SECOND DIVISION

G.R. No. 113899 October 13, 1999

GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,
vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court, assails the Decision 1 dated May 17, 1993, of the Court
of Appeals and its Resolution 2 dated January 4, 1994 in CA-G.R. CV No. 18341. The appellate court affirmed in
toto the judgment of the Misamis Oriental Regional Trial Court, Branch 18, in an insurance claim filed by private
respondent against Great Pacific Life Assurance Co. The dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC LIFE
ASSURANCE CORPORATION as insurer under its Group policy No. G-1907, in relation to
Certification B-18558 liable and ordered to pay to the DEVELOPMENT BANK OF THE
PHILIPPINES as creditor of the insured Dr. Wilfredo Leuterio, the amount of EIGHTY SIX
THOUSAND TWO HUNDRED PESOS (P86,200.00); dismissing the claims for damages, attorney's
fees and litigation expenses in the complaint and counterclaim, with costs against the defendant and
dismissing the complaint in respect to the plaintiffs, other than the widow-beneficiary, for lack of
cause of action. 3
The facts, as found by the Court of Appeals, are as follows:
A contract of group life insurance was executed between petitioner Great Pacific Life Assurance Corporation
(hereinafter Grepalife) and Development Bank of the Philippines (hereinafter DBP). Grepalife agreed to insure the
lives of eligible housing loan mortgagors of DBP.
On November 11, 1983, Dr. 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?
Answer: No. If so give details _____________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [x] Yes [ ] NO. 4
On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr. Leuterio, to the extent
of his DBP mortgage indebtedness amounting to eighty-six thousand, two hundred (P86,200.00) pesos. 1âwphi1.nêt

On August 6, 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, 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 on November 15, 1983. 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.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a complaint with the
Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for "Specific Performance with
Damages." 5During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejia's
findings, based partly from the information given by the respondent widow, stated that Dr. Leuterio complained of
headaches presumably due to high blood pressure. The inference was not conclusive because Dr. Leuterio was not
autopsied, hence, other causes were not ruled out.
On February 22, 1988, the trial court rendered a decision in favor of respondent widow and against Grepalife. On May
17, 1993, the Court of Appeals sustained the trial court's decision. Hence, the present petition. Petitioners interposed
the following assigned errors:
1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT
LIABLE TO THE DEVELOPMENT BANK OF THE PHILIPPINES (DBP)
WHICH IS NOT A PARTY TO THE CASE FOR PAYMENT OF THE PROCEEDS
OF A MORTGAGE REDEMPTION INSURANCE ON THE LIFE OF
PLAINTIFF'S HUSBAND WILFREDO LEUTERIO ONE OF ITS LOAN
BORROWERS, INSTEAD OF DISMISSING THE CASE AGAINST
DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK OF CAUSE OF
ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR WANT
OF JURISDICTION OVER THE SUBJECT OR NATURE OF THE ACTION AND
OVER THE PERSON OF THE DEFENDANT.
3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-APPELLANT
TO PAY TO DBP THE AMOUNT OF P86,200.00 IN THE ABSENCE OF ANY
EVIDENCE TO SHOW HOW MUCH WAS THE ACTUAL AMOUNT PAYABLE
TO DBP IN ACCORDANCE WITH ITS GROUP INSURANCE CONTRACT
WITH DEFENDANT-APPELLANT.
4. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS NO
CONCEALMENT OF MATERIAL INFORMATION ON THE PART OF
WILFREDO LEUTERIO IN HIS APPLICATION FOR MEMBERSHIP IN THE
GROUP LIFE INSURANCE PLAN BETWEEN DEFENDANT-APPELLANT OF
THE INSURANCE CLAIM ARISING FROM THE DEATH OF WILFREDO
LEUTERIO. 6
Synthesized below are the assigned errors for our resolution:
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?
3. Whether the Court of Appeals erred in holding Grepalife liable in the amount of
eighty six thousand, two hundred (P86,200.00) pesos without proof of the actual
outstanding mortgage payable by the mortgagor to DBP.
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.
To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of
contract. The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage redemption
insurance," is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has
to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the
subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage
debt, thereby relieving the heirs of the mortgagor from paying the obligation. 7 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. 8 Consequently, where the
mortgagor pays the insurance premium under the group insurance policy, making the loss payable to the mortgagee,
the insurance is on the mortgagor's interest, and the mortgagor continues to be a party to the contract. In this type of
policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make
the mortgagee a party to the contract. 9
Sec. 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property effects insurance in his own name
providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a
mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease to
be a party to the original contract, and any act of his, prior to the loss, which would otherwise avoid
the insurance, will have the same effect, although the property is in the hands of the mortgagee, but
any act which, under the contract of insurance, is to be performed by the mortgagor, may be
performed by the mortgagee therein named, with the same effect as if it had been performed by the
mortgagor.
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." 10 When DBP submitted the
insurance claim against petitioner, the latter denied payment thereof, interposing the defense of concealment
committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of
foreclosure on the residential lot of private respondent. 11 In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins.
Co. 12 we held:
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 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, * * *.
And in volume 33, page 82, of the same work, we read the following:
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. 13
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, 14the
widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.
The second assigned error refers to an alleged concealment that the petitioner interposed as its defense to annul the
insurance contract. Petitioner contends that Dr. Leuterio failed to disclose that he had hypertension, which might have
caused his death. Concealment exists where the assured had knowledge of a fact material to the risk, and honesty,
good faith, and fair dealing requires that he should communicate it to the assured, but he designedly and intentionally
withholds the same. 15
Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as supported by the
information given by the widow of the decedent. Grepalife asserts that Dr. Mejia's technical diagnosis of the cause of
death of Dr. Leuterio was a duly documented hospital record, and that the widow's declaration that her husband had
"possible hypertension several years ago" should not be considered as hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body
of the decedent. As the attending physician, Dr. Mejia stated that he had no knowledge of Dr. Leuterio's any previous
hospital confinement. 16 Dr. Leuterio's death certificate stated that hypertension was only "the possible cause of
death." The private respondent's statement, as to the medical history of her husband, was due to her unreliable
recollection of events. Hence, the statement of the physician was properly considered by the trial court as hearsay.
The question of whether there was concealment was aptly answered by the appellate court, thus:
The insured, Dr. Leuterio, had answered in his insurance application that he was in good health and
that he had not consulted a doctor or any of the enumerated ailments, including hypertension; when
he died the attending physician had certified in the death certificate that the former died of cerebral
hemorrhage, probably secondary to hypertension. From this report, the appellant insurance company
 refused to pay the insurance claim. Appellant alleged that the insured had concealed the fact that he
had hypertension.
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 . . .
xxx xxx xxx
Appellant insurance company had failed to establish that there was concealment made by the insured,
hence, it cannot refuse payment of the claim. 17
The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract.18Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to
establish such defense by satisfactory and convincing evidence rests upon the insurer. 19 In the case at bar, the
petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the
insurance.1âwphi1.nêt

And that brings us to the last point in the review of the case at bar. Petitioner claims that there was no evidence as to
the amount of Dr. Leuterio's outstanding indebtedness to DBP at the time of the mortgagor's death. Hence, for private
respondent's failure to establish the same, the action for specific performance should be dismissed. Petitioner's claim
is without merit. A life insurance policy is a valued policy. 20 Unless the interest of a person insured is susceptible of
exact pecuniary measurement, the measure of indemnity under a policy of insurance upon life or health is the sum
fixed in the policy. 21 The mortgagor paid the premium according to the coverage of his insurance, which states that:
The policy states that upon receipt of due proof of the Debtor's death during the terms of this
insurance, a death benefit in the amount of P86,200.00 shall be paid.
In the event of the debtor's death before his indebtedness with the creditor shall have been fully paid,
an amount to pay the outstanding indebtedness shall first be paid to the Creditor and the balance of
the Sum Assured, if there is any shall then be paid to the beneficiary/ies designated by the
debtor." 22(Emphasis omitted)
However, we noted that the Court of Appeals' decision was promulgated on May 17, 1993. In private respondent's
memorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor's outstanding
loan. Considering this supervening event, the insurance proceeds shall inure to the benefit of the heirs of the deceased
person or his beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the expense of another ( Nemo
cum alterius detrimenio protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed on the
mortgage. The proceeds now rightly belong to Dr. Leuterio's heirs represented by his widow, herein private
respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV
18341 is AFFIRMED with MODIFICATION that the petitioner is ORDERED to pay the insurance proceeds
amounting to Eighty-six thousand, two hundred (P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio
(deceased), upon presentation of proof of prior settlement of mortgagor's indebtedness to Development Bank of the
Philippines. Costs against petitioner. 1âwphi1.nêt

SO ORDERED.
 FIRST DIVISION

G.R. No. 105135 June 22, 1995

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

QUIASON, J.:
This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the
Decision dated February 21, 1992 of the Court of Appeals in CA-G.R. CV No. 29068, and its Resolution dated April
22, 1992, denying reconsideration thereof.
We grant the petition.
I
On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from petitioner. He was
issued Policy No. 3-903-766-X 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.
In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclose 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 answered the following questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner?
b) submitted to:
EGG?
X-rays?
blood tests?
other tests?
c) attended or been admitted to any hospital or other medical facility?
6. Have you ever had or sought advice for:
xxx xxx xxx
b) urine, kidney or bladder disorder? (Rollo, p. 53)
The deceased answered question No. 5(a) in the affirmative but 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. The
other questions were answered in the negative (Rollo, p. 53).
Petitioner discovered 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. During his confinement, the deceased
was subjected to urinalysis, ultra-sonography and hematology tests.
On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando Bacani, filed an action for
specific performance against petitioner with the Regional Trial Court, Branch 191, Valenzuela, Metro Manila.
Petitioner filed its answer with counterclaim and a list of exhibits consisting of medical records furnished by the Lung
Center of the Philippines.
On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for Summary Judgment" where
they manifested that they "have no evidence to refute the documentary evidence of concealment/misrepresentation by
the decedent of his health condition (Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the authenticity and due execution of several documents as well
as allegations regarding the health of the insured. Private respondents failed to oppose said request or reply thereto,
thereby rendering an admission of the matters alleged.
Petitioner then moved for a summary judgment and the trial court decided in favor of private respondents. The
dispositive portion of the decision is reproduced as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant,
condemning the latter to pay the former the amount of One Hundred Thousand Pesos (P100,000.00)
the face value of insured's Insurance Policy No. 3903766, and the Accidental Death Benefit in the
amount of One Hundred Thousand Pesos (P100,000.00) and further sum of P5,000.00 in the concept
of reasonable attorney's fees and costs of suit.
Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).
In ruling for private respondents, the trial court concluded that the facts concealed by the insured were made in good
faith and under a 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".
Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The appellate court ruled
that petitioner cannot avoid its obligation by claiming concealment because the cause of death was unrelated to the
facts concealed by the insured. It also sustained the finding of the trial court that matters relating to the health history
of the insured were irrelevant since petitioner waived the medical examination prior to the approval and issuance of
the insurance policy. Moreover, the appellate court agreed with the trial court that the policy was "non-medical"
(Rollo, pp. 4-5).
Petitioner's motion for reconsideration was denied; hence, this petition.
II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the appellate court are binding on this Court is not absolute and
admits of exceptions, such as when the judgment is based on a misappreciation of the facts (Geronimo v. Court of
Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court concluded that indeed there was concealment and
misrepresentation, however, the same was made in "good faith" and the facts concealed or misrepresented were
irrelevant since the policy was "non-medical". We disagree.
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. Said Section provides:
A neglect to communicate that which a party knows and ought to communicate, is called
concealment.
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 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.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the information withheld
does not depend on the state of mind of the insured. Neither does it depend on the actual or physical events which
ensue.
Thus, "goad 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.
The argument, that petitioner's waiver of the medical examination of the insured debunks the materiality of the facts
concealed, is untenable. We reiterate our ruling in Saturnino v. Philippine American Life Insurance Company, 7 SCRA
316 (1963), that " . . . 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 . . . "
Moreover, such argument of private respondents would make Section 27 of the Insurance Code, which allows the
injured party to rescind a contract of insurance where there is concealment, ineffective (See Vda. de Canilang v. Court
of Appeals, supra).
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 (Henson v.
The Philippine American Life Insurance Co., 56 O.G. No. 48 [1960]).
We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance by reason of the
concealment employed by the insured. It must be emphasized that rescission was exercised within the two-year
contestability period as recognized in Section 48 of The Insurance Code.
WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and SET ASIDE.
SO ORDERED.
Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.

FIRST DIVISION
G.R. No. 125678 March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC., petitioner,
vs.
COURT OF APPEALS and JULITA TRINOS, respondents.
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner
Philamcare Health Systems, Inc. In the standard application form, he answered no to the following 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? (If Yes, give details). 1
The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was
issued Health Care Agreement No. P010194. Under the agreement, respondent’s husband was entitled to avail of
hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient
benefits" such as annual physical examinations, preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1,
1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of
P75,000.00 per disability.2
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center
(MMC) for one month beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim the
benefits under the health care agreement. However, petitioner denied her claim saying that the Health Care Agreement
was void. According to petitioner, there was a concealment regarding Ernani’s 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, respondent paid the hospitalization expenses herself, amounting to about
P76,000.00.
After her husband 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.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for damages
against petitioner and its president, Dr. Benito Reverente, which was docketed as Civil Case No. 90-53795. She asked
for reimbursement of her expenses plus moral damages and attorney’s fees. After trial, the lower court ruled against
petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita Trinos,
ordering:
1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount
of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and
absolved petitioner Reverente.4 Petitioner’s motion for reconsideration was denied. 5 Hence, petitioner brought the
instant petition for review, raising the primary argument that a health care agreement is not an insurance contract;
hence the "incontestability clause" under the Insurance Code6 does not apply. 1âwphi1.nêt

Petitioner argues that the agreement grants "living benefits," such as medical check-ups and hospitalization which a
member may immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration one-year
thereafter. Petitioner also points out that only medical and hospitalization benefits are given under the agreement
without any indemnification, unlike in an insurance contract where the insured is indemnified for his loss. Moreover,
since Health Care Agreements are only for a period of one year, as compared to insurance contracts which last
longer,7 petitioner argues that the incontestability clause does not apply, as the same requires an effectivity period of
at least two years. Petitioner further argues that it is not an insurance company, which is governed by the Insurance
Commission, but a Health Maintenance Organization under the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. 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. 8
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may
damnify a person having an insurable interest against him, may be insured against. Every person has an insurable
interest in the life and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a
pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting property or service, of
which death or illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondent’s husband in obtaining the health care agreement was his own
health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of
indemnity.9 Once the member incurs hospital, medical or any other expense arising from sickness, injury or other
stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract.
Petitioner argues that respondent’s husband concealed a material fact in his application. It appears 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. 10 Specifically, the Health
Care Agreement signed by respondent’s husband states:
We hereby declare and agree that all statement and answers contained herein and in any addendum annexed to
this application are full, complete and true and bind all parties in interest under the Agreement herein applied
for, that there shall be no contract of health care coverage unless and until an Agreement is issued on this
application and the full Membership Fee according to the mode of payment applied for is actually paid during
the lifetime and good health of proposed Members; that no information acquired by any Representative of
PhilamCare shall be binding upon PhilamCare unless set out in writing in the application; that any physician
is, by these presents, expressly authorized to disclose or give testimony at anytime relative to any information
acquired by him in his professional capacity upon any question affecting the eligibility for health care
coverage of the Proposed Members and that the acceptance of any Agreement issued on this application shall
be a ratification of any correction in or addition to this application as stated in the space for Home Office
Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally required the applicant for authorization to inquire about the
applicant’s medical history, thus:
I hereby authorize any person, organization, or entity that has any record or knowledge of my health and/or
that of __________ to give to the PhilamCare Health Systems, Inc. any and all information relative to any
hospitalization, consultation, treatment or any other medical advice or examination. This authorization is in
 connection with the application for health care coverage only. A photographic copy of this authorization shall
be as valid as the original.12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:
Failure to disclose or misrepresentation of any material information by the member in the application or
medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from
the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An
undisclosed or misrepresented information is deemed material if its revelation would have resulted in the
declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or
benefits applied for.13
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.14 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.15(Underscoring ours)
The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
contract.16 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 the same 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 whenever he avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance."
The right to rescind should be exercised previous to the commencement of an action on the contract. 17In this case, no
rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the
concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to
furnish facts on which cancellation is based.18
None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations
on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his
obligation.19 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. 20 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. 21 This is equally applicable to Health Care Agreements.
The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in
favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring
coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the
provider.22
Anent the incontestability of the membership of respondent’s husband, we quote with approval the following findings
of the trial court:
 (U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve
months from the date of issuance of the Agreement within which to contest the membership of the patient if
he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick
of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no
longer lie.23
Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time
of their marriage, the deceased was previously married to another woman who was still alive. The health care
agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the
expenses. It is not controverted that respondent paid all the hospital and medical expenses. She is therefore entitled to
reimbursement. The records adequately prove the expenses incurred by respondent for the deceased’s hospitalization,
medication and the professional fees of the attending physicians. 24
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals
dated December 14, 1995 is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., Puno, and Kapunan, JJ., concur.

THIRD DIVISION

G.R. No. 92492 June 17, 1993

THELMA VDA. DE CANILANG, petitioner,
vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE ASSURANCE CORPORATION, respondents.
Simeon C. Sato for petitioner.
FELICIANO, J.:
On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering from "sinus
tachycardia." The doctor prescribed the following fro 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 next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with respondent Great
Pacific Life Assurance Company ("Great Pacific") naming his wife, Thelma Canilang, as his beneficiary. 1 Jaime
Canilang was issued ordinary life insurance Policy No. 345163, 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." 2 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. During the hearing called by the Insurance Commissioner, petitioner testified that she was not aware of any
serious illness suffered by her late husband 3 and that, as far as she knew, her husband had died because of a kidney
disorder.4 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 5 and that he had previously treated him for "sinus
tachycardia" and "acute bronchitis."6 Great Pacific for its part presented Dr. Esperanza Quismorio, a physician
and a medical underwriter working for Great Pacific. 7 She testified that the deceased's insurance application had
been approved on the basis of his medical declaration. 8 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.9
In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo ordered Great Pacific to pay
P19,700 plus legal interest and P2,000.00 as attorney's fees after holding that:
1. the ailment of Jaime Canilang was not so serious that, even if it had been disclosed, it would not
have affected Great Pacific's decision to insure him;
2. Great Pacific 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;
3. there was no intentional concealment on the part of the insured Jaime Canilang as he had thought
that he was merely suffering from a minor ailment and simple cold; 10 and
4. Batas Pambansa Blg. 847 which voids an insurance contract, whether or not concealment was
intentionally made, was not applicable to Canilang's case as that law became effective only on 1
June 1985.
On appeal by Great Pacific, the Court of Appeals reversed and set aside the decision of the Insurance Commissioner
and dismissed Thelma Canilang's complaint and Great Pacific's counterclaim. The Court of Appealed found that the
use of the word "intentionally" by the Insurance Commissioner in defining and resolving the issue agreed upon by the
parties at pre-trial before the Insurance Commissioner was not supported by the evidence; that the issue agreed upon
by the parties had been whether the deceased insured, Jaime Canilang, made a material concealment as the state of
his health at the time of the filing of insurance application, justifying respondent's denial of the claim. 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. The Court of Appeals finally held that the Ng Gan Zee case which had
involved misrepresentation was not applicable in respect of the case at bar which involves concealment.
Petitioner Thelma Canilang is now before this Court on a Petition for Review on Certiorari alleging that:
 1. . . . the Honorable Court of Appeals, speaking with due respect, erred in not holding that the issue
in the case agreed upon between the parties before the Insurance Commission is whether or not
Jaime Canilang "intentionally" made material concealment in stating his state of health;
2. . . . at any rate, the non-disclosure of certain facts about his previous health conditions does not
amount to fraud and private respondent is deemed to have waived inquiry thereto. 11
The medical declaration which was set out in the application for insurance executed by Jaime Canilang read as
follows:
MEDICAL DECLARATION
I hereby declare that:
(1) I have not been confined in any hospital, sanitarium or infirmary, nor receive any medical or
surgical advice/attention within the last five (5) years.
(2) I have never been treated nor consulted a physician for a heart condition, high blood pressure,
cancer, diabetes, lung, kidney, stomach disorder, or any other physical impairment.
(3) I am, to the best of my knowledge, in good health.
EXCEPTIONS:
________________________________________________________________________________
GENERAL DECLARATION
I hereby declare that all the foregoing answers and statements are complete, true and correct. I
hereby agree that if there be any fraud or misrepresentation in the above statements material to the
risk, the INSURANCE COMPANY upon discovery within two (2) years from the effective date of
insurance shall have the right to declare such insurance null and void. That the liabilities of the
Company under the said Policy/TA/Certificate shall accrue and begin only from the date of
commencement of risk stated in the Policy/TA/Certificate, provided that the first premium is paid and
the Policy/TA/Certificate is delivered to, and accepted by me in person, when I am in actual good
health.
Signed at Manila his 4th day of August, 1992.
Illegible
——————————
Signature of Applicant. 12
We note that in addition to the negative statements made by Mr. Canilang in paragraph 1 and 2 of the medical
declaration, he failed to disclose in the appropriate space, under the caption "Exceptions," that he had twice
consulted Dr. Wilfredo B. Claudio who had found him to be suffering from "sinus tachycardia" and "acute bronchitis."
The relevant statutory provisions as they stood at the time Great Pacific issued the contract of insurance and at the
time Jaime Canilang died, are set out in P.D. No. 1460, also known as the Insurance Code of 1978, which went into
effect on 11 June 1978. These provisions read as follows:
Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is called a
concealment.
xxx xxx xxx
Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith, all
factors within his knowledge which are material to the contract and as to which he makes no
warranty, and which the other has not the means of ascertaining. (Emphasis supplied)
Under the foregoing provisions, 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 test of
materiality is contained in Section 31 of the Insurance Code of 1978 which reads:
 Sec. 31. Materially 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 disadvantages of the proposed contract, or in making his inquiries. (Emphasis supplied)
"Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per minute." 13 The symptoms of
this condition include pounding in the chest and sometimes faintness and weakness of the person affected. The
following elaboration was offered by Great Pacific and set out by the Court of Appeals in its Decision:
Sinus tachycardia is defined as sinus-initiated; heart rate faster than 100 beats per minute.
(Harrison' s Principles of Internal Medicine, 8th ed. [1978], p. 1193.) It is, among others, a common
reaction to heart disease, including myocardial infarction, and heart failure per se. (Henry J.L.
Marriot, M.D., Electrocardiography, 6th ed., [1977], p. 127.) The medication prescribed by Dr.
Claudio for treatment of Canilang's ailment on June 18, 1982, indicates the condition that said
physician was trying to manage. Thus, he prescribed Trazepam, (Philippine Index of Medical
Specialties (PIMS), Vol. 14, No. 3, Dec. 1985, p. 112) which is anti-anxiety, anti-convulsant, muscle-
relaxant; and Aptin, (Idem, p. 36) a cardiac drug, for palpitations and nervous heart. Such treatment
could have been a very material information to the insurer in determining the action to be take on
Canilang's application for life insurance coverage. 14
We agree with the Court of Appeals that the information which Jaime Canilang failed to disclose 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 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. 15 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; that "probable and reasonable influence of the facts" concealed must, of course, be determined
objectively, by the judge ultimately.
The insurance Great Pacific applied for was a "non-medical" insurance policy. In Saturnino v. Philippine-American
Life Insurance Company, 16 this Court held that:
. . . if anything, the waiver of 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 . . . . 17 (Emphasis
supplied)
The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain information to the
insurer was not "intentional" in nature, for the reason that Jaime Canilang believed that he was suffering from minor
ailment like a common cold. Section 27 of the Insurance Code of 1978 as it existed from 1974 up to 1985, that is,
throughout the time range material for present purposes, provided that:
Sec. 27. A concealment entitles the injured party to rescind a contract of insurance.
The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:
Sec. 26. A concealment, whether intentional or unintentional, entitles the injured party to rescind a
contract of insurance. (Emphasis supplied)
Upon the other hand, in 1985, the Insurance Code of 1978 was amended by
B.P. Blg. 874. This subsequent statute modified Section 27 of the Insurance Code of 1978 so as to read as follows:
Sec. 27. A concealment whether intentional or unintentional entitles the injured party to rescind a
contract of insurance. (Emphasis supplied)
The unspoken theory of the Insurance Commissioner appears to have been that by deleting the phrase "intentional or
unintentional," the Insurance Code of 1978 (prior to its amendment by B.P. Blg. 874) intended to limit the kinds of
concealment which generate a right to rescind on the part of the injured party to "intentional concealments." This
argument is not persuasive. As a simple matter of grammar, it may be noted that "intentional" and "unintentional"
cancel each other out. The net result therefore of the phrase "whether intentional or unitentional" is precisely to leave
unqualified the term "concealment." Thus, 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 phrase "whether
intentional or unintentional" was in fact superfluous. The deletion of the phrase "whether intentional or
unintentional" could not have had the effect of imposing an affirmative requirement that a concealment must be
intentional if it is to entitle the injured party to rescind a contract of insurance. The restoration in 1985 by B.P. Blg.
874 of the phrase "whether intentional or unintentional" merely underscored the fact that all throughout (from 1914
to 1985), the statute did not require proof that concealment must be "intentional" in order to authorize rescission by
the injured party.
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. For Jaime Canilang could not have been
unaware that his heart beat would at times rise to high and alarming levels and that he had consulted a doctor twice
in the two (2) months before applying for non-medical insurance. Indeed, the last medical consultation took place just
the day before the insurance application was filed. In all probability, Jaime Canilang went to visit his doctor precisely
because of the discomfort and concern brought about by his experiencing "sinus tachycardia."
We find it difficult to take seriously the argument that Great Pacific 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.
It remains only to note that the Court of Appeals finding that the parties had not agreed in the pretrial before the
Insurance Commission that the relevant issue was whether or not Jaime Canilang had intentionally concealed
material information from the insurer, was supported by the evidence of record, i.e., the Pre-trial Order itself dated 17
October 1984 and the Minutes of the Pre-trial Conference dated 15 October 1984, which "readily shows that the word
"intentional" does not appear in the statement or definition of the issue in the said Order and Minutes." 18
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 the costs.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.

THIRD DIVISION
G.R. No. 48049 June 29, 1989
EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondents.
O.F. Santos & P.C. Nolasco for petitioners.
Ferry, De la Rosa and Associates for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the Court of Appeals' decision affirming the decision of the Insurance
Commissioner which dismissed the petitioners' complaint against respondent Philippine American Life Insurance
Company for the recovery of the proceeds from their late father's policy. The facts of the case as found by the Court of
Appeals are:
Petitioners appeal from the Decision of the Insurance Commissioner dismissing herein petitioners'
complaint against respondent Philippine American Life Insurance Company for the recovery of the
proceeds of Policy No. 1082467 in the amount of P 80,000.00.
On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for life insurance in the
amount of P 80,000.00 with respondent company. Said application was approved and Policy No.
1082467 was issued effective November 6,1973, with petitioners the beneficiaries thereof (Exhibit
A).
On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then filed with
respondent company their claim for the proceeds of the life insurance policy. However, in a letter
dated September 11, 1975, respondent company denied petitioners' claim and rescinded the policy by
reason of the alleged misrepresentation and concealment of material facts made by the deceased Tan
Lee Siong in his application for insurance (Exhibit 3). The premiums paid on the policy were
thereupon refunded .
Alleging that respondent company's refusal to pay them the proceeds of the policy was unjustified
and unreasonable, petitioners filed on November 27, 1975, a complaint against the former with the
Office of the Insurance Commissioner, docketed as I.C. Case No. 218.
After hearing the evidence of both parties, the Insurance Commissioner rendered judgment on August
9, 1977, dismissing petitioners' complaint. (Rollo, pp. 91-92)
The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's decision for lack of merit
Hence, this petition.
The petitioners raise the following issues in their assignment of errors, to wit:
A. The conclusion in law of respondent Court that respondent insurer has the right to rescind the
policy contract when insured is already dead is not in accordance with existing law and applicable
jurisprudence.
B. The conclusion in law of respondent Court that respondent insurer may be allowed to avoid the
policy on grounds of concealment by the deceased assured, is contrary to the provisions of the policy
contract itself, as well as, of applicable legal provisions and established jurisprudence.
C. The inference of respondent Court that respondent insurer was misled in issuing the policy are
manifestly mistaken and contrary to admitted evidence. (Rollo, p. 7)
The petitioners contend that the respondent company no longer had the right to rescind the contract of insurance as
rescission must allegedly be done during the lifetime of the insured within two years and prior to the commencement
of action.
The contention is without merit.
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.
According to the petitioners, the Insurance Law was amended and the second paragraph of Section 48 added to
prevent the insurance company from exercising a right to rescind after the death of the insured.
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."
As noted by the Court of Appeals, to wit:
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. (Rollo,
pp. 99-100)
xxx xxx xxx
The petitioners contend that there could have been no concealment or misrepresentation by their late father because
Tan Lee Siong did not have to buy insurance. He was only pressured by insistent salesmen to do so. The petitioners
state:
Here then is a case of an assured whose application was submitted because of repeated visits and
solicitations by the insurer's agent. Assured did not knock at the door of the insurer to buy insurance.
He was the object of solicitations and visits.
Assured was a man of means. He could have obtained a bigger insurance, not just P 80,000.00. If his
purpose were to misrepresent and to conceal his ailments in anticipation of death during the two-year
period, he certainly could have gotten a bigger insurance. He did not.
Insurer Philamlife could have presented as witness its Medical Examiner Dr. Urbano Guinto. It was
he who accomplished the application, Part II, medical. Philamlife did not.
Philamlife could have put to the witness stand its Agent Bienvenido S. Guinto, a relative to Dr.
Guinto, Again Philamlife did not. (pp. 138139, Rollo)
xxx xxx xxx
This Honorable Supreme Court has had occasion to denounce the pressure and practice indulged in
by agents in selling insurance. At one time or another most of us have been subjected to that pressure,
that practice. This court took judicial cognizance of the whirlwind pressure of insurance selling-
especially of the agent's practice of 'supplying the information, preparing and answering the
application, submitting the application to their companies, concluding the transactions and
otherwise smoothing out all difficulties.
We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73 Phil. 201; at page 205:
It is of common knowledge that the selling of insurance today is subjected to the
whirlwind pressure of modern salesmanship.
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. They are stimulated to more
active efforts by contests and by the keen competition offered by the other rival insurance companies.
They supply all the information, prepare and answer the applications, submit the applications to
their companies, conclude the transactions, and otherwise smooth out all difficulties.
The agents in short do what the company set them out to do.
The Insular Life case was decided some forty years ago when the pressure of insurance salesmanship
was not overwhelming as it is now; when the population of this country was less than one-fourth of
what it is now; when the insurance companies competing with one another could be counted by the
fingers. (pp. 140-142, Rollo)
xxx xxx xxx
In the face of all the above, it would be unjust if, having been subjected to the whirlwind pressure of
insurance salesmanship this Court itself has long denounced, the assured who dies within the two-
year period, should stand charged of fraudulent concealment and misrepresentation." (p. 142, Rollo)
The legislative answer to the arguments posed by the petitioners is the "incontestability clause" added by the second
paragraph of Section 48.
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.
The petitioners argue that no evidence was presented to show that the medical terms were explained in a layman's
language to the insured. They state that the insurer should have presented its two medical field examiners as
witnesses. Moreover, the petitioners allege that the policy intends that the medical examination must be conducted
before its issuance otherwise the insurer "waives whatever imperfection by ratification."
We agree with the Court of Appeals which ruled:
On the other hand, petitioners argue that no evidence was presented by respondent company to show
that the questions appearing in Part II of the application for insurance were asked, explained to and
understood by the deceased so as to prove concealment on his part. The same is not well taken. The
deceased, by affixing his signature on the application form, affirmed the correctness of all the entries
and answers appearing therein. It is but to be expected that he, a businessman, would not have affixed
his signature on the application form unless he clearly understood its significance. For, the
presumption is that a person intends the ordinary consequence of his voluntary act and takes ordinary
care of his concerns. [Sec. 5(c) and (d), Rule 131, Rules of Court].
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, (t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr.
Wenceslao Vitug, testified that the deceased came to see him on December 14, 1973 for consolation
and claimed to have been diabetic for five years. (t.s.n., Aug. 23,1976, p. 5; Exhibit 6) 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 (Exhibit 5- C) and dispensing with further medical investigation
and examination (Exhibit 5-A). For as long as no adverse medical history is revealed in the
application form, an applicant for insurance is presumed to be healthy and physically fit and no
further medical investigation or examination is conducted by respondent company. (t.s.n., April
8,1976, pp. 6-8). (Rollo, pp. 96-98)
There is no strong showing that we should apply the "fine print" or "contract of adhesion" rule in this case. (Sweet
Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The petitioners cite:
 It is a matter of common knowledge that large amounts of money are collected from ignorant persons
by companies and associations which adopt high sounding titles and print the amount of benefits they
agree to pay in large black-faced type, following such undertakings by fine print conditions which
destroy the substance of the promise. 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. (Trinidad
v. Orient Protective Assurance Assn., 67 Phil. 184)
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. If a warning in bold red letters or a boxed warning similar to that required for cigarette
advertisements by the Surgeon General of the United States is necessary, that is for Congress or the Insurance
Commission to provide as protection against high pressure insurance salesmanship. We are limited in this petition to
ascertaining whether or not the respondent Court of Appeals committed reversible error. It is the petitioners' burden to
show that the factual findings of the respondent court are not based on substantial evidence or that its conclusions are
contrary to applicable law and jurisprudence. They have failed to discharge that burden.
WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.
Fernan, (C.J., Chairman), Bidin and Cortes, JJ., concur.
Feliciano, took no part.

FIRST DIVISION
G.R. No. 151890 June 20, 2006
PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner,
vs.
TRANS-ASIA SHIPPING LINES, INC., Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 151991 June 20, 2006
TRANS-ASIA SHIPPING LINES, INC., petitioner,
vs.
PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent.
DECISION
CHICO-NAZARIO, J:
This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner Prudential Guarantee and
Assurance, Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia Shipping Lines, Inc. (TRANS-ASIA) in G.R.
No. 151991, assailing the Decision 1 dated 6 November 2001 of the Court of Appeals in CA G.R. CV No. 68278,
which reversed the Judgment2 dated 6 June 2000 of the Regional Trial Court (RTC), Branch 13, Cebu City in Civil
Case No. CEB-20709. The 29 January 2002 Resolution 3 of the Court of Appeals, denying PRUDENTIAL’s Motion
for Reconsideration and TRANS-ASIA’s Partial Motion for Reconsideration of the 6 November 2001 Decision, is
likewise sought to be annulled and set aside.
The Facts
The material antecedents as found by the court a quo and adopted by the appellate court are as follows:
Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of payment of premiums,
defendant [PRUDENTIAL] insured M/V Asia Korea for loss/damage of the hull and machinery arising from perils,
inter alia, of fire and explosion for the sum of P40 Million, beginning [from] the period [of] July 1, 1993 up to July 1,
1994. This is evidenced by Marine Policy No. MH93/1363 (Exhibits "A" to "A-11"). On October 25, 1993, while the
policy was in force, a fire broke out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On October
26, 1993 plaintiff [TRANS-ASIA] filed its notice of claim for damage sustained by the vessel. This is evidenced by a
letter/formal claim of even date (Exhibit "B"). Plaintiff [TRANS-ASIA] reserved its right to subsequently notify
defendant [PRUDENTIAL] as to the full amount of the claim upon final survey and determination by average adjuster
Richard Hogg International (Phil.) of the damage sustained by reason of fire. An adjuster’s report on the fire in
question was submitted by Richard Hogg International together with the U-Marine Surveyor Report (Exhibits "4" to
"4-115").
On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and Trust receipt", a portion
of which read (sic):
"Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION ONLY
(P3,000,000.00) as a loan without interest under Policy No. MH 93/1353 [sic], repayable only in the event and to the
extent that any net recovery is made by Trans-Asia Shipping Corporation, from any person or persons, corporation or
corporations, or other parties, on account of loss by any casualty for which they may be liable occasioned by the 25
October 1993: Fire on Board." (Exhibit "4")
In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiff’s claim (Exhibit "5"). The letter reads:
"After a careful review and evaluation of your claim arising from the above-captioned incident, it has been ascertained
that you are in breach of policy conditions, among them "WARRANTED VESSEL CLASSED AND CLASS
MAINTAINED". Accordingly, we regret to advise that your claim is not compensable and hereby DENIED."
This was followed by defendant’s letter dated 21 July 1997 requesting the return or payment of the P3,000,000.00
within a period of ten (10) days from receipt of the letter (Exhibit "6"). 4
Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint 5 for Sum of Money against
PRUDENTIAL with the RTC of Cebu City, docketed as Civil Case No. CEB-20709, wherein TRANS-ASIA sought
the amount of P8,395,072.26 from PRUDENTIAL, alleging that the same represents the balance of the indemnity due
upon the insurance policy in the total amount of P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per
annum citing Section 2436 of Presidential Decreee No. 1460, otherwise known as the "Insurance Code," as amended.
In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and interposed the defense that
TRANS-ASIA breached insurance policy conditions, in particular: "WARRANTED VESSEL CLASSED AND
CLASS MAINTAINED." PRUDENTIAL further alleged that it acted as facts and law require and incurred no liability
to TRANS-ASIA; that TRANS-ASIA has no cause of action; and, that its claim has been effectively waived and/or
abandoned, or it is estopped from pursuing the same. By way of a counterclaim, PRUDENTIAL sought a refund of
P3,000,000.00, which it allegedly advanced to TRANS-ASIA by way of a loan without interest and without prejudice
to the final evaluation of the claim, including the amounts of P500,000.00, for survey fees and P200,000.00,
representing attorney’s fees.
The Ruling of the Trial Court
On 6 June 2000, the court a quo rendered Judgment 8 finding for (therein defendant) PRUDENTIAL. It ruled that a
determination of the parties’ liabilities hinged on whether TRANS-ASIA violated and breached the policy conditions
on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that
TRANS-ASIA is required to maintain the vessel at a certain class at all times pertinent during the life of the policy.
According to the court a quo, TRANS-ASIA failed to prove compliance of the terms of the warranty, the violation
thereof entitled PRUDENTIAL, the insured party, to rescind the contract.9
Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinated that the concealment made by
TRANS-ASIA that the vessel was not adequately maintained to preserve its class was a material concealment
sufficient to avoid the policy and, thus, entitled the injured party to rescind the contract. The court a quo found merit
in PRUDENTIAL’s contention that there was nothing in the adjustment of the particular average submitted by the
adjuster that would show that TRANS-ASIA was not in breach of the policy. Ruling on the denominated loan and trust
receipt, the court a quo said that in substance and in form, the same is a receipt for a loan. It held that if TRANS-ASIA
intended to receive the amount of P3,000,000.00 as advance payment, it should have so clearly stated as such.
The court a quo did not award PRUDENTIAL’s claim for P500,000.00, representing expert survey fees on the ground
of lack of sufficient basis in support thereof. Neither did it award attorney’s fees on the rationalization that the instant
case does not fall under the exceptions stated in Article 2208 11 of the Civil Code. However, the court a quo granted
PRUDENTIAL’s counterclaim stating that there is factual and legal basis for TRANS-ASIA to return the amount of
P3,000,000.00 by way of loan without interest.
The decretal portion of the Judgment of the RTC reads:
WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove a cause of action.
On defendant’s counterclaim, plaintiff is directed to return the sum of P3,000,000.00 representing the loan extended to
it by the defendant, within a period of ten (10) days from and after this judgment shall have become final and
executory.12
The Ruling of the Court of Appeals
On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 November 2001, reversed the 6 June
2000 Judgment of the RTC.
On the issue of TRANS-ASIA’s alleged breach of warranty of the policy condition CLASSED AND CLASS
MAINTAINED, the Court of Appeals ruled that PRUDENTIAL, as the party asserting the non-compensability of the
loss had the burden of proof to show that TRANS-ASIA breached the warranty, which burden it failed to discharge.
PRUDENTIAL cannot rely on the lack of certification to the effect that TRANS-ASIA was CLASSED AND CLASS
MAINTAINED as its sole basis for reaching the conclusion that the warranty was breached. The Court of Appeals
opined that the lack of a certification does not necessarily mean that the warranty was breached by TRANS-ASIA.
Instead, the Court of Appeals considered PRUDENTIAL’s admission that at the time the insurance contract was
entered into between the parties, the vessel was properly classed by Bureau Veritas, a classification society recognized
by the industry. The Court of Appeals similarly gave weight to the fact that it was the responsibility of Richards Hogg
International (Phils.) Inc., the average adjuster hired by PRUDENTIAL, to secure a copy of such certification to
support its conclusion that mere absence of a certification does not warrant denial of TRANS-ASIA’s claim under the
insurance policy.
In the same token, the Court of Appeals found the subject warranty allegedly breached by TRANS-ASIA to be a rider
which, while contained in the policy, was inserted by PRUDENTIAL without the intervention of TRANS-ASIA. As
such, it partakes of a nature of a contract d’adhesion which should be construed against PRUDENTIAL, the party
which drafted the contract. Likewise, according to the Court of Appeals, PRUDENTIAL’s renewal of the insurance
policy from noon of 1 July 1994 to noon of 1 July 1995, and then again, until noon of 1 July 1996 must be deemed a
waiver by PRUDENTIAL of any breach of warranty committed by TRANS-ASIA.
Further, the Court of Appeals, contrary to the ruling of the court a quo, interpreted the transaction between
PRUDENTIAL and TRANS-ASIA as one of subrogation, instead of a loan. The Court of Appeals concluded that
TRANS-ASIA has no obligation to pay back the amount of P3,000.000.00 to PRUDENTIAL based on its finding that
the aforesaid amount was PRUDENTIAL’s partial payment to TRANS-ASIA’s claim under the policy. Finally, the
Court of Appeals denied TRANS-ASIA’s prayer for attorney’s fees, but held TRANS-ASIA entitled to double interest
on the policy for the duration of the delay of payment of the unpaid balance, citing Section 244 13 of the Insurance
Code.
Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wise:
WHEREFORE, the foregoing consideration, We find for Appellant. The instant appeal is ALLOWED and the
Judgment appealed from REVERSED. The P3,000,000.00 initially paid by appellee Prudential Guarantee Assurance
Incorporated to appellant Trans-Asia and covered by a "Loan and Trust Receipt" dated 29 May 1995 is HELD to be in
partial settlement of the loss suffered by appellant and covered by Marine Policy No. MH93/1363 issued by appellee.
Further, appellee is hereby ORDERED to pay appellant the additional amount of P8,395,072.26 representing the
balance of the loss suffered by the latter as recommended by the average adjuster Richard Hogg International
(Philippines) in its Report, with double interest starting from the time Richard Hogg’s Survey Report was completed,
or on 13 August 1996, until the same is fully paid.
All other claims and counterclaims are hereby DISMISSED.
All costs against appellee.14
Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for Reconsideration and Partial
Motion for Reconsideration thereon, respectively, which motions were denied by the Court of Appeals in the
Resolution dated 29 January 2002.
The Issues
Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No. 151890, relying on the
following grounds, viz:
I.

THE AWARD IS GROSSLY UNCONSCIONABLE.

II.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY

TRANS-ASIA OF A MATERIAL WARRANTY, NAMELY, WARRANTY CLAUSE NO. 5, OF THE
INSURANCE POLICY.

III.

THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER HAD THE
BURDEN OF PROVING THAT THE ASSURED, TRANS-ASIA, VIOLATED A MATERIAL
WARRANTY.

IV.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE EMBODIED
IN THE INSURANCE POLICY CONTRACT WAS A MERE RIDER.

V.
 THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF THE
POLICY CONSTITUTED A WAIVER ON THE PART OF PRUDENTIAL OF THE BREACH OF THE
WARRANTY BY TRANS-ASIA.

VI.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST RECEIPT"
EXECUTED BY TRANS-ASIA IS AN ADVANCE ON THE POLICY, THUS CONSTITUTING
PARTIAL PAYMENT THEREOF.

VII.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY PRUDENTIAL

OF THE FINDINGS OF RICHARDS HOGG IS INDICATIVE OF A WAIVER ON THE PART OF
PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE WARRANTY.

VIII.

THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN FINDING
THAT PRUDENTIAL "UNJUSTIFIABLY REFUSED" TO PAY THE CLAIM AND IN ORDERING
PRUDENTIAL TO PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE INTEREST FROM 13
AUGUST 1996, UNTIL [THE] SAME IS FULLY PAID.15

Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for Review docketed as
G.R. No. 151991, raising the following grounds for the allowance of the petition, to wit:
I.

THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEY’S FEES TO

PETITIONER TRANS-ASIA ON THE GROUND THAT SUCH CAN ONLY BE AWARDED IN THE
CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND THERE BEING NO BAD
FAITH ON THE PART OF RESPONDENT PRUDENTIAL IN DENYING HEREIN PETITIONER
TRANS-ASIA’S INSURANCE CLAIM.

II.

THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER 2001

SHOULD BE CONSTRUED TO MEAN DOUBLE INTEREST BASED ON THE LEGAL INTEREST
OF 12%, OR INTEREST AT THE RATE OF 24% PER ANNUM.16

In our Resolution of 2 December 2002, we granted TRANS-ASIA’s Motion for Consolidation 17 of G.R. Nos. 151890
and 151991;18 hence, the instant consolidated petitions.
In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA arising from the
subject insurance contract; (2) the liability, if any, of TRANS-ASIA to PRUDENTIAL arising from the transaction
between the parties as evidenced by a document denominated as "Loan and Trust Receipt," dated 29 May 1995; and
(3) the amount of interest to be imposed on the liability, if any, of either or both parties.
Ruling of the Court
Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not questions of fact, may be
raised.19 This rule may be disregarded only when the findings of fact of the Court of Appeals are contrary to the
findings and conclusions of the trial court, or are not supported by the evidence on record. 20 In the case at bar, we find
an incongruence between the findings of fact of the Court of Appeals and the court a quo, thus, in our determination of
the issues, we are constrained to assess the evidence adduced by the parties to make appropriate findings of facts as
are necessary.
 I.
A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy condition on
WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as contained in the subject insurance
contract.
In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an express and material
warranty in the subject insurance contract, i.e., Marine Insurance Policy No. MH93/1363, specifically Warranty
Clause No. 5 thereof, which stipulates that the insured vessel, "M/V ASIA KOREA" is required to be CLASSED AND
CLASS MAINTAINED. According to PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the
fire, "M/V ASIA KOREA" was in violation of the warranty as it was not CLASSED AND CLASS MAINTAINED.
PRUDENTIAL submits that Warranty Clause No. 5 was a condition precedent to the recovery of TRANS-ASIA under
the policy, the violation of which entitled PRUDENTIAL to rescind the contract under Sec. 74 21 of the Insurance
Code.
The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIAL’s Senior Manager
of the Marine and Aviation Division, Lucio Fernandez. The pertinent portions of his testimony on direct examination
is reproduced hereunder, viz:
ATTY. LIM
Q Please tell the court, Mr. Witness, the result of the evaluation of this claim, what final action was taken?
A It was eventually determined that there was a breach of the policy condition, and basically there is a breach of
policy warranty condition and on that basis the claim was denied.
Q To refer you (sic) the "policy warranty condition," I am showing to you a policy here marked as Exhibits "1", "1-A"
series, please point to the warranty in the policy which you said was breached or violated by the plaintiff which
constituted your basis for denying the claim as you testified.
A Warranted Vessel Classed and Class Maintained.
ATTY. LIM
Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the second page of the policy below the
printed words: "Clauses, Endorsements, Special Conditions and Warranties," below this are several typewritten
clauses and the witness pointed out in particular the clause reading: "Warranted Vessel Classed and Class Maintained."
COURT
Q Will you explain that particular phrase?
A Yes, a warranty is a condition that has to be complied with by the insured. When we say a class warranty, it must be
entered in the classification society.
COURT
Slowly.
WITNESS
(continued)
A A classification society is an organization which sets certain standards for a vessel to maintain in order to maintain
their membership in the classification society. So, if they failed to meet that standard, they are considered not
members of that class, and thus breaching the warranty, that requires them to maintain membership or to maintain
their class on that classification society. And it is not sufficient that the member of this classification society at the
time of a loss, their membership must be continuous for the whole length of the policy such that during the effectivity
of the policy, their classification is suspended, and then thereafter, they get reinstated, that again still a breach of the
warranty that they maintained their class (sic). Our maintaining team membership in the classification society thereby
maintaining the standards of the vessel (sic).
ATTY. LIM
Q Can you mention some classification societies that you know?
A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classification Society, The Philippine
Registration of Ships Society, China Classification, NKK and Company Classification Society, and many others, we
have among others, there are over 20 worldwide. 22
At the outset, it must be emphasized that the party which alleges a fact as a matter of defense has the burden of
proving it. PRUDENTIAL, as the party which asserted the claim that TRANS-ASIA breached the warranty in the
policy, has the burden of evidence to establish the same. Hence, on the part of PRUDENTIAL lies the initiative to
show proof in support of its defense; otherwise, failing to establish the same, it remains self-serving. Clearly, if no
evidence on the alleged breach of TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA would be
successful in claiming on the policy. It follows that PRUDENTIAL bears the burden of evidence to establish the fact
of breach.
In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of proof to show proof of
loss, and the coverage thereof, in the subject insurance policy. However, in the course of trial in a civil case, once
plaintiff makes out a prima facie case in his favor, the duty or the burden of evidence shifts to defendant to controvert
plaintiff’s prima facie case, otherwise, a verdict must be returned in favor of plaintiff. 23 TRANS-ASIA was able to
establish proof of loss and the coverage of the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the burden of
evidence shifted to PRUDENTIAL to counter TRANS-ASIA’s case, and to prove its special and affirmative defense
that TRANS-ASIA was in violation of the particular condition on CLASSED AND CLASS MAINTAINED.
We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in discharging the burden of
evidence that TRANS-ASIA breached the subject policy condition on CLASSED AND CLASS MAINTAINED.
Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division, Lucio Fernandez, made a
categorical admission that at the time of the procurement of the insurance contract in July 1993, TRANS-ASIA’s
vessel, "M/V Asia Korea" was properly classed by Bureau Veritas, thus:
Q Kindly examine the records particularly the policy, please tell us if you know whether M/V Asia Korea was classed
at the time (sic) policy was procured perthe (sic) insurance was procured that Exhibit "1" on 1st July 1993 (sic).
WITNESS
A I recall that they were classed.
ATTY. LIM
Q With what classification society?
A I believe with Bureau Veritas.24
As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification society
recognized in the marine industry. As it is undisputed that TRANS-ASIA was properly classed at the time the contract
of insurance was entered into, thus, it becomes incumbent upon PRUDENTIAL to show evidence that the status of
TRANS-ASIA as being properly CLASSED by Bureau Veritas had shifted in violation of the warranty. Unfortunately,
PRUDENTIAL failed to support the allegation.
We are in accord with the ruling of the Court of Appeals that the lack of a certification in PRUDENTIAL’s records to
the effect that TRANS-ASIA’s "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at the time of the
occurrence of the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact breached the warranty
contained in the policy. With more reason must we sustain the findings of the Court of Appeals on the ground that as
admitted by PRUDENTIAL, it was likewise the responsibility of the average adjuster, Richards Hogg International
(Phils.), Inc., to secure a copy of such certification, and the alleged breach of TRANS-ASIA cannot be gleaned from
the average adjuster’s survey report, or adjustment of particular average per "M/V Asia Korea" of the 25 October 1993
fire on board.
We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that, "the violation of a
material warranty, or other material provision of a policy on the part of either party thereto, entitles the other to
rescind." It is generally accepted that "[a] warranty is a statement or promise set forth in the policy, or by reference
incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether the
insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the
insurer."25However, it is similarly indubitable that for the breach of a warranty to avoid a policy, the same must be
duly shown by the party alleging the same. We cannot sustain an allegation that is unfounded. Consequently,
PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CLASSED AND CLASS
MAINTAINED, it remains that TRANS-ASIA must be allowed to recover its rightful claims on the policy.
B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL CLASSED AND
CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same.
The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS-ASIA breached the warranty
provision on CLASSED AND CLASS MAINTAINED, underscored that PRUDENTIAL can be deemed to have made
a valid waiver of TRANS-ASIA’s breach of warranty as alleged, ratiocinating, thus:
Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive years, from noon
of 01 July 1994 to noon of 01 July 1995, and then again until noon of 01 July 1996. This renewal is deemed a waiver
of any breach of warranty.26
PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal policies are deemed a
waiver of TRANS-ASIA’s alleged breach, averring herein that the subsequent policies, designated as MH94/1595 and
MH95/1788 show that they were issued only on 1 July 1994 and 3 July 1995, respectively, prior to the time it made a
request to TRANS-ASIA that it be furnished a copy of the certification specifying that the insured vessel "M/V Asia
Korea" was CLASSED AND CLASS MAINTAINED. PRUDENTIAL posits that it came to know of the breach by
TRANS-ASIA of the subject warranty clause only on 21 April 1997. On even date, PRUDENTIAL sent TRANS-
ASIA a letter of denial, advising the latter that their claim is not compensable. In fine, PRUDENTIAL would have this
Court believe that the issuance of the renewal policies cannot be a waiver because they were issued without
knowledge of the alleged breach of warranty committed by TRANS-ASIA.27
We are not impressed. We do not find that the Court of Appeals was in error when it held that PRUDENTIAL, in
renewing TRANS-ASIA’s insurance policy for two consecutive years after the loss covered by Policy No.
MH93/1363, was considered to have waived TRANS-ASIA’s breach of the subject warranty, if any. 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. In that event his liability under the
policy continues as before.28 There can be no clearer intention of the waiver of the alleged breach than the renewal of
the policy insurance granted by PRUDENTIAL to TRANS-ASIA in MH94/1595 and MH95/1788, issued in the years
1994 and 1995, respectively.
To our mind, the argument is made even more credulous by PRUDENTIAL’s lack of proof to support its allegation
that the renewals of the policies were taken only after a request was made to TRANS-ASIA to furnish them a copy of
the certificate attesting that "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. Notwithstanding
PRUDENTIAL’s claim that no certification was issued to that effect, it renewed the policy, thereby, evidencing an
intention to waive TRANS-ASIA’s alleged breach. Clearly, by granting the renewal policies twice and successively
after the loss, the intent was to benefit the insured, TRANS-ASIA, as well as to waive compliance of the warranty.
The foregoing finding renders a determination of whether the subject warranty is a rider, moot, as raised by the
PRUDENTIAL in its assignment of errors. Whether it is a rider will not effectively alter the result for the reasons that:
(1) PRUDENTIAL was not able to discharge the burden of evidence to show that TRANS-ASIA committed a breach,
thereof; and (2) assuming arguendo the commission of a breach by TRANS-ASIA, the same was shown to have been
waived by PRUDENTIAL.
II.
A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transaction between the parties
evidenced by a document denominated as "Loan and Trust Receipt," dated 29 May 1995 constituted partial payment
on the policy.
It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00. The same was
evidenced by a transaction receipt denominated as a "Loan and Trust Receipt," dated 29 May 1995, reproduced
hereunder:
LOAN AND TRUST RECEIPT

Claim File No. MH-93-025 May 29, 1995

P3,000,000.00
Check No. PCIB066755
 Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of PESOS THREE
MILLION ONLY (P3,000,000.00) as a loan without interest, under Policy No. MH93/1353, repayable
only in the event and to the extent that any net recovery is made by TRANS ASIA SHIPPING CORP.,
from any person or persons, corporation or corporations, or other parties, on account of loss by any
casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board.

As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND

ASSURANCE INC. whatever recovery we may make and deliver to it all documents necessary to prove
our interest in said property. We also hereby agree to promptly prosecute suit against such persons,
corporation or corporations through whose negligence the aforesaid loss was caused or who may
otherwise be responsible therefore, with all due diligence, in our own name, but at the expense of and
under the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC.

TRANS-ASIA SHIPPING CORPORATION29

PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the parties evidenced a loan of
P3,000,000.00 which it granted to TRANS-ASIA, and not an advance payment on the policy or a partial payment for
the loss. It further submits that it is a customary practice for insurance companies in this country to extend loans
gratuitously as part of good business dealing with their assured, in order to afford their assured the chance to continue
business without embarrassment while awaiting outcome of the settlement of their claims. 30 According to
PRUDENTIAL, the "Trust and Loan Agreement" did not subrogate to it whatever rights and/or actions TRANS-ASIA
may have against third persons, and it cannot by no means be taken that by virtue thereof, PRUDENTIAL was granted
irrevocable power of attorney by TRANS-ASIA, as the sole power to prosecute lies solely with the latter.
The Court of Appeals held that the real character of the transaction between the parties as evidenced by the "Loan and
Trust Receipt" is that of an advance payment by PRUDENTIAL of TRANS-ASIA’s claim on the insurance, thus:
The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance Law Act No. 2427 of the
Philippine Legislature during the American Regime. The Insurance Act was lifted verbatim from the law of California,
except Chapter V thereof, which was taken largely from the insurance law of New York. Therefore, ruling case law in
that jurisdiction is to Us persuasive in interpreting provisions of our own Insurance Code. In addition, the application
of the adopted statute should correspond in fundamental points with the application in its country of origin x x x.
xxxx
Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan Receipt that the money was
intended as a loan does not detract from its real character as payment of claim, thus:
"The receipt of money by the insured employers from a surety company for losses on account of forgery of drafts by
an employee where no provision or repayment of the money was made except upon condition that it be recovered
from other parties and neither interest nor security for the asserted debts was provided for, the money constituted the
payment of a liability and not a mere loan, notwithstanding recitals in the written receipt that the money was intended
as a mere loan."
What is clear from the wordings of the so-called "Loan and Trust Receipt Agreement" is that appellant is obligated to
hand over to appellee "whatever recovery (Trans Asia) may make and deliver to (Prudential) all documents necessary
to prove its interest in the said property." For all intents and purposes therefore, the money receipted is payment under
the policy, with Prudential having the right of subrogation to whatever net recovery Trans-Asia may obtain from third
parties resulting from the fire. In the law on insurance, subrogation is an equitable assignment to the insurer of all
remedies which the insured may have against third person whose negligence or wrongful act caused the loss covered
by the insurance policy, which is created as the legal effect of payment by the insurer as an assignee in equity. The loss
in the first instance is that of the insured but after reimbursement or compensation, it becomes the loss of the insurer.
It has been referred to as the doctrine of substitution and rests on the principle that substantial justice should be
attained regardless of form, that is, its basis is the doing of complete, essential, and perfect justice between all the
parties without regard to form.31
We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences that the real nature of
the transaction between the parties was that the amount of P3,000,000.00 was not intended as a loan whereby
TRANS-ASIA is obligated to pay PRUDENTIAL, but rather, the same was a partial payment or an advance on the
policy of the claims due to TRANS-ASIA.
First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by PRUDENTIAL, subrogating
the former to the extent of "any net recovery made by TRANS ASIA SHIPPING CORP., from any person or persons,
corporation or corporations, or other parties, on account of loss by any casualty for which they may be liable,
occasioned by the 25 October 1993: Fire on Board."32
Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to "promptly prosecute suit
against such persons, corporation or corporations through whose negligence the aforesaid loss was caused or who may
otherwise be responsible therefore, with all due diligence" in its name, the prosecution of the claims against such third
persons are to be carried on "at the expense of and under the exclusive direction and control of PRUDENTIAL
GUARANTEE AND ASSURANCE INC."33 The clear import of the phrase "at the expense of and under the
exclusive direction and control" as used in the "Loan and Trust Receipt" grants solely to PRUDENTIAL the power to
prosecute, even as the same is carried in the name of TRANS-ASIA, thereby making TRANS-ASIA merely an agent
of PRUDENTIAL, the principal, in the prosecution of the suit against parties who may have occasioned the loss.
Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay PRUDENTIAL is highly
speculative and contingent, i.e., only in the event and to the extent that any net recovery is made by TRANS-ASIA
from any person on account of loss occasioned by the fire of 25 October 1993. The transaction, therefore, was made to
benefit TRANS-ASIA, such that, if no recovery from third parties is made, PRUDENTIAL cannot be repaid the
amount. Verily, we do not think that this is constitutive of a loan. 34 The liberality in the tenor of the "Loan and Trust
Receipt" in favor of TRANS-ASIA leads to the conclusion that the amount of P3,000,000.00 was a form of an
advance payment on TRANS-ASIA’s claim on MH93/1353.
III.
A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss
suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363.
Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid claims covered by
Marine Policy No. MH93/1363, or a total amount of P8,395,072.26.
B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of attorney’s fees equivalent to
10% of P8,395,072.26.
The Court of Appeals denied the grant of attorney’s fees. It held that attorney’s fees cannot be awarded absent a
showing of bad faith on the part of PRUDENTIAL in rejecting TRANS-ASIA’s claim, notwithstanding that the
rejection was erroneous. According to the Court of Appeals, attorney’s fees can be awarded only in the cases
enumerated in Article 2208 of the Civil Code which finds no application in the instant case.
We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorney’s fees and other expenses incurred
by the insured after a finding by the Insurance Commissioner or the Court, as the case may be, of an unreasonable
denial or withholding of the payment of the claims due. Moreover, the law imposes an interest of twice the ceiling
prescribed by the Monetary Board on the amount of the claim due the insured from the date following the time
prescribed in Section 24235 or in Section 243,36 as the case may be, until the claim is fully satisfied. Finally, Section
244 considers the failure to pay the claims within the time prescribed in Sections 242 or 243, when applicable, as
prima facie evidence of unreasonable delay in payment.
To the mind of this Court, Section 244 does not require a showing of bad faith in order that attorney’s fees be granted.
As earlier stated, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created
by failure of the insurer to pay the claim within the time fixed in both Sections 242 and 243 of the Insurance Code. As
established in Section 244, by reason of the delay and the consequent filing of the suit by the insured, the insurers
shall be adjudged to pay damages which shall consist of attorney’s fees and other expenses incurred by the insured. 37
Section 244 reads:
In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the
Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the
insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be
adjudged to pay damages which shall consist of attorney’s fees and other expenses incurred by the insured person by
reason of such unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the
Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in section
two hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully satisfied;
Provided, That the failure to pay any such claim within the time prescribed in said sections shall be considered prima
facie evidence of unreasonable delay in payment.
Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or refusal in the
payment of the insurance claims.
In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show that there was an
unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of P8,395,072.26 to TRANS-ASIA. On
26 October 1993, a day after the occurrence of the fire in "M/V Asia Korea", TRANS-ASIA filed its notice of claim.
On 13 August 1996, the adjuster, Richards Hogg International (Phils.), Inc., completed its survey report
recommending the amount of P11,395,072.26 as the total indemnity due to TRANS-ASIA. 38 On 21 April 1997,
PRUDENTIAL, in a letter39 addressed to TRANS-ASIA denied the latter’s claim for the amount of P8,395,072.26
representing the balance of the total indemnity. On 21 July 1997, PRUDENTIAL sent a second letter 40 to TRANS-
ASIA seeking a return of the amount of P3,000,000.00. On 13 August 1997, TRANS-ASIA was constrained to file a
complaint for sum of money against PRUDENTIAL praying, inter alia, for the sum of P8,395,072.26 representing the
balance of the proceeds of the insurance claim.
As can be gleaned from the foregoing, there was an unreasonable delay on the part of PRUDENTIAL to pay TRANS-
ASIA, as in fact, it refuted the latter’s right to the insurance claims, from the time proof of loss was shown and the
ascertainment of the loss was made by the insurance adjuster. Evidently, PRUDENTIAL’s unreasonable delay in
satisfying TRANS-ASIA’s unpaid claims compelled the latter to file a suit for collection.
Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of the policy as attorney’s fees to
TRANS-ASIA is reasonable under the circumstances, or otherwise stated, ten percent (10%) of P8,395,072.26. In the
case of Cathay Insurance, Co., Inc. v. Court of Appeals, 41 where a finding of an unreasonable delay under Section 244
of the Insurance Code was made by this Court, we grant an award of attorney’s fees equivalent to ten percent (10%) of
the total proceeds. We find no reason to deviate from this judicial precedent in the case at bar.
C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be imposed double interest
in accordance with Section 244 of the Insurance Code.
Section 244 of the Insurance Code is categorical in imposing an interest twice the ceiling prescribed by the Monetary
Board due the insured, from the date following the time prescribed in Section 242 or in Section 243, as the case may
be, until the claim is fully satisfied. In the case at bar, we find Section 243 to be applicable as what is involved herein
is a marine insurance, clearly, a policy other than life insurance.
Section 243 is hereunder reproduced:
SEC. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other than life
insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the
loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such
ascertainment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss
or damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the
time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the
delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based
on the ground that the claim is fraudulent.
As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the rate of twice the
ceiling prescribed by the Monetary Board except when the failure or refusal of the insurer to pay was founded on the
ground that the claim is fraudulent.
D. The term "double interest" as used in the Decision of the Court of Appeals must be interpreted to mean 24% per
annum.
PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in favor of TRANS-ASIA in the
assailed Decision of 6 November 2001. It is PRUDENTIAL’s stance that the award is extortionate and grossly
unsconscionable. In support thereto, PRUDENTIAL makes a reference to TRANS-ASIA’s prayer in the Complaint
filed with the court a quo wherein the latter sought, "interest double the prevailing rate of interest of 21% per annum
now obtaining in the banking business or plus 42% per annum pursuant to Article 243 of the Insurance Code x x x." 42
The contention fails to persuade. It is settled that an award of double interest is lawful and justified under Sections 243
and 244 of the Insurance Code.43 In Finman General Assurance Corporation v. Court of Appeals,44 this Court held
that the payment of 24% interest per annum is authorized by the Insurance Code. 45 There is no gainsaying that the
term "double interest" as used in Sections 243 and 244 can only be interpreted to mean twice 12% per annum or 24%
per annum interest, thus:
The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of twelve per centum per annum
(12%) as prescribed by the Monetary Board in C.B. Circular No. 416, pursuant to P.D. No. 116, amending the Usury
Law; so that when Sections 242, 243 and 244 of the Insurance Code provide that the insurer shall be liable to pay
interest "twice the ceiling prescribed by the Monetary Board", it means twice 12% per annum or 24% per annum
interest on the proceeds of the insurance.46
E. The payment of double interest should be counted from 13 September 1996.
The Court of Appeals, in imposing double interest for the duration of the delay of the payment of the unpaid balance
due TRANS-ASIA, computed the same from 13 August 1996 until such time when the amount is fully paid. Although
not raised by the parties, we find the computation of the duration of the delay made by the appellate court to be
patently erroneous.
To be sure, Section 243 imposes interest on the proceeds of the policy for the duration of the delay at the rate of twice
the ceiling prescribed by the Monetary Board. Significantly, Section 243 mandates the payment of any loss or damage
for which an insurer may be liable, under any policy other than life insurance policy, within thirty days after proof of
loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the
insured and the insurer or by arbitration. It is clear that under Section 243, the insurer has until the 30th day after proof
of loss and ascertainment of the loss or damage to pay its liability under the insurance, and only after such time can
the insurer be held to be in delay, thereby necessitating the imposition of double interest.
In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was completed by the
adjuster, Richard Hoggs International (Phils.), Inc. on 13 August 1996. PRUDENTIAL had thirty days from 13
August 1996 within which to pay its liability to TRANS-ASIA under the insurance policy, or until 13 September
1996. Therefore, the double interest can begin to run from 13 September 1996 only.
IV.
A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged in section III
herein, computed from the time of finality of judgment until the full satisfaction thereof in conformity with this
Court’s ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.
This Court in Eastern Shipping Lines, Inc. v. Court of Appeals, 47 inscribed the rule of thumb 48 in the application of
interest to be imposed on obligations, regardless of their source. Eastern emphasized beyond cavil that when the
judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, regardless of
whether the obligation involves a loan or forbearance of money, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance 49 of credit.
We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the finality of judgment
until the full satisfaction thereof must be imposed on the total amount of liability adjudged to PRUDENTIAL. It is
clear that the interim period from the finality of judgment until the satisfaction of the same is deemed equivalent to a
forbearance of credit, hence, the imposition of the aforesaid interest.
Fallo
WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No. 151991 is
GRANTED, thus, we award the grant of attorney’s fees and make a clarification that the term "double interest" as
used in the 6 November 2001 Decision of the Court of Appeals in CA GR CV No. 68278 should be construed to mean
interest at the rate of 24% per annum, with a further clarification, that the same should be computed from 13
September 1996 until fully paid. The Decision and Resolution of the Court of Appeals, in CA-G.R. CV No. 68278,
dated 6 November 2001 and 29 January 2002, respectively, are, thus, MODIFIED in the following manner, to wit:
1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26, representing the
balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363;
 2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of attorney’s fees
equivalent to 10% of the amount of P8,395,072.26;
3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be imposed double interest
at the rate of 24% per annum to be computed from 13 September 1996 until fully paid; and
4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged as
abovestated in paragraphs (1), (2), and (3) herein, computed from the time of finality of judgment until the
full satisfaction thereof.
No costs.
SO ORDERED.