Gulf Resorts Inc. V. Philippine Charter Insurance Corp.

(2005)

G.R. No. 156167 May 16, 2005

FACTS:

Gulf Resorts, Inc at Agoo, La Union was insured with American Home Assurance Company which
includes loss or damage to shock to any of the property insured by this Policy occasioned by or through
or in consequence of earthquake

July 16, 1990: an earthquake struck Central Luzon and Northern Luzon so the properties and 2
swimming pools in its Agoo Playa Resort were damaged

August 23, 1990: Gulf's claim was denied on the ground that its insurance policy only afforded
earthquake shock coverage to the two swimming pools of the resort

Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the
earthquake shock coverage. Thus, the policy extended earthquake shock coverage to all of the insured
properties.

RTC: Favored American Home - endorsement rider means that only the two swimming pools were
insured against earthquake shock

CA: affirmed RTC

ISSUE: W/N Gulf can claim for its properties aside from the 2 swimming pools

HELD: YES. Affirmed.

It is basic that all the provisions of the insurance policy should be examined and interpreted in
consonance with each other.

All its parts are reflective of the true intent of the parties.

Insurance Code

Section 2(1)

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 premium is the consideration paid an insurer for undertaking to indemnify the insured
against a specified peril.

In the subject policy, no premium payments were made with regard to earthquake shock coverage,
except on the two swimming pools.

Development Bank of the Philippines vs. Court of Appeals [GR 109937, 21 March 1994] First Division,
Quiason (J): 4 concur Facts: In May 1987, Juan B. Dans, together with his wife Candida, his son and
daughter-in-law, applied for a loan of P500,000.00 with the Development Bank of the Philippines (DBP),
Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a
mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI
Pool). A loan, in the reduced amount of P300,000.00, was approved by DBP on 4 August 1987 and
released on 11 August 1987. From the proceeds of the loan, DBP deducted the amount of P1,476.00 as
payment for the MRI premium. On 15 August 1987, Dans accomplished and submitted the "MRI
Application for Insurance" and the "Health Statement for DBP MRI Pool." On 20 August 1987, the MRI
premium of Dans, less the DBP service fee of 10%, was credited by DBP to the savings account of the
DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit. On 3 September 1987, Dans
died of cardiac arrest. The DBP, upon notice, relayed this information to the DBP MRI Pool. On 23
September 1987, the DBP MRI Pool notified DBP that Dans was not eligible for MRI

coverage, being over the acceptance age limit of 60 years at the time of application. On 21 October
1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI application. The DBP
offered to refund the premium of P1,476.00 which the deceased had paid, but Candida Dans refused to
accept the same, demanding payment of the face value of the MRI or an amount equivalent to the loan.
She, likewise, refused to accept an ex gratia settlement of P30,000.00, which the DBP later offered. On
10 February 1989, the Estate of the Late Juan B. Dans, through Candida Dans as administratrix, filed a
complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for
collection of Sum of Money with Damages. On 10 March 1990, the trial court rendered a decision in
favor of the Estate and against DBP. The DBP MRI Pool, however, was absolved from liability, after the
trial court found no privity of contract between it and the deceased. The trial court declared DBP in
estoppel for having led Dans into applying for MRI and actually collecting the premium and the service
fee, despite knowledge of his age ineligibility. The court ordered DBP to return and reimburse the Estate
the amount of P139,500.00 plus legal rate of interest as amortization payment paid under protest; to
consider the mortgage loan of P300,000.00 including all interest accumulated or otherwise to have been
settled, satisfied or set-off by virtue of the insurance coverage of the late Juan B. Dans; to pay the Estate
the amount of P10,000.00 as attorney's fees; to pay the Estate the amount of P10,000.00 as costs of
litigation and other expenses, and other relief just and equitable. The DBP appealed to the Court of
Appeals. In a decision dated 7 September 1992, the appellate court affirmed in toto the decision of the
trial court. The DBP's motion for reconsideration was denied in a resolution dated 20 April 1993. DBP
filed the petition for review on certiorari. Issue [1]: Whether there was a perfected contract of insurance
for DBP MRI Pool to be held liable. Held [1]: NO. When Dans applied for MRI, he filled up and personally
signed a "Health Statement for DBP Pool" with the following declaration: "I hereby declare and agree
that all the statements and answers contained herein are true, complete and correct to the best of my
knowledge and belief and form part of my application for insurance. It is understood and agreed that no
insurance coverage shall be effected unless and until this application is approved and the full premium is
paid during my continued good health." Under the aforementioned provisions, the MRI coverage shall
take effect: (1) when the application shall be approved by the insurance pool; and (2) when the full
premium is paid during the continued good health of the applicant. These two conditions, being joined
conjunctively, must concur. Undisputably, the power to approve MRI applications is lodged with the DBP
MRI Pool. The pool, however, did not approve the application of Dans. There is also no showing that it
accepted the sum of P1,476.00, which DBP credited to its account with full knowledge that it was
payment for Dan's premium. There was, as a result, no perfected contract of insurance; hence, the DBP
MRI Pool cannot be held liable on a contract that does not exist. Issue [2]: Whether DBP is liable for the
entire value of the insurance policy, as it led Dans to believe that he has fulfilled all the requirements for
the MRI and that the issuance of his policy was forthcoming. Held [2]: It was DBP, as a matter of policy
and practice, that required Dans, the borrower, to secure MRI coverage. Instead of allowing Dans to look
for his own insurance carrier or some other form of insurance policy, DBP compelled him to apply with
the DBP MRI Pool for MRI coverage. When Dan's loan was released on 11 August 1987, DBP already
deducted from the proceeds thereof the MRI premium. Four days latter, DBP made Dans fill up and sign
his application for MRI, as well as his health statement. The DBP later submitted both the application
form and health statement to the DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As
service fee, DBP deducted 10% of the premium collected by it from Dans. In dealing with Dans, DBP was
wearing two legal hats: the first as a lender, and the second as an insurance agent. As an insurance
agent, DBP made Dans go through the motion of applying for said insurance, thereby leading him and
his family to believe that they had already fulfilled all the requirements for the MRI and that the
issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dan's application was
never going to be approved. The maximum age for MRI acceptance is 60 years as clearly and specifically
provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in 1984 by all the
insurance companies concerned. The DBP is not authorized to accept applications for MRI when its
clients are more than 60 years of age. Knowing all the while that Dans was ineligible for MRI coverage
because of his advanced age, DBP exceeded the scope of its authority when it accepted Dan's
application for MRI by collecting the insurance premium, and deducting its agent's commission and
service fee. The liability of an agent who exceeds the scope of his authority depends upon whether the
third person is aware of the limits of the agent's powers. There is no showing that Dans knew of the
limitation on DBP's authority to solicit applications for MRI. If the third person dealing with an agent is
unaware of the limits of the authority conferred by the principal on the agent and he (third person) has
been deceived by the non-disclosure thereof by the agent, then the latter is liable for damages to him.
The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that were
it not for DBP's concealment of the limits of its authority, Dans would have secured an MRI from another
insurance company, and therefore would have been fully insured by the time he died, is highly
speculative. Considering his advanced age, there is no absolute certainty that Dans could obtain an
insurance coverage from another company. It must also be noted that Dans died almost immediately,
i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from the date of
release of his loan.

UCPB v Masagana G.R. No. 137172. April 4, 2001

C.J. Davide

Facts:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision[1] of
the Court of Appeals, which affirmed with modification the judgment of the trial court (a) allowing
Respondent to consign the sum of P225,753.95 as full payment of the premiums for the renewal of
the five insurance policies on Respondent’s properties; (b) declaring the replacement-
renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering
Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned properties covered by
the renewal-replacement policies. The modification consisted in the (1) deletion of the trial court’s
declaration that three of the policies were in force from August 1991 to August 1992; and (2)
reduction of the award of the attorney’s fees from 25% to 10% of the total amount due the
Respondent.
Masagana obtained from UCPB five (5) insurance policies on its Manila properties.
The policies were effective from May 22, 1991 to May 22, 1992. On June 13, 1992, Masagana’s
properties were razed by fire. On July 13, 1992, plaintiff tendered five checks for P225,753.45
as renewal premium payments. A receipt was issued. On July 14, 1992, Masagana made its formal
demand for indemnification for the burned insured properties. UCPB then rejected Masagana’s
claims under the argument that the fire took place before the tender of payment.
Hence Masagana filed this case.
The Court of Appeals disagreed with UCPB’s argument that Masagana’s tender of payment of the
premiums on 13 July 1992 did not result in the renewal of the policies, having been made beyond
the effective date of renewal as provided under Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the
policy period mails or delivers to the assured at the address shown in the policy notice of its intention
not to renew the policy or to condition its renewal upon reduction of limits or elimination of
coverages, the assured shall be entitled to renew the policy upon payment of the premium due on
the effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana, which
had procured insurance coverage from UCPB for a number of years, had been granted a 60 to 90-
day credit term for the renewal of the policies. Such a practice had existed up to the time the claims
were filed. Most of the premiums have been paid for more than 60 days after the issuance. Also, no
timely notice of non-renewal was made by UCPB.
The Supreme Court ruled against UCPB in the first case on the issue of whether the fire insurance
policies issued by petitioner to the respondent covering the period from May 22, 1991 to May 22,
1992 had been extended or renewed by an implied credit arrangement though actual payment
of premium was tendered on a later date and after the occurrence of the risk insured against.
UCPB filed a motion for reconsideration.
The Supreme Court, upon observing the facts, affirmed that there was no valid notice of non-
renewal of the policies in question, as there is no proof at all that the notice sent by ordinary mail
was received by Masagana. Also, the premiums were paid within the grace period.

Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly applied to Petitioner’s
advantage despite its practice of granting a 60- to 90-day credit term for the payment of premiums.

Held: No. Petition denied.

Ratio:
Section 77 of the Insurance Code provides: No policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has been paid…
An exception to this section is Section 78 which provides: Any acknowledgment in a policy or
contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any stipulation therein that it shall not be binding
until premium is actually paid.
Makati Tuscany v Court of Appeals- Section 77 may not apply if the parties have agreed to the
payment in installments of the premium and partial payment has been made at the time of loss.
Section 78 allows waiver by the insurer of the condition of prepayment and makes the policy binding
despite the fact that premium is actually unpaid. Section 77 does not expressly prohibit an
agreement granting credit extension. At the very least, both parties should be deemed in estoppel to
question the arrangement they have voluntarily accepted.
The Tuscany case has provided another exception to Section 77 that the insurer may grant credit
extension for the payment of the premium. If the insurer has granted the insured a credit term for
the payment of the premium and loss occurs before the expiration of the term, recovery on the policy
should be allowed even though the premium is paid after the loss but within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to
provide a credit term within which to pay the premiums. That agreement is not against the law,
morals, good customs, public order or public policy. The agreement binds the parties.
It would be unjust if recovery on the policy would not be permitted against Petitioner, which had
consistently granted a 60- to 90-day credit term for the payment of premiums. Estoppel bars it from
taking refuge since Masagana relied in good faith on such practice. Estoppel then is the
fifth exception.

Eternal Gardens Memorial Park Corporation v Philamlife

(Insurance)
G.R. No. 166245 April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner, vs. THE PHILIPPINE

AMERICAN LIFE INSURANCE COMPANY, respondent.

FACTS:

Philamlife) entered into an agreement denominated as Creditor Group Life Policy No. P-
19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the
policy, the clients of Eternal who purchased burial lots from it on installment basis would be
insured by Philamlife. The amount of insurance coverage depended upon the existing
balance of the purchased burial lots.

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers,
together with a copy of the application of each purchaser, and the amounts of the
respective unpaid balances of all insured lot purchasers. In relation to the instant petition,
Eternal complied by submitting a letter dated December 29, 1982,4 containing a list of
insurable balances of its lot buyers for October 1982. One of those included in the list as
"new business" was a certain John Chuang. His balance of payments was PhP 100,000. On
August 2, 1984, Chuang died.

Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance
claim for Chuang's death.
After more than a year, Philamlife had not furnished Eternal with any reply to the latter's
insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim
for PhP 100,000 on April 25, 1986.8

In response to Eternal's demand, Philamlife denied Eternal's insurance claim in a letter

dated May 20, 1986. Consequently, Eternal filed a case before the Makati City Regional Trial
Court (RTC).

DECISION OF LOWER COURTS:

(1) RTC : in favor of Eternal. due to Philamlife's inaction from the submission of the
requirements of the group insurance on December 29, 1982 to Chuang's death on August 2,
1984, as well as Philamlife's acceptance of the premiums during the same period, Philamlife
was deemed to have approved Chuang's application. The RTC said that since the contract is
a group life insurance, once proof of death is submitted, payment must follow.
(2) CA : in favor of Philamlife. there being no application form, Chuang was not covered by
Philamlife's insurance.

ISSUE:
May the inaction of the insurer on the insurance application be considered as approval of the
application?
RULING:

YES

As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor
Group Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:

EFFECTIVE DATE OF BENEFIT.

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

An examination of the above provision would show ambiguity between its two sentences.
The first sentence appears to state that the insurance coverage of the clients of Eternal
already became effective upon contracting a loan with Eternal while the second sentence
appears to require Philamlife to approve the insurance contract before the same can become
effective.

It must be remembered that an insurance contract is a contract of adhesion which must be

construed liberally in favor of the insured and strictly against the insurer in order to
safeguard the latter's interest.

The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as
received, states that the insurance forms for the attached list of burial lot buyers were
attached to the letter. Such stamp of receipt has the effect of acknowledging receipt of the
letter together with the attachments. Such receipt is an admission by Philamlife against its
own interest.13 The burden of evidence has shifted to Philamlife, which must prove that the
letter did not contain Chuang's insurance application. However, Philamlife failed to do so;
thus, Philamlife is deemed to have received Chuang's insurance application.

the seemingly conflicting provisions must be harmonized to mean that upon a party's
purchase of a memorial lot on installment from Eternal, an insurance contract covering the
lot purchaser is created and the same is effective, valid, and binding until terminated by
Philamlife by disapproving the insurance application. The second sentence of Creditor Group
Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory
condition which would lead to the cessation of the insurance contract. Moreover, the mere
inaction of the insurer on the insurance application must not work to prejudice the insured;
it cannot be interpreted as a termination of the insurance contract. The termination of the
insurance contract by the insurer must be explicit and unambiguous.

Malayan Insurance Corp vs CA G.R. 119599 March

20, 1997
J. Romero

Facts:
TKC Marketing imported 3,000 metric tons of soya from Brazil to Manila. It was insured by Malayan at
the value of almost 20 million pesos. The vessel, however, was stranded on South Africa because of
a lawsuit regarding the possession of the soya. TKC consulted Malayan on recovery of the amount,
but the latter claimed that it wasn’t covered by the policy. The soya was sold in Africa for Php 10
million, but TKC wanted Malayan to shoulder the remaining value of 10 million as well.
Petitioner filed suit due to Malayan’s reticence to pay. Malayan claimed that arrest by civil authorities
wasn’t covered by the policy. The trial court ruled in TKC’s favor with damages to boot.
The appellate court affirmed the decision under the reason that clause 12 of the policy regarding an
excepted risk due to arrest by civil authorities was deleted by Section 1.1 of the Institute
War Clauses which covered ordinary arrests by civil authorities. Failure of the cargo to arrive was also
covered by the Theft, Pilferage, and Non-delivery Clause of the contract. Hence this petition.

Issues:
1. WON the arrest of the vessel was a risk covered under the subject insurance policies.
2. WON the insurance policies must strictly construed against the insurer.

Held: Yes. Yes. Petition dismissed.

Ratio:
1. Section 12 or the "Free from Capture & Seizure Clause" states: "Warranted free of capture, seizure,
arrest, restraint or detainment, and the consequences thereof or of any attempt thereat… Should
Clause 12 be deleted, the relevant current institute war clauses shall be deemed to form part of this
insurance.”
This was really replaced by the subsection 1.1 of section 1 of Institute War Clauses (Cargo) which
included “the risks excluded from the standard form of English Marine Policy by the clause warranted
free of capture, seizure, arrest, restraint or detainment, and the consequences thereof of hostilities or
warlike operations, whether there be a declaration of war or not.”
The petitioner’s claim that the Institute War Clauses can be operative in case of hostilities or warlike
operations on account of its heading "Institute War Clauses" is not tenable. It reiterated the CA’s stand
that “its interpretation in recent years to include seizure or detention by civil authorities seems
consistent with the general purposes of the clause.” This interpretation was regardless of the fact
whether the arrest was in war or by civil authorities.
The petitioner was said to have confused the Institute War clauses and the F.C.S. in English law.
“It stated that "the F.C. & S. Clause was "originally incorporated in insurance policies to eliminate the
risks of warlike operations". It also averred that the F.C. & S. Clause applies even if there be no war
or warlike operations. In the same vein, it contended that subsection 1.1 of Section 1 of the Institute
War Clauses (Cargo) "pertained exclusively to warlike operations" and yet it also stated that
"the deletion of the F.C. & S. Clause and the consequent incorporation of subsection 1.1 of Section 1
of the Institute War Clauses (Cargo) was to include "arrest, etc. even if it were not a result of hostilities
or warlike operations."
The court found that the insurance agency tried to interpret executive and political acts as those not
including ordinary arrestsin the exceptions of the FCS clause , and claims that the War Clauses now
included executive and political acts without including ordinary arrests in the new stipulation.
“A strained interpretation which is unnatural and forced, as to lead to an absurd conclusion or to render
the policy nonsensical, should, by all means, be avoided.”
2. Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguitytherein in favor of the insured, where the contract or policy is prepared by the
insurer. A contract of insurance, being a contract of adhesion, means that any ambiguity should be
resolved against the insurer.

Alpha Insurance and Surety Co. vs Castor

G.R. No. 198174 September 2, 2013

Facts: On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No.
MAND/CV-00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The contract of
insurance obligates the petitioner to pay the respondent the amount of Six Hundred Thirty Thousand
Pesos (P 630,000.00) in case of loss or damage to said vehicle during the period covered, which is from
February 26, 2007 to February 26, 2008. On April 16, 2007, at about 9:00 a.m., respondent instructed
her driver, Jose Joel Salazar Lanuza (Lanuza), to bring the above-described vehicle to a nearby auto-shop
for a tune-up. However, Lanuza no longer returned the motor vehicle to respondent and despite diligent
efforts to locate the same, said efforts proved futile. Resultantly, respondent promptly reported the
incident to the police and concomitantly notified petitioner of the said loss and demanded payment of
the insurance proceeds in the total sum of P 630,000.00. In a letter dated July 5, 2007, petitioner denied
the insurance claim of respondent, stating among others, thus: Upon verification of the documents
submitted, particularly the Police Report and your Affidavit, which states that the culprit, who stole the
Insured unit, is employed with you. We would like to invite you on the provision of the Policy under
Exceptions to Section-III.

Issue: Whether or not respondent Castor is entitled to the insurance policy for the loss of her car by her
driver.

Held: Yes. It is a basic rule in the interpretation of contracts that the terms of a contract are to be
construed according to the sense and meaning of the terms which the parties thereto have used. In the
case of property insurance policies, the evident intention of the contracting parties, i.e., the insurer and
the assured, determine the import of the various terms and provisions embodied in the policy. However,
when the terms of the insurance policy are ambiguous, equivocal or uncertain, such that the parties
themselves disagree about the meaning of particular provisions, the policy will be construed by the
courts liberally in favor of the assured and strictly against the insurer.

A contract of insurance is a contract of adhesion. So, when the terms of the 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.

Theft perpetrated by the driver of the insured is not an exception to the coverage from the insurance
policy, since Section III thereof did not qualify as to who would commit the theft.

Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy under
paragraph 4 of “Exceptions to Section III,” since the same refers only to “malicious damage,” or more
specifically, “injury” to the motor vehicle caused by a person under the insured’s service. Paragraph 4
clearly does not contemplate “loss of property,” as what happened in the instant case.

Rizal Surety & Insurance Company vs. Court of Appeals [GR 112360, 18 June 2000] Third Division,
Purisima (J): 4 concur Facts: On 13 March 1980, Rizal Surety & Insurance Company (Rizal Insurance)
issued Fire Insurance Policy 45727 in favor of Transworld Knitting Mills, Inc. (Transworld), initially for
P1,000,000.00 and eventually increased to P1,500,000.00, covering the period from 14 August 1980 to
13 March 1981. The same pieces of property insured with Rizal Insurance were also insured with New
India Assurance Company, Ltd., (New India). On 12 January 1981, fire broke out in the compound of
Transworld, razing the middle portion of its four-span building and partly gutting the left and right
sections thereof. A two-storey building (behind said four-span building) where fun and amusement
machines and spare parts were stored, was also destroyed by the fire. Transworld filed its insurance
claims with Rizal Insurance and New India but to no avail. On 26 May 1982, TransWorld brought against
the said insurance companies an action for collection of sum of money and damages (Civil Case 46106)
before Branch 161 of the then Court of First Instance of Rizal; praying for judgment ordering Rizal
Insurance and New India to pay the amount of P2,747,867.00 plus legal interest, P400,000.00 as
attorney's fees, exemplary damages, expenses of litigation of P50,000.00 and costs of suit. Rizal
Insurance countered that its fire insurance policy sued upon covered only the contents of the four-span
building, which was partly burned, and not the damage caused by the fire on the two-storey annex
building. On 4 January 1990, the trial court rendered its decision; dismissing the case as against New
India; ordering Rizal Insurance to pay Transworld the amount of P826,500.00 representing the actual
value of the losses suffered by it; and with cost against Rizal Insurance. Both Rizal Insurance and
TransWorld went to the Court of Appeals, which came out with its decision of 15 July 1993, modifying
the lower court's decision by requiring New India to pay Transworld the amount of P1,818,604.19; and
Rizal Surety to pay Transworld P470,328.67, based on the actual losses sustained by Transworld in the
fire, totalling P2,790,376.00 as against the amounts of fire insurance coverages respectively extended by
New India in the amount of P5,800,000.00 and Rizal Surety and Insurance Company in the amount of
P1,500,000.00. On 20 August 1993, from the aforesaid judgment of the Court of Appeals, New India
appealed to the Supreme Court theorizing inter alia that the TransWorld could not be compensated for
the loss of the fun and amusement machines and spare parts stored at the two-storey building because
it (Transworld) had no insurable interest in said goods or items. On 2 February 1994, the Court denied
the appeal with finality in GR L-111118 (New India Assurance Company Ltd. vs. Court of Appeals). Rizal
Insurance and TransWorld, on the other hand, interposed a Motion for Reconsideration before the
Court of Appeals, and on 22 October 1993, the Court of Appeals reconsidered its decision of 15 July
1993, as regards the imposition of interest on the assessment against New India on the amount of
P1,818,604.19 and that against Rizal Insurance on the amount of P470,328.67, commences from 26 May
1982 when the complaint was filed until payment is made. The rest of the said decision was retained in
all other respects. Rizal Insurance filed the petition for review on certiorari.

Issue [1]: Whether the fire insurance policy litigated upon protected only the contents of the main
building (four-span), and did not include those stored in the two-storey annex building; or whether the
so called "annex" was not an annex but was actually an integral part of the four-span building and
therefore, the goods and items stored therein were covered by the same fire insurance policy.

Held [1]: INCLUDES 2-STORY ANNEX BUILDING. The stipulation in subject fire insurance policy regarding
its coverage, reads "contained and/or stored during the currency of this Policy in the premises occupied
by them forming part of the buildings situated within own Compound." Therefrom, it can be gleaned
unerringly that the fire insurance policy in question did not limit its coverage to what were stored in the
fourspan building. The two-storey building involved a permanent structure, which adjoins and
intercommunicates with the "first right span of the lofty storey building", formed part thereof, and
meets the requisites for compensability under the fire insurance policy sued upon. So also, considering
that the two-storey building aforementioned was already existing when subject fire insurance policy
contract was entered into on 12 January 1981, having been constructed sometime in 1978, Rizal
Insurance should have specifically excluded the said two-storey building from the coverage of the fire
insurance if minded to exclude the same but it did not, and instead, went on to provide that such fire
insurance policy covers the products, raw materials and supplies stored within the premises of
Transworld which was an integral part of the four-span building occupied by Transworld, knowing fully
well the existence of such building adjoining and intercommunicating with the right section of the four-
span building.

Issue [2]: Whether the ambiguity in fire insurance policy should be resolved against Rizal Surety.

Held [2]: YES. The stipulation as to the coverage of the fire insurance policy under controversy has
created a doubt regarding the portions of the building insured thereby. Article 1377 of the New Civil
Code provides that "The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity." Conformably, it stands to reason that the doubt should be resolved
against Rizal Insurance, whose lawyer or managers drafted the fire insurance policy contract under
scrutiny. Citing the aforecited provision of law in point, the Court in Landicho vs. Government Service
Insurance System, ruled that "as regards insurance policies, in respect of which it is settled 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 forfeiture is involved' (29 Am. Jur.,
181), and the reason for this 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)." Equally relevant is the following disquisition of the Court in Fieldmen's
Insurance Company, Inc. vs. Vda. De Songco, where it was held that the "rigid application of the rule on
ambiguities has become necessary in view of current business practices. The courts cannot ignore that
nowadays monopolies, cartels and concentration of capital, endowed with overwhelming economic
power, manage to impose upon parties dealing with them cunningly prepared 'agreements' that the
weaker party may not change one whit, his participation in the 'agreement' being reduced to the
alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats [sic]
d'adhesion), in contrast to these entered into by parties bargaining on an equal footing, such contracts
(of which policies of insurance and international bills of lading are prime example) obviously call for
greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker
party from abuses and imposition, and prevent their becoming traps for the unwary.”