Qua Chee Gan vs Law Union and Rock Insurance Co. Ltd.

,
Qua Chee Gan, a merchant, owned 4 warehouses in Albay which were used for the storage or
copra and hemp in which the appelle deals with exclusively. The warehouses together with the
contents were insured with Law Union since 1937 and the loss made payable to PNB as mortgagee
of the hemp and copra.

A fire of undetermined cause broke out in July 21, 1940 and lasted for almost 1 whole
week.Bodegas 1, 3, and 4 including the merchandise stored were destroyed completely. Insured
then informed insurer of the unfortunate event and submitted the corresponding fire claims, which
were later reduced to P370,000.

Insurer refused to pay claiming violations of the warranties and conditions, filing of fraudulent
claims and that the fire had been deliberately caused by the insured. Insured filed an action before
CFI which rendered a decision in favor of the insured.

ISSUE:

(1) Whether or not the policies should be avoided for the reason that there was a breach of
warranty.

(2) Whether or not the insured violated the hemp warranty provision against the storage of
gasoline since insured admitted there were 36 cans of gasoline in Bodega 2 which was a separate
structure and not affected by the fire.

HELD:

Under the Memorandum of Warranty, there should be no less than 1 hydrant for each 150 feet of
external wall measurements of the compound, and since bodegas insured had an external wall per
meter of 1640 feet, the insured should have 11 hydrants in the compound. But he only had 2.

Even so, the insurer is barred by estoppel to claim violation of the fire hydrants warranty, because
knowing that the number of hydrants it demanded never existed from the very beginning, appellant
nevertheless issued the policies subject to such warranty and received the corresponding
premiums. The insurance company was aware, even before the policies were issued, that in the
premises there were only 2 hydrants and 2 others were owned by the Municipality, contrary to the
requirements of the warranties in question.
It should be close to conniving at fraud upon the insured to allow the insurer to claim now as void
the policies it issued to the insured, without warning him of the fatal defect, of which the insurer
was informed, and after it had misled the insured into believing that the policies were effective.

(2)

It is well to note that gasoline is not specifically mentioned among the prohibited articles listed in
the so-called hemp warranty. The clause relied upon by the insurer speaks of “oils”. Ordinarily,
oils mean lubricants and not gasoline or kerosene. Here again, by reason of the exclusive control
of the insurance company over the terms of the contract, the ambiguity must be held strictly against
the insurer and liberally in favor of the insured, specially to avoid a forfeiture.

Furthermore, the gasoline kept was only incidental to the insured’s business. It is a well settled
rule that keeping of inflammable oils in the premises though prohibited by the policy does NOT
void it if such keeping is incidental to the business. Also, the hemp warranty forbade the storage
only in the building to which the insurance applies, and/or in any building communicating
therewith; and it is undisputed that no gasoline was stored in the burnt bodegas and that Bodega
No. 2 which was where the gasoline was found stood isolated from the other bodegas.