WEEK 1
1. CONSENSUAL – perfected by the meeting of the minds fo the
GENERAL
Laws Governing contracts of insurance in the Philippines:
1. RA 10607
2. New Civil Code
3. Special Laws
Sec. 2. Whenever used in this Code, the following terms shall have
the respective meanings hereinafter set forth or indicated, unless the
context otherwise requires:
(1) A "contract of insurance" is an agreement whereby one
undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or
contingent event.
A contract of suretyship shall be deemed to be an insurance
contract, within the meaning of this Code, only if made by a surety
who or which, as such, is doing an insurance business as hereinafter
provided.
Requisites:
1. Subject Matter (Object)
2. Meeting of the Minds (Consent)
3. Consideration, which is the premium paid by the insured, for
the insurer’s promise to indemnify the former upon the
happening of the event or peril insured against.
3 – EXECUTIVE | Ab Initio Group
NATURE AND CHARACTERISTICS
parties. There should be acceptance of the application for
insurance.
2. VOLUNTARY – the parties may incorporate such terms and
conditions as they may deem convenient: provided they do not
contravene any provision of law and are not opposed to public
policy, law, morals, good customs, or public order.
GR: The taking out of an insurance contract is not
compulsory.
XPN: Liability insurance may be required by law in
certain instances.
3. ALEATORY – the liability of the insurer depends upon some
contingent event.
4. UNILATERAL – it imposes legal duties only on the insurer who
promises to indemnify in case of loss.
5. CONDITIONAL – it is subject to conditions, the principal one of
which is the happening of the event insured against.
6. CONTRACT OF INDEMNITY – recovery is commensurate with
the amount of the loss suffered.
GR: The insurer promises to make good only the loss of
the insured.
XPN: the principle is not applicable to life and accident
insurance where the result is death because life is not
capable of pecuniary estimation. The only situation
where the principle of indemnity is applicable to life
insurance is when the interest of a person insured is
capable of exact pecuniary measurement.
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 7. PERSONAL – Each party having in view the character, credit
and conduct of the other.
8. PROPERTY – since insurance is a contract, it is property in legal
contemplation.
9. RISK-DISTRIBUTING DEVICE – insurance serves to distribute
the risk of economic loss among as many as possible of those
who are subject to the same kind of loss.
10. ONEROUS – there is a valuable consideration called the
premium.
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Art. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge. The contract,
in such a case, is presumed to have been entered into in the place
where the offer was made.
Art. 1353. The statement of a false cause in contracts shall render
them void, if it should not be proved that they were founded upon
another cause which is true and lawful.
3 – EXECUTIVE | Ab Initio Group
Enriquez v. Sun Life Assurance, GR 15895, 29 Nov. 1920
FACTS:
 September 24, 1917: Joaquin Herrer made application to the
Sun Life Assurance Company of Canada through its office in
Manila for a life annuity
 2 days later: he paid P6,000 to the manager of the company's
Manila office and was given a receipt
 according to the provisional receipt, 3 things had to be
accomplished by the insurance company before there was a
contract:
 (1) There had to be a medical examination of the
applicant; -check
 (2) there had to be approval of the application by the
head office of the company; and - check
 (3) this approval had in some way to be communicated
by the company to the applicant - ?
 November 26, 1917: The head office at Montreal, Canada gave
notice of acceptance by cable to Manila but this was not mailed
 December 4, 1917: policy was issued at Montreal
 December 18, 1917: attorney Aurelio A. Torres wrote to the
Manila office of the company stating that Herrer desired to
withdraw his application
 December 19, 1917: local office replied to Mr. Torres, stating
that the policy had been issued, and called attention to the
notification of November 26, 1917
 December 21, 1917 morning: received by Mr. Torres
 December 20, 1917: Mr. Herrer died
 Rafael Enriquez, as administrator of the estate of the late
Joaquin Ma. Herrer filed to recover from Sun Life Assurance
Company of Canada through its office in Manila for a life
annuity
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  RTC: favored Sun Life Insurance
ISSUE: W/N Mr. Herrera received notice of acceptance of his
application thereby perfecting his life annuity
HELD: NO. Judgment is reversed, and the Enriquez shall have and
recover from the Sun Life the sum of P6,000 with legal interest from
November 20, 1918, until paid, without special finding as to costs in
either instance. So ordered.
Perez v. CA, GR 112329. 28 January 2000
Facts:
Primitivo B. Perez had been insured with the BF Lifeman Insurance
Corporation for P20,000.00. Sometime in October 1987, an agent of
the insurance corporation, visited Perez in Quezon and convinced him
to apply for additional insurance coverage of P50,000.00. Virginia A.
Perez, Primitivo’s wife, paid P2,075.00 to the agent. The receipt issued
indicated the amount received was a "deposit." Unfortunately, the
agent lost the application form accomplished by Perez and he asked
the latter to fill up another application form. The agent sent the
application for additional insurance of Perez to the Quezon office. Such
was supposed to forwarded to the Manila office.
Perez drowned. His application papers for the additional insurance of
P50,000.00 were still with the Quezon. It was only after some time
that the papers were brought to Manila. Without knowing that Perez
died, BF Lifeman Insurance Corporation approved the application and
issued the corresponding policy for the P50,000.00.
Petitioner Virginia Perez went to Manila to claim the benefits under
the insurance policies of the deceased. She was paid P40,000.00
under the first insurance policy for P20,000.00 but the insurance
3 – EXECUTIVE | Ab Initio Group
company refused to pay the claim under the additional policy coverage
of P50,000.00, the proceeds of which amount to P150,000.00.
The insurance company maintained that the insurance for P50,000.00
had not been perfected at the time of the death of Primitivo Perez.
Consequently, the insurance company refunded the amount paid.
BF Lifeman Insurance Corporation filed a complaint against Virginia
Perez seeking the rescission and declaration of nullity of the insurance
contract in question.
Petitioner Virginia A. Perez, on the other hand, averred that the
deceased had fulfilled all his prestations under the contract and all the
elements of a valid contract are present.
On October 25, 1991, the trial court rendered a decision in favor of
petitioner ordering respondent to pay 150,000 pesos. The Court of
Appeals, however, reversed the decision of the trial court saying that
the insurance contract for P50,000.00 could not have been perfected
since at the time that the policy was issued, Primitivo was already
dead.
Petitioner’s motion for reconsideration having been denied by
respondent court, the instant petition for certiorari was filed on the
ground that there was a consummated contract of insurance between
the deceased and BF Lifeman Insurance Corporation.
Issue: WON the widow can receive the proceeds of the
2nd insurance policy
Held: No. Petition dismissed.
Ratio:
Perez’s application was subject to the acceptance of private
respondent BF Lifeman Insurance Corporation. The perfection of the
contract of insurance between the deceased and respondent
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corporation was further conditioned with the following requisites
stated in the application form:
"there shall be no contract of insurance unless and until a policy is
issued on this application and that the said policy shall not take effect
until the premium has been paid and the policy delivered to and
accepted by me/us in person while I/We, am/are in good health."
BF Lifeman didn’t give its assent when it merely received the
application form and all the requisite supporting papers of the
applicant. This happens only when it gives a policy.
It is not disputed, however, that when Primitivo died on November 25,
1987, his application papers for additional insurance coverage were
still with the branch office of respondent corporation in Quezon.
Consequently, there was absolutely no way the acceptance of the
application could have been communicated to the applicant for the
latter to accept inasmuch as the applicant at the time was already
dead.
Petitioner insists that the condition imposed by BF that a policy must
have been delivered to and accepted by the proposed insured in good
health is potestative, being dependent upon the will of the corporation
and is therefore void. The court didn’t agree. A potestative condition
depends upon the exclusive will of one of the parties and is considered
void. The Civil Code states: When the fulfillment of the condition
depends upon the sole will of the debtor, the conditional obligation
shall be void.
The following conditions were imposed by the respondent company
for the perfection of the contract of insurance: a policy must have
been issued, the premiums paid, and the policy must have been
delivered to and accepted by the applicant while he is in good health.
3 – EXECUTIVE | Ab Initio Group
The third condition isn’t potestative, because the health of the
applicant at the time of the delivery of the policy is beyond the control
or will of the insurance company. Rather, the condition is a suspensive
one whereby the acquisition of rights depends upon the happening of
an event which constitutes the condition. In this case, the suspensive
condition was the policy must have been delivered and accepted by
the applicant while he is in good health. There was non-fulfillment of
the condition, because the applicant was already dead at the time the
policy was issued.
As stated above, a contract of insurance, like other contracts, must be
assented to by both parties either in person or by their agents. So long
as an application for insurance has not been either accepted or
rejected, it is merely an offer or proposal to make a contract. The
contract, to be binding from the date of application, must have been
a completed contract.
The insurance company wasn’t negligent because delay in acting on
the application does not constitute acceptance even after payment.
The corporation may not be penalized for the delay in the processing
of the application papers due to the fact that process in a week wasn’t
the usual timeframe in fixing the application. Delay could not be
deemed unreasonable so as to constitute gross negligence.
De Lim v. Sun Life of Canada, GR 15774, Nov. 29, 1920
Facts:
Luis Lim of Zamboanga applied for a Sun Life policy for Php 5,000. He
designated his wife, Pilar, as beneficiary. The first premium of P433
was paid by Lim, then the company issued a "provisional policy." Lim
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died after the issuance of the provisional policy but before approval of
the application.
Pilar brought an action to recover from Sun Life the sum of
P5,000, the amount named in the provisional policy. She lost in the
trial court hence this appeal.
The "provisional policy" reads as follows:
The above-mentioned life is to be assured in accordance with
the terms and conditions contained or inserted by the Company in the
policy which may be granted by it in this particular case for four
months only from the date of the application, provided that the
Company shall confirm this agreement by issuing a policy on said
application when the same shall be submitted to the Head Office in
Montreal. Should the Company not issue such a policy, then
this agreement shall be null and void ab initio, and the Company shall
be held not to have been on the risk at all, but in such case the amount
herein acknowledged shall be returned.
Issue: WON there was a perfected contract of insurance
Held: No. Petition dismissed.
Ratio:
The policy for four months is expressly made subjected to the
affirmative condition that "the company shall confirm
this agreement by issuing a policy on said application when the same
shall be submitted to the head office in Montreal."
Should the company not issue such a policy, then
this agreement shall be null and void ab initio, and the company shall
be held not to have been on the risk." This means that
3 – EXECUTIVE | Ab Initio Group
the agreement should not go into effect until the home office of the
company should confirm it by issuing a policy. The provisional
policy amounts to nothing but an acknowledgment on behalf of the
company, that it has received from the person named therein the sum
of money agreed upon as the first year's premium upon a policy to be
issued upon the application, if the application is accepted by the
company.
There can be no contract of insurance unless the minds of the parties
have met in agreement. In this case, the contract of insurance was
not consummated by the parties.
The general rule concerning the agent's receipt pending approval or
issuance of policy is in several points, according to Joyce:
Where an agreement is made between the applicant and
the agent whether by signing an application containing such
condition, or otherwise, that no liability shall attach until the principal
approves the risk and a receipt is given buy the agent,
such acceptance is merely conditional, and it subordinated to
the act of the company in approving or rejecting; so in life insurance
a "binding slip" or "binding receipt" does not insure of itself.
The court held that this second point applied to the case.
Steinle vs. New York Life Insurance Co.- the amount of the
first premium had been paid to an insurance agent and a receipt was
given. The paper declared that if the application was accepted by the
company, the insurance shall take effect from the date of the
application but that if the application was not accepted, the money
shall be returned. The court held that there was no perfection of the
contract.
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 Cooksey vs. Mutual Life Insurance Co.- the person applying for
the life insurance paid and amount equal to the first premium, but the
application and the receipt for the money paid, stipulated that the
insurance was to become effective only when the application was
approved and the policy issued. There was also no perfection.
A binding receipt is a custom where temporary insurance
pending the consideration of the application was given until the policy
be issued or the application rejected, and such contracts are upheld
and enforced when the applicant dies before the issuance of a policy
or final rejection of the application.
However, there was no perfected contract because of the
clause in the application and the receipt stipulate expressly that the
insurance shall become effective only when the "application shall be
approved and the policy duly signed by the secretary at the head office
of the company and issued." The premium of 433 must be returned.
Musngi v. West Coast Life, GR 41794,30 Aug. 1935
Facts: Plaintiffs Musngi and Garia filed a suit against West Coast Life
to recover the value of the two insurance policies applied for by
Arsenio Garcia (the insured). In applying for the said insurance, the
insured was asked if he consulted a physician or practitioner, and if
so, for what ailment or illness; he answered “None” and “No”,
respectively. These answers were one of the causes or considerations
for the issuance of the policies. Upon the death of the insured, the
plaintiffs, as beneficiaries, demanded West Coast to pay the value of
the policies. However, West Coast found out that the insured had been
treated by a lady physician in the General Hospital in Manila for
different ailments such as incipient pulmonary tuberculosis, chronic
bronchitis, and chronic suppurative pyelocystisis. It contended that
3 – EXECUTIVE | Ab Initio Group
the two policies did not create any valid obligation because they were
fraudulently obtained by the insured. The appealed decision held that
the health of the insured, before acceptance of his application and the
issuance of the policies, could neither be discussed nor questioned by
the defendant company because three physicians of the company
examined the insured; however, all the physicians signified that the
insured was in good health. Nevertheless, the findings of the company
physicians were nit the main cause for the issuance (or non-issuance)
of the policies.
Issues:
1.) W/N the statements of the insured regarding his health
were false
2.) W/N such statements were the causes which induced
the defendant company to issue the policies
Held/Ratio:
1.) Yes, the statements of the insured regarding his
health were false because at the time of application,
he already knew that he had been suffering from
ailments.
2.) Yes, such statements were the causes which
induced the defendant company to issue the
policies. The concealment and false statements of
the insured constituted fraud; the insurance
company, by reason of such statement, accepted the
risk associated with the policy nut for which it could
have rejected. It was further held that the principal
question must be whether the assurer (the
insurance company) was misled or deceived into
entering a contract of obligation or in fixing the
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 premium of the insurance by withholding of material
information or facts within the assured’s knowledge
or presumed knowledge. Under Art. 1276 of the Civil
Code, the statement of a false consideration shall
render the contract void. Such matter is not
specifically provided for by the Insurance Law, and
so the general rules of the civil law regarding
contracts (there being a life insurance contract)
shall apply. Thus, a valid cause or consideration is a
requisite for a valid insurance contract.
WEEK 2
ESSENTIAL ELEMENTS
Gulf Resorts v. Philippine Charter lns., GR 156167, 16 May
2005
Facts – Petitioner Gulf Resorts owned Playa Resorts at Agoo, La
Union, and it entered into an insurance contract with the respondent
American Home Assurance Company which insured Plaza Resort’s
properties against loss or damage due to earthquakes. On 16 July
1990, an earthquake struck Central Luzon and Northern Luzon and
the properties in Playa Resort were damaged including the two (2)
swimming pools. On 11 August 1990, Gulf Resorts filed its formal
demand for settlement of the damage to all of its properties in the
Agoo Playa Resort, but on 23 August 1990, American Home Assurance
Company denied Gulf Resorts’ claim on the ground that its insurance
policy only covered the two swimming pools of Playa Resort against
earthquake shock, and not the other properties damaged by the said
earthquake. Gulf Resorts contended that pursuant to this rider, no
qualifications were placed on the scope of the earthquake shock
3 – EXECUTIVE | Ab Initio Group
coverage, and thus, the policy extended earthquake shock coverage
to its properties.
On 24 January 1991, Gulf Resorts filed a complaint with the RTC Pasig
where it asked for payment for P5, 427,779.00 as amount of the
lost/damaged properties, attorney fees, lost income, etc. However, on
21 February 1994, the said RTC ruled in favor of American Home
Assurance Company, where it ruled that the insurance coverage
against earthquake is limited only to the two swimming pools of Gulf
Resorts’ Playa Resort and does not extend against the other properties
damaged by the earthquake.
Gulf Resort filed a motion for the trial court to reconsider its decision,
but to no avail. Gulf Resorts filed an appeal with the Court of Appeals,
but the Court of Appeals affirmed the trial court’s decision.
Issue – W/N the insurance policy issued by American Home
Assurance Company (AHAC-AIU) to Gulf Resort’s coverage is
not limited only to the two swimming pools of Gulf Resorts’
Playa Resort?
Held – The Supreme Court held that the insurance policy issued to
Gulf Resorts is only limited to the two swimming pools and the other
properties of Playa Resort are not covered by the property insurance
issued by American Home Assurance Company (AHAC-AIU). The Court
held that there is no ambiguity in the insurance contract and the
earthquake shock rider, as Gulf Resorts stated that the swimming
pools are the only items covered by the insurance against loss due to
earthquakes. The Court stated that provisions in the insurance policy
should be examined and interpreted in consonance with each other,
and should not be construed piecemeal. All parts of the insurance
contract reflect the true intent of the parties. The Supreme Court also
7
defined contracts of adhesion as contracts where one party prepares
the stipulations in the contract while the other party merely affixes
his/her signature thereto, citing the case of Philippine National Bank
vs. Court of Appeals (196 SCRA 536). Any ambiguity is resolved
against the insurer (who prepared the contract) and construed
liberally in the insured’s favor. However, since the policy and its riders
are clear about the insurance coverage against earthquake shock, the
Gulf Resorts cannot use the doctrine of contract of adhesion and
liberal interpretation of insurance contract in the insured’s favor in
case of ambiguity.
Philamcare Health Systems v. CA, GR 125678, 18 March 2002
FACTS - Ernani Trinos applied for a health care coverage with
Philamcare Health Systems, Inc. To the question ‘Have you or any of
your family members ever consulted or been treated for high blood
pressure, heart trouble, diabetes, cancer, liver disease, asthma or
peptic ulcer?’, Ernani answered ‘No’. Under the agreement, Ernani is
entitled to avail of hospitalization benefits and out-patient benefits.
The coverage was approved for a period of one year from March 1,
1988 to March 1, 1989. The agreement was however extended yearly
until June 1, 1990 which increased the amount of coverage to a
maximum sum of P75,000 per disability.
During the period of said coverage, Ernani suffered a heart attack and
was confined at the Manila Medical Center (MMC) for one month.
While in the hospital, his wife Julita tried to claim the benefits under
the health care agreement. However, the Philamcare denied her claim
alleging that the agreement was void because Ernani concealed his
medical history. Doctors at the MMC allegedly discovered at the time
of Ernani’s confinement that he was hypertensive, diabetic and
3 – EXECUTIVE | Ab Initio Group
asthmatic, contrary to his answer in the application form. Thus, Julita
paid for all the hospitalization expenses.
After Ernani was discharged from the MMC, he was attended by a
physical therapist at home. Later, he was admitted at the Chinese
General Hospital. Due to financial difficulties, however, respondent
brought her husband home again. In the morning of April 13, 1990,
Ernani had fever and was feeling very weak. Respondent was
constrained to bring him back to the Chinese General Hospital where
he died on the same day.
Julita filed an action for damages and reimbursement of her expenses
plus moral damages attorney’s fees against Philamcare and its
president, Dr. Benito Reverente. The Regional Trial court or Manila
rendered judgment in favor of Julita. On appeal, the decision of the
trial court was affirmed but deleted all awards for damages and
absolved petitioner Reverente. Hence, this petition for review raising
the primary argument that a health care agreement is not an
insurance contract; hence the “incontestability clause” under the
Insurance Code does not apply.
ISSUES –
(1) Whether or not the health care agreement is not an
insurance contract
(2) Whether or not there is concealment of material fact
made by Ernani
HELD - (1)YES. Section2 (1)of the Insurance Code defines a contract
of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage, or liability
arising from an unknown or contingent event.
8
Section 3 of the Insurance Code states that any contingent or
unknown event, whether past or future, which my damnify a person
having an insurable against him, may be insured against. Every person
has an insurable interest in the life and health of himself.
Section 10 provides that every person has an insurable interest in the
life and health (1) of himself, of his spouse and of his children.
The insurable interest of respondent’s husband in obtaining the health
care agreement was his own health. The health care agreement was
in the nature of non-life insurance, which is primarily a contract of
indemnity. Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent,
the health care provider must pay for the same to the extent agreed
upon under the contract.
(2) NO. The answer assailed by petitioner was in response to the
question relating to the medical history of the applicant. This largely
depends on opinion rather than fact, especially coming from
respondent’s husband who was not a medical doctor. Where matters
of opinion or judgment are called for answers made I good faith and
without intent to deceive will not avoid a policy even though they are
untrue.
The fraudulent intent on the part of the insured must be established
to warrant rescission of the insurance contract. Concealment as a
defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or
insurer. In any case, with or without the authority to investigate,
petitioner is liable for claims made under the contract. Having
assumed a responsibility under the agreement, petitioner is bound to
3 – EXECUTIVE | Ab Initio Group
answer to the extent agreed upon. In the end, the liability of the health
care provider attaches once the member is hospitalized for the disease
or injury covered by the agreement or wherever he avails of the
covered benefits which he has prepaid.
Being a contract of adhesion, the terms of an insurance contract are
to be construed strictly against the party which prepared the contract
– the insurer. By reason of the exclusive control of the insurance
company over the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer and liberally
in favor of the insured, especially to avoid forfeiture. This is equally
applicable to Health Care Agreements.
Art. 2011. The contract of insurance is governed by special laws.
Matters not expressly provided for in such special laws shall be
regulated by this Code.
Art. 2012. Any person who is forbidden from receiving any donation
under Article 739 cannot be named beneficiary of a life insurance
policy by the person who cannot make any donation to him, according
to said article.
Art. 739. The following donations shall be void:
(1) Those made between persons who were guilty of adultery or
concubinage at the time of the donation;
(2) Those made between persons found guilty of the same
criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife, descedants and
ascendants, by reason of his office.
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 In the case referred to in No. 1, the action for declaration of nullity
may be brought by the spouse of the donor or donee; and the guilt of
the donor and donee may be proved by preponderance of evidence in
the same action.
lnsular Life v. Ebrado, GR 44059, 28 October 1977
FACTS - Buenaventura Cristor Ebrado was married to Pascuala
Ebrado. During his lifetime, he was living with his common-law wife,
Carponia Ebrado, although he was not legally separated from his legal
wife. Buenaventura was issued by The Insular Life Assurance Co.,
Ltd., Policy No. 009929 on a whole-life plan for PhP 5,8882.00 with a
rider for Accidental Death Benefits for the same amount.
Buenaventura designated Carponia Ebrado as the revocable
beneficiary in his policy. Buenaventura died as a result of an accident
when he was hit by a falling branch of a tree. As the insurance policy
was still in force, The Insular Life Assurance Co., Ltd stands liable to
pay the coverage.
Carponia Ebrado, his common-law wife, filed with the insurer a claim
for the proceeds of the policy as the designated beneficiary therein.
Pascuala Vda. de Ebrado also filed her claim as the widow of the
deceased insured. She asserts that she is the one entitled to the
insurance proceeds, not the common-law wife.
In doubt as to whom the insurance proceeds shall be paid, the insurer,
The Insular Life Assurance Co., Ltd, commenced an action for
Interpleader before the CFI of Rizal.
ISSUE - Can a common-law wife of a man who was not legally
separated from his legal wife be a beneficiary of his life
insurance plan?
3 – EXECUTIVE | Ab Initio Group
HELD/RULING - No.
The Insurance Act (RA 2327, as amended) or even the new Insurance
Code (PD No. 612, as amended) does not contain any specific
provision grossly resolutory to the question at hand. Section 50 of the
Insurance Act, which provides that “(t)he insurance shall be applied
exclusively to the proper interest of the person in whose name it is
made,” cannot be interpreted that it includes the beneficiary because
a contract of insurance is personal in character. The general rules of
civil law should be applied to resolve this void in the Insurance Law.
Article 2011 of the New Civil Code states: “The contract of insurance
is governed by special laws. Matters not expressly provided for in such
special laws shall be regulated by this Code.” Article 2012 of the same
Code states that, “any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a life
insurance policy by the person who cannot make a donation to him.”
Therefore, common-law spouses are barred from receiving donations
from each other.
Article 739 provides:
“The following donations shall be void:
Those made between persons who were guilty of adultery or
concubinage at the time of the donation; Those made between
persons found guilty of the same criminal offense, in consideration
thereof; Those made to a public officer or his wife, descendants or
ascendants by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity
may be brought by the spouse of the donor or donee; and the guilt of
the donee may be proved by preponderance of evidence in the same
action.”
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In essence, a life insurance policy is no different from a civil donation
insofar as the beneficiary is concerned. Both are founded upon the
same consideration: liberality. As a consequence, the proscription in
Art. 739 of the New Civil Code should equally operate in life insurance
contracts.
In the case at bar, the requisite proof of common-law relationship
between the insured and the beneficiary has been supplied by the
stipulations between the parties in the pre-trial conference. It was
agreed an stipulated that the deceased insured Buenaventura Ebrado
was married to Pascuala Ebrado and that, during the lifetime of the
deceased insured, he was living with his common-law wife, Carponia
Ebrado. Based on the foregoing, Carponia Ebrado is hereby declared
disqualified to be the beneficiary of the late Buenaventura Ebrado in
his life insurance policy. The proceeds of the policy are hereby held
payable to the estate of the deceased insured.
Zenith lnsurance v. CA, GR 85296, 14 May 1990
FACTS - On January 25, 1983, private respondent Lawrence
Fernandez insured with the insurer his car for "own damage". The car
figured in an accident and suffered actual damages in the amount of
P3,640.00. The insurer offered to pay the claim of Fernandez pursuant
to the terms and conditions of the contract which, the private
respondent rejected. After allegedly being given a run around by
Zenith for two (2) months, Fernandez filed a complaint with the
Regional Trial Court for sum of money and damages resulting from
the refusal of Zenith to pay the amount claimed. Aside from actual
damages and interests, Fernandez also prayed for moral damages in
the amount of P10,000.00, exemplary damages of P5,000.00,
attorney's fees of P3,000.00 and litigation expenses of P3,000.00.
3 – EXECUTIVE | Ab Initio Group
On June 4, 1986, a decision was rendered by the trial court ordered
the insurance company to pay the insured the damage incurred plus
interest at the rate of twice the prevailing interest rates, moral
damages (20,000, that is twice the amount the insured prayed for),
exemplary damages, attorney's fees, litigation expenses and costs.
The CA affirmed the decision of the trial court.
ISSUE - Whether the insurer is liable to the insured for moral
and exemplary damages as ordered by the trial court
HELD - The decision of the lower court is modified to which, the moral
damages is reduced to 10,000 and the award of exemplary damages
is deleted
In case of unreasonable delay in the payment of the proceeds of an
insurance policy, the damages that may be awarded are: 1) attorney's
fees; 2) other expenses incurred by the insured person by reason of
such unreasonable denial or withholding of payment; 3) interest at
twice the ceiling prescribed by the Monetary Board of the amount of
the claim due the injured; and 4) the amount of the claim. (Insurance
Code Sec. 244) In awarding moral damages in case of breach of
contract, there must be a showing that the breach was wanton and
deliberately injurious or the one responsible acted fraudulently or in
bad faith. The act of petitioner of delaying payment for two months
cannot be considered as so wanton or malevolent to justify an award
of P20,000.00 as moral damages, taking into consideration the actual
damage. The reason for petitioner's failure to indemnify private
respondent within the two-month period was that the parties could
not come to an agreement as regards the amount of the actual
damage on the car.
11
On the other hand, exemplary or corrective damages are imposed by
way of example or correction for the public good (Art. 2229, NCC). In
the case of Noda v. Cruz-Arnaldo, G.R. No. 57322, June 22,1987; 151
SCRA 227, exemplary damages were not awarded as the insurance
company had not acted in wanton, oppressive or malevolent manner.
The same is true in the case at bar.
Art. 2027. No annuity shall be claimed without first proving the
existence of the person upon whose life the annuity is constituted.
Fireman's Fund et al v Jamila et al., GR27427, 7 April 1976
FACTS - Jamila or the Veterans Philippine Scouts Security Agency
contracted to supply security guards to Firestone; that Jamila assumed
responsibility for the acts of its security guards; that First Quezon City
Insurance Co., Inc. executed a bond in the sum of P20,000 to
guarantee Jamila's obligations under that contract; that on May 18,
1963 properties of Firestone valued at P11,925 were lost allegedly due
to the acts of its employees who connived with Jamila's security guard;
that Fireman's Fund, as insurer, paid to Firestone the amount of the
loss; that Fireman's Fund was subrogated to Firestone's right to get
reimbursement from Jamila, and that Jamila and its surety, First
Quezon City Insurance Co., Inc., failed to pay the amount of the loss
in spite of repeated demands.
Upon defendant's motions, the lower court in its order of July 22, 1966
dismissed the complaint as to Jamila on the ground that there was no
allegation that it had consented to the subrogation and, therefore,
Fireman's Fund had no cause of action against it.
3 – EXECUTIVE | Ab Initio Group
ISSUES -
1) Whether the complaint of Firestone states a cause of action
against Jamila?
2) Whether the complaint of Fireman's Fund states a cause of
action against Jamila?
3) Whether Jamila should reimburse Fireman’s Fund?
HELD - CFI Decision's order of dismissal is legally untenable
so it was SET ASIDE with costs against Jamila & Co., Inc.
RATIO -
[F&F’s counsel gratuitously alleged in their brief that Firestone and
Jamila entered into a "contract of guard services" on June 1, 1965.
That allegation was uncalled for because it is not found in the
complaint and so created confusion which did not exist. No copy of
the contract was annexed to the complaint. That confusing statement
was an obvious error since it was expressly alleged in the complaint
that the loss occurred on May 18, 1963. The fact that such an error
was committed is another instance substantiating the observation that
F&F's counsel had not exercised due care in the presentation of his
case.]
1) Firestone is really a nominal party in this case as it had already
been indemnified for the loss which it had sustained. It joined as a
party-plaintiff in order to help Fireman's Fund to recover the amount
of the loss from Jamila and First Quezon City Insurance Co., Inc.
Firestone had tacitly assigned to Fireman's Fund its cause of action
against Jamila for breach of contract. Sufficient ultimate facts are
alleged in the complaint to sustain that cause of action.
2) Fireman's Fund's action against Jamila is squarely sanctioned by
article 2207. As the insurer, Fireman's Fund is entitled to go after the
12
person or entity that violated its contractual commitment to answer
for the loss insured against (PAL vs. Heald Lumber Co).
CFI erred in applying to this case the rules on novation. F&F in alleging
in their complaint that Fireman's Fund "became a party in interest in
this case by virtue of a subrogation right given in its favor by"
Firestone, were not relying on the novation by change of creditors as
contemplated in NCC 1291 and 1300 to 1303 but rather on NCC 2207.
Article 2207 is a restatement of a settled principle of American
jurisprudence. Subrogation has been referred to as the doctrine of
substitution. It "is an arm of EQUITY that may guide or even force one
to pay a debt for which an obligation was incurred but which was in
whole or in part paid by another" (83 C.J.S. 576).
"Subrogation is founded on principles of JUSTICE AND EQUITY, and
its operation is governed by principles of equity. It rests on the
principle that substantial justice should be attained regardless of form,
that is, its basis is the doing of complete, essential, and perfect justice
between all the parties without regard to form"(83 C.J.S. 579- 80)
Subrogation is a normal incident of indemnity insurance (Aetna L. Ins.
Co. vs Moses). Upon payment of the loss, 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 wrongful act
caused the loss (44 Am. Jur. 2nd 745).
The right of subrogation is of the highest EQUITY. The LOSS IN THE
FIRST INSTANCE is that of the INSURED but AFTER reimbursement
or compensation, it becomes the LOSS OF THE INSURER (44 Am. Jur.
2d 746).
3 – EXECUTIVE | Ab Initio Group
"Although many policies including policies in the standard form, now
provide for subrogation, and thus determine the rights of the insurer
in this respect, the equitable right of subrogation as the legal effect of
payment inures to the insurer without any formal assignment or any
express stipulation to that effect in the policy" (44 Am. Jur. 2nd 746).
Stated otherwise, when the insurance company pays for the loss, such
payment operates as an equitable assignment to the insurer of the
property and all remedies which the insured may have for the recovery
thereof. That right is not dependent upon, nor does it grow out of,
any privity of contract, or upon written assignment of claim, and
payment to the insured makes the insurer an assignee in equity
(Shambley v. Jobe-Blackley Plumbing and Heating Co).
3) Whether the plaintiffs would be able to prove their cause of action
against Jamila is another question.
Pan Malayan lnsurance v CA, GR 81026, 3 April 1990
FACTS - Canlubang Automotive Resources Corp. obtained from Pan
Malay a motor vehicle insurance policy for its Mitsubishi Colt Lancer.
While the policy was still in effect, the insured car was allegedly hit by
a pick-up owned by Erlinda Fabie but driven by another person. The
car suffered damages in the amount of P42K. Pan Malay defrayed the
cost of repair of the insured car. It then demanded reimbursement
from Fabie and her driver of said amount, but to no avail. Pan Malay
filed a complaint for damages with the RTC of Makati against Fabie
and the driver. It averred that the damages caused to the insured car
was settled under the “own damage” coverage of the insurance policy.
Private respondents filed a motion to dismiss alleging that Pan Malay
had no cause of action since the “won damage” clause of the policy
precluded subrogation under Art. 2207 of the Civil Code. They
13
contended that indemnification under said article is on the assumption
that there was no wrongdoer or no 3rd party at fault. The RTC
dismissed Pan Malay’s complaint and ruled that payment under the
“own damage” clause was an admission by the insurer that the
damage was caused by the assured and/or its representatives. CA
affirmed but on different ground. Applying the ejusdem generis rule,
CA held that Section III-I of the policy, which was the basis for the
settlement of the claim against insurance, did not cover damage
arising from collision or overturning due to the negligence of 3rd
parties as one of the insurable risks.
ISSUE - Was Pan Malay subrogated to the rights of
Canlubang against the driver and his employer?
HELD - Yes.
The Supreme Court remanded the case back to the trial court.
Right of Subrogation of the Insurer
• Article 2207 of the Civil Code is founded on the well-settled
principle of subrogation. If the insured property is destroyed
or damaged through the fault or negligence of a party other
than the assured, then the insurer, upon payment to the
assured, will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer
has been obligated to pay.
• Payment by the insurer to the assured operates as an
equitable assignment to the former of all remedies which
the latter may have against the third party whose
negligence or wrongful act caused the loss.
• The right of subrogation is not dependent upon, nor does it
grow out of, any privity of contract or upon written
3 – EXECUTIVE | Ab Initio Group
assignment of claim. It accrues simply upon payment of the
insurance claim by the insurer.
There are three exceptions to this rule:
1. where the assured by his own act releases the wrongdoer
or third party liable for the loss or damage
2. where the insurer pays the assured the value of the lost
goods without notifying the carrier who has in good faith
settled the assured's claim for loss
3. where the insurer pays the assured for a loss which is not a
risk covered by the policy, thereby effecting "voluntary
payment"
None of these exceptions are present in this case.
As to the trial court’s ruling:
When PanMalay utilized the phrase "own damage" — a phrase which
is not found in the insurance policy — to define the basis for its
settlement of Canlubang's claim under the policy, it simply meant that
it had assumed to reimburse the costs for repairing the damage to the
insured vehicle. It is in this sense that the so-called "own damage"
coverage under Section III of the insurance policy is differentiated
from Sections I and IV-1 which refer to "Third Party Liability" coverage
(liabilities arising from the death of, or bodily injuries suffered by, third
parties) and from Section IV-2 which refer to "Property Damage"
coverage (liabilities arising from damage caused by the insured vehicle
to the properties of third parties).
As to the Court of Appeals’ ruling:
The Court of Appeals' ruling on the coverage of insured risks stems
from an erroneous interpretation of the provisions of the policy. It
violates a fundamental rule on the interpretation of property insurance
14
contracts where interpretation should be liberally in favor of the
assured and strictly against the insurer in cases of disagreement
between the parties. The meaning advanced by PanMalay regarding
the coverage of the policy is undeniable more beneficial to Canlubang
than that insisted upon by the CA. In any case, the very parties to the
policy were not shown to be in disagreement regarding the meaning
and coverage of Section III-I. Hence, it was improper for CA to assert
its own interpretation of the contract that is contrary to the clear
understanding and intention of the parties to it.
* Even assuming for the sake of argument that the insurance policy
does not cover damage to the insured vehicle caused by negligent
acts of third parties, and that PanMalay's settlement of Canlubang's
claim for damages allegedly arising from a collision due to private
respondents' negligence would amount to unwarranted or "voluntary
payment", insurer may still recover from the third party responsible
for the damage to the insured property under Article 1236 of the Civil
Code.
Sveriges Anfartygs Assurance v Qua Chee Gan, L-22146, 5
Sept 1967
FACTS:
Qua Chee Gan, shipped on board the S.S. NAGARA, 2,032,000
kilos of bulk copra at Quezon, consigned to DAL International Trading
Co., in Gdynia, Poland. The vessel first called at the port
of Karlshamn, Sweden, where it unloaded 696,419 kilos of bulk
copra. Then, it proceeded to Gdynia where it unloaded the remaining
copra shipment. The actual outturn weights in the latter port showed
that only 1,569,429 kilos were discharged. Because of the alleged
confirmed cargo shortage, the Polish cargo insurers had to indemnify
3 – EXECUTIVE | Ab Initio Group
the consignee for the value thereof. Thereafter, the former sued the
ship-owner.
Settlement was effected between the Polish cargo insurers
and the ship owner. On August 16, 1954, claiming to have been
subrogated to the rights of the carrier, plaintiff sued defendant before
the Court of First Instance of Manila to recover U.S. $60,733.53 plus
17% exchange tax, with legal interest, as the value of the alleged
cargo short shipment and P10,000 as attorney's fees. Defendant
answered in due time and countered with a P15,000 counterclaim for
attorney's fees.
After trial the lower court September 28, 1963, rendered its decisions
dismissing the complaint and awarding P10,000 as attorney's fees to
defendant.
ISSUE:
1. W/N there was shortshipment on defendants part?
2. W/N the non-presentation of the insurance policy
fatal to plaintiff's case?
3. W/N defendant was merely acting as an agent of
Louis Dreyfus & Co., who was the real shipper?
RULING:
1. None. Plaintiff's cause of action suffers from several fatal
defects and inconsistencies. The alleged existence of
the Karlshamn bills of lading is negative by the fact that
Exhibits A and B - the bills of lading presented by plaintiff -
show that the 2,032,000 kilos of copra loaded
in Siain were for Gdynia only. Further destroying its case is
the testimony of plaintiff's own witness,
Mr. Claro Pasicolan, who on direct examination
affirmed that these two exhibits constituted the complete
[5]
set of documents which them shipping agent in charge of
15
 the vessel S.S. NAGARA issued covering the copra cargo
loaded at Slain. In view of this admission and for want of
evidentiary support, plaintiff's belated claim that there is
another complete set of documents cannot be seriously
taken.
2. No. The lower court ruled so, reasoning that unless the
same — as the best evidence — were presented, it could
not be conclusively determined if "liability for short
shipment" was a covered risk. And the rule is that an insurer
who pays the insured for loss or liability not covered by the
policy is not subrogated to the latter.2 However, even
assuming that there was unwarranted — or "volunteer" —
payment, plaintiff could still recover what it paid — in effect
— to the carrier from defendant shipper under Art. 1236 of
the Civil Code which allows a third person who pays on
behalf of another to recover from the latter, although there
is no subrogation. But since the payment here was without
the knowledge and consent of defendant, plaintiff's right of
recovery is defeasible by the former's defenses since the
Code is clear that the recovery is only up to the amount by
which the defendant was benefited.
3. Yes, suffice it to say that although on Exhibit A and B his
name appears as the shipper, yet the very loading
certificate, Exhibit 3 [5-Deposition of Horle], issued and
signed by the Chief Mate, and Master of the S.S. NAGARA
shows that defendant was acting merely for account
of Louis Dreyfus & Co. The other documentary
exhibits[7] confirm this. Anyway, in whatever capacity
defendant is considered, it cannot be liable since
no shortshipment was shown.
3 – EXECUTIVE | Ab Initio Group
Plaintiff's action against defendant cannot, however, be considered as
clearly unfounded as to warrant an award of attorney's fees as
damages to defendant under par. 4, Art. 2208 of the Civil Code. The
facts do not show that plaintiff's cause of action was so frivolous or
untenably as to amount to gross and evident bad faith.[8]
WHEREFORE, but for the award of attorney's fees to defendant which
is eliminated, the decision appealed from is, in all other respects,
hereby affirmed. Costs against plaintiff-appellant.
Rizal Surety v Manila Railroad, GR L-24043,25 April 1968
Facts:
On Nov 29, 1960, a vessel named SS Flying Trader, loaded on board
a cargo which is an offset press machine, from Italy to Manila. Upon
reaching the port of destination and upon unloading it, it was dropped
b the crane which resulted to damages of the machine. The plaintiff
as the insurer had paid the consignee, Suter, Inc. the amount of
P16.5k for the machine and P180.70 for the International Adjustment
Bureau as adjuster’s fee. However, the arrastre charges in this
particular shipment was paid on the weight or measurement basis
whichever is higher, and not on the value thereof.
Issue:
Can the insurance get an amount greater than what was
declared?
Held:
Plaintiff Insurance Company cannot recover from defendants an
amount greater than that to which the consignee could lawfully lay
16
claim. The management contract is clear, the amount is limited to
P500.
If the plaintiff’s property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising
out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the right of the insured against the
wrong-doer or the person who has violated the contract. If the amount
paid by the insurance company doer not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency from the
person causing the loss or injury.
The insurance have no greater right than the party in interest thereof.
St. Paul Fire v Macondray, GR L-27796,25 March 1976
Facts:
-Winthrop Products, Inc., of New York shipped aboard the SS “Tai
Ping”, owned and operated by Wilhelm Wilhelmsen218 cartons and
drums of drugs and medicine with Winthrop-Stearns Inc., Manila,
Philippines as consingee. BarberSteamship Lines, Inc., agent of
Wilhelm Wilhelmsen issued Bill of Lading No. 34, in the name of
Winthrop Products.
-The shipment was insured by the shipper against loss and/or damage
with the St. Paul Fire & Marine InsuranceCompany.
-“Tai Ping” arrived at the Port of Manila.
-The said shipment was discharged complete and in good order with
the exception of one (1) drum and several cartonswhich were in bad
condition.
-Because consignee failed to receive the whole shipment and as
several cartons of medicine were received in badorder condition,
Winthrop-Sterns Philippines filed the corresponding claim in the
3 – EXECUTIVE | Ab Initio Group
amount of Pl,109.67 representingthe C.I.F. value of the damaged
drum and cartons of medicine with the carrier and the arrestre.
-However, both refused to pay.
-Winthrop-Sterns Philippines filed its claim with the insurer, St.
Paul Fire & Marine insurance.
-The insurance company, on the basis of such claim, paid to the
consignee the insured value of the lost and damagedgoods, including
other expenses in connection therewith, in the total amount
of $1,134.46.
-As subrogee of the rights of the shipper and/or consignee, the
insurer, St. Paul Fire & Marine Insurance Co., instituted with the Court
of First Instance the present action against the defendants for the
recovery of said amount of $1,134.46, plus costs.
-The Lower court rendered judgment ordering defendants Macondray
& Co., Inc., Barber Steamship Lines, Inc. andWilhelm Wilhelmsen to
pay to the plaintiff P300.00. It also held defendants Manila Railroad
Company and Manila PortService to pay to plaintiff, jointly
and severally, the sum of P809.67.
-The Insurer, , contending that it should recover the amount of
$1,134.46 or its equivalent in pesos (the rate of P3.90,instead of
P2.00, for every US$1.00), filed a motion for reconsideration, but this
was denied.
-The Insurer argues that, as subrogee of the consignee, it should be
entitled to recover from the defendants-appelleesthe amount of
$1,134.46 which it actually paid to the consignee and which
represents the value of the lost anddamaged shipment as well as other
legitimate expenses such as the duties and cost of survey of said
shipment, andthat the exchange rate on the date of the judgment,
which was P3.90 for every US$1.00.
-Defendants-appellees countered that:
o Their liability is limited to the C.I.F. value of the goods, pursuant
to contract of sea carriage embodied in the bill of lading that the
17
consignee’s (Winthrop-Stearns Inc.) claim against the carrier
(Macondray & Co., Inc.,Barber Steamship Lines, Inc., Wilhelm
Wilhelmsen and the arrastre operators (Manila Port Service and Manila
Railroad Company) was only for the sum of Pl,109.67
ISSUE(S):
1.Whether or not, in case of loss or damage, the liability of
the carrier to the consignee is limited to the C.I.F value of the
goods which were lost or damaged
2.Whether the insurer who has paid the claim in dollars to the
consignee should be reimbursed in its peso equivalent on the
date of discharge of the cargo or on the date of the decision.
HELD:
The appeal is without merit and the judgement of the lower court
is affirmed.
-The purpose of the bill of lading is to provide for the rights and
liabilities of the parties in reference to the contract tocarry.
-The stipulation in the bill of lading limiting the common carrier’s
liability to the value of the goods appearing in thebill, unless the
shipper or owner declares a greater value, is valid and binding.
-This limitation of the carrier’s liability is sanctioned by the freedom of
the contracting parties to establish suchstipulations, clauses, terms,
or conditions as they may deem convenient, provided they are not
contrary to law,morals, good customs and public policy.
-A stipulation fixing or limiting the sum that may be recovered from
the carrier on the loss or deterioration of the goods is valid, provided
it is:
(a) reasonable and just under the circumstances, and
(b) has been fairly and freely agreed upon.
-In the case at bar, the liabilities of the defendants- appellees with
respect to the lost or damaged shipments areexpressly limited to the
3 – EXECUTIVE | Ab Initio Group
C.I.F. value of the goods as per contract of sea carriage embodied in
the bill of lading, whichreads:
o Whenever the value of the goods is less than $500 per package or
other freight unit, their value in the calculation and adjustment of
claims for which the Carrier may be liable shall for the purpose of
avoiding uncertainties and difficulties in fixing value be deemed to be
the invoice value, plus freight and insurance if paid, irrespective of
whether any other value is greater or less.
National Union Fire lnsurance v. Stolt Nielsen, GR 87958, 26
April 1990
EMERGENCY RECIT: United Coconut Chemicals (SHIPPER) shipped
distilled fatty acid on board MT “StoltSceptre” (CARRIER). The shipment
was insured under a marine cargo policy with National Union Fire
Insurance Co (INSURER). Upon receipt of the cargo by the consignee in
Netherlands, it was totally contaminated. Hence, claim was made on the
INSURER of the cargo. The INSURER as subrogee filed a claim for
damages against the CARRIER with RTC Manila. The CARRIER invoked
that arbitration must be done pursuant to the Charter. The INSURER
opposed, arguing that the provision on arbitration was not included in the
Bill of Lading. SC: The INSURER cannot avoid the binding effect of the
arbitration clause. By subrogation, it became privy to the Charter Party as
fully as the SHIPPER before the latter was indemnified, because as
subrogee it stepped into the shoes of the SHIPPER and is subrogated
merely to the latter's rights.
FACTS:
On 9 January 1985, United Coconut Chemicals, Inc. shipped 404.774
metric tons of distilled C6-C18 fatty acid on board MT "StoltSceptre,"
a tanker owned by Stolt-Nielsen Philippines Inc., from Bauan,
Batangas, Philippines, consigned to "NieuweMatex" at Rotterdam,
Netherlands, covered by Tanker Bill of Lading BL No. BAT-1.
The shipment was insured under a marine cargo policy with Petitioner
National Union Fire InsuranceCompany of Pittsburg (hereinafter
18
referred to as INSURER), a non-life American insurance corporation,
through its settling agent in the Philippines, the American
International Underwriters (Philippines), Inc., the other petitioner
herein.
Upon receipt of the cargo by the consignee in the Netherlands, it was
found to be discoloured and totally contaminated. Hence, a claim was
made on the Insurer of the cargo. The insurer as subrogee filed a
claim for damages against the carrier with the RTC of Manila.
The carrier filed a motion to dismiss on the ground that the case was
arbritrable and pursuant to the charter party as embodied in the bill
of lading, arbitration must be done. The insurer opposed the motion
by arguing that the provision on arbitration was not included in the
bill of lading and even if it was included, it was nevertheless unjust
and unreasonable.
The RTC denied the motion but upon reconsideration, the resolution
on the motion to dismiss was suspended or deferred.
The carrier then filed a petition for review on certiorari with
preliminary injunction/TRO which was granted by the CA.
ISSUE:
Are the terms of the Charter Party, particularly the provision
on arbitration, binding on the INSURER?
HELD:
Yes. The pertinent portion of the Bill of Lading in issue provides in
part:
xxx [A]ll the terms whatsoever of the said Charter except the rate and
payment of freight specified therein apply to and govern the rights of
the parties concerned in this shipment.xxx
The provision on arbitration in the Charter Party reads:
3 – EXECUTIVE | Ab Initio Group
4. Arbitration. Any dispute arising from the making, performance or
termination of this Charter Party shall be settled in New York, Owner
and Charterer each appointing an arbitrator, who shall be a merchant,
broker or individual experienced in the shipping business; the two thus
chosen, if they cannot agree, shall nominate a third arbitrator who
shall be an admiralty lawyer. Such arbitration shall be conducted in
conformity with the provisions and procedure of the United States
arbitration act, and a judgment of the court shall be entered upon any
award made by said arbitrator. Nothing in this clause shall be deemed
to waive Owner's right to lien on the cargo for freight, deed of freight,
or demurrage.
Clearly, the Bill of Lading incorporates by reference the terms of the
Charter Party. It is settled law that the charter may be made part of
the contract under which the goods are carried by an appropriate
reference in the Bill of Lading. As the respondent Appellate Court
found, the INSURER "cannot feign ignorance of the arbitration clause
since it was already charged with notice of the existence of the charter
party due to an appropriate reference thereof in the bill of lading and,
by the exercise of ordinary diligence, it could have easily obtained a
copy thereof either from the shipper or the charterer.
We hold, therefore, that the INSURER cannot avoid the binding effect
of the arbitration clause. By subrogation, it became privy to the
Charter Party as fully as the SHIPPER before the latter was
indemnified, because as subrogee it stepped into the shoes of the
SHIPPER-ASSURED and is subrogated merely to the latter's rights. It
can recover only the amount that is recoverable by the assured. And
since the right of action of the SHIPPER-ASSURED is governed by the
provisions of the Bill of Lading, which includes by reference the terms
of the Charter Party, necessarily, a suit by the INSURER is subject to
the same agreements. It has not been shown that the arbitral clause
in question is null and void, inoperative, or incapable of being
19
performed. Nor has any conflict been pointed out between the Charter
Party and the Bill of Lading.
Cebu Shipyard vWilliam Lines, GR 132607,5 May 1999
FACTS:
Cebu Shipyard and Engineering Works, Inc. (CSEW) is engaged in the
business of dry-docking and repairing of marine vessels while the
Prudential Guarantee and Assurance, Inc. (Prudential) is in the non-
life insurance business.
William Lines, Inc. is in the shipping business. It was the owner of M/V
Manila City, a luxury passenger-cargo vessel, which caught fire and
sank.
At the time of the unfortunate occurrence sued upon, subject vessel
was insured with Prudential for P45M for hull and machinery. The Hull
Policy included an “Additional Perils (INCHMAREE)” Clause covering
loss of or damage to the vessel through the negligence of, among
others, ship repairmen
Petitioner CSEW was also insured by Prudential for third party liability
under a Shiprepairer’s Legal Liability Insurance Policy. The policy was
for P10 million only, under the limited liability clause
On Feb. 5, 1991, William Lines, Inc. brought its vessel, M/V Manila
City, to the Cebu Shipyard in Lapulapu City for annual dry-docking and
repair.
On Feb. 6, 1991, an arrival conference was held between
representatives of William Lines, Inc. and CSEW to discuss the work
to be undertaken on the M/V Manila City. The contracts, denominated
as Work Orders, were signed thereafter., with the following
stipulations:
10. The Contractor shall replace at its own work and at its own cost
any work or material which can be shown to be defective and which
is communicated in writing
3 – EXECUTIVE | Ab Initio Group
20. The insurance on the vessel should be maintained by the customer
and/or owner of the vessel during the period the contract is in effect.
The total liability of the Contractor to the Customer or of any sub-
contractor shall be limited in respect of any defect or event to the sum
of 1M.
While the M/V Manila City was undergoing dry-docking and repairs
within the premises of CSEW, the master, officers and crew of M/V
Manila City stayed in the vessel, using their cabins as living quarters.
Other employees hired by William Lines to do repairs and maintenance
work on the vessel were also present during the dry-docking.
On February 16, 1991, after subject vessel was transferred to the
docking quay, it caught fire and sank, resulting to its eventual total
loss
On February 21, 1991, William Lines, Inc. filed a complaint for
damages against CSEW, alleging that the fire which broke out in M/V
Manila City was caused by CSEWs negligence and lack of care.
Prudential was impleaded as co-plaintiff, after it paid William Lines,
Inc. the value of the hull and machinery insurance on the M/V Manila
City. As a result of such payment Prudential was subrogated to the
claim of P45 million, representing the value of the said insurance it
paid.
Trial Court: CSEW to pay William Lines and Prudential (45M)
CA: Affirmed TC. Ordered the partial dismissal of the case insofar as
CSEW and William Lines were concerned.
CSEW claims that the insurance policy does not cover loss resulting
from the fault of negligent charterers that are assured in the same
policy and by virtue of clause 20, it is deemed a co-assured.
20
ISSUE/S & RATIO:
WON CSEW is co-assured, thus losses caused by it are not
covered by the policy-NO
The fact that clause 20 benefited petitioner, does not
automatically make it a co-assured of William Lines.
Intention of parties to make each other co-assured is to be
gleaned from the insurance policy itself and not from any
other contract because the policy denominates the assured
and the beneficiaries.
Prudential named only William Lines, Inc. as the assured.
There was no manifestation of any intention of William Lines
Inc to make CSEW a co-assured. When the terms of a contract
are clear, its stipulations control.
If CSEW were deemed co-assured, it would nullify any claim
of William Lines Inc. No shipowner would agree to make
shiprepairer a co-assured because any claim it has under the
policy would be invalidated. Such result could not have been
intended by William Lines Inc.
WON CSEW had “management and supervisory control“ of
the ship at the time the fire broke out- YES
The factual findings by the CA are conclusive on the parties
and are not reviewable by this Court.
WON the doctrine of res ipsa loquitur applies against the
crew- YES
3 – EXECUTIVE | Ab Initio Group
For the doctrine of res ipsa loquitur to apply to a given
situation, the following conditions must concur: (1) the
accident was of a kind which does not ordinarily occur unless
someone is negligent; and (2) that the instrumentality or
agency which caused the injury was under the exclusive
control of the person charged with negligence.
The facts and evidence reveal the presence of these
conditions. First, the fire would not have happened in the
ordinary course of things if reasonable care and diligence had
been exercised.
WON the provisions limiting CSEW’s liability for negligence to
a maximum of Php 1 million are valid- NO
Although contracts of adhesion have been consistently
upheld as valid, reliance on such contracts cannot be favored
especially where the facts and circumstances warrant that
subject stipulations be disregarded. Tthe facts and
circumstances vis-a-vis the nature of the provision sought to
be enforced should be considered, bearing in mind the
principles of equity and fair play.
RULING: Petition denied
Manila Mahogany v CA, GR L-52756,12 October 1987
FACTS:
Petitioner Manila Mahogany Manufacturing Corporation insured its
Mercedes Benz 4-door sedan withrespondent Zenith Insurance
Corporation. The insured vehicle was bumped and damaged by a truck
owned bySan Miguel Corporation. For the damage caused, respondent
21
company paid petitioner five thousand pesos(P5,000.00) in amicable
settlement. Petitioner's general manager executed a Release of Claim,
subrogatingrespondent company to all its right to action against San
Miguel Corporation.Thereafter, respondent company wrote Insurance
Adjusters, Inc. to demand reimbursement from SanMiguel Corporation
of the amount it had paid petitioner. Insurance Adjusters, Inc. refused
reimbursement,alleging that San Miguel Corporation had already paid
petitioner P4,500.00 for the damages to petitioner'smotor vehicle, as
evidenced by a cash voucher and a Release of Claim executed by the
General Manager of petitioner discharging San Miguel Corporation
from "all actions, claims, demands the rights of action that nowexist
or hereafter develop arising out of or as a consequence of the
accident."Respondent insurance company thus demanded from petiti
oner reimbursement of the sum of P4,500.00 paid by San Miguel
Corporation. Petitioner refused; hence, the instant case.
ISSUE:
Whether or not the respondent insurance company is
subrogated to the rights of the petitioner againstSan
Miguel Corporation.
HELD:
YES
RULING:
The Supreme Court held that if a property is insured and the owner
receives the indemnity from theinsurer, it is provided in [Article 2207
of the New Civil Code] that the insurer is
deemed subrogated
to therights of the insured against the wrongdoer and if the amount
paid by the insurer does not fully cover the loss,then the aggrieved
party is the one entitled to recover the deficiency. Under this legal
provision,
3 – EXECUTIVE | Ab Initio Group
the real partyin interest with regard to the portion of the indemnity
paid is the insurer and not the insured.
Hence, petitioner is entitled to keep the sum of P4,500.00 paid by San
Miguel Corporation under itsclear right to file a deficiency claim for
damages incurred, against the wrongdoer, should the
insurancecompany not fully pay for the injury caused (Article 2207,
New Civil Code).
However, when petitioner released San Miguel Corporation from any
liability, petitioner's right to retain the sum of P5,000.00 no
longer existed, thereby entitling private respondent to recover
the same
.The right of subrogation can only exist after the insurer has paid the
insured otherwise the insured will be deprived of his right to full
indemnity. If the insurance proceeds are not sufficient to cover the
damagessuffered by the insured, then he may sue the party
responsible for the damage for the remainder. To the extentof the
amount he has already received from, the insurer enjoys the right of
subrogation.Since the insurer can be subrogated to only such rights
as the insured may have,
should the insured,after receiving payment from the insurer, release
the wrongdoer who caused the loss, the insurer loses hisrights against
the latter. But in such a case, the insurer will be entitled to recover
from the insured whatever it has paid to the latter, unless the
release was made with the consent of the insurer
F .F . Cruz v CA, GR L-52732, 29 August 1988
Facts:
A fire broke up from the furniture shop of the petitioner in Caloocan
city early September 6, 1974. Prior to that, neighbor of the said shop
requested that the petitioner should build a firewall but failed to do
22
so. The cause of the fire was never discovered. Private respondent got
P35k from the insurance on their house and contents thereof.
Issue:
Whether or not the 35k be deducted from the damages
thereof
Ruling:
Since P35k had already been claimed by the respondents, the court
held that such amount should be deducted from the award of
damages in accordance with Art 2207 NCC
Art. 2207. If the plaintiff’s property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
Having been indemnified by their insurer, private respondents are
entitled only to recover the deficiency from the petitioner.
Whether or not the insurer should exercise the rights of the insured
to which it had been 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’s insurer has to claim his right to reimbursement of the
P35,000.00 paid to the insured.
3 – EXECUTIVE | Ab Initio Group
WEEK 3
Construction of insurance contracts
De la Cruz v. Capital lnsurance, GR L-21 574, 30 June 1966
FACTS:
 Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc
Mines, Inc. in Baguio, was the holder of an accident insurance
policy "against death or disability caused by accidental means"
 January 1, 1957: For the celebration of the New Year, the
Itogon-Suyoc Mines, Inc. sponsored a boxing contest for
general entertainment wherein Eduardo, a non-professional
boxer participated
 In the course of his bout with another non-professional
boxer of the same height, weight, and size, Eduardo slipped
and was hit by his opponent on the left part of the back of the
head, causing Eduardo to fall, with his head hitting the rope of
the ring
 He was brought to the Baguio General Hospital the following
day. He died due to hemorrhage, intracranial.
 Simon de la Cruz, the father of the insured and who was named
beneficiary under the policy, thereupon filed a claim with the
insurance company
 The Capital Insurance and Surety co., inc denied stating that
the death caused by his participation in a boxing contest was
not accidental
 RTC: favored Simon

ISSUE: W/N the cause of death was accident
23

HELD:YES.
 Eduardo slipped, which was unintentional
 The terms "accident" and "accidental"
 as used in insurance contracts, have not acquired any
technical meaning and are construed by the courts in
their ordinary and common acceptation
 happen by chance or fortuitously, without intention and
design, and which is unexpected, unusual, and
unforeseen
 event that takes place without one's foresight or
expectation
 event that proceeds from an unknown cause, or is an
unusual effect of a known cause and, therefore, not
expected
 where the death or injury is not the natural or probable result
of the insured's voluntary act, or if something unforeseen
occurs in the doing of the act which produces the injury, the
resulting death is within the protection of policies insuring
against death or injury from accident
 while the participation of the insured in the boxing contest is
voluntary, the injury was sustained when he slid, giving
occasion to the infliction by his opponent of the blow that threw
him to the ropes of the ring is not
 The fact that boxing is attended with some risks of external
injuries does not make any injuries received in the course of
the game not accidental
 In boxing as in other equally physically rigorous sports, such as
basketball or baseball, death is not ordinarily anticipated to
result. If, therefore, it ever does, the injury or death can only
be accidental or produced by some unforeseen happening or
event as what occurred in this case
3 – EXECUTIVE | Ab Initio Group
 Furthermore, the policy involved herein specifically excluded
from its coverage —
(e) Death or disablement consequent upon the Insured engaging in
football, hunting, pigsticking, steeplechasing, polo-playing, racing of
any kind, mountaineering, or motorcycling.
 Death or disablement resulting from engagement in
boxing contests was not declared outside of the
protection of the insurance contract
Sun lnsurance Office Ltd v CA, GR 92383, 17 July 1992
Facts:
Lim accidentally killed himself with his gun after removing the
magazine, showing off, pointing the gun at his secretary, and pointing
the gun at his temple. The widow, the beneficiary, sued the petitioner
and won 200,000 as indemnity with additional amounts for other
damages and attorney’s fees. This was sustained in the Court
of Appeals then sent to the Supreme court by the insurance company.
Issue:
1. Was Lim’s widow eligible to receive the benefits?
2. Were the other damages valid?
Held:
1. Yes 2. No
Ratio:
1. There was an accident.
De la Cruz v. Capital Insurance says that "there is no accident
when a deliberate act is performed unless some additional,
unexpected, independent and unforeseen happening occurs
24
which produces or brings about their injury or death." This
was true when he fired the gun.
Under the insurance contract, the company wasn’t liable for
bodily injury caused by attempted suicide or by one
needlessly exposing himself to danger except to save
another’s life.
Lim wasn’t thought to needlessly expose himself to danger
due to the witness testimony that he took steps to ensure that
the gun wasn’t loaded. He even assured his secretary that the
gun was loaded.
There is nothing in the policy that relieves the insurer of the
responsibility to pay the indemnity agreed upon if the insured
is shown to have contributed to his own accident.
2. “In order that a person may be made liable to the payment
of moral damages, the law requires that his act be wrongful.
The adverse result of an action does not per se make the act
wrongful and subject the act or to the payment of moral
damages. The law could not have meant to impose a penalty
on the right to litigate; such right is so precious that moral
damages may not be charged on those who may exercise it
erroneously. For these the law taxes costs.”
If a party wins, he cannot, as a rule, recover attorney's fees
and litigation expenses, since it is not the fact of winning
alone that entitles him to recover such damages of the
exceptional circumstances enumerated in Art. 2208.
Otherwise, every time a defendant wins, automatically the
plaintiff must pay attorney's fees thereby putting a premium
on the right to litigate which should not be so. For
3 – EXECUTIVE | Ab Initio Group
those expenses, the law deems the award of costs as
sufficient.”
Ty v Filipinas Cia de Seguros, GR L-21821-22 and L-21824-
27, 31 May 1966
FACTS:
 2 months prior to December 24, 1953: Diosdado C. Ty,
employed as operator mechanic foreman in the Broadway
Cotton Factory insured himself in 18 local insurance companies
with Broadway Cotton Factory as his beneficiary
 December 24, 1953: fire broke out at the Broadway Cotton
Factory where Ty, fighting his way out, injured his left hand by
a heavy object.
 He was brought to the Manila Central University hospital, and
after receiving first aid there, he went to the National
Orthopedic Hospital for treatment of his injuries.
 His injuries caused temporary total disability on his left hand so
he filed a claim against all defendants who rejected the claim
reasoning that there it was not covered in his policy because
there was no severance of amputation of the left hand
 Trial Court: absolved the defendants

ISSUE: W/N Ty can claim
HELD: NO. Affirmed.
 can not go beyond the clear and express conditions of the
insurance policies, all of which define partial disability as loss
of either hand by amputation through the bones of the wrist
25
  Note that the disability of plaintiff's hand was merely
temporary, having been caused by fracture of the index, the
middle and the fourth fingers of the left hand
 agreement contained in the insurance policies is the law
between the parties
Calanoc v CA, GR 81 51 , 16 Dec,ember 1955
Doctrine: In case of ambiguity in an insurance contract covering
accidental death, the Supreme Court held that such terms shall be
construed strictly against the insurer and liberally in favor of the
insured in order to effect the purpose of indemnity.
Facts:
Melencio Basilio, a watchman of the Manila Auto Supply, secured a life
insurance policy from the Philippine American Insurance Company in
the amount of P2,000 to which was attached a supplemental contract
covering death by accident. He later died from a gunshot wound on
the occasion of a robbery committed; subsequently, his widow was
paid P2,000 representing the face value of the policy. The widow
demanded the payment of the additional sum of P2,000 representing
the value of the supplemental policy which the company refused
because the deceased died by murder during the robbery and while
making an arrest as an officer of the law which were expressly
excluded in the contract. The company’s contention which was upheld
by the Court of Appeals provides that the circumstances surrounding
Basilio’s death was caused by one of the risks excluded by the
supplementary contract which exempts the company from liability.
Issue:
Is the Philippine American Life Insurance Co. liable to the
petitioner for the amount covered by the supplemental
contract?
3 – EXECUTIVE | Ab Initio Group
Held:
Yes. The circumstances of Basilio’s death cannot be taken as
purely intentional on the part of Basilio to expose himself to the
danger. There is no proof that his death was the result of intentional
killing because there is the possibility that the malefactor had fired the
shot merely to scare away the people around. In this case, the
company’s defense points out that Basilio’s is included among the risks
excluded in the supplementary contract; however, the terms and
phraseology of the exception clause should be clearly expressed within
the understanding of the insured. Art. 1377 of the New Civil Code
provides that in case ambiguity, uncertainty or obscurity in the
interpretation of the terms of the contract, it shall be construed
against the party who caused such obscurity. Applying this to the
situation, the ambiguous or obscure terms in the insurance policy are
to be construed strictly against the insurer and liberally in favor of the
insured party. The reason is to ensure the protection of the insured
since these insurance contracts are usually arranged and employed by
experts and legal advisers acting exclusively in the interest of the
insurance company. As long as insurance companies insist upon the
use of ambiguous, intricate and technical provisions, which conceal
their own intentions, the courts must, in fairness to those who
purchase insurance, construe every ambiguity in favor of the insured.
Biagtan v lnsular Life, GR L-25579,29 March 1972
FACTS:
1. Juan Biagtan was insured with defendant Insular Life Assurance
Company (Insular) under policy no. 398075 for the sum of P5,000.00
and under a supplementary contract named “Accidental Death Benefit
Clause, for an additional sum of P5,000.00 if “death of the insured
resulted directly from bodily injury effected solely through external
26
and violent means sustained in an accident…and independently of all
other causes.” The clause however expressly provided that it would
not apply where death resulted from an injury “intentionally inflicted
by another party.”
2. May 20, 1964: While the said life policy and supplementary contract
were in full force and effect, the house of insured Juan Biagtan was
robbed by a band of robbers who were charged in and convicted for
robbery with homicide; that in committing the robbery, the robbers
rushed towards the door of the second floor room, where they
suddenly met a person near the door of one of the rooms who turned
out to be Juan Biagtan who received thrusts from their sharp-pointed
instruments, causing wounds on the body of said Juan S. Biagtan
resulting in his death at about 7 a.m. on the same day, May 21, 1964
3. Plaintiffs, as beneficiaries of the insured, filed a claim under the
policy.
4. Insular paid P5,000.00 but refused to pay the additional sum of
P5,000.00 under the accidental death benefit clause, on the ground
that the insured’s death resulted from injuries intentionally inflicted by
third parties and therefore was not covered.
5. Lower court: Rendered judgment in favor of plaintiff beneficiaries
since the parties presented no evidence, there was no "proof that the
act of receiving thrust from the sharp-pointed instrument of the
robbers was intended to inflict injuries upon the person of the insured
or any other person or merely to scare away any person so as to ward
off any resistance or obstacle that might be offered in the pursuit of
their main objective which was robbery.
3 – EXECUTIVE | Ab Initio Group
ISSUE:
1. WON the wounds received by the insured at the hands of
the robbers – nine in all, five of them mortal and four non-
mortal – were inflicted intentionally, hence the benefit clause
cannot apply.
HELD:
1. Yes. The decision appealed from is reversed and the
complaint dismissed.
RATIO:
1. Whether the robbers had the intent to kill or merely to scare the
victim or to ward off any defense he might offer, it cannot be denied
that the act itself of inflicting the injuries was intentional. It should be
noted that the exception in the accidental benefit clause invoked by
the appellant does not speak of the purpose — whether homicidal or
not — of a third party in causing the injuries, but only of the fact that
such injuries have been "intentionally" inflicted — this obviously to
distinguish them from injuries which, although received at the hands
of a third party, are purely accidental.
But where a gang of robbers enter a house and coming face to face
with the owner, even if unexpectedly, stab him repeatedly, it is
contrary to all reason and logic to say that his injuries are not
intentionally inflicted, regardless of whether they prove fatal or not.
The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon
by the trial court in support of its decision.
For while a single shot fired from a distance, and by a person who was
not even seen aiming at the victim, could indeed have been fired
without intent to kill or injure, nine wounds inflicted with bladed
weapons at close range cannot conceivably be considered as innocent
27
insofar as such intent is concerned. The manner of execution of the
crime permits no other conclusion.
Thus, it has been held that "intentional" as used in an accident policy
excepting intentional injuries inflicted by the insured or any other
person, etc., implies the exercise of the reasoning faculties,
consciousness and volition.
Where a provision of the policy excludes intentional injury, it is the
intention of the person inflicting the injury that is controlling. If the
injuries suffered by the insured clearly resulted from the intentional
act of a third person the insurer is relieved from liability as stipulated.
Finman GeneralAssurance v CA, GR 100970, 2 September
1992
FACTS:
[P]etitioner filed this petition alleging grove abuse of discretion on the
part of the appellate court in applying the principle of “expresso unius
exclusio alterius” in a personal accident insurance policy since death
resulting from murder and/or assault are impliedly excluded in said
insurance policy considering that the cause of death of the insured
was not accidental but rather a deliberate and intentional act of the
assailant in killing the former as indicated by the location of the lone
stab wound on the insured. Therefore, said death was committed with
deliberate intent which, by the very nature of a personal accident
insurance policy, cannot be indemnified.
ISSUE:
Whether or not death petitioner is correct that results from
assault or murder deemed are not included in the terms
“accident” and “accidental”.
3 – EXECUTIVE | Ab Initio Group
HELD:
NO. Petition for certiorari with restraining order and preliminary
injunction was denied for lack of merit.
RATIO:
The terms “accident” and “accidental” as used in insurance
contracts have not acquired any technical meaning, and are
construed by the courts in their ordinary and common
acceptation. Thus, the terms have been taken to mean that
which happen by chance or fortuitously, without intention
and design, and which is unexpected, unusual, and
unforeseen. An accident is an event that takes place without
one’s foresight or expectation — an event that proceeds from
an unknown cause, or is an unusual effect of a known cause
and, therefore, not expected.
[I]t is well settled that contracts of insurance are to be
construed liberally in favor of the insured and strictly against
the insurer. Thus ambiguity in the words of an insurance
contract should be interpreted in favor of its beneficiary.
Qua Chee Gan v Law Union and Rock, GR L-4611,17
December 1955
FACTS:
 Qua Chee Gan, a merchant of Albay, owned four bodegas which
he insured with Law Union & Rock Insurance Co., Ltd (Law
Union) since 1937 and the lose made payable to the Philippine
National Bank (PNB) as mortgage of the hemp and crops, to
the extent of its interest
 July 21, 1940 morning: fire broke out in bodegas 1,2 and 4
which lasted for almost a week.
28
  Qua Chee Gan informed Law Union by telegram
 Law Union rejected alleging that it was a fraudulent claim that
the fire had been deliberately caused by the insured or by other
persons in connivance with him
 Que Chee Gan, with his brother, Qua Chee Pao, and some
employees of his, were indicted and tried in 1940 for the crime
of arson but was subsequently acquitted
 During the pendency of the suit, Que Chee Gan paid PNB
 Law Union states that ff. assignment of errors:
 1. memo of warranty requires 11 hydrants instead of 2
 2. violation of hemp warranty against storage of gasoline
since it prohibits oils
 3. fire was due to fraud
 4. burned bodegas could not possibly have contained
the quantities of copra and hemp stated in the fire claims
 29 June 1963
ISSUE: W/N Qua Chee Gan should be allowed to claim.
HELD: YES. Affirmed.
 1. It is a well settled rule of law that an insurer which with
knowledge of facts entitling it to treat a policy as no longer in
force, receives and accepts a preium on the policy, estopped to
take advantage of the forfeiture
 2. oils (animal and/or vegetable and/or mineral and/or their
liquid products having a flash point below 300o Fahrenheit",
and is decidedly ambiguous and uncertain; for in ordinary
parlance, "Oils" mean "lubricants" and not gasoline or kerosene
 by reason of the exclusive control of the insurance
company over the terms and phraseology of the
contract, the ambiguity must be held strictly against the
3 – EXECUTIVE | Ab Initio Group
insurer and liberraly in favor of the insured, specially to
avoid a forfeiture
 3. trial Court found that the discrepancies were a result of the
insured's erroneous interpretation of the provisions of the
insurance policies and claim forms, caused by his imperfect
knowledge of English, and that the misstatements were
innocently made and without intent to defraud.
 4. Similarly, the 20 per cent overclaim on 70 per cent of the
hemo stock, was explained by the insured as caused by his
belief that he was entitled to include in the claim his expected
profit on the 70 per cent of the hemp, because the same was
already contracted for and sold to other parties before the fire
occurred
Del Rosario v. Equitable lnsurance and Casualty, GR L-16215,
FACTS:
 April 13, 1957: Simeon del Rosario, father of the insured who
died from drowning filed a claim for payment with Equitable
Ins. and Casualty Co., Inc. but it refused to pay more than
P1,000 php so a case was filed with the RTC for the P2,000
balance stating that under the policy they are entitled to P1,000
to P3,000 as indemnity
 RTC: entitled to recover P3,000 - policy does not positively
state any definite amount, 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
greater indemnity

ISSUE: W/N Simeon is entitled to recover P3,000
29
HELD: YES.
 terms in an insurance policy, which are ambiguous, equivocal
or uncertain are to be construed strictly 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
 reason for this rule is that the "insured usually has no voice in
the selection or arrangement of the words employed and that
the language of the contract is selected with great care and
deliberation by expert and legal advisers employed by, and
acting exclusively in the interest of, the insurance company
Verendia v CA, GR 75605, 22 January 1993
FACTS:
 Rafael (Rex) Verendia's residential building was insured
with Fidelity and Surety Insurance Company, Country Bankers
Insurance and Development Insurance with Monte de Piedad &
Savings Bank as beneficiary
 December 28, 1980 early morning: the building was completely
destroyed by fire
 Fidelity refused the claim stating that there was
a misrepresentation since the lessee was not Roberto Garcia
but Marcelo Garcia
 trial court: favored Fidelity
 CA: reversed
 (b) any loss caused by any dishonest, fraudulent or criminal act of the
ISSUE: W/N there was false declaration which would forfeit
his benefits under Section 13 of the policy
3 – EXECUTIVE | Ab Initio Group
HELD: YES.
 Section 13 thereof which is expressed in terms that are clear
and unambiguous, that all benefits under the policy shall be
forfeited "If the claim be in any respect fraudulent, or if any
false declaration be made or used in support thereof, or if any
fraudulent means or devises are used by the Insured or anyone
acting in his behalf to obtain any benefit under the policy"
 Robert Garcia then executed an affidavit before the National
Intelligence and Security Authority (NISA) to the effect that he
was not the lessee of Verendia's house and that his signature
on the contract of lease was a complete forgery.
 Worse yet, by presenting a false lease contract, Verendia,
reprehensibly disregarded the principle that insurance
contracts are uberrimae fidae and demand the most abundant
good faith
Fortune lnsurance v CA, GR 115278,23 May 1995
Facts:
Producers Bank’s money was stolen while it was being transported
from Pasay to Makati. The people guarding the money were charged
with the theft. The bank filed a claim for the amount of Php 725,000,
and such was refused by the insurance corporation due to the
stipulation:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
insured or any officer, employee, partner, director, trustee or
authorized representative of the Insured whether acting alone or in
conjunction with others. . . .
30
In the trial court, the bank claimed that the suspects were not any of
the above mentioned. They won the case. The appellatecourt affirmed
on the basis that the bank had no power to hire or dismiss the guard
and could only ask for replacements from the security agency.
Issue: Did the guards fall under the general exceptions clause
of the insurance policy and thus absolved the insurance
company from liability?
Held: Yes to both. Petition granted.
Ratio:
The insurance agency contended that the guards automatically
became the authorized representatives of the bank when they
cited International Timber Corp. vs. NLRC where a contractor is a
"labor-only" contractor in the sense that there is an employer-
employee relationship between the owner of the project and the
employees of the "labor-only" contractor.
They cited Art. 106. Of the Labor Code which said:
Contractor or subcontractor. — There is "labor-only" contracting
where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited
and placed by such persons are performing activities which are directly
related to the principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an agent of
the employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by him.
The bank asserted that the guards were not its employees since it had
nothing to do with their selection and engagement, the payment of
their wages, their dismissal, and the control of their conduct.
3 – EXECUTIVE | Ab Initio Group
They cited a case where an employee-employer relationship was
governed by (1) the selection and engagement of the employee; (2)
the payment of wages; (3) the power of dismissal; and (4) the power
to control the employee's conduct.
The case was governed by Article 174 of the Insurance Code where it
stated that casualty insurance awarded an amount to loss cause by
accident or mishap.
“The term "employee," should be read as a person who qualifies as
such as generally and universally understood, or jurisprudentially
established in the light of the four standards in the determination of
the employer-employee relationship, or as statutorily declared even in
a limited sense as in the case of Article 106 of the Labor Code which
considers the employees under a "labor-only" contract as employees
of the party employing them and not of the party who supplied them
to the employer.”
But even if the contracts were not labor-only, the bank entrusted the
suspects with the duty to safely transfer the money to its head office,
thus, they were representatives. According to the court, “a
‘representative’ is defined as one who represents or stands in the place
of another; one who represents others or another in a special capacity,
as an agent, and is interchangeable with ‘agent.’”
Misamis Lumber v Capital lnsurance, GR L-21380, 20 May
1996
FACTS:
 Misamis Lumber Corporation (Misamis), formerly Lanao Timber
Mills, Inc., insured its Ford Falcon motor car with Capital
Insurance & Surety Company (Capital)
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  November 25, 1961 11 pm: The car broke when it hit a hollow
block lying alongside the water hole which the driver did not
see because the on-coming car did not dim its light
 The car was towed and repaired by Morosi Motors
costing P302.27
 November 29, 1961: After the repairs were made, Misamis
made a report to Capital who only admits liability of P150
 CFI: paragraph 4 of the policy is clear and specific and leaves
no room for interpretation that the repair liability is limited to
P150

ISSUE: W/N Misamis is entitled to an amount exceeding P150

HELD: NO.
 insurance contract may be rather onerous (one-sided) but that
in itself does not justify the abrogation of its express terms,
terms which the insured accepted or adhered to and which is
the law between the contracting parties

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