G.R. No.

L-8151 December 16, 1955

VIRGINIA CALANOC, petitioner,

vs.
COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE CO., respondents.

Lucio Javillonar for petitioner.

J. A. Wolfson, Manuel Y. Mecias, Emilio Abello and Anselmo A. Reyes for respondents.

BAUTISTA ANGELO, J.:

This suit involves the collection of P2,000 representing the value of a supplemental policy covering
accidental death which was secured by one Melencio Basilio from the Philippine American Life Insurance
Company. The case originated in the Municipal Court of Manila and judgment being favorable to the plaintiff
it was appealed to the court of first instance. The latter court affirmed the judgment but on appeal to the
Court of Appeals the judgment was reversed and the case is now before us on a petition for review.

Melencio Basilio was a watchman of the Manila Auto Supply located at the corner of Avenida Rizal and
Zurbaran. He secured a life insurance policy from the Philippine American Life Insurance Company in the
amount of P2,000 to which was attached a supplementary contract covering death by accident. On January
25, 1951, he died of a gunshot wound on the occasion of a robbery committed in the house of Atty. Ojeda
at the corner of Oroquieta and Zurbaan streets. Virginia Calanoc, the widow, was paid the sum of P2,000,
face value of the policy, but when she demanded the payment of the additional sum of P2,000 representing
the value of the supplemental policy, the company refused alleging, as main defense, that the deceased
died because he was murdered by a person who took part in the commission of the robbery and while
making an arrest as an officer of the law which contingencies were expressly excluded in the contract and
have the effect of exempting the company from liability.

The pertinent facts which need to be considered for the determination of the questions raised are those
reproduced in the decision of the Court of Appeals as follows:

The circumstances surrounding the death of Melencio Basilio show that when he was killed at about
seven o'clock in the night of January 25, 1951, he was on duty as watchman of the Manila Auto
Supply at the corner of Avenida Rizal and Zurbaran; that it turned out that Atty. Antonio Ojeda who
had his residence at the corner of Zurbaran and Oroquieta, a block away from Basilio's station, had
come home that night and found that his house was well-lighted, but with the windows closed; that
getting suspicious that there were culprits in his house, Atty. Ojeda retreated to look for a policeman
and finding Basilio in khaki uniform, asked him to accompany him to the house with the latter
refusing on the ground that he was not a policeman, but suggesting that Atty. Ojeda should ask the
traffic policeman on duty at the corner of Rizal Avenue and Zurbaran; that Atty. Ojeda went to the
traffic policeman at said corner and reported the matter, asking the policeman to come along with
him, to which the policeman agreed; that on the way to the Ojeda residence, the policeman and
Atty. Ojeda passed by Basilio and somehow or other invited the latter to come along; that as the
tree approached the Ojeda residence and stood in front of the main gate which was covered with
galvanized iron, the fence itself being partly concrete and partly adobe stone, a shot was fired; that
immediately after the shot, Atty. Ojeda and the policeman sought cover; that the policeman, at the
request of Atty. Ojeda, left the premises to look for reinforcement; that it turned out afterwards that
the special watchman Melencio Basilio was hit in the abdomen, the wound causing his
instantaneous death; that the shot must have come from inside the yard of Atty. Ojeda, the bullet
passing through a hole waist-high in the galvanized iron gate; that upon inquiry Atty. Ojeda found
out that the savings of his children in the amount of P30 in coins kept in his aparador contained in
stockings were taken away, the aparador having been ransacked; that a month thereafter the
corresponding investigation conducted by the police authorities led to the arrest and prosecution of
four persons in Criminal Case No. 15104 of the Court of First Instance of Manila for 'Robbery in an
Inhabited House and in Band with Murder'.

It is contended in behalf of the company that Basilio was killed which "making an arrest as an officer of the
law" or as a result of an "assault or murder" committed in the place and therefore his death was caused by
one of the risks excluded by the supplementary contract which exempts the company from liability. This
contention was upheld by the Court of Appeals and, in reaching this conclusion, made the following
comment:
 From the foregoing testimonies, we find that the deceased was a watchman of the Manila Auto
Supply, and, as such, he was not boud to leave his place and go with Atty. Ojeda and Policeman
Magsanoc to see the trouble, or robbery, that occurred in the house of Atty. Ojeda. In fact, according
to the finding of the lower court, Atty. Ojeda finding Basilio in uniform asked him to accompany him
to his house, but the latter refused on the ground that he was not a policeman and suggested to
Atty. Ojeda to ask help from the traffic policeman on duty at the corner of Rizal Avenue and
Zurbaran, but after Atty. Ojeda secured the help of the traffic policeman, the deceased went with
Ojeda and said traffic policeman to the residence of Ojeda, and while the deceased was standing
in front of the main gate of said residence, he was shot and thus died. The death, therefore, of
Basilio, although unexpected, was not caused by an accident, being a voluntary and intentional act
on the part of the one wh robbed, or one of those who robbed, the house of Atty. Ojeda. Hence, it
is out considered opinion that the death of Basilio, though unexpected, cannot be considered
accidental, for his death occurred because he left his post and joined policeman Magsanoc and
Atty. Ojeda to repair to the latter's residence to see what happened thereat. Certainly, when Basilio
joined Patrolman Magsanoc and Atty. Ojeda, he should have realized the danger to which he was
exposing himself, yet, instead of remaining in his place, he went with Atty. Ojeda and Patrolman
Magsanoc to see what was the trouble in Atty. Ojeda's house and thus he was fatally shot.

We dissent from the above findings of the Court of Appeals. For one thing, Basilio was a watchman of the
Manila Auto Supply which was a block away from the house of Atty. Ojeda where something suspicious
was happening which caused the latter to ask for help. While at first he declied the invitation of Atty. Ojeda
to go with him to his residence to inquire into what was going on because he was not a regular policeman,
he later agreed to come along when prompted by the traffic policeman, and upon approaching the gate of
the residence he was shot and died. The circumstance that he was a mere watchman and had no duty to
heed the call of Atty. Ojeda should not be taken as a capricious desire on his part to expose his life to
danger considering the fact that the place he was in duty-bound to guard was only a block away. In
volunteering to extend help under the situation, he might have thought, rightly or wrongly, that to know the
truth was in the interest of his employer it being a matter that affects the security of the neighborhood. No
doubt there was some risk coming to him in pursuing that errand, but that risk always existed it being
inherent in the position he was holding. He cannot therefore be blamed solely for doing what he believed
was in keeping with his duty as a watchman and as a citizen. And he cannot be considered as making an
arrest as an officer of the law, as contended, simply because he went with the traffic policeman, for certainly
he did not go there for that purpose nor was he asked to do so by the policeman.

Much less can it be pretended that Basilio died in the course of an assault or murder considering the very
nature of these crimes. In the first place, there is no proof that the death of Basilio is the result of either
crime for the record is barren of any circumstance showing how the fatal shot was fired. Perhaps this may
be clarified in the criminal case now pending in court as regards the incident but before that is done anything
that might be said on the point would be a mere conjecture. Nor can it be said that the killing was intentional
for there is the possibility that the malefactor had fired the shot merely to scare away the people around for
his own protection and not necessarily to kill or hit the victim. In any event, while the act may not excempt
the triggerman from liability for the damage done, the fact remains that the happening was a pure accident
on the part of the victim. The victim could have been either the policeman or Atty. Ojeda for it cannot be
pretended that the malefactor aimed at the deceased precisely because he wanted to take his life.

We take note that these defenses are included among the risks exluded in the supplementary contract
which enumerates the cases which may exempt the company from liability. While as a general rule "the
parties may limit the coverage of the policy to certain particular accidents and risks or causes of loss, and
may expressly except other risks or causes of loss therefrom" (45 C. J. S. 781-782), however, it is to be
desired that the terms and phraseology of the exception clause be clearly expressed so as to be within the
easy grasp and understanding of the insured, for if the terms are doubtful or obscure the same must of
necessity be interpreted or resolved aganst the one who has caused the obscurity. (Article 1377, new Civil
Code) And so it has bene generally held that the "terms in an insurance policy, which are ambiguous,
equivacal, or uncertain . . . are to be construed strictly and most strongly against the insurer, and liberally
in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured,
especially where a forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule is that he "insured
usually has no voice in the selection or arrangement of the words employed and that the language of the
contract is selected with great care and deliberation by experts and legal advisers employed by, and acting
exclusively in the interest of, the insurance company." (44 C. J. S., p. 1174.)

Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared
by experts who know and can anticipate the bearings and possible complications of every
contingency. So long as insurance companies insist upon the use of ambiguous, intricate and
technical provisions, which conceal rather than frankly disclose, their own intentions, the courts
must, in fairness to those who purchase insurance, construe every ambiguity in favor of the insured.
(Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)lawphi1.net
 An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the very
purpose for which the policy was procured. (Moore vs. Aetna Life Insurance Co., LRA 1915D, 264.)

We are therefore persuaded to conclude that the circumstances unfolded in the present case do not warrant
the finding that the death of the unfortunate victim comes within the purview of the exception clause of the
supplementary policy and, hence, do not exempt the company from liability.

Wherefore, reversing the decision appealed from, we hereby order the company to pay petitioner-appellant
the amount of P2,000, with legal interest from January 26, 1951 until fully paid, with costs.
G.R. No. L-25579 March 29, 1972

EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN, GIL T. BIAGTAN and GRACIA
T. BIAGTAN, plaintiffs-appellees,
vs.
THE INSULAR LIFE ASSURANCE COMPANY, LTD., defendant-appellant.

Tanopo, Millora, Serafica, and Sañez for plaintiff-appellees.

Araneta, Mendoza and Papa for defendant-appellant.

MAKALINTAL, J.:p

This is an appeal from the decision of the Court of First Instance of Pangasinan in its Civil Case No. D-
1700.

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

On the night of May 20, 1964, or during the first hours of the following day a band of robbers entered the
house of the insured Juan S. Biagtan. What happened then is related in the decision of the trial court as
follows:

...; that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said life
policy and supplementary contract were in full force and effect, the house of insured Juan
S. Biagtan was robbed by a band of robbers who were charged in and convicted by the
Court of First Instance of Pangasinan for robbery with homicide; that in committing the
robbery, the robbers, on reaching the staircase landing on the second floor, rushed towards
the door of the second floor room, where they suddenly met a person near the door of
oneof the rooms who turned out to be the insured Juan S. Biagtan who received thrusts
from their sharp-pointed instruments, causing wounds on the body of said Juan S. Biagtan
resulting in his death at about 7 a.m. on the same day, May 21, 1964;

Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance company paid the
basic amount of P5,000.00 but refused to pay the additional sum of P5,000.00 under the accidental death
benefit clause, on the ground that the insured's death resulted from injuries intentionally inflicted by third
parties and therefore was not covered. Plaintiffs filed suit to recover, and after due hearing the court a
quo rendered judgment in their favor. Hence the present appeal by the insurer.

The only issue here is whether under the facts are stipulated and found by the trial court the wounds
received by the insured at the hands of the robbers — nine in all, five of them mortal and four non-mortal
— were inflicted intentionally. The court, in ruling negatively on the issue, stated that since the parties
presented no evidence and submitted the case upon stipulation, there was no "proof that the act of receiving
thrust (sic) from the sharp-pointed instrument of the robbers was intended to inflict injuries upon the person
of the insured or any other person or merely to scare away any person so as to ward off any resistance or
obstacle that might be offered in the pursuit of their main objective which was robbery."

The trial court committed a plain error in drawing the conclusion it did from the admitted facts. Nine wounds
were inflicted upon the deceased, all by means of thrusts with sharp-pointed instruments wielded by the
robbers. This is a physical fact as to which there is no dispute. So is the fact that five of those wounds
caused the death of the insured. Whether the robbers had the intent to kill or merely to scare the victim or
to ward off any defense he might offer, it cannot be denied that the act itself of inflicting the injuries was
intentional. It should be noted that the exception in the accidental benefit clause invoked by the appellant
does not speak of the purpose — whether homicidal or not — of a third party in causing the injuries, but
only of the fact that such injuries have been "intentionally" inflicted — this obviously to distinguish them
from injuries which, although received at the hands of a third party, are purely accidental. This construction
is the basic idea expressed in the coverage of the clause itself, namely, that "the death of the insured
resulted directly from bodily injury effected solely through external and violent means sustained in
an accident ... and independently of all other causes." A gun which discharges while being cleaned and
kills a bystander; a hunter who shoots at his prey and hits a person instead; an athlete in a competitive
game involving physical effort who collides with an opponent and fatally injures him as a result: these are
instances where the infliction of the injury is unintentional and therefore would be within the coverage of an
accidental death benefit clause such as thatin question in this case. But where a gang of robbers enter a
house and coming face to face with the owner, even if unexpectedly, stab him repeatedly, it is contrary to
all reason and logic to say that his injuries are not intentionally inflicted, regardless of whether they prove
fatal or not. As it was, in the present case they did prove fatal, and the robbers have been accused and
convicted of the crime of robbery with homicide.

The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the trial court in support of its
decision. The facts in that case, however, are different from those obtaining here. The insured there was a
watchman in a certain company, who happened to be invited by a policeman to come along as the latter
was on his way to investigate a reported robbery going on in a private house. As the two of them, together
with the owner of the house, approached and stood in front of the main gate, a shot was fired and it turned
out afterwards that the watchman was hit in the abdomen, the wound causing his death. Under those
circumstances this Court held that it could not be said that the killing was intentional for there was the
possibility that the malefactor had fired the shot to scare people around for his own protection and not
necessarrily to kill or hit the victim. A similar possibility is clearly ruled out by the facts in the case now
before Us. For while a single shot fired from a distance, and by a person who was not even seen aiming at
the victim, could indeed have been fired without intent to kill or injure, nine wounds inflicted with bladed
weapons at close range cannot conceivably be considered as innocent insofar as such intent is concerned.
The manner of execution of the crime permits no other conclusion.

Court decisions in the American jurisdiction, where similar provisions in accidental death benefit clauses in
insurance policies have been construed, may shed light on the issue before Us. Thus, it has been held that
"intentional" as used in an accident policy excepting intentional injuries inflicted by the insured or any other
person, etc., implies the exercise of the reasoning faculties, consciousness and volition. 1 Where a provision
of the policy excludes intentional injury, it is the intention of the person inflicting the injury that is
controlling.2 If the injuries suffered by the insured clearly resulted from the intentional act of a third person
the insurer is relieved from liability as stipulated.3

In the case of Hutchcraft's Ex'r v. Travelers' Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am. St. Rep. 484, the
insured was waylaid and assassinated for the purpose of robbery. Two (2) defenses were interposed to the
action to recover indemnity, namely: (1) that the insured having been killed by intentional means, his death
was not accidental, and (2) that the proviso in the policy expressly exempted the insurer from liability in
case the insured died from injuries intentionally inflicted by another person. In rendering judgment for the
insurance company the Court held that while the assassination of the insured was as to him an unforeseen
event and therefore accidental, "the clause of the proviso that excludes the (insurer's) liability, in case death
or injury is intentionally inflicted by another person, applies to this case."

In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811, the insured was shot
three times by a person unknown late on a dark and stormy night, while working in the coal shed of a
railroad company. The policy did not cover death resulting from "intentional injuries inflicted by the insured
or any other person." The inquiry was as to the question whether the shooting that caused the insured's
death was accidental or intentional; and the Court found that under the facts, showing that the murderer
knew his victim and that he fired with intent to kill, there could be no recovery under the policy which
excepted death from intentional injuries inflicted by any person.

WHEREFORE, the decision appealed from is reversed and the complaint dismissed, without
pronouncement as to costs.

Zaldivar, Castro, Fernando and Villamor, JJ., concur.

Makasiar, J., reserves his vote.

Separate Opinions
BARREDO, J., concurring —

During the deliberations in this case, I entertained some doubts as to the correctness and validity of the
view upheld in the main opinion penned by Justice Makalintal. Further reflection has convinced me,
however, that there are good reasons to support it.

At first blush, one would feel that every death not suicidal should be considered accidental, for the purposes
of an accident insurance policy or a life insurance policy with a double indemnity clause in case death
results from accident. Indeed, it is quite logical to think that any event whether caused by fault, negligence,
intent of a third party or any unavoidable circumstance, normally unforeseen by the insured and free from
any possible connivance on his part, is an accident in the generally accepted sense of the term. And if I
were convinced that in including in the policy the provision in question, both the insurer and the insured had
in mind to exclude thereby from the coverage of the policy only suicide whether unhelped or helped
somehow by a third party, I would disregard the American decisions cited and quoted in the main opinion
as not even persuasive authorities. But examining the unequivocal language of the provision in controversy
and considering that the insured accepted the policy without asking that it be made clear that the phrase
"injury intentionally inflicted by a third party" should be understood to refer only to injuries inflicted by a third
party without any wilful intervention on his part (of the insured) or, in other words, without any connivance
with him (the insured) in order to augment the proceeds of the policy for his benificiaries, I am inclined to
agree that death caused by criminal assault is not covered by the policies of the kind here in question,
specially if the assault, as a matter of fact, could have been more or less anticipated, as when the insured
happens to have violent enemies or is found in circumstances that would make his life fair game of third
parties.

As to the rest, I have no doubt that the killing of the insured in this case is as intentional as any intentional
act can be, hence this concurrence.

TEEHANKEE, J., dissenting:

The sole issue at bar is the correctness in law of the lower court's appealed decision adjudging defendant
insurance company liable, under its supplementary contract denominated "Accidental Death Benefit
Clause" with the deceased insured, to plaintiffs-beneficiaries (excluding plaintiff Emilia T. Biagtan) in an
additional amount of P5,000.00 (with corresponding legal interest) and ruling that defendant company had
failed to present any evidence to substantiate its defense that the insured's death came within the stipulated
exceptions.

Defendant's accidental death benefit clause expressly provides:

ACCIDENTAL DEATH BENEFIT. (hereinafter called the benefit). Upon receipt and
approval of due proof that the death of the Insured resulted directly from bodily injury
effected solely through external and violent means sustained in an accident, within ninety
days after the date of sustaining such injury, and independently of all other causes, this
Company shall pay, in addition to the sum insured specified on the first page of this Policy,
a further sum equal to said sum insured payable at the same time and in the same manner
as said sum insured, provided, that such death occurred during the continuance of this
Clause and of this Policy and before the sixtieth birthday of the Insured."1

A long list of exceptions and an Automatic Discontinuance clause immediately follow thereafter, thus:

EXCEPTIONS. The Benefit shall not apply if the Insured's death shall result, either directly
or indirectly, from any one of the following causes:

(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or insane;

(2) Bodily or mental infirmity or disease of any kind;

(3) Poisoning or infection, other than infection occurring simultaneously with and in
consequence of a cut or wound sustained in an accident;

(4) Injuries of which there is no visible contusions or wound on the exterior of the body,
drowning and internal injuries revealed by autopsy excepted;

(5) Any injuries received (a) while on police duty in any military, naval or police
organization; (b) in any riot, civil commotion, insurrection or war or any act incident thereto;
(c) while travelling as a passenger or otherwise in any form of submarine transportation, or
 while engaging in submarine operations; (d) in any violation of the law by the Insured or
assault provoked by the Insured; (e) that has been inflicted intentionally by a third party,
either with or without provocation on the part of the Insured, and whether or not the attack
or the defense by the third party was caused by a violation of the law by the Insured;

(6) Operating or riding in or descending from any kind of aircraft if the Insured is a pilot,
officer or member of the crew of the aircraft or is giving or receiving any kind of training or
instruction or has any duties aboard the aircraft or requiring descent therefrom; and

(7) Atomic energy explosion of any nature whatsoever.

The Company, before making any payment under this Clause, shall have the right and
opportunity to examine the body and make an autopsy thereof.

AUTOMATIC DISCONTINUANCE. This Benefit shall automatically terminate and the

additional premium therefor shall cease to be payable when and if:

(1) This Policy is surrendered for cash, paid-up insurance or extended term insurance; or

(2) The benefit under the Total and Permanent Disability Waiver of Premium Certificate is
granted to the insured; or

(3) The Insured engages in military, naval or aeronautic service in time of war; or

(4) The policy anniversary immediately preceding the sixtieth birthday of the Insured is
reached.2

It is undisputed that, as recited in the lower court's decision, the insured met his death, as follows: "that on
the night of May 20, 1964 or the first hours of May 21, 1964, while the said life policy and supplementary
contract were in full force and effect, the house of insured Juan S. Biagtan was robbed by a band of robbers
who were charged in and convicted by the Court of First Instance of Pangasinan for robbery with homicide;
that in committing the robbery, the robbers, on reaching the staircase landing of the second floor, rushed
towards the doors of the second floor room, where they suddenly met a person near the door of one of the
rooms who turned out to be the insured Juan S. Biagtan who received thrust from their sharp-pointed
instruments, causing wounds on the body of said Juan S. Biagtan resulting in his death at about 7 a.m. on
the same day, May 21, 1964." 3

Defendant company, while admitting the above-recited circumstances under which the insured met his
death, disclaimed liability under its accidental death benefit clause under paragraph 5 of its stipulated
"Exceptions" on its theory that the insured's death resulted from injuries "intentionally inflicted by a third
party," i.e. the robbers who broke into the insured's house and inflicted fatal injuries on him.

The case was submitted for decision upon the parties' stipulation of facts that (1) insurance companies
such as the Lincoln National Life Insurance Co. and Sun Life Assurance Co. of Canada with which the
deceased insured Juan S. Biagtan was also insured for much larger sums under similar contracts with
accidental death benefit provisions have promptly paid the benefits thereunder to plaintiffs-beneficiaries;
(2) the robbers who caused the insured's death were charged in and convicted by the Court of First Instance
of Pangasinan for the crime of robbery with homicide; and (3) the injuries inflicted on the insured by the
robbers consisted of five mortal and four non-mortal wounds.4

The lower court thereafter rendered judgment against defendant, as follows:

There is no doubt that the insured, Juan S. Biagtan, met his death as a result of the wounds
inflicted upon him by the malefactors on the early morning of May 21, 1964 by means of
thrusts from sharp-pointed instruments delivered upon his person, and there is likewise no
question that the thrusts were made on the occasion of the robbery. However, it is
defendants' position that the killing of the insured was intentionally done by the malefactors,
who were charged with and convicted of the crime of robbery with homicide by the Court
of First Instance of Pangasinan.

It must be noted here that no evidence whatsoever was presented by the parties who
submitted the case for resolution upon the stipulation of facts presented by them. Thus, the
court does not have before it proof that the act of receiving thrust(s) from the sharp-pointed
instrument of the robbers was intended to inflict injuries upon the person of the insured or
any other person or merely to scare away any person so as to ward off any resistance or
obstacle that might be offered in the pursuit of their main objective which was robbery. It
was held that where a provision of the policy excludes intentional injury, it is the intention
of the person inflicting the injury that is controlling ... and to come within the exception, the
act which causes the injury must be wholly intentional, not merely partly.

The case at bar has some similarity with the case of Virginia Calanoc vs. Court of Appeals,
et al., L-8151, promulgated December 16, 1965, where the Supreme Court ruled that "the
shot (which killed the insured) was merely to scare away the people around for his own
protection and not necessarily to kill or hit the victim."

In the Calanoc case, one Melencio Basilio, a watchman of a certain company, took out life
insurance from the Philippine American Life Insurance Company in the amount of
P2,000.00 to which was attached a supplementary contract covering death by accident.
Calanoc died of gunshot wounds on the occasion of a robbery committed in the house of
a certain Atty. Ojeda in Manila. The insured's widow was paid P2,000.00, the face value of
the policy, but when she demanded payment of the additional sum of P2,000.00
representing the value of the supplemental policy, the company refused alleging, as main
defense, that the deceased died because he was murdered by a person who took part in
the commission of the robbery and while making an arrest as an officer of the law which
contingencies were (as in this case) expressly excluded in the contract and have the effect
of exempting the company from liability.

The facts in the Calanoc case insofar as pertinent to this case are, as found by the Court
of Appeals in its decision which findings of fact were adopted by the Supreme Court, as
follows:

"...that on the way to the Ojeda residence (which was then being robbed
by armed men), the policeman and Atty. Ojeda passed by Basilio (the
insured) and somehow or other invited the latter to come along; that as the
three approached the Ojeda residence and stood in front of the main gate
which was covered by galvanized iron, the fence itself being partly
concrete and partly adobe stone, a shot was fired; ... that it turned out
afterwards that the special watchman Melencio Basilio was hit in the
abdomen, the wound causing his instantaneous death ..."

The Court of Appeals arrived at the conclusion that the death of Basilio, although
unexpected, was not caused by an accident, being a voluntary and intentional act on the
part of the one who robbed, or one of those who robbed, the house of Atty. Ojeda.

In reversing this conclusion of the Court of Appeals, the Supreme Court said in part:

"... Nor can it be said that the killing was intentional for there is the
possibility that the malefactors had fired the shot merely to scare away the
people around for his own protection and not necessarily to kill or hit the
victim. In any event, while the act may not exempt the triggerman from
ability for the damage done, the fact remains that the happening was a
pure accidentt on the part of the victim."

With this ruling of the Supreme Court, and the utter absence of evidence in this case as to
the real intention of the malefactors in making a thrust with their sharp-pointed instrument
on any person, the victim in particular, the case falls squarely within the ruling in the
Calanoc vs. Court of Appeals case.

It is the considered view of this Court that the insured died because of an accident which
happened on the occasion of the robbery being committed in his house. His death was not
sought (at least no evidence was presented to show it was), and therefore was fortuitous.
"Accident" was defined as that which happens by chance or fortuitously, without intention
or design, and which is unexpected, unusual and unforeseen, or that which takes place
without one's foresight or expectation — an event that proceeds from an unknown cause,
or is an unusual effect of a known cause, and therefore not expected. (29 Am. Jur. 706).

There is no question that the defense set up by the defendant company is one of those
included among the risks excluded in the supplementary contract. However, there is no
evidence here that the thrusts with sharp-pointed instrument (which led to the death of the
insured) was "intentional," (sic) so as to exempt the company from liability. It could safely
be assumed that it was purely accidental considering that the principal motive of the culprits
 was robbery, the thrusts being merely intended to scare away persons who might offer
resistance or might obstruct them from pursuing their main objective which was robbery. 5

It is respectfully submitted that the lower court committed no error in law in holding defendant insurance
company liable to plaintiffs-beneficiaries under its accidental death benefit clause, by virtue of the following
considerations:

1. The case of Calanoc cited by the lower court is indeed controlling here. 6 This Court, there construing a
similar clause, squarely ruled that fatal injuries inflicted upon an insured by a malefactor(s) during the latter's
commission of a crime are deemed accidental and within the coverage of such accidental death benefit
clauses and the burden of proving that the killing was intentional so as to have it fall within the stipulated
exception of having resulted from injuries "intentionally inflicted by a third party" must be discharged by the
insurance company. This Court there clearly held that in such cases where the killing does not amount to
murder, it must be held to be a "pure accident" on the part of the victim, compensable with double-indemnity,
even though the malefactor is criminally liable for his act. This Court rejected the insurance-company's
contrary claim, thus:

Much less can it be pretended that Basilio died in the course of an assault or murder
considering the very nature of these crimes. In the first place, there is no proof that the
death of Basilio is the result of either crime for the record is barren of any circumstance
showing how the fatal shot was fired. Perhaps this may be clarified in the criminal case
now pending in court a regards the incident but before that is done anything that might be
said on the point would be a mere conjecture. Nor can it be said that the killing was
intentional for there is the possibility that the malefactor had fired the shot merely to scare
away the people around for his own protection and not necessarily to kill or hit the victim.
In any event, while the act may not exempt the triggerman from liability for the damage
done, the fact remains that the happening was a pure accident on the part of the victim.
The victim could have been either the policeman or Atty. Ojeda for it cannot be pretended
that the malefactor aimed at the deceased precisely because he wanted to take his life. 7

2. Defendant company patently failed to discharge its burden of proving that the fatal injuries were inflicted
upon the deceased intentionally, i.e. deliberately. The lower court correctly held that since the case was
submitted upon the parties' stipulation of facts which did not cover the malefactors' intent at all, there was
an "utter absence of evidence in this case as to the real intention of the malefactors in making a thrust with
their sharp-pointed instrument(s) on any person, the victim in particular." From the undisputed
facts, supra,8 the robbers had "rushed towards the doors of the second floor room, where they suddenly
met a person ... who turned out to be the insured Juan S. Biagtan who received thrusts from their pointed
instruments." The thrusts were indeed properly termed "purely accidental" since they seemed to be a reflex
action on the robbers' part upon their being surprised by the deceased. To argue, as defendant does, that
the robbers' intent to kill must necessarily be deduced from the four mortal wounds inflicted upon the
deceased is to beg the question. Defendant must suffer the consequences of its failure to discharge its
burden of proving by competent evidence, e.g. the robbers' or eyewitnesses' testimony, that the fatal injuries
were intentionally inflicted upon the insured so as to exempt itself from liability.

3. Furthermore, plaintiffs-appellees properly assert in their brief that the sole error assigned by defendant
company, to wit, that the fatal injuries were not accidental as held by the lower court but should be held to
have been intentionally inflicted, raises a question of fact — which defendant is now barred from raising,
since it expressly limited its appeal to this Court purely "on questions of law", per its noitice of
appeal,9 Defendant is therefore confined to "raising only questions of law" and "no other questions" under
Rule 42, section 2 of the Rules of Court 10 and is deemed to have conceded the findings of fact of the trial
court, since he thereby waived all questions of facts. 11

4. It has long been an established rule of construction of so-called contracts of adhesion such as insurance
contracts, where the insured is handed a printed insurance policy whose fine-print language has long been
selected with great care and deliberation by specialists and legal advisers employed by and acting
exclusively in the interest of the insurance company, that the terms and phraseology of the policy,
particularly of any exception clauses, must be clearly expressed so as to be easily understood by the
insured and any "ambiguous, equivocal or uncertain terms" are to be "construed strictly and most strongly
against the insurer and liberally in favor of the insured so as to effect the dominant purpose of indemnity or
payment to the insured, especially where a forfeiture is involved.

The Court so expressly held in Calanoc that:

... While as a general rule "the parties may limit the coverage of the policy to certain
particular accidents and risks or causes of loss, and may expressly except other risks or
causes of loss therefrom" (45 C.J.S. 781-782), however, it is to be desired that the terms
and phraseology of the exception clause be clearly expressed so as to be within the easy
 grasp and understanding of the insured, for if the terms are doubtful or obscure the same
must of necessity be interpreted or resolved against the one who has caused the obscurity.
(Article 1377, new Civil Code) And so it has been generally held that the "terms in an
insurance policy, which are ambiguous, equivocal, or uncertain ... are to be construed
strictly and most strongly against the insurer, and liberally in favor of the insured so as to
effect the dominant purpose of indemnity or payment to the insured, especially where a
forfeiture is involved" (29 AM. Jur., 181), and the reason for this rule is that the "insured
usually has no voice in the selection or arrangement of the words employed and that the
language of the contract is selected with great care and deliberation by experts and legal
advisers employed by, and acting exclusively in the interest of, the insurance company."
(44 C.J.S., p. 1174)

Insurance is, in its nature, complex and difficult for the layman to understand. Policies are
prepared by experts who know and can anticipate the bearing and possible complications
of every contingency. So long as insurance companies insist upon the use of ambiguous,
intricate and technical provisions, which conceal rather than frankly disclose, their own
intentions, the courts must, in fairness to those who purchase insurance construe every
ambiguity in favor of the insured." (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324 LRA
1917A, 1237.)

"An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat
the very purpose for which the policy was procured." (Moore vs. Aetna Life Insurance Co.,
LRA 1915D, 164). 12

The Court has but recently reiterated this doctrine in Landicho vs. GSIS 13 and again applied the provisions
of Article 1377 of our Civil Code that "The interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity."

5. The accidental death benefit clause assuring the insured's beneficiaries of double indemnity, upon
payment of an extra premium, in the event that the insured meets violent accidental death is contractually
stipulated as follows in the policy: "that the death of the insured resulted directly from bodily
injury effected solely through external and violent means sustained in an accident," supra. The policy then
lists numerous exceptions, which may be classified as follows:

— Injuries effected through non-external means which are excepted: self-destruction, bodily or mental
infirmity or disease, poisoning or infection, injuries with no visible contusions or exterior wounds (exceptions
1 to 4 of policy clause);

— Injuries caused by some act of the insured which is proscribed by the policy, and are therefore similarly
exepted: injuries received while on police duty, while travelling in any form of submarine transportation,
or in any violation of law by the insured or assault provoked by the insured, or in any aircraft if the insured
is a pilot or crew member; [exceptions 5 (a), (c) and (d), and 6 of the policy clause]; and

— Accidents expressly excluded: where death resulted in any riot, civil commotion, insurrection or war or
atomic energy explosion. (Exceptions 5[b] and 7 of policy clause).

The only exception which is not susceptible of classification is that provided in paragraph 5 (e), the very
exception herein involved, which would also except injuries "inflicted intentionally by a third party, either
with or without provocation on the part of the insured, and whether or not the attack or the defense by the
third party was caused by a violation of the law by the insured."

This ambiguous clause conflicts with all the other four exceptions in the same paragraph 5 particularly that
immediately preceding it in item (d) which excepts injuries received where the insured has violated the law
or provoked the injury, while this clause, construed as the insurance company now claims, would seemingly
except also all other injuries, intentionally inflicted by a third party, regardless of any violation of law or
provocation by the insured, and defeat the very purpose of the policy of giving the insured double indemnity
in case of accidental death by "external and violent means" — in the very language of the policy."

It is obvious from the very classification of the exceptions and applying the rule of noscitus a sociis that the
double-indemnity policy covers the insured against accidental death, whether caused by fault, negligence
or intent of a third party which is unforeseen and unexpected by the insured. All the associated words and
concepts in the policy plainly exclude the accidental death from the coverage of the policy only where the
injuries are self-inflicted or attended by some proscribed act of the insured or are incurred in some expressly
excluded calamity such as riot, war or atomic explosion.
Finally, the untenability of herein defendant insurer's claim that the insured's death fell within the exception
is further heightened by the stipulated fact that two other insurance companies which likewise covered the
insured for which larger sums under similar accidental death benefit clauses promptly paid the benefits
thereof to plaintiffs-beneficiaries.

I vote accordingly for the affirmance in toto of the appealed decision, with costs against defendant-
appellant.

Concepcion, C.J. and Reyes, J.B.L., J., concur.

Separate Opinions

BARREDO, J., concurring —

During the deliberations in this case, I entertained some doubts as to the correctness and validity of the
view upheld in the main opinion penned by Justice Makalintal. Further reflection has convinced me,
however, that there are good reasons to support it.

At first blush, one would feel that every death not suicidal should be considered accidental, for the purposes
of an accident insurance policy or a life insurance policy with a double indemnity clause in case death
results from accident. Indeed, it is quite logical to think that any event whether caused by fault, negligence,
intent of a third party or any unavoidable circumstance, normally unforeseen by the insured and free from
any possible connivance on his part, is an accident in the generally accepted sense of the term. And if I
were convinced that in including in the policy the provision in question, both the insurer and the insured had
in mind to exclude thereby from the coverage of the policy only suicide whether unhelped or helped
somehow by a third party, I would disregard the American decisions cited and quoted in the main opinion
as not even persuasive authorities. But examining the unequivocal language of the provision in controversy
and considering that the insured accepted the policy without asking that it be made clear that the phrase
"injury intentionally inflicted by a third party" should be understood to refer only to injuries inflicted by a third
party without any wilful intervention on his part (of the insured) or, in other words, without any connivance
with him (the insured) in order to augment the proceeds of the policy for his benificiaries, I am inclined to
agree that death caused by criminal assault is not covered by the policies of the kind here in question,
specially if the assault, as a matter of fact, could have been more or less anticipated, as when the insured
happens to have violent enemies or is found in circumstances that would make his life fair game of third
parties.

As to the rest, I have no doubt that the killing of the insured in this case is as intentional as any intentional
act can be, hence this concurrence.

TEEHANKEE, J., dissenting:

The sole issue at bar is the correctness in law of the lower court's appealed decision adjudging defendant
insurance company liable, under its supplementary contract denominated "Accidental Death Benefit
Clause" with the deceased insured, to plaintiffs-beneficiaries (excluding plaintiff Emilia T. Biagtan) in an
additional amount of P5,000.00 (with corresponding legal interest) and ruling that defendant company had
failed to present any evidence to substantiate its defense that the insured's death came within the stipulated
exceptions.

Defendant's accidental death benefit clause expressly provides:

ACCIDENTAL DEATH BENEFIT. (hereinafter called the benefit). Upon receipt and
approval of due proof that the death of the Insured resulted directly from bodily injury
effected solely through external and violent means sustained in an accident, within ninety
days after the date of sustaining such injury, and independently of all other causes, this
Company shall pay, in addition to the sum insured specified on the first page of this Policy,
a further sum equal to said sum insured payable at the same time and in the same manner
as said sum insured, provided, that such death occurred during the continuance of this
Clause and of this Policy and before the sixtieth birthday of the Insured."1

A long list of exceptions and an Automatic Discontinuance clause immediately follow thereafter, thus:
 EXCEPTIONS. The Benefit shall not apply if the Insured's death shall result, either directly
or indirectly, from any one of the following causes:

(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or insane;

(2) Bodily or mental infirmity or disease of any kind;

(3) Poisoning or infection, other than infection occurring simultaneously with and in
consequence of a cut or wound sustained in an accident;

(4) Injuries of which there is no visible contusions or wound on the exterior of the body,
drowning and internal injuries revealed by autopsy excepted;

(5) Any injuries received (a) while on police duty in any military, naval or police
organization; (b) in any riot, civil commotion, insurrection or war or any act incident thereto;
(c) while travelling as a passenger or otherwise in any form of submarine transportation, or
while engaging in submarine operations; (d) in any violation of the law by the Insured or
assault provoked by the Insured; (e) that has been inflicted intentionally by a third party,
either with or without provocation on the part of the Insured, and whether or not the attack
or the defense by the third party was caused by a violation of the law by the Insured;

(6) Operating or riding in or descending from any kind of aircraft if the Insured is a pilot,
officer or member of the crew of the aircraft or is giving or receiving any kind of training or
instruction or has any duties aboard the aircraft or requiring descent therefrom; and

(7) Atomic energy explosion of any nature whatsoever.

The Company, before making any payment under this Clause, shall have the right and
opportunity to examine the body and make an autopsy thereof.

AUTOMATIC DISCONTINUANCE. This Benefit shall automatically terminate and the

additional premium therefor shall cease to be payable when and if:

(1) This Policy is surrendered for cash, paid-up insurance or extended term insurance; or

(2) The benefit under the Total and Permanent Disability Waiver of Premium Certificate is
granted to the insured; or

(3) The Insured engages in military, naval or aeronautic service in time of war; or

(4) The policy anniversary immediately preceding the sixtieth birthday of the Insured is
reached.2

It is undisputed that, as recited in the lower court's decision, the insured met his death, as follows: "that on
the night of May 20, 1964 or the first hours of May 21, 1964, while the said life policy and supplementary
contract were in full force and effect, the house of insured Juan S. Biagtan was robbed by a band of robbers
who were charged in and convicted by the Court of First Instance of Pangasinan for robbery with homicide;
that in committing the robbery, the robbers, on reaching the staircase landing of the second floor, rushed
towards the doors of the second floor room, where they suddenly met a person near the door of one of the
rooms who turned out to be the insured Juan S. Biagtan who received thrust from their sharp-pointed
instruments, causing wounds on the body of said Juan S. Biagtan resulting in his death at about 7 a.m. on
the same day, May 21, 1964." 3

Defendant company, while admitting the above-recited circumstances under which the insured met his
death, disclaimed liability under its accidental death benefit clause under paragraph 5 of its stipulated
"Exceptions" on its theory that the insured's death resulted from injuries "intentionally inflicted by a third
party," i.e. the robbers who broke into the insured's house and inflicted fatal injuries on him.

The case was submitted for decision upon the parties' stipulation of facts that (1) insurance companies
such as the Lincoln National Life Insurance Co. and Sun Life Assurance Co. of Canada with which the
deceased insured Juan S. Biagtan was also insured for much larger sums under similar contracts with
accidental death benefit provisions have promptly paid the benefits thereunder to plaintiffs-beneficiaries;
(2) the robbers who caused the insured's death were charged in and convicted by the Court of First Instance
of Pangasinan for the crime of robbery with homicide; and (3) the injuries inflicted on the insured by the
robbers consisted of five mortal and four non-mortal wounds.4
The lower court thereafter rendered judgment against defendant, as follows:

There is no doubt that the insured, Juan S. Biagtan, met his death as a result of the wounds
inflicted upon him by the malefactors on the early morning of May 21, 1964 by means of
thrusts from sharp-pointed instruments delivered upon his person, and there is likewise no
question that the thrusts were made on the occasion of the robbery. However, it is
defendants' position that the killing of the insured was intentionally done by the malefactors,
who were charged with and convicted of the crime of robbery with homicide by the Court
of First Instance of Pangasinan.

It must be noted here that no evidence whatsoever was presented by the parties who
submitted the case for resolution upon the stipulation of facts presented by them. Thus, the
court does not have before it proof that the act of receiving thrust(s) from the sharp-pointed
instrument of the robbers was intended to inflict injuries upon the person of the insured or
any other person or merely to scare away any person so as to ward off any resistance or
obstacle that might be offered in the pursuit of their main objective which was robbery. It
was held that where a provision of the policy excludes intentional injury, it is the intention
of the person inflicting the injury that is controlling ... and to come within the exception, the
act which causes the injury must be wholly intentional, not merely partly.

The case at bar has some similarity with the case of Virginia Calanoc vs. Court of Appeals,
et al., L-8151, promulgated December 16, 1965, where the Supreme Court ruled that "the
shot (which killed the insured) was merely to scare away the people around for his own
protection and not necessarily to kill or hit the victim."

In the Calanoc case, one Melencio Basilio, a watchman of a certain company, took out life
insurance from the Philippine American Life Insurance Company in the amount of
P2,000.00 to which was attached a supplementary contract covering death by accident.
Calanoc died of gunshot wounds on the occasion of a robbery committed in the house of
a certain Atty. Ojeda in Manila. The insured's widow was paid P2,000.00, the face value of
the policy, but when she demanded payment of the additional sum of P2,000.00
representing the value of the supplemental policy, the company refused alleging, as main
defense, that the deceased died because he was murdered by a person who took part in
the commission of the robbery and while making an arrest as an officer of the law which
contingencies were (as in this case) expressly excluded in the contract and have the effect
of exempting the company from liability.

The facts in the Calanoc case insofar as pertinent to this case are, as found by the Court
of Appeals in its decision which findings of fact were adopted by the Supreme Court, as
follows:

"...that on the way to the Ojeda residence (which was then being robbed
by armed men), the policeman and Atty. Ojeda passed by Basilio (the
insured) and somehow or other invited the latter to come along; that as the
three approached the Ojeda residence and stood in front of the main gate
which was covered by galvanized iron, the fence itself being partly
concrete and partly adobe stone, a shot was fired; ... that it turned out
afterwards that the special watchman Melencio Basilio was hit in the
abdomen, the wound causing his instantaneous death ..."

The Court of Appeals arrived at the conclusion that the death of Basilio, although
unexpected, was not caused by an accident, being a voluntary and intentional act on the
part of the one who robbed, or one of those who robbed, the house of Atty. Ojeda.

In reversing this conclusion of the Court of Appeals, the Supreme Court said in part:

"... Nor can it be said that the killing was intentional for there is the
possibility that the malefactors had fired the shot merely to scare away the
people around for his own protection and not necessarily to kill or hit the
victim. In any event, while the act may not exempt the triggerman from
ability for the damage done, the fact remains that the happening was a
pure accidentt on the part of the victim."

With this ruling of the Supreme Court, and the utter absence of evidence in this case as to
the real intention of the malefactors in making a thrust with their sharp-pointed instrument
 on any person, the victim in particular, the case falls squarely within the ruling in the
Calanoc vs. Court of Appeals case.

It is the considered view of this Court that the insured died because of an accident which
happened on the occasion of the robbery being committed in his house. His death was not
sought (at least no evidence was presented to show it was), and therefore was fortuitous.
"Accident" was defined as that which happens by chance or fortuitously, without intention
or design, and which is unexpected, unusual and unforeseen, or that which takes place
without one's foresight or expectation — an event that proceeds from an unknown cause,
or is an unusual effect of a known cause, and therefore not expected. (29 Am. Jur. 706).

There is no question that the defense set up by the defendant company is one of those
included among the risks excluded in the supplementary contract. However, there is no
evidence here that the thrusts with sharp-pointed instrument (which led to the death of the
insured) was "intentional," (sic) so as to exempt the company from liability. It could safely
be assumed that it was purely accidental considering that the principal motive of the culprits
was robbery, the thrusts being merely intended to scare away persons who might offer
resistance or might obstruct them from pursuing their main objective which was robbery. 5

It is respectfully submitted that the lower court committed no error in law in holding defendant insurance
company liable to plaintiffs-beneficiaries under its accidental death benefit clause, by virtue of the following
considerations:

1. The case of Calanoc cited by the lower court is indeed controlling here.6 This Court, there construing a
similar clause, squarely ruled that fatal injuries inflicted upon an insured by a malefactor(s) during the latter's
commission of a crime are deemed accidental and within the coverage of such accidental death benefit
clauses and the burden of proving that the killing was intentional so as to have it fall within the stipulated
exception of having resulted from injuries "intentionally inflicted by a third party" must be discharged by the
insurance company. This Court there clearly held that in such cases where the killing does not amount to
murder, it must be held to be a "pure accident" on the part of the victim, compensable with double-indemnity,
even though the malefactor is criminally liable for his act. This Court rejected the insurance-company's
contrary claim, thus:

Much less can it be pretended that Basilio died in the course of an assault or murder
considering the very nature of these crimes. In the first place, there is no proof that the
death of Basilio is the result of either crime for the record is barren of any circumstance
showing how the fatal shot was fired. Perhaps this may be clarified in the criminal case
now pending in court a regards the incident but before that is done anything that might be
said on the point would be a mere conjecture. Nor can it be said that the killing was
intentional for there is the possibility that the malefactor had fired the shot merely to scare
away the people around for his own protection and not necessarily to kill or hit the victim.
In any event, while the act may not exempt the triggerman from liability for the damage
done, the fact remains that the happening was a pure accident on the part of the victim.
The victim could have been either the policeman or Atty. Ojeda for it cannot be pretended
that the malefactor aimed at the deceased precisely because he wanted to take his life. 7

2. Defendant company patently failed to discharge its burden of proving that the fatal injuries were inflicted
upon the deceased intentionally, i.e. deliberately. The lower court correctly held that since the case was
submitted upon the parties' stipulation of facts which did not cover the malefactors' intent at all, there was
an "utter absence of evidence in this case as to the real intention of the malefactors in making a thrust with
their sharp-pointed instrument(s) on any person, the victim in particular." From the undisputed
facts, supra,8 the robbers had "rushed towards the doors of the second floor room, where they suddenly
met a person ... who turned out to be the insured Juan S. Biagtan who received thrusts from their pointed
instruments." The thrusts were indeed properly termed "purely accidental" since they seemed to be a reflex
action on the robbers' part upon their being surprised by the deceased. To argue, as defendant does, that
the robbers' intent to kill must necessarily be deduced from the four mortal wounds inflicted upon the
deceased is to beg the question. Defendant must suffer the consequences of its failure to discharge its
burden of proving by competent evidence, e.g. the robbers' or eyewitnesses' testimony, that the fatal injuries
were intentionally inflicted upon the insured so as to exempt itself from liability.

3. Furthermore, plaintiffs-appellees properly assert in their brief that the sole error assigned by defendant
company, to wit, that the fatal injuries were not accidental as held by the lower court but should be held to
have been intentionally inflicted, raises a question of fact — which defendant is now barred from raising,
since it expressly limited its appeal to this Court purely "on questions of law", per its noitice of
appeal,9 Defendant is therefore confined to "raising only questions of law" and "no other questions" under
Rule 42, section 2 of the Rules of Court 10 and is deemed to have conceded the findings of fact of the trial
court, since he thereby waived all questions of facts. 11
4. It has long been an established rule of construction of so-called contracts of adhesion such as insurance
contracts, where the insured is handed a printed insurance policy whose fine-print language has long been
selected with great care and deliberation by specialists and legal advisers employed by and acting
exclusively in the interest of the insurance company, that the terms and phraseology of the policy,
particularly of any exception clauses, must be clearly expressed so as to be easily understood by the
insured and any "ambiguous, equivocal or uncertain terms" are to be "construed strictly and most strongly
against the insurer and liberally in favor of the insured so as to effect the dominant purpose of indemnity or
payment to the insured, especially where a forfeiture is involved.

The Court so expressly held in Calanoc that:

... While as a general rule "the parties may limit the coverage of the policy to certain
particular accidents and risks or causes of loss, and may expressly except other risks or
causes of loss therefrom" (45 C.J.S. 781-782), however, it is to be desired that the terms
and phraseology of the exception clause be clearly expressed so as to be within the easy
grasp and understanding of the insured, for if the terms are doubtful or obscure the same
must of necessity be interpreted or resolved against the one who has caused the obscurity.
(Article 1377, new Civil Code) And so it has been generally held that the "terms in an
insurance policy, which are ambiguous, equivocal, or uncertain ... are to be construed
strictly and most strongly against the insurer, and liberally in favor of the insured so as to
effect the dominant purpose of indemnity or payment to the insured, especially where a
forfeiture is involved" (29 AM. Jur., 181), and the reason for this rule is that the "insured
usually has no voice in the selection or arrangement of the words employed and that the
language of the contract is selected with great care and deliberation by experts and legal
advisers employed by, and acting exclusively in the interest of, the insurance company."
(44 C.J.S., p. 1174)

Insurance is, in its nature, complex and difficult for the layman to understand. Policies are
prepared by experts who know and can anticipate the bearing and possible complications
of every contingency. So long as insurance companies insist upon the use of ambiguous,
intricate and technical provisions, which conceal rather than frankly disclose, their own
intentions, the courts must, in fairness to those who purchase insurance construe every
ambiguity in favor of the insured." (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324 LRA
1917A, 1237.)

"An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat
the very purpose for which the policy was procured." (Moore vs. Aetna Life Insurance Co.,
LRA 1915D, 164). 12

The Court has but recently reiterated this doctrine in Landicho vs. GSIS 13 and again applied the provisions
of Article 1377 of our Civil Code that "The interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity."

5. The accidental death benefit clause assuring the insured's beneficiaries of double indemnity, upon
payment of an extra premium, in the event that the insured meets violent accidental death is contractually
stipulated as follows in the policy: "that the death of the insured resulted directly from bodily
injury effected solely through external and violent means sustained in an accident," supra. The policy then
lists numerous exceptions, which may be classified as follows:

— Injuries effected through non-external means which are excepted: self-destruction, bodily or mental
infirmity or disease, poisoning or infection, injuries with no visible contusions or exterior wounds (exceptions
1 to 4 of policy clause);

— Injuries caused by some act of the insured which is proscribed by the policy, and are therefore similarly
exepted: injuries received while on police duty, while travelling in any form of submarine transportation,
or in any violation of law by the insured or assault provoked by the insured, or in any aircraft if the insured
is a pilot or crew member; [exceptions 5 (a), (c) and (d), and 6 of the policy clause]; and

— Accidents expressly excluded: where death resulted in any riot, civil commotion, insurrection or war or
atomic energy explosion. (Exceptions 5[b] and 7 of policy clause).

The only exception which is not susceptible of classification is that provided in paragraph 5 (e), the very
exception herein involved, which would also except injuries "inflicted intentionally by a third party, either
with or without provocation on the part of the insured, and whether or not the attack or the defense by the
third party was caused by a violation of the law by the insured."
This ambiguous clause conflicts with all the other four exceptions in the same paragraph 5 particularly that
immediately preceding it in item (d) which excepts injuries received where the insured has violated the law
or provoked the injury, while this clause, construed as the insurance company now claims, would seemingly
except also all other injuries, intentionally inflicted by a third party, regardless of any violation of law or
provocation by the insured, and defeat the very purpose of the policy of giving the insured double indemnity
in case of accidental death by "external and violent means" — in the very language of the policy."

It is obvious from the very classification of the exceptions and applying the rule of noscitus a sociis that the
double-indemnity policy covers the insured against accidental death, whether caused by fault, negligence
or intent of a third party which is unforeseen and unexpected by the insured. All the associated words and
concepts in the policy plainly exclude the accidental death from the coverage of the policy only where the
injuries are self-inflicted or attended by some proscribed act of the insured or are incurred in some expressly
excluded calamity such as riot, war or atomic explosion.

Finally, the untenability of herein defendant insurer's claim that the insured's death fell within the exception
is further heightened by the stipulated fact that two other insurance companies which likewise covered the
insured for which larger sums under similar accidental death benefit clauses promptly paid the benefits
thereof to plaintiffs-beneficiaries.

I vote accordingly for the affirmance in toto of the appealed decision, with costs against defendant-
appellant.

Concepcion, C.J. and Reyes, J.B.L., J., concur.

G.R. No. 100970 September 2, 1992

FINMAN GENERAL ASSURANCE CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.

Aquino and Associates for petitioner.

Public Attorney's Office for private respondent.

NOCON, J.:

This is a petition for certiorari with a prayer for the issuance of a restraining order and preliminary mandatory
injunction to annul and set aside the decision of the Court of Appeals dated July 11, 1991, 1 affirming the
decision dated March 20, 1990 of the Insurance Commission 2 in ordering petitioner Finman General
Assurance Corporation to pay private respondent Julia Surposa the proceeds of the personal accident
Insurance policy with interest.

It appears on record that on October 22, 1986, deceased, Carlie Surposa was insured with petitioner
Finman General Assurance Corporation under Finman General Teachers Protection Plan Master Policy
No. 2005 and Individual Policy No. 08924 with his parents, spouses Julia and Carlos Surposa, and brothers
Christopher, Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries. 3

While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on October 18,
1988 as a result of a stab wound inflicted by one of the three (3) unidentified men without provocation and
warning on the part of the former as he and his cousin, Winston Surposa, were waiting for a ride on their
way home along Rizal-Locsin Streets, Bacolod City after attending the celebration of the "Maskarra Annual
Festival."

Thereafter, private respondent and the other beneficiaries of said insurance policy filed a written notice of
claim with the petitioner insurance company which denied said claim contending that murder and assault
are not within the scope of the coverage of the insurance policy.

On February 24, 1989, private respondent filed a complaint with the Insurance Commission which
subsequently rendered a decision, the pertinent portion of which reads:

In the light of the foregoing. we find respondent liable to pay complainant the sum of
P15,000.00 representing the proceeds of the policy with interest. As no evidence was
submitted to prove the claim for mortuary aid in the sum of P1,000.00, the same cannot be
entertained.

WHEREFORE, judgment is hereby rendered ordering respondent to pay complainant the

sum of P15,000.00 with legal interest from the date of the filing of the complaint until fully
satisfied. With costs. 4

On July 11, 1991, the appellate court affirmed said decision.

Hence, petitioner filed this petition alleging grove abuse of discretion on the part of the appellate court in
applying the principle of "expresso unius exclusio alterius" in a personal accident insurance policy since
death resulting from murder and/or assault are impliedly excluded in said insurance policy considering that
the cause of death of the insured was not accidental but rather a deliberate and intentional act of the
assailant in killing the former as indicated by the location of the lone stab wound on the insured. Therefore,
said death was committed with deliberate intent which, by the very nature of a personal accident insurance
policy, cannot be indemnified.

We do not agree.

The terms "accident" and "accidental" as used in insurance contracts have not acquired
any technical meaning, and are construed by the courts in their ordinary and common
acceptation. Thus, the terms have been taken to mean that which happen by chance or
fortuitously, without intention and design, and which is unexpected, unusual, and
 unforeseen. An accident is an event that takes place without one's foresight or expectation
— an event that proceeds from an unknown cause, or is an unusual effect of a known
cause and, therefore, not expected.

. . . The generally accepted rule is that, death or injury does not result from accident or
accidental means within the terms of an accident-policy if it is the natural result of the
insured's voluntary act, unaccompanied by anything unforeseen except the death or injury.
There is no accident when a deliberate act is performed unless some additional,
unexpected, independent, and unforeseen happening occurs which produces or brings
about the result of injury or death. In other words, where the death or injury is not the natural
or probable result of the insured's voluntary act, or if something unforeseen occurs in the
doing of the act which produces the injury, the resulting death is within the protection of the
policies insuring against death or injury from accident. 5

As correctly pointed out by the respondent appellate court in its decision:

In the case at bar, it cannot be pretended that Carlie Surposa died in the course of an
assault or murder as a result of his voluntary act considering the very nature of these
crimes. In the first place, the insured and his companion were on their way home from
attending a festival. They were confronted by unidentified persons. The record is barren of
any circumstance showing how the stab wound was inflicted. Nor can it be pretended that
the malefactor aimed at the insured precisely because the killer wanted to take his life. In
any event, while the act may not exempt the unknown perpetrator from criminal liability,
the fact remains that the happening was a pure accident on the part of the victim. The
insured died from an event that took place without his foresight or expectation, an event
that proceeded from an unusual effect of a known cause and, therefore, not expected.
Neither can it be said that where was a capricious desire on the part of the accused to
expose his life to danger considering that he was just going home after attending a
festival. 6

Furthermore, the personal accident insurance policy involved herein specifically enumerated only ten (10)
circumstances wherein no liability attaches to petitioner insurance company for any injury, disability or loss
suffered by the insured as a result of any of the stimulated causes. The principle of " expresso unius exclusio
alterius" — the mention of one thing implies the exclusion of another thing — is therefore applicable in the
instant case since murder and assault, not having been expressly included in the enumeration of the
circumstances that would negate liability in said insurance policy cannot be considered by implication to
discharge the petitioner insurance company from liability for, any injury, disability or loss suffered by the
insured. Thus, the failure of the petitioner insurance company to include death resulting from murder or
assault among the prohibited risks leads inevitably to the conclusion that it did not intend to limit or exempt
itself from liability for such death.

Article 1377 of the Civil Code of the Philippines provides that:

The interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity.

Moreover,

it is well settled that contracts of insurance are to be construed liberally in favor of the
insured and strictly against the insurer. Thus ambiguity in the words of an insurance
contract should be interpreted in favor of its beneficiary. 7

WHEREFORE, finding no irreversible error in the decision of the respondent Court of Appeals, the petition
for certiorari with restraining order and preliminary injunction is hereby DENIED for lack of merit.

SO ORDERED
G.R. No. 85296 May 14, 1990

ZENITH INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and LAWRENCE FERNANDEZ, respondents.

Vicente R. Layawen for petitioner.

Lawrence L. Fernandez & Associates for private respondent.

MEDIALDEA, J.:

Assailed in this petition is the decision of the Court of Appeals in CA-G.R. C.V. No. 13498 entitled,
"Lawrence L. Fernandez, plaintiff-appellee v. Zenith Insurance Corp., defendant-appellant" which
affirmed in toto the decision of the Regional Trial Court of Cebu, Branch XX in Civil Case No. CEB-1215
and the denial of petitioner's Motion for Reconsideration.

The antecedent facts are as follows:

On January 25, 1983, private respondent Lawrence Fernandez insured his car for "own damage" under
private car Policy No. 50459 with petitioner Zenith Insurance Corporation. On July 6, 1983, the car figured
in an accident and suffered actual damages in the amount of P3,640.00. After allegedly being given a run
around by Zenith for two (2) months, Fernandez filed a complaint with the Regional Trial Court of Cebu for
sum of money and damages resulting from the refusal of Zenith to pay the amount claimed. The complaint
was docketed as Civil Case No. CEB-1215. Aside from actual damages and interests, Fernandez also
prayed for moral damages in the amount of P10,000.00, exemplary damages of P5,000.00, attorney's fees
of P3,000.00 and litigation expenses of P3,000.00.

On September 28, 1983, Zenith filed an answer alleging that it offered to pay the claim of Fernandez
pursuant to the terms and conditions of the contract which, the private respondent rejected. After the issues
had been joined, the pre-trial was scheduled on October 17, 1983 but the same was moved to November
4, 1983 upon petitioner's motion, allegedly to explore ways to settle the case although at an amount lower
than private respondent's claim. On November 14, 1983, the trial court terminated the pre-trial.
Subsequently, Fernandez presented his evidence. Petitioner Zenith, however, failed to present its evidence
in view of its failure to appear in court, without justifiable reason, on the day scheduled for the purpose. The
trial court issued an order on August 23, 1984 submitting the case for decision without Zenith's evidence
(pp. 10-11, Rollo). Petitioner filed a petition for certiorari with the Court of Appeals assailing the order of the
trial court submitting the case for decision without petitioner's evidence. The petition was docketed as C.A.-
G.R. No. 04644. However, the petition was denied due course on April 29, 1986 (p. 56, Rollo).

On June 4, 1986, a decision was rendered by the trial court in favor of private respondent Fernandez. The
dispositive portion of the trial court's decision provides:

WHEREFORE, defendant is hereby ordered to pay to the plaintiff:

1. The amount of P3,640.00 representing the damage incurred plus interest at the rate of
twice the prevailing interest rates;

2. The amount of P20,000.00 by way of moral damages;

3. The amount of P20,000.00 by way of exemplary damages;

4. The amount of P5,000.00 as attorney's fees;

5. The amount of P3,000.00 as litigation expenses; and

6. Costs. (p. 9, Rollo)

Upon motion of Fernandez and before the expiration of the period to appeal, the trial court, on June 20,
1986, ordered the execution of the decision pending appeal. The order was assailed by petitioner in a
petition for certiorariwith the Court of Appeals on October 23, 1986 in C.A. G.R. No. 10420 but which petition
was also dismissed on December 24, 1986 (p. 69, Rollo).

On June 10, 1986, petitioner filed a notice of appeal before the trial court. The notice of appeal was granted
in the same order granting private respondent's motion for execution pending appeal. The appeal to
respondent court assigned the following errors:

I. The lower court erred in denying defendant appellant to adduce evidence in its behalf.

II. The lower court erred in ordering Zenith Insurance Corporation to pay the amount of
P3,640.00 in its decision.

III. The lower court erred in awarding moral damages, attorneys fees and exemplary
damages, the worst is that, the court awarded damages more than what are prayed for in
the complaint. (p. 12, Rollo)

On August 17, 1988, the Court of Appeals rendered its decision affirming in toto the decision of the trial
court. It also ruled that the matter of the trial court's denial of Fernandez's right to adduce evidence is a
closed matter in view of its (CA) ruling in AC-G.R. 04644 wherein Zenith's petition questioning the trial
court's order submitting the case for decision without Zenith's evidence, was dismissed.

The Motion for Reconsideration of the decision of the Court of Appeals dated August 17, 1988 was denied
on September 29, 1988, for lack of merit. Hence, the instant petition was filed by Zenith on October 18,
1988 on the allegation that respondent Court of Appeals' decision and resolution ran counter to applicable
decisions of this Court and that they were rendered without or in excess of jurisdiction. The issues raised
by petitioners in this petition are:

a) The legal basis of respondent Court of Appeals in awarding moral damages, exemplary
damages and attomey's fees in an amount more than that prayed for in the complaint.

b) The award of actual damages of P3,460.00 instead of only P1,927.50 which was arrived
at after deducting P250.00 and P274.00 as deductible franchise and 20% depreciation on
parts as agreed upon in the contract of insurance.

Petitioner contends that while the complaint of private respondent prayed for P10,000.00 moral damages,
the lower court awarded twice the amount, or P20,000.00 without factual or legal basis; while private
respondent prayed for P5,000.00 exemplary damages, the trial court awarded P20,000.00; and while
private respondent prayed for P3,000.00 attorney's fees, the trial court awarded P5,000.00.

The propriety of the award of moral damages, exemplary damages and attorney's fees is the main issue
raised herein by petitioner.

The award of damages in case of unreasonable delay in the payment of insurance claims is governed by
the Philippine Insurance Code, which provides:

Sec. 244. 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 attomey'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.

It is clear that under the Insurance Code, in case of unreasonable delay in the payment of the proceeds of
an insurance policy, the damages that may be awarded are: 1) attorney's fees; 2) other expenses incurred
by the insured person by reason of such unreasonable denial or withholding of payment; 3) interest at twice
the ceiling prescribed by the Monetary Board of the amount of the claim due the injured; and 4) the amount
of the claim.

As regards the award of moral and exemplary damages, the rules under the Civil Code of the Philippines
shall govern.
"The purpose of moral damages is essentially indemnity or reparation, not punishment or correction. Moral
damages are emphatically not intended to enrich a complainant at the expense of a defendant, they are
awarded only to enable the injured party to obtain means, diversions or amusements that will serve to
alleviate the moral suffering he has undergone by reason of the defendant's culpable action." (J. Cezar S.
Sangco, Philippine Law on Torts and Damages, Revised Edition, p. 539) (See also R and B Surety &
Insurance Co., Inc. v. IAC, G.R. No. 64515, June 22, 1984; 129 SCRA 745). While it is true that no proof
of pecuniary loss is necessary in order that moral damages may be adjudicated, the assessment of which
is left to the discretion of the court according to the circumstances of each case (Art. 2216, New Civil Code),
it is equally true that in awarding moral damages in case of breach of contract, there must be a showing
that the breach was wanton and deliberately injurious or the one responsible acted fraudently or in bad faith
(Perez v. Court of Appeals, G.R. No. L-20238, January 30,1965; 13 SCRA 137; Solis v. Salvador, G.R. No.
L-17022, August 14, 1965; 14 SCRA 887). In the instant case, there was a finding that private respondent
was given a "run-around" for two months, which is the basis for the award of the damages granted under
the Insurance Code for unreasonable delay in the payment of the claim. However, the act of petitioner of
delaying payment for two months cannot be considered as so wanton or malevolent to justify an award of
P20,000.00 as moral damages, taking into consideration also the fact that the actual damage on the car
was only P3,460. In the pre-trial of the case, it was shown that there was no total disclaimer by respondent.
The reason for petitioner's failure to indemnify private respondent within the two-month period was that the
parties could not come to an agreement as regards the amount of the actual damage on the car. The
amount of P10,000.00 prayed for by private respondent as moral damages is equitable.

On the other hand, exemplary or corrective damages are imposed by way of example or correction for the
public good (Art. 2229, New Civil Code of the Philippines). In the case of Noda v. Cruz-Arnaldo, G.R. No.
57322, June 22,1987; 151 SCRA 227, exemplary damages were not awarded as the insurance company
had not acted in wanton, oppressive or malevolent manner. The same is true in the case at bar.

The amount of P5,000.00 awarded as attomey's fees is justified under the circumstances of this case
considering that there were other petitions filed and defended by private respondent in connection with this
case.

As regards the actual damages incurred by private respondent, the amount of P3,640.00 had been
established before the trial court and affirmed by the appellate court. Respondent appellate court correctly
ruled that the deductions of P250.00 and P274.00 as deductible franchise and 20% depreciation on parts,
respectively claimed by petitioners as agreed upon in the contract, had no basis. Respondent court ruled:

Under its second assigned error, defendant-appellant puts forward two arguments, both of
which are entirely without merit. It is contented that the amount recoverable under the
insurance policy defendant-appellant issued over the car of plaintiff-appellee is subject to
deductible franchise, and . . . .

The policy (Exhibit G, pp. 4-9, Record), does not mntion any deductible franchise, . . . (p.
13, Rollo)

Therefore, the award of moral damages is reduced to P10,000.00 and the award of exemplary damages is
hereby deleted. The awards due to private respondent Fernandez are as follows:

1) P3,640.00 as actual claim plus interest of twice the ceiling prescribed by the Monetary
Board computed from the time of submission of proof of loss;

2) P10,000.00 as moral damages;

3) P5,000.00 as attorney's fees;

4) P3,000.00 as litigation expenses; and

5) Costs.

ACCORDINGLY, the appealed decision is MODIFIED as above stated.

SO ORDERED.
G.R. No. 92383 July 17, 1992

SUN INSURANCE OFFICE, LTD., petitioner,

vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

CRUZ, J.:

The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of P200,000.00.
Two months later, he was dead with a bullet wound in his head. As beneficiary, his wife Nerissa Lim sought
payment on the policy but her claim was rejected. The petitioner agreed that there was no suicide. It argued,
however that there was no accident either.

Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6, 1982, at
about 10 o'clock in the evening, after his mother's birthday party. According to Nalagon, Lim was in a happy
mood (but not drunk) and was playing with his handgun, from which he had previously removed the
magazine. As she watched television, he stood in front of her and pointed the gun at her. She pushed it
aside and said it might he loaded. He assured her it was not and then pointed it to his temple. The next
moment there was an explosion and Lim slumped to the floor. He was dead before he fell. 1

The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was sustained. 2 The
petitioner was sentenced to pay her P200,000.00, representing the face value of the policy, with interest at
the legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary damages; P5,000.00 as actual and
compensatory damages; and P5,000.00 as attorney's fees, plus the costs of the suit. This decision was
affirmed on appeal, and the motion for reconsideration was denied. 3 The petitioner then came to this Court
to fault the Court of Appeals for approving the payment of the claim and the award of damages.

The term "accident" has been defined as follows:

The words "accident" and "accidental" have never acquired any technical signification in law, and when
used in an insurance contract are to be construed and considered according to the ordinary understanding
and common usage and speech of people generally. In-substance, the courts are practically agreed that
the words "accident" and "accidental" mean that which happens by chance or fortuitously, without intention
or design, and which is unexpected, unusual, and unforeseen. The definition that has usually been adopted
by the courts is that an accident is an event that takes place without one's foresight or expectation — an
event that proceeds from an unknown cause, or is an unusual effect of a known case, and therefore not
expected. 4

An accident is an event which happens without any human agency or, if happening through human agency,
an event which, under the circumstances, is unusual to and not expected by the person to whom it happens.
It has also been defined as an injury which happens by reason of some violence or casualty to the injured
without his design, consent, or voluntary co-operation. 5

In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was indeed
an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, 6 says that "there is no
accident when a deliberate act is performed unless some additional, unexpected, independent and
unforeseen happening occurs which produces or brings about their injury or death." There was such a
happening. This was the firing of the gun, which was the additional unexpected and independent and
unforeseen occurrence that led to the insured person's death.

The petitioner also cites one of the four exceptions provided for in the insurance contract and contends that
the private petitioner's claim is barred by such provision. It is there stated:

Exceptions —

The company shall not be liable in respect of

1. Bodily injury

xxx xxx xxx

 b. consequent upon

i) The insured person attempting to commit suicide or willfully exposing himself to needless
peril except in an attempt to save human life.

To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends that the
insured willfully exposed himself to needless peril and thus removed himself from the coverage of the
insurance policy.

It should be noted at the outset that suicide and willful exposure to needless peril are in pari
materia because they both signify a disregard for one's life. The only difference is in degree, as suicide
imports a positive act of ending such life whereas the second act indicates a reckless risking of it that is
almost suicidal in intent. To illustrate, a person who walks a tightrope one thousand meters above the
ground and without any safety device may not actually be intending to commit suicide, but his act is
nonetheless suicidal. He would thus be considered as "willfully exposing himself to needless peril" within
the meaning of the exception in question.

The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully exposed
himself to needless peril and so came under the exception. The theory is that a gun is per se dangerous
and should therefore be handled cautiously in every case.

That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the magazine
from the gun and believed it was no longer dangerous. He expressly assured her that the gun was not
loaded. It is submitted that Lim did not willfully expose himself to needless peril when he pointed the gun to
his temple because the fact is that he thought it was not unsafe to do so. The act was precisely intended to
assure Nalagon that the gun was indeed harmless.

The contrary view is expressed by the petitioner thus:

Accident insurance policies were never intended to reward the insured for his tendency to
show off or for his miscalculations. They were intended to provide for contingencies.
Hence, when I miscalculate and jump from the Quezon Bridge into the Pasig River in the
belief that I can overcome the current, I have wilfully exposed myself to peril and must
accept the consequences of my act. If I drown I cannot go to the insurance company to
ask them to compensate me for my failure to swim as well as I thought I could. The insured
in the case at bar deliberately put the gun to his head and pulled the trigger. He wilfully
exposed himself to peril.

The Court certainly agrees that a drowned man cannot go to the insurance company to ask for
compensation. That might frighten the insurance people to death. We also agree that under the
circumstances narrated, his beneficiary would not be able to collect on the insurance policy for it is clear
that when he braved the currents below, he deliberately exposed himself to a known peril.

The private respondent maintains that Lim did not. That is where she says the analogy fails. The petitioner's
hypothetical swimmer knew when he dived off the Quezon Bridge that the currents below were dangerous.
By contrast, Lim did not know that the gun he put to his head was loaded.

Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent his
widow from recovering from the insurance policy he obtained precisely against accident. There is nothing
in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is
shown to have contributed to his own accident. Indeed, most accidents are caused by negligence. There
are only four exceptions expressly made in the contract to relieve the insurer from liability, and none of
these exceptions is applicable in the case at bar. **

It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of the
assured. There is no reason to deviate from this rule, especially in view of the circumstances of this case
as above analyzed.

On the second assigned error, however, the Court must rule in favor of the petitioner. The basic issue raised
in this case is, as the petitioner correctly observed, one of first impression. It is evident that the petitioner
was acting in good faith then it resisted the private respondent's claim on the ground that the death of the
insured was covered by the exception. The issue was indeed debatable and was clearly not raised only for
the purpose of evading a legitimate obligation. We hold therefore that the award of moral and exemplary
damages and of attorney's fees is unjust and so must be disapproved.
 In order that a person may be made liable to the payment of moral damages, the law
requires that his act be wrongful. The adverse result of an action does not per se make the
act wrongful and subject the act or to the payment of moral damages. The law could not
have meant to impose a penalty on the right to litigate; such right is so precious that moral
damages may not be charged on those who may exercise it erroneously. For these the law
taxes costs. 7

The fact that the results of the trial were adverse to Barreto did not alone make his act in
bringing the action wrongful because in most cases one party will lose; we would be
imposing an unjust condition or limitation on the right to litigate. We hold that the award of
moral damages in the case at bar is not justified by the facts had circumstances as well as
the law.

If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses, since
it is not the fact of winning alone that entitles him to recover such damages of the
exceptional circumstances enumerated in Art. 2208. Otherwise, every time a defendant
wins, automatically the plaintiff must pay attorney's fees thereby putting a premium on the
right to litigate which should not be so. For those expenses, the law deems the award of
costs as sufficient. 8

WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far as it holds the
petitioner liable to the private respondent in the sum of P200,000.00 representing the face value of the
insurance contract, with interest at the legal rate from the date of the filing of the complaint until the full
amount is paid, but MODIFIED with the deletion of all awards for damages, including attorney's fees, except
the costs of the suit.

SO ORDERED.
G.R. No. L-54171 October 28, 1980

JEWEL VILLACORTA, assisted by her husband, GUERRERO VILLACORTA, petitioner,

vs.
THE INSURANCE COMMISSION and EMPIRE INSURANCE COMPANY, respondents.

TEEHANKEE, Acting C.J.:

The Court sets aside respondent Insurance Commission's dismissal of petitioner's complaint and holds that
where the insured's car is wrongfully taken without the insured's consent from the car service and repair
shop to whom it had been entrusted for check-up and repairs (assuming that such taking was for a joy ride,
in the course of which it was totally smashed in an accident), respondent insurer is liable and must pay
insured for the total loss of the insured vehicle under the theft clause of the policy.

The undisputed facts of the case as found in the appealed decision of April 14, 1980 of respondent
insurance commission are as follows:

Complainant [petitioner] was the owner of a Colt Lancer, Model 1976, insured with
respondent company under Private Car Policy No. MBI/PC-0704 for P35,000.00 — Own
Damage; P30,000.00 — Theft; and P30,000.00 — Third Party Liability, effective May 16,
1977 to May 16, 1978. On May 9, 1978, the vehicle was brought to the Sunday Machine
Works, Inc., for general check-up and repairs. On May 11, 1978, while it was in the custody
of the Sunday Machine Works, the car was allegedly taken by six (6) persons and driven
out to Montalban, Rizal. While travelling along Mabini St., Sitio Palyasan, Barrio Burgos,
going North at Montalban, Rizal, the car figured in an accident, hitting and bumping a gravel
and sand truck parked at the right side of the road going south. As a consequence, the
gravel and sand truck veered to the right side of the pavement going south and the car
veered to the right side of the pavement going north. The driver, Benito Mabasa, and one
of the passengers died and the other four sustained physical injuries. The car, as well,
suffered extensive damage. Complainant, thereafter, filed a claim for total loss with the
respondent company but claim was denied. Hence, complainant, was compelled to institute
the present action.

The comprehensive motor car insurance policy for P35,000.00 issued by respondent Empire Insurance
Company admittedly undertook to indemnify the petitioner-insured against loss or damage to the car (a) by
accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or
consequent upon wear and tear; (b) by fire, external explosion, self-ignition or lightning or burglary,
housebreaking or theft; and (c) by malicious act.

Respondent insurance commission, however, dismissed petitioner's complaint for recovery of the total loss
of the vehicle against private respondent, sustaining respondent insurer's contention that the accident did
not fall within the provisions of the policy either for the Own Damage or Theft coverage, invoking the policy
provision on "Authorized Driver" clause.1

Respondent commission upheld private respondent's contention on the "Authorized Driver" clause in this
wise: "It must be observed that under the above-quoted provisions, the policy limits the use of the insured
vehicle to two (2) persons only, namely: the insured himself or any person on his (insured's) permission.
Under the second category, it is to be noted that the words "any person' is qualified by the phrase

... on the insured's order or with his permission.' It is therefore clear that if the person driving
is other than the insured, he must have been duly authorized by the insured, to drive the
vehicle to make the insurance company liable for the driver's negligence. Complainant
admitted that she did not know the person who drove her vehicle at the time of the accident,
much less consented to the use of the same (par. 5 of the complaint). Her husband likewise
admitted that he neither knew this driver Benito Mabasa (Exhibit '4'). With these
declarations of complainant and her husband, we hold that the person who drove the
vehicle, in the person of Benito Mabasa, is not an authorized driver of the complainant.
Apparently, this is a violation of the 'Authorized Driver' clause of the policy.

Respondent commission likewise upheld private respondent's assertion that the car was not stolen and
therefore not covered by the Theft clause, ruling that "The element of 'taking' in Article 308 of the Revised
Penal Code means that the act of depriving another of the possession and dominion of a movable thing is
coupled ... with the intention. at the time of the 'taking', of withholding it with the character of permanency
(People vs. Galang, 7 Appt. Ct. Rep. 13). In other words, there must have been shown a felonious intent
upon the part of the taker of the car, and the intent must be an intent permanently to deprive the insured of
his car," and that "Such was not the case in this instance. The fact that the car was taken by one of the
residents of the Sunday Machine Works, and the withholding of the same, for a joy ride should not be
construed to mean 'taking' under Art. 308 of the Revised Penal Code. If at all there was a 'taking', the same
was merely temporary in nature. A temporary taking is held not a taking insured against (48 A LR 2d., page
15)."

The Court finds respondent commission's dismissal of the complaint to be contrary to the evidence and the
law.

First, respondent commission's ruling that the person who drove the vehicle in the person of Benito Mabasa,
who, according to its finding, was one of the residents of the Sunday Machine Works, Inc. to whom the car
had been entrusted for general check-up and repairs was not an "authorized driver" of petitioner-
complainant is too restrictive and contrary to the established principle that insurance contracts, being
contracts of adhesion where the only participation of the other party is the signing of his signature or his
"adhesion" thereto, "obviously call for greater strictness and vigilance on the part of courts of justice with a
view of protecting the weaker party from abuse and imposition, and prevent their becoming traps for the
unwary.2

The main purpose of the "authorized driver" clause, as may be seen from its text, supra, is that a person
other than the insured owner, who drives the car on the insured's order, such as his regular driver, or with
his permission, such as a friend or member of the family or the employees of a car service or repair shop
must be duly licensed drivers and have no disqualification to drive a motor vehicle.

A car owner who entrusts his car to an established car service and repair shop necessarily entrusts his car
key to the shop owner and employees who are presumed to have the insured's permission to drive the car
for legitimate purposes of checking or road-testing the car. The mere happenstance that the employee(s)
of the shop owner diverts the use of the car to his own illicit or unauthorized purpose in violation of the trust
reposed in the shop by the insured car owner does not mean that the "authorized driver" clause has been
violated such as to bar recovery, provided that such employee is duly qualified to drive under a valid driver's
license.

The situation is no different from the regular or family driver, who instead of carrying out the owner's order
to fetch the children from school takes out his girl friend instead for a joy ride and instead wrecks the car.
There is no question of his being an "authorized driver" which allows recovery of the loss although his trip
was for a personal or illicit purpose without the owner's authorization.

Secondly, and independently of the foregoing (since when a car is unlawfully taken, it is the theft clause,
not the "authorized driver" clause, that applies), where a car is admittedly as in this case unlawfully and
wrongfully taken by some people, be they employees of the car shop or not to whom it had been entrusted,
and taken on a long trip to Montalban without the owner's consent or knowledge, such taking constitutes or
partakes of the nature of theft as defined in Article 308 of the Revised Penal Code, viz. "Who are liable for
theft. — Theft is committed by any person who, with intent to gain but without violence against or intimidation
of persons nor force upon things, shall take personal property of another without the latter's consent," for
purposes of recovering the loss under the policy in question.

The Court rejects respondent commission's premise that there must be an intent on the part of the taker of
the car "permanently to deprive the insured of his car" and that since the taking here was for a "joy ride"
and "merely temporary in nature," a "temporary taking is held not a taking insured against."

The evidence does not warrant respondent commission's findings that it was a mere "joy ride". From the
very investigator's report cited in its comment, 3 the police found from the waist of the car driver Benito
Mabasa Bartolome who smashed the car and was found dead right after the incident "one cal. 45 Colt. and
one apple type grenade," hardly the materials one would bring along on a "joy ride". Then, again, it is equally
evident that the taking proved to be quite permanent rather than temporary, for the car was totally smashed
in the fatal accident and was never returned in serviceable and useful condition to petitioner-owner.

Assuming, despite the totally inadequate evidence, that the taking was "temporary" and for a "joy ride", the
Court sustains as the better view that which holds that when a person, either with the object of going to a
certain place, or learning how to drive, or enjoying a free ride, takes possession of a vehicle belonging to
another, without the consent of its owner, he is guilty of theft because by taking possession of the personal
property belonging to another and using it, his intent to gain is evident since he derives therefrom utility,
satisfaction, enjoyment and pleasure. Justice Ramon C. Aquino cites in his work Groizard who holds that
the use of a thing constitutes gain and Cuello Calon who calls it "hurt de uso. " 4
The insurer must therefore indemnify the petitioner-owner for the total loss of the insured car in the sum of
P35,000.00 under the theft clause of the policy, subject to the filing of such claim for reimbursement or
payment as it may have as subrogee against the Sunday Machine Works, Inc.

ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered sentencing private
respondent to pay petitioner the sum of P35,000.00 with legal interest from the filing of the complaint until
full payment is made and to pay the costs of suit.

SO ORDERED.
G.R. No. 60506 August 6, 1992

FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, LEONILA M.

MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, all surnamed MAGLANA,
herein represented by their mother, FIGURACION VDA. DE MAGLANA, petitioners,
vs.
HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch II, and
AFISCO INSURANCE CORPORATION, respondents.

Jose B. Guyo for petitioners.

Angel E. Fernandez for private respondent.

ROMERO, J.:

The nature of the liability of an insurer sued together with the insured/operator-owner of a common carrier
which figured in an accident causing the death of a third person is sought to be defined in this petition
for certiorari.

The facts as found by the trial court are as follows:

. . . Lope Maglana was an employee of the Bureau of Customs whose work station was at
Lasa, here in Davao City. On December 20, 1978, early morning, Lope Maglana was on
his way to his work station, driving a motorcycle owned by the Bureau of Customs. At Km.
7, Lanang, he met an accident that resulted in his death. He died on the spot. The PUJ
jeep that bumped the deceased was driven by Pepito Into, operated and owned by
defendant Destrajo. From the investigation conducted by the traffic investigator, the PUJ
jeep was overtaking another passenger jeep that was going towards the city poblacion.
While overtaking, the PUJ jeep of defendant Destrajo running abreast with the overtaken
jeep, bumped the motorcycle driven by the deceased who was going towards the direction
of Lasa, Davao City. The point of impact was on the lane of the motorcycle and the
deceased was thrown from the road and met his untimely death. 1

Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for damages and attorney's
fees against operator Patricio Destrajo and the Afisco Insurance Corporation (AFISCO for brevity) before
the then Court of First Instance of Davao, Branch II. An information for homicide thru reckless imprudence
was also filed against Pepito Into.

During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty of one (1)
year, eight (8) months and one (1) day of prision correccional, as minimum, to four (4) years, nine (9)
months and eleven (11) days of prision correccional, as maximum, with all the accessory penalties provided
by law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of twelve thousand pesos
(P12,000.00) with subsidiary imprisonment in case of insolvency, plus five thousand pesos (P5,000.00) in
the concept of moral and exemplary damages with costs. No appeal was interposed by accused who later
applied for probation. 2

On December 14, 1981, the lower court rendered a decision finding that Destrajo had not exercised
sufficient diligence as the operator of the jeepney. The dispositive portion of the decision reads:

WHEREFORE, the Court finds judgment in favor of the plaintiffs against defendant
Destrajo, ordering him to pay plaintiffs the sum of P28,000.00 for loss of income; to pay
plaintiffs the sum of P12,000.00 which amount shall be deducted in the event judgment in
Criminal Case No. 3527-D against the driver, accused Into, shall have been enforced; to
pay plaintiffs the sum of P5,901.70 representing funeral and burial expenses of the
deceased; to pay plaintiffs the sum of P5,000.00 as moral damages which shall be
deducted in the event judgment (sic) in Criminal Case No. 3527-D against the driver,
accused Into; to pay plaintiffs the sum of P3,000.00 as attorney's fees and to pay the costs
of suit.

The defendant insurance company is ordered to reimburse defendant Destrajo whatever

amounts the latter shall have paid only up to the extent of its insurance coverage.
 SO ORDERED. 3

Petitioners filed a motion for the reconsideration of the second paragraph of the dispositive portion of the
decision contending that AFISCO should not merely be held secondarily liable because the Insurance Code
provides that the insurer's liability is "direct and primary and/or jointly and severally with the operator of the
vehicle, although only up to the extent of the insurance coverage." 4 Hence, they argued that the
P20,000.00 coverage of the insurance policy issued by AFISCO, should have been awarded in their favor.

In its comment on the motion for reconsideration, AFISCO argued that since the Insurance Code does not
expressly provide for a solidary obligation, the presumption is that the obligation is joint.

In its Order of February 9, 1982, the lower court denied the motion for reconsideration ruling that since the
insurance contract "is in the nature of suretyship, then the liability of the insurer is secondary only up to the
extent of the insurance coverage." 5

Petitioners filed a second motion for reconsideration reiterating that the liability of the insurer is direct,
primary and solidary with the jeepney operator because the petitioners became direct beneficiaries under
the provision of the policy which, in effect, is a stipulation pour autrui. 6 This motion was likewise denied for
lack of merit.

Hence, petitioners filed the instant petition for certiorari which, although it does not seek the reversal of the
lower court's decision in its entirety, prays for the setting aside or modification of the second paragraph of
the dispositive portion of said decision. Petitioners reassert their position that the insurance company is
directly and solidarily liable with the negligent operator up to the extent of its insurance coverage.

We grant the petition.

The particular provision of the insurance policy on which petitioners base their claim is as follows:

Sec. 1 — LIABILITY TO THE PUBLIC

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

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

(b) . . . .

2. . . . .

3. In the event of the death of any person entitled to indemnity under this Policy, the
Company will, in respect of the liability incurred to such person indemnify his personal
representatives in terms of, and subject to the terms and conditions hereof. 7

The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable by
petitioners. As this Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75, "[w]here an insurance
policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the
injury or even upon which the liability depends, and does not depend on the recovery of judgment by the
injured party against the insured." 8 The underlying reason behind the third party liability (TPL) of the
Compulsory Motor Vehicle Liability Insurance is "to protect injured persons against the insolvency of the
insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds
of the policy . . ." 9 Since petitioners had received from AFISCO the sum of P5,000.00 under the no-fault
clause, AFISCO's liability is now limited to P15,000.00.

However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. In Malayan Insurance
Co., Inc. v. Court of Appeals, 10 this Court had the opportunity to resolve the issue as to the nature of the
liability of the insurer and the insured vis-a-vis the third party injured in an accident. We categorically ruled
thus:

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

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

The Court then proceeded to distinguish the extent of the liability and manner of enforcing the same in
ordinary contracts from that of insurance contracts. While in solidary obligations, the creditor may enforce
the entire obligation against one of the solidary debtors, in an insurance contract, the insurer undertakes
for a consideration to indemnify the insured against loss, damage or liability arising from an unknown or
contingent event. 11 Thus, petitioner therein, which, under the insurance contract is liable only up to
P20,000.00, can not be made solidarily liable with the insured for the entire obligation of P29,013.00
otherwise there would result "an evident breach of the concept of solidary obligation."

Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under the insurance policy is
also P20,000.00, can be held solidarily liable with Destrajo for the total amount of P53,901.70 in accordance
with the decision of the lower court. Since under both the law and the insurance policy, AFISCO's liability
is only up to P20,000.00, the second paragraph of the dispositive portion of the decision in question may
have unwittingly sown confusion among the petitioners and their counsel. What should have been clearly
stressed as to leave no room for doubt was the liability of AFISCO under the explicit terms of the insurance
contract.

In fine, we conclude that the liability of AFISCO based on the insurance contract is direct, but not solidary
with that of Destrajo which is based on Article 2180 of the Civil Code. 12 As such, petitioners have the option
either to claim the P15,000 from AFISCO and the balance from Destrajo or enforce the entire judgment
from Destrajo subject to reimbursement from AFISCO to the extent of the insurance coverage.

While the petition seeks a definitive ruling only on the nature of AFISCO's liability, we noticed that the lower
court erred in the computation of the probable loss of income. Using the formula: 2/3 of (80-56) x
P12,000.00, it awarded P28,800.00. 13 Upon recomputation, the correct amount is P192,000.00. Being a
"plain error," we opt to correct the same. 14 Furthermore, in accordance with prevailing jurisprudence, the
death indemnity is hereby increased to P50,000.00. 15

WHEREFORE, premises considered, the present petition is hereby GRANTED. The award of P28,800.00
representing loss of income is INCREASED to P192,000.00 and the death indemnity of P12,000.00 to
P50,000.00.

SO ORDERED.
G.R. No. 96452 May 7, 1992

PERLA COMPANIA DE SEGUROS, INC. petitioner,

vs.
THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents.

G.R. No. 96493 May 7, 1992

FCP CREDIT CORPORATION, petitioner,

vs.

THE COURT OF APPEALS, Special Third Division, HERMINIO LIM and EVELYN LIM, respondents.

Yolanda Quisumbing-Javellana and Nelson A. Loyola for petitioner.

Wilson L. Tee for respondents Herminio and Evelyn Lim.

NOCON, J.:

These are two petitions for review on certiorari, one filed by Perla Compania de Seguros, Inc. in G.R. No.
96452, and the other by FCP Credit Corporation in G.R. No. 96493, both seeking to annul and set aside
the decision dated July 30, 1990 1 of the Court of Appeals in CA-G.R. No. 13037, which reversed the
decision of the Regional Trial Court of Manila, Branch VIII in Civil Case No. 83-19098 for replevin and
damages. The dispositive portion of the decision of the Court of Appeals reads, as follows:

WHEREFORE, the decision appealed from is reversed; and appellee Perla Compania de
Seguros, Inc. is ordered to indemnify appellants Herminio and Evelyn Lim for the loss of
their insured vehicle; while said appellants are ordered to pay appellee FCP Credit
Corporation all the unpaid installments that were due and payable before the date said
vehicle was carnapped; and appellee Perla Compania de Seguros, Inc. is also ordered to
pay appellants moral damages of P12,000.00 for the latter's mental sufferings, exemplary
damages of P20,000.00 for appellee Perla Compania de Seguros, Inc.'s unreasonable
refusal on sham grounds to honor the just insurance claim of appellants by way of example
and correction for public good, and attorney's fees of P10,000.00 as a just and equitable
reimbursement for the expenses incurred therefor by appellants, and the costs of suit both
in the lower court and in this appeal. 2

The facts as found by the trial court are as follows:

On December 24, 1981, private respondents spouses Herminio and Evelyn Lim executed a promissory
note in favor Supercars, Inc. in the sum of P77,940.00, payable in monthly installments according to the
schedule of payment indicated in said note, 3 and secured by a chattel mortgage over a brand new red Ford
Laser 1300 5DR Hatchback 1981 model with motor and serial No. SUPJYK-03780, which is registered
under the name of private respondent Herminio Lim 4 and insured with the petitioner Perla Compania de
Seguros, Inc. (Perla for brevity) for comprehensive coverage under Policy No. PC/41PP-QCB-43383. 5

On the same date, Supercars, Inc., with notice to private respondents spouses, assigned to petitioner FCP
Credit Corporation (FCP for brevity) its rights, title and interest on said promissory note and chattel
mortgage as shown by the Deed of Assignment. 6

At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped while parked at the back of
Broadway Centrum along N. Domingo Street, Quezon City. Private respondent Evelyn Lim, who was driving
said car before it was carnapped, immediately called up the Anti-Carnapping Unit of the Philippine
Constabulary to report said incident and thereafter, went to the nearest police substation at Araneta, Cubao
to make a police report regarding said incident, as shown by the certification issued by the Quezon City
police. 7

On November 10, 1982, private respondent Evelyn Lim reported said incident to the Land Transportation
Commission in Quezon City, as shown by the letter of her counsel to said office, 8 in compliance with the
insurance requirement. She also filed a complaint with the Headquarters, Constabulary Highway Patrol
Group. 9

On November 11, 1982, private respondent filed a claim for loss with the petitioner Perla but said claim was
denied on November 18, 1982 10 on the ground that Evelyn Lim, who was using the vehicle before it was
carnapped, was in possession of an expired driver's license at the time of the loss of said vehicle which is
in violation of the authorized driver clause of the insurance policy, which states, to wit:

AUTHORIZED DRIVER:

Any of the following: (a) The Insured (b) Any person driving on the Insured's order, or with
his permission. Provided that the person driving is permitted, in accordance with the
licensing or other laws or regulations, to drive the Scheduled Vehicle, or has been
permitted and is not disqualified by order of a Court of Law or by reason of any enactment
or regulation in that behalf. 11

On November 17, 1982, private respondents requests from petitioner FCP for a suspension of payment on
the monthly amortization agreed upon due to the loss of the vehicle and, since the carnapped vehicle
insured with petitioner Perla, said insurance company should be made to pay the remaining balance of the
promissory note and the chattel mortgage contract.

Perla, however, denied private respondents' claim. Consequently, petitioner FCP demanded that private
respondents pay the whole balance of the promissory note or to return the vehicle 12 but the latter refused.

On July 25, 1983, petitioner FCP filed a complaint against private respondents, who in turn filed an amended
third party complaint against petitioner Perla on December 8, 1983. After trial on the merits, the trial court
rendered a decision, the dispositive portion which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:

1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly and severally, plaintiff
the sum of P55,055.93 plus interest thereon at the rate of 24% per annum from July 2,
1983 until fully paid;

2. Ordering defendants to pay plaintiff P50,000.00 as and for attorney's fees; and the costs
of suit.

Upon the other hand, likewise, ordering the DISMISSAL of the Third-Party Complaint filed
against Third-Party Defendant. 13

Not satisfied with said decision, private respondents appealed the same to the Court of Appeals, which
reversed said decision.

After petitioners' separate motions for reconsideration were denied by the Court of Appeals in its resolution
of December 10, 1990, petitioners filed these separate petitions for review on certiorari.

Petitioner Perla alleged that there was grave abuse of discretion on the part of the appellate court in holding
that private respondents did not violate the insurance contract because the authorized driver clause is not
applicable to the "Theft" clause of said Contract.

For its part, petitioner FCP raised the issue of whether or not the loss of the collateral exempted the debtor
from his admitted obligations under the promissory note particularly the payment of interest, litigation
expenses and attorney's fees.

We find no merit in Perla's petition.

The comprehensive motor car insurance policy issued by petitioner Perla undertook to indemnify the private
respondents against loss or damage to the car (a) by accidental collision or overturning, or collision or
overturning consequent upon mechanical breakdown or consequent upon wear and tear; (b) by fire,
external explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by malicious act.14

Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner's consent or
knowledge, such taking constitutes theft, and, therefore, it is the "THEFT"' clause, and not the
"AUTHORIZED DRIVER" clause that should apply. As correctly stated by the respondent court in its
decision:
 . . . Theft is an entirely different legal concept from that of accident. Theft is committed by
a person with the intent to gain or, to put it in another way, with the concurrence of the
doer's will. On the other hand, accident, although it may proceed or result from negligence,
is the happening of an event without the concurrence of the will of the person by whose
agency it was caused. (Bouvier's Law Dictionary, Vol. I, 1914 ed., p. 101).

Clearly, the risk against accident is distinct from the risk against theft. The "authorized
driver clause" in a typical insurance policy is in contemplation or anticipation of accident in
the legal sense in which it should be understood, and not in contemplation or anticipation
of an event such as theft. The distinction — often seized upon by insurance companies in
resisting claims from their assureds — between death occurring as a result of accident and
death occurring as a result of intent may, by analogy, apply to the case at bar. Thus, if the
insured vehicle had figured in an accident at the time she drove it with an expired license,
then, appellee Perla Compania could properly resist appellants' claim for indemnification
for the loss or destruction of the vehicle resulting from the accident. But in the present case.
The loss of the insured vehicle did not result from an accident where intent was involved;
the loss in the present case was caused by theft, the commission of which was attended
by intent. 15

It is worthy to note that there is no causal connection between the possession of a valid driver's license and
the loss of a vehicle. To rule otherwise would render car insurance practically a sham since an insurance
company can easily escape liability by citing restrictions which are not applicable or germane to the claim,
thereby reducing indemnity to a shadow.

We however find the petition of FCP meritorious.

This Court agrees with petitioner FCP that private respondents are not relieved of their obligation to pay
the former the installments due on the promissory note on account of the loss of the automobile. The chattel
mortgage constituted over the automobile is merely an accessory contract to the promissory note. Being
the principal contract, the promissory note is unaffected by whatever befalls the subject matter of the
accessory contract. Therefore, the unpaid balance on the promissory note should be paid, and not just the
installments due and payable before the automobile was carnapped, as erronously held by the Court of
Appeals.

However, this does not mean that private respondents are bound to pay the interest, litigation expenses
and attorney's fees stipulated in the promissory note. Because of the peculiar relationship between the
three contracts in this case, i.e., the promissory note, the chattel mortgage contract and the insurance
policy, this Court is compelled to construe all three contracts as intimately interrelated to each other, despite
the fact that at first glance there is no relationship whatsoever between the parties thereto.

Under the promissory note, private respondents are obliged to pay Supercars, Inc. the amount stated
therein in accordance with the schedule provided for. To secure said promissory note, private respondents
constituted a chattel mortgage in favor of Supercars, Inc. over the automobile the former purchased from
the latter. The chattel mortgage, in turn, required private respondents to insure the automobile and to make
the proceeds thereof payable to Supercars, Inc. The promissory note and chattel mortgage were assigned
by Supercars, Inc. to petitioner FCP, with the knowledge of private respondents. Private respondents were
able to secure an insurance policy from petitioner Perla, and the same was made specifically payable to
petitioner FCP. 16

The insurance policy was therefore meant to be an additional security to the principal contract, that is, to
insure that the promissory note will still be paid in case the automobile is lost through accident or theft. The
Chattel Mortgage Contract provided that:

THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL CAUSE THE
PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED AGAINST LOSS OR
DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A PERIOD OF ONE YEAR FROM
DATE HEREOF AND EVERY YEAR THEREAFTER UNTIL THE MORTGAGE
OBLIGATION IS FULLY PAID WITH AN INSURANCE COMPANY OR COMPANIES
ACCEPTABLE TO THE MORTGAGEE IN AN AMOUNT NOT LESS THAN THE
OUTSTANDING BALANCE OF THE MORTGAGE OBLIGATION; THAT HE/IT WILL
MAKE ALL LOSS, IF ANY, UNDER SUCH POLICY OR POLICIES, PAYABLE TO THE
MORTGAGE OR ITS ASSIGNS AS ITS INTERESTS MAY APPEAR AND FORTHWITH
DELIVER SUCH POLICY OR POLICIES TO THE MORTGAGEE, . . . . 17

It is clear from the abovementioned provision that upon the loss of the insured vehicle, the insurance
company Perla undertakes to pay directly to the mortgagor or to their assignee, FCP, the outstanding
balance of the mortgage at the time of said loss under the mortgage contract. If the claim on the insurance
policy had been approved by petitioner Perla, it would have paid the proceeds thereof directly to petitioner
FCP, and this would have had the effect of extinguishing private respondents' obligation to petitioner FCP.
Therefore, private respondents were justified in asking petitioner FCP to demand the unpaid installments
from petitioner Perla.

Because petitioner Perla had unreasonably denied their valid claim, private respondents should not be
made to pay the interest, liquidated damages and attorney's fees as stipulated in the promissory note. As
mentioned above, the contract of indemnity was procured to insure the return of the money loaned from
petitioner FCP, and the unjustified refusal of petitioner Perla to recognize the valid claim of the private
respondents should not in any way prejudice the latter.

Private respondents can not be said to have unduly enriched themselves at the expense of petitioner FCP
since they will be required to pay the latter the unpaid balance of its obligation under the promissory note.

In view of the foregoing discussion, We hold that the Court of Appeals did not err in requiring petitioner
Perla to indemnify private respondents for the loss of their insured vehicle. However, the latter should be
ordered to pay petitioner FCP the amount of P55,055.93, representing the unpaid installments from
December 30, 1982 up to July 1, 1983, as shown in the statement of account prepared by petitioner
FCP, 18 plus legal interest from July 2, 1983 until fully paid.

As to the award of moral damages, exemplary damages and attorney's fees, private respondents are legally
entitled to the same since petitioner Perla had acted in bad faith by unreasonably refusing to honor the
insurance claim of the private respondents. Besides, awards for moral and exemplary damages, as well as
attorney's fees are left to the sound discretion of the Court. Such discretion, if well exercised, will not be
disturbed on appeal. 19

WHEREFORE, the assailed decision of the Court of Appeals is hereby MODIFIED to require private
respondents to pay petitioner FCP the amount of P55,055.93, with legal interest from July 2, 1983 until fully
paid. The decision appealed from is hereby affirmed as to all other respects. No pronouncement as to costs.

SO ORDERED.

.
G.R. No. 114427 February 6, 1995

ARMANDO GEAGONIA, petitioner,

vs.
COURT OF APPEALS and COUNTRY BANKERS INSURANCE CORPORATION, respondents.

DAVIDE, JR., J.:

Four our review under Rule 45 of the Rules of Court is the decision 1 of the Court of Appeals in CA-G.R. SP
No. 31916, entitled "Country Bankers Insurance Corporation versus Armando Geagonia," reversing the
decision of the Insurance Commission in I.C. Case No. 3340 which awarded the claim of petitioner Armando
Geagonia against private respondent Country Bankers Insurance Corporation.

The petitioner is the owner of Norman's Mart located in the public market of San Francisco, Agusan del
Sur. On 22 December 1989, he obtained from the private respondent fire insurance policy No. F-146222 for
P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990 and covered the
following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and women wear and
other usual to assured's business."

The petitioner declared in the policy under the subheading entitled CO-INSURANCE that Mercantile
Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the petitioner had in his inventory
stocks amounting to P392,130.50, itemized as follows:

Zenco Sales, Inc. P55,698.00

F. Legaspi Gen. Merchandise 86,432.50
Cebu Tesing Textiles 250,000.00 (on credit)
—————
P392,130.50

The policy contained the following condition:

3. The insured shall give notice to the Company of any insurance or insurances already
affected, or which may subsequently be effected, covering any of the property or properties
consisting of stocks in trade, goods in process and/or inventories only hereby insured, and
unless such notice be given and the particulars of such insurance or insurances be stated
therein or endorsed in this policy pursuant to Section 50 of the Insurance Code, by or on
behalf of the Company before the occurrence of any loss or damage, all benefits under this
policy shall be deemed forfeited, provided however, that this condition shall not apply when
the total insurance or insurances in force at the time of the loss or damage is not more than
P200,000.00.

On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San
Francisco, Agusan del Sur. The petitioner's insured stock-in-trade were completely destroyed prompting
him to file with the private respondent a claim under the policy. On 28 December 1990, the private
respondent denied the claim because it found that at the time of the loss the petitioner's stocks-in-trade
were likewise covered by fire insurance policies No. GA-28146 and No. GA-28144, for P100,000.00 each,
issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (hereinafter PFIC). 3 These policies
indicate that the insured was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage
clause reading:

MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as
their interest may appear subject to the terms of this policy. CO-INSURANCE DECLARED:
P100,000. — Phils. First CEB/F 24758.4

The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the
policy.

The petitioner then filed a complaint 5 against the private respondent with the Insurance Commission (Case
No. 3340) for the recovery of P100,000.00 under fire insurance policy No. F-14622 and for attorney's fees
and costs of litigation. He attached as Annex "AM"6 thereof his letter of 18 January 1991 which asked for
the reconsideration of the denial. He admitted in the said letter that at the time he obtained the private
respondent's fire insurance policy he knew that the two policies issued by the PFIC were already in
existence; however, he had no knowledge of the provision in the private respondent's policy requiring him
to inform it of the prior policies; this requirement was not mentioned to him by the private respondent's
agent; and had it been mentioned, he would not have withheld such information. He further asserted that
the total of the amounts claimed under the three policies was below the actual value of his stocks at the
time of loss, which was P1,000,000.00.

In its answer,7 the private respondent specifically denied the allegations in the complaint and set up as its
principal defense the violation of Condition 3 of the policy.

In its decision of 21 June 1993,8 the Insurance Commission found that the petitioner did not violate
Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from the
PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies without informing him or securing
his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. These
findings were based on the petitioner's testimony that he came to know of the PFIC policies only when he
filed his claim with the private respondent and that Cebu Tesing Textile obtained them and paid for their
premiums without informing him thereof. The Insurance Commission then decreed:

WHEREFORE, judgment is hereby rendered ordering the respondent company to pay

complainant the sum of P100,000.00 with legal interest from the time the complaint was
filed until fully satisfied plus the amount of P10,000.00 as attorney's fees. With costs. The
compulsory counterclaim of respondent is hereby dismissed.

Its motion for the reconsideration of the decision 9 having been denied by the Insurance Commission in its
resolution of 20 August 1993, 10 the private respondent appealed to the Court of Appeals by way of a petition
for review. The petition was docketed as CA-G.R. SP No. 31916.

In its decision of 29 December 1993, 11 the Court of Appeals reversed the decision of the Insurance
Commission because it found that the petitioner knew of the existence of the two other policies issued by
the PFIC. It said:

It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the
insurance was taken in the name of private respondent [petitioner herein]. The policy states
that "DISCOUNT MART (MR. ARMANDO GEAGONIA, PROP)" was the assured and that
"TESING TEXTILES" [was] only the mortgagee of the goods.

In addition, the premiums on both policies were paid for by private respondent, not by the
Tesing Textiles which is alleged to have taken out the other insurance without the
knowledge of private respondent. This is shown by Premium Invoices nos. 46632 and
46630. (Annexes M and N). In both invoices, Tesing Textiles is indicated to be only the
mortgagee of the goods insured but the party to which they were issued were the
"DISCOUNT MART (MR. ARMANDO GEAGONIA)."

In is clear that it was the private respondent [petitioner herein] who took out the policies on
the same property subject of the insurance with petitioner. Hence, in failing to disclose the
existence of these insurances private respondent violated Condition No. 3 of Fire Policy
No. 1462. . . .

Indeed private respondent's allegation of lack of knowledge of the provisions insurances is

belied by his letter to petitioner [of 18 January 1991. The body of the letter reads as follows;]

xxx xxx xxx

Please be informed that I have no knowledge of the provision requiring me

to inform your office about my
prior insurance under FGA-28146 and F-CEB-24758. Your representative
did not mention about said requirement at the time he was convincing me
to insure with you. If he only die or even inquired if I had other existing
policies covering my establishment, I would have told him so. You will note
that at the time he talked to me until I decided to insure with your company
the two policies aforementioned were already in effect. Therefore I would
have no reason to withhold such information and I would have desisted to
part with my hard earned peso to pay the insurance premiums [if] I know I
could not recover anything.
 Sir, I am only an ordinary businessman interested in protecting my
investments. The actual value of my stocks damaged by the fire was
estimated by the Police Department to be P1,000,000.00 (Please see
xerox copy of Police Report Annex "A"). My Income Statement as of
December 31, 1989 or five months before the fire, shows my merchandise
inventory was already some P595,455.75. . . . These will support my claim
that the amount claimed under the three policies are much below the value
of my stocks lost.

xxx xxx xxx

The letter contradicts private respondent's pretension that he did not know that there were
other insurances taken on the stock-in-trade and seriously puts in question his credibility.

His motion to reconsider the adverse decision having been denied, the petitioner filed the instant petition.
He contends therein that the Court of Appeals acted with grave abuse of discretion amounting to lack or
excess of jurisdiction:

A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE

COMMISSION, A QUASI-JUDICIAL BODY CHARGED WITH THE DUTY OF
DETERMINING INSURANCE CLAIM AND WHOSE DECISION IS ACCORDED
RESPECT AND EVEN FINALITY BY THE COURTS;

B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT

PRESENTED AS EVIDENCE DURING THE HEARING OR TRIAL; AND

C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST

THE PRIVATE RESPONDENT.

The chief issues that crop up from the first and third grounds are (a) whether the petitioner had prior
knowledge of the two insurance policies issued by the PFIC when he obtained the fire insurance policy from
the private respondent, thereby, for not disclosing such fact, violating Condition 3 of the policy, and (b) if he
had, whether he is precluded from recovering therefrom.

The second ground, which is based on the Court of Appeals' reliance on the petitioner's letter of
reconsideration of 18 January 1991, is without merit. The petitioner claims that the said letter was not
offered in evidence and thus should not have been considered in deciding the case. However, as correctly
pointed out by the Court of Appeals, a copy of this letter was attached to the petitioner's complaint in I.C.
Case No. 3440 as Annex "M" thereof and made integral part of the complaint. 12 It has attained the status
of a judicial admission and since its due execution and authenticity was not denied by the other party, the
petitioner is bound by it even if it were not introduced as an independent evidence. 13

As to the first issue, the Insurance Commission found that the petitioner had no knowledge of the previous
two policies. The Court of Appeals disagreed and found otherwise in view of the explicit admission by the
petitioner in his letter to the private respondent of 18 January 1991, which was quoted in the challenged
decision of the Court of Appeals. These divergent findings of fact constitute an exception to the general rule
that in petitions for review under Rule 45, only questions of law are involved and findings of fact by the
Court of Appeals are conclusive and binding upon this Court. 14

We agree with the Court of Appeals that the petitioner knew of the prior policies issued by the PFIC. His
letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His testimony to
the contrary before the Insurance Commissioner and which the latter relied upon cannot prevail over a
written admission made ante litem motam. It was, indeed, incredible that he did not know about the prior
policies since these policies were not new or original. Policy No. GA-28144 was a renewal of Policy No. F-
24758, while Policy No. GA-28146 had been renewed twice, the previous policy being F-24792.

Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by law. Its
incorporation in the policy is allowed by Section 75 of the Insurance Code 15 which provides that "[a] policy
may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an
immaterial provision does not avoid the policy." Such a condition is a provision which invariably appears in
fire insurance policies and is intended to prevent an increase in the moral hazard. It is commonly known as
the additional or "other insurance" clause and has been upheld as valid and as a warranty that no other
insurance exists. Its violation would thus avoid the
policy. 16 However, in order to constitute a violation, the other insurance must be upon same subject matter,
the same interest therein, and the same risk.17
As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable interest
therein and both interests may be one policy, or each may take out a separate policy covering his interest,
either at the same or at separate times. 18 The mortgagor's insurable interest covers the full value of the
mortgaged property, even though the mortgage debt is equivalent to the full value of the property. 19 The
mortgagee's insurable interest is to the extent of the debt, since the property is relied upon as security
thereof, and in insuring he is not insuring the property but his interest or lien thereon. His insurable interest
is prima facie the value mortgaged and extends only to the amount of the debt, not exceeding the value of
the mortgaged property. 20 Thus, separate insurances covering different insurable interests may be
obtained by the mortgagor and the mortgagee.

A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual practice.
The mortgagee may be made the beneficial payee in several ways. He may become the assignee of the
policy with the consent of the insurer; or the mere pledgee without such consent; or the original policy may
contain a mortgage clause; or a rider making the policy payable to the mortgagee "as his interest may
appear" may be attached; or a "standard mortgage clause," containing a collateral independent contract
between the mortgagee and insurer, may be attached; or the policy, though by its terms payable absolutely
to the mortgagor, may have been procured by a mortgagor under a contract duty to insure for the
mortgagee's benefit, in which case the mortgagee acquires an equitable lien upon the proceeds. 21

In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his interest
may appear, the mortgagee is only a beneficiary under the contract, and recognized as such by the insurer
but not made a party to the contract himself. Hence, any act of the mortgagor which defeats his right will
also defeat the right of the mortgagee. 22 This kind of policy covers only such interest as the mortgagee has
at the issuing of the policy.23

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

The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a mortgage
clause which reads:

Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest
may appear subject to the terms of this policy.

This is clearly a simple loss payable clause, not a standard mortgage clause.

It must, however, be underscored that unlike the "other insurance" clauses involved in General Insurance
and Surety Corp. vs. Ng Hua 26 or in Pioneer Insurance & Surety Corp. vs. Yap, 27 which read:

The insured shall give notice to the company of any insurance or insurances already
effected, or which may subsequently be effected covering any of the property hereby
insured, and unless such notice be given and the particulars of such insurance or
insurances be stated in or endorsed on this Policy by or on behalf of the Company before
the occurrence of any loss or damage, all benefits under this Policy shall be forfeited.

or in the 1930 case of Santa Ana vs. Commercial Union Assurance

Co. 28 which provided "that any outstanding insurance upon the whole or a portion of the objects
thereby assured must be declared by the insured in writing and he must cause the company to add
or insert it in the policy, without which such policy shall be null and void, and the insured will not be
entitled to indemnity in case of loss," Condition 3 in the private respondent's policy No. F-14622
does not absolutely declare void any violation thereof. It expressly provides that the condition "shall
not apply when the total insurance or insurances in force at the time of the loss or damage is not
more than P200,000.00."

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

With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally free
from ambiguity and must, perforce, be meticulously analyzed. Such analysis leads us to conclude that (a)
the prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to the extent
exceeding P200,000.00 of the total policies obtained.

The first conclusion is supported by the portion of the condition referring to other insurance "covering any
of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby
insured," and the portion regarding the insured's declaration on the subheading CO-INSURANCE that the
co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists where the
same person is insured by several insurers separately in respect of the same subject and interest. As earlier
stated, the insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct and
separate. Since the two policies of the PFIC do not cover the same interest as that covered by the policy
of the private respondent, no double insurance exists. The non-disclosure then of the former policies was
not fatal to the petitioner's right to recover on the private respondent's policy.

Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance in
force at the time of loss does not exceed P200,000.00, the private respondent was amenable to assume a
co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-
insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to
prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains insurance
policies from two or more insurers in a total amount that exceeds the property's value, the insured may
have an inducement to destroy the property for the purpose of collecting the insurance. The public as well
as the insurer is interested in preventing a situation in which a fire would be profitable to the insured. 32

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R.
SP No. 31916 is SET ASIDE and the decision of the Insurance Commission in Case No. 3340 is
REINSTATED.

Costs against private respondent Country Bankers Insurance Corporation.

SO ORDERED.
G.R. No. 115278 May 23, 1995

FORTUNE INSURANCE AND SURETY CO., INC., petitioner,

vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.

DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is liable
under the Money, Security, and Payroll Robbery policy it issued to the private respondent or whether
recovery thereunder is precluded under the general exceptions clause thereof. Both the trial court and the
Court of Appeals held that there should be recovery. The petitioner contends otherwise.

This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by private
respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner Fortune Insurance
and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum of P725,000.00 under the
policy issued by Fortune. The sum was allegedly lost during a robbery of Producer's armored vehicle while
it was in transit to transfer the money from its Pasay City Branch to its head office in Makati. The case was
docketed as Civil Case No. 1817 and assigned to Branch 146 thereof.

After joinder of issues, the parties asked the trial court to render judgment based on the following stipulation
of facts:

1. The plaintiff was insured by the defendants and an insurance policy was
issued, the duplicate original of which is hereto attached as Exhibit "A";

2. An armored car of the plaintiff, while in the process of transferring cash

in the sum of P725,000.00 under the custody of its teller, Maribeth
Alampay, from its Pasay Branch to its Head Office at 8737 Paseo de
Roxas, Makati, Metro Manila on June 29, 1987, was robbed of the said
cash. The robbery took place while the armored car was traveling along
Taft Avenue in Pasay City;

3. The said armored car was driven by Benjamin Magalong Y de Vera,

escorted by Security Guard Saturnino Atiga Y Rosete. Driver Magalong
was assigned by PRC Management Systems with the plaintiff by virtue of
an Agreement executed on August 7, 1983, a duplicate original copy of
which is hereto attached as Exhibit "B";

4. The Security Guard Atiga was assigned by Unicorn Security Services,

Inc. with the plaintiff by virtue of a contract of Security Service executed
on October 25, 1982, a duplicate original copy of which is hereto attached
as Exhibit "C";

5. After an investigation conducted by the Pasay police authorities, the

driver Magalong and guard Atiga were charged, together with Edelmer
Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of P.D.
532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City. A copy
of the complaint is hereto attached as Exhibit "D";

6. The Fiscal of Pasay City then filed an information charging the aforesaid
persons with the said crime before Branch 112 of the Regional Trial Court
of Pasay City. A copy of the said information is hereto attached as Exhibit
"E." The case is still being tried as of this date;

7. Demands were made by the plaintiff upon the defendant to pay the
amount of the loss of P725,000.00, but the latter refused to pay as the loss
is excluded from the coverage of the insurance policy, attached hereto as
Exhibit "A," specifically under page 1 thereof, "General Exceptions"
Section (b), which is marked as Exhibit "A-1," and which reads as follows:
 GENERAL EXCEPTIONS

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

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or

criminal act of the insured or any officer, employee,
partner, director, trustee or authorized representative of
the Insured whether acting alone or in conjunction with
others. . . .

8. The plaintiff opposes the contention of the defendant and contends that
Atiga and Magalong are not its "officer, employee, . . . trustee or authorized
representative . . . at the time of the robbery.1

On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive portion thereof
reads as follows:

WHEREFORE, premises considered, the Court finds for plaintiff and against defendant,
and

(a) orders defendant to pay plaintiff the net amount of

P540,000.00 as liability under Policy No. 0207 (as
mitigated by the P40,000.00 special clause deduction and
by the recovered sum of P145,000.00), with interest
thereon at the legal rate, until fully paid;

(b) orders defendant to pay plaintiff the sum of

P30,000.00 as and for attorney's fees; and

(c) orders defendant to pay costs of suit.

All other claims and counterclaims are accordingly dismissed forthwith.

SO ORDERED. 2

The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It Said:

The Court is satisfied that plaintiff may not be said to have selected and engaged Magalong
and Atiga, their services as armored car driver and as security guard having been merely
offered by PRC Management and by Unicorn Security and which latter firms assigned them
to plaintiff. The wages and salaries of both Magalong and Atiga are presumably paid by
their respective firms, which alone wields the power to dismiss them. Magalong and Atiga
are assigned to plaintiff in fulfillment of agreements to provide driving services and property
protection as such — in a context which does not impress the Court as translating into
plaintiff's power to control the conduct of any assigned driver or security guard, beyond
perhaps entitling plaintiff to request are replacement for such driver guard. The finding is
accordingly compelled that neither Magalong nor Atiga were plaintiff's "employees" in
avoidance of defendant's liability under the policy, particularly the general exceptions
therein embodied.

Neither is the Court prepared to accept the proposition that driver Magalong and guard
Atiga were the "authorized representatives" of plaintiff. They were merely an assigned
armored car driver and security guard, respectively, for the June 29, 1987 money transfer
from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly — it was teller Maribeth
Alampay who had "custody" of the P725,000.00 cash being transferred along a specified
money route, and hence plaintiff's then designated "messenger" adverted to in the policy. 3

Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CV No. 32946.
In its decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed decision.

The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were neither
employees nor authorized representatives of Producers and ratiocinated as follows:
 A policy or contract of insurance is to be construed liberally in favor of the insured and
strictly against the insurance company (New Life Enterprises vs. Court of Appeals, 207
SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA 554). Contracts of
insurance, like other contracts, are to be construed according to the sense and meaning of
the terms which the parties themselves have used. If such terms are clear and
unambiguous, they must be taken and understood in their plain, ordinary and popular
sense (New Life Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of
Appeals, 195 SCRA 193).

The language used by defendant-appellant in the above quoted stipulation is plain, ordinary
and simple. No other interpretation is necessary. The word "employee" must be taken to
mean in the ordinary sense.

The Labor Code is a special law specifically dealing with/and specifically designed to
protect labor and therefore its definition as to employer-employee relationships insofar as
the application/enforcement of said Code is concerned must necessarily be inapplicable to
an insurance contract which defendant-appellant itself had formulated. Had it intended to
apply the Labor Code in defining what the word "employee" refers to, it must/should have
so stated expressly in the insurance policy.

Said driver and security guard cannot be considered as employees of plaintiff-appellee

bank because it has no power to hire or to dismiss said driver and security guard under the
contracts (Exhs. 8 and C) except only to ask for their replacements from the contractors.5

On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and the
Court of Appeals erred in holding it liable under the insurance policy because the loss falls within the general
exceptions clause considering that driver Magalong and security guard Atiga were Producers' authorized
representatives or employees in the transfer of the money and payroll from its branch office in Pasay City
to its head office in Makati.

According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from one
branch to another, they effectively and necessarily became its authorized representatives in the care and
custody of the money. Assuming that they could not be considered authorized representatives, they were,
nevertheless, employees of Producers. It asserts that the existence of an employer-employee relationship
"is determined by law and being such, it cannot be the subject of agreement." Thus, if there was in reality
an employer-employee relationship between Producers, on the one hand, and Magalong and Atiga, on the
other, the provisions in the contracts of Producers with PRC Management System for Magalong and with
Unicorn Security Services for Atiga which state that Producers is not their employer and that it is absolved
from any liability as an employer, would not obliterate the relationship.

Fortune points out that an employer-employee relationship depends upon four standards: (1) the manner
of selection and engagement of the putative employee; (2) the mode of payment of wages; (3) the presence
or absence of a power to dismiss; and (4) the presence and absence of a power to control the putative
employee's conduct. Of the four, the right-of-control test has been held to be the decisive factor. 6 It asserts
that the power of control over Magalong and Atiga was vested in and exercised by Producers. Fortune
further insists that PRC Management System and Unicorn Security Services are but "labor-only" contractors
under Article 106 of the Labor Code which provides:

Art. 106. Contractor or subcontractor. — There is "labor-only" contracting where the person
supplying workers to an employer does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises, among others, and the workers
recruited and placed by such persons are performing activities which are directly related to
the principal business of such employer. In such cases, the person or intermediary shall
be considered merely as an agent of the employer who shall be responsible to the workers
in the same manner and extent as if the latter were directly employed by him.

Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling
in International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor is
equivalent to a finding that there is an employer-employee relationship between the owner of the project
and the employees of the "labor-only" contractor.

On the other hand, Producers contends that Magalong and Atiga were not its employees since it had
nothing to do with their selection and engagement, the payment of their wages, their dismissal, and the
control of their conduct. Producers argued that the rule in International Timber Corp. is not applicable to all
cases but only when it becomes necessary to prevent any violation or circumvention of the Labor Code, a
social legislation whose provisions may set aside contracts entered into by parties in order to give protection
to the working man.

Producers further asseverates that what should be applied is the rule in American President Lines vs.
Clave, 8 to wit:

In determining the existence of employer-employee relationship, the following elements

are generally considered, namely: (1) the selection and engagement of the employee; (2)
the payment of wages; (3) the power of dismissal; and (4) the power to control the
employee's conduct.

Since under Producers' contract with PRC Management Systems it is the latter which assigned Magalong
as the driver of Producers' armored car and was responsible for his faithful discharge of his duties and
responsibilities, and since Producers paid the monthly compensation of P1,400.00 per driver to PRC
Management Systems and not to Magalong, it is clear that Magalong was not Producers' employee. As to
Atiga, Producers relies on the provision of its contract with Unicorn Security Services which provides that
the guards of the latter "are in no sense employees of the CLIENT."

There is merit in this petition.

It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance policy
which is a form of casualty insurance. Section 174 of the Insurance Code provides:

Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or
mishap, excluding certain types of loss which by law or custom are considered as falling
exclusively within the scope of insurance such as fire or marine. It includes, but is not
limited to, employer's liability insurance, public liability insurance, motor vehicle liability
insurance, plate glass insurance, burglary and theft insurance, personal accident and
health insurance as written by non-life insurance companies, and other substantially similar
kinds of insurance. (emphases supplied)

Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no other
provisions applicable to casualty insurance or to robbery insurance in particular. These contracts are,
therefore, governed by the general provisions applicable to all types of insurance. Outside of these, the
rights and obligations of the parties must be determined by the terms of their contract, taking into
consideration its purpose and always in accordance with the general principles of insurance law. 9

It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the
insurer — the moral hazard — is so great that insurers have found it necessary to fill up their policies with
countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the risk of
all losses due to the hazards insured against." 10 Persons frequently excluded under such provisions are
those in the insured's service and employment. 11 The purpose of the exception is to guard against liability
should the theft be committed by one having unrestricted access to the property. 12 In such cases, the terms
specifying the excluded classes are to be given their meaning as understood in common speech. 13 The
terms "service" and "employment" are generally associated with the idea of selection, control, and
compensation. 14

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against
the insurer, 15 or it should be construed liberally in favor of the insured and strictly against the
insurer. 16 Limitations of liability should be regarded with extreme jealousy and must be construed
in such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goes without saying
then that if the terms of the contract are clear and unambiguous, there is no room for construction and such
terms cannot be enlarged or diminished by judicial construction. 18

An insurance contract is a contract of indemnity upon the terms and conditions specified therein. 19 It is
settled that the terms of the policy constitute the measure of the insurer's liability. 20 In the absence of
statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit their
liability and to impose whatever conditions they deem best upon their obligations not inconsistent with public
policy.

With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as
employees or authorized representatives of Producers under paragraph (b) of the general exceptions
clause of the policy which, for easy reference, is again quoted:

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

xxx xxx xxx

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

There is marked disagreement between the parties on the correct meaning of the terms "employee" and
"authorized representatives."

It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from
protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or
having unrestricted access to Producers' money or payroll. When it used then the term "employee," it must
have had in mind any person who qualifies as such as generally and universally understood, or
jurisprudentially established in the light of the four standards in the determination of the employer-employee
relationship, 21 or as statutorily declared even in a limited sense as in the case of Article 106 of the Labor
Code which considers the employees under a "labor-only" contract as employees of the party employing
them and not of the party who supplied them to the employer. 22

Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security Services
are "labor-only" contracts.

Producers, however, insists that by the express terms thereof, it is not the employer of Magalong.
Notwithstanding such express assumption of PRC Management Systems and Unicorn Security
Services that the drivers and the security guards each shall supply to Producers are not the latter's
employees, it may, in fact, be that it is because the contracts are, indeed, "labor-only" contracts.
Whether they are is, in the light of the criteria provided for in Article 106 of the Labor Code, a
question of fact. Since the parties opted to submit the case for judgment on the basis of their
stipulation of facts which are strictly limited to the insurance policy, the contracts with PRC
Management Systems and Unicorn Security Services, the complaint for violation of P.D. No. 532,
and the information therefor filed by the City Fiscal of Pasay City, there is a paucity of evidence as
to whether the contracts between Producers and PRC Management Systems and Unicorn Security
Services are "labor-only" contracts.

But even granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC
Management Systems and Unicorn Security Services were truly independent contractors, we are satisfied
that Magalong and Atiga were, in respect of the transfer of Producer's money from its Pasay City branch to
its head office in Makati, its "authorized representatives" who served as such with its teller Maribeth
Alampay. Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer the
money to its head office, with Alampay to be responsible for its custody in transit; Magalong to drive the
armored vehicle which would carry the money; and Atiga to provide the needed security for the money, the
vehicle, and his two other companions. In short, for these particular tasks, the three acted as agents of
Producers. A "representative" is defined as one who represents or stands in the place of another; one who
represents others or another in a special capacity, as an agent, and is interchangeable with "agent." 23

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

WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R.
CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court of Makati in Civil
Case No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is DISMISSED.

No pronouncement as to costs.

SO ORDERED.
G.R. No. L-34200 September 30, 1982

REGINA L. EDILLON, as assisted by her husband, MARCIAL EDILLON, petitioners-appellants,

vs.
MANILA BANKERS LIFE INSURANCE CORPORATION and the COURT OF FIRST INSTANCE OF
RIZAL, BRANCH V, QUEZON CITY, respondents-appellees.

K.V. Faylona for petitioners-appellants.

L. L. Reyes for respondents-appellees.

VASQUEZ, J.:

The question of law raised in this case that justified a direct appeal from a decision of the Court of First
Instance Rizal, Branch V, Quezon City, to be taken directly to the Supreme Court is whether or not the
acceptance by the private respondent insurance corporation of the premium and the issuance of the
corresponding certificate of insurance should be deemed a waiver of the exclusionary condition of overage
stated in the said certificate of insurance.

The material facts are not in dispute. Sometime in April 1969, Carmen O, Lapuz applied with respondent
insurance corporation for insurance coverage against accident and injuries. She filled up the blank
application form given to her and filed the same with the respondent insurance corporation. In the said
application form which was dated April 15, 1969, she gave the date of her birth as July 11, 1904. On the
same date, she paid the sum of P20.00 representing the premium for which she was issued the
corresponding receipt signed by an authorized agent of the respondent insurance corporation. (Rollo, p.
27.) Upon the filing of said application and the payment of the premium on the policy applied for, the
respondent insurance corporation issued to Carmen O. Lapuz its Certificate of Insurance No. 128866.
(Rollo, p. 28.) The policy was to be effective for a period of 90 days.

On May 31, 1969 or during the effectivity of Certificate of Insurance No. 12886, Carmen O. Lapuz died in a
vehicular accident in the North Diversion Road.

On June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and who was the named beneficiary
in the policy, filed her claim for the proceeds of the insurance, submitting all the necessary papers and other
requisites with the private respondent. Her claim having been denied, Regina L. Edillon instituted this action
in the Court of First Instance of Rizal on August 27, 1969.

In resisting the claim of the petitioner, the respondent insurance corporation relies on a provision contained
in the Certificate of Insurance, excluding its liability to pay claims under the policy in behalf of "persons who
are under the age of sixteen (16) years of age or over the age of sixty (60) years ..." It is pointed out that
the insured being over sixty (60) years of age when she applied for the insurance coverage, the policy was
null and void, and no risk on the part of the respondent insurance corporation had arisen therefrom.

The trial court sustained the contention of the private respondent and dismissed the complaint; ordered the
petitioner to pay attorney's fees in the sum of ONE THOUSAND (P1,000.00) PESOS in favor of the private
respondent; and ordered the private respondent to return the sum of TWENTY (P20.00) PESOS received
by way of premium on the insurancy policy. It was reasoned out that a policy of insurance being a contract
of adhesion, it was the duty of the insured to know the terms of the contract he or she is entering into; the
insured in this case, upon learning from its terms that she could not have been qualified under the conditions
stated in said contract, what she should have done is simply to ask for a refund of the premium that she
paid. It was further argued by the trial court that the ruling calling for a liberal interpretation of an insurance
contract in favor of the insured and strictly against the insurer may not be applied in the present case in
view of the peculiar facts and circumstances obtaining therein.

We REVERSE the judgment of the trial court. The age of the insured Carmen 0. Lapuz was not concealed
to the insurance company. Her application for insurance coverage which was on a printed form furnished
by private respondent and which contained very few items of information clearly indicated her age of the
time of filing the same to be almost 65 years of age. Despite such information which could hardly be
overlooked in the application form, considering its prominence thereon and its materiality to the coverage
applied for, the respondent insurance corporation received her payment of premium and issued the
corresponding certificate of insurance without question. The accident which resulted in the death of the
insured, a risk covered by the policy, occurred on May 31, 1969 or FORTY-FIVE (45) DAYS after the
insurance coverage was applied for. There was sufficient time for the private respondent to process the
application and to notice that the applicant was over 60 years of age and thereby cancel the policy on that
ground if it was minded to do so. If the private respondent failed to act, it is either because it was willing to
waive such disqualification; or, through the negligence or incompetence of its employees for which it has
only itself to blame, it simply overlooked such fact. Under the circumstances, the insurance corporation is
already deemed in estoppel. It inaction to revoke the policy despite a departure from the exclusionary
condition contained in the said policy constituted a waiver of such condition, as was held in the case of
"Que Chee Gan vs. Law Union Insurance Co., Ltd.,", 98 Phil. 85. This case involved a claim on an insurance
policy which contained a provision as to the installation of fire hydrants the number of which depended on
the height of the external wan perimeter of the bodega that was insured. When it was determined that the
bodega should have eleven (11) fire hydrants in the compound as required by the terms of the policy,
instead of only two (2) that it had, the claim under the policy was resisted on that ground. In ruling that the
said deviation from the terms of the policy did not prevent the claim under the same, this Court stated the
following:

We are in agreement with the trial Court that the appellant is barred by waiver (or rather
estoppel) to claim violation of the so-called fire hydrants warranty, for the reason that
knowing fully an that the number of hydrants demanded therein never existed from the very
beginning, the appellant nevertheless issued the policies in question subject to such
warranty, and received the corresponding premiums. It would be perilously close to
conniving at fraud upon the insured to allow appellant to claim now as void ab initio the
policies that it had issued to the plaintiff without warning of their fatal defect, of which it was
informed, and after it had misled the defendant into believing that the policies were
effective.

The insurance company was aware, even before the policies were issued, that in the
premises insured there were only two fire hydrants installed by Que Chee Gan and two
others nearby, owned by the municipality of Tabaco, contrary to the requirements of the
warranty in question. Such fact appears from positive testimony for the insured that
appellant's agents inspected the premises; and the simple denials of appellant's
representative (Jamiczon) can not overcome that proof. That such inspection was made it
moreover rendered probable by its being a prerequisite for the fixing of the discount on the
premium to which the insured was entitled, since the discount depended on the number of
hydrants, and the fire fighting equipment available (See"'Scale of Allowances" to which the
policies were expressly made subject). The law, supported by a long line of cases, is
expressed by American Jurisprudence (Vol. 29, pp. 611-612) to be as follows:

It is usually held that where the insurer, at the time of the issuance of a
policy of insurance, has knowledge of existing facts which, if insisted on,
would invalidate the contract from its very inception, such knowledge
constitutes a waiver of conditions in the contract inconsistent with the
known facts, and the insurer is stopped thereafter from asserting the
breach of such conditions. The law is charitable enough to assume, in the
absence of any showing to the contrary, that an insurance company
intends to execute a valid contract in return for the premium received; and
when the policy contains a condition which renders it voidable at its
inception, and this result is known to the insurer, it will be presumed to
have intended to waive the conditions and to execute a binding contract,
rather than to have deceived the insured into thinking he is insured when
in fact he is not, and to have taken is money without consideration.' (29
Am. Jur., Insurance, section 807, at pp. 611-612.)

The reason for the rule is not difficult to find.

The plain, human justice of this doctrine is perfectly apparent. To allow a

company to accept one's money for a policy of insurance which it then
knows to be void and of no effect, though it knows as it must, that the
assured believes it to be valid and binding, is so contrary to the dictates of
honesty and fair dealing, and so closely related to positive fraud, as to be
abhorent to fairminded men. It would be to allow the company to treat the
policy as valid long enough to get the premium on it, and leave it at liberty
to repudiate it the next moment. This cannot be deemed to be the real
intention of the parties. To hold that a literal construction of the policy
expressed the true intention of the company would be to indict it, for
fraudulent purposes and designs which we cannot believe it to be guilty of
(Wilson vs. Commercial Union Assurance Co., 96 Atl. 540, 543544).
A similar view was upheld in the case of Capital Insurance & Surety Co., Inc. vs. Plastic Era Co., Inc., 65
SCRA 134, which involved a violation of the provision of the policy requiring the payment of premiums
before the insurance shall become effective. The company issued the policy upon the execution of a
promissory note for the payment of the premium. A check given subsequent by the insured as partial
payment of the premium was dishonored for lack of funds. Despite such deviation from the terms of the
policy, the insurer was held liable.

Significantly, in the case before Us the Capital Insurance accepted the promise of Plastic
Era to pay the insurance premium within thirty (30) days from the effective date of policy.
By so doing, it has impliedly agreed to modify the tenor of the insurance policy and in effect,
waived the provision therein that it would only pay for the loss or damage in case the same
occurs after the payment of the premium. Considering that the insurance policy is silent as
to the mode of payment, Capital Insurance is deemed to have accepted the promissory
note in payment of the premium. This rendered the policy immediately operative on the
date it was delivered. The view taken in most cases in the United States:

... is that although one of conditions of an insurance policy is that "it shall
not be valid or binding until the first premium is paid", if it is silent as to the
mode of payment, promissory notes received by the company must be
deemed to have been accepted in payment of the premium. In other
words, a requirement for the payment of the first or initial premium in
advance or actual cash may be waived by acceptance of a promissory
note...

WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE. In lieu thereof, the
private respondent insurance corporation is hereby ordered to pay to the petitioner the sum of TEN
THOUSAND (P10,000.00) PESOS as proceeds of Insurance Certificate No. 128866 with interest at the
legal rate from May 31, 1969 until fully paid, the further sum of TWO THOUSAND (P2,000.00) PESOS as
and for attorney's fees, and the costs of suit.

SO ORDERED.
G.R. No. 78860 May 28, 1990

PERLA COMPANIA DE SEGUROS, INC., petitioner,

vs.
HONORABLE COURT OF APPEALS and MILAGROS CAYAS, respondents.

Yabut, Arandia & Associates for petitioner.

Dolorfino and Dominguez Law Offices for private respondent.

FERNAN, C.J.:

This is a petition for review on certiorari of the decision of the Court of Appeals 1 affirming in toto the
decision of the Regional Trial Court of Cavite, Branch XVI, 2the dispositive portion of which states:

IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering defendant Perla

Compania de Seguros, Inc. to pay plaintiff Milagros Cayas the sum of P50,000.00 under
its maximum liability as provided for in the insurance policy; and the sum of P5,000.00 as
reasonable attorney's fee with costs against said defendant.

SO ORDERED. 3

Private respondent Milagros Cayas was the registered owner of a Mazda bus with serial No. TA3H4 P-
000445 and plate No. PUB-4G-593. 4 Said passenger vehicle was insured with Perla Compania de
Seguros, Inc. (PCSI) under policy No. LTO/60CC04241 issued on February 3, 1978. 5

On December 17, 1978, the bus figured in an accident in Naic, Cavite injuring several of its passengers.
One of them, 19-year old Edgardo Perea, sued Milagros Cayas for damages in the Court of First Instance
of Cavite, Branch 6 docketed as Civil Case No. NC-794; while three others, namely: Rosario del Carmen,
Ricardo Magsarili and Charlie Antolin, agreed to a settlement of P4,000.00 each with Milagros Cayas.

At the pre-trial of Civil Case No. NC-794, Milagros Cayas failed to appear and hence, she was declared as
in default. After trial, the court rendered a decision 7 in favor of Perea with its dispositive portion reading
thus:

WHEREFORE, under our present imperatives, judgment is hereby rendered in favor of the
plaintiffs and against the defendant Milagros Cayas who is hereby ordered to compensate
the plaintiff' Edgar Perea with damages in the sum of Ten Thousand (Pl0,000.00) Pesos
for the medical predicament he found himself as damaging consequences of defendant
Milagros Cayas complete lack of diligence of a good father of a family' when she secured
the driving services of one Oscar Figueroa on December, 17, 1978; the sum of Ten
Thousand (P10,000.00) Pesos for exemplary damages; the sum of Five Thousand
(P5,000.00) Pesos for moral damages; the sum of Seven Thousand (P7,000.00) Pesos for
Attorney's fees, under the imperatives of the monetary power of the peso today;

With costs against the defendant.

SO ORDERED.

When the decision in Civil Case No. NC-794 was about to be executed against her, Milagros Cayas filed a
complaint against PCSI in the Office of the Insurance Commissioner praying that PCSI be ordered to pay
P40,000.00 for all the claims against her arising from the vehicular accident plus legal and other
expenses. 8 Realizing her procedural mistake, she later withdrew said complaint. 9

Consequently, on November 11, 1981, Milagros Cayas filed a complaint for a sum of money and damages
against PCSI in the Court of First Instance of Cavite (Civil Case No. N-4161). She alleged therein that to
satisfy the judgment in Civil Case No. NC-794, her house and lot were levied upon and sold at public auction
for P38,200; 10that to avoid numerous suits and the "detention" of the insured vehicle, she paid P4,000 to
each of the following injured passengers: Rosario del Carmen, Ricardo Magsarili and Charlie Antolin; that
she could not have suffered said financial setback had the counsel for PCSI, who also represented her,
appeared at the trial of Civil Case No. NC-794 and attended to the claims of the three other victims; that
she sought reimbursement of said amounts from the defendant, which notwithstanding the fact that her
claim was within its contractual liability under the insurance policy, refused to make such re-imbursement;
that she suffered moral damages as a consequence of such refusal, and that she was constrained to secure
the services of counsel to protect her rights. She prayed that judgment be rendered directing PCSI to pay
her P50,000 for compensation of the injured victims, such sum as the court might approximate as damages,
and P6,000 as attorney's fees.

In view of Milagros Cayas' failure to prosecute the case, the court motu propio ordered its dismissal without
prejudice. 11 Alleging that she had not received a copy of the answer to the complaint, and that "out of
sportsmanship", she did not file a motion to hold PCSI in default, Milagros Cayas moved for the
reconsideration of the dismissal order. Said motion for reconsideration was acted upon favorably by the
court in its order of March 31, 1982.

About two months later, Milagros Cayas filed a motion to declare PCSI in default for its failure to file an
answer. The motion was granted and plaintiff was allowed to adduce evidence ex-parte. On July 13, 1982,
the court rendered judgment by default ordering PCSI to pay Milagros Cayas P50,000 as compensation for
the injured passengers, P5,000 as moral damages and P5,000 as attorney's fees.

Said decision was set aside after the PCSI filed a motion therefor. Trial of the case ensued. In due course,
the court promulgated a decision in Civil Case No. N-4161, the dispositive portion of which was quoted
earlier, finding that:

In disavowing its obligation to plaintiff under the insurance policy, defendant advanced the
proposition that before it can be made to pay, the liability must first be determined in an
appropriate court action. And so plaintiffs liability was determined in that case filed against
her by Perea in the Naic CFI. Still, despite this determination of liability, defendant sought
escape from its obligation by positing the theory that plaintiff Milagros Cayas lost the Naic
case due to her negligence because of which, efforts exerted by defendant's lawyers in
protecting Cayas' rights proved futile and rendered nugatory. Blame was laid entirely on
plaintiff by defendant for losing the Naic case. Defendant labored under the impression that
had Cayas cooperated fully with defendant's lawyers, the latter could have won the suit
and thus relieved of any obligation to Perea Defendant's posture is stretching the factual
circumstances of the Naic case too far. But even accepting defendant's postulate, it cannot
be said, nor was it shown positively and convincingly, that if the Naic case had proceeded
on trial on the merits, a decision favorable to Milagros Cayas could have been obtained.
Nor was it definitely established that if the pre-trial was undertaken in that case, defendant's
lawyers could have mitigated the claim for damages by Perea against Cayas. 12

The court, however, held that inasmuch as Milagros Cayas failed to establish that she underwant moral
suffering and mental anguish to justify her prayer for damages, there should be no such award. But, there
being proof that she was compelled to engage the services of counsel to protect her rights under the
insurance policy, the court allowed attorney's fees in the amount of P5,000.

PCSI appealed to the Court of Appeals, which, in its decision of May 8, 1987 affirmed in toto the lower
court's decision. Its motion for reconsideration having been denied by said appellate court, PCSI filed the
instant petition charging the Court of Appeals with having erred in affirming in toto the decision of the lower
court.

At the outset, we hold as factual and therefore undeserving of this Court's attention, petitioner's assertions
that private respondent lost Civil Case No. NC-794 because of her negligence and that there is no proof
that the decision in said case has been executed. Said contentions, having been raised and threshed out
in the Court of Appeals and rejected by it, may no longer be addressed to this Court.

Petitioner's other contentions are primarily concerned with the extent of its liability to private respondent
under the insurance policy. This, we consider to be the only issue in this case.

Petitioner seeks to limit its liability only to the payment made by private respondent to Perea and only up to
the amount of P12,000.00. It altogether denies liability for the payments made by private respondents to
the other three (3) injured passengers Rosario del Carmen, Ricardo Magsarili and Charlie Antolin in the
amount of P4,000.00 each or a total of P12,000.00.

There is merit in petitioner's assertions.

The insurance policy involved explicitly limits petitioner's liability to P12,000.00 per person and to
P50,000.00 per accident. 13 Pertinent provisions of the policy also state:
 SECTION I-Liability to the Public

xxx xxx xxx

3. The Limit of Liability stated in Schedule A as applicable (a) to THIRD

PARTY is the limit of the Company's liability for all damages arising out of
death, bodily injury and damage to property combined so sustained as the
result of any one accident; (b) "per person" for PASSENGER liability is the
limit of the Company's liability for all damages arising out of death or bodily
injury sustained by one person as the result of any one accident: (c) "per
accident" for PASSENGER liability is, subject to the above provisions
respecting per person, the total limit of the Company's liability for all such
damages arising out of death or bodily injury sustained by two or more
persons as the result of any one accident.

Conditions Applicable to All Sections

xxx xxx xxx

5. No admission, offer, promise or payment shall be made by or on behalf

of the insured without the written consent of the Company which shall be
entitled, if it so desires, to take over and conduct in his (sic) name the
defense or settlement of any claim, or to prosecute in his (sic) name for its
own benefit any claim for indemnity or damages or otherwise, and shall
have full discretion in the conduct of any proceedings in the settlement of
any claim, and the insured shall give all such information and assistance
as the Company may require. If the Company shall make any payment in
settlement of any claim, and such payment includes any amount not
covered by this Policy, the Insured shall repay the Company the amount
not so covered.

We have ruled in Stokes vs. Malayan Insurance Co., Inc., 14 that the terms of the contract constitute the
measure of the insurer's liability and compliance therewith is a condition precedent to the insured's right of
recovery from the insurer.

In the case at bar, the insurance policy clearly and categorically placed petitioner's liability for all damages
arising out of death or bodily injury sustained by one person as a result of any one accident at P12,000.00.
Said amount complied with the minimum fixed by the law then prevailing, Section 377 of Presidential Decree
No. 612 (which was retained by P.D. No. 1460, the Insurance Code of 1978), which provided that the liability
of land transportation vehicle operators for bodily injuries sustained by a passenger arising out of the use
of their vehicles shall not be less than P12,000. In other words, under the law, the minimum liability is
P12,000 per passenger. Petitioner's liability under the insurance contract not being less than P12,000.00,
and therefore not contrary to law, morals, good customs, public order or public policy, said stipulation must
be upheld as effective, valid and binding as between the parties. 15

In like manner, we rule as valid and binding upon private respondent the condition above-quoted requiring
her to secure the written permission of petitioner before effecting any payment in settlement of any claim
against her. There is nothing unreasonable, arbitrary or objectionable in this stipulation as would warrant
its nullification. The same was obviously designed to safeguard the insurer's interest against collusion
between the insured and the claimants.

In her cross-examination before the trial court, Milagros Cayas admitted, thus:

Atty. Yabut:

q With respect to the other injured passengers of your bus wherein you made
payments you did not secure the consent of defendant (herein petitioner) Perla
Compania de Seguros when you made those payments?

a I informed them about that

q But they did not give you the written authority that you were supposed to pay
those claims?

a No, sir . l6
It being specifically required that petitioner's written consent be first secured before any payment in
settlement of any claim could be made, private respondent is precluded from seeking reimbursement of the
payments made to del Carmen, Magsarili and Antolin in view of her failure to comply with the condition
contained in the insurance policy.

Clearly, the fundamental principle that contracts are respected as the law between the contracting parties
finds application in the present case. 17 Thus, it was error on the part of the trial and appellate courts to
have disregarded the stipulations of the parties and to have substituted their own interpretation of the
insurance policy. In Phil. American General Insurance Co., Inc vs. Mutuc, 18 we ruled that contracts which
are the private laws of the contracting parties should be fulfilled according to the literal sense of their
stipulations, if their terms are clear and leave no room for doubt as to the intention of the contracting parties,
for contracts are obligatory, no matter what form they may be, whenever the essential requisites for their
validity are present.

Moreover, we stated in Pacific Oxygen & Acetylene Co. vs. Central Bank," 19 that the first and fundamental
duty of the courts is the application of the law according to its express terms, interpretation being called for
only when such literal application is impossible.

We observe that although Milagros Cayas was able to prove a total loss of only P44,000.00, petitioner was
made liable for the amount of P50,000.00, the maximum liability per accident stipulated in the policy. This
is patent error. An insurance indemnity, being merely an assistance or restitution insofar as can be fairly
ascertained, cannot be availed of by any accident victim or claimant as an instrument of enrichment by
reason of an accident. 20

Finally, we find no reason to disturb the award of attorney's fees.

WHEREFORE, the decision of the Court of Appeals is hereby modified in that petitioner shall pay Milagros
Cayas the amount of Twelve Thousand Pesos (P12,000. 00) plus legal interest from the promulgation of
the decision of the lower court until it is fully paid and attorney's fees in the amount of P5,000.00. No
pronouncement as to costs.

SO ORDERED.
G.R. No. L-39419 April 12, 1982

MAPALAD AISPORNA, petitioner,

vs.
THE COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.

DE CASTRO, J.:

In this petition for certiorari, petitioner-accused Aisporna seeks the reversal of the decision dated August
14, 1974 1in CA-G.R. No. 13243-CR entitled "People of the Philippines, plaintiff-appellee, vs. Mapalad
Aisporna, defendant-appellant" of respondent Court of Appeals affirming the judgment of the City Court of
Cabanatuan 2 rendered on August 2, 1971 which found the petitioner guilty for having violated Section 189
of the Insurance Act (Act No. 2427, as amended) and sentenced her to pay a fine of P500.00 with subsidiary
imprisonment in case of insolvency, and to pay the costs.

Petitioner Aisporna was charged in the City Court of Cabanatuan for violation of Section 189 of the
Insurance Act on November 21, 1970 in an information 3 which reads as follows:

That on or before the 21st day of June, 1969, in the City of Cabanatuan, Republic of the
Philippines, and within the jurisdiction of this Honorable Court, the above-named accused,
did then and there, wilfully, unlawfully and feloniously act as agent in the solicitation or
procurement of an application for insurance by soliciting therefor the application of one
Eugenio S. Isidro, for and in behalf of Perla Compania de Seguros, Inc., a duly organized
insurance company, registered under the laws of the Republic of the Philippines, resulting
in the issuance of a Broad Personal Accident Policy No. 28PI-RSA 0001 in the amount not
exceeding FIVE THOUSAND PESOS (P5,000.00) dated June 21, 1969, without said
accused having first secured a certificate of authority to act as such agent from the office
of the Insurance Commissioner, Republic of the Philippines.

CONTRARY TO LAW.

The facts, 4 as found by the respondent Court of Appeals are quoted hereunder:

IT RESULTING: That there is no debate that since 7 March, 1969 and as of 21 June, 1969,
appellant's husband, Rodolfo S. Aisporna was duly licensed by Insurance Commission as
agent to Perla Compania de Seguros, with license to expire on 30 June, 1970, Exh. C; on
that date, at Cabanatuan City, Personal Accident Policy, Exh. D was issued by Perla thru
its author representative, Rodolfo S. Aisporna, for a period of twelve (12) months with
beneficiary as Ana M. Isidro, and for P5,000.00; apparently, insured died by violence during
lifetime of policy, and for reasons not explained in record, present information was filed by
Fiscal, with assistance of private prosecutor, charging wife of Rodolfo with violation of Sec.
189 of Insurance Law for having, wilfully, unlawfully, and feloniously acted, "as agent in the
solicitation for insurance by soliciting therefore the application of one Eugenio S. Isidro for
and in behalf of Perla Compaña de Seguros, ... without said accused having first secured
a certificate of authority to act as such agent from the office of the Insurance Commission,
Republic of the Philippines."

and in the trial, People presented evidence that was hardly disputed, that aforementioned
policy was issued with active participation of appellant wife of Rodolfo, against which
appellant in her defense sought to show that being the wife of true agent, Rodolfo, she
naturally helped him in his work, as clerk, and that policy was merely a renewal and was
issued because Isidro had called by telephone to renew, and at that time, her husband,
Rodolfo, was absent and so she left a note on top of her husband's desk to renew ...

Consequently, the trial court found herein petitioner guilty as charged. On appeal, the trial court's decision
was affirmed by the respondent appellate court finding the petitioner guilty of a violation of the first
paragraph of Section 189 of the Insurance Act. Hence, this present recourse was filed on October 22,
1974. 5

In its resolution of October 28, 1974, 6 this Court resolved, without giving due course to this instant petition,
to require the respondent to comment on the aforesaid petition. In the comment 7 filed on December 20,
1974, the respondent, represented by the Office of the Solicitor General, submitted that petitioner may not
be considered as having violated Section 189 of the Insurance Act. 8 On April 3, 1975, petitioner submitted
his Brief 9 while the Solicitor General, on behalf of the respondent, filed a manifestation 10 in lieu of a Brief
on May 3, 1975 reiterating his stand that the petitioner has not violated Section 189 of the Insurance Act.

11
In seeking reversal of the judgment of conviction, petitioner assigns the following errors allegedly
committed by the appellate court:

1. THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT RECEIPT OF

COMPENSATION IS NOT AN ESSENTIAL ELEMENT OF THE CRIME DEFINED BY THE
FIRST PARAGRAPH OF SECTION 189 OF THE INSURANCE ACT.

2. THE RESPONDENT COURT OF APPEALS ERRED IN GIVING DUE WEIGHT TO

EXHIBITS F, F-1, TO F-17, INCLUSIVE SUFFICIENT TO ESTABLISH PETITIONER'S
GUILT BEYOND REASONABLE DOUBT.

3. THE RESPONDENT COURT OF APPEALS ERRED IN NOT ACQUITTING HEREIN

PETITIONER.

We find the petition meritorious.

The main issue raised is whether or not a person can be convicted of having violated the first paragraph of
Section 189 of the Insurance Act without reference to the second paragraph of the same section. In other
words, it is necessary to determine whether or not the agent mentioned in the first paragraph of the
aforesaid section is governed by the definition of an insurance agent found on its second paragraph.

The pertinent provision of Section 189 of the Insurance Act reads as follows:

No insurance company doing business within the Philippine Islands, nor any agent thereof,
shall pay any commission or other compensation to any person for services in obtaining
new insurance, unless such person shall have first procured from the Insurance
Commissioner a certificate of authority to act as an agent of such company as hereinafter
provided. No person shall act as agent, sub-agent, or broker in the solicitation of
procurement of applications for insurance, or receive for services in obtaining new
insurance, any commission or other compensation from any insurance company doing
business in the Philippine Islands, or agent thereof, without first procuring a certificate of
authority so to act from the Insurance Commissioner, which must be renewed annually on
the first day of January, or within six months thereafter. Such certificate shall be issued by
the Insurance Commissioner only upon the written application of persons desiring such
authority, such application being approved and countersigned by the company such person
desires to represent, and shall be upon a form approved by the Insurance Commissioner,
giving such information as he may require. The Insurance Commissioner shall have the
right to refuse to issue or renew and to revoke any such certificate in his discretion. No
such certificate shall be valid, however, in any event after the first day of July of the year
following the issuing of such certificate. Renewal certificates may be issued upon the
application of the company.

Any person who for compensation solicits or obtains insurance on behalf of any insurance
company, or transmits for a person other than himself an application for a policy of
insurance to or from such company or offers or assumes to act in the negotiating of such
insurance, shall be an insurance agent within the intent of this section, and shall thereby
become liable to all the duties, requirements, liabilities, and penalties to which an agent of
such company is subject.

Any person or company violating the provisions of this section shall be fined in the sum of
five hundred pesos. On the conviction of any person acting as agent, sub-agent, or broker,
of the commission of any offense connected with the business of insurance, the Insurance
Commissioner shall immediately revoke the certificate of authority issued to him and no
such certificate shall thereafter be issued to such convicted person.

A careful perusal of the above-quoted provision shows that the first paragraph thereof prohibits a person
from acting as agent, sub-agent or broker in the solicitation or procurement of applications for insurance
without first procuring a certificate of authority so to act from the Insurance Commissioner, while its second
paragraph defines who is an insurance agent within the intent of this section and, finally, the third paragraph
thereof prescribes the penalty to be imposed for its violation.
The respondent appellate court ruled that the petitioner is prosecuted not under the second paragraph of
Section 189 of the aforesaid Act but under its first paragraph. Thus —

... it can no longer be denied that it was appellant's most active endeavors that resulted in
issuance of policy to Isidro, she was there and then acting as agent, and received the pay
thereof — her defense that she was only acting as helper of her husband can no longer be
sustained, neither her point that she received no compensation for issuance of the policy
because

any person who for compensation solicits or obtains insurance on behalf

of any insurance company or transmits for a person other than himself an
application for a policy of insurance to or from such company or offers or
assumes to act in the negotiating of such insurance, shall be an insurance
agent within the intent of this section, and shall thereby become liable to
all the duties, requirements, liabilities, and penalties, to which an agent of
such company is subject. paragraph 2, Sec. 189, Insurance Law,

now it is true that information does not even allege that she had obtained the insurance,

for compensation

which is the gist of the offense in Section 189 of the Insurance Law in its 2nd paragraph,
but what appellant apparently overlooks is that she is prosecuted not under the 2nd but
under the 1st paragraph of Sec. 189 wherein it is provided that,

No person shall act as agent, sub-agent, or broker, in the solicitation or

procurement of applications for insurance, or receive for services in
obtaining new insurance any commission or other compensation from any
insurance company doing business in the Philippine Island, or agent
thereof, without first procuring a certificate of authority to act from the
insurance commissioner, which must be renewed annually on the first day
of January, or within six months thereafter.

therefore, there was no technical defect in the wording of the charge, so that Errors 2 and
4 must be overruled. 12

From the above-mentioned ruling, the respondent appellate court seems to imply that the definition of an
insurance agent under the second paragraph of Section 189 is not applicable to the insurance agent
mentioned in the first paragraph. Parenthetically, the respondent court concludes that under the second
paragraph of Section 189, a person is an insurance agent if he solicits and obtains an insurance for
compensation, but, in its first paragraph, there is no necessity that a person solicits an insurance for
compensation in order to be called an insurance agent.

We find this to be a reversible error. As correctly pointed out by the Solicitor General, the definition of an
insurance agent as found in the second paragraph of Section 189 is intended to define the word "agent"
mentioned in the first and second paragraphs of the aforesaid section. More significantly, in its second
paragraph, it is explicitly provided that the definition of an insurance agent is within the intent of Section
189. Hence —

Any person who for compensation ... shall be an insurance agent within the intent of this
section, ...

Patently, the definition of an insurance agent under the second paragraph holds true with respect to the
agent mentioned in the other two paragraphs of the said section. The second paragraph of Section 189 is
a definition and interpretative clause intended to qualify the term "agent" mentioned in both the first and
third paragraphs of the aforesaid section.

Applying the definition of an insurance agent in the second paragraph to the agent mentioned in the first
and second paragraphs would give harmony to the aforesaid three paragraphs of Section 189. Legislative
intent must be ascertained from a consideration of the statute as a whole. The particular words, clauses
and phrases should not be studied as detached and isolated expressions, but the whole and every part of
the statute must be considered in fixing the meaning of any of its parts and in order to produce harmonious
whole. 13 A statute must be so construed as to harmonize and give effect to all its provisions whenever
possible. 14 The meaning of the law, it must be borne in mind, is not to be extracted from any single part,
portion or section or from isolated words and phrases, clauses or sentences but from a general
consideration or view of the act as a whole. 15 Every part of the statute must be interpreted with reference
to the context. This means that every part of the statute must be considered together with the other parts,
and kept subservient to the general intent of the whole enactment, not separately and
independently. 16 More importantly, the doctrine of associated words (Noscitur a Sociis) provides that where
a particular word or phrase in a statement is ambiguous in itself or is equally susceptible of various
meanings, its true meaning may be made clear and specific by considering the company in which it is found
or with which it is associated. 17

Considering that the definition of an insurance agent as found in the second paragraph is also applicable
to the agent mentioned in the first paragraph, to receive a compensation by the agent is an essential
element for a violation of the first paragraph of the aforesaid section. The appellate court has established
ultimately that the petitioner-accused did not receive any compensation for the issuance of the insurance
policy of Eugenio Isidro. Nevertheless, the accused was convicted by the appellate court for, according to
the latter, the receipt of compensation for issuing an insurance policy is not an essential element for a
violation of the first paragraph of Section 189 of the Insurance Act.

We rule otherwise. Under the Texas Penal Code 1911, Article 689, making it a misdemeanor for any person
for direct or indirect compensation to solicit insurance without a certificate of authority to act as an insurance
agent, an information, failing to allege that the solicitor was to receive compensation either directly or
indirectly, charges no offense. 18 In the case of Bolen vs. Stake, 19 the provision of Section 3750, Snyder's
Compiled Laws of Oklahoma 1909 is intended to penalize persons only who acted as insurance solicitors
without license, and while acting in such capacity negotiated and concluded insurance contracts for
compensation. It must be noted that the information, in the case at bar, does not allege that the negotiation
of an insurance contracts by the accused with Eugenio Isidro was one for compensation. This allegation is
essential, and having been omitted, a conviction of the accused could not be sustained. It is well-settled in
Our jurisprudence that to warrant conviction, every element of the crime must be alleged and proved. 20

After going over the records of this case, We are fully convinced, as the Solicitor General maintains, that
accused did not violate Section 189 of the Insurance Act.

WHEREFORE, the judgment appealed from is reversed and the accused is acquitted of the crime charged,
with costs de oficio.

SO ORDERED.
G.R. No. 154514 July 28, 2005
WHITE GOLD MARINE SERVICES, INC., Petitioners,
vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL
UNDERWRITING ASSOCIATION (BERMUDA) LTD., Respondents.

DECISION
QUISUMBING, J.:
This petition for review assails the Decision1 dated July 30, 2002 of the Court of Appeals in CA-G.R. SP
No. 60144, affirming the Decision2 dated May 3, 2000 of the Insurance Commission in I.C. Adm. Case No.
RD-277. Both decisions held that there was no violation of the Insurance Code and the respondents do not
need license as insurer and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for its vessels
from The Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual) through
Pioneer Insurance and Surety Corporation (Pioneer). Subsequently, White Gold was issued a Certificate
of Entry and Acceptance.3Pioneer also issued receipts evidencing payments for the coverage. When White
Gold failed to fully pay its accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the
latter’s unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission
claiming that Steamship Mutual violated Sections 1864 and 1875 of the Insurance Code, while Pioneer
violated Sections 299,63007 and 3018 in relation to Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutual
to secure a license because it was not engaged in the insurance business. It explained that Steamship
Mutual was a Protection and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another license
as insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was not engaged in
the insurance business. Moreover, Pioneer was already licensed, hence, a separate license solely as
agent/broker of Steamship Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate
court distinguished between P & I Clubs vis-à-vis conventional insurance. The appellate court also held that
Pioneer merely acted as a collection agent of Steamship Mutual.
In this petition, petitioner assigns the following errors allegedly committed by the appellate court,
FIRST ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING
BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS
THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE
TO ENGAGE IN INSURANCE BUSINESS IN THE PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE
THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE
A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT
STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN
NOT REMOVING] THE OFFICERS AND DIRECTORS OF RESPONDENT PIONEER.9
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the insurance
business in the Philippines? (2) Does Pioneer need a license as an insurance agent/broker for Steamship
Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not have a license
to do business in the Philippines although Pioneer is its resident agent. This relationship is reflected in the
certifications issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To buttress
its assertion, it cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals10 as
“an association composed of shipowners in general who band together for the specific purpose of providing
insurance cover on a mutual basis against liabilities incidental to shipowning that the members incur in
favor of third parties.” It stresses that as a P & I Club, Steamship Mutual’s primary purpose is to solicit and
provide protection and indemnity coverage and for this purpose, it has engaged the services of Pioneer to
act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the insurance
business in the Philippines. It is merely an association of vessel owners who have come together to provide
mutual protection against liabilities incidental to shipowning.11 Respondents aver Hyopsung is inapplicable
in this case because the issue in Hyopsung was the jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes “doing an insurance business” or
“transacting an insurance business”. These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the
doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.
...
The same provision also provides, the fact that no profit is derived from the making of insurance contracts,
agreements or transactions, or that no separate or direct consideration is received therefor, shall not
preclude the existence of an insurance business.12
The test to determine if a contract is an insurance contract or not, depends on the nature of the promise,
the act required to be performed, and the exact nature of the agreement in the light of the occurrence,
contingency, or circumstances under which the performance becomes requisite. It is not by what it is
called.13
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event. 14
In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the
losses incident to a marine adventure.15 Section 9916 of the Insurance Code enumerates the coverage of
marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer
and insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of
a fund from which all losses and liabilities are paid, and where the profits are divided among themselves,
in proportion to their interest.17 Additionally, mutual insurance associations, or clubs, provide three types of
coverage, namely, protection and indemnity, war risks, and defense costs. 18
A P & I Club is “a form of insurance against third party liability, where the third party is anyone other than
the P & I Club and the members.”19 By definition then, Steamship Mutual as a P & I Club is a mutual
insurance association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate
of authority mandated by Section 18720 of the Insurance Code. It maintains a resident agent in the
Philippines to solicit insurance and to collect payments in its behalf. We note that Steamship Mutual even
renewed its P & I Club cover until it was cancelled due to non-payment of the calls. Thus, to continue doing
business here, Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance
Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer
or insurance company is allowed to engage in the insurance business without a license or a certificate of
authority from the Insurance Commission.21
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration 22 issued
by the Insurance Commission. It has been licensed to do or transact insurance business by virtue of the
certificate of authority23 issued by the same agency. However, a Certification from the Commission states
that Pioneer does not have a separate license to be an agent/broker of Steamship Mutual. 24
Although Pioneer is already licensed as an insurance company, it needs a separate license to act as
insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of
applications for insurance, or receive for services in obtaining insurance, any commission or other
compensation from any insurance company doing business in the Philippines or any agent thereof, without
first procuring a license so to act from the Commissioner, which must be renewed annually on the first day
of January, or within six months thereafter. . .
Finally, White Gold seeks revocation of Pioneer’s certificate of authority and removal of its directors and
officers. Regrettably, we are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court of
Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission is hereby REVERSED
AND SET ASIDE. The Steamship Mutual Underwriting Association (Bermuda) Ltd., and Pioneer Insurance
and Surety Corporation are ORDERED to obtain licenses and to secure proper authorizations to do
business as insurer and insurance agent, respectively. The petitioner’s prayer for the revocation of
Pioneer’s Certificate of Authority and removal of its directors and officers, is DENIED. Costs against
respondents.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

Footnotes
1Rollo, pp. 28-41. Penned by Associate Justice Delilah Vidallon-Magtolis, with Associate Justices Candido
V. Rivera, and Sergio L. Pestaño concurring.
2 CA Rollo, pp. 43-51.
3 Id. at 103.
4SEC. 186. No person, partnership, or association of persons shall transact any insurance business in the
Philippines except as agent of a person or corporation authorized to do the business of insurance in the
Philippines, unless possessed of the capital and assets required of an insurance corporation doing the
same kind of business in the Philippines and invested in the same manner; nor unless the Commissioner
shall have granted to him or them a certificate to the effect that he or they have complied with all the
provisions of law which an insurance corporation doing business in the Philippines is required to observe.
Every person, partnership, or association receiving any such certificate of authority shall be subject to the
insurance laws of the Philippines and to the jurisdiction and supervision of the Commissioner in the same
manner as if an insurance corporation authorized by the laws of the Philippines to engage in the business
of insurance specified in the certificate.
5 SEC. 187. No Insurance Company shall transact any insurance business in the Philippines until after it
shall have obtained a certificate of authority for that purpose from the Commissioner upon application
therefor and payment by the company concerned of the fees hereinafter prescribed.
...
6SEC. 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay any
commission or other compensation to any person for services in obtaining insurance, unless such person
shall have first procured from the Commissioner a license to act as an insurance agent of such company
or as an insurance broker as hereinafter provided.
No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of
applications for insurance, or receive for services in obtaining insurance, any commission or other
compensation from any insurance company doing business in the Philippines or any agent thereof, without
first procuring a license so to act from the Commissioner, . . .
7 SEC. 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance
company or transmits for a person other than himself an application for a policy or contract of insurance to
or from such company or offers or assumes to act in the negotiating of such insurance shall be an insurance
agent within the intent of this section and shall thereby become liable to all the duties, requirements,
liabilities and penalties to which an insurance agent is subject.
8 SEC. 301. Any person who for any compensation, commission or other thing of value acts or aids in any
manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or
taking out insurance, on behalf of an insured other than himself, shall be an insurance broker within the
intent of this Code, and shall thereby become liable to all the duties, requirements, liabilities and penalties
to which an insurance broker is subject.
9 Rollo, pp. 144-145.
10 No. L-77369, 31 August 1988, 165 SCRA 258, 260.
11 Rollo, p. 176.
12 THE INSURANCE CODE OF THE PHILIPPINES, Section 2(2).
13 43 AM JUR. 2d Insurance Sec. 4 (1982).
14
Rufus B. Rodriguez, The Insurance Code of the Philippines Annotated 4 (4th ed., 1999), citing BUIST M.
ANDERSON, Vance on Insurance 83 (3rd ed., 1951).
15Eduardo F. Hernandez and Antero A. Peñasales, Philippine Admiralty and Maritime Law 612 (1st ed.,
1987).
16 SEC. 99. Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits,
moneys, securities, choses in action, evidences of debt, valuable papers, bottomry, and respondentia
interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection
with any and all risks or perils of navigation, transit or transportation, or while being assembled, packed,
crated, baled, compressed or similarly prepared for shipment or while awaiting shipment, or during any
delays, storage, trasshipment, or reshipment incident thereto, including war risks, marine builder’s risks,
and all personal property floater risks.
(b) Person or property in connection with or appertaining to a marine, inland marine, transit or transportation
insurance, including liability for loss of or damage arising out of or in connection with the construction,
repair, operation, maintenance or use of the subject matter of such insurance (but not including life
insurance or surety bonds nor insurance against loss by reason of bodily injury to any person arising out of
the ownership, maintenance, or use of automobiles).
(c) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise.
(d) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings,
their furniture and furnishings, fixed contents and supplies held in storage); piers, wharves, docks and slips,
and other aids to navigation and transportation, including dry docks and marine railways, dams and
appurtenant facilities for the control of waterways.
(2) “Marine protection and indemnity insurance,” meaning insurance against, or against legal liability of the
insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance, use, repair,
or construction of any vessel, craft or instrumentality in use in ocean or inland waterways, including liability
of the insured for personal injury, illness or death or for loss of or damage to the property of another person.
G.R. No. 158085
Represented by the COMMISSIONER
OF INTERNAL REVENUE, Present:
Petitioner,
Panganiban, J.,
Chairman,
Sandoval-Gutierrez
- versus - Corona,
Carpio Morales, and
Garcia, JJ
SUNLIFE ASSURANCE Promulgated:
COMPANY OF CANADA,
Respondent. October 14, 2005

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:

aving satisfactorily proven to the Court of Tax Appeals, to the Court of Appeals and to this Court that it is a

bona fide cooperative, respondent is entitled to exemption from the payment of taxes on life insurance

H
premiums and documentary stamps. Not being governed by the Cooperative Code of the Philippines, it is not

required to be registered with the Cooperative Development Authority in order to avail itself of the tax exemptions.

Significantly, neither the Tax Code nor the Insurance Code mandates this administrative registration.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify the January 23, 2003

Decision[2] and the April 21, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 69125. The dispositive

portion of the Decision reads as follows:

WHEREFORE, the petition for review is hereby DENIED.[4]

The Facts

The antecedents, as narrated by the CA, are as follows:

Sun Life is a mutual life insurance company organized and existing under the laws
of Canada. It is registered and authorized by the Securities and Exchange Commission and
the Insurance Commission to engage in business in the Philippines as a mutual life
insurance company with principal office at Paseo de Roxas, Legaspi Village, Makati City.

On October 20, 1997, Sun Life filed with the [Commissioner of Internal Revenue]
(CIR) its insurance premium tax return for the third quarter of 1997 and paid the premium
tax in the amount of P31,485,834.51. For the period covering August 21 to December 18,
1997, petitioner filed with the CIR its [documentary stamp tax (DST)] declaration returns
and paid the total amount of P30,000,000.00.

On December 29, 1997, the [Court of Tax Appeals] (CTA) rendered its decision
in Insular Life Assurance Co. Ltd. v. [CIR], which held that mutual life insurance companies
are purely cooperative companies and are exempt from the payment of premium tax and
DST. This pronouncement was later affirmed by this court in [CIR] v. Insular Life Assurance
Company, Ltd. Sun Life surmised that[,] being a mutual life insurance company, it was
likewise exempt from the payment of premium tax and DST. Hence, on August 20, 1999,
Sun Life filed with the CIR an administrative claim for tax credit of its alleged erroneously
paid premium tax and DST for the aforestated tax periods.

For failure of the CIR to act upon the administrative claim for tax credit and with the
2-year period to file a claim for tax credit or refund dwindling away and about to expire, Sun
Life filed with the CTA a petition for review on August 23, 1999. In its petition, it prayed for
the issuance of a tax credit certificate in the amount of P61,485,834.51
representing P31,485,834.51 of erroneously paid premium tax for the third quarter of 1997
and P30,000[,000].00 of DST on policies of insurance from August 21 to December 18,
1997. Sun Life stood firm on its contention that it is a mutual life insurance company vested
with all the characteristic features and elements of a cooperative company or association
as defined in [S]ection 121 of the Tax Code. Primarily, the management and affairs of Sun
Life were conducted by its members; secondly, it is operated with money collected from its
members; and, lastly, it has for its purpose the mutual protection of its members and not for
profit or gain.

In its answer, the CIR, then respondent, raised as special and affirmative defenses
the following:

7. Petitioners (Sun Lifes) alleged claim for refund is subject to

administrative routinary investigation/examination by respondents (CIRs)
Bureau.

8. Petitioner must prove that it falls under the exception provided

for under Section 121 (now 123) of the Tax Code to be exempted from
premium tax and be entitled to the refund sought.

9. Claims for tax refund/credit are construed strictly against the

claimants thereof as they are in the nature of exemption from payment of
tax.

10. In an action for tax credit/refund, the burden is upon the

taxpayer to establish its right thereto, and failure to sustain this burden is
fatal to said claim x x x.

11. It is incumbent upon petitioner to show that it has complied

with the provisions of Section 204[,] in relation to Section 229, both in the
1997 Tax Code.

On November 12, 2002, the CTA found in favor of Sun Life. Quoting largely from
its earlier findings in Insular Life Assurance Company, Ltd. v. [CIR], which it found to be
on all fours with the present action, the CTA ruled:

The [CA] has already spoken. It ruled that a mutual life insurance
company is a purely cooperative company[;] thus, exempted from the
payment of premium and documentary stamp taxes. Petitioner Sun Life is
without doubt a mutual life insurance company. x x x.

xxxxxxxxx

Being similarly situated with Insular, Petitioner at bar is entitled to

the same interpretation given by this Court in the earlier cases of The
Insular Life Assurance Company, Ltd. vs. [CIR] (CTA Case Nos. 5336 and
5601) and by the [CA] in the case entitled [CIR] vs. The Insular Life
Assurance Company, Ltd., C.A. G.R. SP No. 46516, September 29, 1998.
Petitioner Sun Life as a mutual life insurance company is[,] therefore[,] a
cooperative company or association and is exempted from the payment of
premium tax and [DST] on policies of insurance pursuant to Section 121
 (now Section 123) and Section 199[1]) (now Section 199[a]) of the Tax
Code.

Seeking reconsideration of the decision of the CTA, the CIR argued that Sun Life
ought to have registered, foremost, with the Cooperative Development Authority before it
could enjoy the exemptions from premium tax and DST extended to purely cooperative
companies or associations under [S]ections 121 and 199 of the Tax Code. For its failure
to register, it could not avail of the exemptions prayed for. Moreover, the CIR alleged that
Sun Life failed to prove that ownership of the company was vested in its members who
are entitled to vote and elect the Board of Trustees among [them]. The CIR further claimed
that change in the 1997 Tax Code subjecting mutual life insurance companies to the
regular corporate income tax rate reflected the legislatures recognition that these
companies must be earning profits.

Notwithstanding these arguments, the CTA denied the CIRs motion for
reconsideration.

Thwarted anew but nonetheless undaunted, the CIR comes to this court via this
petition on the sole ground that:

The Tax Court erred in granting the refund[,] because respondent does
not fall under the exception provided for under Section 121 (now 123) of
the Tax Code to be exempted from premium tax and DST and be entitled
to the refund.

The CIR repleads the arguments it raised with the CTA and proposes further that the
[CA] decision in [CIR] v. Insular Life Assurance Company, Ltd. is not controlling and cannot
constitute res judicata in the present action. At best, the pronouncements are merely
persuasive as the decisions of the Supreme Court alone have a universal and mandatory
effect.[5]

Ruling of the Court of Appeals

In upholding the CTA, the CA reasoned that respondent was a purely cooperative corporation duly licensed to engage in

mutual life insurance business in the Philippines. Thus, respondent was deemed exempt from premium and documentary

stamp taxes, because its affairs are managed and conducted by its members with money collected from among themselves,

solely for their own protection, and not for profit. Its members or policyholders constituted both insurer and insured who

contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities were

paid. The dividends it distributed to them were not profits, but returns of amounts that had been overcharged them for

insurance.

For having satisfactorily shown with substantial evidence that it had erroneously paid and seasonably filed its claim for

premium and documentary stamp taxes, respondent was entitled to a refund, the CA ruled.

Hence, this Petition.[6]

The Issues

Petitioner raises the following issues for our consideration:

I.

Whether or not respondent is a purely cooperative company or association under Section

121 of the National Internal Revenue Code and a fraternal or beneficiary society, order or
cooperative company on the lodge system or local cooperation plan and organized and
conducted solely by the members thereof for the exclusive benefit of each member and
not for profit under Section 199 of the National Internal Revenue Code.

II.

Whether or not registration with the Cooperative Development Authority is a sine qua
non requirement to be entitled to tax exemption.

III.

Whether or not respondent is exempted from payment of tax on life insurance premiums
and documentary stamp tax.[7]

We shall tackle the issues seriatim.

The Courts Ruling

The Petition has no merit.

First Issue:
Whether Respondent Is a Cooperative

The Tax Code defines a cooperative as an association conducted by the members thereof with the money collected from

among themselves and solely for their own protection and not for profit. [8] Without a doubt, respondent is a cooperative

engaged in a mutual life insurance business.

First, it is managed by its members. Both the CA and the CTA found that the management and affairs of respondent were

conducted by its member-policyholders.[9]

A stock insurance company doing business in the Philippines may alter its organization and transform itself into a mutual

insurance company.[10] Respondent has been mutualized or converted from a stock life insurance company to a nonstock

mutual life insurance corporation[11] pursuant to Section 266 of the Insurance Code of 1978.[12] On the basis of its bylaws,

its ownership has been vested in its member-policyholders who are each entitled to one vote; [13] and who, in turn, elect

from among themselves the members of its board of trustees.[14] Being the governing body of a nonstock corporation, the

board exercises corporate powers, lays down all corporate business policies, and assumes responsibility for the efficiency

of management.[15]

Second, it is operated with money collected from its members. Since respondent is composed entirely of members who are

also its policyholders, all premiums collected obviously come only from them.[16]

The member-policyholders constitute both insurer and insured [17] who contribute, by a system of premiums or

assessments, to the creation of a fund from which all losses and liabilities are paid. [18] The premiums[19] pooled into this

fund are earmarked for the payment of their indemnity and benefit claims.

Third, it is licensed for the mutual protection of its members, not for the profit of anyone.

As early as October 30, 1947, the director of commerce had already issued a license to respondent -- a corporation

organized and existing under the laws of Canada -- to engage in business in the Philippines.[20] Pursuant to Section 225 of

Canadas Insurance Companies Act, the Canadian minister of state (for finance and privatization) also declared in its

Amending Letters Patent that respondent would be a mutual company effective June 1, 1992. [21] In the Philippines, the

insurance commissioner also granted it annual Certificates of Authority to transact life insurance business, the most

relevant of which were dated July 1, 1997 and July 1, 1998.[22]

A mutual life insurance company is conducted for the benefit of its member-policyholders,[23] who pay into its capital by

way of premiums. To that extent, they are responsible for the payment of all its losses. [24] The cash paid in for premiums

and the premium notes constitute their assets x x x.[25] In the event that the company itself fails before the terms of the

policies expire, the member-policyholders do not acquire the status of creditors.[26] Rather, they simply become debtors

for whatever premiums that they have originally agreed to pay the company, if they have not yet paid those amounts in

full, for [m]utual companies x x x depend solely upon x x x premiums.[27] Only when the premiums will have accumulated
to a sum larger than that required to pay for company losses will the member-policyholders be entitled to a pro rata division

thereof as profits.[28]

Contributing to its capital, the member-policyholders of a mutual company are obviously also its owners.[29] Sustaining a

dual relationship inter se, they not only contribute to the payment of its losses, but are also entitled to a proportionate

share[30] and participate alike[31] in its profits and surplus.

Where the insurance is taken at cost, it is important that the rates of premium charged by a mutual company be larger than

might reasonably be expected to carry the insurance, in order to constitute a margin of safety. The table of mortality used

will show an admittedly higher death rate than will probably prevail; the assumed interest rate on the investments of the

company is made lower than is expected to be realized; and the provision for contingencies and expenses, made greater

than would ordinarily be necessary.[32] This course of action is taken, because a mutual company has no capital stock and

relies solely upon its premiums to meet unexpected losses, contingencies and expenses.

Certainly, many factors are considered in calculating the insurance premium. Since they vary with the kind of insurance

taken and with the group of policyholders insured, any excess in the amount anticipated by a mutual company to cover

the cost of providing for the insurance over its actual realized cost will also vary. If a member-policyholder receives an

excess payment, then the apportionment must have been based upon a calculation of the actual cost of insurance that the

company has provided for that particular member-policyholder. Accordingly, in apportioning divisible surpluses, any

mutual company uses a contribution method that aims to distribute those surpluses among its member-policyholders, in

the same proportion as they have contributed to the surpluses by their payments. [33]

Sharing in the common fund, any member-policyholder may choose to withdraw dividends in cash or to apply them in

order to reduce a subsequent premium, purchase additional insurance, or accelerate the payment period. Although the

premium made at the beginning of a year is more than necessary to provide for the cost of carrying the insurance, the

member-policyholder will nevertheless receive the benefit of the overcharge by way of dividends, at the end of the year

when the cost is actually ascertained. The declaration of a dividend upon a policy reduces pro tanto the cost of insurance to

the holder of the policy. That is its purpose and effect.[34]

A stipulated insurance premium cannot be increased, but may be lessened annually by so much as the experience of the

preceding year has determined it to have been greater than the cost of carrying the insurance x x x. [35] The difference

between that premium and the cost of carrying the risk of loss constitutes the so-called dividend which, however, is not

in any real sense a dividend.[36] It is a technical term that is well understood in the insurance business to be widely different

from that to which it is ordinarily attached.

The so-called dividend that is received by member-policyholders is not a portion of profits set aside for distribution to the

stockholders in proportion to their subscription to the capital stock of a corporation. [37] One, a mutual company has no

capital stock

to which subscription is necessary; there are no stockholders to speak of, but only members. And, two, the amount they

receive does not partake of the nature of a profit or income. The quasi-appearance of profit will not change its character.

It remains an overpayment, a benefit to which the member-policyholder is equitably entitled.[38]

Verily, a mutual life insurance corporation is a cooperative that promotes the welfare of its own members. It does not

operate for profit, but for the mutual benefit of its member-policyholders. They receive their insurance at cost, while

reasonably and properly guarding and maintaining the stability and solvency of the company.[39] The economic benefits

filter to the cooperative members. Either equally or proportionally, they are distributed among members in correlation

with the resources of the association utilized.[40]

It does not follow that because respondent is registered as a nonstock corporation and thus exists for a purpose other than

profit, the company can no longer make any profits.[41] Earning profits is merely its secondary, not primary, purpose. In

fact, it may not lawfully engage in any business activity for profit, for to do so would change or contradict its nature [42] as

a non-profit entity.[43] It may, however, invest its corporate funds in order to earn additional income for paying its operating

expenses and meeting benefit claims. Any excess profit it obtains as an incident to its operations can only be used,

whenever necessary or proper, for the furtherance of the purpose for which it was organized. [44]

Second Issue:
Whether CDA Registration Is Necessary
Under the Tax Code although respondent is a cooperative, registration with the Cooperative Development Authority

(CDA)[45] is not necessary in order for it to be exempt from the payment of both percentage taxes on insurance premiums,

under Section 121; and documentary stamp taxes on policies of insurance or annuities it grants, under Section 199.

First, the Tax Code does not require registration with the CDA. No tax provision requires a mutual life insurance company

to register with that agency in order to enjoy exemption from both percentage and documentary stamp taxes.

A provision of Section 8 of Revenue Memorandum Circular (RMC) No. 48-91 requires the submission of the Certificate

of Registration with the CDA,[46]before the issuance of a tax exemption certificate. That provision cannot prevail over the

clear absence of an equivalent requirement under the Tax Code. One, as we will explain below, the Circular does not apply

to respondent, but only to cooperatives that need to be registered under the Cooperative Code. Two, it is a mere issuance

directing all internal revenue officers to publicize a new tax legislation. Although the Circular does not derogate from their

authority to implement the law, it cannot add a registration requirement, [47] when there is none under the law to begin

with.

Second, the provisions of the Cooperative Code of the Philippines[48] do not apply. Let us trace the Codes development in

our history.

As early as 1917, a cooperative company or association was already defined as one conducted by the members thereof

with money collected from among themselves and solely for their own protection and not profit.[49] In 1990, it was further

defined by the Cooperative Code as a duly registered association of persons, with a common bond of interest, who have

voluntarily joined together to achieve a lawful common social or economic end, making equitable contributions to the

capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally

accepted cooperative principles.[50]

The Cooperative Code was actually an offshoot of the old law on cooperatives. In 1973, Presidential Decree (PD) No.

175 was

signed into law by then President Ferdinand E. Marcos in order to strengthen the cooperative movement. [51] The

promotion of cooperative development was one of the major programs of the New Society under his administration. It
sought to improve the countrys trade and commerce by enhancing agricultural production, cottage industries, community

development, and agrarian reform through cooperatives.[52]

The whole cooperative system, with its vertical and horizontal linkages -- from the market cooperative of agricultural

products to cooperative rural banks, consumer cooperatives and cooperative insurance -- was envisioned to offer

considerable economic opportunities to people who joined cooperatives. [53] As an effective instrument in redistributing

income and wealth,[54] cooperatives were promoted primarily to support the agrarian reform program of the

government.[55]

Notably, the cooperative under PD 175 referred only to an organization composed primarily of small producers and

consumers who voluntarily joined to form a business enterprise that they themselves owned, controlled, and

patronized.[56] The Bureau of Cooperatives Development -- under the Department of Local Government and Community

Development (later Ministry of Agriculture)[57] -- had the authority to register, regulate and supervise only the following

cooperatives: (1) barrio associations involved in the issuance of certificates of land transfer; (2) local or primary

cooperatives composed of natural persons and/or barrio associations; (3) federations composed of cooperatives that may

or may not perform business activities; and (4) unions of cooperatives that did not perform any business

activities.[58] Respondent does not fall under any of the above-mentioned types of cooperatives required to be registered

under PD 175.

When the Cooperative Code was enacted years later, all cooperatives that were registered under PD 175 and previous laws

were also deemed registered with the CDA.[59] Since respondent was not required to be registered under the old law on

cooperatives, it followed that it was not required to be registered even under the new law.

Furthermore, only cooperatives to be formed or organized under the Cooperative Code needed registration with the

CDA.[60] Respondent already existed before the passage of the new law on cooperatives. It was not even required to

organize under the Cooperative Code, not only because it performed a different set of functions, but also because it did

not operate to serve the same objectives under the new law -- particularly on productivity, marketing and credit

extension.[61]
The insurance against losses of the members of a cooperative referred to in Article 6(7) of the Cooperative Code is not

the same as the life insurance provided by respondent to member-policyholders. The former is a function of a service

cooperative,[62] the latter is not. Cooperative insurance under the Code is limited in scope and local in character. It is not

the same as mutual life insurance.

We have already determined that respondent is a cooperative. The distinguishing feature of a cooperative enterprise[63] is

the mutuality of cooperation among its member-policyholders united for that purpose.[64] So long as respondent meets

this essential feature, it does not even have to use[65] and carry the name of a cooperative to operate its mutual life insurance

business. Gratia argumenti that registration is mandatory, it cannot deprive respondent of its tax exemption privilege merely

because it failed to register. The nature of its operations is clear; its purpose well-defined. Exemption when granted cannot

prevail over administrative convenience.

Third, not even the Insurance Code requires registration with the CDA. The provisions of this Code primarily govern

insurance contracts; only if a particular matter in question is not specifically provided for shall the provisions of the Civil

Code on contracts and special laws govern.[66]

True, the provisions of the Insurance Code relative to the organization and operation of an insurance company also apply

to cooperative insurance entities organized under the Cooperative Code. [67] The latter law, however, does not apply to

respondent, which already existed as a cooperative company engaged in mutual life insurance prior to the laws passage of

that law. The statutes prevailing at the time of its organization and mutualization were the Insurance Code and the

Corporation Code, which imposed no registration requirement with the CDA.

Third Issue:
Whether Respondent Is Exempted
from Premium Taxes and DST

Having determined that respondent is a cooperative that does not have to be registered with the CDA, we hold that it is

entitled to exemption from both premium taxes and documentary stamp taxes (DST).

The Tax Code is clear. On the one hand, Section 121 of the Code exempts cooperative companies from the 5 percent

percentage tax on insurance premiums. On the other hand, Section 199 also exempts from the DST, policies of insurance
or annuities made or granted by cooperative companies. Being a cooperative, respondent is thus exempt from both types

of taxes.

It is worthy to note that while RA 8424 amending the Tax Code has deleted the income tax of 10 percent imposed upon

the gross investment income of mutual life insurance companies -- domestic[68] and foreign[69] -- the provisions of Section

121 and 199 remain unchanged.[70]

Having been seasonably filed and amply substantiated, the claim for exemption in the amount of P61,485,834.51,

representing percentage taxes on insurance premiums and documentary stamp taxes on policies of insurance or annuities

that were paid by respondent in 1997, is in order. Thus, the grant of a tax credit certificate to respondent as ordered by

the appellate court was correct.

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution are AFFIRMED.

No pronouncement as to costs.

SO ORDERED.
[G.R. No. 125678. March 18, 2002]

PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA
TRINOS, respondents.

DECISION
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, respondents 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 Ernanis medical history. Doctors at the MMC
allegedly discovered at the time of Ernanis 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 attorneys 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 attorneys 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] Petitioners 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 Code[6]does not apply.
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 insurers 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 respondents 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 respondents husband concealed a material fact in his application. It appears that in the
application for health coverage, petitioners required respondents 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 respondents 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 applicants 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 respondents 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. [17] In
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 respondents 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 deceaseds 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.
[G.R. No. 119176. March 19, 2002]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. LINCOLN PHILIPPINE LIFE INSURANCE

COMPANY, INC. (now JARDINE-CMA LIFE INSURANCE COMPANY, INC.) and THE COURT
OF APPEALS, respondents.

DECISION
KAPUNAN, J.:

This is a petition for review on certiorari filed by the Commission on Internal Revenue of the decision of the
Court of Appeals dated November 18, 1994 in C.A. G.R. SP No. 31224 which reversed in part the decision of the
Court of Tax Appeals in C.T.A. Case No. 4583.
The facts of the case are undisputed.
Private respondent Lincoln Philippine Life Insurance Co., Inc., (now Jardine-CMA Life Insurance Company,
Inc.) is a domestic corporation registered with the Securities and Exchange Commission and engaged in life insurance
business. In the years prior to 1984, private respondent issued a special kind of life insurance policy known as the
Junior Estate Builder Policy, the distinguishing feature of which is a clause providing for an automatic increase in the
amount of life insurance coverage upon attainment of a certain age by the insured without the need of issuing a new
policy. The clause was to take effect in the year 1984. Documentary stamp taxes due on the policy were paid by
petitioner only on the initial sum assured.
In 1984, private respondent also issued 50,000 shares of stock dividends with a par value of P100.00 per share
or a total par value of P5,000,000.00. The actual value of said shares, represented by its book value,
was P19,307,500.00. Documentary stamp taxes were paid based only on the par value of P5,000,000.00 and not on
the book value.
Subsequently, petitioner issued deficiency documentary stamps tax assessment for the year 1984 in the amounts
of (a) P464,898.75, corresponding to the amount of automatic increase of the sum assured on the policy issued by
respondent, and (b) P78,991.25 corresponding to the book value in excess of the par value of the stock dividends. The
computation of the deficiency documentary stamp taxes is as follows:

On Policies Issued:

Total policy issued during the year P1,360,054,000.00

Documentary stamp tax due thereon

(P1,360,054,000.00 divided by

P200.00 multiplied by P0.35) P 2,380,094.50

Less: Payment P 1,915,495.75

Deficiency P 464,598.75

Add: Compromise Penalty 300.00

-----------------------

TOTAL AMOUNT DUE & COLLECTIBLE P 464,898.75

Private respondent questioned the deficiency assessments and sought their cancellation in a petition filed in the
Court of Tax Appeals, docketed as CTA Case No. 4583.
On March 30, 1993, the Court of Tax Appeals found no valid basis for the deficiency tax assessment on the stock
dividends, as well as on the insurance policy. The dispositive portion of the CTAs decision reads:

WHEREFORE, the deficiency documentary stamp tax assessments in the amount of P464,898.76 and P78,991.25 or
a total of P543,890.01 are hereby cancelled for lack of merit. Respondent Commissioner of Internal Revenue is
ordered to desist from collecting said deficiency documentary stamp taxes for the same are considered withdrawn.

SO ORDERED.[1]
 Petitioner appealed the CTAs decision to the Court of Appeals. On November 18, 1994, the Court of Appeals
promulgated a decision affirming the CTAs decision insofar as it nullified the deficiency assessment on the insurance
policy, but reversing the same with regard to the deficiency assessment on the stock dividends. The CTA ruled that
the correct basis of the documentary stamp tax due on the stock dividends is the actual value or book value represented
by the shares. The dispositive portion of the Court of Appeals decision states:

IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby REVERSED with respect to
the deficiency tax assessment on the stock dividends, but AFFIRMED with regards to the assessment on the Insurance
Policies. Consequently, private respondent is ordered to pay the petitioner herein the sum of P78,991.25, representing
documentary stamp tax on the stock dividends it issued. No costs pronouncement.

SO ORDERED.[2]

A motion for reconsideration of the decision having been denied, [3] both the Commissioner of Internal Revenue
and private respondent appealed to this Court, docketed as G.R. No. 118043 and G.R. No. 119176, respectively. In
G.R. No. 118043, private respondent appealed the decision of the Court of Appeals insofar as it upheld the validity of
the deficiency tax assessment on the stock dividends. The Commissioner of Internal Revenue, on his part, filed the
present petition questioning that portion of the Court of Appeals decision which invalidated the deficiency assessment
on the insurance policy,attributing the following errors:

THE HONORABLE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE IS A SINGLE
AGREEMENT EMBODIED IN THE POLICY AND THAT THE AUTOMATIC INCREASE CLAUSE
IS NOT A SEPARATE AGREEMENT, CONTRARY TO SECTION 49 OF THE INSURANCE CODE
AND SECTION 183 OF THE REVENUE CODE THAT A RIDER, A CLAUSE IS PART OF THE
POLICY.

THE HONORABLE COURT OF APPEALS ERRED IN NOT COMPUTING THE AMOUNT OF TAX
ON THE TOTAL VALUE OF THE INSURANCE ASSURED IN THE POLICY INCLUDING THE
ADDITIONAL INCREASE ASSURED BY THE AUTOMATIC INCREASE CLAUSE DESPITE ITS
RULING THAT THE ORIGINAL POLICY AND THE AUTOMATIC CLAUSE CONSTITUTED
ONLY A SINGULAR TRANSACTION.[4]

Section 173 of the National Internal Revenue Code on documentary stamp taxes provides:

Sec. 173. Stamp taxes upon documents, instruments and papers. - Upon documents, instruments, loan agreements,
and papers, and upon acceptances, assignments, sales, and transfers of the obligation, right or property incident thereto,
there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding
documentary stamp taxes prescribed in the following section of this Title, by the person making, signing, issuing,
accepting, or transferring the same wherever the document is made, signed, issued, accepted, or transferred when the
obligation or right arises from Philippine sources or the property is situated in the Philippines, and at the same time
such act is done or transaction had: Provided, That whenever one party to the taxable document enjoys exemption
from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. (As
amended by PD No. 1994) The basis for the value of documentary stamp taxes to be paid on the insurance policy is
Section 183 of the National Internal Revenue Code which states in part:

The basis for the value of documentary stamp taxes to be paid on the insurance policy is Section 183 of the
National Internal Revenue Code which states in part:

Sec. 183. Stamp tax on life insurance policies. - On all policies of insurance or other instruments by whatever name
the same may be called, whereby any insurance shall be made or renewed upon any life or lives, there shall be collected
a documentary stamp tax of thirty (now 50c) centavos on each Two hundred pesos per fractional part thereof, of the
amount insured by any such policy.

Petitioner claims that the automatic increase clause in the subject insurance policy is separate and distinct from
the main agreement and involves another transaction; and that, while no new policy was issued, the original policy
was essentially re-issued when the additional obligation was assumed upon the effectivity of this automatic increase
clause in 1984; hence, a deficiency assessment based on the additional insurance not covered in the main policy is in
order.
The Court of Appeals sustained the CTAs ruling that there was only one transaction involved in the issuance of
the insurance policy and that the automatic increase clause is an integral part of that policy.
The petition is impressed with merit.
Section 49, Title VI of the Insurance Code defines an insurance policy as the written instrument in which a
contract of insurance is set forth.[5] Section 50 of the same Code provides that the policy, which is required to be in
printed form, may contain any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to
complete the contract of insurance.[6] It is thus clear that any rider, clause, warranty or endorsement pasted or attached
to the policy is considered part of such policy or contract of insurance.
The subject insurance policy at the time it was issued contained an automatic increase clause. Although the
clause was to take effect only in 1984, it was written into the policy at the time of its issuance.The distinctive feature
of the junior estate builder policy called the automatic increase clause already formed part and parcel of the insurance
contract, hence, there was no need for an execution of a separate agreement for the increase in the coverage that took
effect in 1984 when the assured reached a certain age.
It is clear from Section 173 that the payment of documentary stamp taxes is done at the time the act is done or
transaction had and the tax base for the computation of documentary stamp taxes on life insurance policies under
Section 183 is the amount fixed in policy, unless the interest of a person insured is susceptible of exact pecuniary
measurement.[7] What then is the amount fixed in the policy?Logically, we believe that the amount fixed in the policy
is the figure written on its face and whatever increases will take effect in the future by reason of the automatic increase
clause embodied in the policy without the need of another contract.
Here, although the automatic increase in the amount of life insurance coverage was to take effect later on, the
date of its effectivity, as well as the amount of the increase, was already definite at the time of the issuance of the
policy. Thus, the amount insured by the policy at the time of its issuance necessarily included the additional sum
covered by the automatic increase clause because it was already determinable at the time the transaction was entered
into and formed part of the policy.
The automatic increase clause in the policy is in the nature of a conditional obligation under Article 1181, [8] by
which the increase of the insurance coverage shall depend upon the happening of the event which constitutes the
obligation. In the instant case, the additional insurance that took effect in 1984 was an obligation subject to
a suspensive obligation,[9] but still a part of the insurance sold to which private respondent was liable for the payment
of the documentary stamp tax.
The deficiency of documentary stamp tax imposed on private respondent is definitely not on the amount of the
original insurance coverage, but on the increase of the amount insured upon the effectivity of the Junior Estate Builder
Policy.
Finally, it should be emphasized that while tax avoidance schemes and arrangements are not prohibited, [10] tax
laws cannot be circumvented in order to evade the payment of just taxes. In the case at bar,to claim that the increase
in the amount insured (by virtue of the automatic increase clause incorporated into the policy at the time of issuance)
should not be included in the computation of the documentary stamp taxes due on the policy would be a clear evasion
of the law requiring that the tax be computed on the basis of the amount insured by the policy.
WHEREFORE, the petition is hereby given DUE COURSE. The decision of the Court of Appeals is SET
ASIDE insofar as it affirmed the decision of the Court of Tax Appeals nullifying the deficiency stamp tax assessment
petitioner imposed on private respondent in the amount of P464,898.75 corresponding to the increase in 1984 of the
sum under the policy issued by respondent.
SO ORDERED.