INSURANCE CASE DIGEST

A. CONSTRUCTION OF INSURANCE CONTRACT

Calanoc vs. Court of Appeals, 98 Phil. 79 [1955]

Facts:

• Melencio Basilio was a watchman of the Manila Auto Supply located at the corner of Avenida
Rizal and Zurbaran. He secured a life insurance policy from the Philippine American Life Insurance
Company in the amount of P2,000 to which was attached a supplementary contract covering death by
accident.

• On January 25, 1951, he died of a gunshot wound on the occasion of a robbery committed in the
house of Atty. Ojeda at the corner of Oroquieta and Zurbaran streets. Calanoc, the widow, was paid the
sum of P2,000, face value of the policy, but when she demanded the payment of the additional sum of
P2,000 representing the value of the supplemental policy,

• the company refused alleging, as main defense, that the deceased died because he was
murdered by a person who took part in the commission of the robbery and while making an arrest as an
officer of the law which contingencies were expressly excluded in the contract and have the effect of
exempting the company from liability.

• It is contended in behalf of the company that Basilio was killed which "making an arrest as an
officer of the law" or as a result of an "assault or murder" committed in the place and therefore his
death was caused by one of the risks excluded by the supplementary contract which exempts the
company from liability. This contention was upheld by the Court of Appeals that said Basilio’s killing was
not an accident, but rather an intentional act on the part of the robber.

Issue: Whether or not, the death of the victim comes within the purview of the exception clause of the
supplementary policy and, hence, exempts the company from liability?

Ruling: NO.

While as a general rule "the parties may limit the coverage of the policy to certain particular accidents
and risks or causes of less, and may expressly except other risks or causes of loss therefrom" , however,
it is to be desired that the terms and phraseology of the exception clause be clearly expressed so as to
be within the easy grasp and understanding of the insured, for if the terms are doubtful or obscure the
same must of necessity be interpreted or resolved against the one who has caused the obscurity. And so
it has been generally held that the "terms in an insurance policy, which are ambiguous, equivocal, or
uncertain are to be construed strictly and most strongly against the insurer, and liberally in favor of the
insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a
forfeited is involved" and the reason for this rule is that the "insured usually has no voice in the selection
or arrangement of the words employed and that the language of the contract is selected with great care
and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the
insurance company."

The Supreme Court ruled that there was no proof that it was intentional, that the robber had aimed for
Basilio, because there was nothing on record that showed how the fatal shot was fired while it was an
accident on the part of Basilio. The house being robbed was not the one he was guarding, and he had
earlier refused to go to the house without a policeman. Thus, Insurer ordered to pay.

Biagtan vs Insular Life Assurance Co., Ltd., 44 SCRA 58

Facts:

• Juan S. Biagtan was insured with defendant Insular Life Assurance Company under Policy No.
398075 for the sum of P5,000.00 and, under a supplementary contract denominated "Accidental Death
Benefit Clause, for an additional sum of P5,000.00 if "the death of the Insured resulted directly from
bodily injury effected solely through external and violent means sustained in an accident and
independently of all other causes." The clause, however, expressly provided that it would not apply
where death resulted from an injury "intentionally inflicted by another party."

• On the night of May 20, 1964, or during the first hours of the following day a band of robbers
entered the house of the insured Juan S. Biagtan.

Biagtan was killed as his house was being robbed.

• The insurance company paid the basic amount of P5,000 but refused to pay the additional
P5,000 under the accidental death benefit clause, on the ground that his death was the result of injuries
intentionally inflicted by third parties and was not covered. The trial court ruled that there was no proof
that the robbers intended to kill Biagtan, or just to scare him away by thrusting at him with their knives.

Issue: Whether or not, the wounds received by the insured at the hands of the robbers were inflicted
intentionally?
Ruling: YES.

Unlike the ruling in the case of Calanoc vs. Court of Appeals, where the killing of the victim was held as
accidental and thus covered by the insurance policy, the Supreme Court held that in the instant case,
the insured was killed intentionally. The term “intentional” implies the exercise of the reasoning
faculties, consciousness and volition.

The Supreme Court held pointing out that there were nine wounds in all. The exception in the accidental
benefit clause does not speak of the purpose – whether homicidal or not – of a third party in causing the
injuries, but only of the fact that such injuries have been intentionally inflicted. Nine wounds inflicted
with bladed weapons at close range cannot be considered innocent insofar as intent is concerned. The
manner of execution of the crime permits no other conclusion.

Where a provision of the policy excludes intentional injury, it is the intention of the person inflicting the
injury that is controlling. If the injuries suffered by the insured clearly resulted from the intentional act
of a third party the insurer is relieved from liability.

Under the circumstance, the insurance company was correct in refusing to pay the additional sum of
P2,000.00 under the accidental death benefit clause which expressly provided that it would not apply
where death resulted from an injury "intentionally" inflicted by a third party.

FINMAN GENERAL ASSURANCE CORPORATION vs.THE HONORABLE COURTOF APPEALS

213 SCRA 493, September 2, 1992NOCON, J.:

FACTS:

• On October 22, 1986, deceased, Carlie Surposa was insured with petitioner FinmanGeneral
Assurance Corporation with his parents, spouses Julia and Carlos Surposa, and brothers Christopher,
Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries. While said insurance policy was in
full force and effect, the insured, Carlie Surposa, died on October 18,1988 as a result of a stab wound
inflicted by one of the three (3) unidentified men.

• Private respondent and the other beneficiaries of said insurance policy filed a written notice of
claim with the petitioner insurance company which denied said claim contending that murder and
assault are not within the scope of the coverage of the insurance policy. Private respondent filed a
complaint with the Insurance Commission which rendered a favorable response for the respondent.

• The appellate court ruled likewise. Petitioner filed this petition alleging grave abuse of discretion
on the part of the appellate court in applying the principle of "expresso unius exclusio alterius" in a
personal accident insurance policy, since death resulting from murder and/or assault are impliedly
excluded in said insurance policy considering that the cause of death of the insured was not accidental
but rather a deliberate and intentional act of the assailant. Therefore, said death was committed with
deliberate intent which, by the very nature of a personal accident insurance policy, cannot be
indemnified.

ISSUE:

Whether or not the insurer is liable to pay the beneficiary considering the personal accident clause?

RULING:

Yes, the insurer is still liable. Contracts of insurance are to be construed liberally in favor of the insured
and strictly against the insurer. Thus ambiguity in the words of an insurance contract should be
interpreted in favor of its beneficiary. The terms "accident" and "accidental" as used in insurance
contracts have not acquired any technical meaning, and are construed by the courts in their ordinary
and common acceptation. Thus, the terms have been taken to mean that which happen by chance or
fortuitously, without intention and design, and which is unexpected, unusual, and unforeseen. Where
the death or injury is not the natural or probable result of the insured's 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 policies insuring against death or injury from accident. In the case at bar, it cannot be
pretended that Carlie Surposa died in the course of an assault or murder as a result of his voluntary act
considering the very nature of these crimes.

ZENITH INSURANCE CORP. vs. COURT OF APPEALS, ET AL. G.R. No. 85296 May 14, 1990. AN INSURANCE
LAW CASE. BY C Y.

FACTS.

• Private respondent Fernandez insured his car with the ZENITH INSURANCE COMPANY.

• The car was disfigured in an accidents,

• Private respondent try to recover the amount of the insurance policy with the petitioner but the
latter they cannot agree on how much the petitioner will pay to the private respondent.

• Private respondent file a complaint against the petitioner before the trial court of Cebu who
order the petitioner to pay the private respondent the amount of 20000 as moral damages, 10000 as
exemplary and 5000 as an attorney.

• Petitioner appealed to the CA who affirm the decision of the trial court.
• Petitioner filed a petition for review to the Supreme Court claiming that the CA acted in excess
of its jurisdiction when it affirmed the decision of the trial court on the ground that while private
respondent ask for moral damages of Php10000 only, he was awarded with Php20,000, exemplary
damages of 5,000 and he was awarded 1,0000, an attorney’s fee of 3,000 but he was given 5,000.

ISSUE.

Wheter or not the CA erred in its decision affirming the payment of insurance claim plus
moral damage, exemplary damage and attorneys fee?

RULING:

According to the Supreme Court, the act of petitioner of delaying payment for two months cannot be
considered as so wanton or malevolent to

justify an award of P20,000.00 as moral damages, taking into consideration the fact that the actual
damage on the car was only P3,460.

The reason for petitioner's failure to indemnify private respondent within the two-month period was
that the parties could not come to an agreement as regards the amount of the actual damage on the
car. Only the amount of P10,000.00 prayed for by private respondent as moral damages plus attorneys
fee is equitable.

SUN INSURANCE OFFICE, LTD., petitioner, vs. THE HON. COURT OF APPEALS and NERISSA LIM,
respondents.

Facts of the case:

• The sun insurance issued Personal Accident Policy to Felix Lim, Jr. with a face value of
P200,000.00. Two months later, the deceased died with a bullet wound in his head. As beneficiary, his
wife Nerissa Lim sought payment on the policy but her claim was rejected. Both parties petitioner
agreed that there was no suicide.

• However the insurance co. stated that there was no accident either. Pilar Nalagon, Lim's
secretary, was the only eyewitness to his death. She testified that on October 6, 1982, at about 10
o'clock in the evening, after his mother's birthday party
• According to Nalagon, Lim was in a happy mood (but not drunk) and was playing with his
handgun, from which he had previously removed the magazine. As she watched television, he stood in
front of her and pointed the gun at her. She pushed it aside and said it might he loaded.

• He assured her it was not and then pointed it to his temple. The next moment there was an
explosion and Lim slumped to the floor. He was dead before he fell.

• The nerissa lim sued the insurance co., in the RTC of Zamboanga City and was sustained.

• The petitioner was sentenced to pay her P200,000.00, representing the face value of the policy,
with interest at the legal rate; This decision was affirmed on appeal, and the motion for reconsideration
was denied.

• 3 hence the present petition by sun insurance to fault the Court of Appeals for approving the
payment of the claim and the award of damages.

ISSUE: WON there was an accident that occurred which entitles the widow of the deceased to recover
from the insurance policy? And WON the petitioner acted in bad faith for resisting a lawful and just
claim.

SC DECISION:

An accident is an event which happens without any human agency or, if happening through human
agency, an event which, under the circumstances, is unusual to and not expected by the person to
whom it happens. It has also been defined as an injury which happens by reason of some violence or
casualty to the injured without his design, consent, or voluntary co-operation.

5, the Court is convinced that there was truly an accident that which resulted in lim’s death Lim was
unquestionably negligent and that negligence cost him his own life. But it should not prevent his widow
from recovering from the insurance policy he obtained precisely against accident. There is nothing in the
policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is
shown to have contributed to his own accident. Indeed, most accidents are caused by negligence.

There are only four exceptions expressly made in the contract to relieve the insurer from liability, and
none of these exceptions is applicable in the case at bar. **

1 On the second issue, petitioner is not guilty of bad faith in resisting a legitimate obligation, believing,
on the ground that the death of the insured was covered by the exception the issue, as for the court,
was highly debatable.

Petition is DENIED
JEWEL VILLACORTA vs. THE INSURANCE COMMISSION

G.R. No. L-54171, 28 October 1980 100 SCRA 467

FACTS:

• Villacorta had her Colt Lancer car insured with Empire Insurance Company against own damage,
theft and 3rd party liability. While the car was in the repair shop, one of the employees of the said repair
shop took it out for a joyride after which it figured in a vehicular accident. This resulted to the death of
the driver and some of the passengers as well as to extensive damage to the car.

• Villacorta filed a claim for total loss with the said insurance company. However, it denied the
claim on the ground that the accident did not fall within the provisions of the policy either for the Own
Damage or Theft coverage, invoking the policy provision on “Authorized Driver Clause”.

• This was upheld by the Insurance Commission further stating that the car was not stolen and
therefore not covered by the Theft Clause because it is not evident that the person who took the car for
a joyride intends to permanently deprive the insured of his/ her car.

ISSUE:

Whether or not the insurer company should pay the said claim, CONSIDERING THE DRIVER IN QUESTION
WAS NOT AUTHORIZED BY THE INSURED OWNER

HELD:

Yes. Where the insured’s car is wrongfully taken without the insured’s consent from the car service and
repair shop to whom it had been entrusted for check-up and repairs (assuming that such taking was for
a joy ride, in the course of which it was totally smashed in an accident), respondent insurer is liable and
must pay insured for the total loss of the insured vehicle under the Theft Clause of the policy. Assuming,
despite the totally inadequate evidence, that the taking was “temporary” and for a “joy ride”, the Court
sustains as the better view that which holds that when a person, either

with the object of going to a certain place, or learning how to drive, or enjoying a free ride, takes
possession of a vehicle belonging to another, without the consent of its owner, he is guilty of theft
because by taking possession of the personal property belonging to another and using it, his intent to
gain is evident since he derives there from utility, satisfaction, enjoyment and pleasure. ACCORDINGLY,
the appealed decision is set aside and judgment is hereby rendered sentencing private respondent to
pay petitioner the sum of P35,000.00 with legal interest from the filing of the complaint until full
payment is made and to pay the costs of suit.

Palermo v. Pyramid Insurance

FACTS:

• On October 12,1968, after having purchased a brand new Nissan Cedric de Luxe Sedan car
bearing Motor No. 087797 from the Ng Sam Bok Motors Co. in Bacolod City, plaintiff insured the same
with the defendant insurance company against any loss or damage for P 20,000.00 and against third
party liability for P 10,000.00.

• The automobile was, however, mortgaged by the plaintiff with the vendor, Ng Sam Bok Motors
Co., to secure the payment of the balance of the purchase price, which explains why the registration
certificate in the name of the plaintiff remains in the hands of the mortgagee, Ng Sam Bok Motors Co.

• On April 17, 1968, while driving the automobile in question, the plaintiff met a violent accident.
The La Carlota City fire engine crashed head on, and as a consequence, the plaintiff sustained physical
injuries, his father, Cesar Palermo, who was with am in the car at the time was likewise seriously injured
and died shortly thereafter, and the car in question was totally wrecked. Palermo, filed a complaint in
the Court of First Instance of Negros Occidental against Pyramid Insurance Co., Inc., for payment of his
claim. Pyramid Insurance Co., Inc., disallowed the claim because at the time of the accident, the insured
was driving his car with an expired driver's license.

ISSUE:

WON Palermo is entitled to the claim

HELD:

YES. AUTHORIZED DRIVER:

Any of the following:

(a) The Insured.

(b) Any person driving on the Insured's order or with his permission. Provided that the person driving is
permitted in accordance with the licensing or other laws or regulations to drive the Motor Vehicle and is
not disqualified from driving such motor vehicle by order of a Court of law or by reason of any
enactment or regulation in that behalf. (Exh. "A.")

There is no merit in the appellant's allegation that the plaintiff was not authorized to drive the insured
motor vehicle because his driver's license had expired. The driver of the insured motor vehicle at the
time of the accident was, the insured himself, hence an "authorized driver" under the policy.

While the Motor Vehicle Law prohibits a person from operating a motor vehicle on the highway without
a license or with an expired license, an infraction of the Motor Vehicle Law on the part of the insured, is
not a bar to recovery under the insurance contract. It however renders him subject to the penal
sanctions of the Motor Vehicle Law.

The requirement that the driver be "permitted in accordance with the licensing or other laws or
regulations to drive the Motor Vehicle and is not disqualified from driving such motor vehicle by order of
a Court of Law or by reason of any enactment or regulation in that behalf," applies only when the driver"
is driving on the insured's order or with his permission." It does not apply when the person driving is the
insured himself.

Figuracion vda. De Maglana v. Consolacion

FACTS:

• Lope Maglana was an employee of the Bureau of Customs whose work station was at Lasa, here
in Davao City. One morning, while on his way to his work station, driving a motorcycle owned by the
Bureau of Customs. At Km. 7, Lanang, he met an accident that resulted in his death.

• The jeep that bumped the deceased was owned by Destrajo. Destrajo, had an insurance policy
issued by AFISCO Insurance.

• The trial court ordered that AFISCO should reimburse Destrajo for the amount paid to the
plaintiff as a result of the accident but only to the extent of the insurance coverage. Petitioners contend
that AFISCO’s liability should be direct and primary, and not merely secondary as provided under the
insurance code. Hence, they argued that the P20,000.00 coverage of the insurance policy issued by
AFISCO, should have been awarded in their favor.

ISSUE:
WON AFISCO’s liability is dependent upon the recovery of judgment by the injured party against the
insured.

HELD:

NO. The particular provision of the insurance policy on which petitioners base their claim is as follows:

Sec. 1 — LIABILITY TO THE PUBLIC

1. The Company will, subject to the Limits of Liability, pay all sums necessary to discharge liability of the
insured in respect of

(a) death of or bodily injury to any THIRD PARTY

xXX

3. In the event of the death of any person entitled to indemnity under this Policy, the Company will, in
respect of the liability incurred to such person indemnify his personal representatives in terms of, and
subject to the terms and conditions hereof.

The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable by
petitioners. As this Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75, "[w]here an insurance
policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of
the injury or even upon which the liability depends, and does not depend on the recovery of judgment
by the injured party against the insured." 8 The underlying reason behind the third party liability (TPL) of
the Compulsory Motor Vehicle Liability Insurance is "to protect injured persons against the insolvency of
the insured who causes such injury, and to give such injured person a certain beneficial interest in the
proceeds of the policy . . ." 9

Since petitioners had received from AFISCO the sum of P5,000.00 under the no-fault clause, AFISCO's
liability is now limited to P15,000.00.

However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. where the insurance
contract provides for indemnity against liability to third persons, such third persons can directly sue the
insurer, however, the direct liability of the insurer under indemnity contracts against third party liability
does not mean that the insurer can be held solidarily liable with the insured and/or the other parties
found at fault. The liability of the insurer is based on contract; that of the insured is based on tort While
in solidary obligations, the creditor may enforce the entire obligation against one of the solidary
debtors, in an insurance contract, the insurer undertakes for a consideration to indemnify the insured
against loss, damage or liability arising from an unknown or contingent event.

PCSI vs. CA, 208 SCRA, 487

FACTS:

• Spouses Herminio and Evely Lim executed a promissory note in favor of Supercars secured by a
chattel mortgage over a brand new Ford Laser registered under the name of Herminio and insured with
PCSI.

• Supercars with notice to the spouses assigned to FCP Credit Corp its rights, title and interest on
the promissory note and chattel mortgage.

• Subsequently, the vehicle was carnapped. Evelyn, was the one driving before it was stolen.

• The spouses filed a claim for loss with PCSI but was denied on the ground that Evelyn’s driver’s
license was expired at the time of the loss in violation of the authorized driver clause.

ISSUE:

WON PCSI is liable

HELD:

YES. Clearly, the risk against accident is distinct from the risk against theft. The “authorized driver
clause” in an insurance policy is in contemplation or anticipation of accident in the legal sense in which it
should be understood, and not in in contemplation or anticipation of an event such as theft. Thus, if the
insured vehicle had figured in an accident at the time she drove it with an expired license, then PCSI
could properly resist the claim for indemnification resulting from the accident. But in the present case,
the loss of the vehicle did not result from an accident where intent was involved; the loss in the present
case was caused by theft, the commission of which was attended by intent.

It is worthy to note that there is no causal connection between the possession of a valid driver’s license
and the loss of the vehicle. To rule otherwise would render car insurance practically a sham since an
insurance company can easily escape liability by citing restrictions which are not applicable or germane
to the claim, thereby reducing indemnity to a shadow.
GEAGONIA vs. CA, COUNTRY BANKERS INSURANCE CORP., G.R. 114427, 2/6/95

FACTS:

• Armando Geagonia is the owner of Norman’s Mart and obtained from Country Bankers a fire
insurance policy which covered Stock-in-trade consisting of RTW dry goods.

• The policy contained a provision where the insured must give notice to the insurer of any
insurance or insurances already affected or which may be subsequently be effected covering any of the
property or properties consisting of stocks in trade, goods in process and/or inventories already insured
by such policy otherwise it shall be deemed forfeited, provided that such condition does not apply when
the total insurance or insurances in force at the time of the loss is not more than 200k

• Subsequently, a fire broke out and destroyed Geagonia’s stocks-in-trade. Country bankers
denied the claim because it was found that at the time of the loss, the stocks were likewise covered by
two other fire insurances for 100k each by PFIC. It had a mortgage clause which stated that loss, if any,
shall be payable to Cebu Tesing Textiles.

ISSUE:

WON there was double insurance to justify denial of the claim

HELD:

NO (Country Bankers is liable).

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. Provisions,
conditions, or exceptions in policies which tend to work a forfeiture of insurance policies should be
construed most strictly against those for whose benefits they are inserted, and most favorably toward
those against whom they are intended to operate.
The condition in the policy is commonly known as the additional or “other insurance” clause and has
been upheld as valid and as a warranty that no other insurance exists. Its violation would thus avoid the
policy. However, in order to constitute a violation, the other insurance must be upon the same subject
matter, the same insurable interest, and the same risk.

As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable
interest therein and both interests may be one policy, or each may take out a separate policy covering
his interest, either at the same or separate times. The mortgagor’s insurable interest covers the full
value of the mortgaged property, even though the mortgage debt is equivalent to the full value of the
property. The mortgagee’s insurable interest is to the extent of the debt, since the property is relied
upon as security thereof, and in insuring he is not insuring the property but his interest or lien thereon.

A double insurance exists where the same person is insured by several insurers separately in respect of
the same subject and cover the same interest. Since the two policies of the PFIC do not cover the same
interest as that covered by the policy in issue, no double insurance exists. The non-disclosure is not fatal.

Fortune Insurance and Surety Co., Inc. v. Court of Appeals

Facts:

On June 29, 1987, Producer’s Bank of the Philippines’ armored vehicle was robbed, in transit, of seven
hundred twenty-five thousand pesos (Php 725,000.00) that it was transferring from its branch in Pasay
to its main branch in Makati. To mitigate their loss, they claim the amount from their insurer, namely
Fortune Insurance and Surety Co.

Fortune Insurance, however, assails that the general exemption clause in the Casualty Insurance
coverage had a general exemption clause, to wit:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in respect of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee,
partner, director, trustee or authorized representative of the Insured whether acting alone or in
conjunction with others. . . .

And, since the driver (Magalong) and security guard (Atiga) of the armored vehicle were charged with
three others as liable for the robbery, Fortune denies Producer’s Bank of its insurance claim.

The trial court and the court appeals ruled in favor of recovery, hence, the case at bar.

Issue:

Whether recovery is precluded under the general exemption clause.

Ruling:

Yes, recovery is precluded under the general exemption clause.

Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer the money to
its head office, with Alampay to be responsible for its custody in transit; Magalong to drive the armored
vehicle which would carry the money; and Atiga to provide the needed security for the money, the
vehicle, and his two other companions. In short, for these particular tasks, the three acted as agents of
Producers. A "representative" is defined as one who represents or stands in the place of another; one
who represents others or another in a special capacity, as an agent, and is interchangeable with "agent."

In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the
insurance policy.

Edillon v. Manila Bankers Life

Facts:

• In April 1969, Carmen Lapuz filled out an application form for insurance under Manila Banker
Life Assurance Corporation. She stated that her date of birth was July 11, 1904.
• Upon payment of the Php 20.00 premium, she was issued the insurance policy in April 1969. In
May 1969, Carmen Lapuz died in a vehicular accident. Regina Edillon, who was named a beneficiary in
the insurance policy sought to collect the insurance claim but Manila Banker denied the claim.

• Apparently, it is a rule of the insurance company that they were not to issue insurance policies
to “persons who are under the age of sixteen (16) years of age or over the age of sixty (60) years …”
Note, that Lapuz was already 65 years old when she was applying for the insurance policy.

Issue:

Whether or not Edillon is entitled to the insurance claim as a beneficiary.

Ruling:

Yes. Carmen Lapuz did not conceal her true age. Despite this, the insurance company still received
premium from Lapuz and issued the corresponding insurance policy to her. When the accident
happened, the insurance policy has been in force for 45 days already and such time was already
sufficient for Manila Banker to notice the fact that Lapuz is already over 60 years old and thereby cancel
the insurance policy. If Manila Banker failed to act, it is either because it was willing to waive such
disqualification; or, through the negligence or incompetence of its employees for which it has only itself
to blame, it simply overlooked such fact. Under the circumstances, Manila Banker is already deemed in
estoppel.

PERLA COMPANIA DE SEGUROS, INC vs. CA and CAYAS

FACTS:

• Cayas was the registered owner of a Mazda bus which was insured with petitioner PERLA
COMPANIA DE SEGUROS, INC (PCSI). The bus figured in an accident in Cavite, injuring several of its
passengers. One of them, Perea, sued Cayas for damages in the CFI, while three others agreed to a
settlement of P4,000.00 each with Cayas.

• After trial, the court rendered a decision in favor of Perea, Cayas ordered to compensate the
latter with damages. Cayas filed a complaint with the CFI, seeking reimbursement from PCSI for the
amounts she paid to ALL victims, alleging that the latter refused to make such reimbursement
notwithstanding the fact that her claim was within its contractual liability under the insurance policy.

• The decision of the CA affirmed in toto the decision of the RTC of Cavite, the dispositive portion
of which states:
• IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering defendant PCSI to pay
plaintiff Cayas the sum of P50,000.00 under its maximum liability as provided for in the insurance policy;
…

• In this petition for review on certiorari, petitioner seeks to limit its liability only to the payment
made by private respondent to Perea and only up to the amount of P12,000.00. It altogether denies
liability for the payments made by private respondents to the other 3 injured passengers totaling
P12,000.00.

ISSUE:

How much should PCSI pay?

HELD:

The decision of the CA is modified, petitioner only to pay Cayas P12,000,000.00

The insurance policy provides:

5. No admission, offer, promise or payment shall be made by or on behalf of the insured without the
written consent of the Company …

It being specifically required that petitioner’s written consent be first secured before any payment in
settlement of any claim could be made, private respondent is precluded from seeking reimbursement of
the payments made to the other 3 victims in view of her failure to comply with the condition contained
in the insurance policy.

Also, the insurance policy involved explicitly limits petitioner’s liability to P12,000.00 per person and to
P50,000.00 per accident

Clearly, the fundamental principle that contracts are respected as the law between the contracting
parties finds application in the present case. Thus, it was error on the part of the trial and appellate
courts to have disregarded the stipulations of the parties and to have substituted their own
interpretation of the insurance policy.
We observe that although Cayas was able to prove a total loss of only P44,000.00, petitioner was made
liable for the amount of P50,000.00, the maximum liability per accident stipulated in the policy. This is
patent error. An insurance indemnity, being merely an assistance or restitution insofar as can be fairly
ascertained, cannot be availed of by any accident victim or claimant as an instrument of enrichment by
reason of an accident.

Aisporna v CA (1982)

Facts

• Mapalad Aisporna, the wife of one Rodolfo Aisporna, an insurance agent, solicited the
application of Eugenio Isidro in behalf of Perla Compana de Seguros without the certificate of authority
to act from the insurance commissioner. Isidro passed away while his wife was issued Php 5000 from
the insurance policy. After the death, the fiscal instigated criminal action against Mapalad for violating
sec 189 of the Insurance code for feloniously acting as agent when she solicited the application form.

• In the trial court, she claimed that she helped Rodolfo as clerk and that she solicited a renewal,
not a new policy from Isidro through the phone. She did this because her husband was absent when he
called. She only left a note on top of her husband’s desk to inform him of what transpired. (She did not
accept compensation from Isidro for her services)

• Aisporna was sentenced to pay Php 500 with subsidiary costs in case of insolvency in 1971 in the
Cabanatuan city court.

• In the appellate court, she was found guilty of having violating par 1 of sec 189 of the insurance
code.

• The OSG kept on repeating that she didn’t violate sec 189 of the insurance code.

• In seeking reversal of the judgment, Aisporna assigned errors of the appellate court:

• the receipt of compensation was not a necessary element of the crime in par 1 of sec 189 of the
insurance code

• CA erred in giving due weight to exhibits F, F1, F17 inclusive sufficient to establish petitioner’s
guilt beyond reasonable doubt.

• The CA erred in not acquitting the petitioner

Issues:
Won a person can be convicted of having violated the 1st par of the sec 189 of the IC without reference
to the 2nd paragraph of the said section. Or

Is it necessary to determine WON the agent mentioned in the 1st paragraph of the aforesaid section is
governed by the definition of an insurance agent found on its second paragraph

Decision:

Aisporna acquitted

Ruling:

Sect 189 of the I.C., par 1 states that “No insurance company doing business with the Philippine Islands
nor l any agent thereof shall pay any commission or other compensation to any person for services in
obtaining new insurance unless such person shall have first procured from the Insurance Commissioner
a certificate of authority to act as an agent of such company as herein after provided.

No person shall act as agent, sub-agent, or broker in the solicitation of procurement of applications for
insurance without obtaining a certificate from the Insurance Commissioner.

Par2 Any person who for COMPENSATION solicits or obtains insurance for any for any insurance compna
or offers or assumes to act in the negotiating of such insurance shall be an insurance agent in the intent
of this section and shall thereby become liable to all liabilities to which an insurance agent is subject.

Par 3 500 pseo fine for person or company violating the provisions of the section.

The court held that the 1st par prohibited a person to act as agent without certificate of authorityfrom
the commissioner

In the 2nd par, the definition of an insurance agent is stipulated

The third paragraph provided the penalty for violating the 1st 2 rules

The appellate court said that the petitioner was penalized under the1st paragraph and not the 1nd. The
fact that she didn’t receive compensation wasn’t an excuse for her acquittal because she was actually
punished separately under sec 1 because she did not have a certificate of authority as under par 1.
The SC held that the definition of an insurance agent was made by CA to be limited to paragraph 2 and
not applicable to the 1st paragraph.

The appellate court said that a person was an insurance agent under par 2 if she solicits insurance for
compensation, but in the 1st paragraph, there was no necessity that a person solicits an insurance
compensation in order to be called an agent.

The SC said that this was a reversible error.

The CA said that Aisporna didn’t receive compensation.

The SC said that the definition of an insurance agent was found in the 2nd par of Sec 189 (check the
law) The definition in the 2nd paragraph qualified the definition of an agent used in the 1st and third
paragraphs.

DOCTRINE: The court held that legislative intent must be ascertained from the consideration of the
statute as a whole. The words shouldn’t be studied in isolated explanations but the whole and every
part of the statute must be considered in fixing the meaning of any of its parts in order to pronounce
the harmonious whole.

Noscitur a sociis provides that where a particular word or phrase in a statement is ambiguous in itself,
the true meaning may be made clear in the company it is fixed in. In applying this, the court held that
the definition of an insurance agent in the 2nd paragraph was applicable in the 1stparagraph.

To receive compensation be the agent is an essential element for violation of the 1st paragraph.

The appellate court said that she didn’t receive compensation by the receipt of compensation wasn’t an
essential element for violation of the 1st paragraph.

The SC said that this view wasn’t correct owing to the American insurance laws which qualified
compensation as a qualifying factor in penalizing unauthorized persons who solicited insurance (Texas
code and snyder’s law)

COUNTRY BANKERS INSURANCE CORPORATION, vs. LIANGA BAY AND COMMUNITY MULTI-PURPOSE
COOPERATIVEG.R. No. 136914 January 25, 2002DE LEON JR J:
Facts:

• The petitioner is a domestic corporation principally engaged in the insurance business wherein it
undertakes, for a consideration, to indemnify another against loss, damage or liability from an unknown
or contingent event including fire whilet he respondent is a duly registered cooperative judicially
declared insolvent and represented by the elected assignee, Cornelio Jamero.

• Sometime in1989, the petitioner and the respondent entered into a contract of fire insurance,
Fire Insurance Policy No. F-1397. Under Fire Insurance, the petitioner insured the respondent’s stocks-
in-trade against fire loss, damage or liabilityduring the period starting from June 20, 1989 to June 20,
1990 for the sum of Two Hundred Thousand Pesos.

• On July 1, 1989, the respondent’s building located at Surigao del Sur was gutted by fire and
reduced to ashes, resulting inthe total loss of the respondent’s stocks-in-trade, pieces of furnitures and
fixtures, equipments and records. Due to the loss,the respondent filed an insurance claim with the
petitioner under its Fire Insurance

• .The petitioner, however, denied the insurance claim on the ground that, based on the
submitted documents, the buildingwas set on fire by two NPA rebels who wanted to obtain canned
goods, rice and medicines as provisions for their comradesin the forest, and that such loss was an
excepted risk under the policy conditions of Fire Insurance Policy which provides:

This insurance does not cover any loss or damage occasioned by or through or in consequence, directly
or indirectly, of any of the following occurrences, namely:(d) Mutiny, riot, military or popular uprising,
insurrection, rebellion, revolution, military or usurped power.

• Respondent then instituted in the trial court the complaint for recovery of "loss, damage or
liability" against petitioner. The petitioner answered the complaint and reiterated the ground it earlier
cited to deny the insurance claim. The trial court rendered its Decision in favor of the respondent
declaring that the defendant-Country Bankers was liable to plaintiff-Insolvent Cooperative and to fully
pay the insurance claim for the loss the insured-plaintiff sustained as a result of the fire under its Fire
Insurance in its full face value of P200,000.00 with interest of 12% per annum from date of filing of
thecomplaint until the same is fully paid.Petitioner appealed to the Court of Appeals which affirmed the
decision of the trial court in its entirety. Hence, this petition.

Issue:

Whether Country Bankers in liable

Ruling:

Yes Country bankers is liable.

The petitioner does not dispute that the respondent’s stocks-in-trade were insured against fire loss,
damage or liability under Fire Insurance Policy and that the respondent lost its stocks-in-trade in a fire
that occurred within the duration of said fire insurance. The petitioner, however, posits the view that
the cause of the loss was an excepted risk under the terms of the fire insurance policy. Where a risk is
excepted by the terms of a policy which insures against other perils or hazards, loss from such a risk
constitutes a defense which the insurer may urge, since it has not assumed that risk, and from this it
follows that an insurer seeking to defeat a claim because of an exception or limitation in the policy has
the burden of proving that the loss comes within the purview of the exception or limitation set up.

If a proof is made of a loss apparently within a contract of insurance, the burden is upon the insurer to
prove 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. Stated else wise, since the petitioner in this case is defending on the
ground of non-coverage and relying upon an exemption or exception clause in the fire insurance policy,
it has the burden of proving the facts upon which such excepted risk is based, by a preponderance of
evidence. But petitioner failed to do so. The petitioner relies on the Sworn Statements of Jose Lomocso
and Ernesto Urbiztondo and on the Spot Report of Pfc. Arturo V. Juarbal specifically that: “investigation
revealed by Jose Lomocso that those armed men wanted to get can goodsand rice for their consumption
in the forest PD investigation further disclosed that the perpetrator are members of the NPA” .Such
testimony is considered hearsay and may not be received as proof of the truth of what he has learned.

AMERICAN HOME ASSURANCE COMPANY vs. TANTUCO ENTERPRISES, INC.

FACTS:

• Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining
industry.It owns two oil mills which were separately covered by fire insurance policies issued by
petitionerAmerican Home Assurance Co., Philippine Branch.
• The first oil mill was insured for P3,000,000.00 under Policy No. 306-7432324-3 for the period
March 1, 1991 to 1992. The new oil mill was insured forP6,000,000.00 under Policy No. 306-7432321-9
for the same term. Official receipts indicating payment for the full amount of the premium were issued
by the petitioner's agent .

• A fire that broke out in the early morning of September 30,1991 gutted and consumed the new
oil mill. Respondent immediately notified the petitioner of the incident but petitioner rejected
respondent's claim for the insurance proceeds on the ground that no policy was issued by it covering the
burned oil mill. It stated that the description of the insured establishment referred to another building
thus: "Our policy nos. 306-7432321-9 (Ps 6M) and 306-7432324-4 (Ps 3M) extend insurance coverage to
your oil mill under Building No. 5, whilst the affected oil mill was under Building No. 14. "

ISSUE:

Whether or not respondent can claim from the petitioner insurance company.

HELD:

In construing the words used descriptive of a building insured, the greatest liberality is shown by the
courts in giving effect to the insurance. In view of the custom of insurance agents to examine buildings
before writing policies upon them, and since a mistake as to the identity and character of the building is
extremely unlikely, the courts are inclined to consider that the policy of insurance covers any building
which the parties manifestly intended to insure, however inaccurate the description may be.

Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that
what the parties manifestly intended to insure was the new oil mill. If the parties really intended to
protect the first oil mill, then there is no need to specify it as new .In determining what the parties
intended, the courts will read and construe the policy as a whole and if possible, give effect to all the
parts of the contract, keeping in mind always, however, the prime rule that in the event of doubt, this
doubt is to be resolved against the insurer. In determining the intent of the parties to the contract, the
courts will consider the purpose and object of the contract.

B. PERFECTION OF INSURANCE CONTRACT

Enriquez v Sun Life

FACTS:

• September 24, 1917: Joaquin Herrer made application to the Sun Life Assurance Company of
Canada through its office in Manila for a life annuity

• 2 days later: he paid P6,000 to the manager of the company's Manila office and was given a
receipt

• According to the provisional receipt, 3 things had to be accomplished by the insurance company
before there was a contract:

(1) There had to be a medical examination of the applicant; -check

(2) there had to be approval of the application by the head office of the company; and – check

(3) this approval had in some way to be communicated by the company to the applicant

• November 26, 1917: The head office at Montreal, Canada gave notice of acceptance by cable to
Manila but this was not mailed

• December 4, 1917: policy was issued at Montreal

• December 18, 1917: attorney Aurelio A. Torres wrote to the Manila office of the company
stating that Herrer desired to withdraw his application

• December 19, 1917: local office replied to Mr. Torres, stating that the policy had been issued,
and called attention to the notification of November 26, 1917

• December 21, 1917 morning: received by Mr. Torres

• December 20, 1917: Mr. Herrer died

• Rafael Enriquez, as administrator of the estate of the late Joaquin Ma. Herrer filed to recover
from Sun Life Assurance Company of Canada through its office in Manila for a life annuity

• RTC: favored Sun Life Insurance

ISSUE:

WON Mr. Herrera received notice of acceptance of his application thereby perfecting his life annuity
RULING:

NO. Not perfected because it has not been proved satisfactorily that the acceptance of the application
ever came to the knowledge of the applicant.

Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to have been entered into in the place where the
offer was made.

Judgment is reversed, and the Enriquez shall have and recover from the Sun Life the sum of P6,000 with
legal interest from November 20, 1918, until paid, without special finding as to costs in either instance.
So ordered.

Great Pacific v CA

FACTS:

• Respondent Ngo Hing filed an application with petitioner Great Pacific Life Assurance Company
(Pacific Life) for a twenty-year endowment policy in the life of Helen Go, his one year old daughter.

• Petitioner Lapulapu D. Mondragon, the branch manager, prepared application form using the
essential data supplied by respondent. The latter paid the annual premium and Mondragon retained a
portion of it as his commission.

• The binding deposit receipt was issued to respondent. Mondragon wrote his strong
recommendation for the approval of the insurance application.

• However, Pacific Life disapproved the application since the plan was not available for minors
below 7 years old but it can consider the same under another plan. The non-acceptance of the insurance
plan was allegedly not communicated by Mondragon to respondent. Mondragon again asserted his
strong recommendation.
• Helen Go died of influenza. Thereupon, respondent sought the payment of the proceeds of the
insurance, but having failed in his effort, he filed an action for the recovery of the same. Hence the case
at bar.

ISSUE:

WON the binding deposit receipt constituted a temporary contract and thus negate the claim that the
insurance contract was perfected.

RULING:

YES. The provisions printed on the binding deposit receipt show that the binding deposit receipt is
intended to be merely a provisional or temporary insurance contract and only upon compliance of the
following conditions:

(1) that the company shall be satisfied that the applicant was insurable on standard rates;

(2) that if the company does not accept the application and offers to issue a policy for a
different plan, the insurance contract shall not be binding until the applicant accepts the policy offered;
otherwise, the deposit shall be refunded; and

(3) that if the applicant is not insurable according to the standard rates, and the company disapproves
the application, the insurance applied for shall not be in force at any time, and the premium paid shall
be returned to the applicant.

Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an
acknowledgment, on behalf of the company, that the latter's branch office had received from the
applicant the insurance premium and had accepted the application subject for processing by the
insurance company; and that the latter will either approve or reject the same on the basis of whether or
not the applicant is "insurable on standard rates."

Since Pacific Life disapproved the insurance application of Ngo Hing, the binding deposit receipt in
question had never become in force at any time. Upon this premise, the binding deposit receipt is,
manifestly, merely conditional and does not insure outright. Where an agreement is made between the
applicant and the agent, no liability shall attach until the principal approves the risk and a receipt is
given by the agent. The acceptance is merely conditional, and is subordinated to the act of the company
in approving or rejecting the application.
Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself. It bears repeating
that through the intra-company communication of 30 April 1957, Pacific Life disapproved the insurance
application in question on the ground that it is not offering the 20-year endowment insurance policy to
children less than 7 years of age. What it offered instead is another plan known as the Juvenile Triple
Action, which Ngo Hing failed to accept. In the absence of a meeting of the minds between Pacific Life
and Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the
latter's one-year old daughter, and with the non-compliance of the abovequoted conditions stated in
the disputed binding deposit receipt, there could have been no insurance contract duly perfected
between them. Accordingly, the deposit paid by Ngo Hing shall have to be refunded by Pacific Life.

Development Bank of the Philippines v CA

Facts:

Juan B. Dans, together with his family applied for a loan of P500,000 with DBP. As principal mortgagor,
Dans, then 76 years of age was advised by DBP to obtain a mortgage redemption insurance (MRI) with
DBP MRI pool. A loan in the reduced amount was approved and released by DBP. From the proceeds of
the loan, DBP deducted the payment for the MRI premium.

The MRI premium of Dans, less the DBP service fee of 10%, was credited by DBP to the savings account
of DBP MRI-Pool. Accordingly, the DBP MRI Pool was advised of the credit. Dans died of cardiac arrest.
DBP MRI Pool notified DBP that Dans was not eligible for MRI coverage, being over the acceptance age
limit of 60 years at the time of application.

DBP apprised Candida Dans of the disapproval of her late husband’s MRI application. DBP offered to
refund the premium which the deceased had paid, but Candida Dans refused to accept the same
demanding payment of the face value of the MRI or an amount equivalent of the loan. She, likewise,
refused to accept an ex gratia settlement which DBP later offered. Hence, the case at bar.

Issue:

Whether or not the DBP MRI Pool should be held liable on the ground that the contract wasalready
perfected?

Held:
No, it is not liable. The power to approve MRI application is lodged with the DBP MRI Pool. The pool,
however, did not approve the application. There is also no showing that it accepted the sum which DBP
credited to its account with full knowledge that it was payment for the premium. There was as a result
no perfected contract of insurance, hence the DBP MRI Pool cannot be held liable on a contract that
does not exist.

In dealing with Dans, DBP was wearing 2 legal hats: the first as a lender and the second as an insurance
agent. As an insurance agent, DBP made Dans go through the motion of applying for said insurance,
thereby leading him and his family to believe that they had already fulfilled all the requirements for the
MRI and that the issuance of their policy was forthcoming.

DBP had full knowledge that the application was never going to be approved. The DBP is not authorized
to accept applications for MRI when its clients are more than 60 years of age. . Knowing all the while
that Dans was ineligible for MRI coverage because of his advanced age, DBP exceeded the scope of its
authority when it accepted Dan's application for MRI by collecting the insurance premium, and
deducting its agent's commission and service fee.

The liability of an agent who exceeds the scope of his authority depends upon whether the third person
is aware of the limits of the agent's powers. There is no showing that Dans knew of the limitation on
DBP's authority to solicit applications for MRI.

If the third person dealing with an agent is unaware of the limits of the authority conferred by the
principal on the agent and he (third person) has been deceived by the non-disclosure thereof by the
agent, then the latter is liable for damages to him (V Tolentino, Commentaries and Jurisprudence on the
Civil Code of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The rule that
the agent is liable when he acts without authority is founded upon the supposition that there has been
some wrong or omission on his part either in misrepresenting, or in affirming, or concealing the
authority under which he assumes to act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46
N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the agency carries with it the implication
that a deception was perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of
the Civil Code of the Philippines come into play.

Perez v CA G.R. No. 112329. January 28, 2000

Facts:
Primitivo B. Perez had been insured with the BF Lifeman Insurance Corporation for P20,000.00.
Sometime in October 1987, an agent of the insurance corporation, visited Perez in Quezon and
convinced him to apply for additional insurance coverage of P50,000.00. Virginia A. Perez, Primitivo’s
wife, paid P2,075.00 to the agent. The receipt issued indicated the amount received was a "deposit."
Unfortunately, the agent lost the application form accomplished by Perez and he asked the latter to fill
up another application form. The agent sent the application for additional insurance of Perez to the
Quezon office. Such was supposed to forwarded to the Manila office.

Perez drowned. His application papers for the additional insurance of P50,000.00 were still with the
Quezon. It was only after some time that the papers were brought to Manila. Without knowing that
Perez died, BF Lifeman Insurance Corporation approved the application and issued the corresponding
policy for the P50,000.00.

Petitioner Virginia Perez went to Manila to claim the benefits under the insurance policies of the
deceased. She was paid P40,000.00 under the first insurance policy for P20,000.00 but the insurance
company refused to pay the claim under the additional policy coverage of P50,000.00, the proceeds of
which amount to P150,000.00.

The insurance company maintained that the insurance for P50,000.00 had not been perfected at the
time of the death of Primitivo Perez. Consequently, the insurance company refunded the amount paid.

BF Lifeman Insurance Corporation filed a complaint against Virginia Perez seeking the rescission and
declaration of nullity of the insurance contract in question.

Petitioner Virginia A. Perez, on the other hand, averred that the deceased had fulfilled all his prestations
under the contract and all the elements of a valid contract are present.

On October 25, 1991, the trial court rendered a decision in favor of petitioner ordering respondent to
pay 150,000 pesos. The Court of Appeals, however, reversed the decision of the trial court saying that
the insurance contract for P50,000.00 could not have been perfected since at the time that the policy
was issued, Primitivo was already dead.

Petitioner’s motion for reconsideration having been denied by respondent court, the instant petition for
certiorari was filed on the ground that there was a consummated contract of insurance between the
deceased and BF Lifeman Insurance Corporation.

Issue:

WON the widow can receive the proceeds of the 2nd insurance policy

Held:
No. Petition dismissed.

Ratio:

Perez’s application was subject to the acceptance of private respondent BF Lifeman Insurance
Corporation. The perfection of the contract of insurance between the deceased and respondent
corporation was further conditioned with the following requisites stated in the application form:

"there shall be no contract of insurance unless and until a policy is issued on this application and that
the said policy shall not take effect until the premium has been paid and the policy delivered to and
accepted by me/us in person while I/We, am/are in good health."

BF Lifeman didn’t give its assent when it merely received the application form and all the requisite
supporting papers of the applicant. This happens only when it gives a policy.

It is not disputed, however, that when Primitivo died on November 25, 1987, his application papersfor
additional insurance coverage were still with the branch office of respondent corporation in Quezon.
Consequently, there was absolutely no way the acceptance of the application could have been
communicated to the applicant for the latter to accept inasmuch as the applicant at the time was
already dead.

Petitioner insists that the condition imposed by BF that a policy must have been delivered to and
accepted by the proposed insured in good health is potestative, being dependent upon the will of the
corporation and is therefore void. The court didn’t agree. A potestative condition depends upon the
exclusive will of one of the parties and is considered void. The Civil Code states: When the fulfillment of
the condition depends upon the sole will of the debtor, the conditional obligation shall be void.

The following conditions were imposed by the respondent company for the perfection of the contract of
insurance: a policy must have been issued, the premiums paid, and the policy must have been delivered
to and accepted by the applicant while he is in good health.

The third condition isn’t potestative, because the health of the applicant at the time of the deliveryof
the policy is beyond the control or will of the insurance company. Rather, the condition is a suspensive
one whereby the acquisition of rights depends upon the happening of an event which constitutes the
condition. In this case, the suspensive condition was the policy must have been delivered and accepted
by the applicant while he is in good health. There was non-fulfillment of the condition, because the
applicant was already dead at the time the policy was issued.

As stated above, a contract of insurance, like other contracts, must be assented to by both parties either
in person or by their agents. So long as an application for insurance has not been either accepted or
rejected, it is merely an offer or proposal to make a contract. The contract, to be binding from the date
of application, must have been a completed contract.

The insurance company wasn’t negligent because delay in acting on the application does not constitute
acceptance even after payment. The corporation may not be penalized for the delay in the processing of
the application papers due to the fact that process in a week wasn’t the usual timeframe in fixing the
application. Delay could not be deemed unreasonable so as to constitute gross negligence.

C. SUBROGATION

MALAYAN INSURANCE CO., INC. vs. THE HON. COURT OF APPEALS

FACTS:

Sio Choy insured his jeep with Malayan Insurance against 3rd party liability. One day the jeep, driven by
an employee of San Leon Rice Mill, figured in an accident with Pantranco Bus.

The passenger of the jeep, Vallejo, who was injured due to the accident, claimed damages from Sio
Choy, Malayan and Pantranco. Pantranco was held not liable.

Malayan insurance paid Vallejo and asked for reimbursement from San Leon as the latter driver caused
the alleged accident. The latter, however denied liability.

RTC ruled that Sio Choy, Malayan and San Leon are solidary liable, thus, the former is entitled to
reimbursement.

CA said although jointly and severally liable, Malayan is not entitled to reimbursement.

ISSUES:

1. WON Sio Choy, Malayan and San Leon Rice Mill are solidary liable.

2. WON Malayan can seek reimbursement.

RULING:
1. Only respondents Sio Choy and San Leon Rice Mill, Inc, (to the exclusion of the petitioner) that
are solidarily liable to respondent Vallejos for the damages awarded to Vallejos.

Sio Choy and San Leon Rice Mill, Inc. are the principal tort feasors who are primarily liable to respondent
Vallejos. The law states that the responsibility of two or more persons who are liable for a quasi-delict is
solidarily. On the other hand, the basis of petitioner's liability is its insurance contract with respondent
Sio Choy.

While it is true that where the insurance contract provides for indemnity against liability to third
persons, such third persons can directly sue the insurer, 6 however, the direct liability of the insurer
under indemnity contracts against third party liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is
based on contract; that of the insured is based on tort.

In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot, as
incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors namely
respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with said
two (2) respondents by reason of the indemnity contract against third party liability-under which an
insurer can be directly sued by a third party — this will result in a violation of the principles underlying
solidary obligation and insurance contracts.

2. Malayan is entitled to re-imbursement from San Leon by virtue of SUBROGATION. Article 1217
says,

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more
solidary debtors offer to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to each,
with the interest for the payment already made. If the payment is made before the debt is due, no
interest for the intervening period may be demanded.

In accordance with Article 1217, MALAYAN, upon payment to Vallejos and thereby becoming the
subrogee of solidary debtor Sio Choy, is entitled to reimbursement from respondent San Leon Rice Mill,
Inc.
MANILA MAHOGANY MFG CORP V CA & ZENITH INSURANCE

FACTS:

Manila Mahogany insured its Mercedes Benz with respondent insurance company. One day, the vehicle
was bumped and damaged by a truck owned by San Miguel Corp (SMC).

Zenith paid P5K to petitioner in amicable settlement. Petitioner’s general manager executed a Release
Claim, subrogating respondent company to all its right to action against SMC.

Later respondent wrote Insurance Adjusters Inc. to demand reimbursement from SMC. Insurance
Adjusters refused saying that SMC had already paid petitioner P4,500 for the damages to petitioner’s
vehicle, as evidenced by a cash voucher and Release of Claim executed by the GM of petitioner
discharging SMC from “all actions, claims, demands the rights of action that now exist or hereafter
develop arising out of or as a consequence of the accident.

Respondent demanded the P4.5K amount from petitioner. Petitioner refused. Suit filed for recovery.

City Court ordered petitioner to pay respondent. CFI affirmed. CA affirmed with modification that
petitioner was to pay respondent the total amount of 5K it had received from respondent.

Petitioner’s argument: Since the total damages were valued at P9,486.43 and only 5K was received by
petitioner from respondent, petitioner argues that it was entitled to go after SMC to claim the additional
which was eventually paid to it.

Respondent’s argument: No qualification to its right of subrogation.

ISSUE:

1.WON petitioner should pay respondent despite the subrogation in the Release of Claim was
conditioned on recovery of the total amount of damages petitioner has sustained.

RULING:

. NO. SC said no other evidence to support its allegation that a gentleman’s agreement existed between
the parties, not embodied in the Release of Claim, such Release of Claim must be taken as the best
evidence of the intent and purpose of the parties.

CA correct in holding petitioner should reimburse respondent 5K.

When Manila Mahogany executed another release claim discharging SMC from all rights of action after
the insurer had paid the proceeds of the policy – the compromise agreement of 5K- the insurer is
entitled to recover from the insured the amount of insurance money paid.

Petitioner by its own acts released SMC, thereby defeating respondent’s right of subrogation, the right
of action against the insurer was also nullified.

Since the insurer can be subrogated to only such rights as the insured may have, should the insured,
after receiving payment from the insurer, release the wrongdoer who caused the loss, the insurer losses
his rights against the latter. But in such a case, the insurer will be entitled to recover from the insured
whatever it has paid to the latter, unless the release was made w/ the consent of the insurer.

PAN MALAYAN INSURANCE CORP. VS. COURT OF APPEALS

FACTS:
Pan Malayan filed a complaint for damages with the RTC of Makati against private respondents Erlinda
Fabie and her driver.

Pan Malayan insured a Mitsubishi Colt Lancer car registered in the name of Canlubang.

Due to the carelessness, recklessness and imprudence of the unknown driver of a pick-up, the insured
car was hit and suffered damages in the amount of P42,052.00.

Pan Malayan defrayed the cost of repair of the insured car, and therefore was subrogated to the rights
of Canlubang against the driver of the pick-up and his employer, Erlinda Fabie.

Despite repeated demands, defendants failed and refused to pay the claim of Pan Malayan.
Defendants/Private Respondents alleged that Pan Malay had no cause of action against them because
payment under the “own damage” clause of the insurance policy precluded subrogation under Article
2207 of the Civil Code, since indemnification thereunder was made on the assumption that there was no
wrongdoer or no third party at fault. RTC dismissed the case for no cause of action and denied its
motion for reconsideration. The CA affirmed the trial courts decision. Hence, this petition.

ISSUES:

Whether or not the insurer Pan Malayan may institute ac action to recover the amount it had paid its
assured in settlement of an insurance claim against private respondents.

RULING:

Pan Malayan is correct.

If the insured property is destroyed or damaged through the fault or negligence of a party other than
the assured, then the insurer, upon payment to the assured, will be subrogated to the rights of the
assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay.

Payment by the insurer to the assured operates as an equitable assignment to the former of all
remedies, which the latter ma 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 or upon
written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer.
CEBU SHIPPING AND ENGINEERING WORKS, INC. VS. WILLIAM LINES INC. AND PRUDENTIAL GUARANTEE
AND ASSURANCE COMPANY, INC.

FACTS:

William Lines, Inc. brought its vessel M/V Manila City to the Cebu Shipyard in Lapulapu City for annual
dry-docking and repair. Subject vessel was insured with Prudential Guarantee for P45,000,000.00 for
hull and machinery.

The Hull Policy included an “Additional Perils” clause covering loss of or damage to the vessel through
the negligence of, among others, ship repairmen. CSEW was also insured by Prudential Guarantee for
third party liability under s Shiprepairs Legal Liability Insurance Policy for P10,000,000.00 only. After
subject vessel was transferred to the docking quay, it caught fire and sank, resulting to its eventual total
loss.

William Lines, Inc. filed a complaint for damages against CSEW, alleging that the fire which broke out in
M/V Manila City was caused by CSEW’s negligence and lack of care.

An amended complaint, impleading Prudential Guarantee as co-plaintiff, was filed after the latter had
paid William Lines, Inc. the value of the hull and machinery insurance of M/V Manila City. RTC ruled that
the cause of the fire was through the negligence of CSEW. CA affirmed the appealed decision. Hence this
petition.

ISSUE:

Whether or not Prudential has the right of subrogation against its own insured and whether or not the
parties intended for them to be a co-assured in the insurance policy.

RULING:

The petition is unmeritorious.

Upon proof of payment by Prudential Guarantee to William Lines, the former was subrogated to the
right of the latter to indemnification from CSEW. Thus, when Prudential, after due verification of the
merit and validity of the insurance claim of William Lines, paid the latter the total amount covered by its
insurance policy, it was subrogated to the right of the latter to recover the insured loss from CSEW, the
liable party.

A stipulation in the work order that requires William Lines to maintain insurance on the vessel during
the period of dry-docking or repair, works to the benefit of CSEW. However, the fact that CSEW benefits
from the said stipulation does not automatically make it as a co-assured of William Lines. The hull and
machinery insurance procured by William Lines, Inc. from Prudential named only "William Lines, Inc." as
the assured. Thus, when the insurance policy involved named only William Lines, Inc. as the assured
thereunder, the claim of CSEW that it is a co-assured is unfounded.
D. INSURABLE INTEREST

Spouses Cha vs. CA

Lessons Applicable: Effect of Lack of Insurable Interest (Insurance)

Laws Applicable: Sec. 17, Sec. 18, Sec. 25 of the Insurance Code

FACTS:

Spouses Nilo Cha and Stella Uy-Cha and CKS Development Corporation entered a 1 year lease contract
with a stipulation not to 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. But it insured against loss by fire their merchandise inside the leased premises
for P500,000 with the United Insurance Co., Inc. without the written consent of CKS
On the day the lease contract was to expire, fire broke out inside the leased premises and CKS learning
that the spouses procured an insurance wrote to United to have the proceeds be paid directly to them.
But United refused so CKS filed against Spouses Cha and United.

RTC: United to pay CKS the amount of P335,063.11 and Spouses Cha to pay P50,000 as exemplary
damages, P20,000 as attorney’s fees and costs of suit

CA: deleted exemplary damages and attorney’s fees

ISSUE:

W/N the CKS has insurable interest because the spouses Cha violated the stipulation

HELD:

NO. CA set aside. Awarding the proceeds to spouses Cha.

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

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist a
t the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of
insurable interest in property insured is based on sound public policy: to prevent a person from taking
out an insurance policy on property upon which he has no insurable interest and collecting the proceeds
of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager
which is void under Section 25 of the Insurance Code.

SECTION 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 the policy shall be received as proof
of such interest, and every policy executed by way of gaming or wagering, is void

Section 17. The measure of an insurable interest in property is the extent to which the insured might be
damnified by loss of injury thereof

The automatic assignment of the policy to CKS under the provision of the lease contract previously
quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy
thus rightfully belong to the spouses. The liability of the Cha spouses to CKS for violating their lease
contract in that Cha spouses obtained a fire insurance policy over their own merchandise, without the
consent of CKS, is a separate and distinct issue which we do not resolve in this case.

GrePaLife vs. CA
Facts:

Great Pacific Life Assurance Corporation (Grepalife) executed a contract of group life insurance with
Development Bank of the Philippines (DBP) wherein Grepalife agreed to insure the lives of eligible
housing loan mortgagors of DBP.

One such loan mortgagor is Dr. Wilfredo Leuterio. In an application form, Dr. Leuterio answered
questions concerning his test, attesting among others that he does not have any heart conditions and
that he is in good health to the best of his knowledge.

However, after about a year, Dr. Leuterio died due to “massive cerebral hemorrhage.” When DBP
submitted a death claim to Grepalife, the latter denied the claim, alleging that Dr. Leuterio did not
disclose he had been suffering from hypertension, which caused his death. Allegedly, such non-
disclosure constituted concealment that justified the denial of the claim.

Hence, the widow of the late Dr. Leuterio filed a complaint against Grepalife for “Specific Performance
with Damages.” Both the trial court and the Court of Appeals found in favor of the widow and ordered
Grepalife to pay DBP.

ISSUE:

Whether the CA erred in holding Grepalife liable to DBP as beneficiary in a group life insurance contract
from a complaint filed by the widow of the decedent/mortgagor

HELD:

The rationale of a group of 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. 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, being the person with whom the contract was made, is primarily the proper person to bring
suit thereon. Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in
part for the benefit of another person, such as a mortgagee.
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, the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

Harvardian Colleges c Country Bankers Insurance

Facts:

Harvardian Colleges is a family corporation whose stockholders are Ildefonso Yap, Virginia King Yap and
their children. Harvardian Colleges insured the school for fire with CBI for Php500,000. However, the
insured property was burned which resulted to its total loss. Harvardian Colleges made claims but was
denied by CBI on the ground that there was no insurable interest iver the building on the piece of land
which was in the name of Ildefonso Yap, and not of Harvardian Colleges.

Issue:

Whether or not Harvardian has insurable interest and can collect from the insurance

Ruling:

Yes. Regardless of the nature of the title of the insures, or even if he did not have title to the property
insured, the contract of fire insurance should still be upheld if his interest in or his relation to the
property is such that he will be benefited in its continuing existence or suffer a direct pecuniary loss
from its destruction or injury. The test in determining insurable interest in property is whether one will
derive pecuniary benefit or advantage from its preservation or will suffer pecuniary loss or damage from
it destruction by the happening of the event insured against.

Ang Ka Yu v. Phoenix Assurance

Facts:

Ang Ka Yu had a piece of property in his possession. He insured it with Phoenix.

The property was lost, so Ang Ka Yu sought to claim the proceeds.

Phoenix denied liability on the ground that Ang was not the owner but a mere possessor and as such,
had no insurable interest over the property.

Issue:

WON a mere possessor has insurable interest over the property.

Held:

Yes. A person having a mere right or possession of property may insure it to its full value and in his own
name, even when he is not responsible for its safekeeping. The reason is that even if a person is NOT
interested in the safety and preservation of material in his possession because they belong to 3rd
parties, said person still has insurable interest, because he stands either to benefit from their continued
existence or to be prejudiced by their destruction.

E.CONCEALMENT AND REPRESENTATION

THE INSULAR LIFE ASSURANCE CO., LTD., petitioner, vs. SERAFIN D. FELICIANO and ANGEL, FLORENDA,
EUGENIO, HERMINIO and LETICIA, all surnamed FELICIANO, represented by their guardian ad litem
SERAFIN D. FELICIANO, respondents (G.R. No. L-47593, September 13, 1941)

FACTS:

- One Evaristo Feliciano filed an application for insurance with the herein petitioner upon the
solicitation of one of its agents. Two insurance policies to the aggregate amount of P25,000 were issued
to him.

- Feliciano died on September 29, 1935. The defendant company (petitioner) refused to pay on
the ground that the policies were fraudulently obtained, the insured having given false answers and
statements in the application as well as in the medical report.

- The present action was brought to recover on said policies.

- Lower court in favor of plaintiff (respondent)finding that:

• Feliciano was made to sign the application and the examiner's report in blank, and that
afterwards the blank spaces therein were filled in by the agent (Romulo M. David ) and the medical
examiner (Dr. Gregorio Valdez), who made it appear therein that Feliciano was a fit subject for
insurance.

• neither the insured nor any member of his family concealed the real state of health of the
insured; that as a matter of fact the insured, as well as the members of his family, told the agent and the
medical examiner that the applicant had been sick and coughing for sometime and that he had also
gone three times to the Santol Sanatarium.

- CA affirmed. Hence, this petition.

ISSUE:
WON the policy remains to be valid in spite of the fact that the agent, without fraud, collusion or bad
faith on the part of the insured, falsified the answers given by the insured.

HELD:

YES

- Insurance companies send detailed instructions to their agents to solicit and procure
applications. These agents are to be found all over the length and breadth of the land. The agents, in
short, do what the company set them to do.

- In the present case, the agent knew all the time the true state of health of the insured. The
insurer's medical examiner approve the application knowing full well that the applicant was sick.

- The situation is one in which one of two innocent parties must bear a loss for his reliance upon a
third person.

- In this case, it was the insurer who gave the agent authority to deal with the applicant. It was
the one who selected the agent, thus implying that the insured could put his trust on him. It seems
reasonable that as between the two of them, the one who employed and gave character to the third
person as its agent should be the one to bear the loss.

- If the policy should be avoided, it must be because it was void from the very beginning.

- The insurer cannot assert the falsity of such answers as a defense to liability on the policy.

- The fact that the insured did not read the application which he signed, is not indicative of bad
faith. It has been held that it is not negligence for the insured to sign an application without first reading
it if the insurer by its conduct in appointing the agent influenced the insured to place trust and
confidence in the agent.

- In the instant case, it has been proved that the insured could not read English, the language in
which the application was written, and that after the contract was signed, it was kept by his mother. As
a consequence, the insured had no opportunity to read or correct any misstatement therein.

- Petition dismissed.

THE INSULAR LIFE ASSURANCE CO., LTD., petitioner, vs.SERAFIN D. FELICIANO ET AL., respondents. (G.R.
No. L-47593 December 29, 1943)

MOTION FOR RECONSIDERATION

FACTS:
- A motion to reconsider and set aside said decision has been filed by the petitioner, and both
parties have submitted exhaustive and luminous written arguments in support of their respective
contentions.

- Agent’s reason for falsifying the application: for the purpose of securing the Company's approval
of the application so that the policy to be issued thereon might be credited to said agent in connection
with the inter-provincial contest which the Company was then holding among its soliciting agents to
boost the sales of its policies.

- Moreover, Agent David bribed Medical Examiner Valdez with money which the former
borrowed from the applicant's mother by way of advanced payment on the premium, according to the
finding of the Court of Appeals.

- petitioner insists: that upon the facts of the case the policies in question are null and void ab
initio and that all that the respondents are entitled to is the refund of the premiums paid thereon.

ISSUE

WON Policy still valid.

HELD:

- When the applicant for insurance, signed the application in blank and authorized the soliciting
agent and/or the medical examiner of the Company to write the answers for him, he made them his
own agents for that purpose, and he was responsible for their acts in that connection. If they falsified
the answers for him, he could not evade the responsibility for the falsification. He was not supposed to
sign the application in blank. He knew that the answers to the questions therein contained would be
"the basis of the policy," and for that very reason he was required with his signature to vouch for the
truth thereof.

- By accepting the policy he became charged with knowledge of its contents, whether he actually
read it or not.

- We cannot bring ourselves to believe that the insured did not take the trouble to read the
answers contained in the photostatic copy of the application attached to and made a part of the policy
before he accepted it and paid the premium thereon. He must have notice that the answers to the
questions therein asked concerning his clinical history were false, and yet he accepted the first policy
and applied for another.

- The insured, therefore, had no right to rely — and we cannot believe he relied in good faith —
upon the oral representation of said agent and medical examiner that he (the applicant) was a fit subject
for insurance notwithstanding that he had been and was still suffering with advanced pulmonary
tuberculosis.
- Altho the agent and the medical examiner knew that statement to be false, no valid contract of
insurance was entered into because there was no real meeting of the minds of the parties.

- From all the facts and circumstances of this case, we are constrained to conclude that the
insured was a coparticipant, and coresponsible with Agent David and Medical Examiner Valdez, in the
fraudulent procurement of the policies in question and that by reason thereof said policies are void ab
initio.

- MR sustained. CA reversed in favor of Petitioner Company.

SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner, vs. The Hon. COURT OF APPEALS and Spouses
ROLANDO and BERNARDA BACANI, respondents.

FACTS :

On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from petitioner
and was issued a policy valued at P100,000.00, with double indemnity in case of accidental death. The
designated beneficiary was his mother, respondent Bernarda Bacani.

On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim with
petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner conducted an
investigation and its findings prompted it to reject the claim on the ground that the insured did not
disclosed material facts relevant to the issuance of the policy, thus rendering the contract of insurance
voidable. A check representing the total premiums paid in the amount of P10,172.00 was attached to
said letter.

Petitioner claimed that the insured gave false statements in his application when he limited his answer
to a consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on February
1986, for cough and flu complications only but did not disclose that two weeks prior to his application
for insurance, the insured was examined and confined at the Lung Center of the Philippines, where he
was diagnosed for renal failure.

ISSUE :

WON there was concealment made by the insured.

RULING :
SC disagrees with the RTC's findings that while indeed there was concealment and misrepresentation,
the same was made in "good faith" and the facts concealed or misrepresented were irrelevant since the
policy was "non-medical".

Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to

communicate to the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has no means of ascertaining. The
information which the insured failed to disclose were material and relevant to the approval and the
issuance of the insurance policy. The matters concealed would have definitely affected petitioner's
action on his application, either by approving it with the corresponding adjustment for a higher
premium or rejecting the same. Moreover, a disclosure may have warranted a medical examination of
the insured by petitioner in order for it to reasonably assess the risk involved in accepting the
application.

Thus, "good faith" is no defense in concealment.

The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable. The waiver of a medical examination [in a non-medical
insurance contract] renders even more material the information required of the applicant concerning
previous condition of health and diseases suffered, for such information necessarily constitutes an
important factor which the insurer takes into consideration in deciding whether to issue the policy or
not.

Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well
settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient
that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance
policy or in making inquiries.

We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance by
reason of the concealment employed by the insured.

WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and SET
ASIDE.

THELMA VDA. DE CANILANG, petitioner, vs. HON. COURT OF APPEALS and GREAT PACIFIC LIFE
INSURANCE CORPORATION, respondents.

FACTS:

On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering from
"sinus tachycardia." The doctor prescribed the following for him: Trazepam, a tranquilizer; and Aptin, a
beta-blocker drug. Mr. Canilang consulted the same doctor again on 3 August 1982 and this time was
found to have "acute bronchitis."
On the next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with
respondent Great Pacific Life Assurance Company naming his wife, petitioner Thelma Canilang, as his
beneficiary. Jaime Canilang was issued a policy, with the face value of P19,700, effective as of 9 August
1982.

On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic anemia."
Petitioner, widow and beneficiary of the insured, filed a claim with Great Pacific which the insurer
denied on 5 December 1983 upon the ground that the insured had concealed material information from
it.

Petitioner then filed a complaint against Great Pacific with the Insurance Commission for recovery of the
insurance proceeds. A deposition given by Dr. Wilfredo Claudio was presented by petitioner. There Dr.
Claudio stated that he was the family physician of the deceased Jaime Canilang and that he had
previously treated him for "sinus tachycardia" and "acute bronchitis." Great Pacific for its part presented
Dr. Esperanza Quismorio, a physician and a medical underwriter working for Great Pacific. She testified
that the deceased's insurance application had been approved on the basis of his medical declaration.
She explained that as a rule, medical examinations are required only in cases where the applicant has
indicated in his application for insurance coverage that he has previously undergone medical
consultation and hospitalization.

Insurance Commissioner Armando Ansaldo ordered Great Pacific to pay P19,700.00 plus legal interest
and P2,000.00 as attorney's fees. On appeal by Great Pacific, the Court of Appeals reversed and set aside
the decision of the Insurance Commissioner. The Court of Appeals also found that the failure of Jaime
Canilang to disclose previous medical consultation and treatment constituted material information
which should have been communicated to Great Pacific to enable the latter to make proper inquiries.

ISSUE :

WON there was concealment made by the insured.

HELD:
The Supreme Court agrees with the Court of Appeals that the information which Jaime Canilang failed to
discloses was material to the ability of Great Pacific to estimate the probable risk he presented as a
subject of life insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made and the
medicines prescribed by such doctor, in the insurance application, it may be reasonably assumed that
Great Pacific would have made further inquiries and would have probably refused to issue a non-
medical insurance policy or, at the very least, required a higher premium for the same coverage.

The materiality of the information withheld by Great Pacific did not depend upon the state of mind of
Jaime Canilang. A man's state of mind or subjective belief is not capable of proof in our judicial process,
except through proof of external acts or failure to act from which inferences as to his subjective belief
may be reasonably drawn. Neither does materiality depend upon the actual or physical events which
ensue. Materiality relates rather to the "probable and reasonable influence of the facts" upon the party
to whom the communication should have been made, in assessing the risk involved in making or
omitting to make further inquiries and in accepting the application for insurance.

Section 27 of the Insurance Code of 1978 is properly read as referring to "any concealment" without
regard to whether such concealment is intentional or unintentional. The net result therefore of the
phrase "whether intentional or unintentional" is precisely to leave unqualified the term "concealment".
In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such that the
failure to communicate must have been intentional rather than merely inadvertent.

WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the Court of
Appeals dated 16 October 1989 in C.A-G.R. SP No. 08696 is hereby AFFIRMED. No pronouncement as to
costs.

Philamcare Health Systems, Inc. vs Court of Appeals and Julita Trinos 379 SCRA 356

Facts: Julita Trinos was the live-in wife of Ernani Trinos, who had a Health Care Agreement with
petitioner company. Under coverage, Mr. Trinos suffered a heart attack, was twice confined in a
hospital, then subsequently died. Julita Trinos incurred expenses amounting to P76,000.

Philamcare denied the insurance claim on the grounds that a health care agreement is not an insurance
contract. That there was material concealment the insured as it would appear that in the application for
health coverage, petitioners required respondent's husband to sign an express authorization for any
person, organization or entity that has any record or knowledge of his health to furnish any and all
information relative to any hospitalization, consultation, treatment or any other medical advice or
examination. Also, it was contended that Julita Trinos was not the legal wife.

Issue(s): (1) WON the agreement was an insurance contract. (2) WON there was material concealment
of facts. (3) WON Julita Trinos is entitled to receive.

Ruling:

1. Yes. An insurance contract exists where the following elements concur: 1. The insured has an
insurable interest; 2. The insured is subject to a risk of loss by the happening of the designated peril; 3.
The insurer assumes the risk; 4. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and 5. In consideration of the insurer's
promise, the insured pays a premium.

2. No. The answer assailed by petitioner was in response to the question relating to the medical
history of the applicant. This largely depends on opinion rather than fact, especially coming from
respondent's husband who was not a medical doctor. Where matters of opinion or judgment are called
for, answers made in good faith and without intent to deceive will not avoid a policy even though they
are untrue. Thus, "(A)lthough false, a representation of the expectation, intention, belief, opinion, or
judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of
the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the
statement is material to the risk, if the statement is obviously of the foregoing character, since in such
case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry.
There is a clear distinction between such a case and one in which the insured is fraudulently and
intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be
actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such
case the intent to deceive the insurer is obvious and amounts to actual fraud."

3. Yes. In a contract of indemnity, payment should be made to the party who incurred the
expenses.

SATURNINO V. PHILAMLIFE - FALSE REPRESENTATION

7 SCRA 316

Facts:

2 months prior to the insurance of the policy, 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.
Notwithstanding the fact of her operation, Saturnino did not make a disclosure thereof in her
application for insurance. She stated therein that she did not have, nor had she ever had, among others
listed in the application, cancer or other tumors; that she had not consulted any physician, undergone
any operation or suffered any injury within the preceding 5 years.

She also stated that she had never been treated for, nor did she ever have any illness or disease peculiar
to her sex, particularly of the breast, ovaries, uterus and menstrual disorders.

The application also recited that the declarations of Saturnino constituted a further basis for the
issuance of the policy.

Issue:

Whether or not the insured made such false representation of material facts as to avoid the policy.

Held:

YES.

There can be no dispute that the information given by her in the application for insurance was false,
namely, that she never had cancer or tumors or consulted any physician or undergone any operation
within the preceding period of 5 years.

The question to determine is: Are the facts then falsely represented material? The Insurance Law
provides that “materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in forming his
estimate of the proposed contract, or making his inquiries.

The contention of appellants is that the facts subject of the representation were not material in view of
the non-medical nature of the insurance applied for, which does away with the usual requirement of
medical examination before the policy is issued. The contention is without merit. If anything, the
waiver of medical examination renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such information necessarily
constitutes an important factor which the insurer takes into consideration in deciding whether to issue
the policy or not.
Appellants also contend that there was no fraudulent concealment of the truth inasmuch as the insured
herself did not know, since her doctor never told her, that the disease for which she had been operated
on was cancer. In the first place, concealment of the fact of the operation itself was fraudulent, as there
could not have been any mistake about it, no matter what the ailment.

Secondly, in order to avoid a policy, it is not necessary to show actual fraud on the part of the insured. In
this jurisdiction, concealment, whether intentional or unintentional entitled 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 a rate of premium
agreed upon. The insurer, relying upon the belief that the insured will disclose every material fact
within his actual or presumed knowledge, is misled into a belief that the circumstances withheld does
not exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist.

F.PERSONS ENTITLED TO RECEIVE UNDER THE POLICY

Bonifacio Brothers, Inc. vs Mora 20 SCRA 261

Facts:

Enrique Mora mortgaged his Odlsmobile sedan car to HS Reyes Inc. with the condition that Mora would
insure the car with HS Reyes as beneficiary. The car was then insured with State Insurance Company and
the policy delivered to Mora. During the effectivity of the insurance contract, the car figured in an
accident. The company then assigned the accident to an insurance appraiserfor investigation and
appraisal of the damage. Mora without the knowledge and consent of HS Reyes, authorized Bonifacio
Bros to fix the car, using materials supplied by the Ayala Auto Parts Company.

For the cost of Labor and materials, Mora was billed P2,102.73. The bill was sent to the insurer’s
appraiser. The insurance company drew a check in the amount of the insurance proceeds and entrusted
the check to its appraiser for delivery to the proper party. The car was delivered to Mora without the
consent of HS Reyes, and without payment to Bonifacio Bros and Ayala.

Upon the theory that the insurance proceeds should be directly paid to them, Bonifacio and Ayala filed a
complaint against Mora and the insurer with the municipal court for the collection of P2,102.73. The
insurance company filed its answer with a counterclaim for interpleader, requiring Bonifacio and HS
Reyes to interplead in order to determine who has a better right to the proceeds.

Issue:

The main issue raised is whether there is privity of contract between the Bonifacio Bros. Inc and the
Ayala Auto Parts Co. on the one hand and the insurance company on the other.

Ruling:

1. No Privity. It is fundamental that contracts take effect only between the parties thereto, except
on some specific instances provided by law where the contract contains some stipulation in favor of a
third person (Art. 1311, Civil Code). Such stipulation is known as stipulation pour autrui or a provision in
favor of a third person not a party to the contract. Under this doctrine, a third person is allowed to avail
himself of a benefit granted to him by the terms of the contract, provided that the contracting parties
have clearly and deliberately conferred a favor upon such person (Art. 1311, Civil Code; Uy Tam, et al.
vs. Leonard, 30 Phil.. 471 ). Consequently, a third person not a party to the contract has no action
against the parties thereto, and cannot generally demand the enforcement of the same (Manila Railroad
Co. vs. Compañia Transatlantica, 38 Phil. 676).

The question of whether a third person has an enforceable interest in a contract, must be settled by
determining whether the contracting parties intended to tender him such an interest by deliberately
inserting terms in their agreement with the avowed purpose of conferring a favor upon such third
person. In this connection, this Court has laid down the rule that the fairest test to determine whether
the interest of a third person in a contract is a stipulation pour autrui or merely an incidental interest, is
to rely upon the intention of the parties as disclosed by their contract ( Uy Tam, et al. vs. Leonard,
supra).

A policy of insurance is a distinct and independent contract between the insured and insurer, and third
persons have no right either in a court of equity, or in a court of law, to the proceeds of it, unless there
be some contract of trust, expressed or implied, by the insured and third person (Lampano vs.Jose, 30
Phil. 537).

First Integrated Bonding & Insurance Company, Inc., petitioner, vs Hon. Harold M. Hernando, Victorino
Advincula, Romana Advicula, Silverio Blanco & The Sheriff of Manila and his Deputy Sheriffs,
respondents.

Facts:
Silverio Blanco was the owner of a passenger jeepney which he insured against liabilities for death and
injuries to third persons with First Integrated Bonding and Insurance Company, Inc. with the face value
of P30,000. On November 25, 1976, the said jeepney driven by Blanco himself bumped a five-year old
child, Deogracias Advincula, causing the latter’s death.

The child’s parents, the Advincula spouses brought a complaint for damages in the Regional Trial Court
of Abra against Silverio Blanco as well as impleading First Insurance in the complaint as insurer. On the
basis of the evidence presented by the Advincula spouses, judgment was rendered by the trial court in
favour of the spouses. The court adjudicated First Integrated Bonding and Insurance Company liable in
the amount of P23,663.50 which must be satisfied independently by it in favour of the spouses and the
balance of P6,336.50 shall also be paid by said insurance company to Silverio Blanco, the grand total
under the policy being P30,000. Herein petitioner filed a petition for relief from judgment from the
order of execution and judgment with preliminary injunction, but was denied by the court. Petitioner
the filed a motion for reconsideration of the order denying the petition for relief but the same was
denied. Hence, this petition for certiorari.

Issue/s:

Whether the trial court erred in holding petitioner liable in excess of the limits of liability as provided for
in the policy contract.

Whether the trial court erred in deciding for the respondent spouse(s) where there exists no cause of
action against herein petitioner.

Ruling:

It is the contention of the petitioner that the Advincula spouses have no cause of action against it.
Further as contended, as parents of the victim, they may proceed against the driver, Blanco on the basis
of the provisions of the New Civil Code. However, they have no cause of action against First Insurance,
because they are not parties to the insurance contract.

It is settled that where the insurance contract provides for indemnity against liability to a third party,
such third party can directly sue the insurer. The liability of the insurer to such third person is based on
contract while the liability of the insured to the third party is based on tort. Such is to protect injured
persons against the insolvency of the insured who causes such injury, and to give such injured person a
certain beneficial interest in the proceeds of the policy. It has been held that such created a contractual
relation which inures to the benefit of any and every person who may be negligently injured by the
named insured as if such injured person were specifically named in the policy.

In the event that the injured fails or refuses to include the insurer as party defendant in his claim for
indemnity against the insured, the latter is not prevented by law to avail of the procedural rules
intended to avoid multiplicity of suits. Not even a ‘no action’ clause under the policy which requires that
a final judgment be first obtained against the insured and that only thereafter can the person insured
recover on the policy can prevail over the Ruled of Court provisions aimed at avoiding multiplicity of
suits.

Petitioner cannot evade liability as insurer by hiding under the cloak of the insured. It liability is primary
and not dependent on the recovery of judgment from the insured. The insurer’s liability accrues
immediately upon the occurrence of the injury or event upon which the liability depends, and does not
depend on the recovery of judgment by the injured party against the insured.

However, it appears that the award of damages in favour of Blanco has no basis as it was not put up as a
claim against the insurer. However, since the decision of the trial court had become final and executory,
it can no longer be corrected or amended.

Petition dismissed.

Sherman Shafer, petitioner, vs Hon. Judge, Regional Trial Court of Olongapo City, Branch 75, and Makati
Insurance Company, Inc., respondents.

Facts:

Petitioner Sherman obtained a private car policy over his Ford Laser car from Makati Insurance
Company, Inc., for third party liability. During the effectivity of the policy, information for reckless
imprudence resulting in damage to property and serious physical injuries was filed against petitioner.
The complaint alleged that Sherman recklessly drove his car which bumped a Volkswagen owned and
driven by Felino Ilano y Legaspi, thereby causing damage to the car (Volkswagen) and physical injuries
were suffered by one Jovencio Poblete, Sr. as a result of such accident who was on board of the said
Volkswagen. The owner of the damaged Volkswagen car filed a separate civil action against petitioner
for damages while Jovencio did not reserve his right to file a separate civil action for damages.

Petitioner ten filed a third party complaint against herein private respondent, Makati Insurance
Company, Inc. The court however issued an order dismissing the third party complaint on the ground
that it was premature, based on the premise that unless the herein petitioner (accused) is found guilty
and sentenced to pay the offended party (Poblete, Sr.) indemnity for damages, the third party complaint
is without cause of action. The better procedure is for accused to wait for the outcome of the criminal
aspect of the case to determine whether or not accused, also the third party plaintiff, has a cause of
action against the third party defendant for the enforcement of its third party liability under the
insurance contract.

Issue/s:

Whether the court a quo erred in dismissing the third party complaint of herein petitioner Sherman
against Makati Insurance Company Inc.

Ruling:
Compulsory Motor Vehicle Liability Insurance (third party liability) is primarily intended to provide
compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result
of a negligent operation and use of motor vehicles. The victims and/or their defendants are assured of
immediate financial assistance, regardless of the financial capacity of motor vehicle owners. Where an
insurance policy insures directly against liability, the insurer’s liability accrues immediately upon the
occurrence of the injury or event upon which the liability depends, and does not depend on the
recovery of judgment by the injured party against the insured. The injured for whom the contract of
insurance is intended can sue directly the insurer. The liability of the insurance company under the
Compulsory Motor Vehicle Liability insurance is for loss or damage.

The court a quo erred in dismissing petitioner’s third party complaint on the ground that petitioner had
no cause of action yet against the insurance company (third party defendant). There is no need on the
part of the insured to wait for the decision of the trial court finding him guilty of reckless imprudence.
The occurrence of the injury to the third party immediately gave rise to the liability of the insurer under
its policy. Petition granted.

G. INCONTESTABLE CLAUSE

Emilio Tan, et al. vs Court of Appeals and Philam Life

Facts:

This is a petition for review on certiorari of the CA's decision affirming the Insurance Commission in
dismissing petitioners' complaint for the recovery of the proceeds of their late father.

Their father, Tan Lee Siong, applied for Life Insurance with respondent in the amount of 80000 in Sept.
23, 1973. It was issued on Nov. 6, 1973. Subsequently he died of Hepatoma on April 26, 1975.
Respondent company denied payment and rescinded the policy, returning only the amount of premium
paid, on the ground of misrepresentation and concealment. The policy in question contained an
incontestability clause.

Petitioner's filed a case with the Insurance Commission, but was dismissed. The dismissal was affirmed
by the CA.
Petitioners argue that the insurance law on incontestability prevents the insurer from exercising the
right to rescind after the death of the insured.

They also question the finding of concealment, saying that no evidence was presented to show that it
was explained in a layman's language, and that failure of the insurer to conduct medical examination,
the insurer waived whatever imperfection by ratification. They also argue that the application form for
insurance pertaining to the medical history were so small as to necessitate the application of the fine
print rule.

Issues

Does the death of the insured preclude the insurer from rescinding the policy?

Did the insurer waive the concealment by ratification by not conducting medical examination?

Does the "fine print" or contract of adhesion rule apply in this case?

Ruling.

PETITION DENIED

No.

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 insured's 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 years."
The policy was issued on November 6, 1973 and the insured died on April 26, 1975. The policy was thus
in force for a period of only one year and five months. Considering that the insured died before the two-
year period had lapsed, respondent company is not, therefore, barred from proving that the policy is
void ab initio by reason of the insured's fraudulent concealment or misrepresentation. Moreover,
respondent company rescinded the contract of insurance and refunded the premiums paid on
September 11, 1975, previous to the commencement of this action on November 27, 1975.

The insurer has two years from the date of issuance of the insurance contract or of its last reinstatement
within which to contest the policy, whether or not, the insured still lives within such period. After two
years, the defenses of concealment or misrepresentation, no matter how patent or well founded, no
longer lie. Congress felt this was a sufficient answer to the various tactics employed by insurance
companies to avoid liability. The petitioners' interpretation would give rise to the incongruous situation
where the beneficiaries of an insured who dies right after taking out and paying for a life insurance
policy, would be allowed to collect on the policy even if the insured fraudulently concealed material
facts

2. No

The presumption is that a person intends the ordinary consequence of his voluntary act and takes
ordinary care of his concerns.

The evidence for respondent company shows that on September 19, 1972, the deceased was examined
by Dr. Victoriano Lim and was found to be diabetic and hypertensive; that by January, 1973, the
deceased was complaining of progressive weight loss and abdominal pain and was diagnosed to be
suffering from hepatoma.

Another physician, Dr. Wenceslao Vitug, testified that the deceased came to see him on December 14,
1973 for consultation and claimed to have been diabetic for five years.

Because of the concealment made by the deceased of his consultations and treatments for
hypertension, diabetes and liver disorders, respondent company was thus misled into accepting the risk
and approving his application as medically standard and dispensing with further medical investigation
and examination. For as long as no adverse medical history is revealed in the application form, and
applicant for insurance is presumed to be healthy and physically fit and no further medical investigation
or examination is conducted by respondent company
3. Fine print rule. See Sweet Lines v Teves 1978 (Transpo) for further study.

"All provisions, conditions, or exceptions which in any way tend to work a forfeiture of the policy should
be construed most strongly against those for whose benefit they are inserted, and most favorably
toward those against whom they are meant to operate."

There is no showing that the questions in the application form for insurance regarding the insured's
medical history are in smaller print than the rest of the printed form or that they are designed in such a
way as to conceal from the applicant their importance.

H. LIABILITY UNDER OPEN POLICY

DEVELOPMENT INSURANCE CORP v. IAC and PHILIPPINE UNION REALTY DEVELOPMENT CORP.

*procedurally heavy case

Facts:

A fire occurred in the building of the private respondent and it sued for recovery of damages from the
petitioner on the basis of an insurance contract between them. The petitioner allegedly failed to answer
on time and was declared in default by the trial court. A judgment of default was subsequently rendered
on the strength of the evidence submitted ex parte by the private respondent, which was allowed full
recovery of its claimed damages. On learning of this decision, the petitioner moved to lift the order of
default, invoking excusable neglect, and to vacate the judgment by default. Its motion was denied. It
then went to the respondent court, which affirmed the decision of the trial court in toto.

The amount of the policy in question is for 2500000. Petitioner questions the actual amount of
indemnity based on Condition 17 of the policy making the insured as its own insurer in case the property
at the time of the fire be collectively of greater value than the sum insured, and shall bear a ratable
proportion of the loss accordingly. The value of the building at the time of the fire was allegedly st
5800000. The policy in question is an Open Policy.

Issue

Was there excusable neglect justifying the motion to lift the order of default?

What is the amount of indemnity?

Ruling

PETITION DENIED. DECISION AFFIRMED IN FULL.

Yes

It is indisputable that summons was served on it, through its senior vice-president, on June 19, 1980. On
July 14, 1980, ten days after the expiration of the original 15-day period to answer (excluding July 4), its
counsel filed an ex parte motion for an extension of five days within which to file its answer. On July 18,
1980, the last day of the requested extension — which at the time had not yet been granted — the
same counsel filed a second motion for another 5-day extension, fourteen days after the expiry of the
original period to file its answer. The trial court nevertheless gave it five days from July 14, 1980, or until
July 19, 1980, within which to file its answer. But it did not. It did so only on July 26, 1980, after the
expiry of the original and extended periods, or twenty-one days after the July 5, deadline. As a
consequence, the trial court, on motion of the private respondent filed on July 28, 1980, declared the
petitioner in default. This was done almost one month later, on August 25, 1980. Even so, the petitioner
made no move at all for two months thereafter. It was only on October 27, 1980, more than one month
after the judgment of default was rendered by the trial court on September 26, 1980, that it filed a
motion to lift the order of default and vacate the judgment by default.
The pattern of inexcusable neglect, if not deliberate delay, is all too clear. The petitioner has slumbered
on its right and awakened too late.

While it is true that in Trajano v. Cruz, which it cites, this Court declared "that judgments by default are
generally looked upon with disfavor," the default judgment in that case was set aside precisely because
there was excusable neglect.

Besides, the petitioners in Trajano had a valid defense against the complaint filed against them, and this
justified a relaxation of the procedural rules to allow full hearing on the substantive issues raised. In the
instant case, by contrast, the petitioner must just the same fail on the merits even if the default orders
were to be lifted. As the respondent Court observed, "Nothing would be gained by having the order of
default set aside considering the appellant has no valid defense in its favor.

2.

With regards to the condition in the policy.

There is no evidence on record that the building was worth P5,800,000.00 at the time of the loss; only
the petitioner says so and it does not back up its self-serving estimate with any independent
corroboration. On the contrary, the building was insured at P2,500,000.00, and this must be considered,
by agreement of the insurer and the insured, the actual value of the property insured on the day the fire
occurred. This valuation becomes even more believable if it is remembered that at the time the building
was burned it was still under construction and not yet completed.

Open policy

Sec 60 of the Insurance code.

"an open policy is one in which the value of the thing insured is not agreed upon but is left to be
ascertained in case of loss." This means that the actual loss, as determined, will represent the total
indemnity due the insured from the insurer except only that the total indemnity shall not exceed the
face value of the policy.

The actual loss has been ascertained in this case and, to repeat, this Court will respect such factual
determination in the absence of proof that it was arrived at arbitrarily. There is no such showing. Hence,
applying the open policy clause as expressly agreed upon by the parties in their contract, we hold that
the private respondent is entitled to the payment of indemnity under the said contract in the total
amount of P508,867.00.

i. PRESCRIPTION OF ACTION

SUN INSURANCE OFFICE, LTD.vs. COURT OF APPEALS and EMILIO TAN [G.R. No. 89741. March 13, 1991.]

Facts:

On August 15, 1983, herein private respondent Emilio Tan took from herein petitioner a P300,000.00
property insurance policy to cover his interest in the electrical supply store of his brother housed in a
building in Iloilo City. Four (4) days after the issuance of the policy, the building was burned including the
insured store. On August 20, 1983, Tan filed his claim for fire loss with petitioner, but on February 29,
1984, petitioner wrote Tan denying the latter's claim. On April 3, 1984, Tan wrote petitioner, seeking
reconsideration of the denial of his claim. On September 3, 1985, Tan's counsel wrote the Insurer
inquiring about the status of his April 3, 1984 request for reconsideration. Petitioner answered the letter
on October 11, 1985, advising Tan's counsel that the Insurer's denial of Tan's claim remained
unchanged.

Issue:

Whether or not the filing of a motion for reconsideration interrupts the twelve (12) months prescriptive
period to contest the denial of the insurance claim.

Ruling:

No. The filing of a motion for reconsideration does not interrupt the twelve (12) months prescriptive
period to contest the denial of the insurance claim.

The insured was definitely advised of the rejection of his claim through the letter of petitioner dated
February 29, 1984 of the denial of Tan's claim which was clearly manifested in said letter, the pertinent
portion of which reads:
"We refer to your claim for fire loss of 20th August, 1983 at Huervana St., La Paz, Iloilo City.

"We now have the report of our adjusters and after a thorough and careful review of the same and the
accompanying documents at hand, we are rejecting, much to our regret, liability for the claim under our
policies for one or more of the following reasons:

1.. . .

2.. . .

"For your information, we have referred all these matters to our lawyers for their opinion as to the
compensability of your claim, particularly referring to the above violations. It is their opinion and in fact
their strong recommendation to us to deny your claim. By this letter, we do not intend to waive or
relinquish any of our rights or defenses under our policies of insurance."

Condition 27 of the Insurance Policy, which is the subject of the conflicting contentions of the parties,
reads:

"27.Action or suit clause — If a claim be made and rejected and an action or suit be not commenced
either in the Insurance Commission or in any court of competent jurisdiction within twelve (12) months
from receipt of notice of such rejection, or in case of arbitration taking place as provided herein, within
twelve (12) months after due notice of the award made by the arbitrator or arbitrators or umpire, then
the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be
recoverable hereunder

In enunciating the above-cited principle, this Court had definitely settled the rationale for the necessity
of bringing suits against the Insurer within one year from the rejection of the claim. The contention of
the respondents that the one-year prescriptive period does not start to run until the petition for
reconsideration had been resolved by the insurer, runs counter to the declared purpose for requiring
that an action or suit be filed in the Insurance Commission or in a court of competent jurisdiction from
the denial of the claim. To uphold respondents' contention would contradict and defeat the very
principle which this Court had laid down. Moreover, it can easily be used by insured persons as a
scheme or device to waste time until any evidence which may be considered against them is destroyed.

JACQUELINE JIMENEZ VDA. DE GABRIEL vs. HON. COURT OF APPEALS and FORTUNE INSURANCE &
SURETY COMPANY, INC. [G.R. No. 103883. November 14, 1996.]

Facts:

Marcelino Gabriel, the insured, was employed by Emerald Construction & Development Corporation
("ECDC") at its construction project in Iraq. He was covered by a personal accident insurance in the
amount of P100,000.00 under a group policy 2 procured from private respondent by ECDC for its
overseas workers. The insured risk was for "(b)odily injury caused by violent accidental external and
visible means which injury (would) solely and independently of any other cause" 3 result in death or
disability.

On 22 May 1982, within the life of the policy, Gabriel died in Iraq. A year later, or on 12 July 1983, ECDC
reported Gabriel's death to private respondent by telephone.4 Among the documents thereafter
submitted to private respondent were a copy of the death certificate 5 issued by the Ministry of Health
of the Republic of Iraq — which stated

"REASON OF DEATH: UNDER EXAMINATION NOW — NOT YET KNOWN "6

and an autopsy report 7 of the NBI to the effect that "(d)ue to advanced state of postmortem
decomposition, cause of death (could) not be determined." 8

Following a series of communications between petitioner and private respondent, the latter, on 22
September 1983, ultimately denied the claim of ECDC on the ground of prescription. 9 Petitioner went
to the Regional Trial Court of Manila. In her complaint against ECDC and private respondent, she averred
that her husband died of electrocution while in the performance of his work

Issue:

Whether or not the petitioner timely filed her notice of claim within the prescriptive period.

Ruling:

NO. The petitioner did not timely file her claim on the insurance proceeds.

Private respondent correctly invoked Section 384 of the Insurance Code; viz:

"Sec. 384.Any person having any claim upon the policy issued pursuant to this chapter shall, without any
unnecessary delay, present to the insurance company concerned a written notice of claim setting forth
the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice
of claim must be filed within six months from date of the accident, otherwise, the claim shall be deemed
waived. Action or suit for recovery of damage due to loss or injury must be brought, in proper cases,
with the Commissioner or the Courts within one year from denial of the claim, otherwise, the claimant's
right of action shall prescribe."

The notice of death was given to private respondent, concededly, more than a year after the death of
petitioner's husband. Private respondent, in invoking prescription, was not referring to the one-year
period from the denial of the claim within which to file an action against an insurer but obviously to the
written notice of claim that had to be submitted within six months from the time of the accident.