46 MALAYAN INSURANCE COMPANY, INC., petitioner, vs. PAP AUTHOR: Mendoza, Kelsey O., J.D.

CO., LTD. (PHIL. BRANCH), respondent NOTES:

G.R. No. 200784, [August 7, 2013], 716 PHIL 155-171)
TOPIC: Fire Insurance
PONENTE: Mendoza, J.
CASE LAW/ DOCTRINE:

Emergency Recit:

(Basically, a more concise or shorter version of the facts stated in your digest. It’s basically what you will say if you were the one
reciting the case. It’s useful for refreshing your memory.)

FACTS:
 5/13/96, Malayan issued Fire Insurance Policy to PAP Co. for the latter's machineries and equipment located at Sanyo Precision
Phils. Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite. The insurance, which was for P15,000,000.00 and effective for a
period of (1) year, was procured by PAP Co. for RCBC, the mortgagee of the insured machineries and equipment.
 After the passage of almost a year but prior to the expiration of the insurance coverage, PAP Co. renewed the policy on an "as
is" basis. Pursuant thereto, a renewal policy was issued by Malayan to PAP Co. for the period May 13, 1997 to May 13, 1998.
 10/12/97 and during the subsistence of the renewal policy, the insured machineries and equipment were totally lost by fire.
Hence, PAP Co. filed a fire insurance claim with Malayan in the amount insured.
 12/15/97, Malayan denied the claim on the ground that, at the time of the loss, the insured machineries and equipment were
transferred by PAP Co. in September 1996 from the Sanyo Building to the Pace Pacific Bldg., Lot 14, Block 14, Phase III, PEZA,
Rosario, Cavite. Contesting the denial, PAP Co. argued that Malayan cannot avoid liability as it was informed of the transfer by
RCBC, the party duty-bound to relay such information. However, Malayan reiterated its denial of PAP Co.'s claim.

RTC: Ordered Malayan to pay PAP Company Ltd. (PAP) an indemnity for the loss under the fire insurance policy as well as for
attorney's fees. The RTC explained that Malayan is liable to indemnify PAP for the loss under the subject fire insurance policy
because, although there was a change in the condition of the thing insured as a result of the transfer of the subject machineries to
another location, said insurance company failed to show proof that such transfer resulted in the increase of the risk insured against.
In the absence of proof that the alteration of the thing insured increased the risk, the contract of fire insurance is not affected per
Article 169 of the Insurance Code. The RTC further stated that PAP's notice to Rizal Commercial Banking Corporation (RCBC)
sufficiently complied with the notice requirement under the policy considering that it was RCBC which procured the insurance. PAP
acted in good faith in notifying RCBC about the transfer and the latter even conducted an inspection of the machinery in its new
location.

CA: Malayan failed to show proof that there was a prohibition on the transfer of the insured properties during the efficacy of the
insurance policy. Malayan also failed to show that its contractual consent was needed before carrying out a transfer of the insured
properties. Despite its bare claim that the original and the renewed insurance policies contained provisions on transfer limitations of
the insured properties, Malayan never cited the specific provisions. The CA further stated that even if there was such a provision on
transfer restrictions of the insured properties, still Malayan could not escape liability because the transfer was made during the
subsistence of the original policy, not the renewal policy.
ISSUE(S): whether or not Malayan should be held liable under the insurance contract because PAP committed concealment,
misrepresentation and breach of an affirmative warranty under the renewal policy when it transferred the location of the insured
properties without informing it.

HELD: No. Malayan cannot be held liable for the loss of the insured properties under the fire insurance policy.
RATIO: Condition No. 9 (c) of the renewal policy provides:

9. Under any of the following circumstances the insurance ceases to attach as regards the property affected unless the insured,
before the occurrence of any loss or damage, obtains the sanction of the company signified by endorsement upon the policy, by or
on behalf of the Company:
(c) If property insured be removed to any building or place other than in that which is herein stated to be insured.

Evidently, by the clear and express condition in the renewal policy, the removal of the insured property to any building or place
required the consent of Malayan. Any transfer effected by the insured, without the insurer's consent, would free the latter from any
liability.

The records are bereft of any convincing and concrete evidence that Malayan was notified of the transfer of the insured properties
from the Sanyo factory to the Pace factory. The Court has combed the records and found nothing that would show that Malayan was
duly notified of the transfer of the insured properties.

What PAP did to prove that Malayan was notified was to show that it relayed the fact of transfer to RCBC, the entity which made the
referral and the named beneficiary in the policy. Malayan and RCBC might have been sister companies, but such fact did not make
one an agent of the other. The fact that RCBC referred PAP to Malayan did not clothe it with authority to represent and bind the said
insurance company. After the referral, PAP dealt directly with Malayan. Granting that any notice to RCBC was binding on Malayan,
PAP's claim that it notified RCBC and Malayan was not indubitably established.

the transfer to the Pace Factory exposed the properties to a hazardous environment and negatively affected the fire rating stated in
the renewal policy. The increase in tariff rate from 0.449% to 0.657% put the subject properties at a greater risk of loss. Such
increase in risk would necessarily entail an increase in the premium payment on the fire policy. Unfortunately, PAP chose to remain
completely silent on this very crucial point. Despite the importance of the issue, PAP failed to refute Malayan's argument on the
increased risk.

It can also be said that with the transfer of the location of the subject properties, without notice and without Malayan's consent,
after the renewal of the policy, PAP clearly committed concealment, misrepresentation and a breach of a material warranty. Under
Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance."

Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insured's control; and
5) the alteration increases the risk of loss. 20

In the case at bench, all these circumstances are present. It was clearly established that the renewal policy stipulated that the
insured properties were located at the Sanyo factory; that PAP removed the properties without the consent of Malayan; and that
the alteration of the location increased the risk of loss.