Geagonia vs.

Court of Appeals
Facts:
1. Geagonia, an owner of a mart, obtained a fire insurance policy from Country Bankers
Insurance Corp. The policy contained Condition No. 3 stating that The insured shall
give notice to the company of other insurance covering any of the property insured, and
unless such notice be given and the particulars of such insurance be stated in or endorsed
on the Policy, all benefits under the Policy shall be forfeited, provided however, that this
condition shall not apply when the total insurance in force at the time of the loss or
damage is not more than P200,000.00.
2. Accidentally, a fire broke out at the public market where Geagonias mart was located
completely destroying the insured stock-in-trade.
3. Geagonia filed a claim under the policy which was denied by Century Bankers because it
found that at the time of the loss the stocks-in-trade were likewise covered by 2 fire
insurance policies issued by the Philippines First Insurance Co. (PFIC) thereby violating
Condition No. 3.
4. Geagonia then filed a complaint against Century Bankers with the Insurance
Commission (IC) for the recovery of the policy. Century Bankers filed its answer
specifically denying the allegations in the complaint. The IC rendered its decision finding
that Geagonia did not violate Condition No. 3 as he had no knowledge of the existence of
the 2 fire insurance policies. Its MFR having been denied, Century Bankers appealed to
the CA.
5. The CA reversed the decision of the IC because it found that Geagonia knew of the
existence of the 2 other policies. Hence, in failing to disclose the existence of these
insurances Geagonia violated Condition No. 3. His MFR having been denied, Geagonia
filed a PFROC.
Issue:
WON Geagonia violated Condition No. 3.
Held:
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 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
same subject matter, the same interest therein, and the same risk.
As to a mortgaged property, the mortgagor and the mortgagee have each an independent
insurable interest therein and both interests may be one policy, or each may take out a
separate policy covering his interest, either at the same or at separate times. 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 to 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.
1
 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.
A double insurance exists where the same person is insured by several insurers separately
in respect of the same subject and interest. As earlier stated, the insurable interests of a
mortgagor and a mortgagee on the mortgaged property are distinct and separate. Since the
two policies of the PFIC do not cover the same interest as that covered by the policy of
the private respondent, no double insurance exists. The non-disclosure then of the former
policies was not fatal to the petitioner's right to recover on the private respondent's policy.
Furthermore, by stating within Condition 3 itself that such condition shall not apply if the
total insurance in force at the time of loss does not exceed P200,000.00, the private
respondent was amenable to assume a co-insurer's liability up to a loss not exceeding
P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale
behind the incorporation of "other insurance" clause in fire policies is to prevent over-
insurance and thus avert the perpetration of fraud. When a property owner obtains
insurance policies from two or more insurers in a total amount that exceeds the property's
value, the insured may have an inducement to destroy the property for the purpose of
collecting the insurance. The public as well as the insurer is interested in preventing a
situation in which a fire would be profitable to the insured.