.
In the case at bar, the insurable interest of respondent's husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life
insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical
or any other expense arising from sickness, injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed upon under the contract hen the
terms of insurance contract contain limitations on liability, courts should construe them in such a
way as to preclude the insurer from non-compliance with his obligation.
Being a contract of adhesion, the terms of an insurance contract are to be construed strictly
against the party which prepared the contract the insurer. By reason of the exclusive
control of the insurance company over the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured,
especially to avoid forfeiture. This is equally applicable to Health Care Agreements. The
phraseology used in medical or hospital service contracts, such as the one at bar, must be
liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two
interpretations the construction conferring coverage is to be adopted, and exclusionary
clauses of doubtful import should be strictly construed against the provider. The health care
agreement is in the nature of a contract of indemnity. Hence, payment should be made to the
party who incurred the expenses. It is not controverted that respondent paid all the hospital and
medical expenses. She is therefore entitled to reimbursement. The records adequately prove the
expenses incurred by respondent for the deceased's hospitalization, medication and the
professional fees of the attending physicians.
FACTS: Producers Bank of the Philippines was insured by the Fortune Insurance and Surety Co.
Inc. and an insurance policy was issued. An armored car of Producers, while in the process of
transferring cash in the sum of P725,000.00 under the custody of its teller, Maribeth Alampay,
from its Pasay Branch to its Head Office at 8737 Paseo de Roxas, Makati, Metro Manila on 29 June
1987, was robbed of the said cash. The robbery took place while the armored car was traveling
along Taft Avenue in Pasay City. The said armored car was driven by Benjamin Magalong y de
Vera, escorted by Security Guard Saturnino Atiga y Rosete. Driver Magalong was assigned by PRC
Management Systems with Producers by virtue of an Agreement executed on 7 August 1983. The
Security Guard Atiga was assigned by Unicorn Security Services, Inc. with Producers by virtue of
a contract of Security Service executed on 25 October 1982. After an investigation conducted by
the Pasay police authorities, the driver Magalong and guard Atiga were charged, together with
Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of PD 532 (Anti-
Highway Robbery Law) before the Fiscal of Pasay City. The Fiscal of Pasay City then filed an
information charging the aforesaid persons with the said crime before Branch 112 of the Regional
Trial Court of Pasay City. The case is still being tried as of the date of filing of the present case.
Demands were made by Producers upon Fortune to pay the amount of the loss of P725,000.00,
but the latter refused to pay as the loss is excluded from the coverage of the insurance policy,
specifically under page 1 thereof, "General Exceptions" Section (b), and which reads as follows:
"GENERAL EXCEPTIONS The company shall not be liable under this policy in respect of xxx (b)
any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer,
employee, partner, director, trustee or authorized representative of the Insured whether acting
alone or in conjunction with others..." Producers opposed the contention of Fortune and
contended that Atiga and Magalong are not its "officer, employee, trustee or authorized
representative at the time of the robbery. On 26 April 1990, the trial court rendered its decision
in favor of Producers. It ordered Fortune to pay Producers the net amount of P540,000.00 as

liability under Policy 0207 (as mitigated by the P40,000.00 special clause deduction and by the
recovered sum of P145,000.00), with interest thereon at the legal rate, until fully paid; the sum of
P30,000.00 as and for attorney's fees; and to pay the costs of suit. Fortune appealed this
decision to the Court of Appeals (CA-GR CV 32946). In its decision promulgated on 3 May 1994, it
affirmed in toto the appealed decision. On 20 June 1994, Fortune filed the petition for review on
Issue: Whether Fortune is liable under the Money, Security, and Payroll Robbery policy
it issued to the issued to Producers or whether recovery thereunder is precluded
under the general exceptions clause thereof.
Held: It should be noted that the insurance policy entered into by the parties is a theft or
robbery insurance policy which is a form of casualty insurance. Section 174 of the Insurance
Code provides that "Casualty insurance is insurance covering loss or liability arising from
accident or mishap, excluding certain types of loss which by law or custom are considered as
falling exclusively within the scope of insurance such as fire or marine. It includes, but is not
limited to, employer's liability insurance, public liability insurance, motor

vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident
and health insurance as written by non-life insurance companies, and other substantially similar
kinds of insurance." Except with respect to compulsory motor vehicle liability insurance, the
Insurance Code contains no other provisions applicable to casualty insurance or to robbery
insurance in particular. These contracts are, therefore, governed by the general provisions
applicable to all types of insurance. Outside of these, the rights and obligations of the parties
must be determined by the terms of their contract, taking into consideration its purpose and
always in accordance with the general principles of insurance law. It has been aptly observed
that in burglary, robbery, and theft insurance, "the opportunity to defraud the insurer the
moral hazard is so great that insurers have found it necessary to fill up their policies with
countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the
risk of all losses due to the hazards insured against." Persons frequently excluded under such
provisions are those in the insured's service and employment. The purpose of the exception is to
guard against liability should the theft be committed by one having unrestricted access to the
property." In such cases, the terms specifying the excluded classes are to be given their meaning
as understood in common speech. The terms "service" and "employment" are generally
associated with the idea of selection, control, and compensation. A contract of insurance is a
contract of adhesion, thus any ambiguity therein should be resolved against the insurer, or 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 non-compliance with its obligation. It goes without saying then that if
the terms of the contract are clear and unambiguous, there is no room construction and such
terms cannot be enlarged or diminished by judicial construction. An insurance contract is a
contract of indemnity upon the terms and conditions specified therein. It is settled that the terms
of the policy constitute the measure of the insurer's 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. Insofar as Fortune is concerned, it was its intention to exclude and
exempt from protection and coverage losses arising from dishonest, fraudulent, or criminal acts
of persons granted or having unrestricted access to Producers' money or payroll. When it used
then the term "employee," it must have had in mind any person who qualifies as such as
generally and universally understood, or jurisprudentially established in the light of the four
standards in the determination of the employer- employee relationship, or as statutorily declared
even in a limited sense as in the case of Article 106 of the Labor Code which considers the
employees under a "labor-only" contract as employees of the party employing them and not of
the party who supplied them to the employer. Still, howsoever viewed, Producers entrusted the
three with the specific duty to safely transfer the money to its head office, with Alampay to be
responsible for its custody in transit; Magalong to drive the armored vehicle which would carry
the money; and Atiga to provide the needed security for the money, the vehicle, and his two
other companions. In short, for these particular tasks, the three acted as agents of Producers. A
"representative" is defined as one who represents or stands in the place of another; one who
represents others or another in a special capacity, as an agent, and is interchangeable with
"agent." In view of the foregoing, Fortune is exempt from liability under the general exceptions
clause of the insurance policy.
FACTS: Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had its
properties in said resort insured originally with the American Home Assurance Company (AHAC).
In the first 4 policies issued, the risks of loss from earthquake shock was extended only to
petitioners two swimming pools. Gulf Resorts agreed to insure with Phil Charter the properties
covered by the AHAC policy provided that the policy wording and rates in said policy be copied in
the policy to be issued by Phil Charter. Phil Charter issued Policy No. 31944 to Gulf Resorts
covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium
of P45,159.92. the break-down of premiums shows that Gulf Resorts paid only P393.00 as
premium against earthquake shock (ES). In Policy No. 31944 issued by defendant, the shock
endorsement provided that In consideration of the payment by the insured to the company of
the sum included additional premium the Company agrees, notwithstanding what is stated in the
printed conditions of this policy due to the contrary, that this insurance covers loss or damage to
shock to any of the property insured by this Policy occasioned by or through or in consequence of
earthquake the word "included" above the underlined portion was deleted. On July 16, 1990 an
earthquake struck Central Luzon and Northern Luzon and plaintiffs properties covered by Policy
No. 31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort were
damaged. Petitioner advised respondent that it would be making a claim under its Insurance
Policy 31944 for damages on its properties. Respondent denied petitioners claim on the ground
that its insurance policy only afforded earthquake shock coverage to the two swimming pools of
the resort. The trial court ruled in favor of respondent. In its ruling, the schedule clearly shows
that petitioner paid only a premium of P393.00 against the peril of earthquake shock, the same
premium it had paid against earthquake shock only on the two swimming pools in all the policies
issued by AHAC.
ISSUE: Whether or not the policy covers only the two swimming pools owned by Gulf
Resorts and does not extend to all properties damaged therein
HELD: YES. All the provisions and riders taken and interpreted together, indubitably show the
intention of the parties to extend earthquake shock coverage to the two swimming pools only. An
insurance premium is the consideration paid an insurer for undertaking to indemnify the insured
against a specified peril. In fire, casualty and marine insurance, the premium becomes a debt as
soon as the risk attaches. In the subject policy, no premium payments were made with regard to
earthquake shock coverage except on the two swimming pools. There is no mention of any
premium payable for the other resort properties with regard to earthquake shock. This is
consistent with the history of petitioners insurance policies with AHAC.
FACTS: Petitioner insured its Mercedes Benz 4-door sedan with respondent insurance company.
On 4 May 1970 the insured vehicle was bumped and damaged by a truck owned by San Miguel
Corporation. For the damage caused, respondent company paid petitioner five thousand pesos
(P5,000.00) in amicable settlement. Petitioner's general manager executed a Release of Claim,
subrogating respondent company to all its right to action against San Miguel Corporation. On 11
December 1972, respondent company wrote Insurance Adjusters, Inc. to demand reimbursement
from San Miguel Corporation of the amount it had paid petitioner. Insurance Adjusters, Inc.
refused reimbursement, alleging that San Miguel Corporation had already paid petitioner
P4,500.00 for the damages to petitioner's motor vehicle, as evidenced by a cash voucher and a
Release of Claim executed by the General Manager of petitioner discharging San Miguel
Corporation from "all actions, claims, demands the rights of action that now exist or hereafter
[sic] develop arising out of or as a consequence of the accident."
Respondent insurance company thus demanded from petitioner reimbursement of the sum of
P4,500.00 paid by San Miguel Corporation. Petitioner refused; hence, respondent company filed
suit in the City Court of Manila for the recovery of P4,500.00. The City Court ordered petitioner to
pay respondent P4,500.00. On appeal the Court of First Instance of Manila affirmed the City
Court's decision in toto, which CFI decision was affirmed by the Court of Appeals, with the
modification that petitioner was to pay respondent the total amount of P5,000.00 that it had
earlier received from the respondent insurance company. Petitioner now contends it is not bound
to pay P4,500.00, and much more, P5,000.00 to respondent company as the subrogation in the
Release of Claim it executed in favor of respondent was conditioned on recovery of the total
amount of damages petitioner had sustained. Since total damages were valued by petitioner at
P9,486.43 and only P5,000.00 was received by petitioner from respondent, petitioner argues that
it was entitled to go after San Miguel Corporation to claim the additional P4,500.00 eventually
paid to it by the latter, without having to turn over said amount to respondent. Respondent of
course disputes this allegation and states that there was no qualification to its right of
subrogation under the Release of Claim executed by petitioner, the contents of said deed having
expressed all the intents and purposes of the parties.
ISSUE: WON petitioner should pay respondent despite the subrogation in the Release
of Claim was conditioned on recovery of the total amount of damages petitioner has

HELD: NO. SC: no other evidence to support its allegation that a gentlemans agreement existed
between the parties, not embodied in the Release of Claim, such Release of Claim must be taken
as the best evidence of the intent and purpose of the parties.CA correct in holding petitioner
should reimburse respondent 5K: When Manila Mahogany executed another release claim
discharging SMC from all rights of action after the insurer had paid the proceeds of the policy
the compromise agreement of 5K- the insurer is entitled to recover from the insured the amount
of insurance money paid. Petitioner by its own acts released SMC, thereby defeating
respondents right of subrogation, the right of action against the insurer was also nullified. Since
the insurer can be subrogated to only such rights as the insured may have, should the insured,
after receiving payment from the insurer, release the wrongdoer who caused the loss, the insurer
losses his rights against the latter. But in such a case, the insurer will be entitled to recover from
the insured whatever it has paid to the latter, unless the release was made w/ the consent of the


FACTS: On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of Nebraska, USA
delivered to Burlington Air Express (BURLINGTON), an agent of
[Petitioner]Federal Express Corporation, a shipment of 109 cartons of veterinary biologicals for
delivery to consignee SMITHKLINE and French Overseas Company in Makati City, Metro Manila.
The shipment was covered by Burlington Airway Bill No. 11263825 with the words, REFRIGERATE
WHEN NOT IN TRANSIT and PERISHABLE stamp marked on its face. That same day, Burlington
insured the cargoes in the amount of $39,339.00 with American Home Assurance Company
(AHAC). The following day, Burlington turned over the custody of said cargoes
to Federal Express which transported the same to Manila. The first shipment, consisting of 92
cartons arrived in Manila on January 29, 1994 in Flight No. 0071-28NRT and was immediately
stored at [Cargohaus Inc.s] warehouse. While the second, consisting of 17 cartons, came in two
(2) days later, or on January 31, 1994, in Flight No. 0071-30NRT which was likewise immediately
stored at Cargohaus warehouse. Prior to the arrival of the cargoes, Federal Express informed
GETC Cargo International Corporation, the customs broker hired by the consignee to facilitate the

release of its cargoes from the Bureau of Customs, of the impending arrival of its clients
On February 10, 1994, DARIO C. DIONEDA (DIONEDA), twelve (12) days after the cargoes
arrived in Manila, a non-licensed customs broker who was assigned by GETC to facilitate the
release of the subject cargoes, found out, while he was about to cause the release of the said
cargoes, that the same [were] stored only in a room with two (2) air conditioners running, to cool
the place instead of a refrigerator. When he asked an employee of Cargohaus why the cargoes
were stored in the cool room only, the latter told him that the cartons where the vaccines were
contained specifically indicated therein that it should not be subjected to hot or cold
temperature. Thereafter, DIONEDA, upon instructions from GETC, did not proceed with the
withdrawal of the vaccines and instead, samples of the same were taken and brought to the
Bureau of Animal Industry of the Department of Agriculture in the Philippines by SMITHKLINE for
examination wherein it was discovered that the ELISA reading of vaccinates sera are below the
positive reference serum. As a consequence of the foregoing result of the veterinary biologics
test, SMITHKLINE abandoned the shipment and, declaring total loss for the unusable shipment,
filed a claim with AHAC through its representative in the Philippines, the Philam Insurance Co.,
Inc. (PHILAM) which recompensed SMITHKLINE for the whole insured amount of THIRTY NINE
THOUSAND THREE HUNDRED THIRTY NINE DOLLARS ($39,339.00). Thereafter, [respondents]
filed an action for damages against the [petitioner] imputing negligence on either or both of
them in the handling of the cargo.||
ISSUE: WON Is FEDEX liable for damage to or loss of the insured goods
HELD: Pertinent to this issue is the Certificate of Insurance 10 (Certificate) that both opposing
parties cite in support of their respective positions. They differ only in their interpretation of what
their rights are under its terms. The determination of those rights involves a question of law, not
a question of fact. As distinguished from a question of law which exists when the doubt or
difference arises as to what the law is on a certain state of facts there is a question of fact
when the doubt or difference arises as to the truth or the falsehood of alleged facts; or when the
query necessarily invites calibration of the whole evidence considering mainly the credibility of
witnesses, existence and relevancy of specific surrounding circumstance, their relation to each
other and to the whole and the probabilities of the situation.
The Certificate specifies that loss of or damage to the insured cargo is payable to order . . .
upon surrender of this Certificate. Such wording conveys the right of collecting on any such
damage or loss, as fully as if the property were covered by a special policy in the name of the
holder itself. At the back of the Certificate appears the signature of the representative of
Burlington. This document has thus been duly indorsed in blank and is deemed a bearer
Since the Certificate was in the possession of Smithkline, the latter had the right of collecting or
of being indemnified for loss of or damage to the insured shipment, as fully as if the property
were covered by a special policy in the name of the holder. Hence, being the holder of the
Certificate and having an insurable interest in the goods, Smithkline was the proper payee of the
insurance proceeds.
FACTS: In December 10, 1980, respondent Philippine American Life Insurance Company
(Philamlife) entered into an agreement denominated as Creditor Group Life Policy No. P-
1920 2 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the
clients of Eternal who purchased burial lots from it on installment basis would be insured by
Philamlife. The amount of insurance coverage depended upon the existing balance of the
purchased burial lots. The policy was to be effective for a period of one year, renewable on a
yearly basis.
The relevant provisions of the policy are: ELIGIBILITY.: Any Lot Purchaser of the Assured who is at
least 18 but not more than 65 years of age, is indebted to the Assured for the unpaid balance of
his loan with the Assured, and is accepted for Life Insurance coverage by the Company on its
effective date is eligible for insurance under the Policy.
EVIDENCE OF INSURABILITY: No medical examination shall be required for amounts of insurance
up to P50,000.00. However, a declaration of good health shall be required for all Lot Purchasers
as part of the application. The Company reserves the right to require further evidence of
insurability satisfactory to the Company in respect of the following: 1. Any amount of insurance
in excess of P50,000.00.; 2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT: The Life Insurance coverage of any Lot Purchaser at any time shall be
the amount of the unpaid balance of his loan (including arrears up to but not exceeding 2
months) as reported by the Assured to the Company or the sum of P100,000.00, whichever is
smaller. Such benefit shall be paid to the Assured if the Lot Purchaser dies while insured under
the Policy.
EFFECTIVE DATE OF BENEFIT: The insurance of any eligible Lot Purchaser shall be effective on the
date he contracts a loan with the Assured. However, there shall be no insurance if the application
of the Lot Purchaser is not approved by the Company.
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers,
together with a copy of the application of each purchaser, and the amounts of the respective
unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal complied
by submitting a letter dated December 29, 1982, 4 containing a list of insurable balances of its
lot buyers for October 1982. One of those included in the list as "new business" was a certain
John Chuang. His balance of payments was PhP100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 1984 to Philamlife, which served as an insurance claim for
Chuang's death. Attached to the claim were the following documents: (1) Chuang's Certificate of
Death; (2) Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3)
Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assured's Certificate. In
reply, Philamlife wrote Eternal a letter on November 12, 1984, requiring Eternal to submit the
following documents relative to its insurance claim for Chuang's death: (1) Certificate of Claimant
(with form attached); (2) Assured's Certificate (with form attached); (3) Application for Insurance
accomplished and signed by the insured, Chuang, while still living; and (4) Statement of Account
showing the unpaid balance of Chuang before his death. Eternal transmitted the required
documents through a letter dated November 14, 1984, 7 which was received by Philamlife on
November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to the latter's
insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim for
PhP100,000 on April 25, 1986.
ISSUE: WON Philamlife assumed the risk of loss without approving the application.
HELD: As earlier stated, Philamlife and Eternal entered into an agreement denominated as
Creditor Group Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT. The insurance of any eligible Lot Purchaser shall be effective on the
date he contracts a loan with the Assured. However, there shall be no insurance if the application
of the Lot Purchaser is not approved by the Company.

An examination of the above provision would show ambiguity between its two sentences. The
first sentence appears to state that the insurance coverage of the clients of Eternal already
became effective upon contracting a loan with Eternal while the second sentence appears to
require Philamlife to approve the insurance contract before the same can become effective. It
must be remembered that an insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to safeguard
the latter's interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held
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.
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated
the above ruling, stating that: When the terms of insurance contract contain limitations on
liability, courts should construe them in such a way as to preclude the insurer from non-
compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract
are to be construed strictly against the party which prepared the contract, the insurer. By reason
of the exclusive control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in
favor of the insured, especially to avoid forfeiture. Clearly, the vague contractual provision, in
Creditor Group Life Policy No. P-1920 dated December 10, 1980, must be construed in favor of
the insured and in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a
party's purchase of a memorial lot on installment from Eternal, an insurance contract covering
the lot purchaser is created and the same is effective, valid, and binding until terminated by
Philamlife by disapproving the insurance application. The second sentence of Creditor Group Life
Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition which
would lead to the cessation of the insurance contract. Moreover, the mere inaction of the insurer
on the insurance application must not work to prejudice the insured; it cannot be interpreted as a
termination of the insurance contract. The termination of the insurance contract by the insurer
must be explicit and unambiguous.
As a final note, to characterize the insurer and the insured as contracting parties on equal footing
is inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts
of experience in the industry purposefully used to its advantage. More often than not, insurance
contracts are contracts of adhesion containing technical terms and conditions of the industry,
confusing if at all understandable to laypersons, that are imposed on those who wish to avail of
insurance. As such, insurance contracts are imbued with public interest that must be considered
whenever the rights and obligations of the insurer and the insured are to be delineated. Hence,
in order to protect the interest of insurance applicants, insurance companies must be obligated
to act with haste upon insurance applications, to either deny or approve the same, or otherwise
be bound to honor the application as a valid, binding, and effective insurance contract.

FACTS: On September 24, 1917, Joaquin Herrer made application to the Sun Life Assurance
Company of Canada through its office in Manila for a life annuity. Two days later he paid the sum
of P6,000 to the manager of the company's Manila office and was given a receipt. The application
was immediately forwarded to the head office of the company at Montreal, Canada. On
November 26, 1917, the head office gave notice of acceptance by cable to Manila. (Whether on
the same day the cable was received notice was sent by the Manila office to Herrer that the
application had been accepted, is a disputed point, which will be discussed later.) On December
4, 1917, the policy was issued at Montreal. On December 18, 1917, attorney Aurelio A. Torres
wrote to the Manila office of the company stating that Herrer desired to withdraw his application.
The following day the local office replied to Mr. Torres, stating that the policy had been issued,
and called attention to the notification of November 26, 1917. This letter was received by Mr.
Torres on the morning of December 21, 1917. Mr. Herrer died on December 20, 1917. On
December 4, 1917, the policy was issued. On December 18, 1917, Herrer communicated his
desire to withdraw his application through his lawyer.
The local office replied to Mr. Torres, stating that the policy had been issued, and called attention
to the notification of November 26, 1917. The reply was received by Herrer's council a day after
the latter died. Plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer to recover
from the defendant life insurance company the sum of pesos 6,000 paid by the deceased for a
life annuity. The trial court gave judgment for the defendant.
ISSUE: WON the Contract of Insurance has perfected
HELD: NO. Our deduction from the evidence on this issue must be that the letter of November
26, 1917, notifying Mr. Ferrer that his application had been accepted, was prepared and signed in
the local office of the insurance company, was placed in the ordinary channels for transmission,
but as far as we know, was never actually mailed and thus was never received by the applicant.
While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the methods to
be followed in order that there may be a contract of insurance. On the other hand, the Civil Code,
in article 1802, not only describes a contract of life annuity markedly similar to the one we are
considering, but in two other articles, gives strong clues as to the proper disposition of the case.
For instance, article 16 of the Civil Code provides that "In matters which are governed by special
laws, any deficiency of the latter shall be supplied by the provisions of this Code. In the Civil
Code is found article 1262 providing that "Consent is shown by the concurrence of offer and
acceptance with respect to the thing and the consideration which are to constitute the contract.
An acceptance made by letter shall not bind the person making the offer except from the time it
came to his knowledge. The contract, in such case, is presumed to have been entered into at the
place where the offer was made." If no mistake has been made in announcing the successive
steps by which we reach a conclusion, then the only duty remaining is for the court to apply the
law as it is found. The legislature in its wisdom having enacted a new law on insurance, and
expressly repealed the provisions in the Code of Commerce on the same subject, and having
thus left a void in the commercial law, it would seem logical to make use of the only pertinent
provision of law found in the Civil Code, closely related to the chapter concerning life annuities.
The Civil Code rule, that an acceptance made by letter shall bind the person making the offer
only from the date it came to his knowledge, may not be the best expression of modern
commercial usage. Still it must be admitted that its enforcement avoids uncertainty and tends to
In resume, therefore, the law applicable to the case is found to be the second paragraph of
article 1262 of the Civil Code providing that an acceptance made by letter shall not bind the

person making the offer except from the time it came to his knowledge. The pertinent fact is,
that according to the provisional receipt, three things had to be accomplished by the insurance
company before there was a contract: (1) There had to be a medical examination of the
applicant; (2) there had to be approval of the application by the head office of the company; and
(3) this approval had in some way to be communicated by the company to the applicant. The
further admitted facts are that the head office in Montreal did accept the application, did cable
the Manila office to that effect, did actually issue the policy and did, through its agent in Manila,
actually write the letter of notification and place it in the usual channels for transmission to the
addressee. The fact as to the letter of notification thus fails to concur with the essential elements
of the general rule pertaining to the mailing and delivery of mail matter as announced by the
American courts, namely, when a letter or other mail matter is addressed and mailed with
postage prepaid there is a rebuttable presumption of fact that it was received by the addressee
as soon as it could have been transmitted to him in the ordinary course of the mails. But if any
one of these elemental facts fails to appear, it is fatal to the presumption. For instance, a letter
will not be presumed to have been received by the addressee unless it is shown that it was
deposited in the post-office, properly addressed and stamped. We hold that the contract for
a life annuity in the case at bar was not perfected because it has not been proved satisfactorily
that the acceptance of the application ever came to the knowledge of the applicant.
10. DEVELOPMENT BANK VS. CA G.R. No. 109937, [March 21, 1994])
FACTS: In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law,
applied for a loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan
Branch. As the principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a
mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP
MRI Pool).
A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and
released on August 11, 1987. From the proceeds of the loan, DBP deducted the
amount of P1,476.00 as payment for the MRI premium. On August 15, 1987, Dans accomplished
and submitted the "MRI Application for Insurance" and the "Health Statement for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was
credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was
advised of the credit. Cdpr
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this
information to the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that
Dans was not eligible for MRI coverage, being over the acceptance age limit of 60 years at the
time of application. L On October 21, 1987, DBP apprised Candida Dans of the disapproval of her
late husband's MRI application. The DBP offered to refund the premium of P1,476.00 which the
deceased had paid, but Candida Dans refused to accept the same, demanding payment of the
face value of the MRI or an amount equivalent to the loan. She, likewise, refused to accept anex
gratia settlement of P30,000.00, which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a
complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for
"Collection of Sum of Money with Damages." Respondent Estate alleged that Dans became
insured by the DBP MRI Pool when DBP, with full knowledge of Dans' age at the
time of application, required him to apply for MRI, and later collected the insurance premium
thereon. Respondent Estate therefore prayed: (1) that the sum of P139,500.00, which it paid
under protest for the loan, be reimbursed; (2) that the mortgage debt of the deceased be
declared fully paid; and (3) that damages be awarded.
ISSUE: Whether or not the DBP MRI Pool should be held liable on the ground that the
contract was already perfected.
HELD: NO. When Dans applied for MRI, he filled up and personally signed a "Health Statement
for DBP Pool with the following declaration: "I hereby declare and agree that all the statements
and answers contained herein are true, complete and correct to the best of my knowledge and
belief and form part of my application for insurance. It is understood and agreed that no
insurance coverage shall be effected unless and until this application is approved and the full
premium is paid during my continued good health"
Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the
application shall be approved by the insurance pool; and (2) when the full premium is paid during
the continued good health of the applicant. These two conditions, being joined conjunctively,
must concur. Undisputably, the power to approve MRI applications is lodged with the DBP MRI
Pool. The pool, however, did not approve the application of Dans. There is also no showing that it
accepted the sum of P1,476.00, which DBP credited to its account with full knowledge that it was
payment for Dan's premium. There was, as a result, no perfected contract of insurance; hence,
the DBP MRI Pool cannot be held liable on a contract that does not exist.
The liability of DBP is another matter. It was DBP, as a matter of policy and practice, that
required Dans, the borrower, to secure MRI coverage. Instead of allowing Dans to look for his own
insurance carrier or some other form of insurance policy, DBP compelled him to apply with the
DBP MRI Pool for MRI coverage. When Dan's loan was released on August 11, 1987, DBP already
deducted from the proceeds thereof the MRI premium. Four days latter, DBP made Dans fill up
and sign his application for MRI, as well as his health statement. The DBP later submitted both
the application form and health statement to the DBP MRI Pool at the DBP Main Building, Makati
Metro Manila. As service fee, DBP deducted 10 percent of the premium collected by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an
insurance agent. As an insurance agent, DBP made Dans go through the motion of applying for
said insurance, thereby leading him and his family to believe that they had already fulfilled all
the requirements for the MRI and that the issuance of their policy was forthcoming. Apparently,
DBP had full knowledge that Dan's application was never going to be approved. The maximum
age for MRI acceptance is 60 years as clearly and specifically provided in Article 1 of the Group
Mortgage Redemption Insurance Policy signed in 1984 by all the insurance companies
concerned. Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is
not personally liable to the party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party sufficient notice of his powers."
The DBP is not authorized to accept applications for MRI when its clients are more than 60
years of age. Knowing all the while that Dans was ineligible for MRI coverage because of his
advanced age, DBP exceeded the scope of its authority when it accepted Dan's application for
MRI by collecting the insurance premium, and deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third
person is aware of the limits of the agent's powers. There is no showing that Dans knew of the
limitation on DBP's authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits of the authority conferred by the
principal on the agent and he (third person) has been deceived by the non-disclosure thereof by
the agent, then the latter is liable for damages to him. The rule that the agent is liable when he
acts without authority is founded upon the supposition that there has been some wrong or
omission on his part either in misrepresenting, or in affirming, or concealing the authority under

which he assumes to act. Inasmuch as the non-disclosure of the limits of the agency carries with
it the implication that a deception was perpetrated on the unsuspecting client, the
provisions of Articles 19, 20 and 21 of the Civil Code of the Philippines come into play. The DBP's
liability, however, cannot be for the entire value of the insurance policy. To assume that were it
not for DBP's concealment of the limits of its authority, Dans would have secured an MRI from
another insurance company, and therefore would have been fully insured by the time he died, is
highly speculative. Considering his advanced age, there is no absolute certainty that Dans could
obtain an insurance coverage from another company. It must also be noted that Dans died
almost immediately, i.e., on the nineteenth day after applying for the MRI, and on the twenty-
third day from the date of release of his loan.
FACTS: A contract of group life insurance was executed between
petitioner Great Pacific Life Assurance Corporation (hereinafter Grepalife) and Development Bank
of the Philippines (hereinafter DBP). Grepalife agreed to insure the lives of eligible housing loan
mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied
for membership in the group life insurance plan. In an application form, Dr. Leuterio answered
questions concerning his health condition as follows:
"7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure,
cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment?
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No."
On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr.
Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two
hundred (P86,200.00) pesos. On August 6, 1984, Dr. Leuterio died due to "massive cerebral
hemorrhage." Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the
claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance
coverage on November 15, 1983. Grepalife insisted that Dr. Leuterio did not disclose he had
been suffering from hypertension, which caused his death. Allegedly, such non-disclosure
constituted concealment that justified the denial of the claim. On October 20, 1986, the widow of
the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a complaint with the Regional Trial
Court of Misamis Oriental, Branch 18, against Grepalife for "Specific Performance with
Damages." 5 During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to
testify. Dr. Mejia's findings, based partly from the information given by the respondent widow,
stated that Dr. Leuterio complained of headaches presumably due to high blood pressure. The
inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were
not ruled out.
ISSUE: Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he had
hypertension, which would vitiate the insurance contract?
HELD: The second assigned error refers to an alleged concealment that the petitioner
interposed as its defense to annul the insurance contract. Petitioner contends that Dr. Leuterio
failed to disclose that he had hypertension, which might have caused his death. Concealment
exists where the assured had knowledge of a fact material to the risk, and honesty, good faith,
and fair dealing requires that he should communicate it to the assured, but he designedly and
intentionally withholds the same.
Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as
supported by the information given by the widow of the decedent. Grepalife asserts that Dr.
Mejia's technical diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital
record, and that the widow's declaration that her husband had "possible hypertension several
years ago" should not be considered as hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an
autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated that he had no
knowledge of Dr. Leuterio's any previous hospital confinement. Dr. Leuterio's death certificate
stated that hypertension was only "the possible cause of death." The private respondent's
statement, as to the medical history of her husband, was due to her unreliable recollection of
events. Hence, the statement of the physician was properly considered by the trial court as

The question of whether there was concealment was aptly answered by the appellate court, thus:
"The insured, Dr. Leuterio, had answered in his insurance application that he was in good
health and that he had not consulted a doctor or any of the enumerated ailments,
including hypertension; when he died the attending physician had certified in the death
certificate that the former died of cerebral hemorrhage, probably secondary to
hypertension. From this report, the appellant insurance company refused to pay the
insurance claim. Appellant alleged that the insured had concealed the fact that he had
Contrary to appellant's allegations, there was no sufficient proof that the insured had
suffered from hypertension. Aside from the statement of the insured's widow who was not
even sure if the medicines taken by Dr. Leuterio were for hypertension, the appellant had
not proven nor produced any witness who could attest to Dr. Leuterio's medical history. . .
Appellant insurance company had failed to establish that there was concealment made by
the insured, hence, it cannot refuse payment of the claim."
The fraudulent intent on the part of the insured must be established to entitle the insurer to
rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly and
satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance.
FACTS: Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract
with private respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5 October
1988. One of the stipulations of the one (1) year lease contract states: "18. . . . The LESSEE shall
not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or
store or space in the leased premises without first obtaining the written consent and approval of
the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR
then the policy is deemed assigned and transferred to the LESSOR for its own benefit;
Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss
by fire their merchandise inside the leased premises for Five Hundred Thousand (P500,000.00)
with the United Insurance Co., Inc. (hereinafter United) without the written consent of private
respondent CKS. On the day that the lease contract was to expire, fire broke out inside the
leased premises. When CKS learned of the insurance earlier procured by
the Cha spouses (without its consent), it wrote the insurer (United) a demand letter asking that
the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to
CKS, based on its lease contract with the Cha spouses. United refused to pay CKS. Hence, the
latter filed a complaint against the Cha spouses and United.
ISSUE: Whether or not the aforequoted paragraph 18 of the lease contract entered into between
CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy obtained by
the lessee (Cha spouses) over their merchandise inside the leased premises is deemed assigned
or transferred to the lessor (CKS) if said policy is obtained without the prior written consent of the
HELD: A non-life insurance policy such as the fire insurance policy taken by petitioner-
spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the
property insured must exist at the time the insurance takes effect and at the time the loss
occurs. The basis of such requirement of insurable interest in property insured is based on sound
public policy: to prevent a person from taking out an insurance policy on property upon which he
has no insurable interest and collecting the proceeds of said policy in case of loss of the
Who has no insurable interest in the property insured? In the present case, it cannot be denied
that CKS has no insurable interest in the goods and merchandise inside the leased premises
under the provisions of Section 17 of the Insurance Code which provide: "Section 17. The
measure of an insurable interest in property is the extent to which the insured might be
damnified by loss of injury thereof."
Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a
beneficiary of the fire insurance policy taken by the petitioner-spousesover their merchandise.
This insurable interest over said merchandise remains with the insured, the Cha spouses. The
automatic assignment of the policy to CKS under the provision of the lease contract previously
quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance
policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners).
The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a
person (CKS). The liability of the Cha spouses to CKS for violating their lease contract in that
the Cha spouses obtained a fire insurance policy over their own merchandise, without the
consent of CKS, is a separate and distinct issue which we do not resolve in this case.
FACTS: The petitioner is the owner of Norman's Mart located in the public market of San
Francisco, Agusan del Sur. On 22 December 1989, he obtained from the private respondent fire
insurance policy No. F-146222 for P100,000.00. The period of the policy was from 22 December
1989 to 22 December 1990 and covered the following: "Stock-in-trade consisting principally of
dry goods such as RTW's for men and women wear and other usual to assured's business.
The petitioner declared in the policy under the subheading entitled CO-INSURANCE that
Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the
petitioner had in his inventory stocks amounting to P392,130.50, itemized as follows:
Zenco Sales, Inc. P55,698.00
F. Legaspi Gen. Merchandise 86,432.50
Cebu Tesing Textiles 250,000.00 (on credit)

The policy contained the following condition: "3. The insured shall give notice to the Company of
any insurance or insurances already effected, or which may subsequently be effected, covering
any of the property or properties consisting of stocks in trade, goods in process and/or
inventories only hereby insured, and unless notice be given and the particulars of such insurance
or insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance
Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits
under this policy shall be deemed forfeited, provided however, that this condition shall not apply
when the total insurance or insurances in force at the time of the loss or damage is not more
than P200,000.00."
On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of
San Francisco, Agusan del Sur. The petitioner's insured stocks-in-trade were completely
destroyed prompting him to file with the private respondent a claim under the policy. On 28
December 1990, the private respondent denied the claim because it found that at the time of the
loss the petitioner's stocks-in-trade were likewise covered by fire insurance policies No. GA-28146
and No. GA-28144, for P100,000.00 each, issued by the Cebu Branch of the Philippines First
Insurance Co., Inc. (hereinafter PFIC). 3These policies indicate that the insured was "Messrs.
Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause reading:
"MORTGAGEE: Loss, if any, shall be payable to Messrs.
Cebu Tesing Textiles, Cebu City as their
interest may appear subject to the terms of
P100,000. Phils. First CEB/F-24758"
The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3
of the policy. The petitioner then filed a complaint against the private respondent with the
Insurance Commission (Case No. 3340) for the recovery of P100,000.00 under fire insurance
policy No. F-14622 and for attorney's fees and costs of litigation. He attached as Annex
"M" 6 thereof his letter of 18 January 1991 which asked for the reconsideration of the denial. He
admitted in the said letter that at the time he obtained the private respondent's fire insurance
policy he knew that the two policies issued by the PFIC were already in existence; however, he
had no knowledge of the provision in the private respondent's policy requiring him to inform it of
the prior policies; this requirement was not mentioned to him by the private respondent's agent;
and had it been so mentioned, he would not have withheld such information. He further asserted
that the total of the amounts claimed under the three policies was below the actual value of his
stocks at the time of loss, which was P1,000,000.00 In its answer, the private respondent
specifically denied the allegations in the complaint and set up as its principal defense the
violation of Condition 3 of the policy.
ISSUE: Whether the petitioner had prior knowledge of the two insurance policies
issued by the PFIC when he obtained the fire insurance policy from the private
respondent, thereby, for not disclosing such fact, violating Condition 3 of the policy.
HELD: We agree with the Court of Appeals that the petitioner knew of the prior policies issued by
the PFIC. His letter of 18 January 1991 to the private respondent conclusively proves this
knowledge. His testimony to the contrary before the Insurance Commissioner and which the
latter relied upon cannot prevail over a written admission made ante litem motam. It was,
indeed, incredible that he did not know about the prior policies since these policies were not new
or original. Policy No. GA-28144 was a renewal of Policy No. F-24758, while Policy No. GA-28146
had been renewed twice, the previous policy being F-24792.

Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed
by law. Its incorporation in the policy is allowed by Section 75 of the Insurance Code 15 which
provides that "[a] policy may declare that a violation of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision does not avoid the policy." Such a condition is a
provision which invariably appears in fire insurance policies and is intended to prevent an
increase in the moral hazard. It is commonly known as the additional or "other insurance" clause
and has been upheld as valid and as a warranty that no other insurance exists. Its violation
would thus avoid the policy. However, in order to constitute a violation, the other insurance must
be upon the same subject matter, the same interest therein, and the same risk. 17
As to a mortgaged property, the mortgagor and the mortgagee have each an independent
insurable interest therein and both interests may be covered by one policy, or each may take out
a separate policy covering his interest, either at the same or at separate times. The mortgagor's
insurable interest covers the full value of the mortgaged property, even though the mortgage
debt is equivalent to the full value of the property. The mortgagee's insurable interest is to the
extent of the debt, since the property is relied upon as security thereof, and in insuring he is not
insuring the property but his interest or lien thereon. His insurable interest is prima facie the
value mortgaged and extends only the amount of the debt, not exceeding the value of the
mortgaged property. Thus, separate insurances covering different insurable interests may be
obtained by the mortgagor and the mortgagee.
A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the
usual practice. The mortgagee may be made the beneficial payee in several ways. He may
become the assignee of the policy with the consent of the insurer; or the mere pledgee without
such consent; or the original policy may contain a mortgage clause; or a rider making the policy
payable to the mortgagee "as his interest may appear" may be attached; or a "standard
mortgage clause," containing a collateral independent contract between the mortgagee and
insurer, may be attached; or the policy, though by its terms payable absolutely to the mortgagor,
may have been procured by a mortgagor under a contract duty to insure for the mortgagee's
benefit, in which case the mortgagee acquires an equitable lien upon the proceeds.
In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his
interest may appear, the mortgagee is only a beneficiary under the contract, and recognized as
such by the insurer but not made a party to the contract itself. Hence, any act of the mortgagor
which defeats his right will also defeat the right of the mortgagee.22 This kind of policy covers
only such interest as the mortgagee has at the issuing of the policy.
It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally
in favor of the insured and strictly against the company, the reason being, undoubtedly, to
afford the greatest protection which the insured was endeavoring to secure when he applied for
insurance. It is also a cardinal principle of law that forfeitures are not favored and that any
construction which would result in the forfeiture of the policy benefits for the person claiming
thereunder, will be avoided, if it is possible to construe the policy in a manner which would
permit recovery, as, for example, by finding a waiver for such forfeiture. Stated differently,
provisions, conditions or exceptions in policies which tend to work a forfeiture of insurance
policies should be construed most strictly against those for whose benefits they are inserted,
and most favorably toward those against whom they are intended to operate. The reason for
this is that, except for riders which may later be inserted, the insured sees the contract already
in its final form and has had no voice in the selection or arrangement of the words employed
therein. On the other hand, the language of the contract was carefully chosen and deliberated
upon by experts and legal advisers who had acted exclusively in the interest of the insurers and
the technical language employed therein is rarely understood by ordinary laymen.

With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not
totally free from ambiguity and must, perforce, be meticulously analyzed. Such analysis leads
us to conclude that (a) the prohibition applies only to double insurance, and (b) the nullity of
the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained.
The first conclusion is supported by the portion of the condition referring to other
insurance "covering any of the property or properties consisting of stocks in trade, goods in
process and/or inventories only hereby insured," and the portion regarding the insured's
declaration on the subheading CO-INSURANCE that the co-insurer is Mercantile Insurance Co.,
Inc. in the sum of P50,000.00. A double insurance exists where the same person is insured by
several insurers separately in respect of the same subject and interest. As earlier stated, the
insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct
and separate. Since the two policies of the PFIC do not cover the same interest as that
covered by the policy of the private respondent, no double insurance exists. The non-
disclosure then of the former policies was not fatal to the petitioner's right to recover on the
private respondent's policy. cdasia
Furthermore, by stating within Condition 3 itself that such condition shall not apply if
the total insurance in force at the time of loss does not exceed P200,000.00, the private
respondent was amenable to assume a co-insurer's liability up to a loss not exceeding
P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale
behind the incorporation of "other insurance" clause in fire policies is to prevent over-
insurance and thus avert the perpetration of fraud. When a property owner obtains insurance
policies from two or more insurers in a total amount that exceeds the property's value, the
insured may have an inducement to destroy the property for the purpose of collecting the
insurance. The public as well as the insurer is interested in preventing a situation in which a
fire would be profitable to the insured.
FACTS: Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi
Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi
Strauss & Co... IMC and LSPI separately obtained from respondent fire insurance policies with
book debt endorsements. The insurance policies provide for coverage on "book debts in
connection with ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines." The policies defined book
debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after
the time of the loss covered under this Policy." The policies also provide for the following
1. Warranted that the Company shall not be liable for any unpaid account in respect of the
merchandise sold and delivered by the Insured which are outstanding at the date of loss for a
period in excess of six (6) months from the date of the covering invoice or actual delivery of the
merchandise whichever shall first occur. 2. Warranted that the Insured shall submit to the
Company within twelve (12) days after the close of every calendar month all amount shown in
their books of accounts as unpaid and thus become receivable item from their customers and
dealers. . . .
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991,
the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by
fire. Included in the items lost or destroyed in the fire were stocks of ready-made clothing
materials sold and delivered by IMC and LSPI. On February 4, 1992, respondent filed a complaint
for damages against petitioner. It alleges that IMC and LSPI filed with respondent their claims
under their respective fire insurance policies with book debt endorsements; that as of February
25, 1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing
materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid
the claims of IMC and LSPI and, by virtue thereof, respondent was subrogated to their rights
against petitioner; that respondent made several demands for payment upon petitioner but
these went unheeded
ISSUE: WON IMC bears the risk of loss because it expressly reserved ownership of the
goods by stipulating in the sales invoices that "[i]t is further agreed that merely for
purpose of securing the payment of the purchase price the above described
merchandise remains the property of the vendor until the purchase price thereof is
fully paid."
HELD: YES. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership
therein is transferred to the buyer, but when the ownership therein is transferred to the buyer
the goods are at the buyer's risk whether actual delivery has been made or not, except that: (1)
Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been retained by the seller merely
to secure performance by the buyer of his obligations under the contract, the goods are at the
buyer's risk from the time of such delivery
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of
loss is borne by the buyer. Petitioner bears the risk of loss of the goods delivered. IMC and LSPI
had an insurable interest until full payment of the value of the delivered goods. Unlike the civil
law concept of res perit domino, where ownership is the basis for consideration of who bears the
risk of loss, in property insurance, one's interest is not determined by concept of title, but
whether insured has substantial economic interest in the property.
Section 13 of our Insurance Code defines insurable interest as "every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such nature
that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14
of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an
inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing
interest in that out of which the expectancy arises.
Anyone has an insurable interest in property who derives a benefit from its existence or would
suffer loss from its destruction. Indeed, a vendor or seller retains an insurable interest in the
property sold so long as he has any interest therein, in other words, so long as he would suffer by
its destruction, as where he has a vendor's lien. In this case, the insurable interest of IMC and
LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of
the loss covered by the policies.