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141462 On February 23, 1995, Seaboard, invoking its right of subrogation, filed a complaint
ALL TRANSPORT NETWORK, against Skylanders, petitioner and its authorized representative, petitioner All Transport
INC., Network, Inc. (ATN), praying for actual damages in the amount of P612,904.97 plus legal
Petitioners, Present: interest, attorneys fees and cost of suit. Petitioners impleaded Korean Airlines (KAL) as third-
PANGANIBAN, J., Chairman, party defendant.
- v e r s u s - CORONA, While the case was pending, IFTIs treasurer, Mary Eileen Gozon accepted the
CARPIO-MORALES and proposal of KAL to settle consignees claim by paying the amount of US $522.20. On May 8,
GARCIA, JJ. 1996, Felipe Acebedo, IFTIs representative received a check from KAL and correspondingly
signed a release form.
Presiding Judge of Br. 150 of On July 2, 1996, petitioners filed a motion to dismiss the case on the ground that
Makati City, SEABOARD private respondent Seaboards demand had been paid or otherwise extinguished by KAL.
INC. and PHILIPPINE On December 9, 1996, the trial court issued an order denying the motion to
SKYLANDERS, INC., dismiss. Petitioners, private respondent Skylanders and KAL filed separate motions for
Respondents. Promulgated : reconsideration. Prior to the resolution of these motions, the trial court allowed private
respondent Skylanders to present evidence in a preliminary hearing on November 14, 1997,
December 15, 2005 after which the court set a date to hear the presentation of rebuttal evidence.

x------------------------------------------x On December 5, 1997, petitioners filed a manifestation and motion for

reconsideration of the order of the trial court dated November 14, 1997, questioning the
propriety of the preliminary hearing.
On February 18, 1998, the trial court issued an order denying: (1) the motion for
CORONA, J.: reconsideration of the December 9, 1996 order filed by petitioners, private respondent
Skylanders and KAL; (2) the motion to dismiss filed by Skylanders and (3) petitioners motion
Petitioner Danzas Corporation, through its agent, petitioner All Transport Network brings to for reconsideration of the November 14, 1997 order.
us this petition for review on certiorari[1] questioning the decision[2] and resolution[3] of the
Court of Appeals which affirmed two orders issued by the Regional Trial Court, Makati City, On April 6, 1998, petitioners filed in the Court of Appeals a special civil action for
Branch 150.[4] certiorari under Rule 65 of the Rules of Court. On March 5, 1999, the CA dismissed the
petition.[6] Petitioners filed[7] a motion for reconsideration but this was denied.[8]
The facts of the case follow.[5]
Hence, this petition.
On February 22, 1994, petitioner Danzas took a shipment of nine packages of ICS watches for
transport to Manila. The consignee, International Freeport Traders, Inc. (IFTI) secured Marine Petitioners principal contention is that private respondents right of subrogation
Risk Note No. 0000342 from private respondent Seaboard. was extinguished when IFTI received payment from KAL in settlement of its obligation. They
On March 2, 1994, the Korean Airlines plane carrying the goods arrived in Manila also claim that public respondent committed grave abuse of discretion by refusing to dismiss
and discharged the goods to the custody of private respondent Philippine Skylanders, Inc. for the case on that ground. Finally, they claim that, by granting private respondent Skylanders a
safekeeping. On withdrawal of the shipment from private respondent Skylanders warehouse, preliminary hearing on an affirmative defense other than one of the grounds stated in
IFTI noted that one package containing 475 watches was shortlanded while the remaining Section 1, Rule 16 of the 1997 Rules of Civil Procedure, public respondent committed another
eight were found to have sustained tears on sides and the retape of flaps. On further grave abuse of discretion.
examination and inventory of the cartons, it was discovered that 176 Guess watches were
missing. Private respondent Seaboard, as insurer, paid the losses to IFTI. For its part, private respondent Seaboard argues that the payment made by the
tortfeasor did not relieve it of liability because at the time of payment, its (Seaboards) suit

1|Insurance Cases Set 1

against petitioners was already ongoing. It also insists that because the assailed order was
interlocutory, it was not a proper subject for certiorari.[9] In California and Hawaiian Sugar Company v. Pioneer Insurance and Surety
Corporation,[16] we held that a preliminary hearing was not mandatory but was rather subject
Private respondent Skylanders likewise contends that the order denying dismissal to the discretion of the trial court. We found in that instance that the trial court had
cannot be the subject of certiorari in the absence of grave abuse of discretion. It also defends committed grave abuse of discretion in refusing the partys motion for a preliminary hearing
the trial courts order granting a preliminary hearing, saying that, assuming the trial court had on the ground that the case was premature, not having been submitted for arbitration. A
erroneously granted such a hearing, such error was merely one of judgment and not of preliminary hearing could have settled the entire case, thereby helping decongest the
jurisdiction as to merit certiorari.[10] dockets. It was therefore the refusal to allow the most efficient and expeditious process
which we condemned.
The petition has no merit. In the instant case, we are not convinced that public respondents act of allowing a
preliminary hearing constituted grave abuse of discretion.
It is true that the doctrine in Manila Mahogany Manufacturing Corporation v. Court
of Appeals[11] remains the controlling doctrine on the issue of whether the tortfeasor, by In Land Bank of the Philippines v. the Court of Appeals[17] we discussed the meaning
settling with the insured, defeats the right to subrogation of the insurer. According to Manila of grave abuse of discretion:
Grave abuse of discretion implies such capricious and whimsical exercise
Since the insurer can be subrogated to only such rights as the of judgment as is equivalent to lack of jurisdiction or, in other words,
insured may have, should the insured, after receiving payment from the where the power is exercised in an arbitrary manner by reason of
insurer, release the wrongdoer who caused the loss, the insurer loses his passion, prejudice, or personal hostility, and it must be so patent or gross
rights against the latter. But in such a case, the insurer will be entitled to as to amount to an evasion of a positive duty or to a virtual refusal to
recover from the insured whatever it has paid to the latter, unless the perform the duty enjoined or to act at all in contemplation of law.
release was made with the consent of the insurer. The special civil action for certiorari is a remedy designed for
the correction of errors of jurisdiction and not errors of
This is buttressed by a later decision, Pan Malayan Insurance Corporation v. Court judgment. The raison detre for the rule is when a court exercises its
of Appeals,[12] in which we cited a number of exceptions to the rule laid down in Article 2207 jurisdiction, an error committed while so engaged does not deprive it of
of the Civil Code.[13] Under the first of these exceptions, if the assured by his own act releases the jurisdiction being exercised when the error is committed. If it did,
the wrongdoer or third party liable for the loss or damage from liability, the insurers right of every error committed by a court would deprive it of its jurisdiction and
subrogation is defeated. every erroneous judgment would be a void judgment. In such a scenario,
the administration of justice would not survive. Hence, where the issue
However, certain factual differences pointed out by private respondent Seaboard or question involved affects the wisdom or legal soundness of the
render this doctrine inapplicable. In Manila Mahogany, the tortfeasor San Miguel decisionnot the jurisdiction of the court to render said decisionthe same
Corporation paid the insured without knowing that the insurer had already made such is beyond the province of a special civil action for certiorari. (emphasis
payment. KAL was not similarly situated, being fully aware of the prior payment made by the supplied)
insurer to the consignee. Private respondent Seaboard asserts that, being in bad faith, KAL
should bear the consequences of its actions. [14]
While Manila Mahogany is silent on whether the existence of good faith or bad Public respondents order granting the preliminary hearing does not at all fit the
faith on the tortfeasors part affects the insurers right of subrogation, there exists a wealth of description above. At worst, it was an error in judgment which is beyond the domain of
U.S. jurisprudence holding that whenever the wrongdoer settles with the insured without the certiorari.
consent of the insurer and with knowledge of the insurers payment and right of subrogation,
such right is not defeated by the settlement.[15] Because this doctrine is actually consistent WHEREFORE, in view of the foregoing, the petition is hereby DENIED. The decision
with the facts of Mahogany and helps fill a slight gap left by our ruling in that case, we adopt and resolution of the Court of Appeals are AFFIRMED.
it now. The trial court correctly refused to dismiss the case. In that respect, therefore, the Costs against petitioners.
trial court did not commit grave abuse of discretion which would justify certiorari.
We likewise find that no grave abuse of discretion was committed by public
respondent when it granted private respondent Skylanders motion for a preliminary hearing.

2|Insurance Cases Set 1

G.R. No. L-52732 August 29, 1988 1. Ordering the defendant to pay to the plaintiffs the amount of
P80,000.00 for damages suffered by said plaintiffs for the loss of their
F.F. CRUZ and CO., INC., petitioner, house, with interest of 6% from the date of the filing of the Complaint on
vs. January 23, 1975, until fully paid;
MABLE and children DOMING, LEONIDAS, LIGAYA, ELENA, GREGORIO, JR., SALOME, 2. Ordering the defendant to pay to the plaintiffs the sum of P50,000.00
ANTONIO, and BERNARDO all surnamed MABLE, respondents. for the loss of plaintiffs' furnitures, religious images, silverwares,
chinawares, jewelries, books, kitchen utensils, clothing and other
Luis S. Topacio for petitioner. valuables, with interest of 6% from date of the filing of the Complaint on
January 23, 1975, until fully paid;
Mauricio M. Monta for respondents.
3. Ordering the defendant to pay to the plaintiffs the sum of P5,000.00 as
moral damages, P2,000.00 as exemplary damages, and P5,000.00 as and
by way of attorney's fees;

4. With costs against the defendant;

This petition to review the decision of the Court of Appeals puts in issue the application of
5. Counterclaim is ordered dismissed, for lack of merit. [CA Decision, pp.
the common law doctrine of res ipsa loquitur.
1-2; Rollo, pp. 29-30.]

The essential facts of the case are not disputed.

On appeal, the Court of Appeals, in a decision promulgated on November 19, 1979, affirmed
the decision of the trial court but reduced the award of damages:
The furniture manufacturing shop of petitioner in Caloocan City was situated adjacent to the
residence of private respondents. Sometime in August 1971, private respondent Gregorio
WHEREFORE, the decision declaring the defendants liable is affirmed. The
Mable first approached Eric Cruz, petitioner's plant manager, to request that a firewall be
damages to be awarded to plaintiff should be reduced to P70,000.00 for
constructed between the shop and private respondents' residence. The request was
the house and P50,000.00 for the furniture and other fixtures with legal
repeated several times but they fell on deaf ears. In the early morning of September 6, 1974,
interest from the date of the filing of the complaint until full payment
fire broke out in petitioner's shop. Petitioner's employees, who slept in the shop premises,
thereof. [CA Decision, p. 7; Rollo, p. 35.]
tried to put out the fire, but their efforts proved futile. The fire spread to private
respondents' house. Both the shop and the house were razed to the ground. The cause of the
conflagration was never discovered. The National Bureau of Investigation found specimens A motion for reconsideration was filed on December 3, 1979 but was denied in a resolution
from the burned structures negative for the presence of inflammable substances. dated February 18, 1980. Hence, petitioner filed the instant petition for review on February
22, 1980. After the comment and reply were filed, the Court resolved to deny the petition for
lack of merit on June 11, 1980.
Subsequently, private respondents collected P35,000.00 on the insurance on their house and
the contents thereof.
However, petitioner filed a motion for reconsideration, which was granted, and the petition
was given due course on September 12, 1980. After the parties filed their memoranda, the
On January 23, 1975, private respondents filed an action for damages against petitioner,
case was submitted for decision on January 21, 1981.
praying for a judgment in their favor awarding P150,000.00 as actual damages, P50,000.00 as
moral damages, P25,000.00 as exemplary damages, P20,000.00 as attorney's fees and costs.
The Court of First Instance held for private respondents: Petitioner contends that the Court of Appeals erred:

WHEREFORE, the Court hereby renders judgment, in favor of plaintiffs, 1. In not deducting the sum of P35,000.00, which private respondents recovered on the
and against the defendant: insurance on their house, from the award of damages.

3|Insurance Cases Set 1

2. In awarding excessive and/or unproved damages. of galvanized iron sheets, which would predictably crumble and melt
when subjected to intense heat. Defendant's negligence, therefore, was
3. In applying the doctrine of res ipsa loquitur to the facts of the instant case. not only with respect to the cause of the fire but also with respect to the
spread thereof to the neighboring houses. [Africa v. Caltex (Phil.), Inc.,
supra; Emphasis supplied.]
The pivotal issue in this case is the applicability of the common law doctrine of res ipsa
loquitur, the issue of damages being merely consequential. In view thereof, the errors
assigned by petitioner shall be discussed in the reverse order. In the instant case, with more reason should petitioner be found guilty of negligence since it
had failed to construct a firewall between its property and private respondents' residence
which sufficiently complies with the pertinent city ordinances. The failure to comply with an
1. The doctrine of res ipsa loquitur, whose application to the instant case petitioner objects
ordinance providing for safety regulations had been ruled by the Court as an act of
to, may be stated as follows:
negligence [Teague v. Fernandez, G.R. No. L-29745, June 4, 1973, 51 SCRA 181.]

Where the thing which caused the injury complained of is shown to be

The Court of Appeals, therefore, had more than adequate basis to find petitioner liable for
under the management of the defendant or his servants and the accident
the loss sustained by private respondents.
is such as in the ordinary course of things does not happen if those who
have its management or control use proper care, it affords reasonable
evidence, in the absence of explanation by the defendant, that the 2. Since the amount of the loss sustained by private respondents constitutes a finding of fact,
accident arose from want of care. [Africa v. Caltex (Phil.), Inc., G.R. No. L- such finding by the Court of Appeals should not be disturbed by this Court [M.D. Transit &
12986, March 31, 1966, 16 SCRA 448.] Taxi Co., Inc. v. Court of Appeals, G.R. No. L-23882, February 17, 1968, 22 SCRA 559], more so
when there is no showing of arbitrariness.
Thus, in Africa, supra, where fire broke out in a Caltex service station while gasoline from a
tank truck was being unloaded into an underground storage tank through a hose and the fire In the instant case, both the CFI and the Court of Appeals were in agreement as to the value
spread to and burned neighboring houses, this Court, applying the doctrine of res ipsa of private respondents' furniture and fixtures and personal effects lost in the fire (i.e.
loquitur, adjudged Caltex liable for the loss. P50,000.00). With regard to the house, the Court of Appeals reduced the award to
P70,000.00 from P80,000.00. Such cannot be categorized as arbitrary considering that the
evidence shows that the house was built in 1951 for P40,000.00 and, according to private
The facts of the case likewise call for the application of the doctrine, considering that in the
respondents, its reconstruction would cost P246,000.00. Considering the appreciation in
normal course of operations of a furniture manufacturing shop, combustible material such as
value of real estate and the diminution of the real value of the peso, the valuation of the
wood chips, sawdust, paint, varnish and fuel and lubricants for machinery may be found
house at P70,000.00 at the time it was razed cannot be said to be excessive.

3. While this Court finds that petitioner is liable for damages to private respondents as found
It must also be noted that negligence or want of care on the part of petitioner or its
by the Court of Appeals, the fact that private respondents have been indemnified by their
employees was not merely presumed. The Court of Appeals found that petitioner failed to
insurer in the amount of P35,000.00 for the damage caused to their house and its contents
construct a firewall between its shop and the residence of private respondents as required by
has not escaped the attention of the Court. Hence, the Court holds that in accordance with
a city ordinance; that the fire could have been caused by a heated motor or a lit cigarette;
Article 2207 of the Civil Code the amount of P35,000.00 should be deducted from the
that gasoline and alcohol were used and stored in the shop; and that workers sometimes
amount awarded as damages. Said article provides:
smoked inside the shop [CA Decision, p. 5; Rollo, p. 33.]

Art. 2207. If the plaintiffs property has been insured, and he has received
Even without applying the doctrine of res ipsa loquitur, petitioner's failure to construct a
indemnity from the insurance company for the injury or loss arising out
firewall in accordance with city ordinances would suffice to support a finding of negligence.
of the wrong or breach of contract complained of, the insurance
company is subrogated to the rights of the insured against the wrongdoer
Even then the fire possibly would not have spread to the neighboring or the person who violated the contract. If the amount paid by the
houses were it not for another negligent omission on the part of insurance company does not fully cover the injury or loss, the aggrieved
defendants, namely, their failure to provide a concrete wall high enough party shall be entitled to recover the deficiency from the person causing
to prevent the flames from leaping over it. As it was the concrete wall the loss or injury. (Emphasis supplied.]
was only 2-1/2 meters high, and beyond that height it consisted merely
4|Insurance Cases Set 1
The law is clear and needs no interpretation. Having been indemnified by their insurer, From 6 March 1970 to 6 March 1971, petitioner insured its Mercedes Benz 4-door sedan with
private respondents are only entitled to recover the deficiency from petitioner. respondent insurance company. On 4 May 1970 the insured vehicle was bumped and
damaged by a truck owned by San Miguel Corporation. For the damage caused, respondent
On the other hand, the insurer, if it is so minded, may seek reimbursement of the amount it company paid petitioner five thousand pesos (P5,000.00) in amicable settlement. Petitioner's
indemnified private respondents from petitioner. This is the essence of its right to be general manager executed a Release of Claim, subrogating respondent company to all its
subrogated to the rights of the insured, as expressly provided in Article 2207. Upon payment right to action against San Miguel Corporation.
of the loss incurred by the insured, the insurer is entitled to be subrogated pro tanto to any
right of action which the insured may have against the third person whose negligence or On 11 December 1972, respondent company wrote Insurance Adjusters, Inc. to demand
wrongful act caused the loss [Fireman's Fund Insurance Co. v. Jamila & Co., Inc., G.R. No. L- reimbursement from San Miguel Corporation of the amount it had paid petitioner. Insurance
27427, April 7, 1976, 70 SCRA 323.] Adjusters, Inc. refused reimbursement, alleging that San Miguel Corporation had already paid
petitioner P4,500.00 for the damages to petitioner's motor vehicle, as evidenced by a cash
Under Article 2207, the real party in interest with regard to the indemnity received by the voucher and a Release of Claim executed by the General Manager of petitioner discharging
insured is the insurer [Phil. Air Lines, Inc. v. Heald Lumber Co., 101 Phil. 1031, (1957).] San Miguel Corporation from "all actions, claims, demands the rights of action that now exist
Whether or not the insurer should exercise the rights of the insured to which it had been or hereafter [sic] develop arising out of or as a consequence of the accident."
subrogated lies solely within the former's sound discretion. Since the insurer is not a party to
the case, its identity is not of record and no claim is made on its behalf, the private Respondent insurance company thus demanded from petitioner reimbursement of the sum
respondent's insurer has to claim his right to reimbursement of the P35,000.00 paid to the of P4,500.00 paid by San Miguel Corporation. Petitioner refused; hence, respondent
insured. company filed suit in the City Court of Manila for the recovery of P4,500.00. The City Court
ordered petitioner to pay respondent P4,500.00. On appeal the Court of First Instance of
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby Manila affirmed the City Court's decision in toto, which CFI decision was affirmed by the
AFFIRMED with the following modifications as to the damages awarded for the loss of private Court of Appeals, with the modification that petitioner was to pay respondent the total
respondents' house, considering their receipt of P35,000.00 from their insurer: (1) the amount of P5,000.00 that it had earlier received from the respondent insurance company.
damages awarded for the loss of the house is reduced to P35,000.00; and (2) the right of the
insurer to subrogation and thus seek reimbursement from petitioner for the P35,000.00 it Petitioner now contends it is not bound to pay P4,500.00, and much more, P5,000.00 to
had paid private respondents is recognized. respondent company as the subrogation in the Release of Claim it executed in favor of
respondent was conditioned on recovery of the total amount of damages petitioner had
SO ORDERED. sustained. Since total damages were valued by petitioner at P9,486.43 and only P5,000.00
was received by petitioner from respondent, petitioner argues that it was entitled to go after
San Miguel Corporation to claim the additional P4,500.00 eventually paid to it by the latter,
G.R. No. L-52756 October 12, 1987
without having to turn over said amount to respondent. Respondent of course disputes this
allegation and states that there was no qualification to its right of subrogation under the
MANILA MAHOGANY MANUFACTURING CORPORATION, petitioner, Release of Claim executed by petitioner, the contents of said deed having expressed all the
vs. intents and purposes of the parties.
To support its alleged right not to return the P4,500.00 paid by San Miguel Corporation,
petitioner cites Art. 2207 of the Civil Code, which states:

PADILLA, J: If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out
Petition to review the decision * of the Court of Appeals, in CA-G.R. No. SP-08642, dated 21 of the wrong or breach of contract complained of the insurance company
March 1979, ordering petitioner Manila Mahogany Manufacturing Corporation to pay private shall be subrogated to the rights of the insured against the wrongdoer or
respondent Zenith Insurance Corporation the sum of Five Thousand Pesos (P5,000.00) with the person who has violated the contract. If the amount paid by the
6% annual interest from 18 January 1973, attorney's fees in the sum of five hundred pesos insurance company does not fully cover the injury or loss the aggrieved
(P500.00), and costs of suit, and the resolution of the same Court, dated 8 February 1980, party shall be entitled to recover the deficiency from the person causing
denying petitioner's motion for reconsideration of it's decision. the loss or injury.
5|Insurance Cases Set 1
Petitioner also invokes Art. 1304 of the Civil Code, stating. If a property is insured and the owner receives the indemnity from the
insurer, it is provided in [Article 2207 of the New Civil Code] that the
A creditor, to whom partial payment has been made, may exercise his insurer is deemed subrogated to the rights of the insured against the
right for the remainder, and he shall be preferred to the person who has wrongdoer and if the amount paid by the insurer does not fully cover the
been subrogated in his place in virtue of the partial payment of the same loss, then the aggrieved party is the one entitled to recover the
credit. deficiency. ... Under this legal provision, the real party in interest with
regard to the portion of the indemnity paid is the insurer and not the
insured 3(Emphasis supplied)
We find petitioners arguments to be untenable and without merit. In the absence of any
other evidence to support its allegation that a gentlemen's agreement existed between it
and respondent, not embodied in the Release of Claim, such ease of Claim must be taken as The decision of the respondent court ordering petitioner to pay respondent company, not
the best evidence of the intent and purpose of the parties. Thus, the Court of Appeals rightly the P4,500.00 as originally asked for, but P5,000.00, the amount respondent company paid
stated: petitioner as insurance, is also in accord with law and jurisprudence. In disposing of this
issue, the Court of Appeals held:
Petitioner argues that the release claim it executed subrogating Private
respondent to any right of action it had against San Miguel Corporation ... petitioner is entitled to keep the sum of P4,500.00 paid by San Miguel
did not preclude Manila Mahogany from filing a deficiency claim against Corporation under its clear right to file a deficiency claim for damages
the wrongdoer. Citing Article 2207, New Civil Code, to the effect that if incurred, against the wrongdoer, should the insurance company not fully
the amount paid by an insurance company does not fully cover the loss, pay for the injury caused (Article 2207, New Civil Code). However, when
the aggrieved party shall be entitled to recover the deficiency from the petitioner released San Miguel Corporation from any liability, petitioner's
person causing the loss, petitioner claims a preferred right to retain the right to retain the sum of P5,000.00 no longer existed, thereby entitling
amount coming from San Miguel Corporation, despite the subrogation in private respondent to recover the same. (Emphasis supplied)
favor of Private respondent.
As has been observed:
Although petitioners right to file a deficiency claim against San Miguel
Corporation is with legal basis, without prejudice to the insurer's right of ... The right of subrogation can only exist after the insurer has paid the
subrogation, nevertheless when Manila Mahogany executed another otherwise the insured will be deprived of his right to full indemnity. If the
release claim (Exhibit K) discharging San Miguel Corporation from "all insurance proceeds are not sufficient to cover the damages suffered by
actions, claims, demands and rights of action that now exist or hereafter the insured, then he may sue the party responsible for the damage for
arising out of or as a consequence of the accident" after the insurer had the the [sic] remainder. To the extent of the amount he has already
paid the proceeds of the policy- the compromise agreement of P5,000.00 received from the insurer enjoy's [sic] the right of subrogation.
being based on the insurance policy-the insurer is entitled to recover
from the insured the amount of insurance money paid (Metropolitan Since the insurer can be subrogated to only such rights as the insured
Casualty Insurance Company of New York vs. Badler, 229 N.Y.S. 61, 132 may have, should the insured, after receiving payment from the insurer,
Misc. 132 cited in Insurance Code and Insolvency Law with comments release the wrongdoer who caused the loss, the insurer loses his rights
and annotations, H.B. Perez 1976, p. 151). Since petitioner by its own acts against the latter. But in such a case, the insurer will be entitled to
released San Miguel Corporation, thereby defeating private respondents, recover from the insured whatever it has paid to the latter, unless the
the right of subrogation, the right of action of petitioner against the release was made with the consent of the insurer. 4 (Emphasis supplied.)
insurer was also nullified. (Sy Keng & Co. vs. Queensland Insurance Co.,
Ltd., 54 O.G. 391) Otherwise stated: private respondent may recover the
And even if the specific amount asked for in the complaint is P4,500.00 only and not
sum of P5,000.00 it had earlier paid to petitioner. 1
P5,000.00, still, the respondent Court acted well within its discretion in awarding P5,000.00,
the total amount paid by the insurer. The Court of Appeals rightly reasoned as follows:
As held in Phil. Air Lines v. Heald Lumber Co., 2
It is to be noted that private respondent, in its companies, prays for the
recovery, not of P5,000.00 it had paid under the insurance policy but

6|Insurance Cases Set 1

P4,500.00 San Miguel Corporation had paid to petitioner. On this score, Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como prima dela Renta
We believe the City Court and Court of First Instance erred in not Vitalicia solicitada por dicho Don Joaquin Herrer hoy, sujeta al examen medico y aprobacion
awarding the proper relief. Although private respondent prays for the de la Oficina Central de la Compañia.
reimbursement of P4,500.00 paid by San Miguel Corporation, instead of
P5,000.00 paid under the insurance policy, the trial court should have The application was immediately forwarded to the head office of the company at Montreal,
awarded the latter, although not prayed for, under the general prayer in Canada. On November 26, 1917, the head office gave notice of acceptance by cable to
the complaint "for such further or other relief as may be deemed just or Manila. (Whether on the same day the cable was received notice was sent by the Manila
equitable, (Rule 6, Sec. 3, Revised Rules of Court; Rosales vs. Reyes office of Herrer that the application had been accepted, is a disputed point, which will be
Ordoveza, 25 Phil. 495 ; Cabigao vs. Lim, 50 Phil. 844; Baguiro vs. Barrios discussed later.) On December 4, 1917, the policy was issued at Montreal. On December 18,
Tupas, 77 Phil 120). 1917, attorney Aurelio A. Torres wrote to the Manila office of the company stating that
Herrer desired to withdraw his application. The following day the local office replied to Mr.
WHEREFORE, premises considered, the petition is DENIED. The judgment appealed from is Torres, stating that the policy had been issued, and called attention to the notification of
hereby AFFIRMED with costs against petitioner. November 26, 1917. This letter was received by Mr. Torres on the morning of December 21,
1917. Mr. Herrer died on December 20, 1917.
As above suggested, the issue of fact raised by the evidence is whether Herrer received
G.R. No. L-15895 November 29, 1920 notice of acceptance of his application. To resolve this question, we propose to go directly to
the evidence of record.
RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma. Herrer, plaintiff-
appellant, The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time
vs. of the trial testified that he prepared the letter introduced in evidence as Exhibit 3, of date
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee. November 26, 1917, and handed it to the local manager, Mr. E. E. White, for signature. The
witness admitted on cross-examination that after preparing the letter and giving it to he
manager, he new nothing of what became of it. The local manager, Mr. White, testified to
Jose A. Espiritu for appellant.
having received the cablegram accepting the application of Mr. Herrer from the home office
Cohn, Fisher and DeWitt for appellee.
on November 26, 1917. He said that on the same day he signed a letter notifying Mr. Herrer
of this acceptance. The witness further said that letters, after being signed, were sent to the
chief clerk and placed on the mailing desk for transmission. The witness could not tell if the
letter had every actually been placed in the mails. Mr. Tuason, who was the chief clerk, on
MALCOLM, J.: November 26, 1917, was not called as a witness. For the defense, attorney Manuel Torres
testified to having prepared the will of Joaquin Ma. Herrer, that on this occasion, Mr. Herrer
This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin mentioned his application for a life annuity, and that he said that the only document relating
Ma. Herrer to recover from the defendant life insurance company the sum of pesos 6,000 to the transaction in his possession was the provisional receipt. Rafael Enriquez, the
paid by the deceased for a life annuity. The trial court gave judgment for the defendant. administrator of the estate, testified that he had gone through the effects of the deceased
Plaintiff appeals. and had found no letter of notification from the insurance company to Mr. Herrer.

The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application to Our deduction from the evidence on this issue must be that the letter of November 26, 1917,
the Sun Life Assurance Company of Canada through its office in Manila for a life annuity. Two notifying Mr. Herrer that his application had been accepted, was prepared and signed in the
days later he paid the sum of P6,000 to the manager of the company's Manila office and was local office of the insurance company, was placed in the ordinary channels for transmission,
given a receipt reading as follows: but as far as we know, was never actually mailed and thus was never received by the
MANILA, I. F., 26 de septiembre, 1917.
Not forgetting our conclusion of fact, it next becomes necessary to determine the law which
should be applied to the facts. In order to reach our legal goal, the obvious signposts along
PROVISIONAL RECEIPT Pesos 6,000 the way must be noticed.
7|Insurance Cases Set 1
Until quite recently, all of the provisions concerning life insurance in the Philippines were In resume, therefore, the law applicable to the case is found to be the second paragraph of
found in the Code of Commerce and the Civil Code. In the Code of the Commerce, there article 1262 of the Civil Code providing that an acceptance made by letter shall not bind the
formerly existed Title VIII of Book III and Section III of Title III of Book III, which dealt with person making the offer except from the time it came to his knowledge. The pertinent fact is,
insurance contracts. In the Civil Code there formerly existed and presumably still exist, that according to the provisional receipt, three things had to be accomplished by the
Chapters II and IV, entitled insurance contracts and life annuities, respectively, of Title XII of insurance company before there was a contract: (1) There had to be a medical examination
Book IV. On the after July 1, 1915, there was, however, in force the Insurance Act. No. 2427. of the applicant; (2) there had to be approval of the application by the head office of the
Chapter IV of this Act concerns life and health insurance. The Act expressly repealed Title VIII company; and (3) this approval had in some way to be communicated by the company to the
of Book II and Section III of Title III of Book III of the code of Commerce. The law of insurance applicant. The further admitted facts are that the head office in Montreal did accept the
is consequently now found in the Insurance Act and the Civil Code. application, did cable the Manila office to that effect, did actually issue the policy and did,
through its agent in Manila, actually write the letter of notification and place it in the usual
While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the channels for transmission to the addressee. The fact as to the letter of notification thus fails
methods to be followed in order that there may be a contract of insurance. On the other to concur with the essential elements of the general rule pertaining to the mailing and
hand, the Civil Code, in article 1802, not only describes a contact of life annuity markedly delivery of mail matter as announced by the American courts, namely, when a letter or other
similar to the one we are considering, but in two other articles, gives strong clues as to the mail matter is addressed and mailed with postage prepaid there is a rebuttable presumption
proper disposition of the case. For instance, article 16 of the Civil Code provides that "In of fact that it was received by the addressee as soon as it could have been transmitted to him
matters which are governed by special laws, any deficiency of the latter shall be supplied by in the ordinary course of the mails. But if any one of these elemental facts fails to appear, it is
the provisions of this Code." On the supposition, therefore, which is incontestable, that the fatal to the presumption. For instance, a letter will not be presumed to have been received
special law on the subject of insurance is deficient in enunciating the principles governing by the addressee unless it is shown that it was deposited in the post-office, properly
acceptance, the subject-matter of the Civil code, if there be any, would be controlling. In the addressed and stamped. (See 22 C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)
Civil Code is found article 1262 providing that "Consent is shown by the concurrence of offer
and acceptance with respect to the thing and the consideration which are to constitute the We hold that the contract for a life annuity in the case at bar was not perfected because it
contract. An acceptance made by letter shall not bind the person making the offer except has not been proved satisfactorily that the acceptance of the application ever came to the
from the time it came to his knowledge. The contract, in such case, is presumed to have been knowledge of the applicant.lawph!
entered into at the place where the offer was made." This latter article is in opposition to the
provisions of article 54 of the Code of Commerce. Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of
P6,000 with legal interest from November 20, 1918, until paid, without special finding as to
If no mistake has been made in announcing the successive steps by which we reach a costs in either instance. So ordered.
conclusion, then the only duty remaining is for the court to apply the law as it is found. The
legislature in its wisdom having enacted a new law on insurance, and expressly repealed the G.R. No. L-8151 December 16, 1955
provisions in the Code of Commerce on the same subject, and having thus left a void in the
commercial law, it would seem logical to make use of the only pertinent provision of law
found in the Civil code, closely related to the chapter concerning life annuities.
The Civil Code rule, that an acceptance made by letter shall bind the person making the offer
only from the date it came to his knowledge, may not be the best expression of modern
Lucio Javillonar for petitioner.
commercial usage. Still it must be admitted that its enforcement avoids uncertainty and
J. A. Wolfson, Manuel Y. Mecias, Emilio Abello and Anselmo A. Reyes for respondents.
tends to security. Not only this, but in order that the principle may not be taken too lightly,
let it be noticed that it is identical with the principles announced by a considerable number
of respectable courts in the United States. The courts who take this view have expressly held
that an acceptance of an offer of insurance not actually or constructively communicated to
the proposer does not make a contract. Only the mailing of acceptance, it has been said, BAUTISTA ANGELO, J.:
completes the contract of insurance, as the locus poenitentiae is ended when the acceptance
has passed beyond the control of the party. (I Joyce, The Law of Insurance, pp. 235, 244.) 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

8|Insurance Cases Set 1

judgment being favorable to the plaintiff it was appealed to the court of first instance. The ransacked; that a month thereafter the corresponding investigation conducted by
latter court affirmed the judgment but on appeal to the Court of Appeals the judgment was the police authorities led to the arrest and prosecution of four persons in Criminal
reversed and the case is now before us on a petition for review. Case No. 15104 of the Court of First Instance of Manila for 'Robbery in an Inhabited
House and in Band with Murder'.
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 It is contended in behalf of the company that Basilio was killed which "making an arrest as an
Insurance Company in the amount of P2,000 to which was attached a supplementary officer of the law" or as a result of an "assault or murder" committed in the place and
contract covering death by accident. On January 25, 1951, he died of a gunshot wound on therefore his death was caused by one of the risks excluded by the supplementary contract
the occasion of a robbery committed in the house of Atty. Ojeda at the corner of Oroquieta which exempts the company from liability. This contention was upheld by the Court of
and Zurbaan streets. Virginia Calanoc, the widow, was paid the sum of P2,000, face value of Appeals and, in reaching this conclusion, made the following comment:
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 From the foregoing testimonies, we find that the deceased was a watchman of the
defense, that the deceased died because he was murdered by a person who took part in the Manila Auto Supply, and, as such, he was not boud to leave his place and go with
commission of the robbery and while making an arrest as an officer of the law which Atty. Ojeda and Policeman Magsanoc to see the trouble, or robbery, that occurred
contingencies were expressly excluded in the contract and have the effect of exempting the in the house of Atty. Ojeda. In fact, according to the finding of the lower court,
company from liability. 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
The pertinent facts which need to be considered for the determination of the questions Atty. Ojeda to ask help from the traffic policeman on duty at the corner of Rizal
raised are those reproduced in the decision of the Court of Appeals as follows: 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
The circumstances surrounding the death of Melencio Basilio show that when he residence of Ojeda, and while the deceased was standing in front of the main gate
was killed at about seven o'clock in the night of January 25, 1951, he was on duty of said residence, he was shot and thus died. The death, therefore, of Basilio,
as watchman of the Manila Auto Supply at the corner of Avenida Rizal and although unexpected, was not caused by an accident, being a voluntary and
Zurbaran; that it turned out that Atty. Antonio Ojeda who had his residence at the intentional act on the part of the one wh robbed, or one of those who robbed, the
corner of Zurbaran and Oroquieta, a block away from Basilio's station, had come house of Atty. Ojeda. Hence, it is out considered opinion that the death of Basilio,
home that night and found that his house was well-lighted, but with the windows though unexpected, cannot be considered accidental, for his death occurred
closed; that getting suspicious that there were culprits in his house, Atty. Ojeda because he left his post and joined policeman Magsanoc and Atty. Ojeda to repair
retreated to look for a policeman and finding Basilio in khaki uniform, asked him to to the latter's residence to see what happened thereat. Certainly, when Basilio
accompany him to the house with the latter refusing on the ground that he was not joined Patrolman Magsanoc and Atty. Ojeda, he should have realized the danger to
a policeman, but suggesting that Atty. Ojeda should ask the traffic policeman on which he was exposing himself, yet, instead of remaining in his place, he went with
duty at the corner of Rizal Avenue and Zurbaran; that Atty. Ojeda went to the Atty. Ojeda and Patrolman Magsanoc to see what was the trouble in Atty. Ojeda's
traffic policeman at said corner and reported the matter, asking the policeman to house and thus he was fatally shot.
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 We dissent from the above findings of the Court of Appeals. For one thing, Basilio was a
invited the latter to come along; that as the tree approached the Ojeda residence watchman of the Manila Auto Supply which was a block away from the house of Atty. Ojeda
and stood in front of the main gate which was covered with galvanized iron, the where something suspicious was happening which caused the latter to ask for help. While at
fence itself being partly concrete and partly adobe stone, a shot was fired; that first he declied the invitation of Atty. Ojeda to go with him to his residence to inquire into
immediately after the shot, Atty. Ojeda and the policeman sought cover; that the what was going on because he was not a regular policeman, he later agreed to come along
policeman, at the request of Atty. Ojeda, left the premises to look for when prompted by the traffic policeman, and upon approaching the gate of the residence he
reinforcement; that it turned out afterwards that the special watchman Melencio was shot and died. The circumstance that he was a mere watchman and had no duty to heed
Basilio was hit in the abdomen, the wound causing his instantaneous death; that the call of Atty. Ojeda should not be taken as a capricious desire on his part to expose his life
the shot must have come from inside the yard of Atty. Ojeda, the bullet passing to danger considering the fact that the place he was in duty-bound to guard was only a block
through a hole waist-high in the galvanized iron gate; that upon inquiry Atty. Ojeda away. In volunteering to extend help under the situation, he might have thought, rightly or
found out that the savings of his children in the amount of P30 in coins kept in his wrongly, that to know the truth was in the interest of his employer it being a matter that
aparador contained in stockings were taken away, the aparador having been affects the security of the neighborhood. No doubt there was some risk coming to him in

9|Insurance Cases Set 1

pursuing that errand, but that risk always existed it being inherent in the position he was An insurer should not be allowed, by the use of obscure phrases and exceptions, to
holding. He cannot therefore be blamed solely for doing what he believed was in keeping defeat the very purpose for which the policy was procured. (Moore vs. Aetna Life
with his duty as a watchman and as a citizen. And he cannot be considered as making an Insurance Co., LRA 1915D, 264.)
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 We are therefore persuaded to conclude that the circumstances unfolded in the present case
the policeman. 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
Much less can it be pretended that Basilio died in the course of an assault or murder company from liability.
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 Wherefore, reversing the decision appealed from, we hereby order the company to pay
showing how the fatal shot was fired. Perhaps this may be clarified in the criminal case now petitioner-appellant the amount of P2,000, with legal interest from January 26, 1951 until
pending in court as regards the incident but before that is done anything that might be said fully paid, with costs.
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
[G.R. No. 112360. July 18, 2000]
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 RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS and
could have been either the policeman or Atty. Ojeda for it cannot be pretended that the TRANSWORLD KNITTING MILLS, INC., respondents.
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 PURISIMA, J.:
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 At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
causes of loss therefrom" (45 C. J. S. 781-782), however, it is to be desired that the terms and seeking to annul and set aside the July 15, 1993 Decision[1] and October 22, 1993
phraseology of the exception clause be clearly expressed so as to be within the easy grasp Resolution[2] of the Court of Appeals[3] in CA-G.R. CV NO. 28779, which modified the
and understanding of the insured, for if the terms are doubtful or obscure the same must of Ruling[4] of the Regional Trial Court of Pasig, Branch 161, in Civil Case No. 46106.
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 The antecedent facts that matter are as follows:
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 On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued Fire
Am. Jur., 181), and the reason for this rule is that he "insured usually has no voice in the Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc. (Transworld),
selection or arrangement of the words employed and that the language of the contract is initially for One Million (P1,000,000.00) Pesos and eventually increased to One
selected with great care and deliberation by experts and legal advisers employed by, and Million Five Hundred Thousand (P1,500,000.00) Pesos, covering the period from
acting exclusively in the interest of, the insurance company." (44 C. J. S., p. 1174.) August 14, 1980 to March 13, 1981.

Insurance is, in its nature, complex and difficult for the layman to understand. Pertinent portions of subject policy on the buildings insured, and location thereof,
Policies are prepared by experts who know and can anticipate the bearings and read:
possible complications of every contingency. So long as insurance companies insist
upon the use of ambiguous, intricate and technical provisions, which conceal rather "On stocks of finished and/or unfinished products, raw materials and
than frankly disclose, their own intentions, the courts must, in fairness to those supplies of every kind and description, the properties of the Insureds
who purchase insurance, construe every ambiguity in favor of the insured. (Algoe and/or held by them in trust, on commission or on joint account with
vs. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA 1917A, 1237.) others and/or for which they (sic) responsible in case of loss whilst
contained and/or stored during the currency of this Policy in the premises

10 | I n s u r a n c e C a s e s S e t 1
occupied by them forming part of the buildings situate (sic) within own "ACCORDINGLY, judgment is hereby rendered as follows:
MANILA, PHILIPPINES, BLOCK NO. 601. (1)Dismissing the case as against The New India Assurance Co., Ltd.; (2) Ordering defendant Rizal Surety And Insurance Company to pay
Transwrold (sic) Knitting Mills, Inc. the amount of P826, 500.00
Said building of four-span lofty one storey in height with mezzanine representing the actual value of the losses suffered by it; and
portions is constructed of reinforced concrete and hollow blocks and/or
concrete under galvanized iron roof and occupied as hosiery mills, (3) Cost against defendant Rizal Surety and Insurance Company.
garment and lingerie factory, transistor-stereo assembly plant, offices,
warehouse and caretaker's quarters.

'Bounds in front partly by one-storey concrete building under galvanized

Both the petitioner, Rizal Insurance Company, and private respondent, Transworld
iron roof occupied as canteen and guardhouse, partly by building of two
Knitting Mills, Inc., went to the Court of Appeals, which came out with its decision
and partly one storey constructed of concrete below, timber above
of July 15, 1993 under attack, the decretal portion of which reads:
undergalvanized iron roof occupied as garage and quarters and partly by
open space and/or tracking/ packing, beyond which is the
aforementioned Magdalo Street; on its right and left by driveway, thence "WHEREFORE, and upon all the foregoing, the decision of the court below
open spaces, and at the rear by open spaces.'"[5] is MODIFIED in that defendant New India Assurance Company has and is
hereby required to pay plaintiff-appellant the amount of P1,818,604.19
while the other Rizal Surety has to pay the plaintiff-appellant
The same pieces of property insured with the petitioner were also insured with
P470,328.67, based on the actual losses sustained by plaintiff Transworld
New India Assurance Company, Ltd., (New India).
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
On January 12, 1981, fire broke out in the compound of Transworld, razing the P5,800,000.00 and Rizal Surety and Insurance Company in the amount of
middle portion of its four-span building and partly gutting the left and right P1,500,000.00.
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
No costs.

Transworld filed its insurance claims with Rizal Surety & Insurance Company and
New India Assurance Company but to no avail.
On August 20, 1993, from the aforesaid judgment of the Court of Appeals New
India appealed to this Court theorizing inter alia that the private respondent could
On May 26, 1982, private respondent brought against the said insurance
not be compensated for the loss of the fun and amusement machines and spare
companies an action for collection of sum of money and damages, docketed as Civil
parts stored at the two-storey building because it (Transworld) had no insurable
Case No. 46106 before Branch 161 of the then Court of First Instance of Rizal;
interest in said goods or items.
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.[6] On February 2, 1994, the Court denied the appeal with finality in G.R. No. L-111118
(New India Assurance Company Ltd. vs. Court of Appeals).
Petitioner Rizal Insurance countered that its fire insurance policy sued upon
covered only the contents of the four-span building, which was partly burned, and Petitioner Rizal Insurance and private respondent Transworld, interposed a Motion
not the damage caused by the fire on the two-storey annex building.[7] for Reconsideration before the Court of Appeals, and on October 22, 1993, the
Court of Appeals reconsidered its decision of July 15, 1993, as regards the
imposition of interest, ruling thus:
On January 4, 1990, the trial court rendered its decision; disposing as follows:
11 | I n s u r a n c e C a s e s S e t 1
"WHEREFORE, the Decision of July 15, 1993 is amended but only insofar "xxx contained and/or stored during the currency of this Policy in the
as the imposition of legal interest is concerned, that, on the assessment premises occupied by them forming part of the buildings situate (sic)
against New India Assurance Company on the amount of P1,818,604.19 within own Compound xxx"
and that against Rizal Surety & Insurance Company on the amount of
P470,328.67, from May 26, 1982 when the complaint was filed until Therefrom, it can be gleaned unerringly that the fire insurance policy in question
payment is made. The rest of the said decision is retained in all other did not limit its coverage to what were stored in the four-span building. As opined
respects. by the trial court of origin, two requirements must concur in order that the said fun
and amusement machines and spare parts would be deemed protected by the fire
SO ORDERED."[10] insurance policy under scrutiny, to wit:

Undaunted, petitioner Rizal Surety & Insurance Company found its way to this "First, said properties must be contained and/or stored in the areas
Court via the present Petition, contending that: occupied by Transworld and second, said areas must form part of the
building described in the policy xxx"[14]
BUILDING WHERE THE BULK OF THE BURNED PROPERTIES WERE STORED, 'Said building of four-span lofty one storey in height
WAS INCLUDED IN THE COVERAGE OF THE INSURANCE POLICY ISSUED BY with mezzanine portions is constructed of reinforced
RIZAL SURETY TO TRANSWORLD. concrete and hollow blocks and/or concrete under
galvanized iron roof and occupied as hosiery mills,
II.....SAID DECISION AND RESOLUTION (ANNEXES A AND B) ERRED IN NOT garment and lingerie factory, transistor-stereo
CONSIDERING THE PICTURES (EXHS. 3 TO 7-C-RIZAL SURETY), TAKEN assembly plant, offices, ware house and caretaker's
PROPERTIES WERE LOCATED, SUSTAINED PARTIAL DAMAGE ONLY. The Court is mindful of the well-entrenched doctrine that factual findings by the
Court of Appeals are conclusive on the parties and not reviewable by this Court,
III. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING THAT and the same carry even more weight when the Court of Appeals has affirmed the
TRANSWORLD HAD ACTED IN PALPABLE BAD FAITH AND WITH MALICE IN findings of fact arrived at by the lower court.[15]
TRANSWORLD TO PAY TO RIZAL SURETY MORAL AND PUNITIVE In the case under consideration, both the trial court and the Court of Appeals
DAMAGES (ART. 2205, CIVIL CODE), PLUS ATTORNEY'S FEES AND found that the so called "annex " was not an annex building but an integral and
EXPENSES OF LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL CODE).[11] inseparable part of the four-span building described in the policy and consequently,
the machines and spare parts stored therein were covered by the fire insurance in
The Petition is not impressed with merit. dispute. The letter-report of the Manila Adjusters and Surveyor's Company, which
petitioner itself cited and invoked, describes the "annex" building as follows:
It is petitioner's submission that the fire insurance policy litigated upon protected
only the contents of the main building (four-span),[12] and did not include those "Two-storey building constructed of partly timber and partly concrete
stored in the two-storey annex building. On the other hand, the private respondent hollow blocks under g.i. roof which is adjoining and intercommunicating
theorized that the so called "annex" was not an annex but was actually an integral with the repair of the first right span of the lofty storey building and
part of the four-span building[13]and therefore, the goods and items stored therein thence by property fence wall."[16]
were covered by the same fire insurance policy.
Verily, the two-storey building involved, a permanent structure which adjoins and
Resolution of the issues posited here hinges on the proper interpretation of the intercommunicates with the "first right span of the lofty storey building",[17] formed
stipulation in subject fire insurance policy regarding its coverage, which reads: part thereof, and meets the requisites for compensability under the fire insurance
policy sued upon.

12 | I n s u r a n c e C a s e s S e t 1
So also, considering that the two-storey building aforementioned was already with overwhelming economic power, manage to impose upon parties
existing when subject fire insurance policy contract was entered into on January dealing with them cunningly prepared 'agreements' that the weaker party
12, 1981, having been constructed sometime in 1978,[18] petitioner should have may not change one whit, his participation in the 'agreement' being
specifically excluded the said two-storey building from the coverage of the fire reduced to the alternative to 'take it or leave it' labelled since Raymond
insurance if minded to exclude the same but if did not, and instead, went on to Saleilles 'contracts by adherence' (contrats [sic] d'adhesion), in contrast to
provide that such fire insurance policy covers the products, raw materials and these entered into by parties bargaining on an equal footing, such
supplies stored within the premises of respondent Transworld which was an contracts (of which policies of insurance and international bills of lading
integral part of the four-span building occupied by Transworld, knowing fully well are prime example) obviously call for greater strictness and vigilance on
the existence of such building adjoining and intercommunicating with the right the part of courts of justice with a view to protecting the weaker party
section of the four-span building. from abuses and imposition, and prevent their becoming traps for the
unwary (New Civil Code, Article 24; Sent. of Supreme Court of Spain, 13
After a careful study, the Court does not find any basis for disturbing what the Dec. 1934, 27 February 1942.)'"[22]
lower courts found and arrived at.
The issue of whether or not Transworld has an insurable interest in the fun and
Indeed, the stipulation as to the coverage of the fire insurance policy under amusement machines and spare parts, which entitles it to be indemnified for the
controversy has created a doubt regarding the portions of the building insured loss thereof, had been settled in G.R. No. L-111118, entitled New India Assurance
thereby. Article 1377 of the New Civil Code provides: Company, Ltd., vs. Court of Appeals, where the appeal of New India from the
decision of the Court of Appeals under review, was denied with finality by this
Court on February 2, 1994.
"Art.1377. The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity"
The rule on conclusiveness of judgment, which obtains under the premises,
precludes the relitigation of a particular fact or issue in another action between the
Conformably, it stands to reason that the doubt should be resolved against the
same parties based on a different claim or cause of action. "xxx the judgment in the
petitioner, Rizal Surety Insurance Company, whose lawyer or managers drafted the
prior action operates as estoppel only as to those matters in issue or points
fire insurance policy contract under scrutiny. Citing the aforecited provision of law
controverted, upon the determination of which the finding or judgment was
in point, the Court in Landicho vs. Government Service Insurance System,[19] ruled:
rendered. In fine, the previous judgment is conclusive in the second case, only as
those matters actually and directly controverted and determined and not as to
"This is particularly true as regards insurance policies, in respect of which matters merely involved therein."[23]
it is settled that the 'terms in an insurance policy, which are ambiguous,
equivocal, or uncertain x x x are to be construed strictly and most strongly
Applying the abovecited pronouncement, the Court, in Smith Bell and Company
against the insurer, and liberally in favor of the insured so as to effect the
(Phils.), Inc. vs. Court of Appeals,[24] held that the issue of negligence of the shipping
dominant purpose of indemnity or payment to the insured, especially
line, which issue had already been passed upon in a case filed by one of the
where forfeiture is involved' (29 Am. Jur., 181), and the reason for this is
insurers, is conclusive and can no longer be relitigated in a similar case filed by
that the 'insured usually has no voice in the selection or arrangement of
another insurer against the same shipping line on the basis of the same factual
the words employed and that the language of the contract is selected
circumstances. Ratiocinating further, the Court opined:
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).""[20] "In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai Maru')
had been negligent, or so negligent as to have proximately caused the
collision between them, was an issue that was actually, directly and
Equally relevant is the following disquisition of the Court in Fieldmen's Insurance
expressly raised, controverted and litigated in C.A.-G.R. No. 61320-R.
Company, Inc. vs. Vda. De Songco,[21] to wit:
Reyes, L.B., J., resolved that issue in his Decision and held the 'Don Carlos'
to have been negligent rather than the 'Yotai Maru' and, as already
"'This rigid application of the rule on ambiguities has become necessary in noted, that Decision was affirmed by this Court in G.R. No. L-48839 in a
view of current business practices. The courts cannot ignore that Resolution dated 6 December 1987. The Reyes Decision thus became final
nowadays monopolies, cartels and concentration of capital, endowed and executory approximately two (2) years before the Sison Decision,

13 | I n s u r a n c e C a s e s S e t 1
which is assailed in the case at bar, was promulgated. Applying the rule of PAREDES, J.:
conclusiveness of judgment, the question of which vessel had been
negligent in the collision between the two (2) vessels, had long been On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued
settled by this Court and could no longer be relitigated in C.A.-G.R. No. Personal Accident Policy No. 7136 on the life of Francisco del Rosario, alias Paquito Bolero,
61206-R. Private respondent Go Thong was certainly bound by the ruling son of herein plaintiff-appellee, binding itself to pay the sum of P1,000.00 to P3,000.00, as
or judgment of Reyes, L.B., J. and that of this Court. The Court of Appeals indemnity for the death of the insured. The pertinent provisions of the Policy, recite:
fell into clear and reversible error when it disregarded the Decision of this
Court affirming the Reyes Decision."[25]
Part I. Indemnity For Death

The controversy at bar is on all fours with the aforecited case. Considering that
If the insured sustains any bodily injury which is effected solely through violent,
private respondent's insurable interest in, and compensability for the loss of
external, visible and accidental means, and which shall result, independently of all
subject fun and amusement machines and spare parts, had been adjudicated,
other causes and within sixty (60) days from the occurrence thereof, in the Death
settled and sustained by the Court of Appeals in CA-G.R. CV NO. 28779, and by this
of the Insured, the Company shall pay the amount set opposite such injury:
Court in G.R. No. L-111118, in a Resolution, dated February 2, 1994, the same can
no longer be relitigated and passed upon in the present case. Ineluctably, the
petitioner, Rizal Surety Insurance Company, is bound by the ruling of the Court of Section 1. Injury sustained other than those specified below unless excepted
Appeals and of this Court that the private respondent has an insurable interest in hereinafter. . . . . . . . P1,000.00
the aforesaid fun and amusement machines and spare parts; and should be
indemnified for the loss of the same. Section 2. Injury sustained by the wrecking or disablement of a railroad
passenger car or street railway car in or on which the Insured is travelling as
So also, the Court of Appeals correctly adjudged petitioner liable for the amount of a farepaying passenger. . . . . . . . P1,500.00
P470,328.67, it being the total loss and damage suffered by Transworld for which
petitioner Rizal Insurance is liable.[26] Section 3. Injury sustained by the burning of a church, theatre, public library
or municipal administration building while the Insured is therein at the
commencement of the fire. . . . . . . . P2,000.00
All things studiedly considered and viewed in proper perspective, the Court is of
the irresistible conclusion, and so finds, that the Court of Appeals erred not in Section 4. Injury sustained by the wrecking or disablement of a regular
holding the petitioner, Rizal Surety Insurance Company, liable for the destruction passenger elevator car in which the Insured is being conveyed as a
and loss of the insured buildings and articles of the private respondent. passenger (Elevator in mines excluded) P2,500.00

WHEREFORE, the Decision, dated July 15, 1993, and the Resolution, dated October Section 5. Injury sustained by a stroke of lightning or by a cyclone. . . . . . . . P3,000.00
22, 1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are AFFIRMED in toto.
No pronouncement as to costs.
xxx xxx xxx

Part VI. Exceptions

G.R. No. L-16215 June 29, 1963

This policy shall not cover disappearance of the Insured nor shall it cover Death,
Disability, Hospital fees, or Loss of Time, caused to the insured:
SIMEON DEL ROSARIO, plaintiff-appellee,
. . . (h) By drowning except as a consequence of the wrecking or disablement in the
Philippine waters of a passenger steam or motor vessel in which the Insured is
travelling as a farepaying passenger; . . . .
Vicente J. Francisco and Jose R. Francisco for plaintiff-appellee.
K. V. Faylona for defendant-appellant.
A rider to the Policy contained the following:

14 | I n s u r a n c e C a s e s S e t 1
IV. DROWNING P1,000.00, pursuant to Section 1, Part I of the Provisions of the policy (Exh. F, or 3). Because
of the above opinion, defendant insurance company refused to pay more than P1,000.00. In
It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the the meantime, Atty. Vicente Francisco, in a subsequent letter to the insurance company,
policy is hereby waived by the company, and to form a part of the provision covered by the asked for P3,000.00 which the Company refused, to pay. Hence, a complaint for the recovery
policy. of the balance of P2,000.00 more was instituted with the Court of First Instance of Rizal
(Pasay City, Branch VII), praying for it further sum of P10,000.00 as attorney's fees, expenses
of litigation and costs.
On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while on board
the motor launch "ISLAMA" together with 33 others, including his beneficiary in the Policy,
Remedios Jayme, were forced to jump off said launch on account of fire which broke out on Defendant Insurance Company presented a Motion to Dismiss, alleging that the demand or
said vessel, resulting in the death of drowning, of the insured and beneficiary in the waters of claim is set forth in the complaint had already been released, plaintiff having received the full
Jolo. 1äwphï1.ñët amount due as appearing in policy and as per opinion of the Insurance Commissioner. An
opposition to the motion to dismiss, was presented by plaintiff, and other pleadings were
subsequently file by the parties. On December 28, 1957, the trial court deferred action on
On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, filed a claim
the motion to dismiss until termination of the trial of the case, it appearing that the ground
for payment with defendant company, and on September 13, 1957, defendant company paid
thereof was not indubitable. In the Answer to the complaint, defendant company practically
to him (plaintiff) the sum of P1,000.00, pursuant to Section 1 of Part I of the policy. The
admitted all the allegations therein, denying only those which stated that under the policy its
receipt signed by plaintiff reads —
liability was P3,000.00.

On September 1, 1958, the trial court promulgated an Amended Decision, the pertinent
of PESOS — ONE THOUSAND (P1,000.00) Philippine Currency, being
portions of which read —
settlement in full for all claims and demands against said Company as a
result of an accident which occurred on February 26, 1957, insured under
out ACCIDENT Policy No. 7136, causing the death of the Assured. xxx xxx xxx

In view of the foregoing, this policy is hereby surrendered and Since the contemporaneous and subsequent acts of the parties show that it was
CANCELLED. not their intention that the payment of P1,000.00 to the plaintiff and the signing of
the loss receipt exhibit "1" would be considered as releasing the defendant
completely from its liability on the policy in question, said intention of the parties
should prevail over the contents of the loss receipt "1" (Articles 1370 and 1371,
New Civil Code).
Amount of Insurance P1,000.00
". . . . Under the terms of this policy, defendant company agreed to pay P1,000.00
to P3,000.00 as indemnity for the death of the insured. The insured died of
drowning. Death by drowning is covered by the policy the pertinent provisions of
On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote defendant which reads as follows:
company acknowledging receipt by his client (plaintiff herein), of the P1,000.00, but
informing said company that said amount was not the correct one. Atty. Francisco claimed —
xxx xxx xxx

The amount payable under the policy, I believe should be P1,500.00 under the
"Part I of the policy fixes specific amounts as indemnities in case of death
provision of Section 2, part 1 of the policy, based on the rule of pari materia as the
resulting from "bodily injury which is effected solely thru violence,
death of the insured occurred under the circumstances similar to that provided
external, visible and accidental means" but, Part I of the Policy is not
under the aforecited section.
applicable in case of death by drowning because death by drowning is not
one resulting from "bodily injury which is affected solely thru violent,
Defendant company, upon receipt of the letter, referred the matter to the Insurance external, visible and accidental means" as "Bodily Injury" means a cut, a
Commissioner, who rendered an opinion that the liability of the company was only

15 | I n s u r a n c e C a s e s S e t 1
bruise, or a wound and drowning is death due to suffocation and not to the insured, has little, if any, participation in the preparation of the policy, together with the
any cut, bruise or wound." drafting of its terms and Conditions. The interpretation of obscure stipulations in a contract
should not favor the party who cause the obscurity (Art. 1377, N.C.C.), which, in the case at
xxx xxx xxx bar, is the insurance company.

Besides, on the face of the policy Exhibit "A" itself, death by drowning is a ground . . . . And so it has been generally held that the "terms in an insurance policy, which
for recovery apart from the bodily injury because death by bodily injury is covered are ambiguous, equivocal or uncertain . . . are to be construed strictly against, the
by Part I of the policy while death by drowning is covered by Part VI thereof. But insurer, and liberally in favor of the insured so as to effect the dominant purpose of
while the policy mentions specific amounts that may be recovered for death for indemnity or payment to the insured, especially where a forfeiture is involved," (29
bodily injury, yet, there is not specific amount mentioned in the policy for death Am. Jur. 181) and the reason for this rule is that the "insured usually has no voice in
thru drowning although the latter is, under Part VI of the policy, a ground for the selection or arrangement of the words employed and that the language of the
recovery thereunder. Since the defendant has bound itself to pay P1000.00 to contract is selected with great care and deliberation by expert and legal advisers
P3,000.00 as indemnity for the death of the insured but the policy does not employed by, and acting exclusively in the interest of, the insurance company" (44
positively state any definite amount that may be recovered in case of death by C.J.S. 1174). Calanoc v. Court of Appeals, et al., G.R. No. L-8151, Dec. 16, 1955.
drowning, there is an ambiguity in this respect in the policy, which ambiguity must
be interpreted in favor of the insured and strictly against the insurer so as to allow . . . . Where two interpretations, equally fair, of languages used in an insurance
greater indemnity. policy may be made, that which allows the greater indemnity will prevail. (L'Engel
v. Scotish Union & Nat. F. Ins. Co., 48 Fla. 82, 37 So. 462, 67 LRA 581 111 Am. St.
xxx xxx xxx Rep. 70, 5 Ann. Cas. 749).

. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already At any event, the policy under consideration, covers death or disability by accidental means,
paid the amount of P1,000.00 to the plaintiff so that there still remains a balance of and the appellant insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for
P2,000.00 of the amount to which plaintiff is entitled to recover under the policy death of the insured.
Exhibit "A".
In view of the conclusions reached, it would seem unnecessary to discuss the other issues
The plaintiff asks for an award of P10,000.00 as attorney's fees and expenses of raised in the appeal.
litigation. However, since it is evident that the defendant had not acted in bad faith
in refusing to pay plaintiff's claim, the Court cannot award plaintiff's claim for The judgment appealed from is hereby affirmed. Without costs.
attorney's fees and expenses of litigation.
G.R. No. L-23491 July 31, 1968
IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside its
decision dated July 21, 1958 and hereby renders judgment, ordering the defendant TAURUS TAXI CO., INC., FELICITAS V. MONJE, ET AL., plaintiffs-appellees,
to pay plaintiff the sum of Two Thousand (P2,000.00) Pesos and to pay the costs. vs.
THE CAPITAL INSURANCE & SURETY CO., INC., defendant-appellant.
The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in
a Resolution dated September 29, 1959, elevated the case to this Court, stating that the Vergara and Dayot for plaintiffs-appellees.
genuine issue is purely legal in nature. Achacoso, Nera and Ocampo for defendant-appellant.

All the parties agree that indemnity has to be paid. The conflict centers on how much should FERNANDO, J.:
the indemnity be. We believe that under the proven facts and circumstances, the findings
and conclusions of the trial court, are well taken, for they are supported by the generally
The principal legal question in this appeal from a lower court decision, ordering defendant-
accepted principles or rulings on insurance, which enunciate that where there is an
appellant The Capital Insurance & Surety Co., Inc. to pay the plaintiff-appellee Taurus Taxi
ambiguity with respect to the terms and conditions of the policy, the same will be resolved
Co., Inc. as well as plaintiffs-appellees, widow and children of the deceased Alfredo Monje,
against the one responsible thereof. It should be recalled in this connection, that generally,

16 | I n s u r a n c e C a s e s S e t 1
who, in his lifetime, was employed as a taxi driver of such plaintiff-appellee, "the sum of evidenced by the records of W.C.C. Case No. A88637 entitled "Felicitas V. Monje, et al. vs.
P5,000.00 with interest thereon at the legal rate from the filing of the complaint until fully Taurus Taxi Co., Inc.", Regional Office No. 4, Department of Labor, Manila ... " 4
paid," with P500.00 as attorney's fees and the costs of the suit, is whether or not a provision
in the insurance contract that defendant-appellant will indemnify any authorized driver The above defense, based on a fact which was not disputed, was raised and rightfully
provided that [he] is not entitled to any indemnity under any other policy, it being shown rejected by the lower court. From its own version, defendant-appellant would seek to escape
that the deceased was paid his workman's compensation from another insurance policy, liability on the plea that the workman's compensation to which the deceased driver was
should defeat such a right to recover under the insurance contract subject of this suit. The rightfully entitled was settled by the employer through a policy issued by another insurance
lower court answered in the negative. Its holding cannot be successfully impugned. firm. What was paid therefore was not indemnity but compensation.

The appealed decision stated at the outset that the motion for judgment on the pleadings Since what is prohibited by the insurance policy in question is that any "authorized driver of
filed by the plaintiffs was granted, the defendant having no objection and the issue plaintiff Taurus Taxi Co., Inc." should not be "entitled to any indemnity under any policy", it
presented being capable of resolution without the need of presenting any evidence. Then the would appear indisputable that the obligation of defendant-appellant under the policy had
decision continues: "Alfredo Monje, according to the complaint, was employed as taxi driver not in any wise been extinguished. It is too well-settled to need the citation of authorities
by the plaintiff Taurus Taxi Co., Inc. On December 6, 1962, the taxi he was driving collided that what the law requires enters into and forms part of every contract. The Workmen's
with a Transport Taxicab at the intersection of Old Sta. Mesa and V. Mapa Streets, Manila, Compensation Act, explicitly requires that an employee suffering any injury or death arising
resulting in his death. At the time of the accident, there was subsisting and in force out of or in the course of employment be compensated. The fulfillment of such statutory
Commercial Vehicle Comprehensive Policy No. 101, 737 ... issued by the defendant to the obligation cannot be the basis for evading the clear, explicit and mandatory terms of a policy.
Taurus Taxi Co., Inc. The amount for which each passenger, including the driver, is insured is
P5,000.00. After the issuance of policy No. 101, 737, the defendant issued the Taurus Taxi
In the same way as was held in Benguet Consolidated, Inc. v. Social Security System 5 that
Co., Inc. Indorsement No. 1 which forms part of the policy ... " 1 Reference was then made to
sickness benefits under the Social Security Act may be recovered simultaneously with
plaintiff-appellee Felicitas Monje being the widow of the taxi driver, the other plaintiffs-
disability benefits under the Workmen's Compensation Act, the previous payment made of
appellees with the exception of the Taurus Taxi Co., Inc., being the children of the couple.
the compensation under such legislation is no obstacle by virtue of a clause like that invoked
After which it was noted that plaintiff Taurus Taxi Co., Inc. made representations "for the
by defendant-appellant to the payment of indemnity under the insurance policy.
payment of the insurance benefit corresponding to her and her children since it was issued in
its name, benefit corresponding to her and her children, ... but despite demands ... the
defendant refused and still refuses to pay them." 2 Assuming however that there is a doubt concerning the liability of defendant-appellant
insurance firm, nonetheless, it should be resolved against its pretense and in favor of the
insured. It was the holding in Eagle Star Insurance, Ltd. v. Chia Yu 6 that courts are to regard
On the above facts, the liability apparently clear, the defenses interposed by defendant
"with extreme jealousy" limitations of liability found in insurance policies and to construe
insurance company being in the opinion of the lower court without merit, the aforesaid
them in such a way as to preclude the insurer from non-compliance with his obligation. In
judgment was rendered. This being a direct appeal, to us on questions of law, the facts as
other words, to quote a noted authority on the subject, "a contract of insurance couched in
found by the lower court cannot be controverted.
language chosen by the insurer is, if open to the construction contended for by the insured,
to be construed most strongly, or strictly, against the insurer and liberally in favor of the
Defendant-appellant Capital Insurance & Surety Co. Inc. alleged as the first error of the lower contention of the insured, which means in accordance with the rule contra
court its failure to hold "that in view of the fact that the deceased Alfredo Monje was entitled proferentem." 7 Enough has been said therefore to dispose of the first assigned error.
to indemnity under another insurance policy issued by Ed. A. Keller Co., Ltd., the heirs of the
said deceased are not entitled to indemnity under the insurance policy issued by appellant
The point is made in the second alleged error that the lower court ought to have held "that
for the reason that the latter policy contains a stipulation that "the company will indemnify
by joining the heirs of Alfredo Monje as a party plaintiff, plaintiff Taurus Taxi Co., Inc.
any authorized driver provided that such authorized driver is not entitled to indemnity under
committed a breach of policy condition and thus forfeited whatever benefits, if any, to which
any other policy." " 3 In the discussion of the above error, defendant-appellant stated the
it might be entitled under appellant's policy." 8 The basis for such an allegation is one of the
following: "The facts show that at the time of his death, the deceased Alfredo Monje, as
conditions set forth in the policy. Thus: " "5. No admission, offer, promise or payment shall
authorized driver and employee of plaintiff Taurus Taxi Co., Inc., was entitled to indemnity
be made by or on behalf of the insured without the written consent of the Company which
under another insurance policy, then subsisting, which was Policy No. 50PH-1605 issued by
shall be entitled if it so desires to take over and conduct in his name the defense or
Ed. A. Keller Co., Ltd. to plaintiff Taurus Taxi Co., Inc. As a matter of fact, the indemnity to
settlement of any claim or to prosecute in his name for its own benefit any claim for
which the deceased Alfredo Monje was entitled under the said Policy No. 50PH-1605 was
indemnity or damages or otherwise and shall have full discretion in the conduct of any
paid by Ed. A. Keller Co., Ltd. to the heirs of Alfredo Monje on December 28, 1962, as

17 | I n s u r a n c e C a s e s S e t 1
proceedings and in the settlement of any claim and the Insured shall give all such information The Court sets aside respondent Insurance Commission's dismissal of petitioner's complaint
and assistance as the Company may require ... " 9 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
Such a plea is even less persuasive. It is understandable then why the lower court refused to (assuming that such taking was for a joy ride, in the course of which it was totally smashed in
be swayed by it. The plaintiff Taurus Taxi Co., inc. had to join the suit on behalf of the real an accident), respondent insurer is liable and must pay insured for the total loss of the
beneficiaries, the heirs of the deceased driver, who are the other plaintiffs as it was a party insured vehicle under the theft clause of the policy.
to the policy.
The undisputed facts of the case as found in the appealed decision of April 14, 1980 of
Moreover, as noted in the decision appealed from: "The institution of the action cannot respondent insurance commission are as follows:
possibly be construed as an admission, offer, promise, or payment by the company, for it
merely seeks to enforce, by court action, the only legal remedy available to it, its rights under Complainant [petitioner] was the owner of a Colt Lancer, Model 1976,
the contract of insurance to which it is a party. To consider, furthermore, the insured with respondent company under Private Car Policy No. MBI/PC-
commencement of an action by the insured, alone or with others, as a breach of the policy, 0704 for P35,000.00 — Own Damage; P30,000.00 — Theft; and
resulting in forfeiture of the benefits thereunder, to place in the hands of the insurer the P30,000.00 — Third Party Liability, effective May 16, 1977 to May 16,
power to nullify at will the whole contract of insurance by the simple expedient of refusing to 1978. On May 9, 1978, the vehicle was brought to the Sunday Machine
make payment and compelling the insured to bring a suit to enforce the policy." 10 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
To so construe the policy to yield a contrary result is to put a premium on technicality. If such taken by six (6) persons and driven out to Montalban, Rizal. While
a defense is not frowned upon and rejected, the time will come when the confidence on the travelling along Mabini St., Sitio Palyasan, Barrio Burgos, going North at
part of the public in the good faith of insurance firms would be minimized, if not altogether Montalban, Rizal, the car figured in an accident, hitting and bumping a
lost. Such a deplorable consequence ought to be avoided and a construction of any gravel and sand truck parked at the right side of the road going south. As
stipulation that would be fraught with such a risk repudiated. What the lower court did then a consequence, the gravel and sand truck veered to the right side of the
cannot be characterized as error. 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
The third error assigned, namely, that the lower court should have considered the filing of
well, suffered extensive damage. Complainant, thereafter, filed a claim
the complaint against defendant-appellant as unjust and unwarranted, is, in the light of the
for total loss with the respondent company but claim was denied. Hence,
above, clearly without merit.
complainant, was compelled to institute the present action.

WHEREFORE, the appealed decision of the lower court ordering defendant-appellant "to pay
The comprehensive motor car insurance policy for P35,000.00 issued by respondent Empire
the plaintiffs the sum of P5,000.00 with interest thereon at the legal rate from the filing of
Insurance Company admittedly undertook to indemnify the petitioner-insured against loss or
the complaint until fully paid, P500.00 as attorney's fees," 11 with costs is affirmed. Costs
damage to the car (a) by accidental collision or overturning, or collision or overturning
against defendant-appellant.
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
G.R. No. L-54171 October 28, 1980 malicious act.

JEWEL VILLACORTA, assisted by her husband, GUERRERO VILLACORTA, petitioner, Respondent insurance commission, however, dismissed petitioner's complaint for recovery
vs. of the total loss of the vehicle against private respondent, sustaining respondent insurer's
THE INSURANCE COMMISSION and EMPIRE INSURANCE COMPANY, respondents. 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"

TEEHANKEE, Acting C.J.: 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

18 | I n s u r a n c e C a s e s S e t 1
any person on his (insured's) permission. Under the second category, it is to be noted that employees of a car service or repair shop must be duly licensed drivers and have no
the words "any person' is qualified by the phrase disqualification to drive a motor vehicle.

... on the insured's order or with his permission.' It is therefore clear that A car owner who entrusts his car to an established car service and repair shop necessarily
if the person driving is other than the insured, he must have been duly entrusts his car key to the shop owner and employees who are presumed to have the
authorized by the insured, to drive the vehicle to make the insurance insured's permission to drive the car for legitimate purposes of checking or road-testing the
company liable for the driver's negligence. Complainant admitted that car. The mere happenstance that the employee(s) of the shop owner diverts the use of the
she did not know the person who drove her vehicle at the time of the car to his own illicit or unauthorized purpose in violation of the trust reposed in the shop by
accident, much less consented to the use of the same (par. 5 of the the insured car owner does not mean that the "authorized driver" clause has been violated
complaint). Her husband likewise admitted that he neither knew this such as to bar recovery, provided that such employee is duly qualified to drive under a valid
driver Benito Mabasa (Exhibit '4'). With these declarations of driver's license.
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 The situation is no different from the regular or family driver, who instead of carrying out the
complainant. Apparently, this is a violation of the 'Authorized Driver' owner's order to fetch the children from school takes out his girl friend instead for a joy ride
clause of the policy. 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
Respondent commission likewise upheld private respondent's assertion that the car was not owner's authorization.
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 Secondly, and independently of the foregoing (since when a car is unlawfully taken, it is the
possession and dominion of a movable thing is coupled ... with the intention. at the time of theft clause, not the "authorized driver" clause, that applies), where a car is admittedly as in
the 'taking', of withholding it with the character of permanency (People vs. Galang, 7 Appt. this case unlawfully and wrongfully taken by some people, be they employees of the car shop
Ct. Rep. 13). In other words, there must have been shown a felonious intent upon the part of or not to whom it had been entrusted, and taken on a long trip to Montalban without the
the taker of the car, and the intent must be an intent permanently to deprive the insured of owner's consent or knowledge, such taking constitutes or partakes of the nature of theft as
his car," and that "Such was not the case in this instance. The fact that the car was taken by defined in Article 308 of the Revised Penal Code, viz. "Who are liable for theft. — Theft is
one of the residents of the Sunday Machine Works, and the withholding of the same, for a committed by any person who, with intent to gain but without violence against or
joy ride should not be construed to mean 'taking' under Art. 308 of the Revised Penal Code. If intimidation of persons nor force upon things, shall take personal property of another
at all there was a 'taking', the same was merely temporary in nature. A temporary taking is without the latter's consent," for purposes of recovering the loss under the policy in
held not a taking insured against (48 A LR 2d., page 15)." question.

The Court finds respondent commission's dismissal of the complaint to be contrary to the The Court rejects respondent commission's premise that there must be an intent on the part
evidence and the law. 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
First, respondent commission's ruling that the person who drove the vehicle in the person of held not a taking insured against."
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 The evidence does not warrant respondent commission's findings that it was a mere "joy
was not an "authorized driver" of petitioner-complainant is too restrictive and contrary to ride". From the very investigator's report cited in its comment, 3 the police found from the
the established principle that insurance contracts, being contracts of adhesion where the waist of the car driver Benito Mabasa Bartolome who smashed the car and was found dead
only participation of the other party is the signing of his signature or his "adhesion" thereto, right after the incident "one cal. 45 Colt. and one apple type grenade," hardly the materials
"obviously call for greater strictness and vigilance on the part of courts of justice with a view one would bring along on a "joy ride". Then, again, it is equally evident that the taking proved
of protecting the weaker party from abuse and imposition, and prevent their becoming traps to be quite permanent rather than temporary, for the car was totally smashed in the fatal
for the unwary. 2 accident and was never returned in serviceable and useful condition to petitioner-owner.

The main purpose of the "authorized driver" clause, as may be seen from its text, supra, is Assuming, despite the totally inadequate evidence, that the taking was "temporary" and for a
that a person other than the insured owner, who drives the car on the insured's order, such "joy ride", the Court sustains as the better view that which holds that when a person, either
as his regular driver, or with his permission, such as a friend or member of the family or the
19 | I n s u r a n c e C a s e s S e t 1
with the object of going to a certain place, or learning how to drive, or enjoying a free ride, This insurance is granted subject to the terms and conditions hereinafter
takes possession of a vehicle belonging to another, without the consent of its owner, he is set forth and in consideration of the "Information" therefor and of the
guilty of theft because by taking possession of the personal property belonging to another payment on the day this Policy takes effect of the monthly premiums
and using it, his intent to gain is evident since he derives therefrom utility, satisfaction, stated above, due from and payable by the Insured, and the like
enjoyment and pleasure. Justice Ramon C. Aquino cites in his work Groizard who holds that payments on the last day of every month during the lifetime of the
the use of a thing constitutes gain and Cuello Calon who calls it "hurt de uso. " 4 Insured until maturity of this Policy or until prior death of the Insured.

The insurer must therefore indemnify the petitioner-owner for the total loss of the insured On page 2 of said policy, condition No. 1 provides, in part: .
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 1. PAYMENT OF PREMIUMS: — .
Works, Inc.
... . Premiums are due and payable at the Office of the System in Manila
ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered or at any of its branches. When any premium or installment thereof
sentencing private respondent to pay petitioner the sum of P35,000.00 with legal interest remains unpaid after its due date, such due date is the date of default in
from the filing of the complaint until full payment is made and to pay the costs of suit. payment of premiums. The mere possession of this Policy does not imply
that it is in force unless the premiums due thereon are paid on time or
SO ORDERED. the policy has sufficient cash value to keep it in force.

G.R. No. L-28866 March 17, 1972 Condition No. 18, on page 8 of the policy, is of the following tenor: .

FE DE JOYA LANDICHO, in her own behalf and as judicial guardian of her minor children, 18. ENTIRE CONTRACT IN THIS POLICY: — .
vs. This Policy together with the "Information" sheet signed by the Insured, a
GOVERNMENT SERVICE INSURANCE SYSTEM,defendant-appellant. . copy of which is attached hereto, is issued under the provisions of
Commonwealth Act No. 186, as amended, and constitutes the entire
Vedasto J. Hernandez for plaintiffs-appellees.Government Corporate Counsel Leopoldo M. contract.
Abellera and Trial Attorney Arsenio J. Magpale defendant-appellant.
All statements made by the Insured shall, in the absence of fraud, be
deemed representations and no warranties, and no statement shall void
the Policy or be used as a defense to claim hereunder unless it be
CONCEPCION, C.J.:p contained in written information and a copy of such information be
endorsed upon or attached to the Policy when issued.
Appeal of the Government Service Insurance System — hereinafter referred to as GSIS, for
the sake of brevity — from a decision of the Court of First Instance of Manila directing said Before the issuance of said policy, the insured had filed an application, by filing and signing a
defendant to pay to the plaintiffs-appellees, Fe de Joya Landicho and her minor children, printed form of the GSIS on the basis of which the policy was issued. Paragraph 7 of said
Rafael J. and Maria Lourdes Eugenia, both surnamed Landicho, the sum of P15,800, with application States:
interest thereon, at the legal rate, from September 26, 1967, until fully paid, in addition to
the sum of P1,000, as and for attorney's fees, and the costs. 7. I hereby declare that all the above statements and answers as well as
those I may make to the System's Medical Examiner in continuation of
The facts are not in dispute. On June 1, 1964, the GSIS issued in favor of Flaviano Landicho, a this application, to be true and co direct to the best of my knowledge and
civil engineer of the Bureau of Public Works, stationed at Mamburao, Mindoro Occidental, belief, and I hereby agree as follows: .
optional additional life insurance policy No. OG-136107 in the sum of P7,900. The policy
states on its face:

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a. That this declaration, with the answers to be given by me to the of Public Works — "thru the GSIS to deduct from my salary the monthly premium in the
Medical Officer, shall be made the basis the policy and form part of the amount of P33.36 beginning the month of May, 1964, and every month thereafter," and that
same; . "failure to deduct from my salary the monthly premiums shallnot make the policy lapse,
however, the premium account shall be considered as indebtedness which, I" — the insured
b. That acceptance of my policy issued on this application will constitute — "bind myself to pay the System." 1 The GSIS maintains, however, the negative, relying
a ratification by me of any correction or addition to this application made upon subdivision (e) of the same paragraph No. 7, which provides that the "policy shall be
by the System; . made effective on the first day of the month next following the month the first premium is
paid." Under this theory, subdivisions (c) and (d) of said paragraph 7 would not apply unless
and until the first premium shall have been actually paid, pursuant to subdivision (e) of the
c. That this application serves as a letter of authority to the Collecting
same paragraph.
Officer of our Office thru the GSIS to deduct from my salary the monthly
premium in the amount of P33.36, beginning the month of May, 1964,
and every month thereafter until notice of its discontinuance shall have Although it may not be entirely farfetched, this view is not likely to be in accord with the
beenreceived from the System; . understanding of many, if not most, government employees who obtain an optional
additional life insurance policy. As a consequence, the actual receipt by them of their full pay
— without any deduction for premiums on their optional additional life insurance policies —
d. That the failure to deduct from my salary the month premiums shall
may not impart to them the warning — which, otherwise, it would necessarily convey — that
not make the policy lapse, however, the premium account shall be
said policy is not, as yet, in force, for they are liable to believe "that failure to deduct" —
considered as indebtedness which, I bind myself to pay the System; .
from the salary of the insured — "the monthly premiums shall not" — in the language of
subdivision (d) — "make the policy lapse" and that "the premiums account shall be
e. That my policy shall be made effective on the first day of the month considered as indebtedness," to be paid or deducted later, because, after all, the so called
next following the month the first premium is paid; provided, that it is "payment" of premiums is nothing but a "paper" or "accounting" process, whereby funds are
not more ninety (90) days before or after the date of the medical merely transferred, not physically, but constructively, from one office of the government to
examination,was conducted if required." . another. In other words, the language, of subdivisions (c), (d) and (e) is such as to create an
ambiguity that should be resolved against the party responsible therefor — defendant GSIS,
While still under the employment of the Bureau of Public Works, Mr. Landicho met his death, as the party who prepared and furnished the application form — and in favor of the party
on June 29, 1966, in an airplane crash in Mindoro. Thereupon, Mrs. Landicho, in her own misled thereby, the insured employee.
behalf and that of her co-plaintiffs and minor children, Rafael J. and Maria Lourdes Eugenia,
filed with the GSIS a claim for P15,800, as the double indemnity due under policy No. OG- Indeed, our Civil Code provides:
136107, because of the untimely death of the insured owing to said accident. The GSIS
denied the claim, upon the ground that the policy had never been in force because, pursuant
The interpretation of obscure words or stipulations in a contract shall not
to subdivision (e) of the above-quoted paragraph 7 of the application, the policy "shall be ...
favor the party who caused the obscurity. 2
effective on the first day of the month next following the month the first premium is paid,"
and no premium had ever been paid on said policy. Upon refusal of the GSIS to reconsider its
stand, this action was filed, September 22, 1967, in the Court of First Instance of Manila, in This is particularly true as regards insurance policies, in respect of which it is settled that the
which the GSIS reiterated its aforementioned defense. Thereafter submitted by both parties " "terms in an insurance policy, which are ambiguous, equivocal, or uncertain ... are to be
for judgment on the pleadings, upon the ground thatthe case involve purely questions of law, construed strictly and most strongly against the insurer, and liberally in favor of the
said court rendered, in due course, its abovementioned decision, from which the GSIS has insured so as to effect the dominant purpose of indemnity or payment to the insured,
taken the present appeal. especially where a forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule is 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
The main issue therein is whether or not the insurance policy in question has ever been in
legal advisers employed by, and acting exclusively in the interest of, the insurance company."
force, not a single premium having been paid thereon. In support of the affirmative, plaintiffs
(44 C.J.S., p. 1174.) 3.
invoke the stipulation in the policy to the effect that the information contained in the
application filed by the insured shall form part of the contract between him and the GSIS,
and, especially, subdivisions (c) and (d) of paragraph 7 of said application stating that the The equitable and ethical considerations justifying the foregoing view are bolstered up by
same shall serve "as a letter of authority to the Collecting Officer of our Office" — the Bureau two (2) factors, namely:

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(a) The aforementioned subdivision (c) states "that this application serves as a letter of
authority to the Collecting Officer of our Office" — the Bureau of Public Works —
"thru the GSIS to deduct from my salary the monthly premium in the amount of P33.36." No
such deduction was made — and, consequently, not even the first premium "paid" —
because the collecting officer of the Bureau of Public Works was not advised by the GSIS to
make it (the deduction) pursuant to said authority. Surely, this omission of the GSIS should
not inure to its benefit. .

(b) The GSIS had impliedly induced the insured to believe that Policy No. OG-136107 was in
force, he having been paid by the GSIS the dividends corresponding to said policy. Had the
insured had the slightest inkling that the latter was not, as yet, effective for non-payment of
the first premium, he would have, in all probability, caused the same to be forthwith

WHEREFORE, the decision appealed from should be, it is hereby affirmed, with costs against
the defendant-appellant, Government Service Insurance System. It is so ordered. .

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