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United Merchants v Country Bankers

Facts:
United Merchants was a manufacturer and retailer of Christmas lights. It insured (fire policy) its
Christmas lights stored in the warehouse with Country Bankers. The warehouse was burned down
hence United sought indemnity from Country. Country rejected the claim on the ground of Condition
15 of the policy which states that If the claim be in any respect fraudulent, or if any false declaration
be made or used in support thereof, or if any fraudulent means or devices are used by the Insured or
anyone acting in his behalf to obtain any benefit under this Policy; or if the loss or damage be
occasioned by the willful act, or with the connivance of the Insured, all the benefits under this Policy
shall be forfeited. CBIC alleged that UMCs claim was fraudulent because UMCs Statement of
Inventory showed that it had no stocks in trade as of 31 December 1995, and that UMCs suspicious
purchases for the year 1996 did not even amount to P25,000,000.00. UMCs GIS and Financial
Reports further revealed that it had insufficient capital, which meant UMC could not afford the
allegedP50,000,000.00 worth of stocks in trade. United answered back saying that they have a
certificate from the Bureau of Fire Protection which states that : The Bureau further certifies that no
evidence was gathered to prove that the establishment was willfully, feloniously and intentionally set
on fire.

Issue:
Whether UMC is entitled to claim from CBIC the full coverage of its fire insurance policy.

Held:
No! If loss is proved apparently within a contract of insurance, the burden is upon the insurer
to establish that the loss arose from a cause of loss which is excepted or for which it is not
liable, or from a cause which limits its liability.
In the present case, CBIC failed to discharge its primordial burden of establishing that the
damage or loss was caused by arson, a limitation in the policy. Nevertheless just because
the defense failed to prove arson does not mean that fraud does not exist. In fact, fraud
exists in this case.
The Court ruled that the submission of false invoices to the adjusters establishes a
clear case of fraud and misrepresentation which voids the insurers liability as per
condition of the policy.
A fraudulent discrepancy between the actual loss and that claimed in the proof of
loss voids the insurance policy.
Mere filing of such a claim will exonerate the insurer. Considering that all the circumstances
point to the inevitable conclusion that UMC padded its claim and was guilty of fraud, UMC
violated Condition No. 15 of the Insurance Policy.
Thus, UMC forfeited whatever benefits it may be entitled under the Insurance Policy,
including its insurance claim.
Pacific Timber v. CA
112 SCRA 199

Facts:
> On March 13, 1963, Pacific secured temporary insurance from the Workmens Insurance Co. for
its exportation of logs to Japan. Workmen issued on said date Cover Note 1010 insuring said cargo.
> The regular marine policies were issued by the company in favor of Pacific on Apr 2, 1963. The 2
marine policies bore the number 53H01032 and 53H01033.
> After the issuance of the cover note but BEFORE the issuance of the 2 policies, some of the logs
intended to be exported were lost due to a typhoon.
> Pacific filed its claim with the company, but the latter refused, contending that said loss may not
be considered as covered under the cover note because such became null and void by virtue of the
issuance of the marine policies.

Issue:
Whether or not the cover note was without consideration,thus null and void.

Held:
It was with consideration.
SC upheld Pacifics contention that said cover note was with consideration. The fact that no
separate premium was paid on the cover note before the loss was insured against occurred does not
militate against the validity of Pacifics contention, for no such premium could have been paid, since
by the nature of the cover note, it did not contain, as all cover notes do not contain, particulars of
the shipment that would serve as basis for the computation of the premiums. As a logical
consequence, no separate premiums are required to be paid on a cover note.

If the note is to be treated as a separate policy instead of integrating it to the regular policies
subsequently issued, its purpose would be meaningless for it is in a real sense a contract, not a
mere application.
112 SCRA 199 Mercantile Law Insurance Law The Policy Separate Premiums Not Required
for Cover Notes
In 1963, Pacific Timber Export Corporation (PTEC) applied for a temporary marine insurance from
Workmens Insurance Company (WIC) in order for the latter to insure 1,250,000 board feet of logs to
be exported to Japan. In March 1963, WIC issued a cover note to PTEC for the said logs. On April 2,
1963, WIC issued two policies for the logs. However, the total board feet covered this time is only
1,195,498. On April 4, 1963, while the logs were in transit to Japan, bad weather prevailed and this
caused the loss of 32 pieces of logs.
WIC then asked an adjuster to investigate the loss. The adjuster submitted that the logs lost were
not covered by the two policies issued on April 2, 1963 but said logs were included in the cover note
earlier issued.
WIC however denied the insurance claim of PTEC as it averred that the cover note became null and
void when the two policies were subsequently issued. The Court of Appeals ruled that the cover note
is void for lack of valuable consideration as it appeared that no premium payment therefor was made
by PTEC.
ISSUE: Whether or not a separate premium is needed for cover notes.
HELD: No. The Cover Note was not without consideration for which the Court of Appeals held the
Cover Note as null and void, and denied recovery therefrom. The fact that no separate premium was
paid on the Cover Note before the loss insured against occurred, does not militate against the
validity of PTECs contention, for no such premium could have been paid, since by the nature of the
Cover Note, it did not contain, as all Cover Notes do not contain particulars of the shipment that
would serve as basis for the computation of the premiums. As a logical consequence, no separate
premiums are intended or required to be paid on a Cover Note.
At any rate, it is not disputed that PTEC paid in full all the premiums as called for by the statement
issued by WIC after the issuance of the two regular marine insurance policies, thereby leaving no
account unpaid by PTEC due on the insurance coverage, which must be deemed to include the
Cover Note. If the Note is to be treated as a separate policy instead of integrating it to the regular
policies subsequently issued, the purpose and function of the Cover Note would be set at naught or
rendered meaningless, for it is in a real sense a contract, not a mere application for insurance which
is a mere offer.