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INTERPRETATION avoided. 11 Such policies will, therefore, be construed strictly against the company in
order to avoid a forfeiture, unless no other result is possible from the language used.
AMERICA Be that as it may, exceptions to the general coverage are construed most strongly
against the company. 14 Even an express exception in a policy is to be construed
It is well-settled that when the words of a contract are plain and readily understood, against the underwriters by whom the policy is framed, and for whose benefit the
there is no room for construction.22 Indeed, when the terms of the agreement are clear exception is introduced. 15
and explicit 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 An insurance contract should be so interpreted as to carry out the purpose for which
the contract.25 the parties entered into the contract which is, to insure against risks of loss or damage
to the goods. Such interpretation should result from the natural and reasonable
Section 13 of our Insurance Code defines insurable interest as "every interest in meaning of language in the policy. 16 Where restrictive provisions are open to two
property, whether real or personal, or any relation thereto, or liability in respect interpretations, that which is most favorable to the insured is adopted. 17
thereof, of such nature that a contemplated peril might directly damnify the insured."
Parenthetically, under Section 14 of the same Code, an insurable interest in property Indemnity and liability insurance policies are construed in accordance with the general
may consist in: (a) an existing interest; (b) an inchoate interest founded on existing rule of resolving any ambiguity therein in favor of the insured, where the contract or
interest; or (c) an expectancy, coupled with an existing interest in that out of which the policy is prepared by the insurer. 18 A contract of insurance, being a contract of
expectancy arises. adhesion, par excellence, any ambiguity therein should be resolved against the
insurer; in other words, it should be construed liberally in favor of the insured and
Therefore, an insurable interest in property does not necessarily imply a property strictly against the insurer. Limitations of liability should be regarded with extreme
interest in, or a lien upon, or possession of, the subject matter of the insurance, and jealousy and must be construed in such a way as to preclude the insurer from
neither the title nor a beneficial interest is requisite to the existence of such an noncompliance with its obligations.
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 4. VERENDIA vs. CA
which it is insured.29 Anyone has an insurable interest in property who derives a
benefit from its existence or would suffer loss from its destruction.30 Indeed, a vendor Considering, however, the foregoing discussion pointing to the fact that Verendia
or seller retains an insurable interest in the property sold so long as he has any used a false lease contract to support his claim under Fire Insurance Policy No. F-
interest therein, in other words, so long as he would suffer by its destruction, as where 18876, the terms of the policy should be strictly construed against the insured.
he has a vendor's lien. Verendia failed to live by the terms of the policy, specifically Section 13 thereof which
is expressed in terms that are clear and unambiguous, that all benefits under the
2. FIRST FIL-SIN LENDING CORPORATION vs. GLORIA D. PADILLO 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
Thus, when the terms of the agreement are clear and explicit that they do not justify are used by the Insured or anyone acting in his behalf to obtain any benefit under the
an attempt to read into it any alleged intention of the parties, the terms are to be policy". Verendia, having presented a false declaration to support his claim for
understood literally just as they appear on the face of the contract.[8] It is only in benefits in the form of a fraudulent lease contract, he forfeited all benefits therein by
instances when the language of a contract is ambiguous or obscure that courts ought virtue of Section 13 of the policy in the absence of proof that Fidelity waived such
to apply certain established rules of construction in order to ascertain the supposed provision (Pacific Banking Corporation vs. Court of Appeals, supra). Worse yet, by
intent of the parties. However, these rules will not be used to make a new contract for presenting a false lease contract, Verendia, reprehensibly disregarded the principle
the parties or to rewrite the old one, even if the contract is inequitable or harsh. They that insurance contracts are uberrimae fidae and demand the most abundant good
are applied by the court merely to resolve doubts and ambiguities within the faith (Velasco vs. Apostol, 173 SCRA 228 [1989]).
framework of the agreement.[9]

It has been held that a strained interpretation which is unnatural and forced, as to lead Furthermore, when the words and language of documents are clear and plain or
to an absurd conclusion or to render the policy nonsensical, should, by all means, be readily understandable by an ordinary reader thereof, there is absolutely no room for
avoided. 9 Likewise, it must be borne in mind that such contracts are invariably interpretation or construction anymore.9 Courts are not allowed to make contracts for
prepared by the companies and must be accepted by the insured in the form in which the parties; rather, they will intervene only when the terms of the policy are
they are written. 10 Any construction of a marine policy rendering it void should be ambiguous, equivocal, or uncertain. 10 The parties must abide by the terms of the

contract because such terms constitute the measure of the insurer's liability and indemnify the insured against a specified peril.[27] In fire, casualty, and marine
compliance therewith is a condition precedent to the insured's right of recovery from insurance, the premium payable becomes a debt as soon as the risk attaches.
the insurer. 11 A contract of adhesion is one wherein a party, usually a corporation, prepares the
stipulations in the contract, while the other party merely affixes his signature or his
While it is a cardinal principle of insurance law that a policy or contract of insurance is "adhesion" thereto. Through the years, the courts have held that in these type of
to be construed liberally in favor of the insured and strictly against the insurer contracts, the parties do not bargain on equal footing, the weaker party's participation
company, yet contracts of insurance, like other contracts, are to be construed being reduced to the alternative to take it or leave it. Thus, these contracts are viewed
according to the sense and meaning of the terms which the parties themselves have as traps for the weaker party whom the courts of justice must protect. [32]
used. If such terms are clear and unambiguous, they must be taken and understood Consequently, any ambiguity therein is resolved against the insurer, or construed
in their plain, ordinary and popular sense. 12 Moreover, obligations arising from liberally in favor of the insured.[33]
contracts have the force of law between the contracting parties and should be
complied with in good faith. 8. SIMON DE LA CRUZ vs. THE CAPITAL INSURANCE and SURETY CO.,
The terms "accident" and "accidental", as used in insurance contracts, have not
We might add that the agreement contained in the insurance policies is the law acquired any technical meaning, and are construed by the courts in their ordinary and
between the parties. As the terms of the policies are clear, express and specific that common acceptation. Thus, the terms have been taken to mean that which happen by
only amputation of the left hand should be considered as a loss thereof, an chance or fortuitously, without intention and design, and which is unexpected,
interpretation that would include the mere fracture or other temporary disability not unusual, and unforeseen. An accident is an event that takes place without one's
covered by the policies would certainly be unwarranted. 2 foresight or expectation an event that proceeds from an unknown cause, or is an
unusual effect of a known cause and, therefore, not expected. 1
CORPORATION Appellant however, would like to make a distinction between "accident or accidental"
and "accidental means", which is the term used in the insurance policy involved here.
It is basic that all the provisions of the insurance policy should be examined and It is argued that to be considered within the protection of the policy, what is required
interpreted in consonance with each other. [25] All its parts are reflective of the true to be accidental is the means that caused or brought the death and not the death
intent of the parties. The policy cannot be construed piecemeal. Certain stipulations itself. It may be mentioned in this connection, that the tendency of court decisions in
cannot be segregated and then made to control; neither do particular words or the United States in recent years is to eliminate the fine distinction between the terms
phrases necessarily determine its character. Petitioner cannot focus on the "accidental" and "accidental means" and to consider them as legally synonymous. 2
earthquake shock endorsement to the exclusion of the other provisions. All the But, even if we take appellant's theory, the death of the insured in the case at bar
provisions and riders, taken and interpreted together, indubitably show the intention of would still be entitled to indemnification under the policy. The generally accepted rule
the parties to extend earthquake shock coverage to the two swimming pools only. is that, death or injury does not result from accident or accidental means within the
terms of an accident-policy if it is the natural result of the insured's voluntary act,
A careful examination of the premium recapitulation will show that it is the clear intent unaccompanied by anything unforeseen except the death or injury. 3 There is no
of the parties to extend earthquake shock coverage only to the two swimming pools. accident when a deliberate act is performed unless some additional, unexpected,
Section 2(1) of the Insurance Code defines a contract of insurance as an agreement independent, and unforeseen happening occurs which produces or brings about the
whereby one undertakes for a consideration to indemnify another against loss, result of injury or death.4 In other words, where the death or injury is not the natural or
damage or liability arising from an unknown or contingent event. Thus, an insurance probable result of the insured's voluntary act, or if something unforeseen occurs in the
contract exists where the following elements concur: doing of the act which produces the injury, the resulting death is within the protection
of policies insuring against death or injury from accident.
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the
designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a
premium.[26] (Emphasis ours)

An insurance premium is the consideration paid an insurer for undertaking to


9. HEIRS OF LORETO C. MARAMAG, represented by surviving spouse
VICENTA PANGILINAN MARAMAG vs. EVA VERNA DE GUZMAN The contract of life insurance is a special contract and the destination of the proceeds
MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN DE thereof is determined by special laws which deal exclusively with that subject. The
GUZMAN MARAMAG, TRISHA ANGELIE MARAMAG, THE INSULAR Civil Code has no provisions which relate directly and specifically to life-insurance
LIFE ASSURANCE COMPANY, LTD., and GREAT PACIFIC LIFE contract or to the destination of life-insurance proceeds. That subject is regulate
ASSURANCE CORPORATION exclusively by the Code of Commerce which provides for the terms of the contract,
the relations of the parties and the destination of the proceeds of the policy. (Supra,
pp. 540-541.)
The Insurance Code, as amended, contains a provision regarding to whom the
insurance proceeds shall be paid. It is very clear under Sec. 53 thereof that the 11. BASILIA BERDIN VDA. DE CONSUEGRA; JULIANA, PACITA, MARIA
insurance proceeds shall be applied exclusively to the proper interest of the person in LOURDES, JOSE, JR., RODRIGO, LINEDA and LUIS, all surnamed
whose name or for whose benefit it is made, unless otherwise specified in the policy. CONSUEGRA vs. GOVERNMENT SERVICE INSURANCE SYSTEM,
Since the defendants are the ones named as the primary beneficiary (sic) in the COMMISSIONER OF PUBLIC HIGHWAYS, HIGHWAY DISTRICT
insurances (sic) taken by the deceased Loreto C. Maramag and there is no showing ENGINEER OF SURIGAO DEL NORTE, COMMISSIONER OF CIVIL
that herein plaintiffs were also included as beneficiary (sic) therein the insurance SERVICE, and ROSARIO DIAZ
proceeds shall exclusively be paid to them. This is because the beneficiary has a
vested right to the indemnity, unless the insured reserves the right to change the Thus, We see that the GSIS offers two separate and distinct systems of benefits to its
beneficiary. (Grecio v. Sunlife Assurance Co. of Canada, 48 Phil. [sic] 63). members one is the life insurance and the other is the retirement insurance. These
Neither could the plaintiffs invoked (sic) the law on donations or the rules on two distinct systems of benefits are paid out from two distinct and separate funds that
testamentary succession in order to defeat the right of herein defendants to collect the are maintained by the GSIS.
insurance indemnity. The beneficiary in a contract of insurance is not the donee
spoken in the law of donation. The rules on testamentary succession cannot apply In the case of the proceeds of a life insurance, the same are paid to whoever is
here, for the insurance indemnity does not partake of a donation. As such, the named the beneficiary in the life insurance policy. As in the case of a life insurance
insurance indemnity cannot be considered as an advance of the inheritance which provided for in the Insurance Act (Act 2427, as amended), the beneficiary in a life
can be subject to collation (Del Val v. Del Val, 29 Phil. 534). In the case of Southern insurance under the GSIS may not necessarily be a heir of the insured. The insured in
Luzon Employees Association v. Juanita Golpeo, et al., the Honorable Supreme a life insurance may designate any person as beneficiary unless disqualified to be so
Court made the following pronouncements[:] under the provisions of the Civil Code.4 And in the absence of any beneficiary named
"With the finding of the trial court that the proceeds to the Life Insurance Policy in the life insurance policy, the proceeds of the insurance will go to the estate of the
belongs exclusively to the defendant as his individual and separate property, we insured.
agree 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 Retirement insurance is primarily intended for the benefit of the employee to
are the separate and individual property of the beneficiary and not of the heirs of the provide for his old age, or incapacity, after rendering service in the government for a
person whose life was insured, is the doctrine in America. We believe that the same required number of years. If the employee reaches the age of retirement, he gets the
doctrine obtains in these Islands by virtue of Section 428 of the Code of Commerce x retirement benefits even to the exclusion of the beneficiary or beneficiaries named in
x x." his application for retirement insurance. The beneficiary of the retirement insurance
can only claim the proceeds of the retirement insurance if the employee dies before
Section 53 of the Insurance Code states retirement. If the employee failed or overlooked to state the beneficiary of his
SECTION 53. The insurance proceeds shall be applied exclusively to the retirement insurance, the retirement benefits will accrue to his estate and will be given
proper interest of the person in whose name or for whose benefit it is made unless to his legal heirs in accordance with law, as in the case of a life insurance if no
otherwise specified in the policy. beneficiary is named in the insurance policy.

Pursuant thereto, it is obvious that the only persons entitled to claim the 12. THE INSULAR LIFE ASSURANCE COMPANY, LTD. vs. CARPONIA T.
insurance proceeds are either the insured, if still alive; or the beneficiary, if the EBRADO and PASCUALA VDA. DE EBRADO
insured is already deceased, upon the maturation of the policy. 20 The exception to
this rule is a situation where the insurance contract was intended to benefit third This is a novel question in insurance law: Can a common-law wife named as
persons who are not parties to the same in the form of favorable stipulations or beneficiary in the life insurance policy of a legally married man claim the proceeds
indemnity. In such a case, third parties may directly sue and claim from the insurer.21 thereof in case of death of the latter?

1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the between common law spouses in record to Property relations since such hip
new Insurance Code (PD No. 612, as amended) does not contain any specific ultimately encroaches upon the nuptial and filial rights of the legitimate family There is
provision grossly resolutory of the prime question at hand. Section 50 of the every reason to hold that the bar in donations between legitimate spouses and those
Insurance Act which provides that "(t)he insurance shag be applied exclusively to the between illegitimate ones should be enforced in life insurance policies since the same
proper interest of the person in whose name it is made" 1 cannot be validly seized are based on similar consideration As above pointed out, a beneficiary in a fife
upon to hold that the mm includes the beneficiary. The word "interest" highly suggests insurance policy is no different from a donee. Both are recipients of pure beneficence.
that the provision refers only to the "insured" and not to the beneficiary, since a So long as manage remains the threshold of family laws, reason and morality dictate
contract of insurance is personal in character. 2 Otherwise, the prohibitory laws that the impediments imposed upon married couple should likewise be imposed upon
against illicit relationships especially on property and descent will be rendered extra-marital relationship. If legitimate relationship is circumscribed by these legal
nugatory, as the same could easily be circumvented by modes of insurance. Rather, disabilities, with more reason should an illicit relationship be restricted by these
the general rules of civil law should be applied to resolve this void in the Insurance disabilities. Thus, in Matabuena v. Cervantes, 7 this Court, through Justice Fernando,
Law. Article 2011 of the New Civil Code states: "The contract of insurance is said:
governed by special laws. Matters not expressly provided for in such special laws
shall be regulated by this Code." When not otherwise specifically provided for by the If the policy of the law is, in the language of the opinion of the then Justice J.B.L.
Insurance Law, the contract of life insurance is governed by the general rules of the Reyes of that court (Court of Appeals), 'to prohibit donations in favor of the other
civil law regulating contracts. 3 And under Article 2012 of the same Code, "any person consort and his descendants because of and undue and improper pressure and
who is forbidden from receiving any donation under Article 739 cannot be named influence upon the donor, a prejudice deeply rooted in our ancient law;" por-que no se
beneficiary of a fife insurance policy by the person who cannot make a donation to enganen desponjandose el uno al otro por amor que han de consuno' (According to)
him. 4 Common-law spouses are, definitely, barred from receiving donations from the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore
each other. Article 739 of the new Civil Code provides: +.wph!1 invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem);
then there is very reason to apply the same prohibitive policy to persons living
The following donations shall be void: together as husband and wife without the benefit of nuptials. For it is not to be
doubted that assent to such irregular connection for thirty years bespeaks greater
1. Those made between persons who were guilty of adultery or concubinage at the influence of one party over the other, so that the danger that the law seeks to avoid is
time of donation; correspondingly increased. Moreover, as already pointed out by Ulpian (in his lib. 32
ad Sabinum, fr. 1), 'it would not be just that such donations should subsist, lest the
Those made between persons found guilty of the same criminal offense, in condition 6f those who incurred guilt should turn out to be better.' So long as marriage
consideration thereof; remains the cornerstone of our family law, reason and morality alike demand that the
disabilities attached to marriage should likewise attach to concubinage.
3. Those made to a public officer or his wife, descendants or ascendants by reason of
his office. It is hardly necessary to add that even in the absence of the above pronouncement,
any other conclusion cannot stand the test of scrutiny. It would be to indict the frame
In the case referred to in No. 1, the action for declaration of nullity may be brought by of the Civil Code for a failure to apply a laudable rule to a situation which in its
the spouse of the donor or donee; and the guilt of the donee may be proved by essentials cannot be distinguished. Moreover, if it is at all to be differentiated the
preponderance of evidence in the same action. policy of the law which embodies a deeply rooted notion of what is just and what is
right would be nullified if such irregular relationship instead of being visited with
2. In essence, a life insurance policy is no different from a civil donation insofar as the disabilities would be attended with benefits. Certainly a legal norm should not be
beneficiary is concerned. Both are founded upon the same consideration: liberality. A susceptible to such a reproach. If there is every any occasion where the principle of
beneficiary is like a donee, because from the premiums of the policy which the statutory construction that what is within the spirit of the law is as much a part of it as
insured pays out of liberality, the beneficiary will receive the proceeds or profits of what is written, this is it. Otherwise the basic purpose discernible in such codal
said insurance. As a consequence, the proscription in Article 739 of the new Civil provision would not be attained. Whatever omission may be apparent in an
Code should equally operate in life insurance contracts. The mandate of Article 2012 interpretation purely literal of the language used must be remedied by an adherence
cannot be laid aside: any person who cannot receive a donation cannot be named as to its avowed objective.
beneficiary in the life insurance policy of the person who cannot make the donation. 5
Under American law, a policy of life insurance is considered as a testament and in 4. We do not think that a conviction for adultery or concubinage is exacted before the
construing it, the courts will, so far as possible treat it as a will and determine the disabilities mentioned in Article 739 may effectuate. More specifically, with record to
effect of a clause designating the beneficiary by rules under which wins are the disability on "persons who were guilty of adultery or concubinage at the time of
interpreted. 6 the donation," Article 739 itself provides:

Policy considerations and dictates of morality rightly justify the institution of a barrier In the case referred to in No. 1, the action for declaration of nullity may be brought by

the spouse of the donor or donee; and the guilty of the donee may be proved by
preponderance of evidence in the same action.

The underscored clause neatly conveys that no criminal conviction for the offense is a
condition precedent. In fact, it cannot even be from the aforequoted provision that a
prosecution is needed. On the contrary, the law plainly states that the guilt of the party
may be proved "in the same acting for declaration of nullity of donation. And, it would
be sufficient if evidence preponderates upon the guilt of the consort for the offense
indicated. The quantum of proof in criminal cases is not demanded.

INSURABLE INTEREST 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
13. Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE does not make the mortgagee a party to the contract. 9
CORPORATION Sec. 8 of the Insurance Code provides:
It is, of course, basic in the law on contracts that the stipulations contained in a
contract cannot be contrary to law, morals, good customs, public order or public Unless the policy provides, where a mortgagor of property effects
policy.3 insurance in his own name providing that the loss shall be payable
Sec. 18 of the Insurance Code provides: to the mortgagee, or assigns a policy of insurance to a mortgagee,
Sec. 18. No contract or policy of insurance on property shall be enforceable the insurance is deemed to be upon the interest of the mortgagor,
except for the benefit of some person having an insurable interest in the property who does not cease to be a party to the original contract, and any
insured. act of his, prior to the loss, which would otherwise avoid the
A non-life insurance policy such as the fire insurance policy taken by insurance, will have the same effect, although the property is in the
petitioner-spouses over their merchandise is primarily a contract of indemnity. hands of the mortgagee, but any act which, under the contract of
Insurable interest in the property insured must exist at the time the insurance takes insurance, is to be performed by the mortgagor, may be performed
effect and at the time the loss occurs.4 The basis of such requirement of insurable by the mortgagee therein named, with the same effect as if it had
interest in property insured is based on sound public policy: to prevent a person from been performed by the mortgagor.
taking out an insurance policy on property upon which he has no insurable interest
and collecting the proceeds of said policy in case of loss of the property. In such a Thereafter, DBP collected the debt from the mortgagor and took the necessary action
case, the contract of insurance is a mere wager which is void under Section 25 of the of foreclosure on the residential lot of private respondent. 11 In Gonzales La O vs. Yek
Insurance Code, which provides: Tong Lin Fire & Marine Ins. Co. 12 we held:
Sec. 25. Every stipulation in a policy of Insurance for the payment of loss,
whether the person insured has or has not any interest in the property insured, or that Insured, being the person with whom the contract was made, is
the policy shall be received as proof of such interest, and every policy executed by primarily the proper person to bring suit thereon. * * * Subject to
way of gaming or wagering, is void. some exceptions, insured may thus sue, although the policy is
taken wholly or in part for the benefit of another person named or
Sec. 17. The measure of an insurable interest in property is the extent to unnamed, and although it is expressly made payable to another as
which the insured might be damnified by loss of injury thereof. his interest may appear or otherwise. * * * Although a policy issued
to a mortgagor is taken out for the benefit of the mortgagee and is
made payable to him, yet the mortgagor may sue thereon in his
own name, especially where the mortgagee's interest is less than
AND MEDARDA V. LEUTERIO the full amount recoverable under the policy, * * *.

To resolve the issue, we must consider the insurable interest in mortgaged properties And in volume 33, page 82, of the same work, we read the
and the parties to this type of contract. The rationale of a group insurance policy of following:
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 Insured may be regarded as the real party in interest, although he
unexpected demise of the mortgagor during the subsistence of the mortgage contract, has assigned the policy for the purpose of collection, or has
the proceeds from such insurance will be applied to the payment of the mortgage assigned as collateral security any judgment he may obtain. 13
debt, thereby relieving the heirs of the mortgagor from paying the obligation. 7 In a
similar vein, ample protection is given to the mortgagor under such a concept so that And since a policy of insurance upon life or health may pass by transfer, will or
in the event of death; the mortgage obligation will be extinguished by the application succession to any person, whether he has an insurable interest or not, and such
of the insurance proceeds to the mortgage indebtedness. 8 Consequently, where the person may recover it whatever the insured might have recovered, 14the widow of the
mortgagor pays the insurance premium under the group insurance policy, making the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.
loss payable to the mortgagee, the insurance is on the mortgagor's interest, and the

The question of whether there was concealment was aptly answered by the appellate It has also been held that the test of insurable interest in property is whether the
court, thus: assured has a right, title or interest therein that he will be benefited by its preservation
and continued existence or suffer a direct pecuniary loss from its destruction or injury
The insured, Dr. Leuterio, had answered in his insurance by the peril insured against. If the defendants were to be regarded as only a lessee,
application that he was in good health and that he had not logically the lessor who asserts ownership will be the one directly benefited or injured
consulted a doctor or any of the enumerated ailments, including and therefore the lessee is not supposed to be the assured as he has no insurable
hypertension; when he died the attending physician had certified in interest.
the death certificate that the former died of cerebral hemorrhage,
probably secondary to hypertension. From this report, the appellant 20. MA. LOURDES S. FLORENDO vs. PHILAM PLANS, INC., PERLA
insurance company refused to pay the insurance claim. Appellant ABCEDE and MA. CELESTE ABCEDE
alleged that the insured had concealed the fact that he had

Contrary to appellant's allegations, there was no sufficient proof Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely
that the insured had suffered from hypertension. Aside from the conditional and does not insure outright. As held by this Court, where an agreement is
statement of the insured's widow who was not even sure if the made between the applicant and the agent, no liability shall attach until the principal
medicines taken by Dr. Leuterio were for hypertension, the approves the risk and a receipt is given by the agent. The acceptance is merely
appellant had not proven nor produced any witness who could conditional and is subordinated to the act of the company in approving or rejecting the
attest to Dr. Leuterio's medical history . . . application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure
by itself (De Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264).
xxx xxx xxx
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of
insurance, like other contracts, must be assented to by both parties either in person or
Appellant insurance company had failed to establish that there was
by their agents ... The contract, to be binding from the date of the application, must
concealment made by the insured, hence, it cannot refuse payment
have been a completed contract, one that leaves nothing to be dione, nothing to be
of the claim. 17
completed, nothing to be passed upon, or determined, before it shall take effect.
There can be no contract of insurance unless the minds of the parties have met in
The fraudulent intent on the part of the insured must be established to entitle the agreement."
insurer to rescind the contract.18Misrepresentation as a defense of the insurer to
avoid liability is an affirmative defense and the duty to establish such defense by The contract of insurance is one of perfect good faith uberrima fides meaning good
satisfactory and convincing evidence rests upon the insurer. 19 In the case at bar, the faith, absolute and perfect candor or openness and honesty; the absence of any
petitioner failed to clearly and satisfactorily establish its defense, and is therefore concealment or demotion, however slight [Black's Law Dictionary, 2nd Edition], not for
liable to pay the proceeds of the insurance.1wphi1.nt the alone but equally so for the insurer (Field man's Insurance Co., Inc. vs. Vda de
Songco, 25 SCRA 70).
CORPORATION Concealment is a neglect to communicate that which a partY knows aDd Ought to
communicate (Section 25, Act No. 2427). Whether intentional or unintentional the
concealment entitles the insurer to rescind the contract of insurance (Section 26, Id.:
Another instance is when the alleged lessee was required to insure the thing against
Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine
loss, damage or destruction.
American Life Insurance Company, 7 SCRA 316).

In property insurance against loss or other accidental causes, the assured must have
an insurable interest, 32 Corpus Juris 1059.


22. IGNACIO SATURNINO, in his own behalf and as the JUDICIAL Section 48 regulates both the actions of the insurers and prospective takers of life
GUARDIAN OF CARLOS SATURNINO, minor vs. THE PHILIPPINE AMERICAN insurance. It gives insurers enough time to inquire whether the policy was obtained by
LIFE INSURANCE COMPANY fraud, concealment, or misrepresentation; on the other hand, it forewarns scheming
individuals that their attempts at insurance fraud would be timely uncovered - thus
The Insurance Law (Section 30) provides that "materiality is to be determined not by deterring them from venturing into such nefarious enterprise. At the same time,
the event, but solely by the probable and reasonable influence of the facts upon the legitimate policy holders are absolutely protected from unwarranted denial of their
party to whom the communication is due, in forming his estimate of the proposed claims or delay in the collection of insurance proceeds occasioned by allegations of
contract, or in making his inquiries." fraud, concealment, or misrepresentation by insurers, claims which may no longer be
set up after the two-year period expires as ordained under the law.
Moreover, if it were the law that an insurance company could not depend a policy on
the ground of misrepresentation, unless it could show actual knowledge on the part of Thus, the self-regulating feature of Section 48 lies in the fact that both the insurer and
the applicant that the statements were false, then it is plain that it would be impossible the insured are given the assurance that any dishonest scheme to obtain life
for it to protect itself and its honest policyholders against fraudulent and improper insurance would be exposed, and attempts at unduly denying a claim would be struck
claims. It would be wholly at the mercy of any one who wished to apply for insurance, down. Life insurance policies that pass the statutory two-year period are essentially
as it would be impossible to show actual fraud except in the extremest cases. It could treated as legitimate and beyond question, and the individuals who wield them are
not rely on an application as containing information on which it could act. There would made secure by the thought that they will be paid promptly upon claim. In this
be no incentive to an applicant to tell the truth. manner, Section 48 contributes to the stability of the insurance industry.

In this jurisdiction a concealment, whether intentional or unintentional, entitles the Section 48 prevents a situation where the insurer knowingly continues to accept
insurer to rescind the contract of insurance, concealment being defined as annual premium payments on life insurance, only to later on deny a claim on the
"negligence to communicate that which a party knows and ought to communicate" policy on specious claims of fraudulent concealment and misrepresentation, such as
(Sections 24 & 26, Act No. 2427). In the case of Argente v. West Coast Life Insurance what obtains in the instant case.
Co., 51 Phil. 725, 732, this Court said, quoting from Joyce, The Law of Insurance, 2nd
ed., Vol. 3: The Court therefore agrees fully with the appellate court's pronouncement that -
[t]he "incontestability clause" is a provision in law that after a policy of life insurance
"The basis of the rule vitiating the contract in cases of concealment is that it misleads made payable on the death of the insured shall have been in force during the lifetime
or deceives the insurer into accepting the risk, or accepting it at the rate of premium of the insured for a period of two (2) years from the date of its issue or of its last
agreed upon. The insurer, relying upon the belief that the assured will disclose every reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible
material fact within his actual or presumed knowledge, is misled into a belief that the by reason of fraudulent concealment or misrepresentation of the insured or his agent.
circumstance withheld does not exist, and he is thereby induced to estimate the risk
upon a false basis that it does not exist." The purpose of the law is to give protection to the insured or his beneficiary by limiting
the rescinding of the contract of insurance on the ground of fraudulent concealment or
MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner, misrepresentation to a period of only two (2) years from the issuance of the policy or
v. CRESENCIA P. ABAN,Respondent. its last reinstatement.

The ultimate aim of Section 48 of the Insurance Code is to compel insurers to solicit The insurer is deemed to have the necessary facilities to discover such fraudulent
business from or provide insurance coverage only to legitimate and bona fide clients, concealment or misrepresentation within a period of two (2) years. It is not fair for the
by requiring them to thoroughly investigate those they insure within two years from insurer to collect the premiums as long as the insured is still alive, only to raise the
effectivity of the policy and while the insured is still alive. If they do not, they will be issue of fraudulent concealment or misrepresentation when the insured dies in order
obligated to honor claims on the policies they issue, regardless of fraud, concealment to defeat the right of the beneficiary to recover under the policy.
or misrepresentation. The law assumes that they will do just that and not sit on their
laurels, indiscriminately soliciting and accepting insurance business from any Tom, At least two (2) years from the issuance of the policy or its last reinstatement, the
Dick and Harry. beneficiary is given the stability to recover under the policy when the insured dies.
The provision also makes clear when the two-year period should commence in case
Fraudulent intent on the part of the insured must be established to entitle the insurer the policy should lapse and is reinstated, that is, from the date of the last
to rescind the contract"27 In the absence of proof of such fraudulent intent, no right to reinstatement.
rescind arises.
After two years, the defenses of concealment or misrepresentation, no matter how

patent or well-founded, will no longer lie.

Indeed, the intent to defraud on the part of the insured must be ascertained to merit
Congress felt this was a sufficient answer to the various tactics employed by rescission of the insurance contract. Concealment as a defense for the insurer to
insurance companies to avoid liability. avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or insurer.25
The so-called "incontestability clause" precludes the insurer from raising the defenses
of false representations or concealment of material facts insofar as health and
previous diseases are concerned if the insurance has been in force for at least two
years during the insureds lifetime. The phrase "during the lifetime" found in Section
48 simply means that the policy is no longer considered in force after the insured has
died. The key phrase in the second paragraph of Section 48 is "for a period of two

Insurers may not be allowed to delay the payment of claims by filing frivolous cases in
court, hoping that the inevitable may be put off for years - or even decades by the
pendency of these unnecessary court cases. In the meantime, they benefit from
collecting the interest and/or returns on both the premiums previously paid by the
insured and the insurance proceeds which should otherwise go to their beneficiaries.
The business of insurance is a highly regulated commercial activity in the
country,29 and is imbued with public interest.30 "[A]n insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the [former's] interest."



In Manila Bankers Life Insurance Corporation v. Aban,22 the Court held that if the
insured dies within the two-year contestability period, the insurer is bound to make
good its obligation under the policy, regardless of the presence or lack of
concealment or misrepresentation. The Court held:
Section 48 serves a noble purpose, as it regulates the actions of both the insurer and
the insured. Under the provision, an insurer is given two years - from the effectivity of
a life insurance contract and while the insured is alive - to discover or prove that the
policy is void ab initio or is rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent. After the two-year period lapses, or
when the insured dies within the period, the insurer must make good on the
policy, even though the policy was obtained by fraud, concealment, or
misrepresentation. This is not to say that insurance fraud must be rewarded, but that
insurers who recklessly and indiscriminately solicit and obtain business must be
penalized, for such recklessness and lack of discrimination ultimately work to the
detriment of bona fide takers of insurance and the public in general. 23 (Emphasis

As discussed in Manila Bankers, the death of the insured within the two-year period
will render the right of the insurer to rescind the policy nugatory. As such, the
incontestability period will now set in.

Warranties Double insurance

23. Qua Chee Gan v. Law Union and Rock Insurance Co., Ltd., 24. Geagonia v. Court of Appeals 241 SCRA 152, 160 (1995)

Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not
1. INSURANCE; BREACH OF WARRANTY; WHEN INSURER BARRED FROM proscribed by law. Its incorporation in the policy is allowed by Section 75 of the
CLAIMING POLICIES VOID "AB INITIO." The insurer is barred by estoppel to Insurance Code 15 which provides that "[a] policy may declare that a violation of
claim violation of the so-called fire hydrant warranty where, knowing fully well that the specified provisions thereof shall avoid it, otherwise the breach of an immaterial
number of hydrants demanded in the warranty never existed from the very beginning, provision does not avoid the policy." Such a condition is a provision which invariably
it nevertheless issued the policies subject to such warranty, and received the appears in fire insurance policies and is intended to prevent an increase in the moral
corresponding premiums. hazard. It is commonly known as the additional or "other insurance" clause and has
been upheld as valid and as a warranty that no other insurance exists. Its violation
2. ID.; ID.; EVIDENCE; PAROL EVIDENCE RULE NOT APPLICABLE. The parol would thus avoid the
evidence rule is not applicable to the present case. It is not a question here whether policy. 16 However, in order to constitute a violation, the other insurance must be upon
or not the parties may vary a written contract by oral evidence; but whether testimony same subject matter, the same interest therein, and the same risk. 17
is receivable so that a party may be, by reason of inequitable contract shown,
estopped from enforcing forfeitures in its favor, in order to forestall fraud or imposition
on the insured. As to a mortgaged property, the mortgagor and the mortgagee have each an
independent insurable interest therein and both interests may be one policy, or each
3. ID.; AMBIGUITIES IN THE TERMS OF THE CONTRACT, HOW CONSTRUED. may take out a separate policy covering his interest, either at the same or at separate
The contract of insurance is one of perfect good faith (uberrimae fidei) not for the times. 18 The mortgagor's insurable interest covers the full value of the mortgaged
insured alone, but equally so for the insurer; in fact, it is more so for the latter, since property, even though the mortgage debt is equivalent to the full value of the
its dominant bargaining position carries with it stricter responsibility. By reason of the property.19 The mortgagee's insurable interest is to the extent of the debt, since the
exclusive control of the insurance company over the terms and phraseology of the property is relied upon as security thereof, and in insuring he is not insuring the
insurance contract, the ambiguity must be strictly interpreted against the insurer and property but his interest or lien thereon. His insurable interest is prima facie the value
liberally in favor of the insured, specially to avoid a forfeiture (44 C. J. S., pp. 1166- mortgaged and extends only to the amount of the debt, not exceeding the value of the
1175; 29 Am. Jur. 180). mortgaged property. 20 Thus, separate insurances covering different insurable
interests may be obtained by the mortgagor and the mortgagee.

4. ID.; ID.; WARRANTY AGAINST STORAGE OF GASOLINE. In the present case, A mortgagor may, however, take out insurance for the benefit of the mortgagee,
gasoline is not specifically mentioned among the prohibited articles listed in the so- which is the usual practice. The mortgagee may be made the beneficial payee in
called "hemp warranty." The clause relied upon by the insurer speaks of "oils" and is several ways. He may become the assignee of the policy with the consent of the
decidedly ambiguous and uncertain; for in ordinary parlance, "oils" mean "lubricants" insurer; or the mere pledgee without such consent; or the original policy may contain
and not gasoline or kerosene. Besides, the gasoline kept by the insured was only a mortgage clause; or a rider making the policy payable to the mortgagee "as his
incidental to his business, being no more than a customary 2 days supply for the five interest may appear" may be attached; or a "standard mortgage clause," containing a
or six motor vehicles used for transporting of the stored merchandise, and it is well collateral independent contract between the mortgagee and insurer, may be attached;
settled rule that the keeping of inflammable oils on the premises, through prohibited or the policy, though by its terms payable absolutely to the mortgagor, may have been
by the policy, does not void it if such keeping is incidental to the business. (Bachrach procured by a mortgagor under a contract duty to insure for the mortgagee's benefit,
v. British American Ass. Co., 17 Phil. 555, 660.) in which case the mortgagee acquires an equitable lien upon the proceeds. 21

In the policy obtained by the mortgagor with loss payable clause in favor of the
5. ID.; FALSE CLAIMS THAT AVOIDS THE POLICY. The rule is that to avoid a mortgagee as his interest may appear, the mortgagee is only a beneficiary under the
policy, the claim filed by the insured must contain false and fraudulent statements with contract, and recognized as such by the insurer but not made a party to the contract
intent to defraud the insurer. himself. Hence, any act of the mortgagor which defeats his right will also defeat the
right of the mortgagee. 22 This kind of policy covers only such interest as the
mortgagee has at the issuing of the policy.23

On the other hand, a mortgagee may also procure a policy as a contracting party in
accordance with the terms of an agreement by which the mortgagor is to pay the
premiums upon such insurance. 24 It has been noted, however, that although the
mortgagee is himself the insured, as where he applies for a policy, fully informs the
authorized agent of his interest, pays the premiums, and obtains on the assurance
that it insures him, the policy is in fact in the form used to insure a mortgagor with loss
payable clause. 25

It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted

liberally in favor of the insured and strictly against the company, the reason being,
undoubtedly, to afford the greatest protection which the insured was endeavoring to
secure when he applied for insurance. It is also a cardinal principle of law that
forfeitures are not favored and that any construction which would result in the
forfeiture of the policy benefits for the person claiming thereunder, will be avoided, if it
is possible to construe the policy in a manner which would permit recovery, as, for
example, by finding a waiver for such forfeiture. 29 Stated differently, provisions,
conditions or exceptions in policies which tend to work a forfeiture of insurance
policies should be construed most strictly against those for whose benefits they are
inserted, and most favorably toward those against whom they are intended to
operate. 30 The reason for this is that, except for riders which may later be inserted,
the insured sees the contract already in its final form and has had no voice in the
selection or arrangement of the words employed therein. On the other hand, the
language of the contract was carefully chosen and deliberated upon by experts and
legal advisers who had acted exclusively in the interest of the insurers and the
technical language employed therein is rarely understood by ordinary laymen. 31

A double insurance exists where the same person is insured by several insurers
separately in respect of the same subject and interest. As earlier stated, the insurable
interests of a mortgagor and a mortgagee on the mortgaged property are distinct and

Premiums Apparently the crux of the controversy lies in the phrase "unless and until the
premium thereof has been paid." This leads us to the manner of payment envisioned
27. Arce v. Capital Insurance & Surety Co., Inc., 117 SCRA 63 (1982) by the law to make the insurance policy operative and binding. For whatever judicial
construction may be accorded the disputed phrase must ultimately yield to the clear
Upon the other hand, Sec. 72 of the Insurance Act, as amended by R.A. No. 3540 mandate of the law. The principle that where the law does not distinguish the court
reads: should neither distinguish assumes that the legislature made no qualification on the
use of a general word or expression.
SEC. 72. An insurer is entitled to payment of premium as soon as
the thing insured is exposed to the perils insured against, unless By express agreement of the parties, no vinculum juris or bond of law was to be
there is clear agreement to grant credit extension for the premium established until full payment was effected prior to the occurrence of the risk insured
due. No policy issued by an insurance company is valid and binding against.
unless and until the premium thereof has been paid " (Italics
supplied.) (p. 11, Appellant's Brief.) Conformably with the aforesaid stipulations explicitly worded and taken in conjunction
with Sec. 77 of the Insurance Code the payment of partial premium by the assured in
It is obvious from both the Insurance Act, as amended, and the stipulation of the this particular instance should not be considered the payment required by the law and
parties that time is of the essence in respect of the payment of the insurance premium the stipulation of the parties. Rather, it must be taken in the concept of a deposit to be
so that if it is not paid the contract does not take effect unless there is still another held in trust by the insurer until such time that the full amount has been tendered and
stipulation to the contrary. duly receipted for. In other words, as expressly agreed upon in the contract, full
payment must be made before the risk occurs for the policy to be considered effective
30. Sps. Antonio A. Tibay , vs. Court of Appeals ,, G.R. No. and in force.
119655. May 24, 1996
Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured
May a fire insurance policy be valid, binding and enforceable upon mere partial according to law ever resulted from the fractional payment of premium. The insurance
payment of premium? contract itself expressly provided that the policy would be effective only when the
premium was paid in full. It would have been altogether different were it not so
Insurance is a contract whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent
event.4 The consideration is the premium, which must be paid at the time and in the Verily, it is elemental law that the payment of premium is requisite to keep the policy
way and manner specified in the policy, and if not so paid, the policy will lapse and be of insurance in force. If the premium is not paid in the manner prescribed in the policy
forfeited by its own terms.5 as intended by the parties the policy is ineffective. Partial payment even when
accepted as a partial payment will not keep the policy alive even for such fractional
part of the year as the part payment bears to the whole
Clearly the Policy provides for payment of premium in full. Accordingly, where the payment.12
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. This is fully supported by Sec. 77 of the Insurance Interpreting the contract of insurance stringently against the insurer but liberally in
Code which provides favor of the insured despite clearly defined obligations of the parties to the policy can
be carried out to extremes that there is the danger that we may, so to speak, "kill the
goose that lays the golden egg." We are well aware of insurance companies falling
Sec. 77. An insurer is entitled to payment of the premium as soon into the despicable habit of collecting premiums promptly yet resorting to all kinds of
as the thing insured is exposed to the peril insured excuses to deny or delay payment of just insurance claims. But, in this case, the law
against. Notwithstanding any agreement to the contrary, no policy is manifestly on the side of the insurer. For as long as the current Insurance Code
or contract of insurance issued by an insurance company is valid remains unchanged and partial payment of premiums is not mentioned at all as
and binding unless and until the premium thereof has been paid, among the exceptions provided in Sees. 77 and 78, no policy of insurance can ever
except in the case of a life or an industrial life policy whenever the pretend to be efficacious or effective until premium has been fully paid.
grace period provision applies (emphasis supplied).

And so it must be. For it cannot be disputed that premium is the elixir vitae of the premiums, although paid on installments, and later deny liability on the lame
insurance business because by law the insurer must maintain a legal reserve fund to excuse that the premiums were not prepaid in full.
meet its contingent obligations to the public, hence, the imperative need for its prompt
payment and full satisfaction. 16 It must be emphasized here that all actuarial Not only that. In Tuscany, we also quoted with approval the following pronouncement
calculations and various tabulations of probabilities of losses under the risks insured of the Court of Appeals in its Resolution denying the motion for reconsideration of its
against are based on the sound hypothesis of prompt payment of premiums. Upon decision:
this bedrock insurance firms are enabled to offer the assurance of security to the
public at favorable rates.
While the import of Section 77 is that prepayment of premiums is strictly
required as a condition to the validity of the contract, We are not prepared to
31. UCPB Gen. Insurance Co. Inc. vs. Masagana Telamart, Inc. G.R. No. rule that the request to make installment payments duly approved by the
137172. April 4, 2001 insurer would prevent the entire contract of insurance from going into effect
despite payment and acceptance of the initial premium or first installment.
Section 77 of the Insurance Code of 1978 provides: Section 78 of the Insurance Code in effect allows waiver by the insurer of the
condition of prepayment by making an acknowledgment in the insurance
SECTION 77. An insurer is entitled to payment of the premium as soon as policy of receipt of premium as conclusive evidence of payment so far as to
the thing insured is exposed to the peril insured against. Notwithstanding any make the policy binding despite the fact that premium is actually unpaid.
agreement to the contrary, no policy or contract of insurance issued by an Section 77 merely precludes the parties from stipulating that the policy is
insurance company is valid and binding unless and until the premium thereof valid even if premiums are not paid, but does not expressly prohibit an
has been paid, except in the case of a life or an industrial life policy agreement granting credit extension, and such an agreement is not contrary
whenever the grace period provision applies. to morals, good customs, public order or public policy (De Leon, The
Insurance Code, p. 175). So is an understanding to allow insured to pay
premiums in installments not so prescribed. At the very least, both parties
The first exception is provided by Section 77 itself, and that is, in case of a life or should be deemed in estoppel to question the arrangement they have
industrial life policy whenever the grace period provision applies. voluntarily accepted.

The second is that covered by Section 78 of the Insurance Code, which provides: By the approval of the aforequoted findings and conclusion of the Court of
Appeals, Tuscany has provided a fourth exception to Section 77, namely, that the
SECTION 78. Any acknowledgment in a policy or contract of insurance of insurer may grant credit extension for the payment of the premium. This simply
the receipt of premium is conclusive evidence of its payment, so far as to means that if the insurer has granted the insured a credit term for the payment of the
make the policy binding, notwithstanding any stipulation therein that it shall premium and loss occurs before the expiration of the term, recovery on the policy
not be binding until premium is actually paid. should be allowed even though the premium is paid after the loss but within the credit
A third exception was laid down in Makati Tuscany Condominium Corporation vs.
Court of Appeals, 5 wherein we ruled that Section 77 may not apply if the parties have Moreover, there is nothing in Section 77 which prohibits the parties in an insurance
agreed to the payment in installments of the premium and partial payment has been contract to provide a credit term within which to pay the premiums. That agreement is
made at the time of loss. We said therein, thus: not against the law, morals, good customs, public order or public policy. The
agreement binds the parties.
We hold that the subject policies are valid even if the premiums were paid on
installments. The records clearly show that the petitioners and private
respondent intended subject insurance policies to be binding and effective
notwithstanding the staggered payment of the premiums. The initial
insurance contract entered into in 1982 was renewed in 1983, then in 1984.
In those three years, the insurer accepted all the installment payments. Such
acceptance of payments speaks loudly of the insurer's intention to honor the
policies it issued to petitioner. Certainly, basic principles of equity and
fairness would not allow the insurer to continue collecting and accepting the

REINSTATEMENT Art. 587. The ship agent shall also be civilly liable for the
indemnities in favor of third persons which may arise from the
36. Violeta R. Lalican vs. The Insular Life Assurance Co. Ltd, G.R. No. conduct of the captain in the care of the goods which he loaded on
183526 August 25, 2009 the vessel; but he may exempt himself therefrom by abandoning
the vessel with all her equipment and the freight it may have earned
An insurable interest is one of the most basic and essential requirements in an during the voyage.
insurance contract. In general, an insurable interest is that interest which a person is
deemed to have in the subject matter insured, where he has a relation or connection Art. 590. The co-owners of the vessel shall be civilly liable in the
with or concern in it, such that the person will derive pecuniary benefit or advantage proportion of their interests in the common fund for the results of
from the preservation of the subject matter insured and will suffer pecuniary loss or the acts of the captain referred to in Art. 587.
damage from its destruction, termination, or injury by the happening of the event
insured against.[35] The existence of an insurable interest gives a person the legal Each co-owner may exempt himself from this liability by the
right to insure the subject matter of the policy of insurance. [36] Section 10 of the abandonment, before a notary, of the part of the vessel belonging
Insurance Code indeed provides that every person has an insurable interest in his to him.
own life.[37] Section 19 of the same code also states that an interest in the life or
health of a person insured must exist when the insurance takes effect, but need not Art. 837. The civil liability incurred by shipowners in the case
exist thereafter or when the loss occurs.[38] prescribed in this section, shall be understood as limited to the
value of the vessel with all its appurtenances and freightage served
during the voyage.
Relevant herein is the following pronouncement of the Court in Andres v. The Crown
Life Insurance Company,[42] citing McGuire v. The Manufacturer's Life Insurance
Co.[43]: These articles precisely intend to limit the liability of the shipowner or agent
to the value of the vessel, its appurtenances and freightage earned in the voyage,
The stipulation in a life insurance policy giving the insured provided that the owner or agent abandons the vessel. [35] When the vessel is totally
the privilege to reinstate it upon written application does not give lost in which case there is no vessel to abandon, abandonment is not required.
the insured absolute right to such reinstatement by the mere filing Because of such total loss the liability of the shipowner or agent for damages is
of an application. The insurer has the right to deny the extinguished.[36] However, despite the total loss of the vessel, its insurance answers
reinstatement if it is not satisfied as to the insurability of the for the damages for which a shipowneror agent may be held liable.[37]
insured and if the latter does not pay all overdue premium and all
other indebtedness to the insurer. After the death of the insured Nonetheless, there are exceptional circumstances wherein the ship agent
the insurance Company cannot be compelled to entertain an could still be held answerable despite the abandonment of the vessel, as where the
application for reinstatement of the policy because the conditions loss or injury was due to the fault of the shipowner and the captain. The international
precedent to reinstatement can no longer be determined and rule is to the effect that the right of abandonment of vessels, as a legal limitation of
satisfied. (Emphases ours.) a shipowners liability, does not apply to cases where the injury or average was
occasioned by the shipowners own fault.[38] Likewise, the shipowner may be held
liable for injuries to passengers notwithstanding the exclusively real
MARINE INSURANCE and hypothecary nature of maritime law if fault can be attributed to the shipowner.[39]


The instant petitions provide another occasion for the Court to reiterate the
The ruling in the 1993 GAFLAC case cited the real and hypothecary doctrine well-settled doctrine of the real and hypothecary nature of maritime law. As a general
in maritime law that the shipowner or agents liability is merely co-extensive with his rule, a ship owners liability is merely co-extensive with his interest in the vessel,
interest in the vessel such that a total loss thereof results in its extinction. No vessel, except where actual fault
no liability expresses in a nutshell the limited liability rule. [34] is attributable to the shipowner. Thus, as an exception to the limited liability doctrine,
a shipowner or ship agent may be held liable for damages when the sinking of the
In this jurisdiction, the limited liability rule is embodied in Articles 587, 590 vessel is attributable to the actual fault or negligence of the shipowner or its failure to
and 837 under Book III of the Code of Commerce, thus: ensure the seaworthiness of the vessel.


We consider whether an insurer, in an action for recoupment instituted in its capacity by the BUREAU OF CUSTOMS
as the subrogee of the insured, may be conferred favorable relief even if it failed to
introduce in evidence the insurance contract or policy, or even allege the existence
nay recite the substance and attach a copy of such document in the complaint. The Nature of the Suretys Obligations
answer is as self-evident as meets the eye.

the Marine Insurance Policy was constitutive of the insurer-insured relationship from Section 175 of the Insurance Code defines a contract of suretyship as an agreement
which Malayan draws its right to subrogation. 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 another party called
What the Marine Risk Note bears, as a matter of evidence, is that it is not apparently the obligee, and includes among its various species bonds such as those issued
the contract of insurance by itself, but merely a complementary or supplementary pursuant to Section 1904 of the Code.9 Significantly, "pertinent provisions of the Civil
document to the contract of insurance that may have existed. Code of the Philippines shall be applied in a suppletory character whenever
necessary in interpreting the provisions of a contract of suretyship."10By its very
FIRE INSURANCE nature under the terms of the laws regulating suretyship, the liability of the surety is
joint and several but limited to the amount of the bond, and its terms are determined
48. MALAYAN INSURANCE COMPANY, INC. vs. PAP CO., LTD. (PHIL. BRANCH) strictly by the terms of the contract of suretyship in relation to the principal contract
between the obligor and the obligee.11
Section 26 of the Insurance Code provides:
The definition and characteristics of a suretyship bring into focus the fact that a surety
Section 26. A neglect to communicate that which a party knows and ought to agreement is an accessory contract that introduces a third party element in the
communicate, is called a concealment. fulfillment of the principal obligation that an obligor owes an obligee. In short, there
are effectively two (2) contracts involved when a surety agreement comes into play
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to a principal contract and an accessory contract of suretyship. Under the accessory
rescind a contract of insurance." contract, the surety becomes directly, primarily, and equally bound with the principal
Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind as the original promissor although he possesses no direct or personal interest over
the insurance contract in case of an alteration in the use or condition of the thing the latters obligations and does not receive any benefit therefrom. 12
The contract of surety simply gives rise to an obligation on the part of the surety in
Section 168 of the Insurance Code provides, as follows: relation with the creditor and is a one-way relationship for the benefit of the latter.19
Section 68. An alteration in the use or condition of a thing insured from that to which it
is limited by the policy made without the consent of the insurer, by means within the
control of the insured, and increasing the risks, entitles an insurer to rescind a In other words, the surety does not, by reason of the surety agreement, earn the right
contract of fire insurance. 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
Accordingly, an insurer can exercise its right to rescind an insurance contract when payment as a solidary obligor. A surety contract is made principally for the benefit of
the following conditions are present, to wit: the creditor-obligee and this is ensured by the solidary nature of the sureties
undertaking.20 Under these terms, the surety is not entitled as a rule to a separate
1) the policy limits the use or condition of the thing insured; notice of default,21 nor to the benefit of excussion,22 and may be sued separately or
2) there is an alteration in said use or condition; together with the principal debtor.23 The words of this Court in Palmares v. CA24 are
3) the alteration is without the consent of the insurer; worth noting:
4) the alteration is made by means within the insureds control; and
5) the alteration increases the risk of loss.20 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 THEFT CLAUSE
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 57. PARAMOUNT INSURANCE CORPORATION vs. SPOUSES YVES and MARIA

LIFE INSURANCE In People v. Bustinera,8 this Court had the occasion to interpret the "theft clause" of
an insurance policy. In this case, the Court explained that when one takes the motor
55. GREPA LIFE vs. CA vehicle of another without the latters consent even if the motor vehicle is later
returned, there is theft there being intent to gain as the use of the thing unlawfully
xxx supra (15) and (18) xxx taken constitutes gain.

Also, in Malayan Insurance Co., Inc. v. Court of Appeals,9 this Court held that the
ON MOTOR VEHICLE INSURANCE taking of a vehicle by another person without the permission or authority from the
owner thereof is sufficient to place it within the ambit of the word theft as
56. PERLA COMPANIA DE SEGUROS, INC. vs. CA contemplated in the policy, and is therefore, compensable.

Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the The Court therein clarified the distinction between the crime of Estafa and Theft, to
owner's consent or knowledge, such taking constitutes theft, and, therefore, it is the wit:
"THEFT"' clause, and not the "AUTHORIZED DRIVER" clause that should apply. As
correctly stated by the respondent court in its decision: x x x The principal distinction between the two crimes is that in theft the thing is taken
while in estafa the accused receives the property and converts it to his own use or
. . . Theft is an entirely different legal concept from that of accident. Theft is committed benefit. However, there may be theft even if the accused has possession of the
by a person with the intent to gain or, to put it in another way, with the concurrence of property. If he was entrusted only with the material or physical (natural) or de facto
the doer's will. On the other hand, accident, although it may proceed or result from possession of the thing, his misappropriation of the same constitutes theft, but if he
negligence, is the happening of an event without the concurrence of the will of the has the juridical possession of the thing his conversion of the same constitutes
person by whose agency it was caused. (Bouvier's Law Dictionary, Vol. I, 1914 ed., p. embezzlement or estafa.11
Clearly, the risk against accident is distinct from the risk against theft. The "authorized
driver clause" in a typical insurance policy is in contemplation or anticipation of Theft perpetrated by a driver of the insured is not an exception to the coverage from
accident in the legal sense in which it should be understood, and not in contemplation the insurance policy subject of this case. This is evident from the very provision of
or anticipation of an event such as theft. The distinction often seized upon by Section III "Loss or Damage." The insurance company, subject to the limits of
insurance companies in resisting claims from their assureds between death liability, is obligated to indemnify the insured against theft. Said provision does not
occurring as a result of accident and death occurring as a result of intent may, by qualify as to who would commit the theft.
analogy, apply to the case at bar. Thus, if the insured vehicle had figured in an
accident at the time she drove it with an expired license, then, appellee Perla Moreover, contracts of insurance, like other contracts, are to be construed according
Compania could properly resist appellants' claim for indemnification for the loss or to the sense and meaning of the terms which the parties themselves have used. If
destruction of the vehicle resulting from the accident. But in the present case. The such terms are clear and unambiguous, they must be taken and understood in their
loss of the insured vehicle did not result from an accident where intent was involved; plain, ordinary and popular sense.8 Accordingly, in interpreting the exclusions in an
the loss in the present case was caused by theft, the commission of which was insurance contract, the terms used specifying the excluded classes therein are to be
attended by intent. 15 given their meaning as understood in common speech.9

Adverse to petitioners claim, the words "loss" and "damage" mean different things in
common ordinary usage. The word "loss" refers to the act or fact of losing, or failure
to keep possession, while the word "damage" means deterioration or injury to