LITIGATION TO SATISFY CLAIMS; JURISDICTION OF
THE INSURANCE COMMISSION AND REGULAR condition, stipulation or agreement in any policy of
COURTS; PROCEDURE
SECOND DIVISION
[G.R. No. L-5915. March 31, 1955.]
EAGLE STAR INSURANCE CO., LTD., KURR STEAMSHIP
CO., INC., ROOSEVELT STEAMSHIP AGENCY, INC., and
LEIF HOEGH & COMPANY, A/S., petitioners, vs. CHIA YU,
respondent.
Ross, Selph, Carrascoso & Janda and Delfin L. Gonzales
for petitioners.
Nabong & Sese for respondent.
SYLLABUS
1. BAILMENT AND CARRIERS; U. S. CARRIAGE OF
GOODS BY SEA ACT OF 1936, MADE BY LAW
APPLICABLE IN THE PHILIPPINES; LIMITATION OF
ACTIONS UNDER THAT ACT. — The U. S. Carriage of
Goods by Sea Act of 1936 was adopted and made
applicable to the Philippines by Commonwealth Act 65.
Where there is a stipulation in a bill of lading covering
shipment from the United States to the Philippines that
"the carrier and the ship shall be discharged from all
liability in respect of loss or damage unless suit is
brought within one year after the delivery of the goods or
the date when the goods should have been delivered",
the shipper's failure to bring an action for damages
within the said period of one year discharges the carrier
from all liability (Chua Kuy vs. Everret Steamship Corp.,
93 Phil., 207; E. E. Elser, Inc. vs. Court of Appeals, supra,
p. 264).
2. PLEADING AND PRACTICE; LIMITATION OF ACTIONS;
INSURANCE POLICY; CONTRACTUAL LIMITATION OF
ACTION. — Contractual limitations contained in
insurance policies are regarded with extreme jealousy by
courts and will be strictly construed against the insurer
and should not be permitted to prevent a recovery when
their just and honest application would not produce that
result (46 C. J. S., 273).
3. ID.; ID.; ID.; ID. — It was held in Macias & Co. vs. China
Fire Insurance Co., Ltd. (46 Phil., 345) that a clause in an
insurance policy providing that an action upon the policy
by the insured must be brought within a certain time is, if
reasonable, valid and will prevail over statutory
limitations of the action. That decision, however, was
rendered before the passage of Act 4101, which inserted
in the Insurance Act section 61-A providing that "Any
insurance, limiting the time for commencing an action
thereunder to a period of less than one year from the
time when the cause of action accrues, is void."
4. ID.; ID.; ID.; ID.; CAUSE OF ACTION ACCRUES AFTER
CLAIM OF INSURER IS FINALLY REJECTED BY THE
CARRIER AND THE INSURER. — Where the policy
provides that the insured should file his claim, first, with
the carrier and then with the insurer, the shipper has a
right to wait for his claim to be finally decided before
going to court. The law does not encourage unnecessary
litigation.
DECISION
REYES, A., J p:
On January 15, 1946, Atkins, Kroll & Co., loaded on the S.
S. Roeph Silverlight owned and operated by Leigh Hoegh
& Co., A/S, of San Francisco, California, 14 bales of
assorted underwear valued at P8,085.23 consigned to
Chia Yu in the City of Manila. The shipment was insured
against all risks by Eagle Star Ins. Co. of San Francisco,
California, under a policy issued to the shipper and by
the latter assigned to the consignee. The vessel arrived
in Manila on February 10, 1946, and on March 4 started
discharging its cargo into the custody of the Manila
Terminal Co., Inc., which was then operating the arrastre
service for the Bureau of Customs. But of the 14 bales
consigned to Chia Yu only 10 were delivered to him as
the remaining 4 could not be found. Three of those
delivered were also found damaged to the extent of 50
per cent.
Chia Yu claimed indemnity for the missing and damaged
bales. But the claim was declined, first, by the carrier and
afterward by the insurer, whereupon Chia Yu brought the
present action against both, including their respective
agents in the Philippines. Commenced in the Court of
First Instance of Manila on November 16, 1948, or more
than two years after delivery of the damaged bales and
the date when the missing bales should have been
delivered, the action was resisted by the defendants
principally on the ground of prescription. But the trial
court found for plaintiff and rendered judgment in his
favor for the sum claimed plus legal interest and costs.
The judgment was affirmed by the Court of Appeals, and
the case is now before us on appeal by certiorari.
Except for the controversy as to the amount for which
the carrier could be held liable under the terms of the bill
of lading, the only question presented for determination
is whether plaintiff's action has prescribed.
On the part of the carrier the defense of prescription is
made to rest on the following stipulation of the bill of
lading:
"In any event the carrier and the ship shall be discharged
from all liability in respect of loss or damage unless suit
is brought within one year after the delivery of the goods
or the date when the goods should have been delivered."
The stipulation is but a repetition of a provision
contained in section 3(6) of the United States Carriage of
Goods by Sea, Act of 1936, which was adopted and
made applicable to the Philippines by Commonwealth
Act 65 and by express agreement incorporated by
reference in the bill of lading. Following our decision in
Chua Kuy vs. Everett Steamship Corporation, 1 G. R. No.
L-5554 (May 27, 1953) and in E. E. Elser, Inc., et al., vs.
Court of Appeals, et al., 2 G. R. No. L-6517 (November
29, 1954) giving force and effect to this kind of
stipulation in bills of lading covering shipments from the
United States to the Philippines, we have to hold that
plaintiff's failure to bring his action "within one year after
the delivery of the goods or the date when the goods
should have been delivered" discharged the carrier from
all liability. This dispenses with the necessity of deciding
how much could be recovered from the carrier under the
terms of the bill of lading.
The case for the insurer stands on a different footing, for
its claim of prescription is founded upon the terms of the
policy and not upon the bill of lading. Under our law the
time limit for bringing a civil action upon a written
contract is ten years after the right of action accrues.
(Sec. 43, Act 190; Art. 1144, New Civil Code.) But
counsel for the insurer claim that this statutory limitation
must yield to the following stipulation in the policy:
"No suit or action on this Policy, for the recovery of any
claim, shall be sustainable in any Court of law or equity
unless the insured shall have fully complied with all the
terms and conditions of this Policy nor unless
commenced within twelve (12) months next after the
happening of the loss . . ."
To this we cannot agree.
In the case of E. Macias & Co. vs. China Fire Insurance &
Co., Ltd., et al., 46 Phil. 345, relied upon by the insurer,
this Court held that a clause in an insurance policy
providing that an action upon the policy by the insured
must be brought within a certain time is, if reasonable,
valid and will prevail over statutory limitations of the
action. That decision, however, was rendered before the
passage of Act 4101, which amended the Insurance Act
by inserting the following section in chapter one thereof:
"SEC. 61-A. Any condition, stipulation or agreement in
any policy of insurance, limiting the time for
commencing an action thereunder to a period of less
than one year from the time when the cause of action
accrues, is void."
As "matters respecting a remedy, such as the bringing of
suit, admissibility of evidence, and statute of limitations,
depend upon the law of the place where the suit is
brought" (Insular Government vs. Frank, 13 Phil. 236),
any policy clause repugnant to this amendment to the
Insurance Act cannot be given effect in an action in our
courts.
Examining the policy sued upon in the present case, we
find that its prescriptive clause, if given effect in
accordance with the terms of the policy, would reduce
the period allowed the insured for bringing his action to
less than one year. This is so because the said clause
makes the prescriptive period begin from the happening
of the loss and at the same time provides that no suit on
the policy shall be sustainable in any court unless the
insured shall have first fully complied with all the terms
and conditions of the policy, among them that which
requires that, as soon as the loss is determined, written
claim therefor be filed with the carrier and that the letter
to the carrier and the latter's reply should be attached to
the claim papers to be sent to the insurer. It is obvious
that compliance with this condition precedent will
necessarily consume time and thus shorten the period
for bringing suit to less than one year if the period is to
begin, as stated in the policy, from "the happening of the
loss." Being contrary to the law of the forum, such
stipulation cannot be given effect.
It may perhaps be suggested that the policy clause relied
on by the insurer for defeating plaintiff's action should
be given the construction that would harmonize it with
section 61-A of the Insurance Act by taking it to mean
that the time given the insured for bringing his suit is
twelve months after the cause of action accrues. But the
question then would be: When did the cause of action
accrue? On that question we agree with the court below
that plaintiff's cause of action did not accrue until his
claim was finally rejected by the insurance company.
This is because, before such final rejection, there was no
real necessity for bringing suit. As the policy provides
that the insured should file his claim, first, with the
carrier and then with the insurer, he had a right to wait
for his claim to be finally decided before going to court.
The law does not encourage unnecessary litigation.
At this junction it should be explained that while the
decision of the Court of Appeals states that the claim
against the insurance company "was finally rejected on
April 22, 1947, as correctly concluded by the court
below," it is obvious from the context and we find it to be
a fact that the date meant was April 22, 1948, for this
was the date when, according to the finding of the trial
court, the insurance company in London rejected the
claim. The trial court's decision says:
"On September 21, 1946, after Roosevelt Steamship
Agency, Inc., and Manila Terminal Co., Inc. denied
plaintiff's claim, a formal insurance claim was filed with
Kerr & Co., Ltd., local agents of Eagle Star Insurance Co.,
Ltd. (Exh. L.) Kerr & Co., Ltd. referred the insurance claim
to Eagle Star Insurance Co., Ltd. in London, but the latter,
after insistent requests of plaintiff for action, rejected
the claim on April 22, 1948, giving as its reason the lapse
of the expiry day of the risks covered by the policy and
returned the claim documents only in August of 1948."
(pp. 87-88, Record on Appeal.)
Furthermore, there is nothing in the record to show that
the claim was rejected in the year 1947, either by the
insurance company in London or its settling agents in
the Philippines, while on the other hand defendant's own
Exhibit L-1 is indisputable proof that it was on "22nd
April 1948" that the settling agents informed the
claimant "that after due and careful consideration, our
Principals confirm our declination of this claim." It not
appearing that the settling agents' decisions on claims
against their principals were not subject to reversal or
modification by the latter, while on the contrary the
insurance policy expressly stipulates, under the heading
"Important Notice," that the said agents "have authority
to certify only as to the nature, cause and extent of the
damage," and it furthermore appearing that a reiteration
of plaintiff's claim was made to the principals and the
latter gave it due course since only "after due and careful
consideration" did they confirm the action taken by the
agents, we conclude that, for the purposes of the present
action, we should consider plaintiff's claim to have been
finally rejected by the insurer on April 22, 1948. Having
been filed within twelve months from that date, the
action cannot be deemed to have prescribed even on the
supposition that the period given the insured for bringing
suit under the prescriptive clause of the policy is twelve
months after the accrual of the cause of action.
In concluding, we may state that contractual limitations
contained in insurance policies are regarded with
extreme jealousy by courts and will be strictly construed
against the insurer and should not be permitted to
prevent a recovery when their just and honest
application would not produce that result. (46 C. J. S.
273.)
Wherefore, the judgment appealed from is reversed with
respect to the carrier and its agents but affirmed with
respect to the insurance company and its agents, with
costs against the latter.
Pablo, Bengzon, Padilla, Jugo, Bautista Angelo,
Concepcion and Reyes, J. B. L., JJ., concur.
||| (Eagle Star Insurance Co., Ltd. v. Chia Yu, G.R. No. L-
5915, [March 31, 1955], 96 PHIL 696-703)
FIRST DIVISION
[G.R. No. 82036. May 22, 1997.]
TRAVELLERS INSURANCE & SURETY CORPORATION,
petitioner, vs. HON. COURT OF APPEALS and VICENTE
MENDOZA, respondents.
Espinas & Associates Law Office for petitioner.
Carlos A. Tria for private respondent.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE; CONTRACT OR
POLICY; NECESSITY OF AFFIXING A COPY THEREOF TO
COMPLAINT; CASE AT BENCH. — When private
respondent filed his amended complaint to implead
petitioner as party defendant and therein alleged that
petitioner was the third-party liability insurer of the Lady
Love taxicab that fatally hit private respondent's mother,
private respondent did not attach a copy of the
insurance contract to the amended complaint. Private
respondent does not deny this omission. It is significant
to point out at this juncture that the right of a third
person to sue the insurer depends on whether the
contract of insurance is intended to benefit third persons
also or only the insured. . . Since private respondent
failed to attach a copy of the insurance contract to his
complaint, the trial court could not have been able to
apprise itself of the real nature and pecuniary limits of
petitioner's liability. More importantly, the trial court
could not have possibly ascertained the right of private
respondent as third person to sue petitioner as insurer of
the Lady Love taxicab because the trial court never saw
nor read the insurance contract and learned of its terms
and conditions. Petitioner, understandably, did not
volunteer to present any insurance contract covering the
Lady Love taxicab that fatally hit private respondent's
mother, considering that petitioner precisely presented
the defense of lack of insurance coverage before the
trial court. Neither did the trial court issue a subpoena
duces tecum to have the insurance contract produced
before it under pain of contempt. We thus find hardly a
basis in the records for the trial court to have validly
found petitioner liable jointly and severally with the
owner and the driver of the Lady Love taxicab, for
damages accruing to private respondent.
2. ID.; ID.; ID.; LIABILITY BASED ON CONTRACT
DISTINGUISHED FROM LIABILITY BASED ON TORTS
AND QUASI-DELICTS; CASE AT BAR. — Apparently, the
trial court did not distinguish between the private
respondent's cause of action against the owner and the
driver of the Lady Love taxicab and his cause of action
against petitioner. The former is based on torts and
quasi-delicts while the latter is based on contract.
Confusing these two sources of obligations as they arise
from the same act of the taxicab fatally hitting private
respondent's mother, and in the face of overwhelming
evidence of the reckless imprudence of the driver of the
Lady Love taxicab, the trial court brushed aside its
ignorance of the terms and conditions of the insurance
contract and forthwith found all three — the driver of the
taxicab, the owner of the taxicab, and the alleged insurer
of the taxicab — jointly and severally liable for actual,
moral and exemplary damages as well as attorney's fees
and litigation expenses. This is clearly a misapplication
of the law by the trial court and respondent appellate
court grievously erred in not having reversed the trial
court on this ground.
3. ID.; ID.; ID.; INSURER'S LIABILITY BASED THEREON
LIMITED TO P50,000.00 IN CASE AT BAR. — Assuming
arguendo that petitioner is the insurer of the Lady Love
taxicab in question, its liability is limited to only
P50,000.00, this being its standard amount of coverage
in vehicle insurance policies. It bears repeating that no
copy of the insurance contract was ever proffered before
the trial court by the private respondent, notwithstanding
knowledge of the fact that the latter's complaint against
petitioner is one under a written contract. Thus, the trial
court proceeded to hold petitioner liable for an award of
damages exceeding its limited liability of P50,000.00.
This only shows beyond doubt that the trial court was
under the erroneous presumption that petitioner could
be found liable absent proof of contract and based
merely on the proof of reckless imprudence on the part
of the driver of the Lady Love taxicab that fatally hit
private respondent's mother.
4. ID.; ID.; NOTICE OF CLAIM; AN INDISPENSABLE PRE-
REQUISITE TO SUE UNDER AN INSURANCE CONTRACT;
REASONS; CASE AT BENCH. — Petitioner did not tire in
arguing before the trial court and the respondent
appellate court that, assuming arguendo that it had
issued the insurance contract over the Lady Love
taxicab, private respondent's cause of action against
petitioner did not successfully accrue because he failed
to file with petitioner a written notice of claim within six
(6) months from the date of the accident as required by
Section 384 of the Insurance Code. . . We have certainly
ruled with consistence, that the prescriptive period to
bring suit in court under an insurance policy, begins to
run front the date of the insurer's rejection of the claim
filed by the insured, the beneficiary or any person
claiming under an insurance contract. This ruling is
premised upon the compliance by the persons suing
under an insurance contract, with the indispensable
requirement of having filed the written claim mandated
by Section 384 of the Insurance Code before and after
its amendment. Absent such written claim filed by the
person suing under an insurance contract, no cause of
action accrues under such insurance contract,
considering that it is the rejection of that claim that
triggers the running of the one-year prescriptive period to
bring suit in court, and there can be no opportunity for
the insurer to even reject a claim if none has been filed in
the first place, as in the instant case.
DECISION
HERMOSISIMA, JR., J p:
The petition herein seeks the review and reversal of the
decision 1 of respondent Court of Appeals 2 affirming in
toto the judgment 3 of the Regional Trial Court 4 in an
action for damages 5 filed by private respondent Vicente
Mendoza, Jr. as heir of his mother who was killed in a
vehicular accident.
Before the trial court, the complainant lumped the erring
taxicab driver, the owner of the taxicab, and the alleged
insurer of the vehicle which featured in the vehicular
accident into one complaint. The erring taxicab was
allegedly covered by a third-party liability insurance
policy issued by petitioner Travellers Insurance & Surety
Corporation. cdtech
The evidence presented before the trial court established
the following facts:
"At about 5:30 o'clock in the morning of July 20, 1980, a
78-year old woman by the name of Feliza Vineza de
Mendoza was on her way to hear mass at the Tayuman
Cathedral. While walking along Tayuman corner Gregorio
Perfecto Streets, she was bumped by a taxi that was
running fast. Several persons witnessed the accident,
among whom were Rolando Marvilla, Ernesto Lopez and
Eulogio Tabalno. After the bumping, the old woman was
seen sprawled on the pavement. Right away, the good
Samaritan that he was, Marvilla ran towards the old
woman and held her on his lap to inquire from her what
had happened, but obviously she was already in shock
and could not talk. At this moment, a private jeep
stopped. With the driver of that vehicle, the two helped
board the old woman on the jeep and brought her to the
Mary Johnston Hospital in Tondo.
. . . Ernesto Lopez, a driver of a passenger jeepney plying
along Tayuman Street from Pritil, Tondo, to Rizal Avenue
and vice-versa, also witnessed the incident. It was on his
return trip from Rizal Avenue when Lopez saw the
plaintiff and his brother who were crying near the scene
of the accident. Upon learning that the two were the
sons of the old woman, Lopez told them what had
happened. The Mendoza brothers were then able to
trace their mother at the Mary Johnston Hospital where
they were advised by the attending physician that they
should bring the patient to the National Orthopedic
Hospital because of her fractured bones. Instead, the
victim was brought to the U.S.T. Hospital where she
expired at 9:00 o'clock that same morning. Death was
caused by 'traumatic shock' as a result of the severe
injuries she sustained. . . .
. . . The evidence shows that at the moment the victim
was bumped by the vehicle, the latter was running fast,
so much so that because of the strong impact the old
woman was thrown away and she fell on the pavement. .
. . In truth, in that related criminal case against defendant
Dumlao . . . the trial court found as a fact that therein
accused 'was driving the subject taxicab in a careless,
reckless and imprudent manner and at a speed greater
than what was reasonable and proper without taking the
necessary precaution to avoid accident to persons . . .
considering the condition of the traffic at the place at the
time aforementioned'. . . Moreover, the driver fled from
the scene of the accident and without rendering
assistance to the victim. . . .
. . . Three (3) witnesses who were at the scene at the
time identified the taxi involved, though not necessarily
the driver thereof. Marvilla saw a lone taxi speeding
away just after the bumping which, when it passed by
him, said witness noticed to be a Lady Love Taxi with
Plate No. 438, painted maroon, with baggage bar
attached on the baggage compartment and with an
antenae[sic] attached at the right rear side. The same
descriptions were revealed by Ernesto Lopez, who
further described the taxi to have . . . reflectorized
decorations on the edges of the glass at the back. . . . A
third witness in the person of Eulogio Tabalno . . . made
similar descriptions although, because of the fast speed
of the taxi, he was only able to detect the last digit of the
plate number which is '8'. . . . [T]he police proceeded to
the garage of Lady Love Taxi and then and there they
took possession of such a taxi and later impounded it in
the impounding area of the agency concerned. . . . [T]he
eyewitnesses . . . were unanimous in pointing to that
Lady Love Taxi with Plate No. 438, obviously the vehicle
involved herein.
. . . During the investigation, defendant Armando Abellon,
the registered owner of Lady Love Taxi bearing No. 438-
HA Pilipinas Taxi 1980, certified to the fact 'that the
vehicle was driven last July 20, 1980 by one Rodrigo
Dumlao . . .' It was on the basis of this affidavit of the
registered owner that caused the police to apprehend
Rodrigo Dumlao, and consequently to have him
prosecuted and eventually convicted of the offense . . .
[S]aid Dumlao absconded in that criminal case, specially
at the time of the promulgation of the judgment therein
so much so that he is now a fugitive from justice." 6
Private respondent filed a complaint for damages
against Armando Abellon as the owner of the Lady Love
Taxi and Rodrigo Dumlao as the driver of the Lady Love
taxicab that bumped private respondent's mother.
Subsequently, private respondent amended his
complaint to include petitioner as the compulsory
insurer of the said taxicab under Certificate of Cover No.
1447785-3.
After trial, the trial court rendered judgment in favor of
private respondent, the dispositive portion of which
reads:
"WHEREFORE, judgment is hereby rendered in favor of
the plaintiff, or more particularly the 'Heirs of the late
Feliza Vineza de Mendoza,' and against defendants
Rodrigo Dumlao, Armando Abellon and Travellers
Insurance and Surety Corporation, by ordering the latter
to pay, jointly and severally, the former the following
amounts:
(a) The sum of P2,924.70, as actual and compensatory
damages, with interest thereon at the rate of 12% per
annum from October 17, 1980, when the complaint was
filed, until the said amount is fully paid;

(b) P30,000.00 as death indemnity;
(c) P25,000.00 as moral damages;
(d) P10,000.00 as by way of corrective or exemplary
damages, and
(e) Another P10,000.00 by way of attorney's fees and
other litigation expenses.
Defendants are further ordered to pay, jointly and
severally, the costs of this suit.
SO ORDERED." 7
Petitioner appealed from the aforecited decision to the
respondent Court of Appeals. The decision of the trial
court was affirmed by respondent appellate court.
Petitioner's Motion for Reconsideration 8 of September
22, 1987 was denied in a Resolution 9 dated February 9,
1988.
Hence this petition.
Petitioner mainly contends that it did not issue an
insurance policy as compulsory insurer of the Lady Love
Taxi and that, assuming arguendo that it had indeed
covered said taxicab for third-party liability insurance,
private respondent failed to file a written notice of claim
with petitioner as required by Section 384 of P.D. No.
612, otherwise known as the Insurance Code.
We find the petition to be meritorious.
I insurance contract produced before it under pain of
When private respondent filed his amended complaint to
implead petitioner as party defendant and therein
alleged that petitioner was the third-party liability insurer
of the Lady Love taxicab that fatally hit private
respondent's mother, private respondent did not attach a
copy of the insurance contract to the amended
complaint. Private respondent does not deny this
omission.
It is significant to point out at this juncture that the right
of a third person to sue the insurer depends on whether
the contract of insurance is intended to benefit third
persons also or only the insured.
"[A]" policy . . . whereby the insurer agreed to indemnify
the insured 'against all sums . . . which the Insured shall
become legally liable to pay in respect of: (a) death of or
bodily injury to any person . . . is one for indemnity
against liability; from the fact then that the insured is
liable to the third person, such third person is entitled to
sue the insurer.
The right of the person injured to sue the insurer of the
party at fault (insured), depends on whether the contract
of insurance is intended to benefit third persons also or
on the insured. And the test applied has been this: Where
the contract provides for indemnity against liability to
third persons, then third persons to whom the insured is
liable can sue the insurer. Where the contract is for
indemnity against actual loss or payment, then third
persons cannot proceed against the insurer, the contract
being solely to reimburse the insured for liability actually
discharged by him thru payment to third persons, said
third persons' recourse being thus limited to the insured
alone." 10
Since private respondent failed to attach a copy of the
insurance contract to his complaint, the trial court could
not have been able to apprise itself of the real nature and
pecuniary limits of petitioner's liability. More importantly,
the trial court could not have possibly ascertained the
right of private respondent as third person to sue
petitioner as insurer of the Lady Love taxicab because
the trial court never saw nor read the insurance contract
and learned of its terms and conditions.
Petitioner, understandably, did not volunteer to present
any insurance contract covering the Lady Love taxicab
that fatally hit private respondent's mother, considering
that petitioner precisely presented the defense of lack of
insurance coverage before the trial court. Neither did the
trial court issue a subpoena duces tecum to have the
contempt.
We thus find hardly a basis in the records for the trial
court to have validly found petitioner liable jointly and
severally with the owner and the driver of the Lady Love
taxicab, for damages accruing to private respondent.
Apparently, the trial court did not distinguish between
the private respondent's cause of action against the
owner and the driver of the Lady Love taxicab and his
cause of action against petitioner. The former is based
on torts and quasi-delicts while the latter is based on
contract. Confusing these two sources of obligations as
they arise from the same act of the taxicab fatally hitting
private respondent's mother, and in the face of
overwhelming evidence of the reckless imprudence of
the driver of the Lady Love taxicab, the trial court
brushed aside its ignorance of the terms and conditions
of the insurance contract and forthwith found all three —
the driver of the taxicab, the owner of the taxicab, and
the alleged insurer of the taxicab — jointly and severally
liable for actual, moral and exemplary damages as well
as attorney's fees and litigation expenses. This is clearly
a misapplication of the law by the trial court, and
respondent appellate court grievously erred in not having
reversed the trial court on this ground. LLphil
"While it is true that where the insurance contract
provides for indemnity against liability to third persons,
such third persons can directly sue the insurer, however,
the direct liability of the insurer under indemnity
contracts against third-party liability does not mean that
the insurer can be held solidarily liable with the insured
and/or the other parties found at fault. The liability of the
insurer is based on contract; that of the insured is based
on tort." 11
Applying this principle underlying solidary obligation and
insurance contracts, we ruled in one case that:
"In solidary obligation, the creditor may enforce the
entire obligation against one of the solidary debtors. On
the other hand, insurance is defined as 'a contract
whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an
unknown or contingent event.'
In the case at bar, the trial court held petitioner together
with respondents Sio Choy and Leon Rice Mills Inc.
solidarily liable to respondent Vallejos for a total amount
of P29,103.00, with the qualification that petitioner's
liability is only up to P20,000.00. In the context of a
solidary obligation, petitioner may be compelled by
respondent Vallejos to pay the entire obligation of
P29,103.00, notwithstanding the qualification made by
the trial court. But, how can petitioner be obliged to pay
the entire obligation when the amount stated in its
insurance policy with respondent Sio Choy for indemnity
against third-party liability is only P20,000.00? Moreover,
the qualification made in the decision of the trial court to
the effect that petitioner is sentenced to pay up to
P20,000.00 only when the obligation to pay P29,103.00
is made solidary is an evident breach of the concept of a
solidary obligation." 12
The above principles take on more significance in the
light of the counter-allegation of petitioner that,
assuming arguendo that it is the insurer of the Lady Love
taxicab in question, its liability is limited to only
P50,000.00, this being its standard amount of coverage
in vehicle insurance policies. It bears repeating that no
copy of the insurance contract was ever proffered before
the trial court by the private respondent, notwithstanding
knowledge of the fact that the latter's complaint against
petitioner is one under a written contract. Thus, the trial
court proceeded to hold petitioner liable for an award of
damages exceeding its limited liability of P50,000.00.
This only shows beyond doubt that the trial court was
under the erroneous presumption that petitioner could
be found liable absent proof of the contract and based
merely on the proof of reckless imprudence on the part
of the driver of the Lady Love taxicab that fatally hit
private respondent's mother.
II
Petitioner did not tire in arguing before the trial court and
the respondent appellate court that, assuming arguendo
that it had issued the insurance contract over the Lady
Love taxicab, private respondent's cause of action
against petitioner did not successfully accrue because
he failed to file with petitioner a written notice of claim
within six (6) months from the date of the accident as
required by Section 384 of the Insurance Code.
At the time of the vehicular incident which resulted in the
death of private respondent's mother, during which time
the Insurance Code had not yet been amended by Batas
Pambansa (B.P.) Blg. 874, Section 384 provided as
follows:
"Any person having any claim upon the policy issued
pursuant to this chapter shall, without any unnecessary
delay, present to the insurance company concerned a
written notice of claim setting forth the amount of his
loss, and/or the nature, extent and duration of the
injuries, sustained as certified by a duly licensed
physician. Notice of claim must be filed within six
months from date of the accident, otherwise, the claim
shall he deemed waived. Action or suit for recovery of
damage due to loss or injury must be brought in proper
cases, with the Commission or the Courts within one
year from date of accident, otherwise the claimant's right
of action shall prescribe" [emphasis supplied].
In the landmark case of Summit Guaranty and Insurance
Co., Inc. v. De Guzman, 13 we ruled that the one year
prescription period to bring suit in court against the
insurer should be counted from the time that the insurer
rejects the written claim filed therewith by the insured,
the beneficiary or the third person interested under the
insurance policy. We explained:
"It is very obvious that petitioner company is trying to
use Section 384 of the Insurance Code as a cloak to hide
itself from its liabilities. The facts of these cases
evidently reflect the deliberate efforts of petitioner
company to prevent the filing of a formal action against
it. Bearing in mind that if it succeeds in doing so until
one year lapses from the date of the accident it could set
up the defense of prescription, petitioner company made
private respondents believe that their claims would be
settled in order that the latter will not find it necessary to
immediately bring suit. In violation of its duties to adopt
and implement reasonable standards for the prompt
investigation of claims and to effectuate prompt, fair and
equitable settlement of claims, and with manifest bad
faith, petitioner company devised means and ways of
stalling the settlement proceedings. . . . [No] steps were
taken to process the claim and no rejection of said claim
was ever made even if private respondent had already
complied with all the requirements. . . .
This Court has made the observation that some
insurance companies have been inventing excuses to
avoid their just obligations and it is only the State that
can give the protection which the insuring public needs
from possible abuses of the insurers." 14
It is significant to note that the aforecited Section 384
was amended by B.P. Blg. 874 to categorically provide
that "action or suit for recovery of damage due to loss or
injury must be brought in proper cases, with the
Commissioner or the Courts within one year from denial
of the claim, otherwise the claimant's right of action
shall prescribe" [emphasis ours]. 15
We have certainly ruled with consistency that the
prescriptive period to bring suit in court under an
insurance policy, begins to run from the date of the
insurer's rejection of the claim filed by the insured, the
beneficiary or any person claiming under an insurance
contract. This ruling is premised upon the compliance by
the persons suing under an insurance contract, with the
indispensable requirement of having filed the written
claim mandated by Section 384 of the Insurance Code
before and after its amendment. Absent such written
claim filed by the person suing under an insurance
contract, no cause of action accrues under such
insurance contract, considering that it is the rejection of
that claim that triggers the running of the one-year
prescriptive period to bring suit in court, and there can be
no opportunity for the insurer to even reject a claim if
none has been filed in the first place, as in the instant
case. cdtai
"The one-year period should instead be counted from the
date of rejection by the insurer as this is the time when
the cause of action accrues. . .
In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this
Court ruled:
'The plaintiff's cause of action did not accrue until his
claim was finally rejected by the insurance company.
This is because, before such final rejection, there was no
real necessity for bringing suit.'
The philosophy of the above pronouncement was
pointed out in the case of ACCFA vs. Alpha Insurance
and Surety Co., viz.:
'Since a cause of action requires, as essential elements,
not only a legal right of the plaintiff and a correlative
obligation of the defendant but also an act or omission
of the defendant in violation of said legal right, the cause
of action does not accrue until the party obligated
refuses, expressly or impliedly, to comply with its duty'."
16
When petitioner asseverates, thus, that no written claim
was filed by private respondent and rejected by
petitioner, and private respondent does not dispute such
asseveration through a denial in his pleadings, we are
constrained to rule that respondent appellate court
committed reversible error in finding petitioner liable
under an insurance contract the existence of which had
not at all been proven in court. Even if there were such a
contract, private respondent's cause of action can not
prevail because he failed to file the written claim
mandated by Section 384 of the Insurance Code. He is
deemed, under this legal provision, to have waived his
rights as against petitioner-insurer.
WHEREFORE, the instant petition is HEREBY GRANTED.
The decision of the Court of Appeals in CA-G.R. CV No.
09416 and the decision of the Regional Trial Court in
Civil Case No. 135486 are REVERSED and SET ASIDE
insofar as Travellers Insurance & Surety Corporation was
found jointly and severally liable to pay actual, moral and
exemplary damages, death indemnity, attorney's fees
and litigation expenses in Civil Case No. 135486. The
complaint against Travellers Insurance & Surety
Corporation in said case is hereby ordered dismissed.
prcd
No pronouncement as to costs.
SO ORDERED.
||| (Travellers Insurance & Surety Corp. v. Court of
Appeals, G.R. No. 82036, [May 22, 1997], 338 PHIL 1032-
1044)
SECOND DIVISION
[G.R. No. L-54140. October 14, 1986.]
FILIPINO MERCHANTS INSURANCE COMPANY, INC.,
petitioner, vs. HONORABLE JOSE ALEJANDRO, Presiding
Judge of Branch XXVI of the Court of First Instance of
Manila and FROTA OCEANICA BRASILIERA,
respondents.
[G.R. No. L-62001. October 14, 1986.]
FILIPINO MERCHANS INSURANCE COMPANY, INC.,
petitioner, vs. HONORABLE ALFREDO BENIPAYO,
Presiding Judge of Branch XVI of the Court of First
Instance of Manila and AUSTRALIA-WEST PACIFIC LINE,
respondents.
DECISION
GUTIERREZ, JR., J p:
These consolidated petitions raise the issue of whether
or not the one-year period within which to file a suit
against the carrier and the ship, in case of damage or
loss as provided for in the Carriage of Goods by Sea Act
applies to the insurer of the goods.
On August 3, 1977, plaintiff Choa Tiek Seng filed a
complaint, docketed as Civil Case No. 109911, against
the petitioner before the then Court of First Instance of
Manila for recovery of a sum of money under the marine
insurance policy on cargo. Mr. Choa alleged that the
goods he insured with the petitioner sustained loss and
damage in the amount of P35,987.26. The vessel SS
Frotario which was owned and operated by private
respondent Frota Oceanica Brasiliera, (Frota) discharged
the goods at the port of Manila on December 13, 1976.
The said goods were delivered to the arrastre operator E.
Razon, Inc., on December 17, 1976 and on the same date
were received by the consignee-plaintiff.
On December 19, 1977, the petitioner filed its amended
answer disclaiming liability, imputing against the plaintiff
the commission of fraud and counterclaiming for
damages.
On January 9, 1978, the petitioner filed a third-party
complaint against the carrier, private respondent Frota
and the arrastre contractor, E. Razon, Inc. for indemnity,
subrogation, or reimbursement in the event that it is held
liable to the plaintiff.
Meanwhile, on August 10, 1977, Joseph Benzon Chua
filed a similar complaint against the petitioner which was
docketed as Civil Case No. 110061, for recovery under
the marine insurance policy for cargo alleging that the
goods insured with the petitioner sustained loss and
damage in the sum of P55,996.49.
The goods were delivered to the plaintiff-consignee on or
about January 25-28, 1977.
On May 31, 1978, the petitioner filed its answer. On
September 28, 1978, it filed an amended third-party
complaint against respondent carrier, the Australia-West
Pacific Line (Australia-West).
In both cases, the private respondents filed their
respective answers and subsequently filed a motion for
preliminary hearing on their affirmative defense of
prescription. The private respondents alleged in their
separate answers that the petitioner is already barred
from filing a claim because under the Carriage of Goods
by Sea Act, the suit against the carrier must be filed
"within one year after delivery of the goods or the date
when the goods should have been delivered. . . . "
The petitioner contended that the provision relied upon
by the respondents applies only to the shipper and not to
the insurer of the goods.
On April 30, 1980, the respondent judge in Civil Case No.
109911, upheld respondent Frota and dismissed the
petitioner's third-party complaint. Likewise, on August
31, 1982, the respondent judge in Civil Case No. 110061
dismissed the petitioner's third-party complaint against
respondent Australia-West on the ground that the same
was filed beyond the prescriptive period provided in
Section 3 (6) of the Carriage of Goods by Sea Act of
1936. In both cases, the petitioner appealed to us on a
pure question of law, raising the issue of whether or not
the prescriptive period of one year under the said Act
also applies to an insurer such as herein petitioner.
The petitioner maintains that the one-year prescriptive
period cannot cover an insurer which has not settled the
claim of its insured because it cannot be considered as
the person referred to in the applicable provision of the
said Act that has the duty or right to give notice of loss
or damage to the carrier or to sue such carrier within the
period of one year and that where an insurer does not
settle the claim of its insured it cannot be considered as
subrogated to the rights of said insured that would then
authorize it to sue the carrier within the time-bar of one
year. The petitioner further contends that the period for
the filing of a third-party complaint must be reckoned
from the date when the principal action was filed, that is,
from the time the insured filed a suit against the
petitioner, because the third-party complaint is merely an
incident of the main action.
On the other hand, the respondents argue that the one-
year prescriptive period within which to file a claim
against the carrier also applies to a claim filed by an
insurer who stands as a subrogee to the insured and that
the third-party complaint filed by the petitioner cannot be
reckoned from the filing of the main action because such
complaint is independent of, and separate and distinct
from the insured's action against the petitioner.
The lower courts did not err.
Section 3(b) of the Carriage of Goods by Sea Act
provides:
(6) Unless notice of loss or damage and the general
nature of such loss or damage be given in writing to the
carrier or his agent at the port of discharge before or at
the time of the removal of the goods into the custody of
the person entitled to delivery thereof under the contract
of carriage, such removal shall be prima facie evidence
of the delivery by the carrier of the goods as described in
the bill of lading. If the loss or damage is not apparent,
the notice must be given within three days of the
delivery.
"Said notice of loss or damage may be endorsed upon
the receipt for the goods given by the person taking
delivery thereof.
"The notice in writing need not be given if the state of the
goods has at the time of their receipt been the subject of
joint survey or inspection.
"In any event the carrier and the ship shall be discharged
from all liability in respect of loss or damage unless suit
is brought within one year after delivery of the goods or
the date when the goods should have been delivered:
Provided, that if a notice of loss or damage, either
apparent or concealed, is not given as provided for in
this section, that fact shall not affect or prejudice the
right of the shipper to bring the suit within one year after
the delivery of the goods or the date when the goods
should have been delivered.
"In the case of any actual or apprehended loss or
damage, the carrier and the receiver shall give all
reasonable facilities to each other for inspecting and
tallying the goods. (Italics supplied) Philippine
Permanent and General Statutes (Revised Edition, Vol. I,
pp. 663-666).
Chua Kuy v. Everett Steamship Corporation (93 Phil. 207,
213-214), expounds on the extent of the applicability of
the aforequoted provision. We ruled: LibLex
"Neither do we find tenable the claim that the
prescriptive period contained in said act can only be
invoked by the shipper, excluding all other parties to the
transaction. While apparently the proviso contained in
the portion of section 3(6) of the act we have quoted
gives the impression that the right to file suit within one
year after delivery of the goods applies to the shipper
alone, however, reading the proviso in conjunction with
the rest of section 3(6), it at once becomes apparent that
the conclusion drawn by petitioner is unwarranted. In the
first place, said section provides that the notice of loss
or damage for which a claim for indemnity may be made
should be given in writing to the carrier at the port of
discharge before or at the time of the removal of the
goods, and if the loss or damage is not apparent said
notice should be given 'within three days on delivery.'
From the language of this section, it seems clear that the
notice of loss or damage is required to be filed not
necessarily by the shipper but also by the consignee or
any legal holder of the bill of lading. In fact, said section
requires that the notice be given at the port of discharge
and the most logical party to file the notice is either the
consignee or the endorsee of the bill of lading. In the
second place, a study of the historical background of
this particular provision will show that although the word
shipper is used in the proviso referred to by the
petitioner, the intention of the law was not to exclude the
consignee or endorsee of the bill of lading from bringing
the action but merely to limit the filing of the same within
one year after the delivery of the goods at the port of
discharge. [The Southern Cross, 1940, A. M. C. 59
(SDNY); Lindgren v. Farley, 1938 A. M. C. 805 (SDNY)].
"Arnold W. Knauth, an eminent authority on admiralty,
commenting on this proviso, says:
xxx xxx xxx
"It seems evident that this language does not alter the
sense of the text of the Hague Rules; it merely reiterates
in another form the rule already laid down. Curiously, the
proviso seems limited to the rights of shippers,and
might strictly be construed not to give any rights to
consignees, representatives, or subrogated parties;
whereas the Hague Rules phraseology is broader. As the
Act contains both phrases, it would seem to be as broad
as the broader of the two forms of words. ' (Ocean Bills
of Lading, by Knauth, p. 229)."
Clearly, the coverage of the Act includes the insurer of
the goods. Otherwise, what the Act intends to prohibit
after the lapse of the one year prescriptive period can be
done indirectly by the shipper or owner of the goods by
simply filing a claim against the insurer even after the
lapse of one year. This would be the result if we follow
the petitioner's argument that the insurer can, at any
time, proceed against the carrier and the ship since it is
not bound by the time-bar provision. In this situation, the
one year limitation will be practically useless. This could
not have been the intention of the law which has also for
its purpose the protection of the carrier and the ship
from fraudulent claims by having "matters affecting
transportation of goods by sea be decided in as short a
time as possible" and by avoiding incidents which would
"unnecessarily extend the period and permit delays in the
settlement of questions affecting the transportation."
(See The Yek Tong Fire and Marine Insurance Co., Ltd., v.
American President Lines, Inc., 103 Phil. 1125-1126).
In the case of Aetna Insurance Co. v. Luzon Stevedoring
Corporation (62 SCRA 11, 15), we denied the appeal of
an insurance company which filed a suit against the
carrier after the lapse of one year. We ruled:
"There is no merit in the appeal. The trial court correctly
held that the one-year statutory and contractual
prescriptive period had already expired when appellant
company filed on April 7, 1965 its action against Barber
Line Far East Service. The one-year period commenced
on February 25, 1964 when the damaged cargo was
delivered to the consignee. (See Chua Kuy v. Everrett
Steamship Corporation, 93 Phil. 207; Yek Tong Fire &
Marine Insurance Co., Ltd. v. American President Lines,
Inc., 103 Phil. 1125)."
We likewise agree with the respondents that the third-
party complaint of the petitioner cannot be considered to
have been filed upon the filing of the main action
because although it can be said that a third-party
complaint is but ancillary to the main action (Eastern
Assurance and Surety Corporation v. Cui, 105 SCRA
622), it cannot abridge, enlarge, nor modify the
substantive rights of any litigant. It creates no
substantive rights. Thus, unless there is some
substantive basis for the third-party plaintiff's claim, he
cannot utilize the filing of such action to acquire any
right of action against the third-party defendant. (See
also Francisco, The Revised Rules of Court in the
Philippines, Vol. 1, 1973 Ed., p. 507). The petitioner can
only rightfully file a third-party complaint against the
respondents if, in the first place, it can still validly
maintain an action against the latter. cdphil
In the case at bar, the petitioner's action has prescribed
under the provisions of the Carriage of Goods by Sea
Act. Hence, whether it files a third-party complaint or
chooses to maintain an independent action against
herein respondents is of no moment. Had the plaintiffs
in the civil cases below filed an action against the
petitioner after the one-year prescriptive period, then the
latter could have successfully denied liability on the
ground that by their own doing, the plaintiffs had
prevented the petitioner from being subrogated to their
respective rights against the herein respondents by filing
a suit after the one-year prescriptive period. The
situation, however, does not obtain in the present case.
The plaintiffs in the civil cases below gave extra-judicial
notice to their respective carriers and filed suit against
the petitioner well within one year from their receipt of
the goods. The petitioner had plenty of time within which
to act. In Civil Case No. 109911, the petitioner had more
than four months to file a third-party complaint while in
Civil Case No. 110061, it had more than five months to
do so. In both instances, however, the petitioner failed to
file the appropriate action.
WHEREFORE, IN VIEW OF THE FOREGOING, the petitions
in G. R. No. 54140 and G. R. No. 62001 are hereby
DISMISSED for lack of merit. Costs against the
petitioner.
SO ORDERED.
||| (Filipino Merchants Insurance Co., Inc. v. Alejandro,
G.R. No. L-54140, L-62001, [October 14, 1986], 229 PHIL
73-81)
EN BANC
[G.R. No. L-24566. July 29, 1968.]
AGRICULTURAL CREDIT & COOPERATIVE FINANCING
ADMINISTRATION (ACCFA), plaintiff-appellant, vs.
ALPHA INSURANCE & SURETY CO., INC., defendant-
appellee, RICARDO A. LADINES, ET AL., third-party-
defendants-appellees.
Deogracias E. Lerma and Esmeraldo U. Guloy for
plaintiff-appellant.
L.L. Reyes for defendant-appellee.
Geronimo F. Abellero for third-party-defendants-
appellees.

SYLLABUS
1. COMMERCIAL LAW; INSURANCE; FIDELITY BOND;
STIPULATION SHORTENING PERIOD OF INSTITUTING
ACTION AGAINST BOND. — A fidelity bond is, in effect, in
the nature of a contract of insurance against loss from
misconduct and is governed by the same principles of
interpretation. Consequently, the condition of the bond
limiting the period for bringing action thereon, is subject
to the provisions of Section 61-A of the Insurance Act
(No. 2427) as amended by Act 4101. The year for
instituting action in court must be reckoned, therefore,
from the time of appellee's refusal to comply with its
bond. In so far, therefore, as condition eight of the bond
requires action to be filed within one year from the filing
of the claim for loss, such stipulation contradicts the
public policy expressed in Section 61-A of the Philippine
Insurance Act. Condition eight of the bond, therefore, is
null and void, and the appellant is not bound to comply
with its provisions. Action must be brought within the
statutory period of limitation for written contracts
(N.C.C., Article 1144).
DECISION
REYES, J.B.L., J p:
Appeal, on points of law, against a decision of the Court
of First Instance of Manila, in its Case No. 43372,
upholding a motion to dismiss.
At issue is the question whether or not the provision of a
fidelity bond that no action shall be had or maintained
thereon unless commenced within one year from the
making of a claim for the loss upon which the action is
based, is valid or void, in view of Section 61-A of the
Insurance Act invalidating stipulations limiting the time
for commencing an action thereon to less than one year
from the time the cause of action accrues.
Material to this decision are the following facts:
According to the allegations of the complaint, in order to
guarantee the Asingan Farmers' Cooperative Marketing
Association, Inc. (FACOMA) against loss on account of
"personal dishonesty, amounting to larceny or estafa" of
its Secretary-Treasurer, Ricardo A. Ladines, the appellee,
Alpha Insurance & Surety Company had issued, on 14
February 1958, its bond, No. P-FID-15-58, for the sum of
Five Thousand Pesos (P5,000.00) with said Ricardo
Ladines as principal and the appellee as solidary surety.
On the same date, the Asingan FACOMA assigned its
rights to the appellant, Agricultural Credit Cooperative
and Financing Administration (ACCFA for short), with
approval of the principal and the surety.
During the effectivity of the bond, Ricardo Ladines
converted and misappropriated, to his personal benefit
some P11,513.22 of the FACOMA funds, of which
P6,307.33 belonged to the ACCFA. Upon discovery of the
loss, ACCFA immediately notified in writing the surety
company on 10 October 1958, and presented the proof
of loss within the period fixed in the bond; but despite
repeated demands the surety company refused and
failed to pay. Whereupon, ACCFA filed suit against
appellee on 30 May 1960.
Defendant Alpha Insurance & Surety Co., Inc., (now
appellee) moved to dismiss the complaint for failure to
state a cause of action, giving as reason that (1) the
same was filed more than one year after plaintiff made
claim for loss, contrary to the eight condition of the
bond, providing as follows:
"EIGHT. LIMITATION OF ACTION
'No action, suit or proceeding shall be had or maintained
upon this Bond unless the same be commenced within
one year from the time of making claim for the loss upon
which such action, suit or proceeding is based, in
accordance with the fourth section hereof.' "
(2) the complaint failed to show that plaintiff had filed
civil or criminal action against Ladines, as required by
conditions 4 and 11 of the bond; and (3) that Ladines
was a necessary and indispensable party but had not
been joined as such.
At first, the Court of First Instance denied dismissal; but,
upon reconsideration, the court reversed its original
stand, and dismissed the complaint on the ground that
the action was filed beyond the contractual limitation
period (Record on Appeal, pages 56-59).
Hence, this appeal.
We find the appeal meritorious.
A fidelity bond is, in effect, in the nature of a contract of
insurance against loss from misconduct, and is
governed by the same principles of interpretation:
Mechanics Savings Bank & Trust Co. vs. Guarantee
Company, 68 Fed. 459; Pao Chan Wei vs. Nemorosa, 103
Phil. 57. Consequently, the condition of the bond in
question, limiting the period for bringing action thereon,
is subject to the provisions of Section 61-A of the
Insurance Act (No. 2427), as amended by Act 4101 of
the pre-Commonwealth Philippine Legislature,
prescribing that —
"SEC. 61-A. — A condition, stipulation or agreement in
any policy of insurance, limiting the time for
commencing an action thereunder to a period of less
than one year from the time when the cause of action
accrues is void."
Since a "cause of action" requires, as essential elements,
not only a legal right of the plaintiff and a correlative
obligation of the defendant but also "an act or omission
of the defendant in violation of said legal right" (Maao
Sugar Central vs. Barrios, 79 Phil. 666), the cause of
action does not accrue until the party obligated refuses,
expressly or impliedly, to comply with its duty (in this
case, to pay the amount of the bond). The year for
instituting action in court must be reckoned, therefore,
from the time of appellee's refusal to comply with its
bond; it can not be counted from the creditor's filing of
the claim of loss, for that does not import that the surety
company will refuse to pay. In so far, therefore, as
condition eight of the bond requires action to be filed
within one year from the filing of the claim for loss, such
stipulation contradicts the public policy expressed in
Section 61-A of the Philippine Insurance Act. Condition
eight of the bond, therefore, is null and void, and the
appellant is not bound to comply with its provisions.
In Eagle Star Insurance Co. vs. Chia Yu, 96 Phil. 696, 701,
this Court ruled:
"It may perhaps be suggested that the policy clause
relied on by the insurer for defeating plaintiff's action
should be given the construction that would harmonize it
with section 61-A of the Insurance Act by taking it to
mean that the time given the insured for bringing his suit
is twelve months after the cause of action accrues. But
the question then would be: When did the cause of
action accrue? On that question we agree with the court
below that plaintiff's cause of action did not accrue until
his claim was finally rejected by the insurance company.
This is because, before such final rejection, there was no
real necessity for bringing suit. As the policy provides
that the insured should file his claim, first, with the
carrier and then with the insurer, he had a right to wait
for his claim to be finally decided before going to court.
The law does not encourage unnecessary litigation."
The discouraging of unnecessary litigation must be
deemed a rule of public policy, considering the
unrelieved congestion in the courts.
As a consequence of the foregoing, condition eight of
the Alpha bond is null and void, and action may be
brought within the statutory period of limitation for
written contracts (New Civil Code, Article 1144). The
case of Ang vs. Pulton Fire Insurance Co., 2 SCRA 945
(31 July 1961), relied upon by the Court a quo, is no
authority against the views herein expressed, since the
effect of Section 61-A of the Insurance law on the terms
of the policy or contract was not there considered.
The condition of previous conviction (paragraph b,
clause 4, of the contract) having been deleted by express
agreement, and the surety having assumed solidary
liability, the other grounds of the motion to dismiss are
equally untenable. A creditor may proceed against any
oneof the solidary debtors, or some or all of them
simultaneously (Article 1216, New Civil Code).
WHEREFORE, the appealed order granting the motion to
dismiss is reversed and set aside, and the records are
remanded to the Court of First Instance, with
instructions to require defendant to answer and
thereafter proceed in conformity with the law and the
Rules of Court. Costs against appellee.
SO ORDERED.
||| (Agricultural Credit & Cooperative Financing
Administration v. Alpha Insurance & Surety Co., Inc., G.R.
No. L-24566, [July 29, 1968], 133 PHIL 306-310)
FIRST DIVISION
[G.R. No. 103883. November 14, 1996.]
JACQUELINE JIMENEZ VDA. DE GABRIEL, petitioner, vs.
HON. COURT OF APPEALS and FORTUNE INSURANCE &
SURETY COMPANY, INC., respondents.
Jaime S. Linsangan for petitioner.
Santiago, Arevalo & Associates for private respondent.
SYLLABUS
1. MERCANTILE LAW; INSURANCE; SECTION 384 OF
THE INSURANCE CODE; PRIVATE RESPONDENT
CORRECTLY INVOKED "PRESCRIPTION" UNDER SAID
SECTION 384; REASON. — On the issue of "prescription,"
private respondent correctly invoked Section 384 of the
Insurance Code; viz.: "Sec. 384. Any person having any
claim upon the policy issued pursuant to this chapter
shall, without any unnecessary delay, present to the
insurance company concerned a written notice of claim
setting forth the nature, extent and duration of the
injuries sustained as certified by a duly licensed
physician. Notice of claim must be filed within six
months from date of the accident, otherwise, the claim
shall be deemed waived. Action or suit for recovery of
damage due to loss or injury must be brought, in proper
cases, with the Commissioner or the Courts within one
year from denial of the claim, otherwise, the claimant's
right of action shall prescribe." The notice of death was
given to private respondent, concededly, more than a
year after the death of petitioner's husband. Private
respondent, in invoking prescription, was not referring to
the one-year period from the denial of the claim within
which to file an action against an insurer but obviously to
the written notice of claim that had to be submitted
within six months from the time of the accident. cTECHI
2. ID.; ACCIDENT INSURANCE; IN AN ACCIDENT
INSURANCE (UNLIKE IN AN ORDINARY LIFE
INSURANCE), THE INSURED'S BENEFICIARY HAS THE
BURDEN OF PROOF IN DEMONSTRATING THAT THE
CAUSE OF DEATH IS DUE TO THE COVERED PERIL. —
The insurance policy expressly provided that to be
compensable, the injury or death should be caused by
"violent accidental external and visible means." In
attempting to prove the cause of her husband's death, all
that petitioner could submit were a letter sent to her by
her husband's co-worker, stating that Gabriel died when
he tried to haul water out of a tank while its submerged
motor was still functioning, and petitioner's sinumpaang
salaysay which merely confirmed the receipt and stated
contents of the letter. Said the appellate court in this
regard: ". . . . It must be noted that the only evidence
presented by her to prove the circumstances
surrounding her husband's death were her purported
affidavit and the letter allegedly written by the deceased
co-worker in Iraq. The said affidavit however suffers
from procedural infirmity as it was not even testified to
or identified by the affiant (plaintiff-appellant) herself.
This self-serving affidavit therefore is a mere hearsay
under the rules, . . . . "In like manner, the letter allegedly
written by the deceased's co-worker which was never
identified to in court by the supposed author, suffers
from the same defect as the affidavit of the plaintiff-
appellant." Not one of the other documents submitted, to
wit, the POEA decision, dated 06 June 1984, the death
certificate issued by the Ministry of Health of Iraq and
the NBI autopsy report, could give any probative value to
petitioner's claim. The POEA decision did not make any
categorical holding on the specific cause of Gabriel's
death. Neither did the death certificate issued by the
health authorities in Iraq nor the NBI autopsy report
provide any clue on the cause of death. All that appeared
to be clear was the fact of Gabriel's demise on 22 May
1982 in Iraq. Evidence, in fine, is utterly wanting to
establish that the insured suffered from an accidental
death, the risk covered by the policy. In an accident
insurance, the insured's beneficiary has the burden of
proof in demonstrating that the cause of death is due to
the covered peril. Once that fact is established, the
burden then shifts to the insurer to show any excepted
peril that may have been stipulated by the parties. An
"accident insurance" is not thus to be likened to an
ordinary life insurance where the insured's death,
regardless of the cause thereof, would normally be
compensable. The latter is akin in property insurance to
an "all risk" coverage where the insured, on the aspect of
burden of proof, has merely to show the condition of the
property insured when the policy attaches and the fact of
loss or damage during the period of the policy and
where, thereafter, the burden would be on the insurer to
show any "excluded peril." When, however, the insured
risk is specified, like in the case before us, it lies with the
claimant of the insurance proceeds to initially prove that
the loss is caused by the covered peril.
3. REMEDIAL LAW; CIVIL PROCEDURE; VERIFICATION;
VERIFICATION IS A FORMAL, NOT JURISDICTIONAL,
REQUIREMENT AND MAINLY INTENDED TO SECURE AN
ASSURANCE THAT THE MATTER ALLEGED ARE DONE
IN GOOD FAITH OR ARE TRUE AND CORRECT. —
Petitioner argues that private respondent must be
deemed to have waived its right to controvert the claim,
that is, to show that the cause of death is an excepted
peril, by failing to have its answers (to the Request for
Admission sent by petitioner) duly verified. It is true that
a matter of which a written request for admission is
made shall be deemed impliedly admitted "unless, within
a period designated in the request, which shall not be
less than ten (10) days after service thereof, or within
such further time as the court may allow on motion and
notice, the party to whom the request is directed serves
upon the party requesting the admission a sworn
statement either denying specifically the matters of
which an admission is requested or setting forth in detail
the reasons why he cannot truthfully either admit or deny
those matters"; however, the verification, like in most
cases required by the rules of procedure, is a formal, not
jurisdictional, requirement, and mainly intended to
secure an assurance that matters which are alleged are
done in good faith or are true and correct and not of
mere speculation. When circumstances warrant, the
court may simply order the correction of unverified
pleadings or act on it and waive strict compliance with
the rules in order that the ends of justice may thereby be
served. In the case of answers to written requests for
admission particularly, the court can allow the party
making the admission, whether made expressly or
deemed to have been made impliedly, "to withdraw or
amend it upon such terms as may be just." SDECAI
DECISION
VITUG, J p:
The petition for review on certiorari in this case seeks
the reversal of the decision 1 of the Court of Appeals
setting aside the judgment of the Regional Trial Court of
Manila, Branch 55, which has ordered private respondent
Fortune Insurance & Surety Company, Inc., to pay
petitioner Jacqueline Jimenez vda. de Gabriel, the
surviving spouse and beneficiary in an accident (group)
insurance of her deceased husband, the amount of
P100,000.00, plus legal interest.
Marcelino Gabriel, the insured, was employed by
Emerald Construction & Development Corporation
("ECDC") at its construction project in Iraq. He was
covered by a personal accident insurance in the amount
of P100,000.00 under a group policy 2 procured from
private respondent by ECDC for its overseas workers.
The insured risk was for "(b)odily injury caused by violent
accidental external and visible means which injury
(would) solely and independently of any other cause" 3
result in death or disability.
On 22 May 1982, within the life of the policy, Gabriel died
in Iraq. A year later, or on 12 July 1983, ECDC reported
Gabriel's death to private respondent by telephone. 4
Among the documents thereafter submitted to private
respondent were a copy of the death certificate 5 issued
by the Ministry of Health of the Republic of Iraq — which
stated
"REASON OF DEATH: UNDER EXAMINATION NOW —
NOT YET KNOWN " 6
and an autopsy report 7 of the National Bureau of
Investigation ("NBI") to the effect that "(d)ue to advanced
state of postmortem decomposition, cause of death
(could) not be determined." 8 Private respondent
referred the insurance claim to Mission Adjustment
Service, Inc.
Following a series of communications between
petitioner and private respondent, the latter, on 22
September 1983, ultimately denied the claim of ECDC on
the ground of prescription. 9 Petitioner went to the
Regional Trial Court of Manila. In her complaint against
ECDC and private respondent, she averred that her
husband died of electrocution while in the performance
of his work and prayed for the recovery of P100,000.00
for insurance indemnification and of various other sums
by way of actual, moral, and exemplary damages, plus
attorney's fees and costs of suit.
Private respondent filed its answer, which was not
verified, admitting the genuineness and due execution of
the insurance policy; it alleged, however, that since both
the death certificate issued by the Iraqi Ministry of
Health and the autopsy report of the NBI failed to
disclose the cause of Gabriel's death, it denied liability
under the policy. In addition, private respondent raised
the defense of "prescription," invoking Section 384 10 of
the Insurance Code. Later, private respondent filed an
amended answer, still unverified, reiterating its original
defenses but, this time, additionally putting up a
counterclaim and a crossclaim.
The trial court dismissed the case against ECDC for the
failure of petitioner to take steps to cause the service of
the fourth alias summons on ECDC. The dismissal was
without prejudice.
The case proceeded against private respondent alone.
On 28 May 1987, the trial court rendered its decision 11
in favor (partly) of petitioner's claim. In arriving at its
conclusion, the trial court held that private respondent
was deemed to have waived the defense, i.e., that the
cause of Gabriel's death was not covered by the policy,
when the latter failed to impugn by evidence petitioner's
averment on the matter. With regard to the defense of
prescription, the court considered the complaint to have
been timely filed or within one (1) year from private
respondent's denial of the claim.
Petitioner and private respondent both appealed to the
Court of Appeals. Petitioner contended that the lower
court should have awarded all the claims she had asked
for. Private respondent asserted, on its part, that the
lower court erred in ruling (a) that the insurer had waived
the defense that Gabriel's death was not caused by the
insured peril ("violent accidental external and visible
means") specified in the policy and (b) that the cause of
action had not prescribed.
The Court of Appeals, on 18 September 1991, reversed
the decision of the lower court. The appellate court held
that petitioner had failed to substantiate her allegation
that her husband's death was caused by a risk insured
against. The appellate court observed that the only
evidence presented by petitioner, in her attempt to show
the circumstances that led to the death of the insured,
were her own affidavit and a letter allegedly written by a
co-worker of the deceased in Iraq which, unfortunately
for her, were held to be both hearsay. 12

The motion for reconsideration was denied. 13
Petitioner's recourse to this Court must also fail.
On the issue of "prescription," private respondent
correctly invoked Section 384 of the Insurance Code; viz:
"Sec. 384. Any person having any claim upon the policy
issued pursuant to this chapter shall, without any
unnecessary delay, present to the insurance company
concerned a written notice of claim setting forth the
nature, extent and duration of the injuries sustained as
certified by a duly licensed physician. Notice of claim
must be filed within six months from date of the
accident, otherwise, the claim shall be deemed waived.
Action or suit for recovery of damage due to loss or
injury must be brought, in proper cases, with the
Commissioner or the Courts within one year from denial
of the claim, otherwise, the claimant's right of action
shall prescribe."
The notice of death was given to private respondent,
concededly, more than a year after the death of
petitioner's husband. Private respondent, in invoking
prescription, was not referring to the one-year period
from the denial of the claim within which to file an action
against an insurer but obviously to the written notice of
claim that had to be submitted within six months from
the time of the accident.
Petitioner argues that private respondent must be
deemed to have waived its right to controvert the claim,
that is, to show that the cause of death is an excepted
peril, by failing to have its answers (to the Request for
Admission sent by petitioner) duly verified. It is true that
a matter of which a written request for admission is
made shall be deemed impliedly admitted "unless, within
a period designated in the request, which shall not be
less than ten (10) days after service thereof, or within
such further time as the court may allow on motion and
notice, the party to whom the request is directed serves
upon the party requesting the admission a sworn
statement either denying specifically the matters of
which an admission is requested or setting forth in detail
the reasons why he cannot truthfully either admit or deny
those matters;" 14 however, the verification, like in most
cases required by the rules of procedure, is a formal, not
jurisdictional, requirement, and mainly intended to
secure an assurance that matters which are alleged are
done in good faith or are true and correct and not of
mere speculation. When circumstances warrant, the
court may simply order the correction of unverified
pleadings or act on it and waive strict compliance with
the rules in order that the ends of justice may thereby be
served. 15 In the case of answers to written requests for
admission particularly, the court can allow the party
making the admission, whether made expressly or
deemed to have been made impliedly, "to withdraw or
amend it upon such terms as may be just." 16
The appellate court acted neither erroneously nor with
grave abuse of discretion when it seconded the court a
quo and ruled:
"As to the allegation of the plaintiff-appellant that the
matters requested by her to be admitted by the
defendant-appellant under the Request for Admission
were already deemed admitted by the latter for its failure
to answer it under oath, has already been properly laid to
rest when the lower court in its Order of May 28, 1987
correctly ruled:
"At the outset, it must be stressed that the defendant
indeed filed a written answer to the request for
admission, sans verification. The case of Motor Service
Co., Inc. vs. Yellow Taxicab Co., Inc., et al.may not
therefore be controlling, or actually opposite. In said
case, there was an absolute failure on the part of the
defendant to answer the request for admission, and thus
the court was justified in rendering a summary judgment.
Here, however, as clearly intimated elsewhere above, the
defendant answered in writing practically every question
posed in the request for admission. The Court believes,
under the peculiar circumstance, that the more
controlling jurisprudence on the matter would be those
cited by the defendant in its memorandum, particularly
the case of Quimpo vs. de la Victoria, 46 SCRA 139.'
"Prescinding from the foregoing, there is absolutely no
basis in fact and in law for the lower court to hold that
the appellant insurance company was deemed to have
waived the defense, that the death of plaintiff-appellant's
husband was not caused by violent accidental external
and visible means' as contemplated in the insurance
policy. The Death Certificate (Exh. 9) and the Autopsy
Report (Exh. 10), more than controverted the allegation
of the plaintiff-appellant as to the cause of death of her
husband." 17
The insurance policy expressly provided that to be
compensable, the injury or death should be caused by
"violent accidental external and visible means." In
attempting to prove the cause of her husband's death, all
that petitioner could submit were a letter sent to her by
her husband's co-worker, stating that Gabriel died when
he tried to haul water out of a tank while its submerged
motor was still functioning, 18 and petitioner's
sinumpaang salaysay 19 which merely confirmed the
receipt and stated contents of the letter. Said the
appellate court in this regard.
". . . It must be noted that the only evidence presented by
her to prove the circumstances surrounding her
husband's death were her purported affidavit and the
letter allegedly written by the deceased co-worker in Iraq.
The said affidavit however suffers from procedural
infirmity as it was not even testified to or identified by
the affiant (plaintiff-appellant) herself. This self-serving
affidavit therefore is a mere hearsay under the rules, . . .
xxx xxx xxx
"In like manner, the letter allegedly written by the
deceased's co-worker which was never identified to in
court by the supposed author, suffers from the same
defect as the affidavit of the plaintiff-appellant." 20
Not one of the other documents submitted, to wit, the
POEA decision, dated 06 June 1984, 21 the death
certificate issued by the Ministry of Health of Iraq and
the NBI autopsy report, 22 could give any probative value
to petitioner's claim. The POEA decision did not make
any categorical holding on the specific cause of Gabriel's
death. Neither did the death certificate issued by the
health authorities in Iraq nor the NBI autopsy report
provide any clue on the cause of death. All that appeared
to be clear was the fact of Gabriel's demise on 22 May
1982 in Iraq.
Evidence, in fine, is utterly wanting to establish that the
insured suffered from an accidental death, the risk
covered by the policy. In an accident insurance, the
insured's beneficiary has the burden of proof in
demonstrating that the cause of death is due to the
covered peril. Once the fact is established, the burden
then shifts to the insurer to show any excepted peril that
may have been stipulated by the parties. An "accident
insurance" is not thus to be likened to an ordinary life
insurance where the insured's death, regardless of the
cause thereof, would normally be compensable. The
latter is akin in property insurance to an "all risk"
coverage where the insured, on the aspect of burden of
proof, has merely to show the condition of the property
insured when the policy attaches and the fact of loss or
damage during the period of the policy and where,
thereafter, the burden would be on the insurer to show
any "excluded peril." When, however, the insured risk is
specified, like in the case before us, it lies with the
claimant of the insurance proceeds to initially prove that
the loss is caused by the covered peril.
While petitioner did fail in substantiating her allegation
that the death of her husband was due to an accident,
considering, however, the uncertainty on the real cause
of death, private respondent might find its way clear into
still taking a second look on the matter and perhaps help
ease the load of petitioner's loss.
WHEREFORE, the decision appealed from is AFFIRMED.
No costs.
SO ORDERED.
||| (Vda. de Gabriel v. Court of Appeals, G.R. No. 103883,
[November 14, 1996], 332 PHIL 157-168)
THIRD DIVISION
[G.R. No. 82509. August 16, 1989.]
COUNTRY BANKERS INSURANCE CORP., (Formerly
Country Bankers Insurance & Surety Co. Inc. ), petitioner,
vs. THE TRAVELERS INSURANCE AND SURETY CORP.,
and THE HONORABLE COURT OF APPEALS, respondents.
Romeo G. Velasquez for petitioner.
Espinas & Associates Law Office for private respondent.
SYLLABUS
1. MERCANTILE LAW; INSURANCE; RECOVERY OF
DAMAGES DUE TO LOSS OR INJURY; ONE-YEAR
PRESCRIPTIVE PERIOD COUNTED FROM DATE OF
REJECTION; REASON. — The one-year period under
Section 384 should be counted not from the date of the
accident but from the date of the rejection of the claim by
The insurer. The Court further held that it is only from the
rejection of the claim by the insurer that the insured's
cause of action accrued since a cause of action does not
accrue until the party obligated refuse, expressly or
impliedly, to comply with its duty.
2. ID.; ID.; ID.; CLAIM MUST BE FILED WITHIN ONE YEAR
FROM DATE OF ACCIDENT; REASON BEHIND. — The
requirement that any claim or action for recovery of
damage under an insurance policy must be brought
within one year from the date of the accident was
intended to ensure that suits be brought by the insured
while evidence as to the origin and cause of destruction
have not yet disappeared.
3. ID.; ID.; ID.; ACTION NO YET PRESCRIBED WHERE THE
DELAY WAS ATTRIBUTABLE TO THE INSURER. — Where
the delay in bringing the suit against the insurance
company was not caused by the insured or its subrogee
but by the insurance company itself, it is unfair to
penalize the insured or its subrogee by dismissing its
action against the insurance company on the ground of
prescription. The latter should bear the consequences of
its failure to act promptly on the insured's claim.
DECISION
CORTES, J p:
In the instant case, the Court is once again asked to
resolve the issue of whether the one-year prescriptive
period under Section 384 of the Insurance Code, prior to
its amendment by Batas Pambansa Blg. 874, should
commence to run from the date of The accident or from
The rejection of The claim by the insurer. LibLex
The Court, after a careful examination of The pleadings
filed in this case, i.e., the Petition and its Annexes, the
Comment, Reply, Rejoinder and Sur-Rejoinder, considered
The issues joined and the case submitted for decision.
The pertinent facts of This case are undisputed:
On May 24, 1979, a vehicular accident occurred involving
a Toyota Land Cruiser with Plate No. KE-890 H 78 owned
by Philippine Technical Consultants Inc. (PTCI) and an
Isuzu Cargo Track bearing Plate No. 6M-116 T Pil. '78
registered in The name of Avelino Matundan. The Toyota
Land Cruiser, which was driven by Norlito R. Limen, had
stopped at a red light along Epifanio de los Santos
Avenue when it was bumped from behind by The Isuzu
Cargo Truck driven by Alfredo Sion. The Toyota Land
Cruiser suffered extensive damage so that its owner
declared a total loss and claimed the proceeds of the
insurance policy issued by petitioner Country Bankers
Insurance Corporation. Finding The claim to be
meritorious, petitioner paid PTCI The amount of eighty-
three Thousand four hundred seventy pesos
(P83,470.00). As subrogee to all rights and causes of
action of PTCI, petitioner demanded reimbursement from
The driver and owner of the Isuzu Cargo truck and from
private respondent Travelers Insurance as the insurer of
the truck, but The latter failed to act on petitioner's claim.
On October 14, 1980, petitioner filed a complaint in The
Regional Trial Court (RTC) of Manila against The private
respondent, the driver and the owner of The truck. On
August 2, 1985, the RTC rendered a decision in favor of
the petitioner and ordered private respondent to pay
petitioner the amount paid to PTCI, but dismissed the
complaint as against the other two defendants. The
dispositive portion of the decision reads as follows:
WHEREFORE, judgment is hereby rendered:
1. Ordering defendant corporation to pay plaintiff
corporation the total amount of P83,470.00 with interest
thereon at the legal rate computed from the time of the
filing of this case until full payment is made;
2. Ordering defendant corporation to pay plaintiff
corporation twenty (20%) percent of the principal amount
awarded, as attorney's fees; and
3.Ordering defendant corporation to pay costs of this
suit. [Rollo, p. 13.]
On appeal, the Court of Appeals (CA) affirmed the finding
of the RTC That it was the negligence and recklessness
of Alfredo Sion, the driver of the Isuzu Cargo Truck, which
led to the vehicular accident. like CA also held that as the
insurer of the truck, private respondent is liable to herein
petitioner as the subrogee to all the rights and causes of
action of the owner of the damaged Toyota Land Cruiser.
Nevertheless, the CA dismissed the complaint on the
ground that petitioner's cause of action had prescribed.
Respondent court held That:
xxx xxx xxx
Defendant's defense that the action has prescribed is
found meritorious. The accident occurred on 24 May
1979, but the complaint was not filed until 14 October
1980, or almost seventeen (17) months after the
accident. Section 384 of the Insurance Code mandates
that the "(a)ction or suit for recovery of damage due to
loss or injury must be brought, in proper cases, with the
courts within one year from the date of the accident,
otherwise the claimant's right of action shall prescribe.
xxx xxx xxx
[CA Decision, p. 4; Rollo, p. 26]
Petitioner moved to reconsider the CA's decision but on
March 14, 1988 the CA issued a resolution denying
petitioner's motion for reconsideration. Petitioner now
comes before this Court by way of petition for review on
certiorari. prcd
There is no dispute that respondent insurance company
is liable as the insurer of the Isuzu Cargo Truck and
should reimburse to petitioner the amount paid by the
latter to PTCI for The damage sustained by the Toyota
Land Cruiser. like sole issue in the instant case is whether
or not petitioners cause of action had prescribed.

Section 384 of the Insurance Code (prior to its
amendment by B.P. 874) provides that:
Any person having any claim upon the policy issued
pursuant to this chapter shall, without any unnecessary
delay, present to the insurance company concerned a
written notice of claim setting forth the amount of his
loss, and/or the nature, extent and duration of the injuries
sustained as certified by a duly licensed physician. Notice
of claim must be filed within six months from date of the
accident, otherwise, the claim shall be deemed waived.
Action or suit for recovery of damage due to loss or injury
must be brought in proper cases, with the Commission or
the Courts within one year from date of accident,
otherwise the claimant's right of action shall prescribe
[Emphasis supplied].
In its decision, the CA held that the two periods provided
for in Section 384 are mandatory and must always
concur. Respondent Court argues that no claim will
prosper even if a notice of claim is filed within six (6)
months from the date of the accident if the action in
court is filed more than one year therefrom. Neither will
an action filed within one year from the date of the
accident prosper, if no claim was filed with the insurer
within six (6) months from the said accident. The CA then
concluded that since the complaint was filed after almost
seventeen (17) months from the date of the accident,
petitioner's cause of action had prescribed.
On the other hand, petitioner company contends that the
finding of respondent court That its cause of action had
prescribed is erroneous since the one-year prescriptive
period under Section 384 of the Insurance Code is
counted not from the date of the accident but from the
date of the rejection of the claim by the insurer. Petitioner
further argues that even assuming that the one-year
prescriptive period should be counted from the date of
the accident, The running of the period of prescription
was interrupted when petitioner filed a notice of claim
with respondent insurance company since under the Civil
Code an extra-judicial demand is sufficient to interrupt
the running of the prescriptive period. cdphil
The Court finds merit in the petition.
The controversy on the proper interpretation of Section
384 of the Insurance Code before its amendment by B.P.
874 has already been settled by this Court in the case of
Summit Guaranty & Insurance Co., Inc. v. De Guzman
[G.R. Nos. 50997, L-48679, L-48758, June 30, 1987, 151
SCRA 389.] which involves similar facts. In rejecting the
insurance company's defense of prescription, the Court
held That:
Petitioner company is trying to use Section 384 of the
Insurance Code as a cloak to hide itself from its liabilities.
The facts of these cases * evidently reflect The deliberate
efforts of petitioner company to prevent the filing of a
formal action against it. Bearing in mind that if it
succeeds in doing so until one year lapses from the date
of the accident it could set up the defense of prescription,
petitioner company made private respondents believe
that their claims would be settled in order that the latter
will not find it necessary to immediately bring suit. In
violation of its duties to adopt and implement reasonable
standards for the prompt investigation of claims, and
with manifest bad faith, petitioner company devised
means and ways of stalling settlement proceedings
[Summit, supra, at 395].
To prevent the insurance company from evading its
responsibility to the insured through this clever scheme,
and to protect the insuring public against similar acts by
other insurance companies, The Court held That the one-
year period under Section 384 should be counted not
from the date of the accident but from the date of the
rejection of the claim by The insurer [Summit, supra, at
397]. like Court further held that it is only from the
rejection of the claim by the insurer that the insured's
cause of action accrued since a cause of action does not
accrue until the party obligated refuse, expressly or
impliedly, to comply with its duty [ACCFA v. Alpha
Insurance and Surety Co., G.R. No. L-24566, July 29, 1968,
24 SCRA 151].
In The instant case, petitioner sent a notice of claim to
respondent insurance company as early as July 26, 1979
or two months after the accident. This was followed by a
letter dated August 3, 1979 urging respondent insurance
company to take "appropriate action" on petitioner's
claim. However, it was only a year later, on August 3,
1980 that respondent replied to petitioner's letter
informing it that they could not take appropriate action on
petitioner's claim because the attending adjuster was still
negotiating the case. Two months later, when respondent
insurance company still failed to act on its claim,
petitioner filed the present case in court. During the
hearing before the RTC, respondent insurance company
never raised the defense of prescription. It was only on
appeal that Section 384 of The Insurance Code was
invoked by respondent insurance company and the CA,
relying on the plain language of the law, dismissed the
case on the ground of prescription. cdrep
In the light of The Court's decision in the Summit case,
respondent insurance company can no longer invoke
Section 384 to defeat petitioner's claim. As aforestated, it
was precisely to prevent unscrupulous insurance
companies from using Section 384 in evading their
responsibilities that the Court applied Section 384 strictly
against insurance companies in the Summit case.
The requirement That any claim or action for recovery of
damage under an insurance policy must be brought
within one year from the date of the accident was
intended to ensure that suits be brought by the insured
while evidence as to the origin and cause of destruction
have not yet disappeared (See Ang v. Fulton Fire Ins., Co.,
G.R. No. L-15862, July 31, 1961, 2 SCRA 945]. This is to
enable the insurance companies to make proper
assessment of whether or not the insured can recover
and, if so, to determine the amount recoverable. However,
where, as in this case, the delay in bringing the suit
against the insurance company was not caused by the
insured or its subrogee but by the insurance company
itself, it is unfair to penalize the insured or its subrogee by
dismissing its action against the insurance company on
the ground of prescription. The latter should bear the
consequences of its failure to act promptly on the
insured's claim. Under the law, insurance companies are
duty bound to adopt and implement reasonable
standards for the prompt, fair and equitable settlement of
claims (Section 241, Insurance Code].
Therefore, considering the attendant facts of this case,
the Court finds that the doctrine laid down in the Summit
case is applicable, and accordingly holds that petitioner's
cause of action has not prescribed.
It might not be amiss to state that Section 384 was
amended in 1985 by Batas Pambansa Blg. 874. The
amendment was inserted by the then Batasang
Pambansa after realizing that Section 384 of the
Insurance Code has created so many problems for the
insuring public [Summit, supra at p. 398]. Thus, as
amended, the law now provides that:
Any person having any claim upon the policy issued
pursuant to this chapter shall, without any unnecessary
delay, present to the insurance company concerned a
written notice of claim setting forth the nature, extent and
duration of the injuries sustained as certified by a duly
licensed physician. Notice of claim must be filed within
six months from date of the accident otherwise, the claim
shall be deemed waived. Action or suit for recovery of
damage due to loss or injury must be brought in proper
cases, with the Commissioner or the Courts within one
year from denial of the claim, otherwise the claimant's
right of action shall prescribe [Emphasis supplied].
WHEREFORE, The petition for certiorari is GRANTED. The
appealed decision of the Court of Appeals is hereby
REVERSED and that of the Regional Trial Court
REINSTATED.
SO ORDERED.
||| (Country Bankers Insurance Corp. v. Travelers
Insurance and Surety Corp., G.R. No. 82509, [August 16,
1989], 257 PHIL 533-540)
FIRST DIVISION
[G.R. No. 195728. April 19, 2016.]
PARAMOUNT LIFE & GENERAL INSURANCE
CORPORATION, petitioner, vs. CHERRY T. CASTRO and
GLENN ANTHONY T. CASTRO, respondents.
[G.R. No. 211329. April 19, 2016.]
CHERRY T. CASTRO and GLENN ANTHONY T. CASTRO,
petitioners, vs. PARAMOUNT LIFE & GENERAL
INSURANCE CORPORATION, respondent.
DECISION
SERENO, C.J p:
These Petitions for Review on Certiorari under Rule 45 of
the Rules of Court originate from a Complaint 1 for
Declaration of Nullity of Individual Insurance Contract
(Civil Case No. 09-599). 2 The Complaint was instituted
by Paramount Life & General Insurance Corporation
(Paramount) against Cherry T. Castro and Glenn Anthony
T. Castro (Castros) and filed before the Regional Trial
Court, Makati City, Branch 61 (RTC), on 2 July 2009.
The Petition 3 docketed as G.R. No. 195728 assails the
Court of Appeals (CA) Decision 4 dated 4 October 2010
and Resolution 5 dated 21 February 2011 in CA-G.R. SP
No. 113972. The CA remanded the case to the RTC for
the admission of the Castros' Third-Party Complaint
against the Philippine Postal Savings Bank, Incorporated
(PPSBI). 6
On the other hand, the Petition 7 docketed as G.R. No.
211329 assails the Resolution 8 of the RTC in Civil Case
No. 09-599 dated 11 February 2014. The trial court
ordered that the Motion to Dismiss filed by the
defendants (the Castros) be deemed expunged from the
records, as they had previously been declared to be in
default. Nonetheless, due to the protracted nature of the
proceedings, the RTC allowed the plaintiff no more than
two settings for the presentation of evidence. 9
These Petitions have been consolidated as they involve
the same parties, arise from an identical set of facts, and
raise interrelated issues. 10 The Court resolves to
dispose of these cases jointly.
FACTS OF THE CASE
In 2004, the PPSBI applied for and obtained insurance
from Paramount, 11 which accordingly issued Group
Master Policy No. G-086 12 effective 1 September 2004.
Under Section 20, Article IV of the said policy, "all death
benefits shall be payable to the creditor, PPSBI, as its
interest may appeal." 13
Meanwhile, Virgilio J. Castro (Virgilio) — Cherry's
husband and Glenn's father — obtained a housing loan
from the PPSBI in the amount of P1.5 million. 14 PPSBI
required Virgilio to apply for a mortgage redemption
insurance (MRI) from Paramount to cover the loan. 15 In
his application for the said insurance policy, Virgilio
named Cherry and Glenn as beneficiaries. 16 Paramount
issued Certificate No. 041913 effective 12 March 2008
in his favor, subject to the terms and conditions of Group
Master Policy No. G-086. 17
On 26 February 2009, Virgilio died of septic shock. 18
Consequently, a claim was filed for death benefits under
the individual insurance coverage issued under the
group policy. 19 Paramount however denied the claim,
on the ground of the failure of Virgilio to disclose
material information, or material concealment or
misrepresentation. 20 It said that when Virgilio
submitted his insurance application on 12 March 2008,
he made some material misrepresentations by
answering "no" to questions on whether he had any
adverse health history and whether he had sought
medical advice or consultation concerning it. Paramount
learned that in 2005, Virgilio had sought consultation in a
private hospital after complaining of a dull pain in his
lumbosacral area. 21 Because of the alleged material
concealment or misrepresentation, it declared Virgilio's
individual insurance certificate (No. 041913) rescinded,
null, and absolutely void from the very beginning. 22
On 2 July 2009, Paramount filed a Complaint 23 with the
RTC docketed as Civil Case No. 09-599. It prayed that
Application and Insurance Certificate No. 041913
covering the individual insurance of Virgilio be declared
null and void by reason of material concealment and
misrepresentation. It also prayed for attorney's fees and
exemplary damages. 24 cSEDTC
In their Answer with Counterclaim, 25 the Castros argued
that Virgilio had not made any material
misrepresentation. They contended that he had
submitted the necessary evidence of insurability to the
satisfaction of Paramount. They further argued that by
approving Virgilio's application, Paramount was
estopped from raising the supposed misrepresentations.
26 The Castros made a counterclaim for actual and
exemplary damages, as well as attorney's fees, for the
alleged breach of contract by Paramount arising from its
refusal to honor its obligation as insurer of the P1.5
million loan. 27
STATEMENT OF THE CASES
G.R. No. 195728
On 29 October 2009, the Castros filed a motion 28 to
include the PPSBI as an indispensible party-defendant.
The RTC thereafter denied the motion, reasoning that
Paramount's Complaint could be fully resolved without
the PPSBI's participation. 29
Consequently, the Castros filed a Motion for Leave to
File a Third Party-Complaint and to Admit Attached
Third-Party Complaint. 30 They argued that due to the
death of Virgilio, and by virtue of Group Policy No. G-086
in relation to Certificate No. 041913, PPSBI stepped into
the shoes of Cherry and Glen under the principle of
"indemnity, subrogation, or any other reliefs" found in
Section 22, Rule 6 of the Rules of Court. 31 This motion
was likewise denied, on the ground that "what the
defendants herein want is the introduction of a
controversy that is entirely foreign and distinct from the
main cause." 32 The Castros' Motion for
Reconsideration was again denied in a Resolution 33
dated 19 April 2010.
On 13 May 2010, the Castros assailed the RTC
Resolutions through a Petition for Certiorari filed with the
CA. 34 They likewise subsequently filed a Motion for
Leave of Court to File and to Admit Attached
Supplemental Petition for Review. 35
In its Decision 36 dated 4 October 2010, the CA partially
granted the Petition by allowing a third-party complaint
to be filed against the PPSBI. It ruled that the Castros
were freed from the obligation to pay the bank by virtue
of subrogation, as the latter would collect the loan
amount pursuant to the MRI issued by Paramount in
Virgilio's favor. 37 Paramount moved for
reconsideration, but the CA denied the motion through a
Resolution 38 dated 21 February 2011.
On 11 April 2011, Paramount filed a Petition for Review
under Rule 45, arguing that the case could be fully
appreciated and resolved without involving the PPSBI as
a third-party defendant in Civil Case No. 09-599. 39
G.R. No. 211329
Meanwhile, on 7 January 2014, the Castros filed a
Motion to Dismiss 40 the Complaint on the ground of
failure to prosecute for an unreasonable length of time
without justifiable cause and to present evidence ex
parte pursuant to a court order. In a Resolution 41 dated
11 February 2014, the RTC denied the motion. Owing to
its previous Order dated 26 May 2010, which declared
the Castros as in default for failure to attend the pretrial,
the RTC treated the Motion to Dismiss as a mere scrap
of paper and expunged it from the records.
The Castros come straight to this Court via a Petition for
Review 42 under Rule 45, assailing the RTC Resolution
dated 11 February 2014.
THE ISSUES
1. Whether the CA erred in remanding the case to the
RTC for the admission of the Third-Party Complaint
against PPSBI
2. Whether the RTC erred in denying the Motion to
Dismiss filed by the Castros
THE COURT'S RULING
G.R. No. 195728
The Castros sought to implead the PPSBI as a third-party
defendant in the nullification case instituted by
Paramount. They theorized that by virtue of the death of
Virgilio and the mandate of the group insurance policy in
relation to his individual insurance policy, the PPSBI
stepped into the shoes of Cherry and Glenn. According
to the Castros, upon Virgilio's death, the obligation to pay
the third-party defendant (PPSBI) passed on to
Paramount by virtue of the Mortgage Redemption
Insurance, 43 and not to them as Virgilio's heirs.
In Great Pacific Life Assurance Corp. v. Court of Appeals,
44 we defined mortgage redemption insurance as a
device for the protection of both the mortgagee and the
mortgagor:
On the part of the mortgagee, it has to enter into such
form of contract so that in the event of the unexpected
demise of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance
will be applied to the payment of the mortgage debt,
thereby relieving the heirs of the mortgagor from paying
the obligation. In a similar vein, ample protection is given
to the mortgagor under such a concept so that in the
event of death, the mortgage obligation will be
extinguished by the application of the insurance
proceeds to the mortgage indebtedness. 45
In this case, the PPSBI, as the mortgagee-bank, required
Virgilio to obtain an MRI from Paramount to cover his
housing loan. The issuance of the MRI, as evidenced by
the Individual Insurance Certificate in Virgilio's favor, was
derived from the group insurance policy issued by
Paramount in favor of the PPSBI. Paramount undertook
to pay the PPSBI "the benefits in accordance with the
Insurance Schedule, upon receipt and approval of due
proof that the member has incurred a loss for which
benefits are payable." 46
Paramount, in opposing the PPSBI's inclusion as a third-
party defendant, reasons that it is only seeking the
nullification of Virgilio's individual insurance certificate,
and not the group insurance policy forged between it and
the PPSBI. It concludes that the nullification action it
filed has nothing to do with the PPSBI.
We disagree. SDAaTC
Should Paramount succeed in having the individual
insurance certificate nullified, the PPSBI shall then
proceed against the Castros. This would contradict the
provisions of the group insurance policy that ensure the
direct payment by the insurer to the bank:
Notwithstanding the provision on Section 22 "No
Assignment" of Article IV Benefit Provisions, and in
accordance with provisions of Section 6 "Amendment of
this Policy" under Article II General Provisions of the
Group Policy, it is hereby agreed that all death benefits
shall be payable to the Creditor, Philippine Postal
Savings Bank as its interest may appeal. 47 (Emphasis
supplied.)
In allowing the inclusion of the PPSBI as a third-party
defendant, the Court recognizes the inseparable interest
of the bank (as policyholder of the group policy) in the
validity of the individual insurance certificates issued by
Paramount. The PPSBI need not institute a separate
case, considering that its cause of action is intimately
related to that of Paramount as against the Castros. The
soundness of admitting a third-party complaint hinges
on causal connection between the claim of the plaintiff
in his complaint and a claim for contribution, indemnity
or other relief of the defendant against the third-party
defendant. 48 In this case, the Castros stand to incur a
bad debt to the PPSBI — the exact event that is insured
against by Group Master Policy No. G-086 — in the event
that Paramount succeeds in nullifying Virgilio's
Individual Insurance Certificate.
Paramount further argues that the propriety of a third-
party complaint rests on whether the possible third-party
defendant (in this case PPSBI) can raise the same
defenses that the third-party plaintiffs (the Castros) have
against the plaintiff. However, the Rules do not limit the
third-party defendant's options to such a condition.
Thus:
Section 13. Answer to third (fourth, etc.)-party complaint.
— A third (fourth, etc.)-party defendant may allege in his
answer his defenses, counterclaims or cross-claims,
including such defenses that the third (fourth, etc.)-party
plaintiff may have against the original plaintiff's claim. In
proper cases, he may also assert a counterclaim against
the original plaintiff in respect of the latter's claim
against the third-party plaintiff. 49
As seen above, the same defenses the third-party
plaintiff has against the original plaintiff are just some of
the allegations a third-party defendant may raise in its
answer. Section 13 even gives the third-party defendant
the prerogative to raise a counterclaim against the
original plaintiff in respect of the latter's original claim
against the defendant/third-party plaintiff.
In Firestone Tire & Rubber Co. of the Phil. v. Tempongko,
50 We ruled that a defendant is permitted to bring in a
third-party defendant to litigate a separate cause of
action in respect of the plaintiff's claim against a third
party in the original and principal case. The objective is
to avoid circuitry of action and unnecessary proliferation
of lawsuits, as well as to expeditiously dispose of the
entire subject matter arising from one particular set of
facts, in one litigation.
The CA correctly ruled that to admit the Castros' Third-
Party Complaint, in which they can assert against the
PPSBI an independent claim they would otherwise assert
in another action, would prevent multiplicity of suits. 51
Considering also that the original case from which these
present Petitions arose has not yet been resolved, the
Court deems it proper to have all the parties air all their
possible grievances in the original case still pending with
the RTC.
Finally, the Court resolves the legal issues allegedly
ignored by the CA, to wit: 1) whether legal grounds exist
for the inhibition of Judge Ruiz (the presiding judge); and
2) whether the defendants were properly declared as in
default for failure to appear at pretrial.
The first issue is unmeritorious. Counsel for the Castros
postulates that since six rulings of the judge are being
assailed for grave abuse of discretion, the judge should
inhibit himself. 52 According to counsel, no judge shall
sit in any case if the latter's ruling is subject to review.
The Court reminds counsel that the rule contemplates a
scenario in which judges are tasked to review their own
decisions on appeal, not when their decisions are being
appealed to another tribunal.
With regard to the second issue, counsel apparently
confuses a declaration of default under Section 3 53 of
Rule 9 with the effect of failure to appear under Section
5 54 of Rule 18. Failure to file a responsive pleading
within the reglementary period is the sole ground for an
order of default under Rule 9. 55 On the other hand,
under Rule 18, failure of the defendant to appear at the
pre-trial conference results in the plaintiff being allowed
to present evidence ex parte. The difference is that a
declaration of default under Rule 9 allows the Court to
proceed to render judgment granting the claimant such
relief as his pleading may warrant; while the effect of
default under Rule 18 allows the plaintiff to present
evidence ex parte and for the Court to render judgment
on the basis thereof. The lower court may have declared
defendants therein as in default; however, it did not issue
an order of default, rather, it ordered the plaintiff to
present evidence ex parte in accordance with the Rules.
In any case, the Castros could have availed themselves
of appropriate legal remedies when the CA failed to
resolve the issue, but they did not. They cannot now
resurrect the issue through a Comment before this
Court.
G.R. No. 211329
As regards G.R. No. 211329, this Court finds that outright
denial of the Petition is warranted, pursuant to our ruling
in Rayos v. City of Manila. 56 In that case, We ruled that
an order denying a motion to dismiss is interlocutory
and, hence, not appealable. 57 That ruling was based on
Section 1 (b), Rule 41 of the Rules of Court, as amended,
which provides:
SECTION 1. Subject of appeal. — An appeal may be
taken from a judgment or final order that completely
disposes of the case, or of a particular matter therein
when declared by these Rules to be appealable.
No appeal may be taken from: acEHCD
xxx xxx xxx
(b) An interlocutory order;
xxx xxx xxx
In all the above instances where the judgment or final
order is not appealable, the aggrieved party may file an
appropriate special civil action under Rule 65.
In the present case, the RTC's denial of the Motion to
Dismiss was an interlocutory order, as it did not finally
dispose of the case. On the contrary; the denial paved
way for the case to proceed until final adjudication by
the trial court.
Upon denial of their Motion to Dismiss, the Castros were
not left without any recourse. In such a situation, the
aggrieved party's remedy is to file a special civil action
for certiorari under Rule 65 of the Rules of Court.
However, the aggrieved parties herein resorted to filing a
Petition for Review under Rule 45 before this Court. Even
if the present Petition is treated as one for certiorari
under Rule 65, it must still be dismissed for violation of
the principle of hierarchy of courts. This well-settled
principle dictates that petitioners should have filed the
Petition for Certiorari with the CA, and not directly with
this Court.
WHEREFORE, premises considered, the Petitions in G.R.
Nos. 195728 and 211329 are DENIED.
SO ORDERED.
||| (Paramount Life & General Insurance Corp. v. Castro ,
G.R. Nos. 195728 & 211329, [April 19, 2016], 785 PHIL
163-176)
FIRST DIVISION
[G.R. No. 76452. July 26, 1994.]
PHILIPPINE AMERICAN LIFE INSURANCE COMPANY
and RODRIGO DE LOS REYES, petitioners, vs. HON.
ARMANDO ANSALDO, in his capacity as Insurance
Commissioner, and RAMON MONTILLA PATERNO, JR.,
respondents.
SYLLABUS
1. COMMERCIAL LAW; LAW ON INSURANCE;
INSURANCE COMMISSIONER; JURISDICTION;
CONTRACT OF AGENCY BETWEEN INSURANCE
COMPANY AND AGENT, NOT INCLUDED. — The main
issue to be resolved is whether or not the resolution of
the legality of the Contract of Agency falls within the
jurisdiction of the Insurance Commissioner. The general
regulatory authority of the Insurance Commissioner is
described in Section 414 of the Insurance Code. A plain
reading of the above-quoted provisions show that the
Insurance Commissioner has the authority to regulate
the business of insurance, as defined in Section 2[2]
thereof. Since the contract of agency entered into
between Philamlife and its agents is not included within
the meaning of an insurance business, Section 2 of the
Insurance Code cannot be invoked to give jurisdiction
over the same to the Insurance Commissioner.
Expressio unius est exclusio alterius. The quasi-judicial
power of the Insurance Commissioner under Section 416
of the Insurance Code is likewise not applicable in this
case. The quasi-judicial power of the Insurance
Commissioner is limited by law "to claims and
complaints involving any loss, damage or liability for
which an insurer may be answerable under any kind of
policy or contract of insurance, . . . ." Hence, this power
does not cover the relation affecting the insurance
company and its agents but is limited to adjudicating
claims and complaints filed by the insured against the
insurance company. While the subject of Insurance
Agents and Brokers is discussed under Chapter IV, Title I
of the Insurance Code, the provisions of said Chapter
speak only of the licensing requirements and limitations
imposed on insurance agents and brokers. The
Insurance Code does not have provisions governing the
relations between insurance companies and their
agents.
2. ID.; ID.; AGENTS; CLASSIFICATION; GOVERNING
RULES. — An insurance company may have two classes
of agents who sell its insurance policies: (1) salaried
employees who keep definite insurance policies: (1)
salaried employees who keep definite hours and work
under the control and supervision of the company; and
(2) registered representatives, who work on commission
basis. Under the first category, the relationship between
the insurance company and its agent is governed by the
Contract of Employment and the provisions of the Labor
Code, while under the second category, the same is
governed by the Contract of Agency and the provisions
of the Civil Code on the Agency. Disputes involving the
latter are cognizable by the regular courts.
DECISION
QUIASON, J p:
This is a petition for certiorari and prohibition under Rule
65 of the Revised Rules of Court, with preliminary
injunction or temporary restraining order, to annul and
set aside the Order dated November 6, 1986 of the
Insurance Commissioner and the entire proceedings
taken in I.C. Special Case No. 1-86.
We grant the petition.
I deducted and collected by Philamlife in connection
The instant case arose from a letter-complaint of private
respondent Ramon M. Paterno, Jr. dated April 17, 1986,
to respondent Commissioner, alleging certain problems
encountered by agents, supervisors, managers and
public consumers of the Philippine American Life
Insurance Company (Philamlife) as a result of certain
practices by said company.
In a letter dated April 23, 1986, respondent
Commissioner requested petitioner Rodrigo de los
Reyes, in his capacity as Philamlife's president, to
comment on respondent Paterno's letter.
In a letter dated April 29, 1986 to respondent
Commissioner, petitioner De los Reyes suggested that
private respondent "submit some sort of a `bill of
particular's listing and citing actual cases, facts, dates,
figures, provisions of law, rules and regulations, and all
other pertinent date which are necessary to enable him
to prepare an intelligent reply" (Rollo, p. 37). A copy of
this letter was sent by the Insurance Commissioner to
private respondent for his comments thereon.
On May 16, 1986, respondent Commissioner received a
letter from private respondent maintaining that his letter-
complaint of April 17, 1986 was sufficient in form and
substance, and requested that a hearing thereon be
conducted.
Petitioner De los Reyes, in his letter to respondent
Commissioner dated June 6, 1986, reiterated his claim
that private respondent's letter of May 16, 1986 did not
supply the information he needed to enable him to
answer the letter-complaint.
On July 14, a hearing on the letter-complaint was held by
respondent Commissioner on the validity of the Contract
of Agency complained of by private respondent.
In said hearing, private respondent was required by
respondent Commissioner to specify the provisions of
the agency contract which he claimed to be illegal.
On August 4, private respondent submitted a letter of
specification to respondent Commissioner dated July
31, 1986, reiterating his letter of April 17, 1986 and
praying that the provisions on charges and fees stated in
the Contract of Agency executed between Philamlife and
its agents, as well as the implementing provisions as
published in the agents' handbook, agency bulletins and
circulars, be declared as null and void. He also asked
that the amounts of such charges and fees already
therewith be reimbursed to the agents, with interest at
the prevailing rate reckoned from the date when they
were deducted.
Respondent Commissioner furnished petitioner De los
Reyes with a copy of private respondent's letter of July
31, 1986, and requested his answer thereto.
Petitioner De los Reyes submitted an Answer dated
September 8, 1986, stating inter alia that:
(1) Private respondent's letter of August 11, 1986 does
not contain any of the particularly information which
Philamlife was seeking from him and which he promised
to submit.
(2) That since the Commission's quasi-judicial power
was being invoked with regard to the complaint, private
respondent must file a verified formal complaint before
any further proceedings.
In his letter dated September 9, 1986, private respondent
asked for the resumption of the hearing on his
complaint.
On October 1, private respondent executed and affidavit,
verifying his letters of April 17, 1986 and July 31, 1986.
In a letter dated October 14, 1986, Manuel Ortega,
Philamlife's Senior Assistant Vice-President and
Executive Assistant to the President, asked that
respondent Commission first rule on the questions of
the jurisdiction of the Insurance Commissioner over the
subject matter of the letters-complaint and the legal
standing of private respondent.
On October 27, respondent Commissioner notified both
parties of the hearing of the case on November 5, 1985.
On November 3, Manuel Ortega filed a Motion to Quash
Subpoena/Notice on the following grounds:
"I. The Subpoena/Notice has no legal basis and is
premature because:
(1) No complaint sufficient in form and contents has
been filed;
(2) No summons has been issued nor received by the
respondent De los Reyes, and hence, no jurisdiction has
been acquired over his person;
(3) No answer has been filed, and hence, the hearing
scheduled on November 5, 1985 in the subpoena/notice,
and wherein the respondent is required to appear, is
premature and lacks legal basis.
II. The Insurance Commission has no jurisdiction over:
(1) the subject matter or nature of the action; and
(2) over the parties involved" (rollo, p. 102).
In the Order dated November 6, 1986, respondent
Commissioner denied the Motion to Quash. The
dispositive portion of said Order reads:
NOW, THEREFORE, finding the position of complainant
thru counsel tenable and considering the fact that the
instant case is an informal administrative litigation
falling outside the operation of the aforecited
memorandum circular but cognizable by this
Commission, the hearing officer, in open session ruled
as it is hereby ruled to deny the Motion to Quash
Subpoena/Notice for lack of merit (Rollo, p. 109).
Hence, this petition.
II
The main issue to be resolved is whether or not the
resolution of the legality of the Contract of Agency falls
within the jurisdiction of the Insurance Commissioner.
Private respondent contends that the Insurance
Commissioner has jurisdiction to take cognizance of the
complaint in the exercise of its quasi-judicial powers.
The Solicitor General, upholding the jurisdiction of the
Insurance Commissioner, claims that under Sections
414 and 415 of the Insurance Code, the Commissioner
has authority to nullify the alleged illegal provisions of
the Contract of Agency.
III
The general regulatory authority of the Insurance
Commissioner is described in Section 414 of the
Insurance Code, to wit:
"The Insurance Commissioner shall have the duty to see
that all laws relating to insurance, insurance companies
and other insurance matters, mutual benefit
associations and trusts for charitable uses are faithfully
executed and to perform the duties imposed upon him
by this Code, . . . ."
On the other hand, Section 415 provides:
"In addition to the administrative sanctions provided
elsewhere in this Code, the Insurance Commissioner is
hereby authorized, at his discretion, to impose upon
insurance companies, their directors and/or officers
and/or agents, for any willful failure or refusal to comply
with, or violation of any provision of this Code, or any
order, instruction, regulation or ruling of the Insurance
Commissioner, or any commission of irregularities,
and/or conducting business in an unsafe or unsound
manner as may be determined by the Insurance
Commissioner, the following:
(a) fines not in excess of five hundred pesos a day; and
(b) suspension, or after due hearing, removal of directors
and/or officers and/or agents."
A plain reading of the above-quoted provisions show
that the Insurance Commissioner has the authority to
regulate the business of insurance, which is defined as
follows:
"(2) The term 'doing an insurance business' or
'transacting an insurance business,' within the meaning
of this Code, shall include (a) making or proposing to
make, as insurer, any insurance contract; (b) making, or
proposing to make, as surety, any contract of suretyship
as a vocation and not as merely incidental of the surety;
(c) doing any kind of business, including a reinsurance
business, specifically recognized as constituting the
doing of an insurance business within the meaning of
this Code; (d) doing or proposing to do any business in
substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.
(Insurance Code, Sec. 2 [2]; emphasis supplied.).
Since the contract of agency entered into between
Philamlife and its agents is not included within the
meaning of an insurance business, Section 2 of the
Insurance Code cannot be invoked to give jurisdiction
over the same to the Insurance Commissioner.
Expressio unius est exclusio alterius.
With regard to private respondent's contention that the
quasi-judicial power of the Insurance Commissioner
under Section 416 of the Insurance Code applies in his
case, we likewise rule in the negative. Section 416 of the
Code in pertinent part, provides:
"The Commissioner shall have the power to adjudicate
claims and complaints involving any loss, damage or
liability for which an insurer may be answerable under
any kind of policy or contract of insurance, or for which
such insurer may be liable under a contract of
suretyship, or for which a insurer may be used under any
contract or reinsurance it may have entered into, or for
which a mutual benefit association may be held liable
under the membership certificates it has issued to its
members, where the amount of any such loss, damage
or liability, excluding interest, costs and attorney's fees,
being claimed or sued upon any kind of insurance, bond,
reinsurance contract, or membership certificate does not
exceed in any single claim one hundred thousand
pesos."
A reading of the said section shows that the quasi-
judicial power of the Insurance Commissioner is limited
by law "to claims and complaints involving any loss,
damage or liability for which an insurer may be
answerable under any kind of policy or contract of
insurance, . . . ." Hence, this power does not cover the
relation affecting the insurance company and its agents
but is limited to adjudicating claims and complaints filed
by the insured against the insurance company.
While the subject of Insurance Agents and Brokers is
discussed under Chapter IV, Title I of the Insurance
Code, the provisions of said Chapter speak only of the
licensing requirements and limitations imposed on
insurance agents and brokers.
The Insurance Code does not have provisions governing
the relations between insurance companies and their
agents. It follows that the Insurance Commissioner
cannot, in the exercise of its quasi-judicial powers,
assume jurisdiction over controversies between the
insurance companies and their agents.
We have held in the cases of Great Pacific Life
Assurance Corporation v. Judico, 180 SCRA 445 (1989(,
and Investment Planning Corporation of the Philippines
v. Social Security Commission, 21 SCRA 904 (1962), that
an insurance company may have two classes of agents
who sell its insurance policies: (1) salaried employees
who keep definite insurance policies: (1) salaried
employees who keep definite hours and work under the
control and supervision of the company; and (2)
registered representatives, who work on commission
basis.
Under the first category, the relationship between the
insurance company and its agent is governed by the
Contract of Employment and the provisions of the Labor
Code, while under the second category, the same is
governed by the Contract of Agency and the provisions
of the Civil Code on the Agency. Disputes involving the
latter are cognizable by the regular courts.
WHEREFORE, the petition is GRANTED. The Order dated
November 6, 1986 of the Insurance Commission is SET
ASIDE.
SO ORDERED.
||| (Philippine American Life Insurance Co. v. Ansaldo,
G.R. No. 76452, [July 26, 1994], 304 PHIL 675-682)
UNFAIR SETTLEMENT PRACTICES
FIRST DIVISION
[G.R. No. 207277. January 16, 2017.]
MALAYAN INSURANCE CO., INC., YVONNE S.
YUCHENGCO, ATTY. EMMANUEL G. VILLANUEVA,
SONNY RUBIN, 1 ENGR. FRANCISCO MONDELO, and
MICHAEL REQUIJO, 2 petitioners, vs. EMMA
CONCEPCION L. LIN, 3 respondent.
DECISION
DEL CASTILLO, J p:
Assailed in this Petition for Review on Certiorari 4 are the
December 21, 2012 Decision 5 of the Court of Appeals
(CA) and its May 22, 2013 Resolution 6 in CA-G.R. SP No.
118894, both of which found no grave abuse of
discretion in the twin Orders issued by the Regional Trial
Court (RTC) of Manila, Branch 52, on September 29,
2010 7 and on January 25, 2011 8 in Civil Case No. 10-
122738. HTcADC
Factual Antecedents
On January 4, 2010, Emma Concepcion L. Lin (Lin) filed a
Complaint 9 for Collection of Sum of Money with
Damages against Malayan Insurance Co., Inc. (Malayan),
Yvonne Yuchengco (Yvonne), Atty. Emmanuel Villanueva,
Sonny Rubin, Engr. Francisco Mondelo, Michael Angelo
Requijo (collectively, the petitioners), and the Rizal
Commercial and Banking Corporation (RCBC). This was
docketed as Civil Case No. 10-122738 of Branch 52 of
the Manila RTC.
Lin alleged that she obtained various loans from RCBC
secured by six clustered warehouses located at Plaridel,
Bulacan; that the five warehouses were insured with
Malayan against fire for P56 million while the remaining
warehouse was insured for P2 million; that on February
24, 2008, the five warehouses were gutted by fire; that on
April 8, 2008 the Bureau of Fire Protection (BFP) issued a
Fire Clearance Certification to her (April 8, 2008 FCC)
after having determined that the cause of fire was
accidental; that despite the foregoing, her demand for
payment of her insurance claim was denied since the
forensic investigators hired by Malayan claimed that the
cause of the fire was arson and not accidental; that she
sought assistance from the Insurance Commission (IC)
which, after a meeting among the parties and a conduct
of reinvestigation into the cause/s of the fire,
recommended that Malayan pay Lin's insurance claim
and/or accord great weight to the BFP's findings; that in
defiance thereof, Malayan still denied or refused to pay
her insurance claim; and that for these reasons,
Malayan's corporate officers should also be held liable
for acquiescing to Malayan's unjustified refusal to pay
her insurance claim.
As against RCBC, Lin averred that notwithstanding the
loss of the mortgaged properties, the bank refused to go
after Malayan and instead insisted that she herself must
pay the loans to RCBC, otherwise, foreclosure
proceedings would ensue; and that to add insult to injury,
RCBC has been compounding the interest on her loans,
despite RCBC's failure or refusal to go after Malayan.
Lin thus prayed in Civil Case No. 10-122738 that
judgment be rendered ordering petitioners to pay her
insurance claim plus interest on the amounts due or
owing her; that her loans and mortgage to RCBC be
deemed extinguished as of February 2008; that RCBC be
enjoined from foreclosing the mortgage on the
properties put up as collaterals; and that petitioners be
ordered to pay her P1,217,928.88 in the concept of filing
fees, costs of suit, P1 million as exemplary damages,
and P500,000.00 as attorney's fees.
Some five months later, or on June 17, 2010, Lin filed
before the IC an administrative case 10 against Malayan,
represented this time by Yvonne. This was docketed as
Administrative Case No. 431.
In this administrative case, Lin claimed that since it had
been conclusively found that the cause of the fire was
"accidental," the only issue left to be resolved is whether
Malayan should be held liable for unfair claim settlement
practice under Section 241 in relation to Section 247 of
the Insurance Code due to its unjustified refusal to settle
her claim; and that in consequence of the foregoing
failings, Malayan's license to operate as a non-life
insurance company should be revoked or suspended,
until such time that it fully complies with the IC
Resolution ordering it to accord more weight to the
BFP's findings.
On August 17, 2010, Malayan filed a motion to dismiss
Civil Case No. 10-122738 based on forum shopping. It
argued that the administrative case was instituted to
prompt or incite IC into ordering Malayan to pay her
insurance claim; that the elements of forum shopping
are present in these two cases because there exists
identity of parties since Malayan's individual officers
who were impleaded in the civil case are also involved in
the administrative case; that the same interests are
shared and represented in both the civil and
administrative cases; that there is identity of causes of
action and reliefs sought in the two cases since the
administrative case is merely disguised as an unfair
claim settlement charge, although its real purpose is to
allow Lin to recover her insurance claim from Malayan;
that Lin sought to obtain the same reliefs in the
administrative case as in the civil case; that Lin did not
comply with her sworn undertaking in the Certification
on Non-Forum Shopping which she attached to the civil
case, because she deliberately failed to notify the RTC
about the pending administrative case within five days
from the filing thereof. aScITE
This motion to dismiss drew a Comment/Opposition, 11
which Lin filed on August 31, 2010.
Ruling of the Regional Trial Court
In its Order of September 29, 2010, 12 the RTC denied
the Motion to Dismiss, thus:
WHEREFORE, the MOTION TO DISMISS filed by
[petitioners] is hereby DENIED for lack of merit.
Furnish the parties through their respective [counsels]
with a copy each [of] the Order.
SO ORDERED. 13
The RTC held that in the administrative case, Lin was
seeking a relief clearly distinct from that sought in the
civil case; that while in the administrative case Lin
prayed for the suspension or revocation of Malayan's
license to operate as a non-life insurance company, in
the civil case Lin prayed for the collection of a sum of
money with damages; that it is abundantly clear that any
judgment that would be obtained in either case would
not be res judicata to the other, hence, there is no forum
shopping to speak of.
In its Order of January 25, 2011, 14 the RTC likewise
denied, for lack of merit, petitioners' Motion for
Reconsideration.
Ruling of the Court of Appeals
Petitioners thereafter sued out a Petition for Certiorari
and Prohibition 15 before the CA. However, in a Decision
16 dated December 21, 2012, the CA upheld the RTC,
and disposed as follows:
WHEREFORE absent grave abuse of discretion on the
part of respondent Judge, the Petition for Certiorari and
Prohibition (with Temporary Restraining Order and
Preliminary Injunction) is DISMISSED.
SO ORDERED. 17
The CA, as did the RTC, found that Lin did not commit
forum shopping chiefly for the reason that the issues
raised and the reliefs prayed for in the civil case were
essentially different from those in the administrative
case, hence Lin had no duty at all to inform the RTC
about the institution or pendency of the administrative
case.
The CA ruled that forum shopping exists where the
elements of litis pendentia concurred, and where a final
judgment in one case will amount to res judicata in the
other. The CA held that of the three elements of forum
shopping viz., (1) identity of parties, or at least such
parties as would represent the same interest in both
actions, (2) identity of rights asserted and reliefs prayed
for, the relief being founded on the same facts, and (3)
identity of the two proceedings such that any judgment
rendered in one action will, regardless of which party is
successful, amount to res judicata in the other action
under consideration, only the first element may be
deemed present in the instant case. The CA held that
there is here identity of parties in the civil and
administrative cases because Lin is the complainant in
both the civil and administrative cases, and these
actions were filed against the same petitioners, the
same RCBC and the same Malayan, represented by
Yvonne, respectively. It held that there is however no
identity of rights asserted and reliefs prayed for because
in the civil case, it was Lin's assertion that petitioners
had violated her rights to recover the full amount of her
insurance claim, which is why she prayed/demanded
that petitioners pay her insurance claim plus damages;
whereas in the administrative case, Lin's assertion was
that petitioners were guilty of unfair claim settlement
practice, for which reason she prayed that Malayan's
license to operate as an insurance company be revoked
or suspended; that the judgment in the civil case,
regardless of which party is successful, would not
amount to res judicata in the administrative case in view
of the different issues involved, the dissimilarity in the
quantum of evidence required, and the distinct mode or
procedure to be observed in each case.
Petitioners moved for reconsideration 18 of the CA's
Decision, but this motion was denied by the CA in its
Resolution of May 22, 2013. 19
Issues
Before this Court, petitioners instituted the present
Petition, 20 which raises the following issues:
The [CA] not only decided questions of substance
contrary to law and the applicable decisions of this
Honorable Court, it also sanctioned a flagrant departure
from the accepted and usual course of judicial
proceedings.
A.
The [CA] erred in not dismissing the Civil Case on the
ground of willful and deliberate [forum shopping] despite
the fact that the civil case and the administrative case
both seek the payment of the same fire insurance claim.
B.
The [CA] erred in not dismissing the civil case for failure
on the part of [Lin] to comply with her undertaking in her
verification and certification of non-forum shopping
appended to the civil complaint. 21 HEITAD
Petitioners' Arguments
In praying for the reversal of the CA Decision, petitioners
argue that regardless of nomenclature, it is Lin and no
one else who filed the administrative case, and that she
is not a mere complaining witness therein; that it is
settled that only substantial identity of parties is required
for res judicata to apply; that the sharing of the same
interest is sufficient to constitute identity of parties; that
Lin has not denied that the subject of both the
administrative case and the civil case involved the same
fire insurance claim; that there is here identity of causes
of action, too, because the ultimate objective of both the
civil case and the administrative case is to compel
Malayan to pay Lin's fire insurance claim; that although
the reliefs sought in the civil case and those in the
administrative case are worded differently, Lin was
actually asking for the payment of her insurance claim in
both cases; that it is well-entrenched that a party cannot
escape the operation of the principle in res judicata that
a cause of action cannot be litigated twice just by
varying the form of action or the method of presenting
the case; that Go v. Office of the Ombudsman 22 is
inapplicable because the issue in that case was whether
there was unreasonable delay in withholding the
insured's claims, which would warrant the revocation or
suspension of the insurers' licenses, and not whether the
insurers should pay the insured's insurance claim; that
Almendras Mining Corporation v. Office of the Insurance
Commission 23 does not apply to this case either,
because the parties in said case agreed to submit the
case for resolution on the sole issue of whether the
revocation or suspension of the insurer's license was
justified; and that petitioners will suffer irreparable injury
as a consequence of having to defend themselves in a
case which should have been dismissed on the ground
of forum shopping.
Respondent's Arguments
Lin counters that as stressed in Go v. Office of the
Ombudsman, 24 an administrative case for unfair claim
settlement practice may proceed simultaneously with, or
independently of, the civil case for collection of the
insurance proceeds filed by the same claimant since a
judgment in one will not amount to res judicata to the
other, and vice versa, due to the variance or differences
in the issues, in the quantum of evidence, and in the
procedure to be followed in prosecuting the cases; that
in this case the CA cited the teaching in Go v. Office of
the Ombudsman that there was no grave abuse of
discretion in the RTC's dismissal of petitioners' motion
to dismiss; that the CA correctly held that the RTC did
not commit grave abuse of discretion in denying
petitioners' motion to dismiss because the elements of
forum shopping were absent; that there is here no
identity of parties because while she (respondent) is the
plaintiff in the civil case, she is only a complaining
witness in the administrative case since it is the IC that
is the real party in interest in the administrative case;
that the cause of action in the civil case consists of
Malayan's failure or refusal to pay her insurance claim,
whereas in the administrative case, it consists of
Malayan's unfair claim settlement practice; that the
issue in the civil case is whether Malayan is liable to pay
Lin's insurance claim, while the issue in the
administrative case is whether Malayan's license to
operate should be revoked or suspended for engaging in
unfair claim settlement practice; and that the relief
sought in the civil case consists in the payment of a sum
of money plus damages, while the relief in the
administrative case consists of the revocation or
suspension of Malayan's license to operate as an
insurance company. According to Lin, although in the
administrative case she prayed that the IC Resolution
ordering Malayan to accord weight to the BFP's findings
be declared final, this did not mean that she was therein
seeking payment of her insurance claim, but rather that
the IC can now impose the appropriate administrative
sanctions upon Malayan; that if Malayan felt compelled
to pay Lin's insurance claim for fear that its license to
operate as an insurance firm might be suspended or
revoked, then this is just a logical result of its failure or
refusal to pay the insurance claim; that the judgment in
the civil case will not amount to res judicata in the
administrative case, and vice versa, pursuant to the case
law ruling in Go v. Office of the Ombudsman 25 and in
Almendras v. Office of the Insurance Commission, 26
both of which categorically allowed the insurance
claimants therein to file both a civil and an
administrative case against insurers; that the rule
against forum shopping was designed to serve a noble
purpose, viz., to be an instrument of justice, hence, it can
in no way be interpreted to subvert such a noble
purpose.
Our Ruling
We deny this Petition. We hold that the case law rulings
in the Go and Almendras cases 27 control and govern
the case at bench.
First off, it is elementary that "an order denying a motion
to dismiss is merely interlocutory and, therefore, not
appealable, x x x to x x x avoid undue inconvenience to
the appealing party by having to assail orders as they are
promulgated by the court, when all such orders may be
contested in a single appeal." 28
Secondly, petitioners herein utterly failed to prove that
the RTC, in issuing the assailed Orders, acted with grave
abuse of discretion amounting to lack or excess of
jurisdiction. "It is well-settled that an act of a court or
tribunal may only be considered to have been done in
grave abuse of discretion when the same was performed
in a capricious or whimsical exercise of judgment which
is equivalent to lack or excess of jurisdiction." 29 "[F]or
grave abuse of discretion to exist, the abuse of
discretion must be patent and gross so as to amount to
an evasion of a positive duty or a virtual refusal to
perform a duty enjoined by law, or to act at all in
contemplation of law." 30
In the present case, petitioners basically insist that Lin
committed willful and deliberate forum shopping which
warrants the dismissal of her civil case because it is not
much different from the administrative case in terms of
the parties involved, the causes of action pleaded, and
the reliefs prayed for. Petitioners also posit that another
ground warranting the dismissal of the civil case was
Lin's failure to notify the RTC about the pendency of the
administrative case within five days from the filing
thereof.
These arguments will not avail. The proscription against
forum shopping is found in Section 5, Rule 7 of the Rules
of Court, which provides: ATICcS
SEC. 5. Certification against forum shopping. — The
plaintiff or principal party shall certify under oath in the
complaint or other initiatory pleading asserting a claim
for relief, or in a sworn certification annexed thereto and
simultaneously filed therewith; (a) that he has not
theretofore commenced any action or filed any claim
involving the same issues in any court, tribunal or quasi-
judicial agency and, to the best of his knowledge, no
such other action or claim is pending therein; (b) if there
is such other pending action or claim, a complete
statement of the present status thereof; and (c) if he
should thereafter learn that the same or similar action or
claim has been filed or is pending, he shall report that
fact within five (5) days therefrom to the court wherein
his aforesaid complaint or initiatory pleading has been
filed.
Failure to comply with the foregoing requirements shall
not be curable by mere amendment of the complaint or
other initiatory pleading but shall be cause for the
dismissal of the case without prejudice, unless
otherwise provided, upon motion and after hearing. The
submission of a false certification or non-compliance
with any of the undertakings therein shall constitute
indirect contempt of court, without prejudice to the
corresponding administrative and criminal actions. If the
acts of the party or his counsel clearly constitute willful
and deliberate forum shopping, the same shall be
ground for summary dismissal with prejudice and shall
constitute direct contempt, as well as a cause for
administrative sanctions. (n)
The above-stated rule covers the very essence of forum
shopping itself, and the constitutive elements thereof
viz., the cognate concepts of litis pendentia and res
judicata —
x x x [T]he essence of forum shopping is the filing of
multiple suits involving the same parties for the same
cause of action, either simultaneously or successively,
for the purpose of obtaining a favorable judgment. It
exists where the elements of litis pendentia are present
or where a final judgment in one case will amount to res
judicata in another. On the other hand, for litis pendentia
to be a ground for the dismissal of an action, the
following requisites must concur: (a) identity of parties,
or at least such parties who represent the same interests
in both actions; (b) identity of rights asserted and relief
prayed for, the relief being founded on the same facts;
and (c) the identity with respect to the two preceding
particulars in the two cases is such that any judgment
that may be rendered in the pending case, regardless of
which party is successful, would amount to res judicata
in the other case. 31
Res judicata, in turn, has the following requisites: "(1) the
former judgment must be final; (2) it must have been
rendered by a court having jurisdiction over the subject
matter and over the parties; (3) it must be a judgment on
the merits; and (4) there must be, between the first and
second actions, (a) identity of parties, (b) identity of
subject matter, and (c) identity of cause of action." 32
"The settled rule is that criminal and civil cases are
altogether different from administrative matters, such
that the disposition in the first two will not inevitably
govern the third and vice versa." 33 In the context of the
case at bar, matters handled by the IC are delineated as
either regulatory or adjudicatory, both of which have
distinct characteristics, as postulated in Almendras
Mining Corporation v. Office of the Insurance
Commission: 34
The provisions of the Insurance Code (Presidential
Decree [P.D.] No. 1460), as amended, clearly indicate
that the Office of the [IC] is an administrative agency
vested with regulatory power as well as with
adjudicatory authority. Among the several regulatory or
non-quasi-judicial duties of the Insurance Commissioner
under the Insurance Code is the authority to issue, or
refuse issuance of, a Certificate of Authority to a person
or entity desirous of engaging in insurance business in
the Philippines, and to revoke or suspend such
Certificate of Authority upon a finding of the existence of
statutory grounds for such revocation or suspension.
The grounds for revocation or suspension of an insurer's
Certificate of Authority are set out in Section 241 and in
Section 247 of the Insurance Code as amended. The
general regulatory authority of the Insurance
Commissioner is described in Section 414 of the
Insurance Code, as amended, in the following terms:
TIADCc
'Section 414. The Insurance Commissioner shall have
the duty to see that all laws relating to insurance,
insurance companies and other insurance matters,
mutual benefit associations, and trusts for charitable
uses are faithfully executed and to perform the duties
imposed upon him by this Code, and shall,
notwithstanding any existing laws to the contrary, have
sole and exclusive authority to regulate the issuance and
sale of variable contracts as defined in section two
hundred thirty-two and to provide for the licensing of
persons selling such contracts, and to issue such
reasonable rules and regulations governing the same.
The Commissioner may issue such rulings, instructions,
circulars, orders[,] and decisions as he may deem
necessary to secure the enforcement of the provisions
of this Code, subject to the approval of the Secretary of
Finance [DOF Secretary]. Except as otherwise specified,
decisions made by the Commissioner shall be
appealable to the [DOF Secretary].' (Italics supplied)
which Section also specifies the authority to which a
decision of the Insurance Commissioner rendered in the
exercise of its regulatory function may be appealed.
The adjudicatory authority of the Insurance
Commissioner is generally described in Section 416 of
the Insurance Code, as amended, which reads as
follows:
'Sec. 416. The Commissioner shall have the power to
adjudicate claims and complaints involving any loss,
damage or liability for which an insurer may be
answerable under any kind of policy or contract of
insurance, or for which such insurer may be liable under
a contract of suretyship, or for which a reinsurer may be
sued under any contract or reinsurance it may have
entered into, or for which a mutual benefit association
may be held liable under the membership certificates it
has issued to its members, where the amount of any
such loss, damage or liability, excluding interests, cost
and attorney's fees, being claimed or sued upon any kind
of insurance, bond, reinsurance contract, or membership
certificate does not exceed in any single claim one
hundred thousand pesos. HTcADC
xxx xxx xxx
The authority to adjudicate granted to the Commissioner
under this section shall be concurrent with that of the
civil courts, but the filing of a complaint with the
Commissioner shall preclude the civil courts from taking
cognizance of a suit involving the same subject matter.'
(Italics supplied)
Continuing, Section 416 (as amended by Batas
Pambansa (B.P.) Blg. 874) also specifies the authority to
which appeal may be taken from a final order or decision
of the Commissioner given in the exercise of his
adjudicatory or quasi-judicial power:
'Any decision, order or ruling rendered by the
Commissioner after a hearing shall have the force and
effect of a judgment. Any party may appeal from a final
order, ruling or decision of the Commissioner by filing
with the Commissioner within thirty days from receipt of
copy of such order, ruling or decision a notice of appeal
to the Intermediate Appellate Court (now the Court of
Appeals) in the manner provided for in the Rules of Court
for appeals from the Regional Trial Court to the
Intermediate Appellate Court (now the Court of Appeals)
xxx xxx xxx'
It may be noted that under Section 9 (3) of B.P. Blg. 129,
appeals from a final decision of the Insurance
Commissioner rendered in the exercise of his
adjudicatory authority now fall within the exclusive
appellate jurisdiction of the Court of Appeals. 35
Go v. Office of the Ombudsman 36 reiterated the above-
stated distinctions vis-a-vis the principles enunciating
that a civil case before the trial court involving recovery
of payment of the insured's insurance claim plus
damages, can proceed simultaneously with an
administrative case before the IC. 37
Expounding on the foregoing points, this Court said —
The findings of the trial court will not necessarily
foreclose the administrative case before the [IC], or [vice
versa]. True, the parties are the same, and both actions
are predicated on the same set of facts, and will require
identical evidence. But the issues to be resolved, the
quantum of evidence, the procedure to be followed[,] and
the reliefs to be adjudged by these two bodies are
different.
Petitioner's causes of action in Civil Case No. Q-95-
23135 are predicated on the insurers' refusal to pay her
fire insurance claims despite notice, proofs of losses
and other supporting documents. Thus, petitioner prays
in her complaint that the insurers be ordered to pay the
full-insured value of the losses, as embodied in their
respective policies. Petitioner also sought payment of
interests and damages in her favor caused by the
alleged delay and refusal of the insurers to pay her
claims. The principal issue then that must be resolved by
the trial court is whether or not petitioner is entitled to
the payment of her insurance claims and damages. The
matter of whether or not there is unreasonable delay or
denial of the claims is merely an incident to be resolved
by the trial court, necessary to ascertain petitioner's right
to claim damages, as prescribed by Section 244 of the
Insurance Code.
On the other hand, the core, if not the sole bone of
contention in Adm. Case No. RD-156, is the issue of
whether or not there was unreasonable delay or denial of
the claims of petitioner, and if in the affirmative, whether
or not that would justify the suspension or revocation of
the insurers' licenses.
Moreover, in Civil Case No. Q-95-23135, petitioner must
establish her case by a preponderance of evidence, or
simply put, such evidence that is of greater weight, or
more convincing than that which is offered in opposition
to it. In Adm. Case No. RD-156, the degree of proof
required of petitioner to establish her claim is
substantial evidence, which has been defined as that
amount of relevant evidence that a reasonable mind
might accept as adequate to justify the conclusion.
In addition, the procedure to be followed by the trial
court is governed by the Rules of Court, while the [IC] has
its own set of rules and it is not bound by the rigidities of
technical rules of procedure. These two bodies conduct
independent means of ascertaining the ultimate facts of
their respective cases that will serve as basis for their
respective decisions. aScITE
If, for example, the trial court finds that there was no
unreasonable delay or denial of her claims, it does not
automatically mean that there was in fact no such
unreasonable delay or denial that would justify the
revocation or suspension of the licenses of the
concerned insurance companies. It only means that
petitioner failed to prove by preponderance of evidence
that she is entitled to damages. Such finding would not
restrain the [IC], in the exercise of its regulatory power,
from making its own finding of unreasonable delay or
denial as long as it is supported by substantial evidence.
While the possibility that these two bodies will come up
with conflicting resolutions on the same issue is not far-
fetched, the finding or conclusion of one would not
necessarily be binding on the other given the difference
in the issues involved, the quantum of evidence required
and the procedure to be followed.
Moreover, public interest and public policy demand the
speedy and inexpensive disposition of administrative
cases.
Hence, Adm. Case No. RD-156 may proceed alongside
Civil Case No. Q-95-23135. 38
As the aforecited cases are analogous in many aspects
to the present case, both in respect to their factual
backdrop and in their jurisprudential teachings, the case
law ruling in the Almendras and in the Go cases must
apply with implacable force to the present case.
Consistency alone demands — because justice cannot
be inconsistent — that the final authoritative mandate in
the cited cases must produce an end result not much
different from the present case.
All told, we find that the CA did not err in holding that the
petitioners utterly failed to prove that the RTC exhibited
grave abuse of discretion, amounting to lack or excess
of jurisdiction, which would justify the issuance of the
extraordinary writ of certiorari. 39
WHEREFORE, the Petition is DENIED. The December 21,
2012 Decision and the May 22, 2013 Resolution of the
Court of Appeals in CA-G.R. SP No. 118894 are hereby
AFFIRMED.
Costs against petitioners. HEITAD
SO ORDERED.
||| (Malayan Insurance Co., Inc. v. Lin, G.R. No. 207277,
[January 16, 2017], 803 PHIL 330-348)
I. Concealment
A.In General
FIRST DIVISION
[G.R. No. L-31845. April 30, 1979.]
GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs. HONORABLE COURT OF APPEALS, respondents.
[G.R. No. L-31878. April 30, 1979.]

LAPULAPU D. MONDRAGON, petitioner, vs. COURT OF
APPEALS and NGO HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar,
Luna & Manalo for petitioner Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.
SYNOPSIS
Private respondent, a duly authorized agent of Pacific
Life, applied for a 20-year endowment policy on the life
of his one-year old daughter, a mongoloid. He did not
divulge each physical defect of his daughter. He paid the
premium and was issued a binding deposit receipt.
However, despite the branch manager's favorable
recommendation, the Company disapproved the
application, because a 20-year endowment plan is not
available for minors. Instead, it offered the Juvenile
Triple Action Plan. The manager wrote back and again
strongly recommended the approval of the application.
At this point, the child died of influenza with
complication of broncho-pneumonia.
In a suit filed by private respondent to recover the
proceeds of the insurance, the trial court rendered
judgment adverse to both petitioners. The Court of
Appeals in its amended decision affirmed the trial court's
decision in toto.
The decisive issues in these cases are: (1) whether the
binding deposit receipt constituted a temporary contract
of the life insurance in question; and (2) whether private
respondent concealed the state of health and physical
condition of his child.
The Supreme Court held that a "binding receipt" does not
insure by itself; that no insurance contract was perfected
between the parties with the non-compliance of the
conditions provided in the binding receipt and
concealment having been committed by private
respondent.
SYLLABUS
1. INSURANCE CONTRACT; "BINDING DEPOSIT
RECEIPT." — Where the binding deposit receipt is
intended to be merely a provisional or temporary
insurance contract, and that the receipt merely
acknowledged, on behalf of the insurance company, that
the latter's branch office had received from the applicant
the insurance premium and had accepted the application
subject for processing by the insurance company, such
binding deposit receipt does not become in force until
the application is approved.
2. ID.; PERFECTION OF CONTRACT. — A binding deposit
receipt which is merely conditional does not insure
outright. Thus, where an agreement is made between the
applicant and the agent, no liability will attack until the
principal approves the risk and a receipt is given by the
agent. The acceptance is merely conditional, and is
subordinated to the act of the company in approving or
rejecting the application.
3. ID.; ID.; MEETING OF THE MIND. — A contract of
insurance, like other contracts, must be assented to by
both parties either in person or by their agents. The
contract, to be binding from the date of the application,
must have been a completed contract, one that leaves
nothing to be done, nothing to be completed, nothing to
be passed upon, or determined, before it shall take
effect. There can be no contract of insurance unless the
minds of the parties have met in agreement.
4. ID.; ID.; FAILURE OF AGENT TO COMMUNICATE THE
REJECTION TO APPLICANT. — The failure of the
insurance company's agent to communicate to the
applicant the rejection of the insurance application
would not have any adverse effect on the allegedly
perfected temporary contract. In the first place, there
was no contract perfected between the parties who had
no meeting of their minds. Private respondent, being an
authorized agent is indubitably aware that said company
does not offer the life insurance applied for. When he
filed the insurance application in dispute he was
therefore only taking a chance that the company will
approve the recommendation of the agent for the
acceptance and approval of the application in question.
Secondly, having an insurable interest on the life of his
daughter, aside from being an insurance agent and
office associate of the branch, the applicant must have
known and followed the progress on the processing of
such application and could not pretend ignorance of the
Company's rejection of the 20-year endowment life
insurance application.
5. ID.; CONCEALMENT OF MATERIAL FACT. — The
contract of insurance is one of perfect good faith
(uberrima fides meaning good faith; absolute and perfect
candor or openness and honestly; the absence of any
concealment or deception, however slight [Black's Law
Dictionary, 2nd Edition], not for the insured alone but
equally so for the insurer. Concealment is a neglect to
communicate that which a party knows and ought to
communicate (Section 25, Act 2427). Whether
intentional or unintentional, the concealment entities the
insurer to rescind the contract of insurance.
6. ID.; ID.; CASE AT BAR. — The failure of the father who
applied for a life insurance policy on the life of his
daughter to divulge the fact that his daughter is a
mongoloid, a congenital physical defect that could never
be disguised, constitutes such concealment as to render
the policy void. And where the applicant himself is an
insurance agent, he ought to know, as he surely must
have known, his duty and responsibility to supply such a
material fact, and his failure to divulge such significant
fact is deemed to have been done in bad faith.
DECISION
DE CASTRO, J p:
The two above-entitled cases were ordered consolidated
by the Resolution of this Court dated April 29, 1970,
(Rollo, No. L-31878, p. 58), because the petitioners in
both cases seek similar relief, through these petitions for
certiorari by way of appeal, from the amended decision
of respondent Court of Appeals which affirmed in toto
the decision of the Court of First Instance of Cebu,
ordering "the defendants (herein petitioners Great Pacific
Life Assurance Company and Mondragon) jointly and
severally to pay plaintiff (herein private respondent Ngo
Hing) the amount of P50,000.00 with interest at 6% from
the date of the filing of the complaint, and the sum of
P10,000.00 as attorney's fees plus costs of suits."
In its original decision, the respondent Court of Appeals
set aside the appealed decision of the Court of First
Instance of Cebu, and absolved the petitioners from
liability on the insurance policy, but ordered the
reimbursement to appellee (herein private respondent)
the amount of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent
Ngo Hing filed an application with the Great Pacific Life
Assurance Company (hereinafter referred to as Pacific
Life) for a twenty-year endowment policy in the amount
of P50,000.00 on the life of his one-year old daughter
Helen Go. Said respondent supplied the essential data
which petitioner Lapulapu D. Mondragon, Branch
Manager of the Pacific Life in Cebu City wrote on the
corresponding form in his own handwriting (Exhibit I-M).
Mondragon finally type-wrote the data on the application
form which was signed by private respondent Ngo Hing.
The latter paid the annual premium, the sum of
P1,077.75 going over to the Company, but he retained
the amount of P1,317.00 as his commission for being a
duly authorized agent of Pacific Life. Upon the payment
of the insurance premium, the binding deposit receipt
(Exhibit E) was issued to private respondent Ngo Hing.
Likewise, petitioner Mondragon handwrote at the bottom
of the back page of the application form his strong
recommendation for the approval of the insurance
application. Then on April 30, 1957, Mondragon received
a letter from Pacific Life disapproving the insurance
application (Exhibit 3-M). The letter stated that the said
life insurance application for 20-year endowment plan is
not available for minors below seven years old, but
Pacific Life can consider the same under the Juvenile
Triple Action Plan, and advised that if the offer is
acceptable, the Juvenile Non-Medical Declaration be
sent to the Company.
The non-acceptance of the insurance plan by Pacific Life
was allegedly not communicated by petitioner
Mondragon to private respondent Ngo Hing. Instead, on
May 6, 1957, Mondragon wrote back Pacific Life again
strongly recommending the approval of the 20-year
endowment life insurance on the ground that Pacific Life
is the only insurance company not selling the 20-year
endowment insurance plan to children, pointing out that
since 1954 the customers, especially the Chinese, were
asking for such coverage (Exhibit 4-M).
It was when things were in such state that on May 28,
1957 Helen Go died of influenza with complication of
broncho-pneumonia. Thereupon, private respondent
sought the payment of the proceeds of the insurance,
but having failed in his effort, he filed the action for the
recovery of the same before the Court of First Instance
of Cebu, which rendered the adverse decision as earlier
referred to against both petitioners.
The decisive issues in these cases are: (1) whether the
binding deposit receipt (Exhibit E) constituted a
temporary contract of the life insurance in question; and
(2) whether private respondent Ngo Hing concealed the
state of health and physical condition of Helen Go, which
rendered void the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents
required before a deposit is considered a BINDING
RECEIPT. These conditions state that:
"A. If the Company or its agent, shall have received the
premium deposit . . . and the insurance application, ON
or PRIOR to the date of medical examination . . . said
insurance shall be in force and in effect from the date of
such medical examination, for such period as is covered
by the deposit . . ., PROVIDED the company shall be
satisfied that on said date the applicant was insurable
on standard rates under its rule for the amount of
insurance and the kind of policy requested in the
application.
D. If the Company does not accept the application on
standard rate for the amount of insurance and/or the
kind of policy requested in the application but issue, or
offers to issue a policy for a different plan and/or
amount . . ., the insurance shall not be in force and in
effect until the applicant shall have accepted the policy
as issued or offered by the Company and shall have paid
the full premium thereof. If the applicant does not accept
the policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under
Condition A above, and the Company declines to
approve the application, the insurance applied for shall
not have been in force at any time and the sum paid be
returned to the applicant upon the surrender of this
receipt." (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show
that the binding deposit receipt is intended to be merely
a provisional or temporary insurance contract and only
upon compliance of the following conditions: (1) that the
company shall be satisfied that the applicant was
insurable on standard rates; (2) that if the company does
not accept the application and offers to issue a policy for
a different plan, the insurance contract shall not be
binding until the applicant accepts the policy offered;
otherwise, the deposit shall be refunded; and (3) that if
the applicant is not insurable according to the standard
rates, and the company disapproves the application, the
insurance applied for shall not be in force at any time,
and the premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the
binding deposit receipt in question is merely an
acknowledgment, on behalf of the company, that the
latter's branch office had received from the applicant the
insurance premium and had accepted the application
subject for processing by the insurance company; and
that the latter will either approve or reject the same on
the basis of whether or not the applicant is "insurable on
standard rates." Since petitioner Pacific Life disapproved
the insurance application of respondent Ngo Hing, the
binding deposit receipt in question had never become in
force at any time.
Upon this premise, the binding deposit receipt (Exhibit E)
is, manifestly, merely conditional and does not insure
outright. As held by this Court, where an agreement is
made between the applicant and the agent, no liability
shall attach until the principal approves the risk and a
receipt is given by the agent. The acceptance is merely
conditional, and is subordinated to the act of the
company in approving or rejecting the application. Thus,
in life insurance, a "binding slip" or "binding receipt" does
not insure by itself (De Lim vs. Sun Life Assurance
Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company
communication of April 30, 1957 (Exhibit 3-M), Pacific
Life disapproved the insurance application in question
on the ground that it is not offering the twenty-year
endowment insurance policy to children less than seven
years of age. What it offered instead is another plan
known as the Juvenile Triple Action, which private
respondent failed to accept. In the absence of a meeting
of the minds between petitioner Pacific Life and private
respondent Ngo Hing over the 20-year endowment life
insurance in the amount of P50,000.00 in favor of the
latter's one-year old daughter, and with the non-
compliance of the abovequoted conditions stated in the
disputed binding deposit receipt, there could have been
no insurance contract duly perfected between them.
Accordingly, the deposit paid by private respondent shall
have to be refunded by Pacific Life. LLphil
As held in De Lim vs. Sun Life Assurance Company of
Canada, supra, "a contract of insurance, like other
contracts, must be assented to by both parties either in
person or by their agents. . . . The contract, to be binding
from the date of the application, must have been a
completed contract, one that leaves nothing to be done,
nothing to be completed, nothing to be passed upon, or
determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties
have met in agreement."
We are not impressed with private respondent's
contention that failure of petitioner Mondragon to
communicate to him the rejection of the insurance
application would not have any adverse effect on the
allegedly perfected temporary contract (Respondent's
Brief, pp. 13-14). In the first place, there was no contract
perfected between the parties who had no meeting of
their minds. Private respondent, being an authorized
insurance agent of Pacific Life at Cebu branch office, is
indubitably aware that said company does not offer the
life insurance applied for. When he filed the insurance
application in dispute, private respondent was, therefore,
only taking the chance that Pacific Life will approve the
recommendation of Mondragon for the acceptance and
approval of the application in question along with his
proposal that the insurance company starts to offer the
20-year endowment insurance plan for children less than
seven years. Nonetheless, the record discloses that
Pacific Life bad rejected the proposal and
recommendation. Secondly, having an insurable interest
on the life of his one-year old daughter, aside from being
an insurance agent and an office associate of petitioner
Mondragon, private respondent Ngo Hing must have
known and followed the progress on the processing of
such application and could not pretend ignorance of the
Company's rejection of the 20-year endowment life
insurance application.
At this juncture, We find it fit to quote with approval, the
very apt observation of then Appellate Associate Justice
Ruperto G. Martin who later came up to this Court, from
his dissenting opinion to the amended decision of the
respondent court which completely reversed the original
decision, the following:
Of course, there is the insinuation that neither the
memorandum of rejection (Exhibit 3-M) nor the reply
thereto of appellant Mondragon reiterating the desire for
applicant's father to have the application considered as
one for a 20-year endowment plan was ever duly
communicated to Ngo Hing, father of the minor
applicant. I am not quite convinced that this was so. Ngo
Hing, as father of the applicant herself, was precisely the
"underwriter who wrote this case" (Exhibit H-1). The
unchallenged statement of appellant Mondragon in his
letter of May 6, 1957) (Exhibit 4-M), specifically admits
that said Ngo Hing was "our associate" and that it was
the latter who "insisted that the plan be placed on the 20-
year endowment plan." Under these circumstances, it is
inconceivable that the progress in the processing of the
application was not brought home to his knowledge. He
must have been duly apprised of the rejection of the
application for a 20-year endowment plan otherwise
Mondragon would not have asserted that it was Ngo
Hing himself who insisted on the application as originally
filed thereby implicitly declining the offer to consider the
application under the Juvenile Triple Action Plan.
Besides, the associate of Mondragon that he was, Ngo
Hing should only be presumed to know what kind of
policies are available in the company for minors below 7
years old. What he and Mondragon were apparently
trying to do in the premises was merely to prod the
company into going into the business of issuing
endowment policies for minors just as other insurance
companies allegedly do. Until such a definite policy is,
however, adopted by the company, it can hardly be said
that it could have been bound at all under the binding
slip for a plan of insurance that it could not have, by then,
issued at all." (Amended Decision, Rollo, pp. 52-53).
2. Relative to the second issue of alleged concealment,
this Court is of the firm belief that private respondent
had deliberately concealed the state of health and
physical condition of his daughter Helen Go. When
private respondent supplied the required essential data
for the insurance application form, he was fully aware
that his one-year old daughter is typically a mongoloid
child. Such a congenital physical defect could never be
ensconced nor disguised. Nonetheless, private
respondent, in apparent bad faith, withheld the fact
material to the risk to be assumed by the insurance
company. As an insurance agent of Pacific Life, he ought
to know, as he surely must have known, his duty and
responsibility to supply such a material fact. Had he
divulged said significant fact in the insurance application
form, Pacific Life would have verified the same and
would have had no choice but to disapprove the
application outright.
The contract of insurance is one of perfect good faith
(uberrima fides meaning good faith; absolute and perfect
candor or openness and honesty; the absence of any
concealment or deception, however slight [Black's Law
Dictionary, 2nd Edition], not for the insured alone but
equally so for the insurer (Field man's Insurance Co., Inc.
vs. Vda de Songco, 25 SCRA 70). Concealment is a
neglect to communicate that which a party knows and
ought to communicate (Section 25, Act No. 2427).
Whether intentional or unintentional the concealment
entitles the insurer to rescind the contract of insurance
(Section 26, id.: Yu Pang Cheng vs. Court of Appeals, et
al., 105 Phil. 930; Saturnino vs. Philippine American Life
Insurance Company, 7 SCRA 316). Private respondent
appears guilty thereof. prcd
We are thus constrained to hold that no insurance
contract was perfected between the parties with the
noncompliance of the conditions provided in the binding
receipt, and concealment, as legally defined, having been
committed by herein private respondent.
WHEREFORE, the decision appealed from is hereby set
aside, and in lieu thereof, one is hereby entered
absolving petitioners Lapulapu D. Mondragon and Great
Pacific Life Assurance Company from their civil liabilities
as found by respondent Court and ordering the aforesaid
insurance company to reimburse the amount of
P1,077.75, without interest, to private respondent, Ngo
Hing. Costs against private respondent.
SO ORDERED.
||| (Great Pacific Life Assurance Co. v. Court of Appeals,
G.R. No. L-31845, L-31878, [April 30, 1979])
EN BANC

[G.R. No. 41794. August 30, 1935.]
SEGUNDINA MUSÑGI ET AL., plaintiffs-appellees, vs.
WEST COAST LIFE INSURANCE CO., defendant-
appellant.
Laurel, Del Rosario & Sabido for appellees.
SYLLABUS
1. CONTRACTS OF INSURANCE; STATEMENT OF FALSE
CONSIDERATION. — The question raised for our
determination is whether the two answers given by the
insured in his applications are false, and if they were the
cause, or one of the causes, which induced the
defendant to issue the policies. On the first point, the
facts set out leave no room for doubt. The insured knew
that he had suffered from a number of ailments,
including incipient pulmonary tuberculosis, before
subscribing the applications, yet he concealed them and
omitted the hospital where he was confined as well as
the name of the lady physician who treated him. That
this concealment and the false statements constituted
fraud, is likewise clear, because the defendant by reason
thereof accepted the risk which it would otherwise have
flatly refused.
2. ID.; NULLITY; APPLICABILITY OF CIVIL LAW. — When
not otherwise specially provided for by the Insurance
Law, the contract of life insurance is governed by the
general rules of the civil law regarding contracts. Article
1261 of the Civil Code provides that there is no contract
unless there should be, in addition to consent and a
definite object, a consideration for the obligation
established. And article 1276 provides that the
statement of a false consideration shall render the
contract void.
DECISION
IMPERIAL, J p:
The plaintiffs, as beneficiaries, brought suit against the
defendant to recover the value of two life insurance
policies. The defendant appealed from a judgment
sentencing it to pay the plaintiffs the amount of said
policies, and the costs.
The principal facts of the case are embodied in the
following written stipulation entered into by the parties:
"1. That Arsenio T. Garcia was insured by the defendant
company in the sum of P5,000 as evidenced by Policy
No. 129454 effective as of July 25, 1931, hereby
attached and marked as Exhibit A;
"2. That the said Arsenio T. Garcia was again insured by
the defendant company in the sum of P10,000 effective
as of October 20, 1931, as evidenced by Policy No.
130381 hereby attached and marked as Exhibit B;
"3. That the two policies aforementioned were valid and
subsisting at the time of the death of the insured on
December 30, 1932; the fact of said death is evidenced
by the accompanying death certificate issued by the Civil
Register of Pasay, Rizal, which is marked as Exhibit C;
"4. That the plaintiffs herein are the beneficiaries in said
policies, Segundina Musñgi of Policy No. 129454, and
Buenaventura Garcia of Policy No. 130381;
"5. That demand was made upon the defendant
company for the payment of the two policies above
referred to, but the defendant company refused to pay
on the grounds stated in the answer."
The two policies were issued upon applications filed by
the insured on July 20, 1931 and October 15, of the
same year, respectively. In both applications, the insured
had to answer inquiries as to his state of health and that
of his family, which he did voluntarily. In each of the said
applications the following question was asked: "1. What
physician or practitioner or any other person not named
above have you consulted or been treated by, and for
what illness, or ailment? (If none, so state.)" In the first
application, the insured answered "None", and in the
second, "No". These answers of the insured as well as
his other statements contained in his applications were
one of the causes or considerations for the issuance of
the policies and they so positively appear therein. After
the death of the insured and as a result of the demand
made by the beneficiaries upon the defendant to pay the
value of the policies, the latter discovered that the
aforementioned answers were false and fraudulent,
because the truth was that the insured, before answering
and signing the applications and before the issuance of
the policies, had been treated in the General Hospital by
a lady physician for different ailments. It indisputably
appears that between May 13 and 19, 1929, the insured
had entered the General Hospital in Manila, and was
treated by Doctor Pilar V. Cruz for peptic ulcer and
chronic catarrhal nasopharyngitis; on August 5, 1930, he
entered the same hospital and was treated by the same
physician for chronic pyelocystitis and for incipient
pulmonary tuberculosis; on the 13th of the same month
he returned to the hospital and was treated by the same
doctor for acute tracheo-bronchitis and chronic
suppurative pyelocystitis; on the 27th of the same month
he again entered the same hospital and was treated for
the same ailments; on December 11, 1930, he again
entered the hospital and was treated for the same
ailments; on the 18th of the same month, he again
entered the hospital and was treated for the same
ailments; on the 28th of the same month he again
entered the hospital and was treated for the same
ailments, and, finally, on January 11, 1931, he again
entered the hospital and was treated by the same doctor
for the same ailments.
The defendant contended at the outset that the two
policies did not create any valid obligation because they
were fraudulently obtained by the insured. The appealed
decision holds that the health of the insured before the
acceptance of his applications and the issuance of the
policies could neither be discussed nor questioned by
the defendant, because the insured was examined by
three physicians of the company and all of them
unanimously certified that he was in good health and
that he could be properly insured. The question here is
not whether the physicians' reports or the answers which
the insured gave to them relative to his health were
correct or not. It is admitted that such information was
substantially correct, in the sense that the physicians of
the defendant who examined the insured, for failure to
make a detailed examination, did not discover the
ailments suffered by the insured. However, the question
raised for our determination is whether the two answers
given by the insured in his applications are false, and if
they were the cause, or one of the causes, which induced
the defendant to issue the policies. On the first point, the
facts above set out leave no room for doubt. The insured
knew that he had suffered from a number of ailments,
including incipient pulmonary tuberculosis, before
subscribing the applications, yet he concealed them and
omitted the hospital where he was confined as well as
the name of the lady physician who treated him. That
this concealment and the false statements constituted
fraud, is likewise clear, because the defendant by reason
thereof accepted the risk which it would otherwise have
flatly refused. When not otherwise specially provided for
by the Insurance Law, the contract of life insurance is
governed by the general rules of the civil law regarding
contracts. Article 1261 of the Civil Code provides that
there is no contract unless there should be, in addition to
consent and a definite object, a consideration for the
obligation established. And article 1276 provides that
the statement of a false consideration shall render the
contract void. The two answers being one of the
considerations of the policies, and it appearing that they
are false and fraudulent, it is evident that the insurance
contracts were null and void and did not give rise to any
right to recover their value or amount. A similar case was
already decided by this court in Argente vs. West Coast
Life Insurance Co. (51 Phil., 725). In that case the
insured concealed from the physician who examined her
that she had consulted and had been treated by another
physician for cerebral congestion and Bell's Palsy, and
that she was addicted to alcohol, so much so that on
one occasion she was confined in the San Lazaro
Hospital suffering from "alcoholism"; this court held that
such concealments and false and fraudulent statements
rendered the policy null and void. In discussing the legal
phase of the case, this court said:
"One ground for the rescission of a contract of insurance
under the Insurance Act is a 'concealment', which in
section 25 is defined as 'A neglect to communicate that
which a party knows and ought to communicate'.
Appellant argues that the alleged concealment was
immaterial and insufficient to avoid the policy. We
cannot agree. In an action on a life insurance policy
where the evidence conclusively shows that the answers
to questions concerning diseases were untrue, the truth
or falsity of the answers become the determining factor.
If the policy was procured by fraudulent representations,
the contract of insurance apparently set forth therein
was never legally existent. It can fairly be assumed that
had the true facts been disclosed by the assured, the
insurance would never have been granted.
"In Joyce, The Law of Insurance, second edition, volume
3, Chapter LV, is found the following:
"'Concealment exists where the assured has knowledge
of a fact material to the risk, and honesty, good faith and
fair dealing requires that he should communicate it to
the assured, but he designedly and intentionally
withholds the same.
"'Another rule is that if the assured undertakes to state
all the circumstances affecting the risk, a full and fair
statement of all is required.
"'It is also held that the concealment must, in the
absence of inquiries, be not only material, but fraudulent,
or the fact must have been intentionally withheld; so it is
held under English law that if no inquiries are made and
no fraud or design to conceal enters into the
concealment the contract is not avoided. And it is
determined that even though silence may constitute
misrepresentation or concealment it is not of itself
necessarily so as it is a question of fact. Nor is there a
concealment justifying a forfeiture where the fact of
insanity is not disclosed no questions being asked
concerning the same. . . .

"'But it would seem that if a material fact is actually
known to the assured, its concealment must of itself
necessarily be a fraud, and if the fact is one which the
assured ought to know, or is presumed to know, the
presumption of knowledge ought to place the assured in
the same position as in the former case with relation to
material facts; and if the jury in such cases find the fact
material, and one tending to increase the risk, it is
difficult to see how the inference of a fraudulent intent or
intentional concealment can be avoided. And it is
declared that if a material fact is concealed by assured it
is equivalent to a false representation that it does not
exist and that the essentials are the truth of the
representations whether they were intended to mislead
and did insurer accept them as true and act upon them
to his prejudice. So it is decided that under a stipulation
voiding the policy for concealment or misrepresentation
of any material fact or if his interest is not truly stated or
is other than the sole and unconditional ownership the
facts are unimportant that insured did not intend to
deceive or withhold information as to encumbrances
even though no questions were asked. And if insured
while being examined for life insurance, and knowing
that she had heart disease, falsely stated that she was in
good health, and though she could not read the
application, it was explained to her and the questions
asked through an interpreter, and the application like the
policy contained a provision that no liability should be
incurred unless the policy was delivered while the
insured was in good health, the court properly directed a
verdict for the insurer, though a witness who was
present at the examination testified that the insured was
not asked whether she had heart disease.
xxx xxx xxx
"'The basis of the rule vitiating the contract in cases of
concealment is that it misleads or deceives the insurer
into accepting the risk, or accepting it at the rate of
premium agreed upon. The insurer, relying upon the
belief that the assured will disclose every material fact
within his actual or presumed knowledge, is misled into
a belief that the circumstance withheld does not exist,
and he is thereby induced to estimate the risk upon a
false basis that it does not exist. The principal question,
therefore, must be. Was the assurer misled or deceived
into entering a contract obligation or in fixing the
premium of insurance by a withholding of material
information or facts within the assured's knowledge or
presumed knowledge?
"'It therefore follows that the assurer in assuming a risk
is entitled to know every material fact of which the
assured has exclusive or peculiar knowledge, as well as
all material facts which directly tend to increase the
hazard or risk which are known by the assured, or which
ought to be or are presumed to be known by him. And a
concealment of such facts vitiates the policy. "It does
not seem to be necessary . . . that the . . . suppression of
the truth should have been willful." If it were but an
inadvertent omission, yet if it were material to the risk
and such as the plaintiff should have known to be so, it
would render the policy void. But it is held that if untrue
or false answers are given in response to inquiries and
they relate to material facts the policy is avoided without
regard to the knowledge or fraud of assured, although
under the statute statements are representations which
must be fraudulent to avoid the policy. So under certain
codes the important inquiries are whether the
concealment was willful and related to a matter material
to the risk.
xxx xxx xxx
"'If the assured has exclusive knowledge of material
facts, he should fully and fairly disclose the same,
whether he believes them material or not. But
notwithstanding this general rule it will not infrequently
happen, especially in life risks, that the assured may
have a knowledge actual or presumed of material facts,
and yet entertain an honest belief that they are not
material. . . . The determination of the point whether
there has or has not been a material concealment must
rest largely in all cases upon the form of the questions
propounded and the exact terms of the contract. Thus,
where in addition to specifically named diseases the
insured was asked whether he had had any sickness
within ten years, to which he answered "No", and it was
proven that within that period he had had a slight attack
of pharyngitis, it was held a question properly for the jury
whether such an inflammation of the throat was a
"sickness" within the intent of the inquiry, and the court
remarked on the appealed decision that if it could be
held as a matter of law that the policy was thereby
avoided, then it was a mere device on the part of
insurance companies to obtain money without rendering
themselves liable under the policy. . ..
"' . . . The question should be left to the jury whether the
assured truly represented the state of his health so as
not to mislead or deceive the insurer; and if he did not
deal in good faith with the insurer in that matter, then the
inquiry should be made, Did he know the state of his
health so as to be able to furnish a proper answer to
such questions as are propounded. A Massachusetts
case, if construed as it is frequently cited, would be
opposed to the above conclusion; but, on the contrary, it
sustains it, for the reason that symptoms of
consumption had so far developed themselves within a
few months prior to effecting the insurance as to induce
a reasonable belief that the applicant had that fatal
disease, and we should further construe this case as
establishing the rule that such a matter cannot rest
alone upon the assured's belief irrespective of what it is
a reasonable belief, but that it ought to be judged by the
criterion whether the belief is one fairly warranted by the
circumstances. A case in Indiana, however, holds that if
the assured has some affection or ailment of one or
more of the organs inquired about so well-defined and
marked as to materially derange for a time the functions
of such organ, as in the case of Bright's disease, the
policy will be avoided by a nondisclosure, irrespective of
the fact whether the assured knew of such ailment or
not. . . .'"
In view of the foregoing, we are of the opinion that the
appellant's first two assignments of error are well
founded, wherefore, the appealed judgment is reversed
and the defendant absolved from the complaint, with the
costs of both instances to the plaintiffs. So ordered.
Malcolm, Villa-Real, Butte and Goddard, JJ., concur.
||| (Musñgi v. West Coast Life Insurance Co., G.R. No.
41794, [August 30, 1935], 61 PHIL 864-872)
FIRST DIVISION
[G.R. No. 105135. June 22, 1995.]
SUNLIFE ASSURANCE COMPANY OF CANADA,
petitioner, vs. The Hon. COURT OF APPEALS and
Spouses ROLANDO and BERNARDA BACANI,
respondents.
Quasha, Asperilla, Ancheta, Pena & Nolasco for
petitioner.
Edilberio Balce for private respondents.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF
LOWER COURTS; RULE AND EXCEPTION. — The rule that
factual findings of the lower court and the appellate
court are binding on this Court is not absolute and
admits of exceptions, such as when the judgment is
based on a misappreciation of the facts.
2. COMMERCIAL LAW; INSURANCE; CONCEALMENT;
DEFINED. — Section 26 of The Insurance Code is explicit
in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within
his knowledge which are material to the contract and as
to which he makes no warranty, and which the other has
no means of ascertaining. Said Section provides: "A
neglect to communicate that which a party knows and
ought to communicate, is called concealment."
3. ID.; ID.; ID.; TEST OF MATERIALITY; RULE;
APPLICATION IN CASE AT BAR. — Materiality is to be
determined not by the event, but solely by the probable
and reasonable influence of the facts upon the party to
whom communication is due, in forming his estimate of
the disadvantages of the proposed contract or in making
his inquiries (The Insurance Code, Sec. 31). The terms of
the contract are clear. The insured is specifically
required to disclose to the insurer matters relating to his
health. The information which the insured failed to
disclose were material and relevant to the approval and
issuance of the insurance policy. The matters concealed
would have definitely affected petitioner's action on his
application, either by approving it with the corresponding
adjustment for a higher premium or rejecting the same.
Moreover, a disclosure may have warranted a medical
examination of the insured by petitioner in order for it to
reasonably assess the risk involved in accepting the
application. In Vda. de Canilang v. Court of Appeals, 223
SCRA 443 (1993), we held that materiality of the
information withheld does not depend on the state of
mind of the insured. Neither does it depend on the actual
or physical events which ensue. Thus, "good faith" is no
defense in concealment. The insured's failure to disclose
the fact that he was hospitalized for two weeks prior to
filing his application for insurance, raises grave doubts
about his bonafides. It appears that such concealment
was deliberate on his part.
4. ID.; ID.; ID.; RULE IN CASE THERE IS A WAIVER OF
MEDICAL EXAMINATION. — The argument, that
petitioner's waiver of the medical examination of the
insured debunks the materiality of the facts concealed,
is untenable. We reiterate our ruling in Saturnino v.
Philippine American Life Insurance Company, 7 SCRA
316 (1963), that "x x x the waiver of a medical
examination [in a non-medical insurance contract]
renders even more material the information required of
the applicant concerning previous condition of health
and diseases suffered, for such information necessarily
constitutes an important factor which the insurer takes
into consideration in deciding whether to issue the policy
or not x x x." Moreover, such argument of private
respondents would make Section 27 of the Insurance
Code, which allows the injured party to rescind a
contract of insurance where there is concealment,
ineffective.
5. ID.; ID.; ID.; RULE IN CASE THE FACTS CONCEALED
HAD NO BEARING TO THE CAUSE OF DEATH OF THE
INSURED. — Anent the finding that the facts concealed
had no bearing to the cause of death of the insured, it is
well settled that the insured need not die of the disease
he had failed to disclose to the insurer. It is sufficient
that his non-disclosure misled the insurer in forming his
estimates of the risks of the proposed insurance policy
or in making inquiries.
DECISION
QUIASON, J p:
This is a petition for review on certiorari under Rule 45 of
the Revised Rules of Court to reverse and set aside the
Decision dated February 21, 1992 of the Court of
Appeals in CA-G.R. CV No. 29068, and its Resolution
dated April 22, 1992, denying reconsideration thereof.
We grant the petition.
I General Hospital on February 1986, for cough and flu
On April 15, 1986, Robert John B. Bacani procured a life
insurance contract for himself from petitioner. He was
issued Policy No. 3-903-766-X valued P100,000.00, with
double indemnity in case of accidental death. The
designated beneficiary was his mother, respondent
Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash.
Respondent Bernarda Bacani filed a claim with
petitioner, seeking the benefits of the insurance policy
taken by her son. Petitioner conducted an investigation
and its findings prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda
Bacani, that the insured did not disclosed material facts
relevant to the issuance of the policy, thus rendering the
contract of insurance voidable. A check representing the
total premiums paid in the amount of P10,172.00 was
attached to said letter.
Petitioner claimed that the insured gave false
statements in his application when he answered the
following questions:
"5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner?
b) submitted to:
ECG?
X-rays?
blood tests?
other tests?
c) attended or been admitted to any hospital or other
medical facility?
"6. Have you ever had or sought advice for:
xxx xxx xxx
b) urine, kidney or bladder disorder?"
(Rollo, p. 53).
The deceased answered question No. 5(a) in the
affirmative but limited his answer to a consultation with
a certain Dr. Reinaldo D. Raymundo of the Chinese
complications. The other questions were answered in
the negative (Rollo, p. 53).
Petitioner discovered that two weeks prior to his
application for insurance, the insured was examined and
confined at the Lung Center of the Philippines, where he
was diagnosed for renal failure. During his confinement,
the deceased was subjected to urinalysis, ultra-
sonography and hematology tests.
On November 17, 1988, respondent Bernarda Bacani and
her husband, respondent Rolando Bacani, filed an action
for specific performance against petitioner with the
Regional Trial Court, Branch 191, Valenzuela, Metro
Manila. Petitioner filed its answer with counterclaim and
a list off exhibits consisting of medical records furnished
by the Lung Center of the Philippines.
On January 14, 1990, private respondents filed a
"Proposed Stipulation with Prayer for Summary
Judgment" where they manifested that they "have no
evidence to refute the documentary evidence of
concealment/misrepresentation by the decedent of his
health condition" (Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the
authenticity and due execution of several documents as
well as allegations regarding the health of the insured.
Private respondents failed to oppose said request or
reply thereto, thereby rendering an admission of the
matters alleged.
Petitioner then moved for a summary judgment and the
trial court decided in favor of private respondents. The
dispositive portion of the decision is reproduced as
follows:
"WHEREFORE, judgment is hereby rendered in favor of
the plaintiffs and against the defendants, condemning
the latter to pay the former the amount of One Hundred
Thousand Pesos (P100,000.00) the face value of
insured's Insurance Policy No. 3903766, and the
Accidental Death Benefit in the amount of One Hundred
Thousand Pesos (P100,000.00) and further sum of
P5,000.00 in the concept of reasonable attorney's fees
and the costs of the suit.
"Defendant's counterclaim is hereby Dismissed" (Rollo,
pp. 43-44).
In the ruling of private respondents, the trial court
concluded that the facts concealed by the insured were
made in good faith and under the belief that they need
not be disclosed. Moreover, it held that the health history
of the insured was immaterial since the insurance policy
was "non-medical."
Petitioner appealed to the Court of Appeals, which
affirmed the decision of the trial court. The appellate
court ruled that petitioner cannot avoid its obligation by
claiming concealment because the cause of death was
unrelated to the facts concealed by the insured. It also
sustained the finding of the trial court that the matters
relating to the health history of the insured were
irrelevant since the petitioner waived the medical
examination prior to the approval and issuance of the
insurance policy. Moreover, the appellate court agreed
with the trial court that the policy was "non-medical"
(Rollo, pp. 4-5).
Petitioner's motion for reconsideration was denied,
hence, this petition.
II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the
appellate court are binding on this Court is not absolute
and admits of exceptions, such as when the judgment is
based on a misappreciation of the facts (Geronimo v.
Court of Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court
concluded that indeed there was concealment and
misrepresentation, however, the same was made in
"good faith" and the facts concealed or misrepresented
were irrelevant since the policy was "non-medical." We
disagree.
Section 26 of the Insurance Code is explicit in requiring a
party to a contract of insurance to communicate to the
other, in good faith, all facts within his knowledge which
are material to the contract and as to which he makes no
warranty, and which the other has no means of
ascertaining. Said Section provides:
"A neglect to communicate that which a party knows and
ought to communicate, is called concealment."
Materiality is to be determined not by the event, but
solely by the probable and reasonable influence of the
facts upon the party to whom communication is due, in
forming his estimate of the disadvantages of the
proposed contract or in making his inquiries (The
Insurance Code, Sec 31).
The terms of the contract are clear. The insured is
specifically required to disclose to the insurer matters
relating to his health.
The information which the insured failed to disclose
were material and relevant to the approval and the
issuance of the insurance policy. The matters concealed
would have definitely affected petitioner's action on his
application, either by approving it with the corresponding
adjustment for a higher premium or rejecting the same.
Moreover, a disclosure may have warranted a medical
examination of the insured by petitioner in order for it to
reasonably assess the risk involved in accepting the
application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443
(1993), we held that materiality of the information
withheld does not depend on the state of mind of the
insured. Neither does it depend on the actual or physical
events which ensue.
Thus, "good faith" is no defense in concealment. The
insured's failure to disclose the fact that he was
hospitalized for two weeks prior to filing his application
for insurance, raises grave doubts about his bonafides. It
appears that such concealment was deliberate on his
part.

The argument, that petitioner's waiver of the medical
examination of the insured debunks the materiality of
the facts concealed, is untenable. We reiterate our ruling
in Saturnino v. Philippine American Life Insurance
Company, 7 SCRA 316 (1963), that ". . . the waiver of a
medical examination [in a non-medical insurance
contract] renders even more material the information
required of the applicant concerning previous condition
of health and diseases suffered, for such information
necessarily constitutes an important factor which the
insurer takes into consideration in deciding whether to
issue the policy or not . . . ."
Moreover, such argument of private respondents would
make Section 27 of the Insurance Code, which allows
the injured party to rescind a contract of insurance
where there is concealment, ineffective (See Vda de
Canilang v. Court of Appeals, supra).
Anent the finding that the facts concealed had no
bearing to the cause of death of the insured, it is well
settled that the insured need not die of the disease he
had failed to disclose to the insurer. It is sufficient that
his non-disclosure misled the insurer in forming his
estimates of the risks of the proposed insurance policy
or in making inquiries (Henson v. The Philippine
American Life Insurance Co., 56 O.G. No. 48 [1960]).
We, therefore, rule that petitioner properly exercised its
right to rescind the contract of insurance by reason of
the concealment employed by the insured. It must be
emphasized that rescission was exercised within the
two-year contestability period as recognized in Section
48 of The Insurance Code.
WHEREFORE, the petition is GRANTED and the Decision
of the Court of Appeals is REVERSED and SET ASIDE.
SO ORDERED.
||| (Sunlife Assurance Co. of Canada v. Court of Appeals,
G.R. No. 105135, [June 22, 1995], 315 PHIL 270-277)
SECOND DIVISION
[G.R. No. 113899. October 13, 1999.]
GREAT PACIFIC LIFE ASSURANCE CORP., petitioner, vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO,
respondents.
GA Fortun & Associates for petitioner.
Noel S. Beja for private respondent.
SYNOPSIS
This is a petition for review under Rule 45 of the Rules of
Court, assailing the decision and resolution of the Court
of Appeals dated May 17, 1994 and January 4, 1994,
respectively, in CA G.R. CV No. 18341. The appellate
court affirmed in toto the judgment of the Regional Trial
Court of Misamis Oriental in an insurance claim filed by
private respondent against Great Pacific Life Assurance
Co.
The Supreme Court found the petition not meritorious.
Contrary to petitioner's allegations, there was no
sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the insured's
widow who was not even sure if the medicines taken by
Dr. Leuterio were for hypertension, the petitioner had not
proven nor produced any witness who could attest to Dr.
Leuterio's medical history. Clearly, it had failed to
establish that there was concealment made by the
insured, hence it cannot refuse payment of the claim.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE; MORTGAGE
REDEMPTION INSURANCE; RATIONALE. — The rationale
of a group insurance policy of mortgagors, otherwise
known as the "mortgage redemption insurance," is a
device for the protection of both the mortgagee and the
mortgagor. On the part of the mortgagee, it has to enter
into such form of contract so that in the event of the
unexpected demise of the mortgagor during the
subsistence of the mortgage contract, the proceeds
from such insurance will be applied to the payment of
the mortgage debt, thereby relieving the heirs of the
mortgagor from paying the obligation. In a similar vein,
ample protection is given to the mortgagor under such a
concept so that in the event of death; the mortgage
obligation will be extinguished by the application of the
insurance proceeds to the mortgage indebtedness.
Consequently, where the mortgagor pays the insurance
premium under the group insurance policy, making the
loss payable to the mortgagee, the insurance is on the
mortgagor's interest, and the mortgagor continues to be
a party to the contract. In this type of policy insurance,
the mortgagee is simply an appointee of the insurance
fund, such loss-payable clause does not make the
mortgagee a party to the contract.
2. ID.; ID.; ID.; INSURED MAY BE REGARDED AS REAL
PARTY IN INTEREST, ALTHOUGH HE HAS ASSIGNED
THE POLICY FOR PURPOSE OF COLLECTION, OR HAS
ASSIGNED AS COLLATERAL SECURITY ANY JUDGMENT
HE MAY OBTAIN. — The insured private respondent did
not cede to the mortgagee all his rights or interests in
the insurance, the policy stating that: "In the event of the
debtor's death before his indebtedness with the Creditor
[DBP] shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the
creditor and the balance of sum assured, if there is any,
shall then be paid to the beneficiary/ies designated by
the debtor." When DBP submitted the insurance claim
against petitioner, the latter denied payment thereof,
interposing the defense of concealment committed by
the insured. Thereafter, DBP collected the debt from the
mortgagor and took the necessary action of foreclosure
on the residential lot of private respondent. In Gonzales
La O vs. Yek Tong Lin Fire & Marine Ins. Co. we held:
"Insured, being the person with whom the contract was
made, is primarily the proper person to bring suit
thereon. . . . Subject to some exceptions, insured may
thus sue, although the policy is taken wholly or in part for
the benefit of another person named or unnamed, and
although it is expressly made payable to another as his
interest may appear or otherwise. . . . Although a policy
issued to a mortgagor is taken out for the benefit of the
mortgagee and is made payable to him, yet the
mortgagor may sue thereon in his own name, especially
where the mortgagee's interest is less than the full
amount recoverable under the policy, . . . 'And in volume
33, page 82, of the same work, we read the following:
`Insured may be regarded as the real party in interest,
although he has assigned the policy for the purpose of
collection, or has assigned as collateral security any
judgment he may obtain." And since a policy of
insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable
interest or not, and such person may recover it whatever
the insured might have recovered, the widow of the
decedent Dr. Leuterio may file the suit against the
insurer, Grepalife.
3. ID.; ID.; ID.; FRAUDULENT INTENT ON THE PART OF
THE INSURED MUST BE ESTABLISHED TO ENTITLE THE
INSURER TO RESCIND THE CONTRACT. — The question
of whether there was concealment was aptly answered
by the appellate court, thus: "The insured, Dr. Leuterio,
had answered in his insurance application that he was in
good health and that he had not consulted a doctor for
any of the enumerated ailments, including hypertension;
when he died the attending physician had certified in the
death certificate that the former died of cerebral
hemorrhage, probably secondary to hypertension. From
this report, the appellant insurance company refused to
pay the insurance claim. Appellant alleged that the
insured had concealed the fact that he had hypertension.
Contrary to appellant's allegations, there was no
sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the insured's
widow who was not even sure if the medicines taken by
Dr. Leuterio were for hypertension, the appellant had not
proven nor produced any witness who could attest to Dr.
Leuterio's medical history . . . Appellant insurance
company had failed to establish that there was
concealment made by the insured, hence, it cannot
refuse payment of the claim." The fraudulent intent on
the part of the insured must be established to entitle the
insurer to rescind the contract. Misrepresentation as a
defense of the insurer to avoid liability is an affirmative
defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the
insurer. In the case at bar, the petitioner failed to clearly
and satisfactorily establish its defense, and is therefore
liable to pay the proceeds of the insurance.
DECISION
QUISUMBING, J p:
This petition for review, under Rule 45 of the Rules of
Court, assails the Decision 1 dated May 17, 1993, of the
Court of Appeals and its Resolution 2 dated January 4,
1994 in CA-G.R. CV No. 18341. The appellate court
affirmed in toto the judgment of the Misamis Oriental
Regional Trial Court, Branch 18, in an insurance claim
filed by private respondent against Great Pacific Life
Assurance Co. The dispositive portion of the trial court's
decision reads: cdphil
"WHEREFORE, judgment is rendered adjudging the
defendant GREAT PACIFIC LIFE ASSURANCE
CORPORATION as insurer under its Group policy No. G-
1907, in relation to Certification B-18558 liable and
ordered to pay to the DEVELOPMENT BANK OF THE
PHILIPPINES as creditor of the insured Dr. Wilfredo
Leuterio, the amount of EIGHTY SIX THOUSAND TWO
HUNDRED PESOS (P86,200.00); dismissing the claims
for damages, attorney's fees and litigation expenses in
the complaint and counterclaim, with costs against the
defendant and dismissing the complaint in respect to
the plaintiffs, other than the widow-beneficiary, for lack
of cause of action." 3
The facts, as found by the Court of Appeals, are as
follows: cdtai
A contract of group life insurance was executed between
petitioner Great Pacific Life Assurance Corporation
(hereinafter Grepalife) and Development Bank of the
Philippines (hereinafter DBP). Grepalife agreed to insure
the lives of eligible housing loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician
and a housing debtor of DBP applied for membership in
the group life insurance plan. In an application form, Dr.
Leuterio answered questions concerning his health
condition as follows:
"7. Have you ever had, or consulted, a physician for a
heart condition, high blood pressure, cancer, diabetes,
lung, kidney or stomach disorder or any other physical
impairment?
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good
health?
Answer: [ x ] Yes [ ] No." 4 cda
On November 15, 1983, Grepalife issued Certificate No.
B-18558, as insurance coverage of Dr. Leuterio, to the
extent of his DBP mortgage indebtedness amounting to
eighty-six thousand, two hundred (P86,200.00) pesos.
On August 6, 1984, Dr. Leuterio died due to "massive
cerebral hemorrhage." Consequently, DBP submitted a
death claim to Grepalife. Grepalife denied the claim
alleging that Dr. Leuterio was not physically healthy
when he applied for an insurance coverage on November
15, 1983. Grepalife insisted that Dr. Leuterio did not
disclose he had been suffering from hypertension, which
caused his death. Allegedly, such non-disclosure
constituted concealment that justified the denial of the
claim.
On October 20, 1986, the widow of the late Dr. Leuterio,
respondent Medarda V. Leuterio, filed a complaint with
the Regional Trial Court of Misamis Oriental, Branch 18,
against Grepalife for "Specific Performance with
Damages." 5 During the trial, Dr. Hernando Mejia, who
issued the death certificate, was called to testify. Dr.
Mejia's findings, based partly from the information given
by the respondent widow, stated that Dr. Leuterio
complained of headaches presumably due to high blood
pressure. The inference was not conclusive because Dr.
Leuterio was not autopsied, hence, other causes were
not ruled out. cdtai
On February 22, 1988, the trial court rendered a decision
in favor of respondent widow and against Grepalife. On
May 17, 1993, the Court of Appeals sustained the trial
court's decision. Hence, the present petition. Petitioners
interposed the following assigned errors:
"1. THE LOWER COURT ERRED IN HOLDING
DEFENDANT-APPELLANT LIABLE TO THE
DEVELOPMENT BANK OF THE PHILIPPINES (DBP)
WHICH IS NOT A PARTY TO THE CASE FOR PAYMENT
OF THE PROCEEDS OF A MORTGAGE REDEMPTION
INSURANCE ON THE LIFE OF PLAINTIFF'S HUSBAND
WILFREDO LEUTERIO ONE OF ITS LOAN BORROWERS,
INSTEAD OF DISMISSING THE CASE AGAINST
DEFENDANT-APPELLANT [Petitioner Grepalife] FOR
LACK OF CAUSE OF ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING THE
CASE FOR WANT OF JURISDICTION OVER THE
SUBJECT OR NATURE OF THE ACTION AND OVER THE
PERSON OF THE DEFENDANT.
3. THE LOWER COURT ERRED IN ORDERING
DEFENDANT-APPELLANT TO PAY TO DBP THE
AMOUNT OF P86,200.00 IN THE ABSENCE OF ANY
EVIDENCE TO SHOW HOW MUCH WAS THE ACTUAL
AMOUNT PAYABLE TO DBP IN ACCORDANCE WITH ITS
GROUP INSURANCE CONTRACT WITH DEFENDANT-
APPELLANT. dctai
4. THE LOWER COURT ERRED IN HOLDING THAT THERE
WAS NO CONCEALMENT OF MATERIAL INFORMATION
ON THE PART OF WILFREDO LEUTERIO IN HIS
APPLICATION FOR MEMBERSHIP IN THE GROUP LIFE
INSURANCE PLAN BETWEEN DEFENDANT-APPELLANT
OF THE INSURANCE CLAIM ARISING FROM THE DEATH
OF WILFREDO LEUTERIO." 6
Synthesized below are the assigned errors for our
resolution:
1. Whether the Court of Appeals erred in holding
petitioner liable to DBP as beneficiary in a group life
insurance contract from a complaint filed by the widow
of the decedent/mortgagor?
2. Whether the Court of Appeals erred in not finding that
Dr. Leuterio concealed that he had hypertension, which
would vitiate the insurance contract?
3. Whether the Court of Appeals erred in holding
Grepalife liable in the amount of eighty six thousand, two
hundred (P86,200.00) pesos without proof of the actual
outstanding mortgage payable by the mortgagor to DBP.
Petitioner alleges that the complaint was instituted by
the widow of Dr. Leuterio, not the real party in interest,
hence the trial court acquired no jurisdiction over the
case. It argues that when the Court of Appeals affirmed
the trial court's judgment, Grepalife was held liable to
pay the proceeds of insurance contract in favor of DBP,
the indispensable party who was not joined in the suit.
prcd
To resolve the issue, we must consider the insurable
interest in mortgaged properties and the parties to this
type of contract. The rationale of a group insurance
policy of mortgagors, otherwise known as the "mortgage
redemption insurance," is a device for the protection of
both the mortgagee and the mortgagor. On the part of
the mortgagee, it has to enter into such form of contract
so that in the event of the unexpected demise of the
mortgagor during the subsistence of the mortgage
contract, the proceeds from such insurance will be
applied to the payment of the mortgage debt, thereby
relieving the heirs of the mortgagor from paying the
obligation. 7 In a similar vein, ample protection is given
to the mortgagor under such a concept so that in the
event of death; the mortgage obligation will be
extinguished by the application of the insurance
proceeds to the mortgage indebtedness. 8 amount recoverable under the policy, . . . .'
Consequently, where the mortgagor pays the insurance
premium under the group insurance policy, making the
loss payable to the mortgagee, the insurance is on the
mortgagor's interest, and the mortgagor continues to be
a party to the contract. In this type of policy insurance,
the mortgagee is simply an appointee of the insurance
fund, such loss-payable clause does not make the
mortgagee a party to the contract. 9
Section 8 of the Insurance Code provides:
"Unless the policy provides, where a mortgagor of
property effects insurance in his own name providing
that the loss shall be payable to the mortgagee, or
assigns a policy of insurance to a mortgagee, the
insurance is deemed to be upon the interest of the
mortgagor, who does not cease to be a party to the
original contract, and any act of his, prior to the loss,
which would otherwise avoid the insurance, will have the
same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of
insurance, is to be performed by the mortgagor, may be
performed by the mortgagee therein named, with the
same effect as if it had been performed by the
mortgagor." prcd
The insured private respondent did not cede to the
mortgagee all his rights or interests in the insurance, the
policy stating that: "In the event of the debtor's death
before his indebtedness with the Creditor [DBP] shall
have been fully paid, an amount to pay the outstanding
indebtedness shall first be paid to the creditor and the
balance of sum assured, if there is any, shall then be
paid to the beneficiary/ies designated by the debtor." 10
When DBP submitted the insurance claim against
petitioner, the latter denied payment thereof, interposing
the defense of concealment committed by the insured.
Thereafter, DBP collected the debt from the mortgagor
and took the necessary action of foreclosure on the
residential lot of private respondent. 11 In Gonzales La O
vs. Yek Tong Lin Fire & Marine Ins. Co. 12 we held:
"Insured, being the person with whom the contract was
made, is primarily the proper person to bring suit
thereon. . . . Subject to some exceptions, insured may
thus sue, although the policy is taken wholly or in part for
the benefit of another person named or unnamed, and
although it is expressly made payable to another as his
interest may appear or otherwise. . . . Although a policy
issued to a mortgagor is taken out for the benefit of the
mortgagee and is made payable to him, yet the
mortgagor may sue thereon in his own name, especially
where the mortgagee's interest is less than the full
And in volume 33, page 82, of the same work, we read
the following:
'Insured may be regarded as the real party in interest,
although he has assigned the policy for the purpose of
collection, or has assigned as collateral security any
judgment he may obtain." 13 Cdpr
And since a policy of insurance upon life or health may
pass by transfer, will or succession to any person,
whether he has an insurable interest or not, and such
person may recover it whatever the insured might have
recovered, 14 the widow of the decedent Dr. Leuterio
may file the suit against the insurer, Grepalife.
The second assigned error refers to an alleged
concealment that the petitioner interposed as its
defense to annul the insurance contract. Petitioner
contends that Dr. Leuterio failed to disclose that he had
hypertension, which might have caused his death.
Concealment exists where the assured had knowledge
of a fact material to the risk, and honesty, good faith, and
fair dealing requires that he should communicate it to
the assured, but he designedly and intentionally
withholds the same. 15
Petitioner merely relied on the testimony of the attending
physician, Dr. Hernando Mejia, as supported by the
information given by the widow of the decedent.
Grepalife asserts that Dr. Mejia's technical diagnosis of
the cause of death of Dr. Leuterio was a duly
documented hospital record, and that the widow's
declaration that her husband had "possible hypertension
several years ago" should not be considered as hearsay,
but as part of res gestae.
On the contrary the medical findings were not conclusive
because Dr. Mejia did not conduct an autopsy on the
body of the decedent. As the attending physician, Dr.
Mejia stated that he had no knowledge of Dr. Leuterio's
any previous hospital confinement. 16 Dr. Leuterio's
death certificate stated that hypertension was only "the
possible cause of death." The private respondent's
statement, as to the medical history of her husband, was
due to her unreliable recollection of events. Hence, the
statement of the physician was properly considered by
the trial court as hearsay. cdtai
The question of whether there was concealment was
aptly answered by the appellate court, thus:
"The insured, Dr. Leuterio, had answered in his insurance
application that he was in good health and that he had
not consulted a doctor or any of the enumerated
ailments, including hypertension; when he died the
attending physician had certified in the death certificate
that the former died of cerebral hemorrhage, probably
secondary to hypertension. From this report, the
appellant insurance company refused to pay the
insurance claim. Appellant alleged that the insured had
concealed the fact that he had hypertension.
Contrary to appellant's allegations, there was no
sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the insured's
widow who was not even sure if the medicines taken by
Dr. Leuterio were for hypertension, the appellant had not
proven nor produced any witness who could attest to Dr.
Leuterio's medical history. . .
xxx xxx xxx
Appellant insurance company had failed to establish that
there was concealment made by the insured, hence, it
cannot refuse payment of the claim." 17 prcd
The fraudulent intent on the part of the insured must be
established to entitle the insurer to rescind the contract.
18 Misrepresentation as a defense of the insurer to
avoid liability is an affirmative defense and the duty to
establish such defense by satisfactory and convincing
evidence rests upon the insurer. 19 In the case at bar,
the petitioner failed to clearly and satisfactorily establish
its defense, and is therefore liable to pay the proceeds of
the insurance.
And that brings us to the last point in the review of the
case at bar. Petitioner claims that there was no evidence
as to the amount of Dr. Leuterio's outstanding
indebtedness to DBP at the time of the mortgagor's
death. Hence, for private respondent's failure to
establish the same, the action for specific performance
should be dismissed. Petitioner's claim is without merit.
A life insurance policy is a valued policy. 20 Unless the
interest of a person insured is susceptible of exact
pecuniary measurement, the measure of indemnity
under a policy of insurance upon life or health is the sum
fixed in the policy. 21 The mortgagor paid the premium
according to the coverage of his insurance, which states
that:
"The policy states that upon receipt of due proof of the
Debtor's death during the terms of this insurance, a
death benefit in the amount of P86,200.00 shall be paid.
cda
In the event of the debtor's death before his
indebtedness with the creditor shall have been fully paid,
an amount to pay the outstanding indebtedness shall
first be paid to the Creditor and the balance of the Sum
Assured, if there is any shall then be paid to the
beneficiary/ies designated by the debtor." 22 (Emphasis
omitted)
However, we noted that the Court of Appeals' decision
was promulgated on May 17, 1993. In private
respondent's memorandum, she states that DBP
foreclosed in 1995 their residential lot, in satisfaction of
mortgagor's outstanding loan. Considering this
supervening event, the insurance proceeds shall inure to
the benefit of the heirs of the deceased person or his
beneficiaries. Equity dictates that DBP should not
unjustly enrich itself at the expense of another (Nemo
cum alterius detrimenio protest). Hence, it cannot collect
the insurance proceeds, after it already foreclosed on the
mortgage. The proceeds now rightly belong to Dr.
Leuterio's heirs represented by his widow, herein private
respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The
Decision and Resolution of the Court of Appeals in CA-
G.R. CV 18341 is AFFIRMED with MODIFICATION that
the petitioner is ORDERED to pay the insurance proceeds
amounting to Eighty-six thousand, two hundred
(P86,200.00) pesos to the heirs of the insured, Dr.
Wilfredo Leuterio (deceased), upon presentation of proof
of prior settlement of mortgagor's indebtedness to
Development Bank of the Philippines. Costs against
petitioner. LLjur
SO ORDERED.
||| (Great Pacific Life Assurance Corp. v. Court of
Appeals, G.R. No. 113899, [October 13, 1999], 375 PHIL
142-153)
FIRST DIVISION
[G.R. No. 125678. March 18, 2002.]
PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs.
COURT OF APPEALS and JULITA TRINOS, respondents.
Alvin B. Cunada for petitioner.
Ronald O. Layawen for private respondent.
SYNOPSIS
Ernani Trinos, deceased husband of respondent Julita
Trinos, was issued a Health Care Agreement for a health
coverage with petitioner. During the period of his
coverage, he suffered a heart attack and was confined in
the hospital. Respondent tried to claim the benefits
under the health care agreement, but petitioner denied
her claim. Thus, respondent paid the hospitalization
expenses herself.
Respondent then filed with the RTC an action for
damages against petitioner and its president, Dr. Benito
Reverente. The court ruled in favor of Julita and awarded
damages. On appeal, the Court of Appeals affirmed the
decision of the trial court but deleted all awards for
damages and absolved petitioner Reverente. Hence,
petitioner brought the instant petition for review, raising
the primary argument that a health care agreement is
not an insurance contract. IAaCST
In affirming the decision of the Court of Appeals, the
Supreme Court ruled that an insurance contract exists
when the following elements concur: (1) the insured has
an insurable interest; (2) the insured is subject to a risk
of loss by the happening of the designated peril; (3) the
insurer assumes the risk; (4) such assumption of risk is
part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk;
and (5) in consideration of the insurer's promise, the
insured pays a premium.
The health care agreement was in the nature of a non-
life insurance, which is primarily a contract of indemnity.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE LAW; CONTRACT OF
INSURANCE; DEFINED. — Section 2 (1) of the Insurance
Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an
unknown or contingent event.
2. ID.; ID.; ID.; ELEMENTS. — An insurance contract exists
where the following elements concur: 1. The insured has
an insurable interest; 2. The insured is subject to a risk
of loss by the happening of the designated peril; 3. The
insurer assumes the risk; 4. Such assumption of risk is
part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk;
and 5. In consideration of the insurer's promise, the
insured pays a premium.
3. ID.; ID.; ID.; INSURABLE INTEREST, CONSTRUED; CASE
AT BAR. — Section 3 of the Insurance Code states that
any contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest
against him, may be insured against. Every person has
an insurable interest in the life and health of himself.
Section 10 provides: "Every person has an insurable
interest in the life and health: (1) of himself, of his
spouse and of his children; (2) of any person on whom
he depends wholly or in part for education or support, or
in whom he has a pecuniary interest; (3) of any person
under a legal obligation to him for the payment of
money, respecting property or service, of which death or
illness might delay or prevent the performance; and (4)
of any person upon whose life any estate or interest
vested in him depends." In the case at bar, the insurable
interest of 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.
4. ID.; ID.; ID.; CONCEALMENT; AVOIDS A POLICY;
EXCEPTION; CASE AT BAR. — 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 in good faith and without intent to
deceive will not avoid a policy even though they are
untrue. Thus, "(A)lthough false, a representation of the
expectation, intention, belief, opinion, or judgment of the
insured will not avoid the policy if there is no actual fraud
in inducing the acceptance of the risk, or its acceptance
at a lower rate of premium, and this is likewise the rule
although the statement is material to the risk, if the
statement is obviously of the foregoing character, since
in such case the insurer is not justified in relying upon
such statement, but is obligated to make further inquiry.
There is a clear distinction between such a case and one
in which the insured is fraudulently and intentionally
states to be true, as a matter of expectation or belief,
that which he then knows, to be actually untrue, or the
impossibility of which is shown by the facts within his
knowledge, since in such case the intent to deceive the
insurer is obvious and amounts to actual fraud." CAacTH
5. ID.; ID.; ID.; ID.; MUST BE ESTABLISHED BY
SATISFACTORY AND CONVINCING EVIDENCE BY
INSURER. — 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.
6. ID.; ID.; ID.; HEALTH CARE AGREEMENT; HEALTH
CARE PROVIDER, WHEN LIABLE; CASE AT BAR. — In any
case, with or without the authority to investigate,
petitioner is liable for claims made under the contract.
Having assumed a responsibility under the agreement,
petitioner is bound to answer the same to the extent
agreed upon. In the end, the liability of the health care
provider attaches once the member is hospitalized for
the disease or injury covered by the agreement or
whenever he avails of the covered benefits which he has
prepaid.
7. ID.; ID.; ID.; RESCISSION OF; CONDITIONS; NOT
FULFILLED IN CASE AT BAR. — Under Section 27 of the
Insurance Code, "a concealment entitles the injured party
to rescind a contract of insurance." The right to rescind
should be exercised previous to the commencement of
an action on the contract. In this case, no rescission was
made. Besides, the cancellation of health care
agreements as in insurance policies require the
concurrence of the following conditions: 1. Prior notice
of cancellation to insured; 2. Notice must be based on
the occurrence after effective date of the policy of one or
more of the grounds mentioned; 3. Must be in writing,
mailed or delivered to the insured at the address shown
in the policy; 4. Must state the grounds relied upon
provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation
is based. None of the above pre-conditions was fulfilled
in this case.
8. ID.; ID.; ID.; TERMS AND PHRASEOLOGY CONTAINED
THEREIN MUST BE STRICTLY INTERPRETED AGAINST
THE INSURER AND LIBERALLY IN FAVOR OF THE
INSURED; CASE AT BAR. — When the terms of insurance
contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer
from non-compliance with his obligation. 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. The phraseology used in medical or
hospital service contracts, such as the one at bar, must
be liberally construed in favor of the subscriber, and if
doubtful or reasonably susceptible of two interpretations
the construction conferring coverage is to be adopted,
and exclusionary clauses of doubtful import should be
strictly construed against the provider.
DECISION
YNARES-SANTIAGO, J p:
Ernani Trinos, deceased husband of respondent Julita
Trinos, applied for a health care coverage with petitioner
Philamcare Health Systems, Inc. In the standard
application form, he answered no to the following
question:
Have you or any of your family members ever consulted
or been treated for high blood pressure, heart trouble,
diabetes, cancer, liver disease, asthma or peptic ulcer?
(If Yes, give details). 1
The application was approved for a period of one year
from March 1, 1988 to March 1, 1989. Accordingly, he
was issued Health Care Agreement No. P010194. Under
the agreement, respondent's husband was entitled to
avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of
"out-patient benefits" such as annual physical
examinations, preventive health care and other out-
patient services.
Upon the termination of the agreement, the same was
extended for another year from March 1, 1989 to March
1, 1990, then from March 1, 1990 to June 1, 1990. The
amount of coverage was increased to a maximum sum
of P75,000.00 per disability. 2
During the period of his coverage, Ernani suffered a heart
attack and was confined at the Manila Medical Center
(MMC) for one month beginning March 9, 1990. While
her husband was in the hospital, respondent tried to
claim the benefits under the health care agreement.
However, petitioner denied her claim saying that the
Health Care Agreement was void. According to
petitioner, there was a concealment regarding Ernani's
medical history. Doctors at the MMC allegedly
discovered at the time of Ernani's confinement that he
was hypertensive, diabetic and asthmatic, contrary to his
answer in the application form. Thus, respondent paid
the hospitalization expenses herself, amounting to about
P76,000.00.
After her husband was discharged from the MMC, he
was attended by a physical therapist at home. Later, he
was admitted at the Chinese General Hospital. Due to
financial difficulties, however, respondent brought her
husband home again. In the morning of April 13, 1990,
Ernani had fever and was feeling very weak. Respondent
was constrained to bring him back to the Chinese
General Hospital where he died on the same day.
THcaDA
On July 24, 1990, respondent instituted with the Regional
Trial Court of Manila, Branch 44, an action for damages
against petitioner and its president, Dr. Benito Reverente,
which was docketed as Civil Case No. 90-53795. She
asked for reimbursement of her expenses plus moral
damages and attorney's fees. After trial, the lower court
ruled against petitioners, viz:
WHEREFORE, in view of the foregoing, the Court renders
judgment in favor of the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and
hospital coverage of the late Ernani Trinos in the amount
of P76,000.00 plus interest, until the amount is fully paid
to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral
damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00
as exemplary damages to plaintiff;
4. Defendants to pay attorney's fees of P20,000.00, plus
costs of suit.
SO ORDERED. 3
On appeal, the Court of Appeals affirmed the decision of
the trial court but deleted all awards for damages and
absolved petitioner Reverente. 4 Petitioner's motion for
reconsideration was denied. 5 Hence, petitioner brought
the instant petition for review, raising the primary
argument that a health care agreement is not an
insurance contract; hence the "incontestability clause"
under the Insurance Code 6 does not apply.
Petitioner argues that the agreement grants "living
benefits," such as medical check-ups and hospitalization
which a member may immediately enjoy so long as he is
alive upon effectivity of the agreement until its expiration
one-year thereafter. Petitioner also points out that only
medical and hospitalization benefits are given under the
agreement without any indemnification, unlike in an
insurance contract where the insured is indemnified for
his loss. Moreover, since Health Care Agreements are
only for a period of one year, as compared to insurance
contracts which last longer, 7 petitioner argues that the
incontestability clause does not apply, as the same
requires an effectivity period of at least two years.
Petitioner further argues that it is not an insurance
company, which is governed by the Insurance
Commission, but a Health Maintenance Organization
under the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of
insurance as an agreement whereby one undertakes for
a consideration to indemnify another against loss,
damage or liability arising from an unknown or
contingent event. An insurance contract exists where the
following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the
happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme
to distribute actual losses among a large group of
persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured
pays a premium. 8
Section 3 of the Insurance Code states that any
contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest
against him, may be insured against. Every person has
an insurable interest in the life and health of himself.
Section 10 provides:
Every person has an insurable interest in the life and
health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part
for education or support, or in whom he has a pecuniary
interest;
(3) of any person under a legal obligation to him for the
payment of money, respecting property or service, of
which death or illness might delay or prevent the
performance; and
(4) of any person upon whose life any estate or interest
vested in him depends.
In the case at bar, the insurable interest of 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. 9 Once the member incurs hospital, medical
or any other expense arising from sickness, injury or
other stipulated contingent, the health care provider
must pay for the same to the extent agreed upon under
the contract. cDTHIE
Petitioner argues that respondent's husband concealed
a material fact in his application. It appears that in the
application for health coverage, petitioners required
respondent's husband to sign an express authorization
for any person, organization or entity that has any record
or knowledge of his health to furnish any and all
information relative to any hospitalization, consultation,
treatment or any other medical advice or examination.
10 Specifically, the Health Care Agreement signed by
respondent's husband states:
We hereby declare and agree that all statement and
answers contained herein and in any addendum annexed
to this application are full, complete and true and bind all
parties-in-interest under the Agreement herein applied
for, that there shall be no contract of health care
coverage unless and until an Agreement is issued on this
application and the full Membership Fee according to
the mode of payment applied for is actually paid during
the lifetime and good health of proposed Members; that
no information acquired by any Representative of
PhilamCare shall be binding upon PhilamCare unless set
out in writing in the application; that any physician is, by
these presents, expressly authorized to disclose or give
testimony at anytime relative to any information
acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage
of the Proposed Members and that the acceptance of
any Agreement issued on this application shall be a
ratification of any correction in or addition to this
application as stated in the space for Home Office
Endorsement. 11 (Emphasis ours)
In addition to the above condition, petitioner additionally
required the applicant for authorization to inquire about
the applicant's medical history, thus:
I hereby authorize any person, organization, or entity that
has any record or knowledge of my health and/or that of
________ to give to the PhilamCare Health Systems, Inc.
any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or
examination. This authorization is in connection with the
application for health care coverage only. A
photographic copy of this authorization shall be as valid
as the original. 12 (Emphasis ours)
Petitioner cannot rely on the stipulation regarding
"Invalidation of Agreement" which reads:
Failure to disclose or misrepresentation of any material
information by the member in the application or medical
examination, whether intentional or unintentional, shall
automatically invalidate the Agreement from the very
beginning and liability of Philamcare shall be limited to
return of all Membership Fees paid. An undisclosed or
misrepresented information is deemed material if its
revelation would have resulted in the declination of the
applicant by Philamcare or the assessment of a higher
Membership Fee for the benefit or benefits applied for.
13
The answer assailed by petitioner was in response to the
question relating to the medical history of the applicant.
This largely depends on opinion rather than fact,
especially coming from respondent's husband who was
not a medical doctor. Where matters of opinion or
judgment are called for, answers made in good faith and
without intent to deceive will not avoid a policy even
though they are untrue. 14 Thus,
(A)lthough false, a representation of the expectation,
intention, belief, opinion, or judgment of the insured will
not avoid the policy if there is no actual fraud in inducing
the acceptance of the risk, or its acceptance at a lower
rate of premium, and this is likewise the rule although
the statement is material to the risk, if the statement is
obviously of the foregoing character, since in such case
the insurer is not justified in relying upon such
statement, but is obligated to make further inquiry. There
is a clear distinction between such a case and one in
which the insured is fraudulently and intentionally states
to be true, as a matter of expectation or belief, that
which he then knows, to be actually untrue, or the
impossibility of which is shown by the facts within his
knowledge, since in such case the intent to deceive the
insurer is obvious and amounts to actual fraud. 15
(Emphasis ours)
The fraudulent intent on the part of the insured must be
established to warrant rescission of the insurance
contract. 16 Concealment as a defense for the health
care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the
provider or insurer. In any case, with or without the
authority to investigate, petitioner is liable for claims
made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound
to answer the same to the extent agreed upon. In the
end, the liability of the health care provider attaches
once the member is hospitalized for the disease or injury
covered by the agreement or whenever he avails of the
covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment
entitles the injured party to rescind a contract of
insurance." The right to rescind should be exercised
previous to the commencement of an action on the
contract. 17 In this case, no rescission was made.
Besides, the cancellation of health care agreements as
in insurance policies require the concurrence of the
following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after
effective date of the policy of one or more of the
grounds mentioned;
3. Must be in writing, mailed or delivered to the insured
at the address shown in the policy;
4. Must state the grounds relied upon provided in
Section 64 of the Insurance Code and upon request of
insured, to furnish facts on which cancellation is based.
18
None of the above pre-conditions was fulfilled in this
case. When the terms of insurance contract contain
limitations on liability, courts should construe them in
such a way as to preclude the insurer from non-
compliance with his obligation. 19 Being a contract of
adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the
contract — the insurer. 20 By reason of the exclusive
control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must
be strictly interpreted against the insurer and liberally in
favor of the insured, especially to avoid forfeiture. 21
This is equally applicable to Health Care Agreements.
The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally
construed in favor of the subscriber, and if doubtful or
reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and
exclusionary clauses of doubtful import should be
strictly construed against the provider. 22
Anent the incontestability of the membership of
respondent's husband, we quote with approval the
following findings of the trial court:
(U)nder the title Claim procedures of expenses, the
defendant Philamcare Health Systems Inc. had twelve
months from the date of issuance of the Agreement
within which to contest the membership of the patient if
he had previous ailment of asthma, and six months from
the issuance of the agreement if the patient was sick of
diabetes or hypertension. The periods having expired,
the defense of concealment or misrepresentation no
longer lie. 23
Finally, petitioner alleges that respondent was not the
legal wife of the deceased member considering that at
the time of their marriage, the deceased was previously
married to another woman who was still alive. The
health care agreement is in the nature of a contract of
indemnity. Hence, payment should be made to the party
who incurred the expenses. It is not controverted that
respondent paid all the hospital and medical expenses.
She is therefore entitled to reimbursement. The records
adequately prove the expenses incurred by respondent
for the deceased's hospitalization, medication and the
professional fees of the attending physicians. 24
WHEREFORE, in view of the foregoing, the petition is
DENIED. The assailed decision of the Court of Appeals
dated December 14, 1995 is AFFIRMED.
SO ORDERED.
||| (Philamcare Health Systems, Inc. v. Court of Appeals,
G.R. No. 125678, [March 18, 2002], 429 PHIL 82-95)
FIRST DIVISION

[G.R. No. 125678. March 18, 2002.]
PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs.
COURT OF APPEALS and JULITA TRINOS, respondents.
Alvin B. Cunada for petitioner.
Ronald O. Layawen for private respondent.
SYNOPSIS
Ernani Trinos, deceased husband of respondent Julita
Trinos, was issued a Health Care Agreement for a health
coverage with petitioner. During the period of his
coverage, he suffered a heart attack and was confined in
the hospital. Respondent tried to claim the benefits
under the health care agreement, but petitioner denied
her claim. Thus, respondent paid the hospitalization
expenses herself.
Respondent then filed with the RTC an action for
damages against petitioner and its president, Dr. Benito
Reverente. The court ruled in favor of Julita and awarded
damages. On appeal, the Court of Appeals affirmed the
decision of the trial court but deleted all awards for
damages and absolved petitioner Reverente. Hence,
petitioner brought the instant petition for review, raising
the primary argument that a health care agreement is
not an insurance contract. IAaCST
In affirming the decision of the Court of Appeals, the
Supreme Court ruled that an insurance contract exists
when the following elements concur: (1) the insured has
an insurable interest; (2) the insured is subject to a risk
of loss by the happening of the designated peril; (3) the
insurer assumes the risk; (4) such assumption of risk is
part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk;
and (5) in consideration of the insurer's promise, the
insured pays a premium.
The health care agreement was in the nature of a non-
life insurance, which is primarily a contract of indemnity.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE LAW; CONTRACT OF
INSURANCE; DEFINED. — Section 2 (1) of the Insurance
Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an
unknown or contingent event.
2. ID.; ID.; ID.; ELEMENTS. — An insurance contract exists
where the following elements concur: 1. The insured has
an insurable interest; 2. The insured is subject to a risk
of loss by the happening of the designated peril; 3. The
insurer assumes the risk; 4. Such assumption of risk is
part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk;
and 5. In consideration of the insurer's promise, the
insured pays a premium.
3. ID.; ID.; ID.; INSURABLE INTEREST, CONSTRUED; CASE
AT BAR. — Section 3 of the Insurance Code states that
any contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest
against him, may be insured against. Every person has
an insurable interest in the life and health of himself.
Section 10 provides: "Every person has an insurable
interest in the life and health: (1) of himself, of his
spouse and of his children; (2) of any person on whom
he depends wholly or in part for education or support, or
in whom he has a pecuniary interest; (3) of any person
under a legal obligation to him for the payment of
money, respecting property or service, of which death or
illness might delay or prevent the performance; and (4)
of any person upon whose life any estate or interest
vested in him depends." In the case at bar, the insurable
interest of 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.
4. ID.; ID.; ID.; CONCEALMENT; AVOIDS A POLICY;
EXCEPTION; CASE AT BAR. — 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 in good faith and without intent to
deceive will not avoid a policy even though they are
untrue. Thus, "(A)lthough false, a representation of the
expectation, intention, belief, opinion, or judgment of the
insured will not avoid the policy if there is no actual fraud
in inducing the acceptance of the risk, or its acceptance
at a lower rate of premium, and this is likewise the rule
although the statement is material to the risk, if the
statement is obviously of the foregoing character, since
in such case the insurer is not justified in relying upon
such statement, but is obligated to make further inquiry.
There is a clear distinction between such a case and one
in which the insured is fraudulently and intentionally
states to be true, as a matter of expectation or belief,
that which he then knows, to be actually untrue, or the
impossibility of which is shown by the facts within his
knowledge, since in such case the intent to deceive the
insurer is obvious and amounts to actual fraud." CAacTH
5. ID.; ID.; ID.; ID.; MUST BE ESTABLISHED BY
SATISFACTORY AND CONVINCING EVIDENCE BY
INSURER. — 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.
6. ID.; ID.; ID.; HEALTH CARE AGREEMENT; HEALTH
CARE PROVIDER, WHEN LIABLE; CASE AT BAR. — In any
case, with or without the authority to investigate,
petitioner is liable for claims made under the contract.
Having assumed a responsibility under the agreement,
petitioner is bound to answer the same to the extent
agreed upon. In the end, the liability of the health care
provider attaches once the member is hospitalized for
the disease or injury covered by the agreement or
whenever he avails of the covered benefits which he has
prepaid.
7. ID.; ID.; ID.; RESCISSION OF; CONDITIONS; NOT
FULFILLED IN CASE AT BAR. — Under Section 27 of the
Insurance Code, "a concealment entitles the injured party
to rescind a contract of insurance." The right to rescind
should be exercised previous to the commencement of
an action on the contract. In this case, no rescission was
made. Besides, the cancellation of health care
agreements as in insurance policies require the
concurrence of the following conditions: 1. Prior notice
of cancellation to insured; 2. Notice must be based on
the occurrence after effective date of the policy of one or
more of the grounds mentioned; 3. Must be in writing,
mailed or delivered to the insured at the address shown
in the policy; 4. Must state the grounds relied upon
provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation
is based. None of the above pre-conditions was fulfilled
in this case.
8. ID.; ID.; ID.; TERMS AND PHRASEOLOGY CONTAINED
THEREIN MUST BE STRICTLY INTERPRETED AGAINST
THE INSURER AND LIBERALLY IN FAVOR OF THE
INSURED; CASE AT BAR. — When the terms of insurance
contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer
from non-compliance with his obligation. 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. The phraseology used in medical or
hospital service contracts, such as the one at bar, must
be liberally construed in favor of the subscriber, and if
doubtful or reasonably susceptible of two interpretations
the construction conferring coverage is to be adopted,
and exclusionary clauses of doubtful import should be
strictly construed against the provider.
DECISION
YNARES-SANTIAGO, J p:
Ernani Trinos, deceased husband of respondent Julita
Trinos, applied for a health care coverage with petitioner
Philamcare Health Systems, Inc. In the standard
application form, he answered no to the following
question:
Have you or any of your family members ever consulted
or been treated for high blood pressure, heart trouble,
diabetes, cancer, liver disease, asthma or peptic ulcer?
(If Yes, give details). 1
The application was approved for a period of one year
from March 1, 1988 to March 1, 1989. Accordingly, he
was issued Health Care Agreement No. P010194. Under
the agreement, respondent's husband was entitled to
avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of
"out-patient benefits" such as annual physical
examinations, preventive health care and other out-
patient services.
Upon the termination of the agreement, the same was
extended for another year from March 1, 1989 to March
1, 1990, then from March 1, 1990 to June 1, 1990. The
amount of coverage was increased to a maximum sum
of P75,000.00 per disability. 2
During the period of his coverage, Ernani suffered a heart
attack and was confined at the Manila Medical Center
(MMC) for one month beginning March 9, 1990. While
her husband was in the hospital, respondent tried to
claim the benefits under the health care agreement.
However, petitioner denied her claim saying that the
Health Care Agreement was void. According to
petitioner, there was a concealment regarding Ernani's
medical history. Doctors at the MMC allegedly
discovered at the time of Ernani's confinement that he
was hypertensive, diabetic and asthmatic, contrary to his
answer in the application form. Thus, respondent paid
the hospitalization expenses herself, amounting to about
P76,000.00.
After her husband was discharged from the MMC, he
was attended by a physical therapist at home. Later, he
was admitted at the Chinese General Hospital. Due to
financial difficulties, however, respondent brought her
husband home again. In the morning of April 13, 1990,
Ernani had fever and was feeling very weak. Respondent
was constrained to bring him back to the Chinese
General Hospital where he died on the same day.
THcaDA
On July 24, 1990, respondent instituted with the Regional
Trial Court of Manila, Branch 44, an action for damages
against petitioner and its president, Dr. Benito Reverente,
which was docketed as Civil Case No. 90-53795. She
asked for reimbursement of her expenses plus moral
damages and attorney's fees. After trial, the lower court
ruled against petitioners, viz:
WHEREFORE, in view of the foregoing, the Court renders
judgment in favor of the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and
hospital coverage of the late Ernani Trinos in the amount
of P76,000.00 plus interest, until the amount is fully paid
to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral
damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00
as exemplary damages to plaintiff;
4. Defendants to pay attorney's fees of P20,000.00, plus
costs of suit.
SO ORDERED. 3
On appeal, the Court of Appeals affirmed the decision of
the trial court but deleted all awards for damages and
absolved petitioner Reverente. 4 Petitioner's motion for
reconsideration was denied. 5 Hence, petitioner brought
the instant petition for review, raising the primary
argument that a health care agreement is not an
insurance contract; hence the "incontestability clause"
under the Insurance Code 6 does not apply.
Petitioner argues that the agreement grants "living
benefits," such as medical check-ups and hospitalization
which a member may immediately enjoy so long as he is
alive upon effectivity of the agreement until its expiration
one-year thereafter. Petitioner also points out that only
medical and hospitalization benefits are given under the
agreement without any indemnification, unlike in an
insurance contract where the insured is indemnified for
his loss. Moreover, since Health Care Agreements are
only for a period of one year, as compared to insurance
contracts which last longer, 7 petitioner argues that the
incontestability clause does not apply, as the same
requires an effectivity period of at least two years.
Petitioner further argues that it is not an insurance
company, which is governed by the Insurance
Commission, but a Health Maintenance Organization
under the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of
insurance as an agreement whereby one undertakes for
a consideration to indemnify another against loss,
damage or liability arising from an unknown or
contingent event. An insurance contract exists where the
following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the
happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme
to distribute actual losses among a large group of
persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured
pays a premium. 8
Section 3 of the Insurance Code states that any
contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest
against him, may be insured against. Every person has
an insurable interest in the life and health of himself.
Section 10 provides:
Every person has an insurable interest in the life and
health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part
for education or support, or in whom he has a pecuniary
interest;
(3) of any person under a legal obligation to him for the
payment of money, respecting property or service, of
which death or illness might delay or prevent the
performance; and
(4) of any person upon whose life any estate or interest
vested in him depends.
In the case at bar, the insurable interest of 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. 9 Once the member incurs hospital, medical
or any other expense arising from sickness, injury or
other stipulated contingent, the health care provider
must pay for the same to the extent agreed upon under
the contract. cDTHIE
Petitioner argues that respondent's husband concealed
a material fact in his application. It appears that in the
application for health coverage, petitioners required
respondent's husband to sign an express authorization
for any person, organization or entity that has any record
or knowledge of his health to furnish any and all
information relative to any hospitalization, consultation,
treatment or any other medical advice or examination.
10 Specifically, the Health Care Agreement signed by
respondent's husband states:
We hereby declare and agree that all statement and
answers contained herein and in any addendum annexed
to this application are full, complete and true and bind all
parties-in-interest under the Agreement herein applied
for, that there shall be no contract of health care
coverage unless and until an Agreement is issued on this
application and the full Membership Fee according to
the mode of payment applied for is actually paid during
the lifetime and good health of proposed Members; that
no information acquired by any Representative of
PhilamCare shall be binding upon PhilamCare unless set
out in writing in the application; that any physician is, by
these presents, expressly authorized to disclose or give
testimony at anytime relative to any information
acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage
of the Proposed Members and that the acceptance of
any Agreement issued on this application shall be a
ratification of any correction in or addition to this
application as stated in the space for Home Office
Endorsement. 11 (Emphasis ours)
In addition to the above condition, petitioner additionally
required the applicant for authorization to inquire about
the applicant's medical history, thus:
I hereby authorize any person, organization, or entity that
has any record or knowledge of my health and/or that of
________ to give to the PhilamCare Health Systems, Inc.
any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or
examination. This authorization is in connection with the
application for health care coverage only. A
photographic copy of this authorization shall be as valid
as the original. 12 (Emphasis ours)
Petitioner cannot rely on the stipulation regarding
"Invalidation of Agreement" which reads:
Failure to disclose or misrepresentation of any material
information by the member in the application or medical
examination, whether intentional or unintentional, shall
automatically invalidate the Agreement from the very
beginning and liability of Philamcare shall be limited to
return of all Membership Fees paid. An undisclosed or
misrepresented information is deemed material if its
revelation would have resulted in the declination of the
applicant by Philamcare or the assessment of a higher
Membership Fee for the benefit or benefits applied for.
13
The answer assailed by petitioner was in response to the
question relating to the medical history of the applicant.
This largely depends on opinion rather than fact,
especially coming from respondent's husband who was
not a medical doctor. Where matters of opinion or
judgment are called for, answers made in good faith and
without intent to deceive will not avoid a policy even
though they are untrue. 14 Thus,
(A)lthough false, a representation of the expectation,
intention, belief, opinion, or judgment of the insured will
not avoid the policy if there is no actual fraud in inducing
the acceptance of the risk, or its acceptance at a lower
rate of premium, and this is likewise the rule although
the statement is material to the risk, if the statement is
obviously of the foregoing character, since in such case
the insurer is not justified in relying upon such
statement, but is obligated to make further inquiry. There
is a clear distinction between such a case and one in
which the insured is fraudulently and intentionally states
to be true, as a matter of expectation or belief, that
which he then knows, to be actually untrue, or the
impossibility of which is shown by the facts within his
knowledge, since in such case the intent to deceive the
insurer is obvious and amounts to actual fraud. 15
(Emphasis ours)
The fraudulent intent on the part of the insured must be
established to warrant rescission of the insurance
contract. 16 Concealment as a defense for the health
care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the
provider or insurer. In any case, with or without the
authority to investigate, petitioner is liable for claims
made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound
to answer the same to the extent agreed upon. In the
end, the liability of the health care provider attaches
once the member is hospitalized for the disease or injury
covered by the agreement or whenever he avails of the
covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment
entitles the injured party to rescind a contract of
insurance." The right to rescind should be exercised
previous to the commencement of an action on the
contract. 17 In this case, no rescission was made.
Besides, the cancellation of health care agreements as
in insurance policies require the concurrence of the
following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after
effective date of the policy of one or more of the
grounds mentioned;
3. Must be in writing, mailed or delivered to the insured
at the address shown in the policy;
4. Must state the grounds relied upon provided in
Section 64 of the Insurance Code and upon request of
insured, to furnish facts on which cancellation is based.
18
None of the above pre-conditions was fulfilled in this
case. When the terms of insurance contract contain
limitations on liability, courts should construe them in
such a way as to preclude the insurer from non-
compliance with his obligation. 19 Being a contract of
adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the
contract — the insurer. 20 By reason of the exclusive
control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must
be strictly interpreted against the insurer and liberally in
favor of the insured, especially to avoid forfeiture. 21
This is equally applicable to Health Care Agreements.
The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally
construed in favor of the subscriber, and if doubtful or
reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and
exclusionary clauses of doubtful import should be
strictly construed against the provider. 22
Anent the incontestability of the membership of
respondent's husband, we quote with approval the
following findings of the trial court:
(U)nder the title Claim procedures of expenses, the
defendant Philamcare Health Systems Inc. had twelve
months from the date of issuance of the Agreement
within which to contest the membership of the patient if
he had previous ailment of asthma, and six months from
the issuance of the agreement if the patient was sick of
diabetes or hypertension. The periods having expired,
the defense of concealment or misrepresentation no
longer lie. 23
Finally, petitioner alleges that respondent was not the
legal wife of the deceased member considering that at
the time of their marriage, the deceased was previously
married to another woman who was still alive. The
health care agreement is in the nature of a contract of
indemnity. Hence, payment should be made to the party
who incurred the expenses. It is not controverted that
respondent paid all the hospital and medical expenses.
She is therefore entitled to reimbursement. The records
adequately prove the expenses incurred by respondent
for the deceased's hospitalization, medication and the
professional fees of the attending physicians. 24
WHEREFORE, in view of the foregoing, the petition is
DENIED. The assailed decision of the Court of Appeals
dated December 14, 1995 is AFFIRMED.
SO ORDERED.
||| (Philamcare Health Systems, Inc. v. Court of Appeals,
G.R. No. 125678, [March 18, 2002], 429 PHIL 82-95)
Waiver of right to information of material facts
SECOND DIVISION
[G.R. No. L-30685. May 30, 1983.]
NG GAN ZEE, plaintiff-appellee, vs. ASIAN CRUSADER
LIFE ASSURANCE CORPORATION, defendant-appellant.
Alberto Q. Ubay for plaintiff-appellee.
Santiago F. Alidio for defendant-appellant.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE; CONCEALMENT;
EXISTENCE AND NATURE THEREOF. — "Concealment
exists where the assured had knowledge of a fact
material to the risk, and honesty, good faith, and fair
dealing requires that he should communicate it to the
assurer, but he designedly and intentionally withholds
me same." It has also been held "that the concealment
must, in the absence of inquiries, be not only material,
but fraudulent, or the fact must have been intentionaly
withheld."
2. ID.; ID.; INSURANCE CONTRACT; RESCISSION
THEREOF; FRAUDULENT INTENTION REQUIRED;
BURDEN OF PROOF RESTS UPON THE INSURER. —
Assuming that the aforesaid answer given by the insured
is false, as claimed by the appellant, Sec. 27 of the
Insurance Law, above-quoted, nevertheless requires that
fraudulent intent on the part of the insured be
established to entitle the insurer to rescind the contract.
And as correctly observed by the lower court,
"misrepresentation as a defense of the insurer to avoid
liability is an 'affirmative' defense. The duty to establish
such a defense by satisfactory and convincing evidence
rests upon the defendant. The evidence before the Court
does not clearly and satisfactorily establish that
defense.''
3. ID.; ID.; ID.; INSURED'S STATEMENT REGARDING HIS
AILMENT; CONSTRUED AS MADE IN GOOD FAITH IN
THE ABSENCE OF PROOF THAT HE HAD SUFFICIENT
MEDICAL KNOWLEDGE THEREOF. — It bears emphasis
that Kwong Nam had informed the appellant's medical
examiner that the tumor for which he was operated on
was "associated with ulcer of the stomach'' In the
absence of evidence that the insured had sufficient
medical knowledge as to enable him to distinguish
between "peptic ulcer" and "a tumor", his statement that
said tumor was "associated with ulcer of the stomach,"
should be construed as an expression made in good
faith of his belief as to the nature of his ailment and
operation. Indeed, such statement must be presumed to
have been made by him without knowledge of its
incorrectness and without any deliberate intent on his
part to mislead the appellant.
4. ID.; ID.; ID.; ISSUANCE OF POLICY WITHOUT FURTHER
INQUIRY AND DESPITE IMPERFECTION OF ANSWER TO
A MATERIAL QUESTION; CONSTITUTES WAIVER OF
IMPERFECTION. — It has been held that where, "upon the
face of the application, a question appears to be not
answered at all or to be imperfectly answered, and the
insurers issue a policy without any further inquiry, they
waive the imperfection of the answer and render the
omission to answer more fully immaterial." As aptly
noted by the lower court, "if the ailment and operation of
Kwong Nam had such an important bearing on the
question of whether the defendant would undertake the
insurance or not, the court cannot understand why the
defendant or its medical examiner did not make any
further inquiries on such matters from the Chinese
General Hospital or require copies of the hospital
records from the appellant before acting on the
application for insurance. The fact of the matter is that
the defendant was too eager to accept the application
and receive the insured's premium. It would be
inequitable now to allow the defendant to avoid liability
under the circumstances."
DECISION
ESCOLIN, J p:
This is an appeal from the judgment of the Court of First
Instance of Manila, ordering the appellant Asian-
Crusader Life Assurance Corporation to pay the face
value of an insurance policy issued on the life of Kwong
Nam, the deceased husband of appellee Ng Gan Zee.
Misrepresentation and concealment of material facts in
obtaining the policy were pleaded to avoid the policy.
The lower court rejected the appellant's theory and
ordered the latter to pay appellee "the amount of
P20,000.00, with interest at the legal rate from July 24,
1964, the date of the filing of the complaint, until paid,
and the costs."
The Court of Appeals certified this appeal to Us, as the
same involves solely a question of law.
On May 12, 1962, Kwong Nam applied for a 20-year
endowment insurance on his life for the sum of
P20,000.00, with his wife, appellee Ng Gan Zee, as
beneficiary. On the same date, appellant, upon receipt of
the required premium from the insured, approved the
application and issued the corresponding policy. On
December 6, 1963, Kwong Nam died of cancer of the
liver with metastasis. All premiums had been religiously
paid at the time of his death. prcd
On January 10, 1964, his widow Ng Gan Zee presented a
claim in due form to appellant for payment of the face
value of the policy. On the same date, she submitted the
required proof of death of the insured. Appellant denied
the claim on the ground that the answers given by the
insured to the questions appearing in his application for
life insurance were untrue.
Appellee brought the matter to the attention of the
Insurance Commissioner, the Hon. Francisco Y.
Mandamos, and the latter, after conducting an
investigation, wrote the appellant that he had found no
material concealment on the part of the insured and that,
therefore, appellee should be paid the full face value of
the policy. This opinion of the Insurance Commissioner
notwithstanding, appellant refused to settle its
obligation.
Appellant alleged that the insured was guilty of
misrepresentation when he answered "No" to the
following question appearing in the application for life
insurance —
"Has any life insurance company ever refused your
application for insurance or for reinstatement of a
lapsed policy or offered you a policy different from that
applied for? If, so, name company and date."
In its brief, appellant rationalized its thesis thus:
". . . As pointed out in the foregoing summary of the
essential facts in this case, the insured had in January,
1962, applied for reinstatement of his lapsed life
insurance policy with the Insular Life Insurance Co., Ltd.
but this was declined by the insurance company,
although later on approved for reinstatement with a very
high premium as a result of his medical examination.
Thus notwithstanding the said insured answered 'No' to
the [above] question propounded to him, . . ." 1
The lower court found the argument bereft of factual
basis; and We quote with approval its disquisition on the
matter —
"On the first question there is no evidence that the
Insular Life Assurance Co., Ltd. ever refused any
application of Kwong Nam for insurance. Neither is there
any evidence that any other insurance company his
refused any application of Kwong Nam for insurance."
". . . The evidence shows that the Insular Life Assurance
Co., Ltd. approved Kwong Nam's request for
reinstatement and amendment of his lapsed insurance
policy on April 24, 1962 [Exh. 'L-', Stipulation of Facts,
Sept. 22, 1965]. The Court notes from said application
for reinstatement and amendment, Exh. 'L', that the
amount applied for was P20,000.00 only and not for
P50,000.00 as it was in the lapsed policy. The amount of
the reinstated and amended policy was also for
P20,000.00. It results, therefore, that when on May 12,
1962 Kwong Nam answered 'No' to the question whether
any life insurance company ever refused his application
for reinstatement of a lapsed policy he did not
misrepresent any fact."
". . . The evidence shows that the application of Kwong
Nam with the Insular Life Assurance Co., Ltd. was for the
reinstatement and amendment of his lapsed insurance
policy — Policy No. 369531 — not an application for a
'new' insurance policy. The Insular Life Assurance Co.,
Ltd. approved the said application on April 24, 1962.
Policy No. 369531 was reinstated for the amount of
P20,000.00 as applied for by Kwong Nam [Exhs. 'L', 'L-1'
and 'L-2']. No new policy was issued by the Insular Life
Assurance Co., Ltd. to Kwong Nam in connection with
said application for reinstatement and amendment. Such
being the case, the Court finds that there is no
misrepresentation on this matter." 2
Appellant further maintains that when the insured was
examined in connection with his application for life
insurance, he gave the appellant's medical examiner
false and misleading information as to his ailment and
previous operation. The alleged false statements given
by Kwong Nam are as follows: LibLex
"Operated on for a Tumor [mayoma] of the stomach.
Claims that Tumor has been associated with ulcer of
stomach Tumor taken out was hard and of a hen's egg
size. Operation was two [2] years ago in Chinese General
Hospital by Dr. Yap. Now, claims he is completely
recovered."
To demonstrate the insured's misrepresentation,
appellant directs Our attention to:
[1] The report of Dr. Fu Sun Yuan, the physician who
treated Kwong Nam at the Chinese General Hospital on
May 22, 1960, i.e., about 2 years before he applied for an
insurance policy on May 12, 1962. According to said
report, Dr. Fu Sun Yuan had diagnosed the patient's
ailment as 'peptic ulcer' for which an operation, known
as a 'sub-total gastric resection' was performed on the
patient by Dr. Pacifico Yap; and
[2] The Surgical Pathology Report of Dr. Elias Pantangco
showing that the specimen removed from the patient's
body was 'a portion of the stomach measuring 12 cm.
and 19 cm. along the lesser curvature with a diameter of
15 cm. along the greatest dimension.
On the bases of the above undisputed medical data
showing that the insured was operated on for "peptic
ulcer", involving the excision of a portion of the stomach,
appellant argues that the insured's statement in his
application that a tumor, "hard and of a hen's egg size,"
was removed during said operation, constituted material
concealment.
The question to be resolved may be propounded thus:
Was appellant, because of insured's aforesaid
representation, misled or deceived into entering the
contract or in accepting the risk at the rate of premium
agreed upon?
The lower court answered this question in the negative,
and We agree.
Section 27 of the Insurance Law [Act 2427] provides:
"Sec. 27. Such party to a contract of insurance must
communicate to the other, in good faith, all facts within
his knowledge which are material to the contract, and
which the other has not the means of ascertaining, and
as to which he makes no warranty." 3
Thus, "concealment exists where the assured had
knowledge of a fact material to the risk, and honesty,
good faith, and fair dealing requires that he should
communicate it to the assurer, but he designedly and
intentionally withholds the same." 4
It has also been held "that the concealment must, in the
absence of inquiries, be not only material, but fraudulent,
or the fact must have been intentionally withheld." 5
Assuming that the aforesaid answer given by the insured
is false, as claimed by the appellant. Sec. 27 of the
Insurance Law, above-quoted, nevertheless requires that
fraudulent intent on the part of the insured be
established to entitle the insurer to rescind the contract.
And as correctly observed by the lower court,
"misrepresentation as a defense of the insurer to avoid
liability is an 'affirmative' defense. The duty to establish
such a defense by satisfactory and convincing evidence
rests upon the defendant. The evidence before the Court
does not clearly and satisfactorily establish that
defense." cdll
It bears emphasis that Kwong Nam had informed the
appellant's medical examiner that the tumor for which he
was operated on was ''associated with ulcer of the
stomach." In the absence of evidence that the insured
had sufficient medical knowledge as to enable him to
distinguish between "peptic ulcer" and "a tumor", his
statement that said tumor was "associated with ulcer of
the stomach, " should be construed as an expression
made in good faith of his belief as to the nature of his
ailment and operation. Indeed, such statement must be
presumed to have been made by him without knowledge
of its incorrectness and without any deliberate intent on
his part to mislead the appellant.
While it may be conceded that, from the viewpoint of a
medical expert, the information communicated was
imperfect, the same was nevertheless sufficient to have
induced appellant to make further inquiries about the
ailment and operation of the insured.
Section 32 of Insurance Law [Act No. 2427] provides as
follows:
"Section 32. The right to information of material facts
may be waived either by the terms of insurance or by
neglect to make inquiries as to such facts where they are
distinctly implied in other facts of which information is
communicated."
It has been held that where, "upon the face of the
application, a question appears to be not answered at all
or to be imperfectly answered, and the insurers issue a
policy without any further inquiry, they waive the
imperfection of the answer and render the omission to
answer more fully immaterial. 6
As aptly noted by the lower court, "if the ailment and
operation of Kwong Nam had such an important bearing
on the question of whether the defendant would
undertake the insurance or not, the court cannot
understand why the defendant or its medical examiner
did not make any further inquiries on such matters from
the Chinese General Hospital or require copies of the
hospital records from the appellant before acting on the
application for insurance. The fact of the matter is that
the defendant was too eager to accept the application
and receive the insured's premium. It would be
inequitable now to allow the defendant to avoid liability
under the circumstances."
Finding no reversible error committed by the trial court,
the judgment appealed from is hereby affirmed, with
costs against appellant Asian-Crusader Life Assurance
Corporation. prcd
SO ORDERED.
||| (Ng Gan Zee v. Asian Crusader Life Assurance Corp.,
G.R. No. L-30685, [May 30, 1983], 207 PHIL 401-407)
Test of Materiality

THIRD DIVISION
[G.R. No. 92492. June 17, 1993.]
THELMA VDA. DE CANILANG, petitioner, vs. HON.
COURT OF APPEALS and GREAT PACIFIC LIFE
INSURANCE CORPORATION, respondents.
Simeon C. Sato for petitioner.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE; CONCEALMENT;
MATERIALITY; DEFINED. — The relevant statutory
provisions as they stood at the time Great Pacific issued
the contract of insurance and at the time Jaime Canilang
died, are set out in P.D. No. 1460, also known as the
Insurance Code of 1978, which went into effect on 11
June 1978. These provisions read as follows: "Sec. 26. A
neglect to communicate that which a party knows and
ought to communicate, is called a concealment." . . .
Sec. 28. Each party to a contract of insurance must
communicate to the other, in good faith, all factors
within his knowledge which are material to the contract
and as to which he makes no warranty, and which the
other has not the means of ascertaining." Under the
foregoing provisions, the information concealed must be
information which the concealing party knew and "ought
to [have] communicate[d]," that is to say, information
which was "material to the contract." The test of
materiality is contained in Section 31 of the Insurance
Code of 1978 which reads: "Sec. 31. Materiality is to be
determined not by the event, but solely by the probable
and reasonable influence of the facts upon the party to
whom the communication is due, in forming his estimate
of the disadvantages of the proposed contract, or in
making his inquiries."
2. ID.; ID.; ID.; ID.; ID.; APPLICATION IN CASE AT BAR. —
We agree with the Court of Appeals that the information
which Jaime Canilang failed to disclose was material to
the ability of Great Pacific to estimate the probable risk
he presented as a subject of life insurance. Had Canilang
disclosed his visits to his doctor, the diagnosis made
and the medicines prescribed by such doctor, in the
insurance application, it may be reasonably assumed
that Great Pacific would have made further inquiries and
would have probably refused to issue a non-medical
insurance policy or, at the very least, required a higher
premium for the same coverage. The materiality of the
information withheld by Great Pacific did not depend
upon the state of mind of Jaime Canilang. A man's state
of mind or subjective belief is not capable of proof in our
judicial process, except through proof of external acts or
failure to act from which inferences as to his subjective
belief may be reasonably drawn. Neither does materiality
depend upon the actual or physical events which ensue.
Materiality relates rather to the "probable and reasonable
influence of the facts" upon the party to whom the
communication should have been made, in assessing
the risk involved in making or omitting to make further
inquiries and in accepting the application for insurance;
that "probable and reasonable influence of the facts"
concealed must, of course, be determined objectively, by
the judge ultimately.
3. ID.; ID.; ID.; REMEDY, WHEN AVAILABLE. — In 1985,
the Insurance Code of 1978 was amended by B.P. Blg.
874. This subsequent statute modified Section 27 of the
Insurance Code of 1978 so as to read as follows: "Sec.
27. A concealment whether intentional or unintentional
entitles the injured party to rescind a contract of
insurance." Section 27 of the Insurance Code of 1978 is
properly read as referring to "any concealment" without
regard to whether such concealment is intentional or
unintentional. The phrase "whether intentional or
unintentional" was in fact superfluous. The deletion of
the phrase "whether intentional or unintentional" could
not have had the effect of imposing an affirmative
requirement that a concealment must be intentional if it
is to entitle the injured party to rescind a contract of
insurance. The restoration in 1985 by B.P. Blg. 874 of the
phrase "whether intentional or unintentional" merely
underscored the fact that all throughout (from 1914 to
1985), the statute did not require proof that concealment
must be "intentional" in order to authorize rescission by
the injured party. In any case, in the case at bar, the
nature of the facts not conveyed to the insurer was such
that the failure to communicate must have been
intentional rather than merely inadvertent. For Jaime
Canilang could not have been unaware that his hear beat
would at times rise to high and alarming levels and that
he had consulted a doctor twice in the two (2) months
before applying for non-medical insurance. Indeed, the
last medical consultation took place just the day before
the insurance application was filed. In all probability,
Jaime Canilang went to visit his doctor precisely
because of the discomfort and concern brought about
by his experiencing "sinus tachycardia."
DECISION
FELICIANO, J p:
On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo
B. Claudio and was diagnosed as suffering from "sinus
tachycardia." The doctor prescribed the following for
him: Trazepam, a tranquilizer; and Aptin, a beta-blocker
drug. Mr. Canilang consulted the same doctor again on 3
August 1982 and this time was found to have "acute
bronchitis." LibLex
On the next day, 4 August 1982, Jaime Canilang applied
for a "non-medical" insurance policy with respondent
Great Pacific Life Assurance Company ("Great Pacific")
naming his wife, petitioner Thelma Canilang, as his
beneficiary. 1 Jaime Canilang was issued ordinary life
insurance Policy No. 345163, with the face value of
P19,700, effective as of 9 August 1982.
On 5 August 1983, Jaime Canilang died of "congestive
heart failure," "anemia," and "chronic anemia." 2
Petitioner, widow and beneficiary of the insured, filed a
claim with Great Pacific which the insurer denied on 5
December 1983 upon the ground that the insured had
concealed material information from it.
Petitioner then filed a complaint against Great Pacific
with the Insurance Commission for recovery of the
insurance proceeds. During the hearing called by the
Insurance Commissioner, petitioner testified that she
was not aware of any serious illness suffered by her late
husband 3 and that, as far as she knew, her husband had
died because of a kidney disorder. 4 A deposition given
by Dr. Wilfredo Claudio was presented by petitioner.
There Dr. Claudio stated that he was the family physician
of the deceased Jaime Canilang 5 and that he had
previously treated him for "sinus tachycardia" and "acute
bronchitis." 6 Great Pacific for its part presented Dr.
Esperanza Quismorio, a physician and a medical
underwriter working for Great Pacific 7 She testified that
the deceased's insurance application had been approved
on the basis of his medical declaration. 8 She explained
that as a rule, medical examinations are required only in
cases where the applicant has indicated in his
application for insurance coverage that he has
previously undergone medical consultation and
hospitalization. 9
In a decision dated 5 November 1985, Insurance
Commissioner Armando Ansaldo ordered Great Pacific
to pay P19,700.00 plus legal interest and P2,000.00 as
attorney's fees after holding that:
1. the ailment of Jaime Canilang was not so serious that,
even if it had been disclosed, it would not have affected
Great Pacific's decision to insure him;
2. Great Pacific had waived its right to inquire into the
health condition of the applicant by the issuance of the
policy despite the lack of answers to "some of the
pertinent questions" in the insurance application;
3. there was no intentional concealment on the part of
the insured Jaime Canilang as he had thought that he
was merely suffering from a minor ailment and simple
cold; 10 and
4. Batas Pambansa Blg. 874 which voids an insurance
contract, whether or not concealment was intentionally
made, was not applicable to Canilang's case as that law
became effective only on 1 June 1985.
On appeal by Great Pacific, the Court of Appeals
reversed and set aside the decision of the Insurance
Commissioner and dismissed Thelma Canilang's
complaint and Great Pacific's counterclaim. The Court of
Appeals found that the use of the word "intentionally" by
the Insurance Commissioner in defining and resolving
the issue agreed upon by the parties at pre-trial before
the Insurance Commissioner was not supported by the
evidence; that the issue agreed upon by the parties had
been whether the deceased insured, Jaime Canilang,
made a material concealment as to the state of his
health at the time of the filing of insurance application,
justifying respondent's denial of the claim. The Court of
Appeals also found that the failure of Jaime Canilang to
disclose previous medical consultation and treatment
constituted material information which should have been
communicated to Great Pacific to enable the latter to
make proper inquiries. The Court of Appeals finally held
that the Ng Gan Zee case which had involved
misrepresentation was not applicable in respect of the
case at bar which involves concealment. LexLib
Petitioner Thelma Canilang is now before this Court on a
Petition for Review on Certiorari alleging that:
"1. . . . the Honorable Court of Appeals, speaking with
due respect, erred in not holding that the issue in the
case agreed upon between the parties before the
Insurance Commission is whether or not Jaime Canilang
`intentionally' made material concealment in stating his
state of health;
2. . . . at any rate, the non-disclosure of certain facts
about his previous health conditions does not amount to
fraud and private respondent is deemed to have waived
inquiry thereto." 11
The medical declaration which was set out in the
application for insurance executed by Jaime Canilang
read as follows:
"MEDICAL DECLARATION
`I hereby declare that:
(1) I have not been confined in any hospital, sanitarium
or infirmary, nor received any medical or surgical
advice/attention within the last five (5) years.
(2) I have never been treated nor consulted a physician
for a heart condition, high blood pressure, cancer,
diabetes, lung, kidney, stomach disorder, or any other
physical impairment.
(3) I am, to the best of my knowledge, in good health.
EXCEPTIONS:
_______________________________________________________
_______________________________________________________
_______________________________________________________
___________________________________________
GENERAL DECLARATION
I hereby declare that all the foregoing answers and
statements are complete, true and correct. I hereby
agree that if there be any fraud or misrepresentation in
the above statements material to the risk, the
INSURANCE COMPANY upon discovery within two (2)
years from the effective date of insurance shall have the
right to declare such insurance null and void. That the
liabilities of the Company under the said
Policy/TA/Certificate shall accrue and begin only from
the date of commencement of risk stated in the
Policy/TA/Certificate, provided that the first premium is
paid and the Policy/TA/Certificate is delivered to, and
accepted by me in person, when I am in actual good
health.
Signed at Manila this 4th day of August, 1992.
Illegible
__________________________
Signature of Applicant." 12
We note that in addition to the negative statements
made by Mr. Canilang in paragraphs 1 and 2 of the
medical declaration, he failed to disclose in the
appropriate space, under the caption "Exceptions," that
he had twice consulted Dr. Wilfredo B. Claudio who had
found him to be suffering from "sinus tachycardia" and
"acute bronchitis."
The relevant statutory provisions as they stood at the
time Great Pacific issued the contract of insurance and
at the time Jaime Canilang died, are set out in P.D. No.
1460, also known as the Insurance Code of 1978, which
went into effect on 11 June 1978. These provisions read
as follows:
"Sec. 26. A neglect to communicate that which a party
knows and ought to communicate, is called a
concealment."
xxx xxx xxx
Sec. 28. Each party to a contract of insurance must
communicate to the other, in good faith, all factors
within his knowledge which are material to the contract
and as to which he makes no warranty, and which the
other has not the means of ascertaining." (Emphases
supplied)
Under the foregoing provisions, the information
concealed must be information which the concealing
party knew and "ought to [have] communicate[d]," that is
to say, information which was "material to the contract."
The test of materiality is contained in Section 31 of the
Insurance Code of 1978 which reads:
"Sec. 31. Materiality is to be determined not by the event,
but solely by the probable and reasonable influence of
the facts upon the party to whom the communication is
due, in forming his estimate of the disadvantages of the
proposed contract, or in making his inquiries."
(Emphases supplied)
"Sinus tachycardia" is considered present "when the
heart rate exceeds 100 beats per minute." 13 The
symptoms of this condition include pounding in the
chest and sometimes faintness and weakness of the
person affected. The following elaboration was offered
by Great Pacific and set out by the Court of Appeals in its
Decision:
"Sinus tachycardia is defined as sinus-initiated; heart
rate faster than 100 beats per minute. (Harrison's
Principles of Internal Medicine, 8th ed. [1978], p. 1193.) It
is, among others, a common reaction to hear disease,
including myocardial infarction, and heart failure per se.
(Henry J.L. Marriot, M.D., Electrocardiograph, 6th ed.
[1977], p. 127.) The medication prescribed by Dr. Claudio
for treatment of Canilang's ailment on June 18, 1982,
indicates the condition that said physician was trying to
manage. Thus, he prescribed Trazepam, (Philippine
Index of Medical Specialties (PIMS), Vol. 14, No. 3, Dec.
1985, p. 112.) which is anti-anxiety, anti-convulsant,
muscle-relaxant; and Aptin, (Idem, p. 36) a cardiac drug,
for palpitations and nervous heart. Such treatment could
have been a very material information to the insurer in
determining the action to be taken on Canilang's
application for life insurance coverage." 14
We agree with the Court of Appeals that the information
which Jaime Canilang failed to discloses was material to
the ability of Great Pacific to estimate the probable risk
he presented as a subject of life insurance. Had Canilang
disclosed his visits to his doctor, the diagnosis made
and the medicines prescribed by such doctor, in the
insurance application, it may be reasonably assumed
that Great Pacific would have made further inquiries and
would have probably refused to issue a non-medical
insurance policy or, at the very least, required a higher
premium for the same coverage. 15 The materiality of
the information withheld by Great Pacific did not depend
upon the state of mind of Jaime Canilang. A man's state
of mind or subjective belief is not capable of proof in our
judicial process, except through proof of external acts or
failure to act from which inferences as to his subjective
belief may be reasonably drawn. Neither does materiality
depend upon the actual or physical events which ensue.
Materiality relates rather to the "probable and reasonable
influence of the facts" upon the party to whom the
communication should have been made, in assessing
the risk involved in making or omitting to make further
inquiries and in accepting the application for insurance;
that "probable and reasonable influence of the facts"
concealed must, of course, be determined objectively, by
the judge ultimately.
The insurance Great Pacific applied for was a "non-
medical" insurance policy. In Saturnino v. Philippine-
American Life Insurance Company, 16 this Court held
that:
". . . if anything, the waiver of medical examination [in a
non-medical insurance contract] renders even more
material the information required of the applicant
concerning previous condition of health and diseases
suffered, for such information necessarily constitutes an
important factor which the insurer takes into
consideration in deciding whether to issue the policy or
not . . .." 17 (Emphases supplied)
The Insurance Commissioner had also ruled that the
failure of Great Pacific to convey certain information to
the insurer was not "intentional" in nature, for the reason
that Jaime Canilang believed that he was suffering from
minor ailment like a common cold. Section 27 of the
Insurance Code of 1978 as it existed from 1974 up to
1985, that is, throughout the time range material for
present purposes, provided that:
"Sec. 27. A concealment entitles the injured party to
rescind a contract of insurance."
The preceding statute, Act No. 2427, as it stood from
1914 up to 1974, had provided:
"Sec. 26. A concealment, whether intentional or
unintentional, entitles the injured party to rescind a
contract of insurance." (Emphases supplied)
Upon the other hand, in 1985, the Insurance Code of
1978 was amended by B.P. Blg. 874. This subsequent
statute modified Section 27 of the Insurance Code of
1978 so as to read as follows:
"Sec. 27. A concealment whether intentional or
unintentional entitles the injured party to rescind a
contract of insurance." (Emphases supplied).
The unspoken theory of the Insurance Commissioner
appears to have been that by deleting the phrase
"intentional or unintentional," the Insurance Code of 1978
(prior to its amendment by B.P. Blg. 874) intended to
limit the kinds of concealment which generate a right to
rescind on the part of the injured party to "intentional
concealments." This argument is not persuasive. As a
simple matter of grammar, it may be noted that
"intentional" and "unintentional" cancel each other out.
The net result therefore of the phrase "whether
intentional or unintentional" is precisely to leave
unqualified the term "concealment." Thus, Section 27 of
the Insurance Code of 1978 is properly read as referring
to "any concealment" without regard to whether such
concealment is intentional or unintentional. The phrase
"whether intentional or unintentional" was in fact
superfluous. The deletion of the phrase "whether
intentional or unintentional" could not have had the
effect of imposing an affirmative requirement that a
concealment must be intentional if it is to entitle the
injured party to rescind a contract of insurance. The
restoration in 1985 by B.P. Blg. 874 of the phrase
"whether intentional or unintentional" merely
underscored the fact that all throughout (from 1914 to
1985), the statute did not require proof that concealment
must be "intentional" in order to authorize rescission by
the injured party.
In any case, in the case at bar, the nature of the facts not
conveyed to the insurer was such that the failure to
communicate must have been intentional rather than
merely inadvertent. For Jaime Canilang could not have
been unaware that this heart beat would at times rise to
high and alarming levels and that he had consulted a
doctor twice in the two (2) months before applying for
non-medical insurance. Indeed, the last medical
consultation took place just the day before the insurance
application was filed. In all probability, Jaime Canilang
went to visit his doctor precisely because of the
discomfort and concern brought about by his
experiencing "sinus tachycardia."

We find it difficult to take seriously the argument that

Great Pacific had waived inquiry into the concealment by
issuing the insurance policy notwithstanding Canilang's
failure to set out answers to some of the questions in
the insurance application. Such failure precisely
constituted concealment on the part of Canilang.
Petitioner's argument, if accepted, would obviously erase
Section 27 from the Insurance Code of 1978. llcd

It remains only to note that the Court of Appeals finding

that the parties had not agreed in the pretrial before the
Insurance Commission that the relevant issue was
whether or not Jaime Canilang had intentionally
concealed material information from the insurer, was
supported by the evidence of record, i.e., the Pre-trial
Order itself dated 17 October 1984 and the Minutes of
the Pre-trial Conference dated 15 October 1984, which
"readily shows that the word `intentional' does not
appear in the statement or definition of the issue in the
said Order and Minutes." 18

WHEREFORE, the Petition for Review is DENIED for lack

of merit and the Decision of the Court of Appeals dated
16 October 1989 in C.A-G.R. SP No. 08696 is hereby
AFFIRMED. No pronouncement as to costs.

SO ORDERED.

||| (Vda. de Canilang v. Court of Appeals, G.R. No. 92492,

[June 17, 1993], 295 PHIL 501-511)