Cha V.

CA (1997)
G.R. No. 124520 August 18, 1997

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

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.
 Great Pacific v CA G.R. No. 113899. October 13, 1999

Facts:
A contract of group life insurance was executed between petitioner Great Pacific and Development Bank Grepalife
agreed to insure the lives of eligible housing loan mortgagors of DBP.

Wilfredo Leuterio, a physician and a housing debtor of DBP, applied for membership in the group life insurance
plan. In an application form, Dr. Leuterio answered questions concerning his health condition as follows:
“7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes, lung,
kidney or stomach disorder or any other physical impairment?

8. Are you now, to the best of your knowledge, in good health?”

Grepalife issued a coverage to the value of P86,200.00 pesos.

Dr. Leuterio died due to “massive cerebral hemorrhage.” DBP submitted a death claim to Grepalife. Grepalife denied
the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance coverage. Grepalife
insisted 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.

The widow, respondent Medarda V. Leuterio, filed against Grepalife.

The trial court rendered a decision in favor of respondent widow and against Grepalife. The Court of
Appeals sustained the trial court’s decision.

Issues:
1. Whether the Court of Appeals erred in holding petitioner liable to DBP as beneficiary in a group life insurance
contract from a complaint filed by the widow of the decedent/mortgagor?
2. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he had hypertension, which
would vitiate the insurance contract?

Held: No to all three. Petition dismissed.

Ratio:
1. Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest, hence
the trial court acquired no jurisdiction over the case. It argues that when the Court of Appeals affirmed the trial court’s
judgment, Grepalife was held liable to pay the proceeds of insurance contract in favor of DBP, the indispensable party
who was not joined in the suit.

The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy
stating that: “In the event of the debtor’s death before his indebtedness with the Creditor [DBP] shall have been fully
paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if
there is any, shall then be paid to the beneficiary/ies designated by the debtor.” When DBP’s claim was denied, it
collected the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private
respondent.

Gonzales vs. Yek Tong Lin- Insured, being the person with whom the contract was made, is primarily the proper
person to bring suit thereon. Insured may thus sue, although the policy is taken wholly or in part for the benefit of
another person named or unnamed, and although it is expressly made payable to another as his interest may appear or
otherwise. Although a policy issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable
to him, yet the mortgagor may sue thereon in his own name, especially where the mortgagee’s interest is less than the
full amount recoverable under the policy. Insured may be regarded as the real party in interest, although he has
assigned the policy for the purpose of collection, or has assigned as collateral security any judgment he may obtain.
And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he
has an insurable interest or not, and such person may recover it whatever the insured might have recovered,[14] the
widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

2. The medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body of the
decedent. The medical certificate stated that hypertension was “the possible cause of death.” Hence, the statement of
the physician was properly considered by the trial court as hearsay.

Contrary to appellant’s allegations, there was no sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the insured’s widow who was not even sure if the medicines taken by Dr.
Leuterio were for hypertension, the appellant had not proven nor produced any witness who could attest to Dr.
Leuterio’s medical history.

Appellant insurance company had failed to establish that there was concealment made by the insured, hence, it cannot
refuse payment of the claim.”

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract.
Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such
defense by satisfactory and convincing evidence rests upon the insurer.
 Harvardian Colleges v. Country Bankers Insurance Corp.

Facts:
> Harvardian is a family corporation, the stockholders of which are Ildefonso Yap, Virginia King Yap and their
children.
> Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian to insure its school building. Although
at first reluctant, Harvardian agreed.
> Country Banks sent an inspector to inspect the school building and agreed to insure the same for P500,000 for which
Harvardian paid an annual premium of P2,500.
> On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance policy. On March 12, 1980, (39 days
before I was born… hehehehe )during the effectivity of said insurance policy, the insured property was totally burned
rendering it a total loss.
> A claim was made by plaintiff upon defendant but defendant denied it contending that plaintiff had no insurable
interest over the building constructed on the piece of land in the name of the late Ildefonso Yap as owner.
> It was contended that both the lot and the building were owned by Ildefonso Yap and NOT by the Harvardian
Colleges.

Issue:
Whether or not Harvardian colleges has a right to the proceeds.

Held:
Harvardian has a right to the proceeds.
Regardless of the nature of the title of the insured 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
continued 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 its destruction, termination or injury by the happening of the event insured against.

Here Harvardian was not only in possession of the building but was in fact using the same for several years with the
knowledge and consent of Ildefonso Yap. It is reasonably fair to assume that had the building not been burned,
Harvardian would have been allowed the continued use of the same as the site of its operation as an educational
institution. Harvardian therefore would have been directly benefited by the preservation of the property, and certainly
suffered a pecuniary loss by its being burned.
 ANG KA YU vs. PHOENIX ASSURANCE CO. LTD.

FACTS:Ang Ka Yu, herein petitioner, was engaged in the business of dyeing and washing clothes. Thiswould require
his clients to deliver and deposit to the petitioner such clothes that would require hisservice. He acquired from Phoenix
Assurance Co. Ltd., herein respondent, a policy insuring theeffects of his business. When the clothes he had in his
possession were lost, Ang Ka Yu sought torecover from Phoenix Assurance. However, the latter refused the claim and
denied liability on theground that the petitioner was a mere possessor of said items, and therefore did not have
anyinsurable interest to the same.

ISSUE:Whether or not the petitioner, allegedly being a mere possessor, has an insurable interest in theproperty of
concern.

HELD:Yes. A person to whom clothes are delivered for dyeing or washing has insurable interest on suchclothes,
because destruction of the textiles will mean pecuniary loss to him as he will be deprived ofthe compensation he would
be entitled to for dyeing the same, not to mention his pecuniary liabilityfor labour and expenses.A person who is
interested in the safety and preservation of materials in his possession belonging tothird parties because he stands either
to benefit from their continued existence or to be prejudicedby their destruction, has an insurable interest thereon which
is not necessarily limited to the extent ofhis liability to the owners thereof. A person having mere right of possession of
property may insure itto its full value and in his own name, even when he is not responsible for its safekeeping.
 Gaisano Cagayan, Inc. V. Insurance Company Of North America (2006)

G.R. No. 147839 June 8, 2006

Lessons Applicable: Existing Interest (Insurance)
Laws Applicable: Article 1504,Article 1263, Article 2207 of the Civil Code, Section 13 of Insurance Code

FACTS:

 Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. while Levi Strauss (Phils.) Inc.
(LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co
 IMC and LSPI separately obtained from Insurance Company of North America fire insurance policies for their
book debt endorsements related to their ready-made clothing materials which have been sold or delivered to
various customers and dealers of the Insured anywhere in the Philippines which are unpaid 45 days after the time
of the loss
 February 25, 1991: Gaisano Superstore Complex in Cagayan de Oro City, owned by Gaisano Cagayan, Inc.,
containing the ready-made clothing materials sold and delivered by IMC and LSPI was consumed by fire.
 February 4, 1992: Insurance Company of North America filed a complaint for damages against Gaisano Cagayan,
Inc. alleges that IMC and LSPI filed their claims under their respective fire insurance policies which it paid thus it
was subrogated to their rights
 Gaisano Cagayan, Inc: not be held liable because it was destroyed due to fortuities event or force majeure
 RTC: IMC and LSPI retained ownership of the delivered goods until fully paid, it must bear the loss (res perit
domino)
 CA: Reversed - sales invoices is an exception under Article 1504 (1) of the Civil Code to res perit domino
ISSUE: W/N Insurance Company of North America can claim against Gaisano Cagayan for the debt that was isnured

HELD: YES. petition is partly GRANTED. order to pay P535,613 is DELETED

 insurance policy is clear that the subject of the insurance is the book debts and NOT goods sold and delivered to
the customers and dealers of the insured
 ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred
to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether
actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer
of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery;
 IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of
the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of
title, but whether insured has substantial economic interest in the property
 Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal,
or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly
damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may
consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy,
coupled with an existing interest in that out of which the expectancy arises.
 Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its
destruction.
 it is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it
be injured or destroyed by the peril against which it is insured
 an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of,
the subject
 matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest
 insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that remained
unpaid 45 days after the fire - obligation is pecuniary in nature
 obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the
obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case
of fortuitous event
 Article 1263 of the Civil Code in an obligation to deliver a generic thing, the loss or destruction of anything of the
same kind does not extinguish the obligation (Genus nunquan perit)
 The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and
IMC as the insured, but also the amount paid to settle the insurance claim
 Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract.
 As to LSPI, no subrogation receipt was offered in evidence.
 Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613
 ETERNAL VS. PHILAMLIFE
G.R. No. 166245
April 09, 2008

FACTS: Respondent Philamlife entered into an agreement denominated as Creditor Group Life Policy with
petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal
who purchased burial lots from it on installment basis would be insured by Philamlife. The amount of
insurance coverage depended upon the existing balance of the purchased burial lots.
The relevant provisions of the policy are:

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured.
However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company.
xx

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a
copy of the application of each purchaser, and the amounts of the respective unpaid balances of all insured
lot purchasers. Eternal complied by submitting a letter dated December 29, 1982, containing a list of
insurable balances of its lot buyers for October 1982. One of those included in the list as “new business” was
a certain John Chuang. His balance of payments was 100K. on August 2, 1984, Chuang died.

Eternal sent a letter dated to Philamlife, which served as an insurance claim for Chuang’s death. Attached to
the claim were certain documents. In reply, Philamlife wrote Eternal a letter requiring Eternal to submit the
additional documents relative to its insurance claim for Chuang’s death. Eternal transmitted the required
documents through a letter which was received by Philamlife.

After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s insurance claim.
This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000.
In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter a portion of which
reads:

The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens
Memorial Park in October 1982 for the total maximum insurable amount of P100,000.00 each. No
application for Group Insurance was submitted in our office prior to his death on August 2, 1984

Eternal filed a case with the RTC for a sum of money against Philamlife, which decided in favor of Eternal,
ordering Philamlife to pay the former 100K representing the proceeds of the policy.

CA reversed. Hence this petition.

ISSUE: WON Philamlife should pay the 100K insurance proceeds

HELD: petition granted.

YES
An examination of the provision of the POLICY under effective date of benefit, would show ambiguity
between its two sentences. The first sentence appears to state that the insurance coverage of the clients of
Eternal already became effective upon contracting a loan with Eternal while the second sentence appears to
require Philamlife to approve the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion which must be construed
liberally in favor of the insured and strictly against the insurer in order to safeguard the latter’s interest

On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a party’s
purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is
created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the
insurance application. The second sentence of the Creditor Group Life Policy on the Effective Date of Benefit
is in the nature of a resolutory condition which would lead to the cessation of the insurance contract.
Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the
insured; it cannot be interpreted as a termination of the insurance contract. The termination of the
insurance contract by the insurer must be explicit and unambiguous.
 DBP Pool of Accredited insurance vs Radio Mindanao Network (2006)
February 14, 2013 markerwins Insurance, Mercantile Lawinsurance, merc

Facts:

In the evening of July 27, 1988, the radio station of Radio Mindanao Network located at the SSS Building in Bacolod
City was burned down causing damage in the amount of over one million pesos. Respondent sought to recover under
two insurance policies but the claims were denied on the basis that the case of the loss was an excepted risk under
condition no. 6 (c) and (d), to wit:

6. This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or
indirectly, of any of the following consequences, namely:

(c) War, invasion, act of foreign enemies, hostilities, or warlike operations (whether war be declared or not), civic war.

(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power.

The insurers maintained that based on witnesses and evidence gathered at the site, the fire was caused by the members
of the Communist Party of the Philippines/New People’s Army. Hence the refusal to honor their obligations.

The trial court and the CA found in favor of the respondent. In its findings, both courts mentioned the fact that there
was no credible evidence presented that the CCP/NPA did in fact cause the fire that gutted the radio station in Bacolod.

Issue:

WON the insurance companies are liable to pay Radio Mindanao Network under the insurance policies?

Held: Yes.

The Court will not disturb the factual findings of the appellant and trial courts absent compelling reason. Under this
mode of review, the jurisdiction of the court is limited to reviewing only errors of law.

– Particularly in cases of insurance disputes with regard to excepted risks, it is the insurance companies which have the
burden to prove that the loss comes within the purview of the exception or limitation set up. It is sufficient for the
insured to prove the fact of damage or loss. Once the insured makes out a prima facie case in its favor, the duty or
burden of evidence shifts to the insurer to controvert said prima facie case.
 Insular Life Assurance Co., Ltd. vs Serafin Feliciano (1941)
73 Phil. 201 (40 Off. Gaz. 2842) – Mercantile Law – Insurance Law – Representation – Insurance Agent’s Fraud
Evaristo Feliciano was issued an insurance policy by Insular Life. In September 1935, he died. His heirs (Serafin
Feliciano et al) filed an insurance claim but Insular Life denied the application as it averred that Feliciano’s application
was attended by fraud. It was later found in court that the insurance agent and the medical examiner of Insular Life
who assisted Feliciano in signing the application knew that Feliciano was already suffering from tuberculosis; that they
were aware of the true medical condition of Feliciano yet they still made it appear that he was healthy in the insurance
application form; that Feliciano signed the application in blank and the agent filled the information for him.
ISSUE: Whether or not Insular Life can avoid the insurance policy by reason of the fact that its agent knowingly and
intentionally wrote down the answers in the application differing from those made by Feliciano hence instead of
serving the interests of his principal, acts in his own or another’s interest and adversely to that of his principal.
HELD: No. Insular Life must pay the insurance policy. The weight of authority is that if an agent of the insurer, after
obtaining from an applicant for insurance a correct and truthful answer to interrogatories contained in the application
for insurance, without knowledge of the applicant fills in false answers, either fraudulently or otherwise, the insurer
cannot assert the falsity of such answers as a defense to liability on the policy, and this is true generally without regard
to the subject matter of the answers or the nature of the agent’s duties or limitations on his authority, at least if not
brought to the attention of the applicant.
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.
 PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF APPEALS
G.R. No. 125678, March 18, 2002 (YNARES-SANTIAGO, J.)

FACTS:
Ernani Trinos applied for a health care coverage with Philamcare Health Systems, Inc. To the question ‘Have you or
any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer,
liver disease, asthma or peptic ulcer?’, Ernani answered ‘No’. Under the agreement, Ernani is entitled to avail of
hospitalization benefits and out-patient benefits. The coverage was approved for a period of one year from March 1,
1988 to March 1, 1989. The agreement was however extended yearly until June 1, 1990 which increased the amount of
coverage to a maximum sum of P75,000 per disability.

During the period of said coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center
(MMC) for one month. While in the hospital, his wife Julita tried to claim the benefits under the health care agreement.
However, the Philamcare denied her claim alleging that the agreement was void because Ernani concealed his medical
history. Doctors at the MMC allegedly discovered at the time of Ernani’s confinement that he was hypertensive,
diabetic and asthmatic, contrary to his answer in the application form. Thus, Julita paid for all the hospitalization
expenses.

After Ernani was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted
at the Chinese General Hospital. Due to financial difficulties, however, respondent brought her husband home again. In
the morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him
back to the Chinese General Hospital where he died on the same day.

Julita filed an action for damages and reimbursement of her expenses plus moral damages attorney’s fees against
Philamcare and its president, Dr. Benito Reverente. The Regional Trial court or Manila rendered judgment in favor of
Julita. On appeal, the decision of the trial court was affirmed but deleted all awards for damages and absolved
petitioner Reverente. Hence, this petition for review raising the primary argument that a health care agreement is not an
insurance contract; hence the “incontestability clause” under the Insurance Code does not apply.

ISSUES:
(2) Whether or not there is concealment of material fact made by Ernani

HELD:
(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 I good faith and without intent to
deceive will not avoid a policy even though they are untrue.

The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract.
Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty
to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with
or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound to answer to the extent agreed upon. In the end, the liability of
the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or
wherever he avails of the covered benefits which he has prepaid.

Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which
prepared the contract – the insurer. By reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of
the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements.
 Sun Life v. CA - Concealment in Insurance
245 SCRA 268 (1995)

Facts:
> On April 15, 1986, Bacani procured a life insurance contract for himself from Sun Life. He was issued a life
insurance policy with double indemnity in case of accidental death. The designated beneficiary was his mother,
Bernarda.
> On June 26, 1987, the insured died in a plane crash. Bernarda Bacani filed a claim with Sun Life, seeking the
benefits of the insurance. Sun Life conducted an investigation and its findings prompted it to reject the claim.
> Sun Life discovered that 2 weeks prior to his application, Bacani was examined and confined at the Lung Center of
the Philippines, where he was diagnosed for renal failure. During his confinement, the deceased was subjected to
urinalysis, ultra-sonography and hematology tests. He did not reveal such fact in his application.
> In its letter, Sun Life informed Berarda, 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.
> Bernarda and her husband, filed an action for specific performance against Sun Life. RTC ruled for Bernarda
holding that the facts concealed by the insured were made in good faith and under the belief that they need not be
disclosed. Moreover, it held that the health history of the insured was immaterial since the insurance policy was "non-
medical." CA affirmed.

Issue: Whether or not the beneficiary can claim despite the concealment.

Held:
NOPE.
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.

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 communication is due, in forming his estimate of the disadvantages of the proposed contract or in
making his inquiries (The Insurance Code, Sec 31)

The terms of the contract are clear. The insured is specifically required to disclose to the insurer matters relating to his
health. 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 insured's failure to disclose the fact that he was hospitalized for
two weeks prior to filing his application for insurance, raises grave doubts about his bonafides. It appears that such
concealment was deliberate on his part.
 Vda. De Canilang v. CA - Concealment
223 SCRA 443 (1993)

Facts:
> Canilang consulted Dr. Claudio and was diagnosed as suffering from "sinus tachycardia." 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, Canilang applied for a "non-medical" insurance policy with Grepalife naming his
wife, as his beneficiary. Canilang was issued ordinary life insurance with the face value of P19,700.
> On 5 August 1983, Canilang died of "congestive heart failure," "anemia," and "chronic anemia." The wife as
beneficiary, filed a claim with Grepalife which the insurer denied on the ground that the insured had concealed material
information from it.
> Vda Canilang filed a complaint with the Insurance Commissioner against Grepalife contending that as far as she
knows her husband was not suffering from any disorder and that he died of kidney disorder.
> Grepalife was ordered to pay the widow by the Insurance Commissioner holding that there was no intentional
concealment on the Part of Canilang and that Grepalife had waived its right to inquire into the health condition of the
applicant by the issuance of the policy despite the lack of answers to "some of the pertinent questions" in the insurance
application. CA reversed.

Issue: Whether or not Grepalife is liable.

Held:
SC took note of the fact that Canilang failed to disclose that hat he had twice consulted Dr. Wilfredo B. Claudio who
had found him to be suffering from "sinus tachycardia" and "acute bronchitis. Under the relevant provisions of the
Insurance Code, the information concealed must be information which the concealing party knew and "ought to [have]
communicate[d]," that is to say, information which was "material to the contract.
The information which Canilang failed to disclose was material to the ability of Grepalife 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 Grepalife 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 Canilang from Grepalife 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; that "probable and reasonable influence of the facts" concealed must, of course, be determined objectively,
by the judge ultimately.
SC found it difficult to take seriously the argument that Grepalife had waived inquiry into the concealment by issuing
the insurance policy notwithstanding Canilang's failure to set out answers to some of the questions in the insurance
application. Such failure precisely constituted concealment on the part of Canilang. Petitioner's argument, if accepted,
would obviously erase Section 27 from the Insurance Code of 1978.
 Prudential Guarantee Assurance Inc. vs. Trans Asia Shipping Lines
G.R. No. 151890 June 20, 2006

Facts:

Trans Asia is the owner of the vessel M/V Asia Korea. Prudential Guarantee and Assurance Inc. insured said vessel for
loss/damage of the hull and machinery arising from perils of fire and explosion beginning from the period of July 1, 1993
until July 1, 1994. While the policy was in force, a fire broke out. Trans Asia file its notice of claim for damages sustained
by the vessel. It also reserved its right to subsequently notify Prudential as to the full amount of the claim upon final survey
and determination by the average adjuster Richard Hogg International of the damage sustained by the reason of fire. Trans
Asia executed a document denominated "Loan and Trust Receipt" amounting to Php 3,000,000. Prudential Guarantee and
Assurance Inc. denied the former's claim and requested for the return of the said amount. The insurance company contends
that there was a breach in the policy conditions, specifically, "Warranted Vessel Classed and Class Maintained".

The trial court held that Trans Asia failed to prove its compliance with the terms of the warranty. It further explained
that the concealment made by Trans Asia is sufficient to avoid the policy. Prudential, as the injured party, is entitled to
rescind to rescind the contract. The trial court dismissed the complaint and directed Trans Asia to return the "loan"
extended by Prudential.

The Court of Appeals reversed the decision of the trial court. It contends that Prudential had the burden to show that there
was a breach in the warranty and which it failed to do so. The Court considered Prudential's admission that, at the time the
insurance contract was entered into, the vessel was properly classed by the Bureau Veritas, a classification recignized by the
industry. It further contends that then subject warranty was in a form of a rider, hence, such contract should be counstrued
against Prudential. Finally, it interpreted the transaction between the parties as one of subrogation, instead of a loan. Thus,
the amount given to Trans Asia was considered to be a partial payment to its claim under the policy.

Issue/s:

1.)WON there was a breach in the warranty of the contract.

2.) WON such contract partakes the nature of a loan.

Held:

The Supreme Court held that:

1.) Prudential failed to establish that Trans Asia had violated and breached the policy condition provided in the insurance
contract. The latter was able to establish proof of loss and coverage of the loss. Prudential also made a categorical admission
at the time of the procurement of the insurance contract that the vessel was properly classified by the Bureau Veritas.

Assuming that there was a breach in the policy, the renewal of the insurance policy for two consecutive years after the
loss is deemed as a waiver on the part of Prudential. Breach of a warranty or of a condition renders the contract
defeasible at the option of the insurer; but if he so elects, he may waive his privilege and power to rescind by the mere
expression of an intention so to do.

2.) the amount granted by Prudential to Trans Asia, evidenced by a document denominated as a "Loan and Trust
Receipt", constitued partial payment on the policy. Under said agreement, Prudential is obligated to hand over to Trans
Asia "whatever recovery the latter may make" and the latter to deliver to the former "all document necessary to prove
its interest in the said property." Prudential was given the right of subrogation to whatever net recovery Trans Asia may
obtain from third parties resulting from the fire. PETITION DENIED.
 Bonifacio Bros. v. Mora
20 SCRA 262

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 appraiser for 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: Whether or not there is privity of contract between Bonficacio and Ayala on one hand and State
Insurance on the other.

Held: NONE. It is fundamental that contracts take effect only between the parties thereto, except in some specific
instance provided by law where the contract contains some stipulation in favor of a third person. Such stipulation is
known as a 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 ed 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. Consequently, a
third person NOT a party to the contract has NO action against the aprties thereto, and cannot generally demand the
enforcement of the same.
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 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 3rd 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.
In the instant case the insurance contract does not contain any words or clauses to disclose an intent to give any benefit
to any repairmen or material men in case of repair of the car in question. The parties to the insurance contract omitted
such stipulation, which is a circumstance that supports the said conclusion. On the other hand, the "loss payable" clause
of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S.
Reyes, Inc. which they intended to benefit.
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. In this case, no contract of trust, express or implied. In this case,
no contract of trust, expressed or implied exists. We, therefore, agree with the trial court that no cause of action exists
in favor of the appellants in so far as the proceeds of insurance are concerned. The appellant's claim, if at all, is merely
equitable in nature and must be made effective through Enrique Mora who entered into a contract with the Bonifacio
Bros Inc. This conclusion is deducible not only from the principle governing the operation and effect of insurance
contracts in general, but is clearly covered by the express provisions of section 50 of the Insurance Act (now Sec. 53).
The policy in question has been so framed that "Loss, if any, is payable to H. S. Reyes, Inc." which unmistakably
shows the intention of the parties.
 First Integrated Bonding and Insurance Company, Inc vs. Hon. Harold Hernando
G.R. No. L-51221 July 31, 1991

Topic: Casualty Insurance; Compulsory motor vehicle liability; Third party suit against insurer

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. for P30,000.00. The said jeepney driven
byBlanco himself bumped a five-year old child, Deogracias Advincula, causing the latter's death. The boy’s parents
filed a complaint for damages against Blanco and First Insurance.

Summons were served on Silverio Blanco and First Insurance. However, only Blanco filed an answer. Upon motion of
the Advincula spouses, First Insurance was declared in default. Thereafter, a pre-trial conference was conducted where
the Advincula spouses presented their documentary evidence. On the basis of the evidence presented by the Advincula
spouses, judgment was rendered by the trial court which adjudicates a total amount of P 30,000.00 in favorof the
plaintiff which must be satisfied independently by the defendant First Integrated Bonding and Insurance Company, Inc.

The Insurance company filed a petition for certiorari contending that the victim’s parents have no cause of action
against it because they are not parties to the insurance contract and that they mayonly proceed against the driver based
on the provisions of the New Civil Code.

Issue: Whether or not an injured party for whom the contract of insurance is intended can sue directly the insurer.

Held: YES. The injured for whom the contract of insurance is intended can sue directly the insurer. The general purpose of statutes
enabling an injured person to proceed directly against the insurer 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, and statutes are to be liberally construed so that their intended purpose may be accomplished. It has
even been held that such a provision creates 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.
Title GR No. 78848
38_Sherman Shaper vs. Hon. Judge Date: November 14, 1988
RTC of Olongapo Ponente: PADILLA, J.
SHERMAN SHAFER, petitioner HON. JUDGE, REGIONAL TRIAL COURT OF OLONGAPO CITY,
BRANCH 75, and MAKATI INSURANCE COMPANY, INC., respondents
Case Doctrine: 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
Rules of Court provisions aimed at avoiding multiplicity of suits.
FACTS:
1. Petitioner Sherman Shafer obtained a private car policy over his Ford Laser car from Makati Insurance
Company, Inc., for third party liability (TPL). During the effectivity of the policy, an information for reckless
imprudence resulting in damage to property and serious physical injuries was filed against petitioner.
2. The owner of the damaged Volkswagen car filed a separate civil action against petitioner for damages.
3. The court a quo issued an order dismissing the third party complaint on the ground that it was premature,
based on the premise that unless the accused (herein petitioner) is found guilty and sentenced to pay the
offended party indemnity or damages, the third party complaint is without cause of action. The court further
stated that the better procedure is for the accused (petitioner) to wait for the outcome of the criminal aspect of
the case to determine whether or not the accused, also the third party plaintiff, has a cause of action against
the third party defendant for the enforcement of its third party liability (TPL) under the insurance contract.

ISSUE: W/N the accused in a criminal action for reckless imprudence, where the civil action is jointly prosecuted, can
legally implead the insurance company as third party defendant under its private car insurance policy. – YES.

HELD:
In the instant case, 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.
A third party complaint is a device allowed by the rules of procedure by which the defendant can bring into the
original suit a party against whom he will have a claim for indemnity or remuneration as a result of a liability
established against him in the original suit. Third party complaints are allowed to minimize the number of lawsuits
and avoid the necessity of bringing two (2) or more actions involving the same subject matter. They are predicated on
the need for expediency and the avoidance of unnecessary lawsuits. If it appears probable that a second action will
result if the plaintiff prevails, and that this result can be avoided by allowing the third party complaint to remain, then
the motion to dismiss the third party complaint should be denied.
WHEREFORE, the instant petition is GRANTED. The questioned order dated 24 April 1987 is SET ASIDE and a
new one entered admitting petitioner's third party complaint against the private respondent Makati Insurance
Company, Inc.
 Emilio Tan vs Court of Appeals
174 SCRA 403 – Mercantile Law – Insurance Law – Representation – Concealment – Rescission of an Insurance
Contract
In September 1973, Tan Lee Siong applied for a life insurance under the Philippine American Life Insurance Company
(PHILAMLIFE). He stated in the application form that he has no health issues whatsoever and so in November 1973
he was issued a life insurance policy in the amount of P80,000.00. He listed his sons as beneficiaries (Emilio Tan et al).
In April 1975, Tan Lee Siong died due to hepatoma. His sons filed an insurance claim but PHILAMLIFE denied the
same as it alleged that Tan Lee Siong concealed the fact that he was hypertensive, diabetic, and was suffering from
hepatoma at the time of his application for the insurance.

The beneficiaries averred that PHILAMLIFE can no longer rescind the insurance contract because the insured is
already dead. They invoke Section 48 of the Insurance Code which they interpreted to mean that an insurer can only
rescind an insurance contract during the lifetime of the insured; and that such rescission should be done within two
years prior to the filing of a suit involving the insurance.

ISSUE: Whether or not the interpretation of the Tan brothers is correct.

HELD: No. The pertinent section in the Insurance Code provides:
Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter,
such right must be exercised previous to the commencement of an action on the contract.

After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of
the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that
the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured
or his agent.

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.”

Note that the policy was in force for only one year and 5 months when Tan Lee Siong died. This means that
PHILAMLIFE can still contest and rescind the policy issued by reason of the misrepresentation made by Tan Lee
Siong.

Further, because of Tan Lee Siong’s statement that he does not have any health issues, the insurance company was
misled into believing that he was healthy and so it did not deem a medical checkup to be necessary and that ultimately
led to the issuance of the life insurance policy.
 Development Insurance v IAC G.R. No. 71360 July 16, 1986

Facts:
A fire occurred in the building of Philippine Union. It sued for recovery of damages from the petitioner on the basis of
an insurance contract between them. The petitioner failed to answer on time despite the numerous extensions it asked
for. It was declared in default by the trial court. A judgment of default was subsequently rendered on the strength of the
evidence given by the private respondent, which was allowed damages. The petitioner moved to lift the order of
default. Its motion was denied. It went to the appellate court, which affirmed the decision of the trial court. Hence this
appeal.

Issue: Was Philippine Union required to jointly indemnify the building?

Held: No. Petition dismissed.

Ratio:
The policy insured the private respondent's building against fire for P2,500,000.00.

The petitioner argued that the respondent must share the difference between that amount and the face value of the
policy and the loss sustained for 5.8 million under Condition 17 of the policy.

The building was insured at P2,500,000.00 by agreement of the insurer and the insured.

The agreement is known as an open policy and is subject to the express condition that:
“In the event of loss, whether total or partial, it is understood that the amount of the loss shall be subject to appraisal
and the liability of the company, if established, shall be limited to the actual loss, subject to the applicable terms,
conditions, warranties and clauses of this Policy, and in no case shall exceed the amount of the policy.”

Section 60 of the Insurance Code defines 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. Hence, applying the open policy clause as expressly agreed upon, the
private respondent is entitled to indemnity in the total amount of P508,867.00.

The refusal of its vice-president to receive the private respondent's complaint was the first indication of the petitioner's
intention to prolong this case and postpone the discharge of its obligation to the private respondent under this
agreement. They still evaded payment for 5 years.
 G.R. No. 89741 March 13, 1991
SUN INSURANCE OFFICE, LTD., petitioner, vs. COURT OF APPEALS and EMILIO TAN, respondents.

This is a petition for review on certiorari of the June 20, 1989 decision1 of the Court of Appeals in CA-G.R. SP. Case
No. 13848 affirming the November 3, 1987 and January 14, 1988 orders of the Regional Trial Court2 of Iloilo, Branch
27, in Civil Case No. 16817, denying the motion to dismiss and the subsequent motion for reconsideration; and the
August 22, 1989 resolution of the same court denying the motion for reconsideration.

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, enclosing copies of petitioners' letters of February 29, 1984 and May 17, 1985 (response to
petition for reconsideration). On November 20, 1985, Tan filed Civil Case No. 16817 with the Regional Trial Court of
Iloilo, Branch 27 but petitioner filed a motion to dismiss on the alleged ground that the action had already prescribed.
Said motion was denied in an order dated November 3, 1987; and petitioner's motion for reconsideration was also
denied in an order dated January 14, 1988.

Petitioner went to the Court of Appeals and sought the nullification of the said Nov. 3, 1987 and January 14, 1988
orders, but the Court of Appeals, in its June 20, 1989 decision denied the petition and held that the court a quo may
continue until its final termination.

A motion for reconsideration was filed, but the same was denied by the Court of Appeals in its resolution of August 22,
1989 (Rollo, pp. 42-43).

Hence, the instant petition.

The Second Division of this Court, in its resolution of December 18, 1989 resolved to give due course to the petition
and to require the parties to submit simultaneous memoranda (Ibid., p. 56).

Petitioner raised two (2) issues which may be stated in substance, as follows:

I 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; and

II WHETHER OR NOT THE REJECTION OF THE CLAIM SHALL BE DEEMED FINAL ONLY IF
IT CONTAINS WORDS TO THE EFFECT THAT THE DENIAL IS FINAL.

The answer to the first issue is in the negative.

While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in
favor of the insured and strictly against the insurer company, yet, contracts of insurance, like other contracts, are to be
construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are
clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense (Pacific Banking
Corp. v. Court of Appeals, 168 SCRA 1 [1988]).

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.

As the terms are very clear and free from any doubt or ambiguity whatsoever, it must be taken and understood in its
plain, ordinary and popular sense pursuant to the above-cited principle laid down by this Court.

Respondent Tan, in his letter addressed to the petitioner insurance company dated April 3, 1984 (Rollo, pp. 50-52),
admitted that he received a copy of the letter of rejection on April 2, 1984. Thus, the 12-month prescriptive period
started to run from the said date of April 2, 1984, for such is the plain meaning and intention of Section 27 of the
insurance policy.

While the question of whether or not the insured was definitely advised of the rejection of his claim through the letter
(Rollo, pp. 48-49) of petitioner dated February 29, 1984, may arise, the certainty of the denial of Tan's claim 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 regrets, liability for the claim under our
policies for one or more of the following reasons:

1. xxx xxx xxx

2. xxx xxx xxx

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 recomendation 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.

It is also important to note the principle laid down by this Court in the case of Ang v. Fulton Fire Insurance Co., (2
SCRA 945 [1961]), to wit:

The condition contained in an insurance policy that claims must be presented within one year after rejection is
not merely a procedural requirement but an important matter essential to a prompt settlement of claims against
insurance companies as it demands that insurance suits be brought by the insured while the evidence as to the
origin and cause of destruction have not yet disappeared.

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 requiting 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.

It is apparent that Section 27 of the insurance policy was stipulated pursuant to Section 63 of the Insurance Code,
which states that:
 Sec. 63. A condition, stipulation or agreement in any policy of insurance, limiting the time for commencing an
action thereunder to a period of less than one year from the time when the cause of action accrues, is void.

The crucial issue in this case is: When does the cause of action accrue?

In support of private respondent's view, two rulings of this Court have been cited, namely, the case of Eagle Star
Insurance Co. vs. Chia Yu (96 Phil. 696 (1955]), where the Court held:

The right of the insured to the payment of his loss accrues from the happening of the loss. However, the cause
of action in an insurance contract does not accrue until the insured's claim is finally rejected by the insurer.
This is because before such final rejection there is no real necessity for bringing suit.

and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151 [1968], holding that:

Since "cause of action" requires as essential elements not only a legal right of the plaintiff and a correlated
obligation of the defendant in violation of the said legal right, the cause of action does not accrue until the
party obligated (surety) refuses, expressly or impliedly, to comply with its duty (in this case to pay the amount
of the bond).

Indisputably, the above-cited pronouncements of this Court may be taken to mean that the insured's cause of action or
his right to file a claim either in the Insurance Commission or in a court of competent jurisdiction commences from the
time of the denial of his claim by the Insurer, either expressly or impliedly.

But as pointed out by the petitioner insurance company, the rejection referred to should be construed as the rejection, in
the first instance, for if what is being referred to is a reiterated rejection conveyed in a resolution of a petition for
reconsideration, such should have been expressly stipulated.

Thus, to allow the filing of a motion for reconsideration to suspend the running of the prescriptive period of twelve
months, a whole new body of rules on the matter should be promulgated so as to avoid any conflict that may be
brought by it, such as:

a) whether the mere filing of a plea for reconsideration of a denial is sufficient or must it be supported by
arguments/affidavits/material evidence;

b) how many petitions for reconsideration should be permitted?

While in the Eagle Star case (96 Phil. 701), this Court uses the phrase "final rejection", the same cannot be taken to
mean the rejection of a petition for reconsideration as insisted by respondents. Such was clearly not the meaning
contemplated by this Court. The Insurance policy in said case provides that the insured should file his claim, first, with
the carrier and then with the insurer. The "final rejection" being referred to in said case is the rejection by the insurance
company.

PREMISES CONSIDERED, the questioned decision of the Court of Appeals is REVERSED and SET ASIDE, and
Civil Case No. 16817 filed with the Regional Trial Court is hereby DISMISSED.

SO ORDERED
 Vda. De Gabriel v. CA
G.R. No. 103883 November 14, 1996

FACTS:
Marcelino Gabriel was employed by Emerald Construction & Dev. Corp as its construction in Iraq. He
was covered by a personal accident insurance in the amount of P100,000.00 under a group policy
procured from Fortune Insurance & Surety Company (Fortune Insurance for brevity)by Emerald Construction for
its overseas workers. The insured risk was for bodily injury caused by violent accidental external
and visible means which injury would solely and independently of any other cause result in death or disability.
On 22 May 1982, within the life of the policy, Gabriel died in Iraq.

On 12 July 1983,Emerald Construction reported Gabriel’s death to Fortune Insurance by telephone. Among
the documents thereafter submitted t o Fortune Insurance were a copy of the death
certificate issued by the Ministry of Health of the Republic of Iraq which stated that an autopsy report
by the National Bureau of Investigation was conducted to the effect that due to advanced state of postmortem
decomposition, the cause of death of Gabriel could not be determined.
B e c a u s e o f t h i s d e v e l o p m e n t F o r t u n e I n s u r a n c e u l t i m a t e l y d e n i e d t h e c l a i m o f Emerald
Construction on the ground of prescription. Gabriel’s widow, Jacqueline Jimenez, went to the to the
lower court. In her complaint against Emerald Construction and Fortune Insurance, she averred that her husband died
of electrocution while in the performance of his work. Fortune Insurance alleged that since both the death
certificate issued by the Iraqi Ministry of Health and the autopsy report of the NBI failed to disclose the cause of
Gabriel’s death, it denied liability under the policy. In addition, private respondent raised the defense of prescription,
invoking Section 384 of the Insurance Code.

ISSUE:
WON Jacqueline Jimenez vda. de Gabriel’s claim against Fortune Insurance should be denied on the ground
of prescription

HELD:
Yes. Section 384 of the Insurance Code provides: 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 C o u r t s w i t h i n o n e y e a r f r o m d e n i a l o f t h e c l a i m , o t h e r w i s e , t h e
claimants right of action shall prescribe. The notice of death was given to Fortune Insurance, concededly,
more than a year after the death of vda. de Gabriel’s husband. Fortune Insurance, 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. Vda. de Gabriel argues that Fortune Insurance must be
deemed to have waived its right to show that the cause of death is an excepted peril, by failing to have its answers duly
verified. It is true that a matter of which a written request for admission is made shall be deemed
impliedly admitted unless, within a period designated in the request, which shall not be less than 10 days after service
thereof, or within such further time as the court may allow on motion and notice, the party to whom the request is
directed serves upon the party requesting the admission a sworn statement either denying specifically the matters of
which an admission is requested or setting forth in detail the reasons why he cannot truthfully either
admit or deny those matters; however, the verification, like in most cases required by the rules of procedure, is a
formal, not jurisdictional, requirement, and mainly intended to secure an assurance that matters which are alleged are
done in good faith or are true and correct and not of mere speculation. When circumstances warrant, the
court may simply order the correction of unverified pleadings or act on it and waive strict compliance with the rules
in order that the ends of justice may thereby be served.
In the case of answers to
written requests for admission particularly, the court can allow the party making the
admission, whether made expressly or deemed to have been made impliedly, to withdraw or amend it upon such terms
as may be just. The insurance policy expressly provided that to be compensable, the injury or death should be caused
by violent accidental external and visible means. In attempting to prove the cause of her husband’s death, all that
vda. de Gabriel could submit were a letter sent to her by her husband’s co-worker, stating that Gabriel died when he
tried to haul water out of a tank while its submerged motor was still functioning, and vda. de Gabriel’s sworn
affidavit. The said affidavit, however, suffers from procedural infirmity as it was not even testified to or identified by
vda. de Gabriel herself. This affidavit therefore is a mere hearsay under the law. In like manner, the letter allegedly
written by the deceased’s co-worker which was never identified to in court by the supposed author, suffers
from the same defect as the affidavit of vda. de Gabriel. Not one of the other documents submitted, to
wit, the POEA decision, the death certificate issued by the Ministry of Health of Iraq and the NBI autopsy report,
could give any probative value to vda. de Gabriel’s claim. The POEA decision did not make any categorical holding
on the specific cause of Gabriel’s death. In summary, evidence is utterly wanting to establish that the insured suffered
from an accidental death, the risk covered by the policy.