Page 1 of 89
#17 (Regarding Concealment)
Ng Gan Zee v. Asian Crusader Life Assurance Corporation
(GR No. L-30685; May 30, 1983)
Facts:
On May 12, 1962 Kwong Nam applied for a 20-year
endowment insurance on his life for Php 20,000.00 with his
wife (plaintiff), Ng Gan Ze, as beneficiary.
On December 6, 1963 Kwong Nam died of liver cancer with
metastasis and all premiums had been paid at the time of his
death.
January 10, 1964 the plaintiff presented a claim in due form
and death certificate to the defendant for payment of the face
value of the policy unfortunately the defendant denied the
claim because the answers given by the deceased-insured to
the questions in the insurance application form were false and
committed material concealment in filling out the form.
The defendant alleged that the deceased-insured committed
material concealment in answering the question Have any life
insurance ever refused your application for insurance or for
reinstatement of a lapsed policy or offered you a policy
different from that applied for? If, so, name of the company
and date in the negative wherein the deceased-insured had
applied for reinstatement for his life insurance policy with
Insular Life Insurance Co., Ltd. but it was declined on January
1962.
The defendant alleged that the deceased-insured also
committed material concealment when the latter gave the
medical examiner false and misleading information as to his
ailment and previous operation when he was examined for his
life insurance. The defendant claimed that the deceased-
insured was operated on his true ailment, peptic ulcer, not
tumor of the stomach.
Issue: Did the insured commit concealment in his insurance
policy?
Ruling:
No, the insured did not commit concealment in his insurance
policy. The Court ruled that concealment exists where the
insured had knowledge of a fact material to the risk and
honesty good faith and fair dealing requires that he should
communicate it to the insurer but he designedly and
intentionally withholds the same. The concealment must, in
the absence of inquiries, be not only material but fraudulent or
the fact must have been intentionally withheld.
Section 27 of the Insurance Law [Act 2427] provides:
Sec. 27. Such party a contract of insurance must
communicate to the other, in good faith, all facts within his
knowledge which are material to the contract, and which the
other has not the means of ascertaining, and as to which he
makes no warranty.
In the present case, in the allegation of the defendant the
deceased-insured committed concealment, the former has the
burden of proof that the latter committed concealment to entitle
Page 2 of 89

the insurer to rescind the contract by establishing satisfactory

and convincing evidence. The defendant failed to prove that
the deceased-insured committed concealment.

It bears emphasis that Kwong Nam had informed the

appellant's medical examiner that the tumor for which he was
operated on was "associated with ulcer of the stomach." In the
absence of evidence that the insured had sufficient medical
knowledge as to enable him to distinguish between "peptic
ulcer" and "a tumor", his statement that said tumor was
"associated with ulcer of the stomach, " should be construed
as an expression made in good faith of his belief as to the
nature of his ailment and operation. Indeed, such statement
must be presumed to have been made by him without
knowledge of its incorrectness and without any deliberate
intent on his part to mislead the appellant.
Page 3 of 89
#15 and #18 (Regarding Concealment and Insurable
Interest)
Great Pacific Life Assurance Corp. v. CA and Medarda V.
Leuterio (GR No. 113899, October 13, 1999)
Facts:
The petitioner and Development Bank of the Philippines
executed a contract of group life insurance wherein the
petitioner agreed to insure the lives of the eligible housing loan
mortgagors of the latter (DBP)
November 11, 1983 the private respondent (Dr. Wilfredo
Leuterio), physician and housing debtor of DBP applied for
membership in the group life insurance plan. In the application
form, the applicant informed the petitioner that he is in good
health condition when he answered the questions in the form
regarding if he ever had any disorders in the negative.
November 15, 1983 the petitioner issued the insurance
policy to private respondent to the extent of his DBP mortgage
indebtedness for Php 86,200.00.
August 6, 1984 the private respondent died due to massive
cerebral hemorrhage. DBP submitted a death claim to the
petitioner but the latter denied the claim and alleged that when
the private respondent was not healthy when he applied for an
insurance coverage on November 15, 1983 and the
nondisclosure of information that he was suffering from
hypertension constituted concealment which justified the
denial of the claim.
Issue: 1. Did the private respondent, a housing mortgagor,
have insurable interest in the mortgaged properties?
2. Did the private respondent commit concealment in filing his
insurance application form?
Ruling:
1. Yes, the private respondent, housing mortgagor,
have insurable interest in the mortgaged
properties. The Court ruled that the group life
insurance policy of mortgagors or mortgage
redemption insurance is a devise for protection of
both mortgagee and mortgagor.
The mortgagor has to enter into a contract so that in
the event of the unexpected demise or death of the
mortgagor during the subsistence of the mortgage
contract the proceeds from such insurance will be
applied to the payment of mortgage debt relieving the
heirs of the mortgagor from paying the obligation.
When the mortgagors pay the insurance premium
under the group insurance policy, making the loss
payable to the mortgagee the insurance is on the
mortgagors interest and still continues to be a party
to the contract.
Sec. 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor
of property effects insurance in his own name
providing that the loss shall be payable to the
mortgagee, or assigns a policy of insurance to a
mortgagee, the insurance is deemed to be upon
the interest of the mortgagor, who does not
cease to be a party to the original contract, and
any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the
same effect, although the property is in the
Page 4 of 89

hands of the mortgagee, but any act which,
under the contract of insurance, is to be
performed by the mortgagor, may be performed
by the mortgagee therein named, with the same
effect as if it had been performed by the
mortgagor.
In the present case, the private respondent-insured
did not cede or transfer to the mortgage all his rights or
interests in the insurance the policy stating that: "In the
event of the debtor's death before his indebtedness
with the Creditor [DBP] shall have been fully paid, an
amount to pay the outstanding indebtedness shall first
be paid to the creditor and the balance of sum assured,
if there is any, shall then be paid to the beneficiary/ies
designated by the debtor."
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.
And since a policy of insurance upon life or health may pass
by transfer, will or succession to any person, whether he has
an insurable interest or not, and such person may recover it
whatever the insured might have recovered,14 the widow of the
decedent Dr. Leuterio may file the suit against the insurer,
Grepalife.

2. No, the private respondent did not commit

concealment in filing his insurance application
form. The Court ruled that concealment exists where
the insured had knowledge of a fact material to the risk
and honesty, good faith and fair dealing requires that
he should communicate it to the insurer but he
designedly and intentionally withholds the same.
The insurer has the burden of proof that the insured
committed concealment to be entitled to rescind the
contract.

In the present case, the petitioner-insurer failed to

prove that the private respondent committed
concealment because the former merely relied on the
testimony of the attending physician, Dr. Hernando
Mejia, as supported by the information given by the
widow of the decedent. The petitioner asserts that Dr.
Mejia's technical diagnosis of the cause of death of the
private respondent was a duly documented hospital
Page 5 of 89
#5 and #19 (Regarding Interpretation and Concealment)
New Life Enterprises v. CA (GR No. 94071; March 31, 1992)
Facts:
Julian Sy and Jose Sy Bang have formed a business
partnership in Lucena City in the name of New Life
Enterprises(petitioner) engaged in the sale of construction
materials.
Julian Sy insured the stocks in trade of the petitioner with
Western Guaranty Corporation, Reliance Surety and
Insurance Co., Inc., and Equitable Insurance Corporation.
May 15, 1981- Western Guaranty Corporation issued a fire
insurance policy.
July 30, 1981 - Reliance Surety and Insurance Co., Inc. also
issued a fire insurance policy.
February 8, 1982 - Equitable Insurance Corporation also
issued a fire insurance policy.
On October 19, 1982 the building of New Life Enterprises
(petitioner) was destroyed by at 2AM and the stocks in trade
inside the building were insured against the fire in the total
amount of Php 1,550,000.00.
But the three insurance company denied that petitioners claim
for payment on the ground of breach of the conditions of the
policy which requires the insured to give notice of any
insurance or insurances already effected covering the stocks
in trade.
Issue: 1. Was the provision in the insurance policy,
regarding the notice of any insurance/s already effected to
the insurer, clear or ambiguous?
2. Did the petitioner commit concealment in not
giving notice, regarding any insurance/s already
effected, to the insurer?
Ruling:
1. The provision in the insurance policy, regarding the
notice of any insurance/s already effected to the insurer,
is clear. The Court ruled that the terms of the contract are
clear so the insured is specifically required to disclose to the
insurer any other insurance which he may have effected on
the same subject matter. When the words of the documents
are clear and plain by an ordinary reader there is absolutely no
room for interpretation or construction anymore. The terms
must be taken and understood in their plain, ordinary and
popular sense.
Condition No. 3 of said insurance policies, otherwise known as
the "Other Insurance Clause
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
Page 6 of 89

and/or inventories only hereby insured, and unless

such notice be given and the particulars of such
insurance or insurances be stated therein or endorsed on 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 loss or damage not more than P200,000.00. The
purpose of this provision is to prevent over-insurance and
to prevent perpetration of fraud.

2. The petitioner committed concealment in not giving

notice, regarding any insurance/s already effected, to the
insurer. The Court ruled that concealment exists where the
insured had knowledge of a fact material to the risk and
honesty, good faith and fair dealing requires that he should
communicate it to the insurer but he designedly and
intentionally withholds the same.

In the present case, the petitioner did not give notice or did
not disclose of any insurance/s already effected to the insurers
which constitutes concealment and entitles the insurance
companies to rescind the contract.
Page 7 of 89
#20 (Regarding Concealment)
Florendo v. Philam Plans, Inc. et. al. (GR No. 186983;
February 22, 2012)
Facts:
October 23, 1997 Manuel Florendo filed an application for
comprehensive pension plan with respondent after being
convinced by private respondent Perla Abcede. Manuel signed
the application and assigned the private respondent to fill out
the application form.
The comprehensive pension plan also provided life insurance
coverage to Manuel Florendo. Under the master policy, the
Philam Life was to automatically provide life insurance
coverage including accidental death to all who signed up for
Philam Plans comprehensive pension plan. If the holder died
before the maturity of the plan, his beneficiary was to instead
receive the proceeds of the life insurance equivalent to the
pre-need price.
October 30, 1997 the respondent issued the insurance policy
or pension plan to Manuel Florendo with his wife (petitioner
Ma. Lourdes S. Florendo) as the beneficiary.
September 15, 1998 (eleven months later) Manuel Florendo
died of blood poisoning and the petitioner filed a claim with the
respondent for the payment of the benefits under her
husbands plan.
The respondent (Philam Plans) forwarded the petitioners
claim to Philam Life because Manuel Florendo died before his
pension plan mature and the petitioner was to get only the
benefits of her husbands life insurance.
May 3, 1999 the respondent denied the petitioners claim on
the ground the deceased committed concealment in his
insurance policy. The respondent found out that the deceased
was on maintenance medicine for his heart and had an
implanted pacemaker. The deceased also suffered from
diabetes mellitus and was taking insulin.
Issue: Did the insured (Manuel Florendo) commit concealment
in the insurance policy?
Ruling:
Yes, the insured (Manuel Florendo) committed
concealment in the insurance policy.
The Court ruled that the comprehensive plan that the
respondent issued contains a one-year incontestability
period.
VIII. INCONTESTABILITY
After this Agreement has remained in force for one (1) year,
we can no longer contest for health reasons any claim for
insurance under this Agreement, except for the reason that
installment has not been paid (lapsed), or that you are not
insurable at the time you bought this pension program by
Page 8 of 89

reason of age. If this Agreement lapses but is reinstated

afterwards, the one (1) year contestability period shall start
again on the date of approval of your request for
reinstatement.

The incontestability clause precludes the insurer from

disowning liability under the policy it issued on the ground of
concealment or misrepresentation regarding the health of the
insured after a year of its issuance. In the present case,
Manuel Florendo died on the eleventh month following the
issuance of his plan so the one-year incontestability
period has not yet set in therefore the respondent was not
barred from questioning petitioners entitlement to the
benefits of her husbands pension plan.

The Court ruled in It may be true that x x x insured persons

may accept policies without reading them, and that this is not
negligence per se. But, this is not without any exception. In
the present case, Manuel Florendo (a civil engineer and
manager of a construction company) should be expected
to know that one must read every document, especially if
it creates rights and obligations affecting him, before
signing the same. Manuel is not unschooled that the
Court must come to his succor. It could reasonably be
expected that he would not trifle with something that
would provide additional financial security to him and to
his wife in his twilight years.
Page 9 of 89
#21 (Regarding Concealment)
Great Pacific Life Assurance Co. v. CA and Ngo Hing (GR
No. L-31845; April 30, 1979)
Facts:
March 14, 1957 the private respondent (Ngo Hing) filed an
application with the petitioner for a twenty(20)-year
endowment policy in the amount of Php 50,000.00 for the life
of his one-year old daughter, Helen Go. The private
respondent filled out the application form and gave it to the
branch manager Lapulapu D. Mondragon (petitioner).
Upon the payment of the insurance premium, the binding
deposit receipt was issued to private respondent.
May 28, 1957 - private respondents daughter, Helen Go, died
of influenza with complication of bronchopneumonia. Then the
private respondent filed a claim for the payment of proceeds of
the insurance but he failed so he filed an action in court.
Issue: Did the private respondent commit concealment in the
insurance policy?
Ruling:
Yes, the private respondent committed concealment in the
insurance policy. The Court ruled that private respondent
deliberately concealed the state of health and physical
condition of his daughter, Helen Go.
Concealment exists where the insured had knowledge of a fact
material to the risk and honesty, good faith and fair dealing
requires that he should communicate it to the insurer but he
designedly and intentionally withholds the same.
The contract of insurance is one of perfect good faith uberrima
fides meaning good faith, absolute and perfect candor or
openness and honesty; the absence of any concealment or
demotion, however slight not for the alone but equally so for
the insurer
Concealment is a neglect to communicate that which a party
knows and ought to communicate. Whether intentional or
unintentional the concealment entitles the insurer to rescind
the contract of insurance
In the present case, when private respondent supplied the
essential data for the insurance application form he was fully
aware that his one-year old daughter is a mongoloid child and
he withheld that fact material to the risk to be assumed by the
insurance company.
Page 10 of 89
#22 (Regarding Concealment)
Saturnino v. Phil. American Life (GR No. L-16163;
February 28, 1963)
Facts:
The subject insurance policy is for a twenty (20)-year
endowment non-medical insurance and this dispenses with the
medical examination of the applicant usually required in
ordinary life policies. But detailed information is called for in
the application regarding applicants health and medical
history.
November 16, 1957 Ignacio Saturnino submitted an
insurance application form and it was also issued by the
respondent.
September 19, 1958 the insured died of pneumonia
secondary to influenza. The plaintiffs, surviving husband and
minor child, demanded payment of the face value of the policy.
It appears that on September 9, 1957 Ignacio Saturnino was
operated on for cancer involving complete removal of the right
breast including the pectoral muscles and the glands found in
the right armpit. But the deceased did not disclose it in her
application form.
Issue: Did the insured commit concealment in her insurance
policy?
Ruling:
Yes, the insured committed concealment in her insurance
policy. The Court ruled that concealment exists where the
insured had knowledge of a fact material to the risk and
honesty, good faith and fair dealing requires that he or she
should communicate it to the insurer but he or she designedly
and intentionally withholds the same. Concealment,
whether intentional or unintentional, entitles the insurer to
rescind the contract of insurance, concealment being defined
as "negligence to communicate that which a party knows and
ought to communicate"
The basis of the rule vitiating the contract in cases of
concealment is that it misleads or deceives the insurer into
accepting the risk, or accepting it at the rate of premium
agreed upon.
In the present case, the insured committed concealment in
her insurance policy when she did not disclose her medical
condition and previous operation.
Page 11 of 89
#1 and #14 (Regarding Interpretation and Insurable
interest)
Gaisano Cagayan, Inc. v. Insurance Company of North
America (GR No. 147839; June 8, 2006)
Facts:
Intercapitol Marketing Corporation (IMC) is the maker of
Wrangler Blue Jeans and Levi Strauss (Phils.) Inc. (LSPI) is
the local distributor of bearing trademarks owned by LSPI.
IMC and LSPI separately obtained from the respondent fire
insurance policies with the book debt endorsements. The said
insurance policy 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 book debts was defined 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 petitioner is a customer and dealer of products of IMC and
LSPI.
On February 25, 1991 the petitioners store in Cagayan de
Oro City was destroyed by fire including the stocks of ready-
made clothing materials sold and delivered by IMC and LSPI.
On February 4, 1992 the respondent filed a complaint
against the petitioner and claimed that IMC and LSPI already
filed their claims on their fire insurance policy so the
respondent was subrogated to their rights against the
petitioner in demanding payment.
Issue: 1. what interpretation was used in the fire insurance
policy? 2. What is the insurable interest of IMC and LSPI?
Ruling:
1. It was the plain, ordinary and popular meaning principle that
was used in interpreting the fire insurance policy.
The Court ruled that when the words of a contract are plain
and readily understood, there is no room for construction.
In the present case, the fire insurance policy clearly states that
it provides coverage for 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 and 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. Therefore the
subject matter of the insurance policy is the book debts of IMC
and LSPI not the goods delivered.
2. It is unpaid accounts appearing in their Books of Account 45
days after the time of the loss covered by the policies.
Page 12 of 89

The Court ruled that insurable interest is 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. The insurable interest
in the property may consist in: (a) an existing interest; (b) an
inchoate interest; or (c) expectancy coupled with an existing
interest in that out of which expectancy arises. An insurable
interest in property does not imply a property interest or lien
upon or possession of the subject matter of the insurance
neither the title nor a beneficial interest is a requirement of the
existence of an insurable interest, it is sufficient that the
insured is so situated with reference to the property that he
would be liable to loss should it be injured or destroyed by the
peril against which it is insured.

Anyone has an insurable interest in property who derives a

benefit from its existence or would suffer loss from its
destruction.

In the present case, the insurable interest of IMC and LSPI

refers to the unpaid accounts appearing in their Books of
Account 45 days after the time of the loss covered by the
policies.
Page 13 of 89
#2 (Regarding Interpretation)
First Fil-Sin Lending Corporation v. Padillo (GR No.
160533; January 12, 2005)
Facts:
July 22, 1997 the respondent obtained a loan (Php
500,000.00) from the petitioner.
September 7, 1997 the respondent obtained another loan
(Php 500,000.00) from the petitioner.
In these two situations, the respondent executed a promissory
note and disclosure statement.
In the first loan - respondent made 13 monthly interest
payments of P22,500.00 each before she settled the
P500,000.00 outstanding principal obligation on February 2,
1999.
In the second loan - respondent made 11 monthly interest
payments of P25,000.00 each before paying the principal loan
of P500,000.00 on February 2, 1999.
The total obligation to be paid by respondent:
First loan Php 792,500.00
Second loan Php 775,000.00
January 27, 2000 the respondent filed an action for sum of
money against the petitioner before the RTC. The respondent
claimed that she only agreed to pay interest at the rates of
4.5% and 5% per annum respectively for the two loans and not
4.5% and 5% per month.
Issue: What is the appropriate interpretation in the said
contract?
Ruling:
The appropriate interpretation in the said contract is 4.5% and
5% per annum respectively for the two loans and not 4.5% and
5% per month.
The Court ruled that when the terms of the agreement are
clear that they do not justify an attempt to read into it any
alleged intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract. It is
only in instances when the language of a contract is
ambiguous or obscure that courts ought to apply certain
established rules of construction in order to ascertain the
supposed intent of the parties.
In the present case, the promissory notes and disclosure
statements executed by the respondent clearly states that the
interest rates are 4.5% and 5% per annum respectively for the
two loans and not 4.5% and 5% per month.
Page 14 of 89

The interpretation is that the arrest caused by ordinary judicial

process is deemed included among the covered risks.

The Court ruled that an insurance contract should be

#3 (Regarding Interpretation)
Malayan Insurance Corporation v. CA (GR No. 119599;
March 20, 1997)
Facts:
The private respondent (TKC Marketing Corp.) was the owner
or consignee of 3,189.171 metric tons of soya bean which was
loaded on a ship (MV Al Kaziemah) on September 8, 1989 for
carriage from port of Rio Grande, Brazil to the port of Manila
and the said cargo is insured against the risk of loss by the
petitioner.
September 11, 1989 the civil authorities in Durban, South
Africa arrested and detained the ship because of a lawsuit
regarding on ownership and possession.
interpreted to carry out the purpose for which the parties
entered into the contract which is to insure against risks of loss
or damage to the goods and the interpretation should result
from the natural and reasonable meaning of language in the
policy. If there are restrictive provisions which are open to two
interpretations, that which is most favorable to the insured is
adopted. In other words, it should be liberally construed in
favor of the insured and strictly construed against the insurer
who prepares the insurance policy.
The exceptions to the general coverage are strictly construed
against the insurer.
In the present case, the insurance policy provides that arrest
by ordinary judicial process is included among the covered
risks.

October 4, 1989 the private respondent notified the petitioner

of the incident regarding the arrest of the ship and made a
formal claim for the amount US$ 916,886.66 (representing the
dollar equivalent for non-delivery of the cargo). But the
petitioner denied the claim and said that the arrest of the ship
by civil authority was not a peril covered by the policies.

Issue: What is the interpretation of the said insurance policy?

Ruling:
Page 15 of 89

Yes, the petitioner violated the insurance policy. The Court

ruled that an insurance contract is the law between the parties.
Its terms and conditions constitute the measure of the insurers
liability and compliance to its terms and conditions is a
condition precedent to the insureds right to recovery from the
insurer.

#4 (Regarding Interpretation)
Verandia v. CA (GR No. 75605; January 22, 1993)
Facts:
This Fidelity and Surety Insurance Company of the Philippines
issued Fire Insurance Policy which covered the residential
building of the petitioner (amount: Php 385,000.00) and the
designated beneficiary was the Monte de Piedad Savings
Bank.
In the present case, the petitioner violated the insurance policy
when it used a false lease contract to support his claim of his
Fire Insurance policy. He violated to comply with its terms
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".

The petitioner also insured the same building with two other
insurance companies which are The Country Bankers
Insurance and The Development Insurance.

December 26, 1980 the residential building of the petitioner

was destroyed by fire. The insurance company (Fidelity) was
informed by the petitioner of the loss and despite demands ,
refused to pay the proceeds under its insurance policy on the
ground of over-insurance and the petitioner maliciously
represented that the building was leased under a lease
contract executed on June 25, 1980.

Issue: Did the petitioner violate the insurance policy?

Ruling:
Page 16 of 89

compensable and the loss must result from the amputation of

the hand.

Issue: What is the interpretation of the insurance policy?

Ruling:

The interpretation is that to be compensable the partial

#6 (Regarding Interpretation) disability must be caused by the loss of either hand which
resulted from the amputation of the hand.
Ty v. FILIPINAS COMPAIA DE SEGUROS, et al. (GR No.
L-21812-22 and L-21824-27; May 31, 1966) The Court ruled that when the terms of the agreement are
clear then the literal meaning should be applied.
Facts:
In the present case, the insurance policy is clear in stating that
The plaintiff (Ty) was an employee of Broadway Cotton
to be compensable the partial disability must be caused by the
Factory at Grace Park, Caloocan City working as a mechanic
loss of either hand which resulted from the amputation of the
operator.
hand. There was no amputation in this case and the plaintiffs
He took Personal Accident Policies from several insurance disability of his hand was merely temporary caused by
companies (defendants) which are effective for 12 months. fractures of the index, middle and fourth fingers of the left
hand.
December 24, 1953 a fire broke out in the factory and a
heavy object fell to his left hand when he was trying to put out
the fire using a fire extinguisher.

From December 26, 1953 to February 8, 1954 the plaintiff

was treated at National Orthopedic Hospital and the attendant
physician certified that the injuries suffered by the plaintiff
would cause temporary total disability of the plaintiffs left
hand.

The insurance companies refused to pay plaintiffs claim on

the ground that the insurance policy provides coverage on
partial disability caused by loss of either hand to be
Page 17 of 89

The Court ruled that all the provisions of the insurance policy
should be examined and interpreted in consonance with each
other. All its parts are reflective of the true intent of the parties.
So the policy cannot be construed piecemeal. When the terms
of the contract are clear, there is no room for construction and
the literal meaning of the stipulations should be applied.

#7 (Regarding Interpretation) In the present case, the insurance policy shows that the clear
intent of the parties to extend earthquake coverage only to the
Gulf Resorts, Inc. v. Philippine Charter Insurance two (2) swimming pools.
Corporation (GR No. 156167; May 16, 2005)

Facts:

The petitioner is the owner of the Plaza Resort in Agoo, La

Union and it was originally insured by the American Home
Assurance Company before it was insured by the respondent.

The insurance policy provided coverage on the risk of loss,

from earthquake shock, to the two (2) swimming pools.

After the earthquake, the petitioner made a claim under its

Insurance Policy for damages on its properties. But on August
23, 1990, the respondent denied the claim on the ground that
its insurance policy only covered earthquake shock to the two
(2) swimming pools of the resort.

Issue: What is the interpretation of the insurance policy?

Ruling:

The interpretation of the insurance policy is that it provides

coverage on the risk of loss from earthquake shock to the two
(2) swimming pools of the resort.
Page 18 of 89
#8 (Regarding Interpretation)
Simon De La Cruz v. The Capital Insurance and Surety Inc.
(GR No. L-21574; June 30, 1966)
Facts:
Eduardo de la Cruz was employed as a cleaner or mucker in
the Itogon-Suyoc Mines, Inc. in Baguio and was a holder of the
Accident Insurance Policy underwritten by the defendant for
the period of November 13, 1956 to November 12, 1957.
January 1, 1957 Itogon-Suyoc Mines, Inc. sponsored a
boxing contest in celebration of the New Year and for general
entertainment where the insured (Eduardo de la Cruz), a non-
professional boxer, participated.
During the fight, the insured slipped and was hit by his
opponent (a non-professional boxer) on the left part of the
back of the head causing the insured to fall with his head
hitting the rope of the ring. The insured was brought to the
hospital the following day but he died due to left intracranial
hemorrhage.
The plaintiff (Simon de la Cruz), father of the insured and
beneficiary, filed a claim with the defendant for payment of the
indemnity under the insurance policy but the defendant denied
the claim on the ground that the death of the insured from the
boxing match was not accidental and not covered by the
insurance policy.
Issue: What is the interpretation of the insurance policy?
Ruling:
The interpretation of the insurance policy is that the death of
the insured from the boxing match was accident and covered
by the insurance policy.
The Court ruled that the generally accepted rule is that death
or injury does not result from accident or accidental means
within the terms of an accident insurance policy if it is the
natural result of the insureds voluntary act not accompanied
by anything unforeseen except the death or injury.
But if the death or injury is not the natural or probable result of
the insureds voluntary act or if something unforeseen occurs
in the doing of the act which produces the injury, the resulting
death is within the protection of the Accident Insurance Policy.
In the present case, while the participation of the insured is
voluntary the injury was sustained when he slipped, giving
occasion to the infliction by his opponent of the blow that threw
him to the ropes of the ring. Without this unfortunate incident,
that is, the unintentional slipping of the deceased, perhaps he
could not have received that blow in the head and would not
have died. In boxing, death is not the anticipated result which
means that the cause of death of the insured was an accident.
The Accident Insurance Policy did not exclude the death or
injury caused in boxing contests.
Page 19 of 89
#9 (Regarding Benficiaries)
Heirs of Loreto Maramag v. Eva De Guzman, et. al. (GR No.
181132; June 5, 2009)
Facts:
The petitioners filed a complaint against the respondent for the
revocation and/or reduction of insurance proceeds for being
void.
The petitioners claimed: (1) that they are the legitimate wife
and children of Loreto Maramag while the respondents were
Loretos illegitimate family, (2) the respondent (Eva de
Guzman) was Loretos concubine a subject in killing the latter
so she is disqualified to receive any proceeds from his
insurance policies.
Issue: Who are the beneficiaries in the insurance policy?
Ruling:
The beneficiaries in the insurance policy are the illegitimate
children of the deceased Loreto Maramag.
Section 53 of the Insurance Code states
SECTION 53. The insurance proceeds shall be applied
exclusively to the proper interest of the person in whose name
or for whose benefit it is made unless otherwise specified in
the policy.
The Court ruled that the only persons entitled to claim the
insurance proceeds are either: (1) insured if still alive, or (2)
beneficiary, if the insured is already deceased, upon the
maturation of the policy. The exception to this rule is a situation
where the insurance contract was intended to benefit third
persons who are not parties to the same in the form of
favorable stipulations or indemnity and in this case, third
parties may directly sue and claim from the insurer.
In the present case, petitioners are third parties to the
insurance contracts with and, are not entitled to the proceeds
thereof. Accordingly, respondents Insular and Grepalife have
no legal obligation to turn over the insurance proceeds to
petitioners.
The revocation of Eva as a beneficiary in one policy and her
disqualification as such in another are of no moment
considering that the designation of the illegitimate children as
beneficiaries in Loretos insurance policies remains valid
because no legal proscription exists in naming as beneficiaries
the children of illicit relationships by the insured, the shares of
Eva in the insurance proceeds, whether forfeited by the court
in view of the prohibition on donations under Article 739 of the
Civil Code or by the insurers themselves for reasons based on
the insurance contracts, must be awarded to the said
illegitimate children, the designated beneficiaries, to the
exclusion of petitioners.
It is only in cases where the insured has not designated any
beneficiary, or when the designated beneficiary is disqualified
by law to receive the proceeds that the insurance policy
Page 20 of 89
proceeds shall redound to the benefit of the estate of the
insured.
#10 (Regarding Beneficiaries)
Southern Luzon Employees Association v. Golpeo (GR
No. L-6114; October 30, 1954)
Facts:
The plaintiff is composed of laborers and employees of
Laguna Tayabas Bus and Batangas Transportation Company
and one of its purpose is mutual aid of its members and their
dependents in case of death.
Roman Concepcion was a member until his death on
December 13, 1950. The deceased designated his
beneficiaries (Aquilina Maloles, Roman M. Concepcion, Jr.,
Estela M. Concepcion, Rolando M. Concepcion and Robin M.
Concepcion).
Three (3) sets claimants presented themselves:
1) Juanita Golpeo, legal wife of Roman A. Concepcion, and
her children, named beneficiaries by the deceased; and (3)
Elsie Hicban, another common law wife of Roman A.
Concepcion, and her child.
The plaintiff was forced to file an interpleader against the three
conflicting claimants. After the hearing, the court declared that
the defendant (Aquilina Maloles) and her children are the sole
beneficiaries of the amount of (Php 2,505.00 contributed by
the deceased).
Issue: Can Aquilina Maloles (common-law wife of the
deceased) and her illegitimate children may claim the
proceeds from the insurance policy?
Ruling:
Yes, Aquilina Maloles (common-law wife of the deceased) and
her illegitimate children may claim the proceeds from the
insurance policy.
The Court ruled that the proceeds of an insurance policy
belong exclusively to the beneficiary and not to the estate of
the person whose life was insured, and that such proceeds are
the separate and individual property of the beneficiary, and not
of the heirs of the person whose life was insured.
In the present case, while it is true that any person who is
forbidden from receiving any donation under article 739 cannot
be named beneficiary of a life insurance policy and by the
person who cannot make any donation to him.
But Juanita Golpeo, by her silence and actions, had
acquiesced in the illicit relations between her husband and the
defendant (Aquilina Maloles).
Page 21 of 89
#11 (Regarding Beneficiaries)
Vda. De Consuegra v. GSIS (GR No. L-28093; January 30,
1971)
Facts:
Jose Consuegra was employed as a shop foreman at the
Office of the District Engineer Office in the province of Surigao
del norte and contracted two (2) marriages:
1st: with respondent Rosario Diaz on July 15, 1937
2nd: with petitioner Basilia Berdin (contracted in good faith)
Jose Consuegra died on September 26, 1965. The deceased
designated his 2nd wife and children in his life insurance while
on the retirement insurance he did not designate any
beneficiary.
The widow (1st wife) filed a claim before the GSIS asking that
the retirement insurance benefits be paid to her as the only
legal heir of the deceased. The 2nd wife also filed a claim
before the GSIS on the ground that they are the only ones
entitled to receive the retirement insurance benefits.
The GSIS ruled that the legal heirs of the late Jose Consuegra
were Rosario Diaz, his widow by his first marriage who is
entitled to one-half, or 8/16, of the retirement insurance
benefits and Basilia Berdin, his widow by the second marriage
and their seven children, on the other hand, who are entitled to
the remaining one-half, or 8/16, each of them to receive an
equal share of 1/16.
Issue: Who is the beneficiary in the life insurance policy and
retirement insurance policy?
In the life insurance policy, the beneficiary is the second wife,
Basilia Berdin, and her children since they were designated as
the beneficiaries by the deceased.
In the retirement insurance policy, the proceeds of the
insurance is divided equally to the 1st wife (Rosario Diaz) and
2nd wife (Basilia Berdin).
The Court ruled that the beneficiary named in the life
insurance policy does not automatically become the
beneficiary in the retirement insurance policy UNLESS the
same beneficiary in the life insurance is so designated in the
application for the retirement insurance that are separate and
distinct from each other.
In the case of life insurance these are paid to whoever is
named the beneficiary in the life insurance policy.
- the insured may designate any person as a beneficiary
unless disqualified .
- in the absence of any person named in the life insurance
policy, the proceeds will go to the estate of the deceased.
Page 22 of 89

In the case of retirement insurance policy there was no

designated beneficiary.

- beneficiary of the said policy can only claim the proceeds if

the employee dies before retirement.

-if the employee failed to state the beneficiary of his retirement

insurance, the retirement benefits will accrue to his estate and
will be given to his legal heirs in accordance with law.

The GSIS is correct in ruling that the proceeds of the

retirement insurance of the deceased should be divided
equally between his first living wife Rosario Diaz, on the one
hand, and his second wife Basilia Berdin and his children by
her since the second marriage was proven that it was
contracted in good faith.
Page 23 of 89
#12 (Regarding Beneficiaries)
The Insular Life Assurance Co., Ltd. v. Ebrado (GR No. L-
44059; October 28, 1977)
Facts:
September 1, 1968 Buenaventura Cristor Ebrado was issued
by the petitioner a life insurance policy and he is legally
married to Pascuala Vda. De Ebrado.
But Buenaventura Ebrado designated Carponia T. Ebrado,
common-law wife, as the revocable beneficiary.
October 21, 1969 Buenaventura C. Ebrado died when he
was hit by a falling branch of tree.
The common-law wife filed an insurance claim before the
petitioner. The legal wife also filed an insurance claim before
the petitioner as the widow of the deceased.
Issue: Who is the beneficiary in the insurance claim?
Ruling:
The legal wife, Pascuala Vda. De Ebrado, is the beneficiary in
the insurance policy.
The Court ruled that:
-the word interest in the insurance means that the provision
refers only to the insured not to the beneficiary since a
contract of insurance is personal in character.
-the Civil Code provides (Article 2012) that any person who is
forbidden from receiving any donation under Article 739
cannot be named beneficiary of a life insurance policy by the
person who cannot make a donation to him. The common-law
spouse is definitely barred from receiving from each other.
In a life insurance policy a beneficiary is like a done because
from the premiums of the policy which the insured pays out of
liberality (consideration), the beneficiary will receive the
proceeds of said insurance proceeds.
In the present case, the common-law wife (Carponia T.
Ebrado) cannot claim the insurance proceeds because she is
disqualified from being the beneficiary in the insurance policy.
Page 24 of 89
#13 (Regarding Insurable Interest)
Spouses Cha v. CA and CKS Development Corp. (GR No.
124520; August 18, 1997)
Facts:
The petitioners (lessees) entered into a lease contract with the
private respondent (CKS Development Corp. lessor) on
October 5, 1988.
One of the provisions of the lease contract states:
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; . . .
If the lessee obtains the insurance thereof without the consent
of the lessor then the policy is deemed assigned and
transferred to the lessor for his own benefit.
The petitioners did not follow the provisions and insured the
merchandise with the United Insurance, Co., Inc.
A fire destroyed the merchandises on the day the lease
contract was about to expire. The private respondent
demanded from the insurer (United Insurance, Co., Inc.) that
the proceeds of the insurance proceeds be paid directly to
them (private respondent).
Issue: Did the private respondent have insurable interest in
the said property?
Ruling:
No, private respondent had no insurable interest in the said
property.
Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on property
shall be enforceable except for the benefit of some
person having an insurable interest in the property
insured.
The Court ruled that a fire insurance policy (non-life insurance)
taken by the petitioners over their merchandise is primarily a
contract of indemnity.
Insurable interest in the insured property must exist at the
time the insurance takes effect and at the time the loss occurs
to prevent a person from taking out an insurance policy on
property upon which he has no insurable interest and
collecting the proceeds.
Page 25 of 89
In the present case, the private respondent has no insurable
interest in the goods so it cannot be a beneficiary in the
insurance contract.
#16 (Regarding Insurable Interest)
Vicente Ong Lim Sing, Jr. v. FEB Leasing and Finance
Corp. (GR No. 168115; June 8, 2007)
Facts:
March 9, 1995 the respondent entered into a lease contract
for the equipment and motor vehicles with JVL Food Products
while the petitioner executed an Individual Guaranty
Agreement with respondent to guarantee the prompt and
faithful performance of the terms and conditions of the lease
contract.
JVL was obliged to pay respondent monthly rentals (Php
170,494.00) but JVL defaulted in its payment.
The lease contract also provides that the equipment shall be
insured at the cost and expense of the lessee against loss,
damage or destruction from fire, theft or other insurable risk for
the full term of the lessee.
The petitioner argued that he is not a lessee with insurable
interest over the subject personal properties and the contract
is a Deed of Sale not a lease contract.
Issue: Did the petitioner, as a guarantor of the lease contract,
have insurable interest over the subject properties?
Ruling:
Yes, the petitioner, as a guarantor of the lease contract, has
insurable interest over the subject properties.
Section 17 of the Insurance Code provides that the measure of
an insurable interest in the property is the extent to which the
insured might be damnified by loss or injury thereof.
The lease contract (Section 14) provides that shall be insured
at the cost and expense of the lessee against loss, damage or
destruction from fire, theft or other insurable risk for the full
term of the lessee.
In the present case, JVL Products has an insurable interest
because it will be damnified in case of loss, damage or
destruction of any of the leased properties.
Page 26 of 89
#23 (Regarding Warranties)
Qua Chee Gan v. Law Union and Rock Insurance Co., Ltd.
(GR No. L-4611; December 17, 1955)
Facts:
>The plaintiff is a merchant who owned four (4) warehouses
used for the storage of stocks of copra and hemp. These
warehouses and its contents were insured with the defendant
since 1937 and the loss made payable to the Philippine
National Bank as mortgage of the hemp and crops to the
extent of its interest.
>July 21, 1940 (early morning) Warehouses no. 1, 2, and 4
and its merchandise were destroyed by fire.
>The plaintiff informed the defendant (insurer) about the
incident and claimed the insurance proceeds but the latter
denied the claims on the ground that the plaintiff violated the
warranties and conditions.
> Memo. of Warranty. The undernoted Appliances for the
extinction of fire being kept on the premises insured hereby,
and it being declared and understood that there is an ample
and constant water supply with sufficient pressure available at
all seasons for the same, it is hereby warranted that the said
appliances shall be maintained in efficient working order
during the currency of this policy, by reason whereof a
discount of 2 1/2 per cent is allowed on the premium
chargeable under this policy.
>Hydrants in the compound, not less in number than one for
each 150 feet of external wall measurement of building,
protected, with not less than 100 feet of hose piping and
nozzles for every two hydrants kept under cover in convenient
places, the hydrants being supplied with water pressure by a
pumping engine, or from some other source, capable of
discharging at the rate of not less than 200 gallons of water
per minute into the upper story of the highest building
protected, and a trained brigade of not less than 20 men to
work the same.'
Issue: Was the insurer was liable to pay the insurance
proceeds?
Page 27 of 89

Ruling: Yes, the insurer was liable to pay the insurance

proceeds.

The Court ruled that an insurer which with knowledge of facts

entitling it to treat a policy as no longer in force, receives and
accepts a premium on the policy, estopped to take advantage
of the forfeiture. It cannot treat the policy as void for the
purpose of defense to an action to recover for a loss thereafter
occurring and at the same time treat it as valid for the purpose
of earning and collecting further premiums.

It was also ruled that the insurer was barred by waiver (or
rather estoppel) to claim the violation of the fire hydrants
because the insurer had knowledge that all the number of
hydrants demanded in the insurance policy never existed from
the very beginning but the insurer nevertheless issued the
policies subject to such warranty and received the premiums.
Page 28 of 89

On December 1, 1993, Wyeth executed its annual

contract of carriage with Reputable. The contract required,
among others, that Reputable must secure an insurance policy
on Wyeths goods, hence, Reputable signed a Special Risk
Insurance Policy (SR Policy) with petitioner Malayan Insurance
Co., Inc. (Malayan).

Subsequently, Reputable received from Wyeth a

#25 (Double Insurance) number of goods to be delivered to Mercury Drug Corporation

in Libis, Quezon City. Unfortunately, on the same date, the
MALAYAN INSURANCE CO., INC., Petitioner vs.
PHILIPPINES FIRST INSURANCE CO., INC. and truck carrying Wyeths products was hijacked and recovered
REPUTABLE FORWARDER SERVICES, INC., Respondents later on after two weeks without its cargo.

G.R. No. 184300 (July 11, 2012) Philippines First, pursuant to the Marine Policy,
FACTS: indemnified Wyeth. Philippines First then demanded
reimbursement from Reputable, having been subrogated to
Wyeth Philippines, Inc. (Wyeth) and respondent
the rights of Wyeth by virtue of the payment, which Reputable
Reputable Forwarder Services, Inc. (Reputable) had been
refused. Hence, an action for sum of money was instituted
annually executing a contract of carriage, whereby the latter
against Reputable. Subsequently, Reputable impleaded
undertook to transport and deliver the formers products to its
Malayan as third-party defendant in an effort to collect the
customers, dealers or salesmen.
amount covered in the SR Policy.
On November 18, 1993, Wyeth procured marine policy
Disclaiming any liability, Malayan argued, among
insurance from respondent Philippines First Insurance Co.,
others, that under Section 5 of the SR Policy, the insurance
Inc. (Philippines First) to secure its interest over its own
does not cover any loss or damage to property which at the
products which was accordingly approved by the latter.
time of the happening of such loss or damage is insured by
Page 29 of 89

any marine policy and that the SR Policy expressly excluded
third-party liability.
After trial, the lower court ruled in favor of Philippines
First for the amount of indemnity it paid to Wyeth. In turn,
Malayan was found to be liable to Reputable to the extent of
the policy coverage. Dissatisfied, respondents filed their
respective appeals which was however sustained by the Court
of Appeals. Hence, the instant petition.
ISSUE: Whether double insurance exists in the instant case.
RULING:
No.
Section 93 of the Insurance Code provides that 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: (i) the person insured is the same; (ii) two or more
insurers insuring separately;(iii) there is identity of subject
matter; (iv) there is identity of interest insured; and (v) there is
identity of the risk or peril insured against.
covered the same peril insured against, it may be noted
however 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.
Further, 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.
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.

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
Page 30 of 89
#26 Notice of Loss
Philippine American General Insurance, Co. v. Sweet
Lines, Inc.
Facts: In or about March 1977, the vessel SS "VISHVA YASH"
belonging to or operated by the foreign common carrier, took
on board at Baton Rouge, LA, two (2) consignments of
cargoes for shipment to Manila and later for transhipment to
Davao City. Said cargoes were covered, respectively, by Bills
of Lading Nos. 6 and 7 issued by the foreign common carrier.
In the course of time, the said vessel arrived at Manila and
discharged its cargoes in the Port of Manila for transhipment to
Davao City. For this purpose, the foreign carrier awaited and
made use of the services of the vessel called M/V "Sweet
Love" owned and operated by defendant interisland carrier.
Subject cargoes were loaded in Holds Nos. 2 and 3 of the
interisland carrier. These were commingled with similar
cargoes belonging to Evergreen Plantation and also
Standfilco. On May 15, 1977, the shipment(s) were discharged
from the interisland carrier into the custody of the consignee.
Only a total of 5,820 bags were delivered to the consignee in
good order condition, leaving a balance of 1,080 bags.
Before trial, a compromise agreement was entered into
between petitioners, as plaintiffs, and defendants S.C.I. Line
and F.E. Zuellig, upon the latter's payment of P532.65 in
settlement of the claim against them. Whereupon, the trial
court in its order of August 12, 1981 3 granted plaintiffs' motion
to dismiss grounded on said amicable settlement and the case
as to S.C.I. Line and F.E. Zuellig was consequently "dismissed
with prejudice and without pronouncement as to costs."
The trial court thereafter rendered judgment in favor of herein
petitioners. Due to the reversal on appeal by respondent court
of the trial court's decision on the ground of prescription, in
effect dismissing the complaint of herein petitioners, and the
denial of their motion for reconsideration, petitioners filed the
instant petition for review on certiorari. Herein petitioners are
jointly pursuing this case, considering their common interest in
the shipment subject of the present controversy, to obviate any
question as to who the real party in interest is and to protect
their respective rights as insurer and insured.
Page 31 of 89
Issue: On the issue of the validity of the controverted
paragraph 5 of the bills of lading above quoted which
unequivocally prescribes a time frame of thirty (30) days for
filing a claim with the carrier in case of loss of or damage to
the cargo and sixty (60) days from accrual of the right of action
for instituting an action in court, which periods must concur,
petitioners posit that the alleged shorter prescriptive period
which is in the nature of a limitation on petitioners' right of
recovery is unreasonable.
Held: (I) Stipulations in bills of lading or other contracts of
shipment which require notice of claim for loss of or damage to
goods shipped in order to impose liability on the carrier
operate to prevent the enforcement of the contract when not
complied with, that is, notice is a condition precedent and the
carrier is not liable if notice is not given in accordance with the
stipulation, as the failure to comply with such a stipulation in a
contract of carriage with respect to notice of loss or claim for
damage bars recovery for the loss or damage suffered.
On the other hand, the validity of a contractual limitation of
time for filing the suit itself against a carrier shorter than the
statutory period therefor has generally been upheld as such
stipulation merely affects the shipper's remedy and does not
affect the liability of the carrier. In the absence of any statutory
limitation and subject only to the requirement on the
reasonableness of the stipulated limitation period, the parties
to a contract of carriage may fix by agreement a shorter time
for the bringing of suit on a claim for the loss of or damage to
the shipment than that provided by the statute of limitations.
Such limitation is not contrary to public policy for it does not in
any way defeat the complete vestiture of the right to recover,
but merely requires the assertion of that right by action at an
earlier period than would be necessary to defeat it through the
operation of the ordinary statute of limitations.
In the case at bar, there is neither any showing of compliance
by petitioners with the requirement for the filing of a notice of
claim within the prescribed period nor any allegation to that
effect. It may then be said that while petitioners may possibly
have a cause of action, for failure to comply with the above
condition precedent they lost whatever right of action they may
have in their favor or, token in another sense, that remedial
right or right to relief had prescribed.
The shipment in question was discharged into the custody of
the consignee on May 15, 1977, and it was from this date that
petitioners' cause of action accrued, with thirty (30) days
therefrom within which to file a claim with the carrier for any
loss or damage which may have been suffered by the cargo
Page 32 of 89
and thereby perfect their right of action. The findings of
respondent court as supported by petitioners' formal offer of
evidence in the court below show that the claim was filed with
SLI only on April 28, 1978, way beyond the period provided in
the bills of lading 45 and violative of the contractual provision,
the inevitable consequence of which is the loss of petitioners'
remedy or right to sue. Even the filing of the complaint on May
12, 1978 is of no remedial or practical consequence, since the
time limits for the filing thereof, whether viewed as a condition
precedent or as a prescriptive period, would in this case be
productive of the same result, that is, that petitioners had no
right of action to begin with or, at any rate, their claim was
time-barred.
(II) While it is true that substantial compliance with provisions
on filing of claim for loss of or damage to cargo may
sometimes suffice, the invocation of such an assumption must
be viewed vis-a-vis the object or purpose which such a
provision seeks to attain and that is to afford the carrier a
reasonable opportunity to determine the merits and validity of
the claim and to protect itself against unfounded impositions.
Moreover, knowledge on the part of the carrier of the loss of or
damage to the goods deducible from the issuance of said
report is not equivalent to nor does it approximate the legal
purpose served by the filing of the requisite claim, that is, to
promptly apprise the carrier about a consignee's intention to
file a claim and thus cause the prompt investigation of the
veracity and merit thereof for its protection. It would be an
unfair imposition to require the carrier, upon discovery in the
process of preparing the report on losses or damages of any
and all such loss or damage, to presume the existence of a
claim against it when at that time the carrier is expectedly
concerned merely with accounting for each and every
shipment and assessing its condition. Unless and until a notice
of claim is therewith timely filed, the carrier cannot be
expected to presume that for every loss or damage tallied, a
corresponding claim therefor has been filed or is already in
existence as would alert it to the urgency for an immediate
investigation of the soundness of the claim. The report on
losses and damages is not the claim referred to and required
by the bills of lading for it does not fix responsibility for the loss
or damage, but merely states the condition of the goods
shipped. The claim contemplated herein, in whatever form,
must be something more than a notice that the goods have
been lost or damaged; it must contain a claim for
compensation or indicate an intent to claim.
Thus, to put the legal effect of respondent carrier's report on
losses or damages, the preparation of which is standard
Page 33 of 89

procedure upon unloading of cargo at the port of destination,

on the same level as that of a notice of claim by imploring
substantial compliance is definitely farfetched. Besides, the
cited notation on the carrier's report itself makes it clear that
the filing of a notice of claim in any case is imperative if carrier
is to be held liable at all for the loss of or damage to cargo.
Page 34 of 89

COMPANY tendered a check for P300.00 as financial aid

which was received by the INSURED's daughter. Thereafter
the INSURED and his wife went to the office of the COMPANY
to have his signature on the check Identified preparatory to
#27 (Premiums) encashment. At that time the COMPANY reiterated that the
check was given "not as an obligation, but as a concession"
ARCE V. CAPITAL INSURANCE AND SURETY CO 1982
because the renewal premium had not been paid, The
FACTS
INSURED cashed the check but then sued the COMPANY on
The plaintiff Pedro Arce(INSURED)was the owner of a the policy.
residential house in Tondo, Manila, which had been insured
The Regional Trial Court held since the COMPANY
with the defendant Capital Insurance and Surety Co.
could have demanded payment of the premium, mutuality of
(COMPANY) since 1961 under Fire Policy No. 24204. On
obligation requires that it should also be liable on its policy. It
November 27, 1965, the COMPANY sent to the INSURED
also held that the INSURED was not bound by the signature of
Renewal Certificate No. 47302 to cover the period December
Evelina on the check voucher because he did not authorize
5, 1965 to December 5, 1966. The COMPANY also requested
her to sign the waiver.
payment of the corresponding premium in the amount of P
38.10. Anticipating that the premium could not be paid on time,
the INSURED, thru his wife, promised to pay it on January 4,
ISSUE
1966. The COMPANY accepted the promise but the premium
was not paid on January 4, 1966. On January 8, 1966, the Whether or not the INSURED can make a claim on the
house of the INSURED was totally destroyed by fire. insurance policy even if no payment was made upon the
expiration period.
INSURED's wife presented a claim for indemnity to the
COMPANY. She was told that no indemnity was due because
the premium on the policy was not paid. Nonetheless the HELD
Page 35 of 89

NO. Sec. 72 of the Insurance Act, No policy issued by
an insurance company is valid and binding unless and until the
premium thereof has been paid. The parties even stipulated
that the parties in this case had stipulated:
IT IS HEREBY DECLARED AND AGREED that not.
withstanding anything to the contrary contained in the within
policy, this insurance will be deemed valid and binding upon
the Company only when the premium and documentary
stamps therefor have actually been paid in full and duly
acknowledged in an official receipt signed by an authorized
official/representative of the Company.
We commiserate with the INSURED. We are wen
aware that many insurance companies have fallen into the
condemnable practice of collecting premiums promptly but
resort to all kinds of excuses to deny or delay payment of just
claims. Unhappily the instant case is one where the insurer
has the law on its side.
Also, it is not necessary to dwell at length on the trial
court's second proposition that the INSURED had not
authorized his daughter Evelina to make a waiver because the
INSURED had nothing to waive; his policy ceased to have
effect when he failed to pay the premium.

It is obvious from both the Insurance Act, as amended,

and the stipulation of the parties that time is of the essence in
respect of the payment of the insurance premium so that if it is
not paid the contract does not take effect unless there is still
another stipulation to the contrary. In the instant case, the
INSURED was given a grace period to pay the premium but
the period having expired with no payment made, he cannot
insist that the COMPANY is nonetheless obligated to him.
Page 36 of 89
#30 (Premiums)
Spouses Tibay vs Court of Appeals
Facts:
On 22 January 1987 private respondent Fortune Life and
General Insurance Co., Inc. (FORTUNE) issued
Fire Insurance Policy in favor of Violeta R. Tibay and/or
Nicolas Roraldo on their two-storey residential building
together with all their personal effects therein.
On 8 March 1987 the insured building was completely
destroyed by fire. Two days later or on 10 March 1987 Violeta
Tibay paid the balance of the premium. On the same day, she
filed with FORTUNE a claim on the fire insurance policy. Her
claim was accordingly referred to its adjuster, Goodwill
Adjustment Services, Inc. (GASI), which immediately wrote
Violeta requesting her to furnish it with the necessary
documents for the investigation and processing of her
claim. Petitioner forthwith complied. FORTUNE denied the
claim of Violeta for violation of Policy Condition No. 2 and of
Sec. 77 of the Insurance Code. Efforts to settle the case
before the Insurance Commission proved futile. On 3 March
1988 Violeta and the other petitioners sued FORTUNE for
damages.
Issue:
May a fire insurance policy be valid, binding and enforceable
upon mere partial payment of premium?
Held: No. Petition dismissed.
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.
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
Page 37 of 89

conditions they deem best upon their obligations not On July 13, 1992, respondent presented the five
inconsistent with public policy. managers checks to the petitioners cashier representing
premium for the renewal of the policies from May 22, 1992 to
May 22, 1993. UCPB returned the managers checks for the
reason that (a) the policies had expired and were not renewed,
#31 (Premiums) and (b) the fire occurred on June 13, 1992, before the
UCPB General Insurance Co., Inc. vs Masagna Telamart,
respondents tender of payment.
Inc.
GR No. 137172, April 4, 2001
Masagna filed a complaint with the RTC for the
Facts:
recovery of the face value of the policies covering the property
UCPB issued five insurance policies covering razed by fire. RTC decided in favor of Masagna. Upon appeal,
respondents various properties against fire for the period of the CA affirmed the decision of the RTC. It held that following
May 22, 1991 to May 22, 1992. In March 1992, UCPB previous practice, respondent was allowed a sixty to ninety
evaluated the policies and decided not to renew them upon day credit limit, and that the acceptance suggested an
expiration of their terms on May 22, 1992. UCPB advised understanding that payment could be made later.
Masagnas broker, Zuellig Insurance Brokers Inc. of its
Issue:
intention not to renew the policies. A month after, UCPB gave
written notice to respondent of non renewal of the policies. Whether or not the policies were renewed or extended
by an implied credit arrangement through actual payment of
On June 13, 1992, fire razed Masagnas property premium tendered on a later date after the occurrence of the
covered by three insurance of the insurance policies petitioner risk insured against?
issued.
Ruling:
Page 38 of 89

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. The 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,. vs Cruz

Arnaldo, cited by the Court of Appeals, is not applicable. In
that case, payment of 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 at the
fire occurred on June 30, 1992. The assured did not even give
the insurer a notice of loss within a reasonable time after
occurrence of the fire.
Page 39 of 89

with petitioner and four other co-insurers. Petitioner refused

the claim notwithstanding several demands by respondent,
thus, the latter filed an action against petitioner. Petitioner, in
its defense, claimed that there was no existing insurance
contract when the fire occurred since respondent did not pay
#33 (Premiums)
the premium.
American Home Assurance Company, petitioner vs.
Antonio Chua, respondent The lower court ruled in favor of respondent finding that
GR No. 130421 (June 28, 1999) the latter paid by way of check a day before the fire occurred.

FACTS: Said check was deposited in petitioners bank account and

was even acknowledged by way of a renewal certificate given
Sometime in 1990, respondent Antonio Chua obtained
by its agent. On appeal, the same was affirmed by the Court of
from petitioner American Home Assurance Company a fire
Appeals.
insurance covering the stock-in-trade of his business,
Moonlight Enterprises. The same was due to expire on March ISSUE: Whether there was valid payment of premium.
25, 1990. Respondent accordingly issued a check to RULING:
petitioners agent as payment for the renewal of the policy and
Yes.
he received thereafter a Renewal Certificate. The
corresponding official receipt was issued later on. Section 306 of the Insurance Code provides that any
insurance company which delivers a policy or contract of
Subsequently, a new insurance policy was issued
insurance to an insurance agent or insurance broker shall be
whereby petitioner undertook to indemnify respondent for any
deemed to have authorized such agent or broker to receive on
loss or damage arising from fire for the period March 25, 1990
its behalf payment of any premium which is due on such policy
to March 25, 1991.
or contract of insurance at the time of its issuance or delivery
On April 6, 1990, Moonlight Enterprises was completely or which becomes due thereon.
razed by fire prompting respondent to file an insurance claim
Page 40 of 89

Further, Section 78 of the same Code explicitly

provides that an acknowledgment of the receipt of premium is
conclusive evidence of the payment of premium, so far as to
make the policy binding, notwithstanding any stipulation
therein that it shall not be binding until the premium is actually
paid. This provision establishes a legal fiction of payment

In the instant case, the best evidence of such authority

is the fact that petitioner accepted the check and issued the
official receipt for the payment. It is, as well, bound by its
agents acknowledgment of receipt of payment.
Page 41 of 89
#34 (Regarding Premiums)
G.R. No. 137172 June 15, 1999
UCPB GENERAL INSURANCE CO., INC., petitioner, vs.
MASAGANA TELAMART, INC., respondent.
FACTS:
UCPB issued five insurance policies to Masagana
Telemart Inc. covering various properties against fire for the
period May 22, 1991 to May 22, 1992. Before the expiration of
the policies, UCPB gave written notice to Masagana Telemart
of the non-renewal of the policies at the address stated in the
policies.
On June 13, 1992, fire razed Masagana Telemarts
property covered by three of the insurance policies. On July
13, 1992, it presented 5 managers check in the amount of
P225,753.95, representing premium for the renewal of the
policies from May 22, 1992 to May 22, 1993. However, it did
not file a notice of loss under the policies prior to July 14,
1992. On July 14, 1992, Masagana Telemart filed a formal
claim for indemnification of the insured property razed by fire.
UCPB returned the 5 managers check and rejected
Masagana Telemarts claim on the ground that the policies had
expired and were not renewed, and that the fire occurred on
June 13, 1992, before Masagana Telemarts tender of
premium payment.
Masagana Telemart filed a Complaint for the recovery
of P18,645,000.00, representing the face value of the policies
covering respondent's insured property razed by fire before
the RTC of Makati. The RTC rendered a decision in favor of
Masagana Telemart. The CA affirmed the decision of the RTC
with modifications.
ISSUE:
Whether the fire insurance policies had been extended
or renewed by an implied credit arrangement through actual
payment of premium tendered on a later date after the
occurrence of the risk (fire) insured against
HELD:
NO. The fire insurance policies had not been extended
or renewed. Under the Insurance Code, 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. The parties may not agree expressly or
impliedly on the extension of credit or time to pay the premium
Page 42 of 89

and consider the policy binding before actual payment. In the

case at bar, 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.
Page 43 of 89

#35 (Premiums)
The policy was again renewed by the respondents issued to
G.R. No. 95546 November 6, 1992
petitioner Insurance Policy for the period of March 1, 1984 -
MAKATI TUSCANY CONDOMINIUM CORPORATION,
March 1,1985.On this renewed policy, petitioner made two
petitioner,
vs. installment payments, both accepted by private respondent,
THE COURT OF APPEALS, AMERICAN HOME
thereafter, petitioner refused to pay the balance.
ASSURANCE CO., represented by American International
Underwriters (Phils.), Inc., respondent.
private respondent filed an action to recover the unpaid
FACTS:
balance of P314,103.05 for Insurance Policy.
Respondent American Home Assurance Co. (AHAC),
represented by American International Underwriters (Phils.),
It explained that it discontinued the payment of premiums
Inc., issued in favor of petitioner Makati Tuscany Condominium
because the policy did not contain a credit clause in its favor
Corporation (TUSCANY) Insurance Policy in the latter's
and the receipts for the installment payments covering the
building and premises, for a period beginning 1 March 1982
policy for 1984-85, as well as the two (2) previous policies,
and ending 1 March 1983, with a total premium of
stated the following reservations:
P466,103.05. The premium was paid on installments on 12
March 1982, 20 May 1982, 21 June 1982 and 16 November
2. Acceptance of this payment shall not waive any of the
1982, all of which were accepted by private respondent.
company rights to deny liability on any claim under the policy
arising before such payments or after the expiration of the
On 10 February 1983, private respondent issued to petitioner
credit clause of the policy; and
Insurance Policy No. AH-CPP-9210596, which replaced and
renewed the previous policy, for a term covering 1 March 1983
3. Subject to no loss prior to premium payment. If there
to 1 March 1984. The premium in the amount of P466,103.05
be any loss such is not covered.
was again paid on installments all payments were accepted by
the respondents.
Petitioner further claimed that the policy was never binding
Page 44 of 89

and valid, and no risk attached to the policy. It then pleaded a under the contract, had a loss incurred (sic) before completion
counterclaim for P152,000.00 for the premiums already paid of payment of the entire premium, despite its voluntary
for 1984-85 and sought a refund of P924,206.10 representing acceptance of partial payments, a result eschewed by a basic
the premium payments for 1982-85. considerations of fairness and equity.

The trial court dismissed the complaint and the counterclaim.
The Court of Appeals rendered a decision 2 modifying that of
the trial court by ordering herein petitioner to pay the balance
of the premiums due. Hence, the petition before this court.
ISSUE:
Whether payment by installment of the premiums due on an
insurance policy invalidates the contract of insurance, in view
of Sec. 77?
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. o 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.

RULING:

The court sustained the decision of the Court of Appeals.

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 #36 (Regarding Reinstatement)
Page 45 of 89
Violeta R. Lalican v. Insular Life Assurance Co. Ltd.
Facts:
Eulogio Lalican applied for an insurance policy with the Insular
Life amounting to Php 1,500,000.Under the terms of the policy,
Eulogio was to pay the premiums on a quarterly basis, having
a grace period of 31 days, for the payment of each premium
subsequent to the first. If any premium was not paid on or
before the due date, the policy would be in default and if the
premium remained unpaid until the end of the grace period,
the policy would automatically lapse and become void. Eulogio
paid the premiums due on the first two succeeding payment
dates but failed to pay subsequent premiums even after the
lapse of the grace period thereby rendering the policy void. He
submitted an application for reinstatement of policy through
Josephine Malaluan, an agent of Insular Life, together with the
payment of the unpaid premiums. However, the Insular Life
notified him that his application could not be processed
because he failed to pay the overdue interest of the unpaid
premiums. On Sept. 17, 1998, Eulogio submitted to Malaluans
house a second application for reinstatement including the
payment for the overdue interest as well as for the premiums
due for April and July of that year, which was received by
Malaluans husband on her behalf and was thereby issued a
receipt for the amount Eulogio deposited. However, on that
same day, Eulogio died of cardio-respiratory arrest secondary
to electrocution. Violeta, Eulogios widow filed with the Insular
Life a claim for payment of the full proceeds of the policy but
the latter informed her that the claim could not be granted
since at the time of Eulogios death, his policy has already
lapsed and he failed to reinstate the same. Violeta requested
are consideration of her claim but the same was also rejected.
Therefore, she filed a complaint for death claim benefits with
the RTC alleging the unfair claim settlement practice of Insular
Life and its deliberate failure to act with reasonable
promptness on her insurance claim. The trial court rendered a
decision in favor of Insular Life and after the former denied her
motion for reconsideration, she directly elevated her case to
the Supreme Court via the petition for review on Certiorari.
Issue:
Whether or not the policy of Eulogio was reinstated before his
death?
Ruling:
To reinstate a policy means to restore the same to premium-
paying status after it has been permitted to lapse. Both the
policy contract and application for reinstatement provide for
specific conditions for the reinstatement of a lapsed policy
.According to the Application for Reinstatement, the policy
Page 46 of 89

would only be considered reinstated upon the approval of the

application by Insular Life during the applicants lifetime and
good health. and whatever amount the application paid in
connection was considered to be a deposit only until approval
of said application. Eulogios death rendered impossible full
compliance with the conditions for reinstatement of policy even
though, before his death, he managed to file his application for
reinstatement and deposit the amount for payment of his
overdue premiums and interest thereon with Malaluan. As
accompanying deposit, for processing and approval of the
latter.

#37 (Marine Insurance)

Page 47 of 89
Aboitiz Shipping Corp. vs CA, et al.
Facts:
These consolidated petitions are just among the many
others elevated to this Court involving Aboitizs liability to
shippers and insurers as a result of the sinking of its
vessel, M/V P. Aboitiz, on 31 October 1980 in the South China
Sea. One of those petitions is the 1993 GAFLAC case,
[31]
docketed as G.R. No. 100446.
The 1993 GAFLAC case was an offshoot of an earlier
final and executory judgment in the 1990 GAFLAC case,
where the General Accident Fire and Life Assurance
Corporation, Ltd. (GAFLAC), as judgment obligee therein,
sought the execution of the monetary award against Aboitiz.
The trial court granted GAFLACsprayer for execution of the full
judgment award. The appellate court
dismissed Aboitizs petition to nullify the order of execution,
prompting Aboitiz to file a petition with this Court.
In the 1993 GAFLAC case, Aboitiz argued that the real
and hypothecary doctrine warranted the immediate stay of
execution of judgment to prevent the impairment of the other
creditors shares. Invoking the rule on the law of the case,
private respondent therein countered that the 1990 GAFLAC
case had already settled the extent of Aboitizs liability.
Following the doctrine of limited liability, however, the
Court declared in the 1993 GAFLAC case that claims
against Aboitiz arising from the sinking of M/V P.Aboitiz should
be limited only to the extent of the value of the vessel. Thus,
the Court held that the execution of judgments in cases
already resolved with finality must be stayed pending the
resolution of all the other similar claims arising from the sinking
of M/V P. Aboitiz. Considering that the claims
against Aboitiz had reached more than 100, the Court found it
necessary to collate all these claims before their payment from
the insurance proceeds of the vessel and its pending
freightage. As a result, the Court exhorted the trial courts
before whom similar cases remained pending to proceed with
trial and adjudicate these claims so that the pro-rated share of
Page 48 of 89

each claim could be determined after all the cases shall have stated that the sinking of M/V P. Aboitiz was attributable to the
been decided.[32] negligence or fault of Aboitiz. In all instances, the Court of
Appeals affirmed the factual findings of the trial courts.
Issue:

The principal issue common to all three petitions is

whether Aboitiz can avail limited liability on the basis of the The finding of actual fault on the part of Aboitiz is
real and hypothecary doctrine of maritime law. Corollary to this central to the issue of its liability to the
issue is the determination of actual negligence on the part respondents. Aboitizs contention, that with the sinking of M/V
of Aboitiz.
P.Aboitiz, its liability to the cargo shippers and shippers should
be limited only to the insurance proceeds of the vessel absent
Ruling:
any finding of fault on the part of Aboitiz, is not supported by
A perusal of the decisions of the courts below in all the record. Thus, Aboitiz is not entitled to the limited liability
three petitions reveals that there is a categorical finding of rule and is, therefore, liable for the value of the lost cargoes as
negligence on the part of Aboitiz. For instance, in G.R. No. so duly alleged and proven during trial.
121833, the RTC therein expressly stated that the captain
of M/V P. Aboitiz was negligent in failing to take a course of
action that would prevent the vessel from sailing into the
typhoon. In G.R. No. 130752, the RTC concluded
that Aboitiz failed to show that it had exercised the required
extraordinary diligence in steering the vessel before, during
#38 (Marine Insurance)
and after the storm. In G.R. No. 137801, the RTC categorically
White Gold v Pioneer G.R. No. 154514. July 28, 2005
Page 49 of 89

J. Quisimbing insurance. The appellate court also held that Pioneer merely
acted as a collection agent of Steamship Mutual.
Facts:

White Gold procured a protection and indemnity coverage for Hence this petition by White Gold.
its vessels from The Steamship Mutual through Pioneer
Insurance and Surety Corporation. White Gold was issued a
Certificate of Entry and Acceptance. Pioneer also issued Issues:

receipts. When White Gold failed to fully pay its accounts, 1. Is Steamship Mutual, a P & I Club, engaged in the
Steamship Mutual refused to renew the coverage. insurance business in the Philippines?

Steamship Mutual thereafter filed a case against White Gold 2. Does Pioneer need a license as an insurance agent/broker
for collection of sum of money to recover the unpaid balance. for Steamship Mutual?
White Gold on the other hand, filed a complaint before the
Insurance Commission claiming that Steamship Mutual and
Pioneer violated provisions of the Insurance Code. Held: Yes. Petition granted.

The Insurance Commission dismissed the complaint. It said

that there was no need for Steamship Mutual to secure a Ratio:
license because it was not engaged in the insurance business
White Gold insists that Steamship Mutual as a P & I Club is
and that it was a P & I club. Pioneer was not required to obtain
engaged in the insurance business. To buttress its assertion,
another license as insurance agent because Steamship
it cites the definition as an association composed of
Mutual was not engaged in the insurance business.
shipowners in general who band together for the specific
The Court of Appeals affirmed the decision of the Insurance purpose of providing insurance cover on a mutual basis
Commissioner. In its decision, the appellate court against liabilities incidental to shipowning that the members
distinguished between P & I Clubs vis--vis conventional incur in favor of third parties.
Page 50 of 89
They argued that Steamship Mutuals primary purpose is to
solicit and provide protection and indemnity coverage and for
this purpose, it has engaged the services of Pioneer to act as
its agent.
Respondents contended that although Steamship Mutual is a
P & I Club, it is not engaged in the insurance business in the
Philippines. It is merely an association of vessel owners who
have come together to provide mutual protection against
liabilities incidental to shipowning.
Is Steamship Mutual engaged in the insurance business?
A P & I Club is a form of insurance against third party liability,
where the third party is anyone other than the P & I Club and
the members. By definition then, Steamship Mutual as a P & I
Club is a mutual insurance association engaged in the marine
insurance business.
The records reveal Steamship Mutual is doing business in the
country albeit without the requisite certificate of authority
mandated by Section 187 of the Insurance Code. It maintains
a resident agent in the Philippines to solicit insurance and to
collect payments in its behalf. Steamship Mutual even
renewed its P & I Club cover until it was cancelled due to non-
payment of the calls. Thus, to continue doing business here,
Steamship Mutual or through its agent Pioneer, must secure a
license from the Insurance Commission.
Since a contract of insurance involves public interest,
regulation by the State is necessary. Thus, no insurer or
insurance company is allowed to engage in the insurance
business without a license or a certificate of authority from the
Insurance Commission.
2. Pioneer is the resident agent of Steamship Mutual as
evidenced by the certificate of registration issued by the
Insurance Commission. It has been licensed to do or transact
insurance business by virtue of the certificate of authority
issued by the same agency. However, a Certification from the
Commission states that Pioneer does not have a separate
license to be an agent/broker of Steamship Mutual.
Although Pioneer is already licensed as an insurance
company, it needs a separate license to act as insurance
agent for Steamship Mutual. Section 299 of the Insurance
Code clearly states:
SEC. 299 No person shall act as an insurance agent or as an
insurance broker in the solicitation or procurement of
applications for insurance, or receive for services in obtaining
insurance, any commission or other compensation from any
Page 51 of 89

insurance company doing business in the Philippines or any

agent thereof, without first procuring a license so to act from
the Commissioner

#39 (Marine Insurance)

FGU INSURANCE CORPORATION vs COURT OF

APPEALS
Page 52 of 89
G.R. No. 137775. March 31, 2005
Facts:
Anco Enterprises Company, engaged in the shipping business,
owned the M/T ANCO tugboat and the D/B Lucio barge
wherein San Miguel Corporation shipped cases if Pale Pilsen
board the D/B Lucio. Since the D/B Lucio had no engine of its
own, it could not maneuver by itself and had to be towed by a
tugboat for it to move from one place to another. It was then
towed by the M/T ANCO all the way from Mandaue City to San
Jose, Antique. When the barge and tugboat arrived at San
Jose, Antique, the clouds over the area were dark and the
waves were already big and SMCs District Sales Supervisor
requested ANCOs representative to transfer the barge to a
safer place because the vessel might not be able to withstand
the big waves. ANCOs representative did not heed the request
because he was confident that the barge could withstand the
waves. Thereafter, the crew of D/B Lucio abandoned the
vessel because the barges rope attached to the wharf was cut
off by the big waves. The barge was then broken and the
cargoes of beer in the barge were swept away. As a result,
ANCO failed to deliver to SMCs consignee all the cases and
SMC filed a complaint for Breach of Contract of Carriage and
Damages against ANCO. ANCO claimed that it had an
agreement with SMC that ANCO would not be liable for any
losses or damages resulting to the cargoes by reason of
fortuitous event. Since the cases of beer were lost by reason
of a storm, a fortuitous event which battered and sunk the
vessel in which they were loaded, they should not be held
liable. Pursuant to that agreement, the cargoes to the extent of
Twenty Thousand (20,000) cases was insured with FGU
Insurance Corporation under a Marine Insurance Policy.
ANCO then filed a Third-Party Complaint against FGU under
said policy. FGU countered that he alleged loss of the cargoes
covered by the said insurance policy cannot be attributed
directly or indirectly to any of the risks insured against in the
said insurance policy. According to FGU, it is only liable under
the policy to Third-party Plaintiff ANCO and/or Plaintiff SMC in
case of any of the following: a) total loss of the entire
shipment; b) loss of any case as a result of the sinking of the
vessel; or c) loss as a result of the vessel being on fire.
Issue:
Whether or not petitioner is liable under the insurance
contract.
Held: No
Page 53 of 89
One of the purposes for taking out insurance is to protect the
insured against the consequences of his own negligence and
that of his agents. Thus, it is a basic rule in insurance that the
carelessness and negligence of the insured or his agents
constitute no defense on the part of the insurer. This rule
however presupposes that the loss has occurred due to
causes which could not have been prevented by the insured,
despite the exercise of due diligence. The question is whether
there is a certain degree of negligence on the part of the
insured or his agents that will deprive him the right to recover
under the insurance contract. This Court find that there is.
However, to what extent such negligence must go in order to
exonerate the insurer from liability must be evaluated in light of
the circumstances surrounding each case. When evidence
show that the insureds negligence or recklessness is so gross
as to be sufficient to constitute a willful act, the insurer must be
exonerated. The United States Supreme Court has made a
distinction between ordinary negligence and gross negligence
or negligence amounting to misconduct and its effect on the
insureds right to recover under the insurance contract.
According to the Court, while mistake and negligence of the
master or crew are incident to navigation and constitute a part
of the perils that the insurer is obliged to incur, such
negligence or recklessness must not be of such gross
character as to amount to misconduct or wrongful acts;
otherwise, such negligence shall release the insurer from
liability under the insurance contract. In the case at bar, both
the trial court and the appellate court had concluded from the
evidence that the crewmembers of both the D/B Lucio and the
M/T ANCO were blatantly negligent. There was blatant
negligence on the part of the employees of defendants-
appellants when the operator of the tug boat immediately left
the barge at the San Jose, Antique wharf despite the looming
bad weather. Negligence was likewise exhibited by the
defendants-appellants representative who did not heed the
request that the barge be moved to a more secure place. The
prudent thing to do, as was done by the other sea vessels at
San Jose, Antique during the time in question, was to transfer
the vessel to a safer wharf. The negligence of the defendants-
appellants is proved by the fact that on 01 October 1979, the
only simple vessel left at the wharf in San Jose was the D/B
Lucio.
#40 (Regarding Marine Insurance)
The Philippine American General Insurance Company,
Inc., vs. Court of Appeals and Felman Shipping Lines
G.R. No. 116940 June 11, 1997
Bellosillo, J.:
Page 54 of 89
FACTS:
Coca-Cola Bottlers Philippines, Inc., loaded on board MV
Asilda, a vessel owned and operated by respondent Felman
Shipping Lines 7,500 cases of 1-liter Coca-Cola softdrink
bottles to be transported from Zamboanga City to Cebu City
for consignee Coca-Cola Bottlers Philippines, Cebu. The
shipment was insured with petitioner Philippine American
General Insurance Co., Inc., under Marine Open Policy No.
100367-PAG. MV Asilda left the port of Zamboanga in fine
weather at eight oclock in the evening of the same day. At
around eight forty-five the following morning, 7 July 1983, the
vessel sank in the waters of Zamboanga del Norte bringing
down her entire cargo with her including the subject 7,500
cases of 1-liter Coca-Cola softdrink bottles. The trial court
rendered judgment in favor of FELMAN. The Court of Appeals
affirmed that the MV Asilda was unseaworthy.
ISSUE:
Whether or not MV Asilda was seaworthy when it left
the port of Zamboanga; whether or not the limited liability
under Article 587 of the Code of Commerce apply; whether or
not PHILAMGEN was properly subrogated to the rights and
legal actions which the shipper had against FELMAN, the
shipowner.
HELD:
On the first issue, the Court ruled in the negative. MV
Asilda was unseaworthy when it left the port of Zamboanga.
The vessel was top-heavy which is to say that while the vessel
may not have been overloaded, yet the distribution or stowage
of the cargo on board was done in such a manner that the
vessel was in top-heavy condition at the time of her departure
and which condition rendered her unstable and unseaworthy
for that particular voyage.
On the second issue, the Court ruled in the negative.
Article 587 of the Code of Commerce is not applicable to the
case a bar. The ship agent is liable for the negligent acts of the
captain in the care of goods loaded on the vessel. This liability
however can be limited through abandonment of the vessel, its
equipment and freightage as provided in Article 587. It was
already established at the outset that the sinking of MV Asilda
was due to its unseaworthiness even at the time of its
departure from the port of Zamboanga. As such, FELMAN was
equally negligent. It cannot therefore escape liability through
the expedient of filing a notice of abandonment of the vessel
by virtue of Article 587 of the Code of Commerce.
On the third and last issue, the Court ruled in the
Page 55 of 89

negative. Doctrine of subrogation has its roots in equity. It is

designed to promote and to accomplish justice and is the
mode which equity adopts to compel the ultimate payment of a
debt by one who in justice, equity and good conscience ought
to pay. Therefore, the payment made by PHILAMGEN to
Coca-Cola Bottlers Philippines, Inc., gave the former the right
to bring an action as subrogee against FELMAN. Having failed
to rebut the presumption of fault, the liability of FELMAN for
the loss of the 7,500 cases of 1-liter Coca-Cola softdrink
bottles is inevitable.

#41 (Marine Insurance)

CENTRAL SHIPPING COMPANY, INC. vs. INSURANCE
COMPANY OF NORTH AMERICA
Doctrine: Doctrine of Limited Liability
FACTS:
On July 25, 1990 at Puerto Princesa, Palawan, Central
Shipping Company received on board its vessel, the M/V
Page 56 of 89

Central Bohol, 376 pieces of Philippine Apitong Round Logs foreseen.

and undertook to transport said shipment to Manila for delivery
to Alaska Lumber Co., Inc. DECISION OF LOWER COURTS:

The cargo was insured for P3,000,000.00 against total loss
under Insurance Company of North Americas Marine Cargo.
At about 1:25 a.m. on July 26, 1990, while enroute to Manila,
the vessel listed about 10 degrees starboardside, due to the
shifting of logs in the hold and on the same day, the vessel
completely sank. Due to the sinking of the vessel, the cargo
was totally lost.
(1) RTC: Central Shipping Company is Liable. RTC was
unconvinced that the sinking of M/V Central Bohol had been
caused by the weather or any other casofortuito. It noted that
monsoons, which were common occurrences during the
months of July to December, could have been foreseen and
provided for by an ocean-going vessel.

(2) CA: Affirmed RTCs Decision. Given the season of rains

and monsoons, the ship captain and his crew should have
The consignee, Alaska Lumber Co. Inc., presented a claim for
anticipated the perils of the sea. The CA found no merit in
the value of the shipment to Central Shipping but the latter
petitioners assertion of the vessels seaworthiness. It held that
failed and refused to settle the claim, hence Insurance
the Certificates of Inspection and Drydocking were not
company, being the insurer, paid said claim and now seeks to
conclusive proofs thereof. In order to consider a vessel to be
be subrogated to all the rights and actions of the consignee as
seaworthy, it must be fit to meet the perils of the sea.
against Central Shipping.

ISSUES:
Central Shipping raised as its main defense that the proximate
and only cause of the sinking of its vessel and the loss of its
1. Whether or not the carrier is liable for the loss of the
cargo was a natural disaster, a tropical storm which neither
cargo;
Central Shipping nor the captain of its vessel could have
Page 57 of 89
2. Whether or not the doctrine of limited liability is
applicable.
RULING:
1. Yes. A common carrier is presumed to be at fault or
negligent. It shall be liable for the loss, destruction or
deterioration of its cargo, unless it can prove that the
sole and proximate cause of such event is one of the
causes enumerated in Article 1734 of the Civil Code, or
that it exercised extraordinary diligence to prevent or
minimize the loss. In the present case, the weather
condition encountered by petitioners vessel was not a
storm or a natural disaster comprehended in the law.
Given the known weather condition prevailing during
the voyage, the manner of stowage employed by the
carrier was insufficient to secure the cargo from the
rolling action of the sea. The carrier took a calculated
risk in improperly securing the cargo. Having lost that
risk, it cannot now disclaim any liability for the loss.
Established is the fact that between 10:00 p.m. on July
25, 1990 and 1:25 a.m. on July 26, 1990, M/V Central
Bohol encountered a southwestern monsoon in the
course of its voyage. Having made such factual
representation in its Note of Marine Protest, petitioner
cannot now be allowed to retreat and claim that the
southwestern monsoon was a storm. Normally
expected on sea voyages, however, were such
monsoons, during which strong winds were not
unusual.
2. No. The doctrine of limited liability under Article 587 of
the Code of Commerce is not applicable to the present
case. This rule does not apply to situations in which the
loss or the injury is due to the concurrent negligence of
the shipowner and the captain. It has already been
established that the sinking of M/V Central Bohol had
been caused by the fault or negligence of the ship
captain and the crew, as shown by the improper
stowage of the cargo of logs. Closer supervision on the
part of the shipowner could have prevented this fatal
miscalculation. As such, the shipowner was equally
negligent. It cannot escape liability by virtue of the
limited liability rule.
Page 58 of 89

#42 (Marine Insurance)

G.R. No. 77369. August 31, 1988
HYOPSUNG MARITIME CO., LTD., petitioner vs. COURT
OF APPEALS, respondent

FACTS:

An admiralty case was filed by Pioneer Insurance &

Surety Corporation against defendants, including petitioner,
which sought for the recovery of the value of P5,000,537.48,
plus interest, attorney's fees, litigation expenses, exemplary
damages and costs of the suit, of the lost or undelivered
Page 59 of 89

cargo, consisting of steel billets allegedly shipped on board a

HELD:
vessel. The law firm of Teves, Campos, Hernandez & Lim,
allegedly designated as one of the legal representatives of
The Court ruled that there was no voluntary
petitioner, filed an Answer on behalf of all of the defendants .
appearance by the petitioner's counsel, and that the
jurisdiction over the petitioner has not been acquired by the
Subesequently, the new counsel, Ferrer, Valte Mariano
trial court. The civil case being a personal action, personal or
& Sangalang Law Firm, for the defendant Litonjua Shiiping
substituted service of summons on the petitioner is necessary
Co., the alleged ship agent of the two (2) other defendants,
to confer jurisdiction by the Court. However, considering that
entered its appearance in substitution of the law firm of Teves,
the latter is not doing business in the Philippines, and that no
Campos, Hernandez & Lim, and filed a Motion to Dismiss on
proof to the contrary has been adduced by private respondent,
the ground that the trial court had no jurisdiction over its
the petitioneris not subject to the jurisdiction of the local courts.
person as well as the subject matter of the suit.

Moreover, the present case is for the recovery of

The trial court dismissed the Complaint against all
damages based on a breach of contract, and appeared that it
defendants. Consequently, the aforementioned Order was
was not executed nor consummated in the Philippines. Also,
appealed by the private respondent. The Court of Appeals set
the petitioner did not appoint any ship agent. Hence, the latter
aside the trial court Order and remanded the said case
cannot be subjected to the jurisdiction of Philippine courts.
thereto. Thus, petitioner further appealed to the Supreme
Court.

ISSUE:

Whether or not there was a voluntary appearance by

the petitioner 's counsel, such that jurisdiction over the
petitioner has been acquired by the trial court
Page 60 of 89

#43 (Regarding Presentation of Policies)

Malayan Insurance Company vs. Regis Brokerage

Corporation

Facts:

Around 1 February 1995, Fasco Motors Group loaded

120 pieces of motors on board China Airlines Flight 621 bound
for Manila from the United States. The cargo was to be
delivered to consignee ABB Koppel, Inc. (ABB Koppel). When
the cargo arrived at the Ninoy Aquino International Airport, it
was discharged without exception and forwarded to Peoples
Page 61 of 89
Aircargo & Warehousing Corp.s (Paircargos) warehouse for
temporary storage pending release by the Bureau of Customs.
Paircargo remained in possession of the cargo until 7 March
1995, at which point respondent Regis Brokerage Corp.
(Regis) withdrew the cargo and delivered the same to ABB
Koppel at its warehouse. When the shipment arrived at ABB
Koppels warehouse, it was discovered that only 65 of the 120
pieces of motors were actually delivered and that the
remaining 55 motors, valued at US$2,374.35, could not be
accounted for. The shipment was purportedly insured with
Malayan by ABB Koppel. Demand was first made upon Regis
and Paircargo for payment of the value of the missing motors,
but both refused to pay. Thus, Malayan paid ABB Koppel the
amount of P156,549.55 apparently pursuant to its insurance
agreement, and Malayan was on that basis subrogated to the
rights of ABB Koppel against Regis and Paircargo. On 24 June
1996, Malayan filed a complaint for damages against Regis
and Paircargo with the Metropolitan Trial Court (MeTC) of
Manila, Branch 9. In the course of trial, Malayan presented
Marine Risk Note No. RN-0001-19832 (Marine Risk Note)
dated 21 March 1995 as proof that the cargo was insured by
Malayan.
Issue:
Whether the Marine Insurance Policy presented by Malayan
Insurance can be admitted in the resolution of the case?
Ruling:
Since the Marine Insurance Policy was never
presented in evidence before the trial court or the Court of
Appeals even, there is no legal basis to consider such
document in the resolution of this case, reflective as that
document may have been of the pre-existence of an insurance
contract between Malayan and ABB Koppel even prior to the
loss of the motors. In fact, it appears quite plain that Malayans
theory of the case it pursued before the trial court was that the
perfected insurance contract which it relied upon as basis for
its right to subrogation was not the Marine Insurance Policy
but the Marine Risk Note which, unlike the former, was actually
presented at the trial and offered in evidence. The Claims
Processor of Malayan who testified in court in behalf of his
employer actually acknowledged that the proof that ABB
Koppel insured the shipment to Malayan was the Marine Risk
Note, and not the Marine Insurance Policy. Even the very
complaint filed by Malayan before the MeTC stated that the
subject shipment was insured by Malayan under Risk Note No.
0001-19832, and not by the Marine Insurance Policy, which
was not adverted to at all in the complaint.
In an action to enforce or rescind a written contract of
lease, the lease contract is the basis of the action and
therefore a copy of the same must either be set forth in the
complaint or its substance recited therein, attaching either the
original or a copy to the complaint. The rule has been held to
be imperative, mandatory and not merely directory, though
must be given a reasonable construction and not be extended
in its scope so as to work injustice. It was incumbent on
Malayan, whose right of subrogation derived from the Marine
Insurance Policy, to set forth the substance of such contract in
its complaint and to attach an original or a copy of such
Page 62 of 89

contract in the complaint as an exhibit. Its failure to do so

harbingers a more terminal defect than merely excluding the
Marine Insurance Policy as relevant evidence, as the failure
actually casts an irremissible cloud on the substance of
Malayans very cause of action. Since Malayan alluded to an
actionable document, the contract of insurance between it and
ABB Koppel, as integral to its cause of action against Regis
and Paircargo, the contract of insurance should have been
attached to the complaint.

#44 (Regarding Presentation of Policies)

ICTSI VS FGU INSURANCE CORPORATION

Facts:

Petitioner's liability arose from a lost shipment of 14

Cardboards 400 kgs. of Silver Nitrate 63.53 FCT Analytically
Pure (purity 99.98 PCT), shipped by Hapag-Lloyd AG through
the vessel Hannover Express from Hamburg, Germany on July
10, 1994, with Manila, Philippines as the port of discharge, and
Republic Asahi Glass Corporation (RAGC) as consignee. Said
shipment was insured by FGU Insurance Corporation (FGU).
Page 63 of 89
When RAGC's customs broker, Desma Cargo Handlers, Inc.,
was claiming the shipment, petitioner, which was the arrastre
contractor, could not find it in its storage area. At the behest of
petitioner, the National Bureau of Investigation (NBI)
conducted an investigation. The AAREMA Marine and Cargo
Surveyors, Inc. also conducted an inquiry. Both found that the
shipment was lost while in the custody and responsibility of
petitioner. As insurer, FGU paid RAGC the amount of P1,
835,068.88 on January 3, 1995. In turn, FGU sought
reimbursement from petitioner, but the latter refused. This
constrained FGU to file with the RTC of Manila Civil Case No.
95-73532 for a sum of money. After trial, the RTC rendered its
Decision dated July 1, 1999 finding petitioner liable.
Issue:
Whether the presentation of the marine insurance policy was
necessary?
Ruling:
Jurisprudence has it that the marine insurance policy
needs to be presented in evidence before the trial court or
even belatedly before the appellate court. In Malayan
Insurance Co., Inc. v. Regis Brokerage Corp. the Court stated
that the presentation of the marine insurance policy was
necessary, as the issues raised therein arose from the very
existence of an insurance contract between Malayan
Insurance and its consignee, ABB Koppel, even prior to the
loss of the shipment. In Wallem Philippines Shipping, Inc. v.
Prudential Guarantee and Assurance, Inc., the Court ruled that
the insurance contract must be presented in evidence in order
to determine the extent of the coverage. This was also the
ruling of the Court in Home Insurance Corporation v. Court of
Appeals.
However, as in every general rule, there are admitted
exceptions. In Delsan Transport Lines, Inc. v. Court of
Appeals, the Court stated that the presentation of the
insurance policy was not fatal because the loss of the cargo
undoubtedly occurred while on board the petitioner's vessel,
unlike in Home Insurance in which the cargo passed through
several stages with different parties and it could not be
determined when the damage to the cargo occurred, such that
the insurer should be liable for it.
As in Delsan, there is no doubt that the loss of the
cargo in the present case occurred while in petitioner's
custody. Moreover, there is no issue as regards the provisions
of Marine Open Policy No. MOP-12763, such that the
presentation of the contract itself is necessary for perusal, not
to mention that its existence was already admitted by
petitioner in open court. And even though it was not offered in
evidence, it still can be considered by the court as long as they
have been properly identified by testimony duly recorded and
they have themselves been incorporated in the records of the
case.
Page 64 of 89

#45 (Subrogation)
Keppel Cebu shipyard inc v pioneer insurance
Facts:
KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A)
executed a Shiprepair Agreement[5] wherein KCSI would
renovate and reconstruct WG&As M/V Superferry 3 using its
dry docking facilities pursuant to its restrictive safety and
security rules and regulations. Prior to the execution of the
Shiprepair Agreement, Superferry 3 was already insured by
WG&A with Pioneer for US$8,472,581.78.
Page 65 of 89
In course of its repair, the said super ferry was destroyed by
fire. Hence, a claim for insurance was made. Insurer
indemnified such and executed a executed a in favor of
Pioneer.
Pioneer tried to collect from KCSI, but the latter denied any
responsibility for the loss of the subject vessel. Pioneer, filed a
Request for Arbitration before the Construction Industry
Arbitration Commission (CIAC).
The insurer contends that it has the right to demand from KCSI
because the former was subrogated of the claims of the
assured. Such was rebutted by KCSI by stating that the
insurer has no legal standing in this proceeding because there
is no arbitration agreement between the Shipyard owner and
the owner of the vessel
Issue: Whether or not Pioneer can claim against KCSI
Held:
Yes, according to Art. 2207 of the civil code,If the plaintiffs
property has been insured and he has received indemnity from
the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance company does
not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the
loss or injury.
Subrogation is the substitution of one person by another with
reference to a lawful claim or right, so that he who is
substituted succeeds to the rights of the other in relation to a
debt or claim, including its remedies or securities. The
principle covers a situation wherein an insurer has paid a loss
under an insurance policy is entitled to all the rights and
remedies belonging to the insured against a third party with
respect to any loss covered by the policy. It contemplates full
substitution such that it places the party subrogated in the
shoes of the creditor, and he may use all means that the
creditor could employ to enforce payment.
The payment by the insurer to the insured operates as an
equitable assignment to the insurer of all the remedies that the
insured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of, any privity of
contract. It accrues simply upon payment by the insurance
company of the insurance claim. The doctrine of subrogation
has its roots in equity. It is designed to promote and to
accomplish justice; and is the mode that equity adopts to
compel the ultimate payment of a debt by one who, in justice,
equity, and good conscience, ought to pay.
Page 66 of 89

#46 (Subrogation)

G.R. No. 194320 February 1, 2012

MALAYAN INSURANCE CO., INC., Petitioner, vs.RODELIO

ALBERTO and ENRICO ALBERTO REYES, Respondents.

FACTS:

At around 5 oclock in the morning of December 17, 1995, an

accident occurred at the corner of EDSA and Ayala Avenue,
Makati City, involving four (4) vehicles, to wit: (1) a Nissan Bus
operated by Aladdin Transit with plate number NYS 381; (2) an
Page 67 of 89
Isuzu Tanker with plate number PLR 684; (3) a Fuzo Cargo
Truck with plate number PDL 297; and (4) a Mitsubishi Galant
with plate number TLM 732.
Based on the Police Report issued by the on-the-spot
investigator, Senior Police Officer 1 Alfredo M. Dungga (SPO1
Dungga), the Isuzu Tanker was in front of the Mitsubishi
Galant with the Nissan Bus on their right side shortly before
the vehicular incident. All three (3) vehicles were at a halt
along EDSA facing the south direction when the Fuzo Cargo
Truck simultaneously bumped the rear portion of the Mitsubishi
Galant and the rear left portion of the Nissan Bus. Due to the
strong impact, these two vehicles were shoved forward and
the front left portion of the Mitsubishi Galant rammed into the
rear right portion of the Isuzu Tanker.
Previously, particularly on December 15, 1994, Malayan
Insurance issued Car Insurance Policy in favor of First
Malayan Leasing and Finance Corporation (the assured),
insuring the aforementioned Mitsubishi Galant against third
party liability, own damage and theft, among others. Having
insured the vehicle against such risks, Malayan Insurance
claimed in its Complaint dated October 18, 1999 that it paid
the damages sustained by the assured amounting to PhP
700,000.
Maintaining that it has been subrogated to the rights and
interests of the assured by operation of law upon its payment
to the latter, Malayan Insurance sent several demand letters to
respondents Rodelio Alberto (Alberto) and Enrico Alberto
Reyes (Reyes), the registered owner and the driver,
respectively, of the Fuzo Cargo Truck, requiring them to pay
the amount it had paid to the assured. When respondents
refused to settle their liability, Malayan Insurance was
constrained to file a complaint for damages for gross
negligence against respondents.
The trial court ruled in favor of Malayan Insurance and
declared respondents liable for damages.
The CA, reversed and set aside the Decision of the trial court
and ruled in favor of respondents, disposing:
The Issue: Whether there is a valid subrogation?
Ruling:
Malayan Insurance contends that there was a valid
subrogation in the instant case, as evidenced by the claim
check voucher and the Release of Claim and Subrogation
Receipt presented by it before the trial court. Respondents,
however, claim that the documents presented by Malayan
Page 68 of 89
Insurance do not indicate certain important details that would
show proper subrogation.
As noted by Malayan Insurance, respondents had all the
opportunity, but failed to object to the presentation of its
evidence. Thus, and as We have mentioned earlier,
respondents are deemed to have waived their right to make an
objection. As this Court held in Asian Construction and
Development Corporation v. COMFAC Corporation: The rule
is that failure to object to the offered evidence renders it
admissible, and the court cannot, on its own, disregard
such evidence.
Note also that when a party desires the court to reject the
evidence offered, it must so state in the form of a timely
objection and it cannot raise the objection to the evidence
for the first time on appeal. Because of a partys failure to
timely object, the evidence becomes part of the evidence
in the case. Thereafter, all the parties are considered
bound by any outcome arising from the offer of evidence
properly presented.
Bearing in mind that the claim check voucher and the Release
of Claim and Subrogation Receipt presented by Malayan
Insurance are already part of the evidence on record, and
since it is not disputed that the insurance company, indeed,
paid PhP 700,000 to the assured, then there is a valid
subrogation in the case at bar. As explained in Keppel Cebu
Shipyard, Inc. v. Pioneer Insurance and Surety Corporation:
Subrogation is the substitution of one person by another with
reference to a lawful claim or right, so that he who is
substituted succeeds to the rights of the other in relation to a
debt or claim, including its remedies or securities. The
principle covers a situation wherein an insurer has paid a loss
under an insurance policy is entitled to all the rights and
remedies belonging to the insured against a third party with
respect to any loss covered by the policy. It contemplates full
substitution such that it places the party subrogated in the
shoes of the creditor, and he may use all means that the
creditor could employ to enforce payment.
We have held that payment by the insurer to the insured
operates as an equitable assignment to the insurer of all the
remedies that the insured may have against the third party
whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of,
any privity of contract. It accrues simply upon payment by the
insurance company of the insurance claim. The doctrine of
subrogation has its roots in equity. It is designed to promote
Page 69 of 89

and to accomplish justice; and is the mode that equity adopts

to compel the ultimate payment of a debt by one who, in
justice, equity, and good conscience, ought to pay.

Considering the above ruling, it is only but proper that Malayan

Insurance be subrogated to the rights of the assured.

#47 (Fire Insurance)

UY HU & CO. vs. THE PRUDENTIAL ASSURANCE CO.,
LTD.
G.R. No. 27778, December 16, 1927

Facts:

Plaintiff alleges that it is a general mercantile copartnership

duly registered in the mercantile register of the City of Manila,
engaged in the sale and purchase of general merchandise.
That defendant is a foreign insurance company duly licensed
to do business in the Philippine Islands. That on April 20,
1926, the defendant undertook to and did insure against loss
and damage by fire the property, goods, wares and
merchandise of the plaintiff for the sum of P30,000. That on
May 10, 1926, and while the policy was in full force and effect,
the property therein described was destroyed by fire without
Page 70 of 89
the fault or negligence of the plaintiff. That in accord with the
terms and conditions of the policy, plaintiff notified the
defendant of the fire and of its loss, and requested payment of
the P30,000, the full amount of the policy, and at the same
time submitted evidence to verify its claim, but that defendant,
without any legal or just ground, refused to pay the claim or
any part of it. Wherefore, plaintiff prays for a corresponding
judgment against the defendant, with interest and costs.
For answer the defendant makes a general and specific
denial, and as a special defense alleges that in the policy in
question, it was agreed that in the event of loss, should the
plaintiff make a fraudulent claim or any false declaration or use
any fraudulent means or devices to obtain payment for its loss,
the policy should become null and void. That after the fire
plaintiff did present a claim under oath of its manager for
P30,000, the alleged amount of its loss. That said claim was
false and fraudulent, in that it was therein represented that the
value of merchandise at the time of the fire was P32,523.30,
whereas in truth and in fact a large part of the merchandise
claimed and represented in plaintiffs proof of loss was not in
the building at the time of the fire, and that the value of the
merchandise which was actually consumed or damaged by the
fire was a very small part of the claim made by the plaintiff,
"and by reason of such fraudulent claim and false declaration
made and used in support thereof, all benefit under said policy
has been forfeited." Defendant prays that plaintiffs complaint
be dismissed, and that it have judgment for costs.
As a result of the trial, the lower court rendered judgment for
the plaintiff for P16,000, with legal interest from June 10, 1926,
and costs, to which both plaintiff and defendant duly excepted
and filed their respective motions for a new trial which were
overruled, and exceptions duly taken, from which both parties
appeal.
Issue:
Whether or not The Prudential Assurance Company is liable
under the fire insurance policy
Held:
No. While it is true that a small portion of the merchandise
might have been consumed, and the evidence of its existence
completely destroyed by the fire, yet in the very nature of
things, a large portion of it would not be destroyed, and some
evidence would be left by which the amount, kind and quality
of it could be substantially ascertained and determined.
Page 71 of 89

Photography is an exact science. Witnesses pro and con may

testify falsely, but a photograph of a scene is not a false
witness, and is conclusive evidence of the actual facts
appearing on the photograph.

Based upon the oral evidence of the defendant, together with

the photographs in question, which convincingly show the
actual conditions in the bodegas immediately after the fire, we
#52 (Regarding Surety)
are clearly of the opinion that plaintiffs claim is false and
Stronghold Insurance Company Vs. Tokyu Construction
fraudulent within the terms and definitions of the policy, and Company, Ltd.
that the value of the merchandise destroyed by the fire would
DOCTRINE:
not exceed P5,000.
The subsequent acts of the insurance policy such as
modification of the principal affect the insurance bonds and the
Although much latitude should be given to the insured in
absence of the prior agreement likewise rendered insurance
presenting his proof of claim as to the value of his loss, in
policy void.
particular as to the price, kind and quality of the property
destroyed, yet where the proof is conclusive, as in this case,
that the insured made a claim for a large amount of property
FACTS:
which was never in the bodegas at the time of the fire and for
Respondent Tokyu Construction Company awarded by Manila
a much larger amount of property than was actually in the
International Airport Authority to construct NAIA terminal 2. On
bodegas, it makes the whole claim false and fraudulent, the
june 2, 1990 respondent entered into sub-contractual
legal effect of which is to bar plaintiff from the recovery of the
agreement with Gabriel Enterprises for storm sewage and
amount of its actual loss.
drainage treatment plan in the area.
Page 72 of 89

In relation to the agreement Gabriel Enterprise enter into
surety bond and performance bond with the petitioner
Stronghold Insurance Company valid for one year from the
date it was issued. Subsequently Gabriel Enterprise failed to
fulfil its obligation on its maturity date.
However, Tokyu Insurance Company extend its sub agreement
and extend its completion which Gabriel Enterprise obtained
another bond now in Tico Insurance Company because the
one year performance insurance bon from Stronghold
insurance company was expired. The same Gabriel Enterprise
Defaulted.
ISSUE:
due process. Even assuming to merit the contention would
raised the question of facts which the court is not trier of facts.
On the issue whether the bond was terminated due to
modifications of sub-contract agreement without notice to
surety, the court said as early Gabriel Enterprise first failed to
comply with its obligation on due date prior to the modification
of the agreement already makes the surety liable. The consent
of the surety to the agreement is not material to being not a
party thereto, its role only when the debtor failed to satisfy its
obligation. The surety can only release from its obligation
when there is material alteration to the contract, in the case at
bar there was none.

Whether or not the contract is null and void having executed
without a valid existing contract since the bond was executed
prior to the principal contract?
Whether or not the bond is invalidated due to modification of
sub-contractual agreement?
Whether or not the insurance contract has expired?
Whether or not the bond was expired, since the sub contract
agreement was extended for another year wherein Gabriel
obtained a new bond from Tico insurance company, the liability
of the petitioner is limited only when Gabriel enterprise
defaulted under petitioner stronghold insurance bond.

HELD:

The contention of the petitioner that the insurance bond was

invalid because it was executed ahead of the principal contract
is not entertained because it was not raised before the lower
courts, to allow would violate the rule of fair play, justice and
Page 73 of 89

Case #53 (Surety)

First Lepanto-Taisho Insurance Corporation V. Chevron

Philippines, Inc. G.R. No. 177839. January 18, 2012

J. Mendoza

Facts:

First Lepanto was sued by Chevron Philippines for the

payment of unpaid oil and petroleum purchases made by its
distributor, Fumitechniks. First Lepanto issued a surety bond to
Fumitechniks for 15.7M. This was in compliance with the
requirement for the grant of a credit line with Chevron to
guarantee payment of the cost of fuel. (Executed on Oct 15,
2001, will expire on Oct 15, 2002).
Page 74 of 89
Fumitechniks defaulted on its obligation because the
check it issued was dishonored. Chevron then notified First
Lepanto of Fumitechniks unpaid purchases (15.08M) through
a letter. Chevron also sent copies of invoices showing the
deliveries of fuel as requested by First Lepanto.
Simultaneously, a letter was sent to Fumitechniks demanding
that it submit to First Lepanto 1) its comment on Chevrons
notification letter, 2) copy of the agreement secured by the
Bond plus the delivery receipts, etc 3) information on the
particulars including terms and conditions.
However Fumitechniks replied that it cannot submit the
requested agreement since there was no such agreement
executed between Fumitechniks and Chevron. However it
enclosed a copy of another surety bond issued by CICI
General Insurance Corporation in favor of Chevron to secure
the obligation of Fumitechniks and/or Prime Asia Sales and
Services in the amount of 15M. First Lepanto then advised
Chevron of the non-existence of the principal agreement as
confirmed by Fumitechniks. It explained that being an
accessory contract, the bond cannot exist without a principal
agreement as it is essential that thecopy of the basic contract
be submitted to the surety. Chevron then formally demanded
from First Lepanto the payment of its claim under the surety
bond. Because First Lepanto refused to pay, Chevron prayed
for judgment ordering First Lepanto to pay the sum of
15,080,030.30 pesos plus interest, cost and attorneys fees.
RTC: dismissed the complaint. Terms and conditions of
the oral credit line between Chevron and Fumitechniks have
not been relayed to First Lepanto. Since the surety bond is a
mere accessory contract, the RTC concluded that the bond
cannot stand in the absence of the written agreement secured
thereby.
CA: reversed the RTCs decision and ruled in favor of
Chevron. First Lepanto is estopped from assailing the oral
credit line agreement, having consented to the same upon
presentation by Fumitechniks of the surety bond it issued.
Considering that such oral contract between Fumitechniks and
respondent has been partially executed, the CA ruled that the
provisions of the Statute of Frauds do not apply.
Page 75 of 89
Issue:
Whether a surety is liable to the creditor in the absence
of a written contract with the principal.
Ratio:
Yes. Sec 175 of the Insurance Code defines suretyship
as contract or agreement whereby a party, called the surety,
guarantees the performance by another party, called the
principal or obligor, of an obligation or undertaking in favor of a
third party, called the obligee. The extent of the suretys
liability is determined by the language of the suretyship
contract or bond itself. It cannot be extended by implication,
beyond the terms of the contract.
Surety Bond used by First Lepanto states that
Fumitechniks, as principal and First Lepanto as surety are
firmly bound unto Chevron in the sum of 15.7M. The rider
attached to the bond that the principal has applied for a credit
line in the amount of 15.7M pesos. First Lepanto argues that
non-compliance with the submission of the written agreement,
which by the express terms of the surety bond, should be
attached and made part thereof, rendered the bond ineffective.
Since all stipulations and provisions of the surety
contract should be taken and interpreted together, in this case,
the unmistakable intention of the parties was to secure only
those terms and conditions of the written agreement. A reading
of Surety Bond shows that it secures the payment of
purchases on credit by Fumitechniks in accordance with the
terms and conditions of the "agreement" it entered into with
respondent. The word "agreement" has reference to the
distributorship agreement, the principal contract and by
implication included the credit agreement mentioned in the
rider. However, it turned out that Chevron has executed
written agreements only with its direct customers but not
distributors like Fumitechniks and it also never relayed the
terms and conditions of its distributorship agreement to the
First Lepanto after the delivery of the bond. The law is clear
that a surety contract should be read and interpreted
together with the contract entered into between the
creditor and the principal. Section 176 of the Insurance
Code states: Sec. 176. The liability of the surety or sureties
shall be joint and several with the obligor and shall be limited
to the amount of the bond. It is determined strictly by the terms
of the contract of suretyship in relation to the principal contract
between the obligor and the obligee. A surety contract is
Page 76 of 89

merely a collateral one, its basis is the principal contract effort to relay those terms and conditions of its contract with
or undertaking which it secures. Necessarily, the Fumitechniks upon the commencement of its transactions with
stipulations in such principal agreement must at least be said client, which obligations are covered by the surety bond
communicated or made known to the surety particularly in this issued by petitioner.
case where the bond expressly guarantees the payment of
respondents fuel products withdrawn by Fumitechniks in
accordance with the terms and conditions of their agreement.
The bond specifically makes reference to a written agreement. #54 (Surety)
It is basic that if the terms of a contract are clear and leave no
Intra-Strata Assurance Co., and Philippine Home
doubt upon the intention of the contracting parties, the literal Assurance Co., petitioner
meaning of its stipulations shall control. Moreover, being an v.
onerous undertaking, a surety agreement is strictly construed
Republic of the Philippines, respondent
against the creditor, and every doubt is resolved in favor of the
GR No. 156571 July 9, 2008
solidary debtor. Having accepted the bond, respondent as
creditor must be held bound by the recital in the surety bond FACTS:

that the terms and conditions of its distributorship contract be Grand Textile I a local manufacturing corporation
reduced in writing or at the very least communicated in writing importing various articles such as dyestuffs, spare parts for
to the surety. Such non-compliance by the creditor warehouse machinery and filaments. Subsequent to
(respondent) impacts not on the validity or legality of the surety importation, the articles were transferred to Bureau of
contract but on the creditors right to demand Customs (BoC) where it required payment of tariffs and other
performance. First Lepanto should have sent notice of the charges. Intra-Strata and PhilHome issued warehousing bonds
specified form of the agreement or at least the disclosure of in favor of BoC which provided that the goods shall be
basic terms and conditions of its distributorship and credit withdrawn from the bonded warehouse on payment of the
agreements with its client Fumitechniks after its acceptance of legal custom duties, internal revenue and other charges to
the bond delivered by the latter. However, it never made any which they shall then be subject. Without payment of the
Page 77 of 89
taxes, custom duties and charges and for the purposes of
domestic consumption, the Grand Textile withdrew the
imported goods from the storage. The BoC demanded
payment of the amounts due from Grand Textile as importer
and from Intra-Strata and PhilHome as sureties. All three failed
to pay. The government responded by filling a collection suit
against the parties with the RTC of Manila. The RTC ruled in
favor of the BoC which was later affirmed by the CA.
ISSUE:
Whether the withdrawal of the stored goods, wares and
merchandise without notice to them as sureties released
them from any liability.
RULING:
No. The surety does not, by reason of the surety
agreement, earn the right to intervene in the principal creditor-
debtor relationship; its role becomes alive only upon the
debtors default, at which time it can be directly held liable by
the creditor for payment as a solidary obligor. A surety contract
is made principally for the benefit of the creditor-obligee and
this is ensured by the solidary nature of the sureties
undertaking. Under these terms, the surety is not entitled as a
rule to a separate notice of default, nor to the benefit of
excussion, and may be sued separately or together with the
principal debtor. The words of this Court in Palmares v. CA are
worth noting:
Demand on the surety is not necessary before
bringing the suit against them. On this point, it may be
worth mentioning that a surety is not even entitled, as a
matter of right, to be given notice of the principals
default. Inasmuch as the creditor owes no duty of
active diligence to take care of the interest of the
surety, his mere failure to voluntarily give information to
the surety of the default of the principal cannot have
the effect of discharging the surety. The surety is bound
to take notice of the principals default and to perform
the obligation. He cannot complain that the creditor has
not notified him in the absence of a special agreement
to that effect in the contract of suretyship.
Significantly, nowhere in the petitioners bonds does it
state that prior notice is required to fix the sureties liabilities.
Without such express requirement, the creditors right to
enforce payment cannot be denied as the petitioners became
bound as soon as Grand Textile, the principal debtor,
defaulted. Thus, the filing of the collection suit was sufficient
notice to the sureties of their principals default.
Page 78 of 89

#56 (Regarding Motor Vehicle Insurance)

Seguros v. Court of Appeals (G.R. No. 96542; May 7, 1992)

Facts:

>December 24, 1981 private respondent-spouses Lim

executed a promissory note in favor of Supercars, Inc. in the
amount of Php 77,940.00 payable in installments, secured by
a chattel mortgage (Ford Laser 1981 Model), registered under
the name of private respondent Herminio Lim and insured with
the petitioner.

>November 9, 1982 at around 2:30PM said vehicle was

carnapped while parked at the back of Broadway Centrum
along N. Domingo Street, Quezon City. Private respondent
Evelyn Lim, who was driving the car, reported the incident to
the Police.

>November 11, 1982 private respondent filed a claim for loss

with the petitioner but it was denied on November 18, 1982 on
Page 79 of 89

the ground that Evelyn Lim, who was using the vehicle before vehicle. To rule otherwise would render the car insurance
it was carnapped, was in possession of an expired drivers practically a sham since an insurance company can easily
license at the time of the loss of said vehicle which is in escape liability by citing restrictions which are not applicable or
violation of the authorized driver clause of the insurance policy. germane to the claim, thereby reducing indemnity to a shadow.

Issue: Was the insurers (petitioner) contention valid? #58 (Regarding Theft Clause)

Ruling:
Alpha Insurance and Surety Co. vs. Arsenia Sonia Castor
NO, the insurers (petitioner) contention was not valid. (G.R. # 198174, September 2, 2013.)

The Court ruled that The comprehensive motor car insurance

policy issued by petitioner Perla undertook to indemnify the FACTS:

private respondents against loss or damage to the car:

Arsenia Sonia Castor (Castor) obtained a Motor Car Policy for
xxx her Toyota Revo DLX DSL with Alpha Insurance and Surety
Co (Alpha). The contract of insurance obligates the petitioner
(b) by fire, external explosion, self-ignition or lightning or
to pay the respondent the amount of P630,000 in case of loss
burglary, housebreaking or theft;
or damage to said vehicle during the period covered.
xxx

Where a car is admittedly, as in this case, unlawfully and On April 16, 2007, respondent instructed her driver, Jose Joel

wrongfully taken without the owner's consent or knowledge, Salazar Lanuza to bring the vehicle to nearby auto-shop for a

such taking constitutes theft, and, therefore, it is the "THEFT"' tune up. However, Lanuza no longer returned the motor

clause, and not the "AUTHORIZED DRIVER" clause that vehicle and despite diligent efforts to locate the same, said

should apply. efforts proved futile. Resultantly, respondent promptly reported

the incident to the police and concomitantly notified petitioner
It was also ruled that there is no causal connection between
the possession of a valid drivers license and the loss of a
Page 80 of 89

of the said loss and demanded payment of the insurance fact of losing, or failure to keep possession, while the word
proceeds. damage means deterioration or injury to property. Therefore,
petitioner cannot exclude the loss of Castors vehicle under the

Alpha, however, denied the demand of Castor claiming that insurance policy under paragraph 4 of Exceptions to Section

they are not liable since the culprit who stole the vehicle is III, since the same refers only to malicious damage, or more

employed with Castor. Under the Exceptions to Section III of specifically, injury to the motor vehicle caused by a person

the Policy, the Company shall not be liable for (4) any under the insureds service. Paragraph 4 clearly does not

malicious damage caused by the insured, any member of his contemplate loss of property.

family or by A PERSON IN THE INSUREDS SERVICE.

A contract of insurance is a contract of adhesion. So, when the

Castor filed a Complaint for Sum of Money with Damages terms of the insurance contract contain limitations on liability,

against Alpha before the Regional Trial Court of Quezon City. courts should construe them in such a way as to preclude the

The trial court rendered its decision in favor of Castor which insurer from non-compliance with his obligation. Thus, in

decision is affirmed in toto by the Court of Appeals. Hence, this Eternal Gardens Memorial Park Corporation vs. Philippine

Petition for Review on Certiorari. American Life Insurance Company, this Court ruled that it must
be remembered that an insurance contract is a contract of
adhesion which must be construed liberally in favor of the
ISSUE:
insured and strictly against the insurer in order to safeguard
the latters interest.
Whether or not the loss of respondents vehicle is excluded
under the insurance policy?

HELD:
NO. The words loss and damage mean different things in
common ordinary usage. The word loss refers to the act or
Page 81 of 89

#60 (Mortgage Redemption Clause)

NORA CANSING SERRANO vs. COURT OF APPEALS AND

SOCIAL SECURITY COMMISSION

FACTS:

Upon application by the Social Security System

(System), a Group Mortgage Redemption Policy was issued
by Private Life Insurance Companies on the lives of housing
loan mortgagors of the System.

Petitioner Nora Cansing Serrano is the widow of the

late Bernardo Serrano, who, at the time of his death, was an
airline pilot of Air Manila, Inc. and as such, was a member of
the System.

At the outset, on November 10, 1967, the System

approved the real estate mortgage loan of Captain Serrano for
the construction of the latters house. On March 8, 1968,
Captain Serrano died in a plane crash and because of his
Page 82 of 89

death, the System closed his housing loan account. Petitioner
then sent a letter to the Social Security Commission
(Commission) requesting that the benefits of the Group
Mortgage Redemption Insurance (MRI) be extended to her.
The said request was denied on the ground that that deceased
was not yet covered by the policy at the time of his death. On
appeal, respondent Court of Appeals affirmed the decision of
the Commission.
ISSUE: Whether the interpretation of the Commission as
adopted by respondent court is correct.
RULING:
No. In particular, respondent court erred in construing
the effectivity date of insurance coverage from the beginning
of the amortization period of the loan.
Article 1374 of the New Civil Code provides that the
various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result
from all of them taken jointly.
System i.e., not over the age of 65 nearest his birthday at the
time when the mortgage loan was granted to him.
Section 2, Article II of the said policy provides that "any
mortgagor who is eligible for coverage on or after the Date of
Issue shall be automatically insured xxx while Section 2 of the
same article provides that the insurance "shall take effect from
the beginning of the amortization period of such Mortgage loan
or partial release of Mortgage Loan". In case of ambiguity, it
should be resolved in favor of the petitioner.
It may be noted that while the issuance of the MRI is a
contract between the System and the Private Life Insurance
Companies, the fact is that the System entered into such a
contract to afford protection not only to itself should the
mortgagor die before fully paying the loan but also to afford
protection to the mortgagor. Likewise, to sustain the position of
the System is to allow it to collect twice the same amount i.e.,
from the insurance companies which paid to it the amount of
the MRI and then from the heirs of the deceased mortgagor,
which then makes it unconscionable.

Applying the said rule, the mortgagor in the instant

case was already covered by the insurance upon the partial
release of the loan. There can be no doubt as to the eligibility
of the deceased for coverage as he was a mortgagor of the
Page 83 of 89

#61 (Mortgage Redemption Clause)

Great Pacific Life Ass. Corp. v. Court of Appeals and

Leuterio

Facts: A contract of group life insurance was executed

between petitioner and DBP wherein the former agreed to
insure the lives of eligible housing loan mortgages of the latter.
Dr. Leuterio was one of those who applied for membership in
the said insurance plan. In the application for, when asked
whether he is suffering from any physical impairment, he
answered in the negative; and when asked whether he is good
health to the best of his knowledge, he answered in the
affirmative. Petitioner approved the application and issued the
corresponding certificate. Dr. Leuterio died due to massive
cerebral hemorrhage. When DBP submitted a claim to
petitioner, it was denied on the ground that Dr. Leuterio was
not physically healthy when he applied for an insurance
coverage and that he did not disclose he had been suffering
Page 84 of 89
from hypertension. Allegedly such non-disclosure constituted
concealment. The widow of Dr. Leuterio filed a complaint
against petitioner for specific performance with damages. The
trial court rendered a decision in favor of respondent widow
and against Grepalife. The CA sustained the trial courts
decision. Hence, the present petition.
Issue: Petitioner alleges that the complaint was instituted by
the widow of Dr. Leuterio, not the real party in interest, hence
the trial court acquired no jurisdiction over the case.
Held: To resolve the issue, we must consider the insurable
interest in mortgaged properties and the parties to this type of
contract. The rationale of a group insurance policy of
mortgagors, otherwise known as the "mortgage redemption
insurance," is a device for the protection of both the mortgagee
and the mortgagor. On the part of the mortgagee, it has to
enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of
the mortgage contract, the proceeds from such insurance will
be applied to the payment of the mortgage debt, thereby
relieving the heirs of the mortgagor from paying the obligation.
In a similar vein, ample protection is given to the mortgagor
under such a concept so that in the event of death; the
mortgage obligation will be extinguished by the application of
the insurance proceeds to the mortgage indebtedness.
Consequently, where the mortgagor pays the insurance
premium under the group insurance policy, making the loss
payable to the mortgagee, the insurance is on the mortgagor's
interest, and the mortgagor continues to be a party to the
contract. In this type of policy insurance, the mortgagee is
simply an appointee of the insurance fund, such loss-payable
clause does not make the mortgagee a party to the contract.
The insured private respondent did not cede to the mortgagee
all his rights or interests in the insurance, the policy stating
that: "In the event of the debtor's death before his
indebtedness with the Creditor [DBP] shall have been fully
paid, an amount to pay the outstanding indebtedness shall first
be paid to the creditor and the balance of sum assured, if there
is any, shall then be paid to the beneficiary/ies designated by
the debtor." When DBP submitted the insurance claim against
petitioner, the latter denied payment thereof, interposing the
defense of concealment committed by the insured. Thereafter,
DBP collected the debt from the mortgagor and took the
necessary action of foreclosure on the residential lot of private
respondent.
And since a policy of insurance upon life or health may pass
by transfer, will or succession to any person, whether he has
Page 85 of 89

an insurable interest or not, and such person may recover it

whatever the insured might have recovered, the widow of the
decedent Dr. Leuterio may file the suit against the insurer,
Grepalife.

#62 (On the Liability of Insurer for Loss due to negligence)

FGU INSURANCE CORP V. COURT OF APPEALS GR

137775

FACTS

Respondent Anco Enterprises Company (ANCO), a

partnership between Ang Gui and Co To, was engaged in the
shipping business. It owned the M/T ANCO tugboat and the
D/B Lucio barge which were operated as common carriers.
Since the D/B Lucio had no engine of its own, it could not
maneuver by itself and had to be towed by a tugboat for it to
move from one place to another.

San Miguel Corporation (SMC) shipped from Mandaue

City, Cebu, on board the D/B Lucio, for towage by M/T ANCO
consists of: 1) 25,000 cases Pale Pilsen Estancia, Iloilo 350
cases Cerveza Negra Estancia, Iloilo; 2) 15,000 cases Pale
Pilsen San Jose, Antique 200 cases Cerveza Negra San Jose,
Antique
Page 86 of 89
The D/B Lucio was towed by the M/T ANCO all the way
from Mandaue City to San Jose, Antique. The vessels arrived
at San Jose, Antique, at about one oclock in the afternoon of
30 September 1979. The tugboat M/T ANCO left the barge
immediately after reaching San Jose, Antique. When the barge
and tugboat arrived at San Jose, Antique,the clouds over the
area were dark and the waves were already big. The arrastre
workers unloading the cargoes of SMC on board the D/B Lucio
began to complain about their difficulty in unloading the
cargoes. SMCs District Sales Supervisor, Fernando
Macabuag, requested ANCOs representative to transfer the
barge to a safer place because the vessel might not be able to
withstand the big waves.
ANCOs representative did not heed the request
because he was confident that the barge could withstand the
waves. This, notwithstanding the fact that at that time, only the
M/T ANCO was left at the wharf of San Jose, Antique, as all
other vessels already left the wharf to seek shelter. And that,
only Ten Thousand Seven Hundred Ninety (10,790) cases of
beer were discharged into the custody of the arrastre operator.
The crew of D/B Lucio abandoned the vessel because
the barges rope attached to the wharf was cut off by the big
waves. At around midnight, the barge run aground and was
broken and the cargoes of beer in the barge were swept away.
ANCO failed to deliver to SMCs consignee cases of Pale
Pilsen. Hence, SMCs claim against ANCO amounted to One
Million Three Hundred Forty-Six Thousand One Hundred
Ninety-Seven Pesos (P1,346,197.00).
SMC filed a complaint for Breach of Contract of
Carriage and Damages against ANCO.Upon Ang Guis death,
ANCO, as a partnership, was dissolved hence, SMC filed a
second amended complaint which was admitted by the Court
impleading the surviving partner, Co To and the Estate of Ang
Gui represented by Lucio, Julian and Jaime, all surnamed Ang.
ANCO admitted that the cases of beer Pale Pilsen
were indeed loaded on the vessel belonging to ANCO. It
claimed however that it had an agreement with SMC that
ANCO would not be liable for any losses or damages resulting
to the cargoes by reason of fortuitous event, since were lost by
reason of a storm. NCO further asserted that there was an
agreement between them and SMC to insure the cargoes in
order to recover indemnity in case of loss. The cargoes were
said to be insured with FGU Insurance Corporation (FGU) per
Marine Insurance Policy
Page 87 of 89
According to ANCO, the loss of said cargoes occurred
as a result of risks insured against in the insurance policy and
during the existence and lifetime of said insurance policy.
ANCO went on to assert that in the remote possibility that the
court will order ANCO to pay SMCs claim, the third-party
defendant corporation should be held liable to indemnify or
reimburse ANCO whatever amounts, or damages, it may be
required to pay to SMC.
Third-party defendant FGU admitted the existence of
the Insurance Policy but maintained that the alleged loss of
the cargoes covered by the said insurance policy cannot be
attributed directly or indirectly to any of the risks insured
against in the said insurance policy. According to FGU, it is
only liable under the policy to Third-party Plaintiff ANCO and/or
Plaintiff SMC in case of any of the following: a) total loss of the
entire shipment; b) loss of any case as a result of the sinking
of the vessel; or c) loss as a result of the vessel being on fire.
FGU alleged that the Third-Party Plaintiff ANCO and
Plaintiff SMC failed to exercise ordinary diligence or the
diligence of a good father of the family in the care and
supervision of the cargoes insured to prevent its loss and/or
destruction.
The trial court found that while the cargoes were
indeed lost due to fortuitous event, there was failure on
ANCOs part, through their representatives, to observe the
degree of diligence required that would exonerate them from
liability. The trial court thus held the Estate of Ang Gui and Co
To liable to SMC for the amount of the lost shipment. With
respect to the Third-Party complaint, the court a quo found
FGU liable to bear Fifty-Three Percent (53%) of the amount of
the lost cargoes. The appellate court affirmed in toto the
decision of the lower court
ISSUE
Whether or not FGU can be held liable under the insurance
policy to reimburse ANCO for the loss of the cargoes despite
the findings of the respondent court that such loss was
occasioned by the blatant negligence of the latters
employees?
HELD
Page 88 of 89
YES. Affirmed with modification. Third-party complainant is
dismissed.The question now is whether there is a certain
degree of negligence on the part of the insured or his agents
that will deprive him the right to recover under the insurance
contract. We say there is. However, to what extent such
negligence must go in order to exonerate the insurer from
liability must be evaluated in light of the circumstances
surrounding each case. When evidence show that the
insureds negligence or recklessness is so gross as to be
sufficient to constitute a willful act, the insurer must be
exonerated.In the case of Williams v. New England Insurance,
it was never supposed that the insured could recover
indemnity for a loss occasioned by his own wrongful act or by
that of any agent for whose conduct he was responsible
According to the Court, while mistake and negligence
of the master or crew are incident to navigation and constitute
a part of the perils that the insurer is obliged to incur, such
negligence or recklessness must not be of such gross
character as to amount to misconduct or wrongful acts;
otherwise, such negligence shall release the insurer from
liability under the insurance contract.
In the case at bar, both the trial court and the appellate court
had concluded from the evidence that the crewmembers of
both the D/B Lucio and the M/T ANCO were blatantly
negligent. There was blatant negligence on the part of the
employees of defendants-appellants when the patron
(operator) of the tug boat immediately left the barge at the San
Jose, Antique wharf despite the looming bad weather.
Negligence was likewise exhibited by the defendants-
appellants representative who did not heed Macabuags
request that the barge be moved to a more secure place. The
prudent thing to do, as was done by the other sea vessels at
San Jose, Antique during the time in question, was to transfer
the vessel to a safer wharf.
ANCOs representatives had failed to exercise
extraordinary diligence required of common carriers in the
shipment of SMCs cargoes. Such blatant negligence being the
proximate cause of the loss of the cargoes. This Court, taking
into account the circumstances present in the instant case,
concludes that the blatant negligence of ANCOs employees is
of such gross character that it amounts to a wrongful act which
must exonerate FGU from liability under the insurance
contract.
Page 89 of 89