Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

156956 October 9, 2006

REPUBLIC OF THE PHILIPPINES, by EDUARDO T. MALINIS, in His Capacity as Insurance Commissioner, petitioner, vs. DEL MONTE MOTORS, INC., respondent.

DECISION

PANGANIBAN, CJ.: The securities required by the Insurance Code to be deposited with the Insurance Commissioner are intended to answer for the claims of all policy holders in the event that the depositing insurance company becomes insolvent or otherwise unable to satisfy their claims. The security deposit must be ratably distributed among all the insured who are entitled to their respective shares; it cannot be garnished or levied upon by a single claimant, to the detriment of the others. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse the January 16, 2003 Order 2 of the Regional Court (RTC) of Quezon City (Branch 221) in Civil Case No. Q-97-30412. The RTC found Insurance Commissioner Eduardo T. Malinis guilty of indirect contempt for refusing to comply with the December 18, 2002 Resolution3 of the lower court. The January 16, 2003 Order states in full: "On January 8, 2003, [respondent] filed a Motion to Cite Commissioner Eduardo T. Malinis of the Office of the Insurance Commission in Contempt of Court because of his failure and refusal to obey the lawful order of this court embodied in a Resolution dated December 18, 2002 directing him to allow the withdrawal of the security deposit of Capital Insurance and Surety Co. (CISCO) in the amount of P11,835,375.50 to be paid to Sheriff Manuel Paguyo in the satisfaction of the Notice of Garnishment pursuant to a Decision of this Court which has become final and executory. "During the hearing of the Motion set last January 10, 2003, Commissioner Malinis or his counsel or his duly authorized representative failed to appear despite notice in utter disregard of the order of this Court. However, Commissioner Malinis filed on January 15, 2003 a written Comment reiterating the same grounds already passed upon and rejected by this Court. This Court finds no lawful justification or excuse for Commissioner Malinis' refusal to implement the lawful orders of this Court. "Wherefore, premises considered and after due hearing, Commissioner Eduardo T. Malinis is hereby declared guilty of Indirect Contempt of Court pursuant to Section 3 [of] Rule 71 of the 1997 Rules of Civil Procedure for willfully disobeying and refusing to implement and obey a lawful order of this Court."4 The Facts On January 15, 2002, the RTC rendered a Decision in Civil Case No. Q-97-30412, finding the defendants (Vilfran Liner, Inc., Hilaria Villegas and Maura Villegas) jointly and severally liable to pay Del Monte Motors, Inc., P11,835,375.50 representing the balance of Vilfran Liner's service contracts with respondent. The trial court further ordered the execution of the Decision against the counterbond posted by Vilfran Liner on June 10, 1997, and issued by Capital Insurance and Surety Co., Inc. (CISCO).

On April 18, 2002, CISCO opposed the Motion for Execution filed by respondent, claiming that the latter had no record or document regarding the alleged issuance of the counterbond; thus, the bond was not valid and enforceable. On June 13, 2002, the RTC granted the Motion for Execution and issued the corresponding Writ. Armed with this Writ, Sheriff Manuel S. Paguyo proceeded to levy on the properties of CISCO. He also issued a Notice of Garnishment on several depository banks of the insurance company. Moreover, he served a similar notice on the Insurance Commission, so as to enforce the Writ on the security deposit filed by CISCO with the Commission in accordance with Section 203 of the Insurance Code. On December 18, 2002, after a hearing on all the pending Motions, the RTC ruled that the Notice of Garnishment served by Sheriff Paguyo on the insurance commission was valid. The trial court added that the letter and spirit of the law made the security deposit answerable for contractual obligations incurred by CISCO under the insurance contracts the latter had entered into. The RTC resolved thus: "Furthermore, the Commissioner of the Office of the Insurance Commission is hereby ordered to comply with its obligations under the Insurance Code by upholding the integrity and efficacy of bonds validly issued by duly accredited Bonding and Insurance Companies; and to safeguard the public interest by insuring the faithful performance to enforce contractual obligations under existing bonds. Accordingly said office is ordered to withdraw from the security deposit of Capital Insurance & Surety Company, Inc. the amount of P11,835.50 to be paid to Sheriff Manuel S. Paguyo in satisfaction of the Notice of Garnishment served on August 16, 2002."5 On January 8, 2003, respondent moved to cite Insurance Commissioner Eduardo T. Malinis in contempt of court for his refusal to obey the December 18, 2002 Resolution of the trial court. Ruling of the Trial Court The RTC held Insurance Commissioner Malinis in contempt for his refusal to implement its Order. It explained that the commissioner had no legal justification for his refusal to allow the withdrawal of CISCO's security deposit. Hence, this Petition.6 Issues Petitioner raises this sole issue for the Court's consideration: "Whether or not the security deposit held by the Insurance Commissioner pursuant to Section 203 of the Insurance Code may be levied or garnished in favor of only one insured."7 The Court's Ruling The Petition is meritorious. Preliminary Issue: Propriety of Review Before discussing the principal issue, the Court will first dispose of the question of mootness. Prior to the filing of the instant Petition, Insurance Commissioner Malinis sent the treasurer of the Philippines a letter dated March 26, 2003, stating that the former had no objection to the release of the security deposit to Del Monte Motors. Portions of the fund were consequently released to respondent in July, October, and December 2003. Thus, the issue arises: whether these circumstances render the case moot. Petitioner, however, contends that the partial releases should not be construed as an abandonment of its stand that security deposits under Section 203 of the Insurance Code are exempt from levy and garnishment. The Republic claims that the releases were made pursuant to the commissioner's power of control over the fund, not to the lower court's Order of garnishment. Petitioner further invokes the jurisdiction of this Court to put to rest the principal issue of whether security deposits made with the Insurance Commission may be levied and garnished.

The issue is not totally moot. To stress, only a portion of respondent's claim was satisfied, and the Insurance Commission has required CISCO to replenish the latter's security deposit. Respondent, therefore, may one day decide to further garnish the security deposit, once replenished. Moreover, after the questioned Order of the lower court was issued, similar claims on the security deposits of various insurance companies have been made before the Insurance Commission. To set aside the resolution of the issue will only postpone a task that is certain to crop up in the future. Besides, the business of insurance is imbued with public interest. It is subject to regulation by the State, with respect not only to the relations between the insurer and the insured, but also to the internal affairs of insurance companies. 8 As this case is undeniably endowed with public interest and involves a matter of public policy, this Court shall not shirk from its duty to educate the bench and the bar by formulating guiding and controlling principles, precepts, doctrines and rules. 9 Principal Issue: Exemption of Security Deposit from Levy or Garnishment Section 203 of the Insurance Code provides as follows: "Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in value to twenty-five per centum of the minimum paid-up capital required under section one hundred eighty-eight, invest its funds only in securities, satisfactory to the Commissioner, consisting of bonds or other evidences of debt of the Government of the Philippines or its political subdivisions or instrumentalities, or of government-owned or controlled corporations and entities, including the Central Bank of the Philippines: Provided, That such investments shall at all times be maintained free from any lien or encumbrance; and Provided, further, That such securities shall be deposited with and held by the Commissioner for the faithful performance by the depositing insurer of all its obligations under its insurance contracts. The provisions of section one hundred ninety-two shall, so far as practicable, apply to the securities deposited under this section. "Except as otherwise provided in this Code, no judgment creditor or other claimant shall have the right to levy upon any of the securities of the insurer held on deposit pursuant to the requirement of the Commissioner." (Emphasis supplied) Respondent notes that Section 203 does not provide for an absolute prohibition on the levy and garnishment of the security deposit. It contends that the law requires the deposit, precisely to ensure faithful performance of all the obligations of the depositing insurer under the latter's various insurance contracts. Hence, respondent claims that the security deposit should be answerable for the counterbond issued by CISCO. The Court is not convinced. As worded, the law expressly and clearly states that the security deposit shall be (1) answerable for all the obligations of the depositing insurer under its insurance contracts; (2) at all times free from any liens or encumbrance; and (3) exempt from levy by any claimant. To be sure, CISCO, though presently under conservatorship, has valid outstanding policies. Its policy holders have a right under the law to be equally protected by its security deposit. To allow the garnishment of that deposit would impair the fund by decreasing it to less than the percentage of paid-up capital that the law requires to be maintained. Further, this move would create, in favor of respondent, a preference of credit over the other policy holders and beneficiaries. Our Insurance Code is patterned after that of California.10 Thus, the ruling of the state's Supreme Court on a similar concept as that of the security deposit is instructive. Engwicht v. Pacific States Life Assurance Co.11 held that the money required to be deposited by a mutual assessment insurance company with the state treasurer was "a trust fund to be ratably distributed amongst all the claimants entitled to share in it. Such a distribution cannot be had except in an action in the nature of a creditors' bill, upon the hearing of which, and with all the parties interested in the fund before it, the court may make equitable distribution of the fund, and appoint a receiver to carry that distribution into effect."12 Basic is the statutory construction rule that provisions of a statute should be construed in accordance with the purpose for which it was enacted.13 That is, the securities are held as a contingency fund to answer for the claims against the insurance company by all its policy holders and their beneficiaries. This step is taken in the event that the company becomes insolvent or otherwise unable to satisfy the claims against it. Thus, a single claimant may not lay stake on the securities to the exclusion of all others. The other parties may have their own claims against the insurance company under other insurance contracts it has entered into. Respondent's Inchoate Right

The right to lay claim on the fund is dependent on the solvency of the insurer and is subject to all other obligations of the company arising from its insurance contracts. Thus, respondent's interest is merely inchoate. Being a mere expectancy, it has no attribute of property. At this time, it is nonexistent and may never exist. 14 Hence, it would be premature to make the security deposit answerable for CISCO's present obligation to Del Monte Motors. Moreover, since insolvency proceedings against CISCO have yet to be conducted, it would be impossible to establish at this time which claimants are entitled to the security deposit and in what pro-rated amounts. Only after all other claimants under subsisting policies issued by CISCO have been heard can respondent's share be determined. Powers of the Commissioner The Insurance Code has vested the Office of the Insurance Commission with both regulatory and adjudicatory authority over insurance matters.15 The general regulatory authority of the insurance commissioner is described in Section 414 of the Code as follows: "Sec. 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. Except as otherwise specified, decisions made by the Commissioner shall be appealable to the Secretary of Finance." (Emphasis supplied) Pursuant to these regulatory powers, the commissioner is authorized to (1) issue (or to refuse to issue) certificates of authority to persons or entities desiring to engage in insurance business in the Philippines; 16 (2) revoke or suspend these certificates of authority upon finding grounds for the revocation or suspension;17 (3) impose upon insurance companies, their directors and/or officers and/or agents appropriate penalties -- fines, suspension or removal from office -- for failing to comply with the Code or with any of the commissioner's orders, instructions, regulations or rulings, or for otherwise conducting business in an unsafe or unsound manner.18 Included in the above regulatory responsibilities is the duty to hold the security deposits under Sections 191 19 and 203 of the Code, for the benefit and security of all policy holders. In relation to these provisions, Section 192 of the Insurance Code states: "Sec. 192. The Commissioner shall hold the securities, deposited as aforesaid, for the benefit and security of all the policyholders of the company depositing the same, but shall as long as the company is solvent, permit the company to collect the interest or dividends on the securities so deposited, and, from time to time, with his assent, to withdraw any of such securities, upon depositing with said Commissioner other like securities, the market value of which shall be equal to the market value of such as may be withdrawn. In the event of any company ceasing to do business in the Philippines the securities deposited as aforesaid shall be returned upon the company's making application therefor and proving to the satisfaction of the Commissioner that it has no further liability under any of its policies in the Philippines." (Emphasis supplied) Undeniably, the insurance commissioner has been given a wide latitude of discretion to regulate the insurance industry so as to protect the insuring public. The law specifically confers custody over the securities upon the commissioner, with whom these investments are required to be deposited. An implied trust20 is created by the law for the benefit of all claimants under subsisting insurance contracts issued by the insurance company.21 As the officer vested with custody of the security deposit, the insurance commissioner is in the best position to determine if and when it may be released without prejudicing the rights of other policy holders. Before allowing the withdrawal or the release of the deposit, the commissioner must be satisfied that the conditions contemplated by the law are met and all policy holders protected.

Commissioner's Actions Entitled to Great Respect In this case, Commissioner Malinis refused to release the security deposit of CISCO. Believing that the funds were exempt from execution as provided by law, he sought to protect other policy holders. His interpretation of the provisions of the law carries great weight and consideration,22 as he is the head of a specialized body tasked with the regulation of insurance matters and primarily charged with the implementation of the Insurance Code. The emergence of the multifarious needs of modern society necessitates the establishment of diverse administrative agencies. In addressing these needs, the administrative agencies charged with applying and implementing particular statutes have accumulated experience and specialized capabilities. Thus, in a long line of cases, this Court has recognized that their construction of a statute is entitled to great respect and should ordinarily be controlling, unless clearly shown to be in sharp conflict with the governing statute or the Constitution and other laws.23 Clearly, then, the trial court erred in issuing the Writ of Garnishment against the security deposit of CISCO. It follows that without the issuance of a valid order, the insurance commissioner could not have been in contempt of court. 24 WHEREFORE, the Petition is GRANTED and the assailed Order SET ASIDE. No costs. SO ORDERED. Ynares-Santiago, Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

Footnotes
1

Rollo, pp. 20-50. Id. at 70-71. Penned by Judge (now Court of Appeals Justice) Noel G. Tijam. Id. at 54-69. January 16, 2003 Order; rollo, pp. 70-71. December 18, 2002 Resolution, pp. 15-16; rollo, pp. 68-69.

The case was deemed submitted for decision on February 8, 2005, upon receipt by this Court of petitioner's Memorandum signed by Assistant Solicitor General Karl B. Miranda and Solicitor Marsha C. Recon. Respondent's Memorandum, signed by Atty. Eduardo E. Francisco, was received by the Court on November 26, 2004.
7

Petitioner's Memorandum, p. 11. Uppercase in the original.

AFP Mutual Benefit Association, Inc. v. NLRC, 334 Phil. 712, January 28, 1997, citing Insular Life Assurance Co., Ltd. v. NLRC, 179 SCRA 459, November 15, 1989.
9

ABS-CBN Broadcasting Corporation v. Commission on Elections, 380 Phil. 780, January 28, 2000; Gonzales v. Chavez, 205 SCRA 816, February 4, 1992.
10

Maria Clara L. Campos, in her commentary on the Insurance Code of the Philippines, traces the history of the present Insurance Code as follows: "The forerunner of this [Insurance] Code was the Insurance Act which took effect on July 1, 1915, and which was copied almost verbatim from the California Insurance Act, with the exception of a few provisions which were adopted from the New York Law. x x x. The first Insurance Code took effect on December 18, 1974

and besides incorporating most of the provisions of the Insurance Act with a few changes, it contained many new provisions mostly regulatory in nature. After a number of these new provisions were rendered obsolete by subsequent amendments, the Insurance Code of 1978 was promulgated by Presidential Decree No. 1460, incorporating not only such amendments but also additional changes deemed necessary in order to keep pace with the changing needs and demands of the insurance industry. However, the substantive provisions governing the contract of insurance itself remain for the most part as they were under the Insurance Act." (Campos, Insurance, [1983], pp. 8-9.) The Court has held that rulings and general principles on insurance recognized in the state of California have persuasive authority in the Philippines. (Ang Giok Chip v. Springfield Fire and Marine Insurance Co., 56 Phil. 375, December 31, 1931 and Gercio v. Sun Life Assurance Co. of Canada, 48 Phil. 53, September 28, 1925).
11

153 Cal. 183, March 9, 1908, per curiam (citing San Francisco Savings Union v. Long, 123 Cal. 107, December 20, 1898, per Temple, J.).
12

Id.

13

The United Harbor Pilots' Association of the Philippines v. Association of International Shipping Lines, Inc., 440 Phil. 188, November 13, 2002.
14

See J.L.T. Agro, Inc. v. Balansag, 453 SCRA 211, March 11, 2005.

15

Go v. Office of the Ombudsman, 413 SCRA 608, October 17, 2003; Almendras Mining Corporation v. Office of the Insurance Commission, 160 SCRA 656, April 15, 1988.
16

Insurance Code, Secs. 186-187; see Almendras Mining Corporation v. Office of the Insurance Commission, supra. Id., Secs. 241 and 247. Id., Sec. 415.

17

18

19

"Sec. 191. No insurance company organized or existing under the government or laws other than those of the Philippines shall engage in business in the Philippines unless possessed of paid-up unimpaired capital or assets and reserve not less than that herein required of domestic insurance companies, nor until it shall have deposited with the Commissioner for the benefit and security of the policyholders and creditors of such company in the Philippines, securities satisfactory to the Commissioner consisting of good securities of the Philippines, including new issued of stock of 'registered enterprises,' as this term is defined in Republic Act No. 5186, otherwise known as the Investment Incentives Act, as amended, to the actual market value of not less than the minimum paid-up capital required of domestic insurance companies: Provided, That at least fifty per centum of such securities shall consist of bonds or other evidences of debt of the Government of the Philippines, its political subdivisions and instrumentalities, or of government-owned or controlled corporations and entities, including the Central Bank. x x x."
20

Articles 1440 and 1441 of the Civil Code provide thus: "Art. 1440. A person who establishes a trust is called a trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary. "Art. 1441 Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties. Implied trusts come into being by operation of law."

21

Cesario P. Topiangco raises the issue of actual ownership and discusses the effects of placing security deposits in the custody of the Insurance Commissioner as follows: "Doubt has arisen as to whether the government securities, particularly Central Bank Certificates of Indebtedness, now in the possession of insurance companies as part of their investment portfolio are really

owned by such companies. Placing these securities in the custody of the Insurance Commissioner would minimize, if not entirely, erase such doubt. Besides, an insurance company in the verge of insolvency would find it difficult to dispose of such securities." (Topiangco, Commentaries and Jurisprudence on the Insurance Code of the Philippines, [1992], p. 167).
22

The United Harbor Pilots' Association of the Philippines v. Association of International Shipping Lines, Inc., supra note 13 at 202.
23

Union Bank of the Philippines v. Securities and Exchange Commission, 411 Phil. 94, June 6, 2001; Nestle Philippines, Inc. v. Court of Appeals, 203 SCRA 504, November 13, 1991; Asturias Sugar Central, Inc. v. Commissioner of Customs, 140 Phil. 20, 1969.
24

Factoran, Jr. v. Court of Appeals, 378, Phil. 282, December 13, 1999.

Republic of the Philippines SUPREME COURT Manila 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. Ponce Enrile, Cayetano, Reyes and Manalastas for petitioners. Oscar Z. Benares for private respondent.

QUIASON, J.: 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. 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 particulars' listing and citing actual cases, facts, dates, figures, provisions of law, rules and regulations, and all other pertinent data 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 lettercomplaint 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 lettercomplaint. 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 deducted and collected by Philamlife in connection 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 particular 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 hearings on his complaint. On October 1, private respondent executed an 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, 1986. On November 3, Manuel Ortega filed a Motion to Quash Subpoena/Notice on the following grounds; 1. 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, 1986 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 and unsound manner as may be determined by the 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 to any other legitimate business or activity 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 reinsurer 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 relationship 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 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 agents 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. Cruz, Davide, Jr. and Kapunan, JJ., concur. Bellosillo, J,. is on leave.

FIRST DIVISION [G. R. No. 141658. March 18, 2005] COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE PHILIPPINE AMERICAN ACCIDENT INSURANCE COMPANY, INC., THE PHILIPPINE AMERICAN ASSURANCE COMPANY, INC., and THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., respondents. DECISION CARPIO, J.: The Case Before the Court is a petition for review[1] assailing the Decision[2] of 7 January 2000 of the Court of Appeals in CA-G.R. SP No. 36816. The Court of Appeals affirmed the Decision[3] of 5 January 1995 of the Court of Tax Appeals (CTA) in CTA Cases Nos. 2514, 2515 and 2516. The CTA ordered the Commissioner of Internal Revenue (petitioner) to refund a total of P29,575.02 to respondent companies (respondents). Antecedent Facts Respondents are domestic corporations licensed to transact insurance business in the country. From August 1971 to September 1972, respondents paid the Bureau of Internal Revenue under protest the 3% tax imposed on lending investors by Section 195A[4] of Commonwealth Act No. 466 (CA 466), as amended by Republic Act No. 6110 (RA 6110) and other laws. CA 466 was the National Internal Revenue Code (NIRC) applicable at the time. Respondents paid the following amounts: P7,985.25 from Philippine American (PHILAM) Accident Insurance Company; P7,047.80 from PHILAM Assurance Company; and P14,541.97 from PHILAM General Insurance Company. These amounts represented 3% of each companys interest income from mortgage and other loans. Respondents also paid the taxes required of insurance companies under CA 466. On 31 January 1973, respondents sent a letter-claim to petitioner seeking a refund of the taxes paid under protest. When respondents did not receive a response, each respondent filed on 26 April 1973 a petition for review with the CTA. These three petitions, which were later consolidated, argued that respondents were not lending investors and as such were not subject to the 3% lending investors tax under Section 195-A. The CTA archived respondents case for several years while another case with a similar issue was pending before the higher courts. When respondents case was reinstated, the CTA ruled that respondents were entitled to their refund. The Ruling of the Court of Tax Appeals The CTA held that respondents are not taxable as lending investors because the term lending investors does not embrace insurance companies. The CTA traced the history of the tax on lending investors, as follows: Originally, a person who was engaged in lending money at interest was taxed as a money lender. [Sec. 1464(x), Rev. Adm. Code] The term money lenders was defined as including all persons who make a practice of lending money for themselves or others at interest. [Sec. 1465(v), id.] Under this law, an insurance company was not considered a money lender and was not taxable as such. To quote from an old BIR Ruling: The lending of money at interest by insurance companies constitutes a necessary incident of their regular business. For this reason, insurance companies are not liable to tax as money lenders or real estate brokers for making or negotiating loans secured by real property. (Ruling, February 28, 1920; BIR 135.2) (The Internal Revenue Law, Annotated, 2 nd ed., 1929, by B.L. Meer, page 143) The same rule has been applied to banks.

For making investments on salary loans, banks will not be required to pay the money lenders tax imposed by this subsection, for the reason that money lending is considered a mere incident of the banking business. [See Ruling No. 43, (October 8, 1926) 25 Off. Gaz. 1326) (The Internal Revenue Law, Annotated, id.) The term money lenders was later changed to lending investors but the definition of the term remains the same. [Sec. 1464(x), Rev. Adm. Code, as finally amended by Com. Act No. 215, and Sec. 1465(v) of the same Code, as finally amended by Act No. 3963] The same law is embodied in the present National Internal Revenue Code (Com. Act No. 466) without change, except in the amount of the tax. [See Secs. 182(A) (3) (dd) and 194(u), National Internal Revenue Code.] It is a well-settled rule that an administrative interpretation of a law which has been followed and applied for a long time, and thereafter the law is re-enacted without substantial change, such administrative interpretation is deemed to have received legislative approval. In short, the administrative interpretation becomes part of the law as it is presumed to carry out the legislative purpose.[5] The CTA held that the practice of lending money at interest is part of the insurance business. CA 466 already taxes the insurance business. The CTA pointed out that the law recognizes and even regulates this practice of lending money by insurance companies. The CTA observed that CA 466 also treated differently insurance companies from lending investors in regard to fixed taxes. Under Section 182(A)(3)(gg), insurance companies were subject to the same fixed tax as banks and finance companies. The CTA reasoned that insurance companies were grouped with banks and finance companies because the latters lending activities were also integral to their business. In contrast, lending investors were taxed at a different fixed tax under Section 182(A)(3)(dd) of CA 466. The CTA stated that insurance companies xxx had never been required by respondent [CIR] to pay the fixed tax imposed on lending investors xxx.[6] The dispositive portion of the Decision of 5 January 1995 of the Court of Tax Appeals (CTA Decision) reads: WHEREFORE, premises considered, petitioners Philippine American Accident Insurance Co., Philippine American Assurance Co., and Philippine American General Insurance Co., Inc. are not taxable on their lending transactions independently of their insurance business. Accordingly, respondent is hereby ordered to refund to petitioner[s] the sum of P7,985.25, P7,047.80 and P14,541.97 in CTA Cases No. 2514, 2515 and 2516, respectively representing the fixed and percentage taxes when (sic) paid by petitioners as lending investor from August 1971 to September 1972. No pronouncement as to cost. SO ORDERED.[7] Dissatisfied, petitioner elevated the matter to the Court of Appeals.[8] The Ruling of the Court of Appeals The Court of Appeals ruled that respondents are not taxable as lending investors. In its Decision of 7 January 2000 (CA Decision), the Court of Appeals affirmed the ruling of the CTA, thus: WHEREFORE, premises considered, the petition is DISMISSED, hereby AFFIRMING the decision, dated January 5, 1995, of the Court of Tax Appeals in CTA Cases Nos. 2514, 2515 and 2516. SO ORDERED.[9] Petitioner appealed the CA Decision to this Court. The Issues Petitioner raises the sole issue:

WHETHER RESPONDENT INSURANCE COMPANIES ARE SUBJECT TO THE 3% PERCENTAGE TAX AS LENDING INVESTORS UNDER SECTIONS 182(A)(3)(DD) AND 195-A, RESPECTIVELY IN RELATION TO SECTION 194(U), ALL OF THE NIRC.[10] The Ruling of the Court The petition lacks merit. On the Additional Issue Raised by Petitioner Section 182(A)(3)(dd) of CA 466 imposes an annual fixed tax on lending investors, depending on their location.[11] The sole question before the CTA was whether respondents were subject to the percentage tax on lending investors under Section 195A. Petitioner raised for the first time the issue of the fixed tax in the Petition for Review[12] petitioner filed before the Court of Appeals. Ordinarily, a party cannot raise for the first time on appeal an issue not raised in the trial court.[13] The Court of Appeals should not have taken cognizance of the issue on respondents supposed liability under Section 182(A)(3)(dd). However, we cannot entirely fault the Court of Appeals or petitioner. Even if the percentage tax on lending investors was the sole issue before it, the CTA ordered petitioner to refund to the PHILAM companies the fixed and percentage taxes [t]hen paid by petitioners as lending investor.[14] Although the amounts for refund consisted only of what respondents paid as percentage taxes, the CTA Decision also ordered the refund to respondents of the fixed tax on lending investors. Respondents in their pleadings deny any liability under Section 182(A)(3)(dd), on the same ground that they are not lending investors. The question of whether respondents should pay the fixed tax under Section 182(A)(3)(dd) revolves around the same issue of whether respondents are taxable as lending investors. In similar circumstances, the Court has held that an appellate court may consider an unassigned error if it is closely related to an error that was properly assigned.[15] This rule properly applies to the present case. Thus, we shall consider and rule on the issue of whether respondents are subject to the fixed tax under Section 182(A)(3)(dd). Whether Insurance Companies are Taxable as Lending Investors Invoking Sections 195-A and 182(A)(3)(dd) in relation to Section 194(u) of CA 466, petitioner argues that insurance companies are subject to two fixed taxes and two percentage taxes. Petitioner alleges that: As a lending investor, an insurance company is subject to an annual fixed tax of P500.00 and another P500.00 under Section 182 (A)(3)(dd) and (gg) of the Tax Code. As an underwriter, an insurance company is subject to the 3% tax of the total premiums collected and another 3% on the gross receipts as a lending investor under Sections 255 and 195-A, respectively of the same Code. xxx[16] Petitioner also contends that the refund granted to respondents is in the nature of a tax exemption, and cannot be allowed unless granted explicitly and categorically. The rule that tax exemptions should be construed strictly against the taxpayer presupposes that the taxpayer is clearly subject to the tax being levied against him. Unless a statute imposes a tax clearly, expressly and unambiguously, what applies is the equally well-settled rule that the imposition of a tax cannot be presumed.[17] Where there is doubt, tax laws must be construed strictly against the government and in favor of the taxpayer.[18] This is because taxes are burdens on the taxpayer, and should not be unduly imposed or presumed beyond what the statutes expressly and clearly import.[19] Section 182(A)(3)(dd) of CA 466 also provides: Sec. 182. Fixed taxes. (A) On business xxx xxx (3) Other fixed taxes. The following fixed taxes shall be collected as follows, the amount stated being for the whole year, when not otherwise specified; xxx (dd) Lending investors

1. In chartered cities and first class municipalities, five hundred pesos; 2. In second and third class municipalities, two hundred and fifty pesos; 3. In fourth and fifth class municipalities and municipal districts, one hundred and twenty-five pesos; Provided, That lending investors who do business as such in more than one province shall pay a tax of five hundred pesos. Section 195-A of CA 466 provides: Sec. 195-A. Percentage tax on dealers in securities; lending investors. Dealers in securities and lending investors shall pay a tax equivalent to three per centum on their gross income. Neither Section 182(A)(3)(dd) nor Section 195-A mentions insurance companies. Section 182(A)(3)(dd) provides for the taxation of lending investors in different localities. Section 195-A refers to dealers in securities and lending investors. The burden is thus on petitioner to show that insurance companies are lending investors for purposes of taxation. In this case, petitioner does not dispute that respondents are in the insurance business. Petitioner merely alleges that the definition of lending investors under CA 466 is broad enough to encompass insurance companies. Petitioner insists that because of Section 194(u), the two principal activities of the insurance business, namely, underwriting and investment, are separately taxable.[20] Section 194(u) of CA 466 states: (u) Lending investor includes all persons who make a practice of lending money for themselves or others at interest. xxx As can be seen, Section 194(u) does not tax the practice of lending per se. It merely defines what lending investors are. The question is whether the lending activities of insurance companies make them lending investors for purposes of taxation. We agree with the CTA and Court of Appeals that it does not. Insurance companies cannot be considered lending investors under CA 466, as amended. Definition of Lending Investors under CA 466 Does Not Include Insurance Companies. The definition in Section 194(u) of CA 466 is not broad enough to include the business of insurance companies. The Insurance Code of 1978[21] is very clear on what constitutes an insurance company. It provides that an insurer or insurance company shall include all individuals, partnerships, associations or corporations xxx engaged as principals in the insurance business, excepting mutual benefit associations.[22] More specifically, respondents fall under the category of insurance corporations as defined in Section 185 of the Insurance Code, thus: SECTION 185. Corporations formed or organized to save any person or persons or other corporations harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debts of others shall be known as insurance corporations. Plainly, insurance companies and lending investors are different enterprises in the eyes of the law. Lending investors cannot, for a consideration, hold anyone harmless from loss, damage or liability, nor provide compensation or indemnity for loss. The underwriting of risks is the prerogative of insurers, the great majority of which are incorporated insurance companies[23] like respondents. Granting of Mortgage and other Loans are Investment Practices that are Part of the Insurance Business.

True, respondents granted mortgage and other kinds of loans. However, this was not done independently of respondents insurance business. The granting of certain loans is one of several means of investment allowed to insurance companies. No less than the Insurance Code mandates and regulates this practice.[24] Unlike the practice of lending investors, the lending activities of insurance companies are circumscribed and strictly regulated by the State. Insurance companies cannot freely lend to themselves or others as lending investors can,[25] nor can insurance companies grant simply any kind of loan. Even prior to 1978, the Insurance Code prescribed strict rules for the granting of loans by insurance companies.[26] These provisions on mortgage, collateral and policy loans were reiterated in the Insurance Code of 1978 and are still in force today. Petitioner concedes that respondents investment practices are as much a part of the insurance business as the task of underwriting. Nevertheless, petitioner argues that such investment practices are separately taxable under CA 466. The CTA and the Court of Appeals found that the investment of premiums and other funds received by respondents through the granting of mortgage and other loans was necessary to respondents business and hence, should not be taxed separately. Insurance companies are required by law to possess and maintain substantial legal reserves to meet their obligations to policyholders.[27] This obviously cannot be accomplished through the collection of premiums alone, as the legal reserves and capital and surplus insurance companies are obligated to maintain run into millions of pesos. As such, the creation of investment income has long been held to be generally, if not necessarily, essential to the business of insurance.[28] The creation of investment income in the manner sanctioned by the laws on insurance is thus part of the business of insurance, and the fruits of these investments are essentially income from the insurance business. This is particularly true if the invested assets are held either as reserved funds to provide for policy obligations or as capital and surplus to provide an extra margin of safety which will be attractive to insurance buyers.[29] The Court has also held that when a company is taxed on its main business, it is no longer taxable further for engaging in an activity or work which is merely a part of, incidental to and is necessary to its main business.[30] Respondents already paid percentage and fixed taxes on their insurance business. To require them to pay percentage and fixed taxes again for an activity which is necessarily a part of the same business, the law must expressly require such additional payment of tax. There is, however, no provision of law requiring such additional payment of tax. Sections 195-A and 182(A)(3)(dd) of CA 466 do not require insurance companies to pay double percentage and fixed taxes. They merely tax lending investors, not lending activities. Respondents were not transformed into lending investors by the mere fact that they granted loans, as these investments were part of, incidental and necessary to their insurance business. Different Tax Treatment of Insurance Companies and Lending Investors. Section 182(A)(3) of CA 466 accorded different tax treatments to lending investors and insurance companies. The relevant portions of Section 182 state: Sec. 182. Fixed taxes. (A) On business xxx (3) Other fixed taxes. The following fixed taxes shall be collected as follows, the amount stated being for the whole year, when not otherwise specified; xxx (dd) Lending investors 1. In chartered cities and first class municipalities, five hundred pesos; 2. In second and third class municipalities, two hundred and fifty pesos; 3. In fourth and fifth class municipalities and municipal districts, one hundred and twenty-five pesos; Provided, That lending investors who do business as such in more than one province shall pay a tax of five hundred pesos.

xxx (gg) Banks, insurance companies, finance and investment companies doing business in the Philippines and franchise grantees, five hundred pesos. xxx (Emphasis supplied.) The separate provisions on lending investors and insurance companies demonstrate an intention to treat these businesses differently. If Congress intended insurance companies to be taxed as lending investors, there would be no need for Section 182(A)(3)(gg). Section 182(A)(3)(dd) would have been sufficient. That insurance companies were included with banks, finance and investment companies also supports the CTAs conclusion that insurance companies had more in common with the latter enterprises than with lending investors. As the CTA pointed out, banks also regularly lend money at interest, but are not taxable as lending investors. We find no merit in petitioners contention that Congress intended to subject respondents to two percentage taxes and two fixed taxes. Petitioners argument goes against the doctrine of strict interpretation of tax impositions. Petitioners argument is likewise not in accord with existing jurisprudence. In Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.,[31] the Court ruled that the different tax treatment accorded to pawnshops and lending investors in the NIRC of 1977 and the NIRC of 1986 showed the intent of Congress to deal with both subjects differently. The same reasoning applies squarely to the present case. Even the current tax law does not treat insurance companies as lending investors. Under Section 108(A)[32] of the NIRC of 1997, lending investors and non-life insurance companies, except for their crop insurances, are subject to value-added tax (VAT). Life insurance companies are exempt from VAT, but are subject to percentage tax under Section 123 of the NIRC of 1997. Indeed, the fact that Sections 195-A and 182(A)(3)(dd) of CA 466 failed to mention insurance companies already implies the latters exclusion from the coverage of these provisions. When a statute enumerates the things upon which it is to operate, everything else by implication must be excluded from its operation and effect.[33] Definition of Lending Investors in CA 466 is Not New. Petitioner does not dispute that it issued a ruling in 1920 to the effect that the lending of money at interest was a necessary incident of the insurance business, and that insurance companies were thus not subject to the tax on money lenders. Petitioner argues only that the 1920 ruling does not apply to the instant case because RA 6110 introduced the definition of lending investors to CA 466 only in 1969. The subject definition was actually introduced much earlier, at a time when lending investors were still referred to as money lenders. Sections 45 and 46 of the Internal Revenue Law of 1914[34] (1914 Tax Code) state: SECTION 45. Amount of Tax on Business. Fixed taxes on business shall be collected as follows, the amount stated being for the whole year, when not otherwise specified: xxx (x) Money lenders, eighty pesos; xxx SECTION 46. Words and Phrases Defined. In applying the provisions of the preceding section words and phrases shall be taken in the sense and extension indicated below: xxx Money lender includes all persons who make a practice of lending money for themselves or others at interest. (Emphasis supplied) As can be seen, the definitions of money lender under the 1914 Tax Code and lending investor under CA 466 are identical. The term money lender was merely changed to lending investor when Act No. 3963 amended the Revised Administrative Code in 1932.[35] This same definition of lending investor has since appeared in Section 194(u) of CA 466 and later tax laws.

Note that insurance companies were not included among the businesses subject to an annual fixed tax under the 1914 Tax Code.[36] That Congress later saw the need to introduce Section 182(A)(3)(gg) in CA 466 bolsters our view that there was no legislative intent to tax insurance companies as lending investors. If insurance companies were already taxed as lending investors, there would have been no need for a separate provision specifically requiring insurance companies to pay fixed taxes. The Court Accords Great Weight to the Factual Findings of the CTA. Dedicated exclusively to the study and consideration of tax problems, the CTA has necessarily developed an expertise in the subject of taxation that this Court has recognized time and again. For this reason, the findings of fact of the CTA, particularly when affirmed by the Court of Appeals, are generally conclusive on this Court absent grave abuse of discretion or palpable error,[37] which are not present in this case. WHEREFORE, we DENY the instant petition and AFFIRM the Decision of 7 January 2000 of the Court of Appeals in CA-G.R. SP No. 36816. SO ORDERED. Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

[1] Under Rule 45 of the Rules of Civil Procedure. [2] Rollo, pp. 20-30. Penned by Associate Justice Ramon Mabutas, Jr. with Associate Justices Artemio G. Tuquero and Mercedes Gozo Dadole concurring. [3] Ibid., pp. 32-43. Penned by Associate Judge Manuel K. Gruba with Presiding Judge Ernesto D. Acosta and Associate Judge Ramon O. De Veyra concurring. [4] Section 195-A was added to CA 466 by RA 6110. It states: Sec. 195-A. Percentage tax on dealers in securities; lending investors. Dealers in securities and lending investors shall pay a tax equivalent to three per centum on their gross income. [5] Rollo, pp. 34-35. [6] Ibid., p. 39. [7] Ibid., p. 42. [8] Note that under Republic Act No. 9282, decisions of the CTA are now appealable to the Supreme Court via a verified petition for review on certiorari. [9] Rollo, p. 30. [10] Ibid., p. 10. [11] Sec. 182. Fixed taxes. (A) On business xxx xxx (3) Other fixed taxes. The following fixed taxes shall be collected as follows, the amount stated being for the whole year, when not otherwise specified;

xxx (dd) Lending investors 1. 2. In chartered cities and first class municipalities, five hundred pesos; In second and third class municipalities, two hundred and fifty pesos; 3. In fourth and fifth class municipalities and municipal districts, one hundred and twenty-five pesos; Provided, That lending investors who do business as such in more than one province shall pay a tax of five hundred pesos. [12] CA Rollo, pp. 7-18. [13] Lim v. Queensland Tokyo Commodities, Inc., 424 Phil. 35 (2002). [14] Rollo, p. 42. [15] Garrido v. Court of Appeals, G.R. No. 101262, 14 September 1994, 236 SCRA 450. See also F.F. Maacop Construction Co., Inc. v. Court of Appeals, G.R. No. 122196, 15 January 1997, 266 SCRA 235. [16] Rollo, p. 112. [17] CIR v. CA, 338 Phil. 322 (1997). [18] Lincoln Philippine Life Insurance Co., Inc. v. CA, 354 Phil. 896 (1998); CIR v. CA, supra. [19] Ibid. [20] Rollo, pp. 12-13. [21] Presidential Decree No. 1460 (1978), as amended. [22] Section 184, ibid. [23] Maria Clara L. Campos, Insurance 7 (University of the Philippines Law Center 1983); 43 Am Jur 2d, Insurance, 188. [24] See Sections 198 to 203 of Presidential Decree No. 1460. Loans are not even the chief means of investment. According to the Insurance Commission, loans accounted for only 16.61% of the investments made by the insurance industry in 2002. Compare this with the industrys investment in bonds and government securities, which amounted to 45.75% (http://www.ic.gov.ph/main.asp?pages=statper2002). [25] In fact, pursuant to Insurance Circular Letter No. 064-60 (1960), reiterated in the Insurance Circular Letter of 20 May 1985, no insurance company could grant a loan to any of its officers or directors without the prior approval of the Insurance Commissioner. [26] Presidential Decree No. 612 (1974) provided: Sec. 198. No insurance company shall loan any of its money or deposits to any person, corporation or association, except upon first mortgage or deeds of trust of unencumbered, improved or unimproved real estate, including condominiums, in cities and centers of population of municipalities in the Philippines when the amount of such loan is not in excess of seventy per centum of the market value of such real estate; or upon the security of first mortgages or deeds of trust of actually cultivated, improved and unencumbered agricultural lands in the Philippines when the amount of such loan is not in excess of forty per centum of the market value of such land; or upon the purchase money mortgages or like securities received by it upon the sale or exchange of real property acquired pursuant to sections two hundred and two hundred two; or upon bonds or other evidences of

debt of the Government of the Philippines or its political subdivisions authorized by law to issue bonds, or upon bonds or other evidences of debt of government-owned or controlled corporations and instrumentalities including the Central Bank or upon obligations issued or guaranteed by the International Bank for Reconstruction and Development; or upon stocks, bonds or other evidences of debt as are specified in section two hundred. A life insurance company, however, may lend to any of its policyholders upon the security of the value of its policy such sum as may be determined pursuant to the provisions of the policy. Loans granted upon the security of real estate for a period longer than five years shall be amortized in monthly, quarterly, semi-annual or annual installments; Provided, That no such loans shall have a maturity in excess of twenty years. The phrase improved real estate used above is hereby defined to mean land with permanent building or buildings erected or being erected thereon. Except as otherwise approved by the Commissioner, in case the building or buildings on land do not belong to the owner of the latter, no loan shall be granted on the security of the real estate in question unless both the owner of the building or buildings and the owner of the land sign the deed of mortgage, and unless the owner of the land is the Government of the Philippines or one of its political subdivisions, in which event the owner is not required to sign the deed of mortgage. Sec. 199. No loan by any insurance company on the security of real estate shall be made unless the title to such real estate shall have first been registered in accordance with the existing Land Registration Act, or shall be a titulo real duly registered, or have been previously registered under the provisions of the existing Mortgage Law. These provisions were carried over in the Insurance Code of 1978. [27] Spouses Tibay v. CA, 326 Phil. 931 (1996). See also Sections 194, 210 to 214 of Presidential Decree No. 1460. [28] Bowers v. Lawyers Mortg. Co., 285 U.S. 182 (1932). [29] Justice Jose C. Vitug and Justice Ernesto D. Acosta, Tax Law and Jurisprudence, 2 nd ed., 256, citing Commissioner of Internal Revenue v. Court of Tax Appeals, CA-G.R. SP No. 39511 to 39513, 30 September 1996. This CA decision was never appealed to this Court. [30] Standard-Vacuum Oil Co. v. Antigua, etc., et al., 96 Phil. 909 (1955). [31] G.R. No. 150947, 15 July 2003, 406 SCRA 178. [32] The relevant portion of Sec. 108(A) states: (A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. The phrase sale or exchange of services means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by xxx lending investors; xxx services of banks, non-bank financial intermediaries and finance companies; and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; xxx. (Emphasis supplied) [33] Applying the maxim expressio unius est exclusio alterius. See Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc., supra note 31. [34] Act No. 2339 (1914). [35] Act No. 3963 (1932) provides: Sec. 2 Paragraph (v) of section fourteen hundred and sixty-five of the Revised Administrative Code is hereby amended so as to read as follows:

(v) Lending investor includes all persons who make a practice of lending money for themselves or others at interest. xxx [36] The receipts of insurance companies were instead subject to internal revenue taxes under Sec. 21(e) of the 1914 Tax Code. [37] Supra note 17.

FIRST DIVISION G.R. No. 154514. July 28, 2005 WHITE GOLD MARINE SERVICES, INC., Petitioner, vs. PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD., Respondents. DECISION QUISUMBING, J.: This petition for review assails the Decision [1] dated July 30, 2002 of the Court of Appeals in CA-G.R. SP No. 60144, affirming the Decision [2] dated May 3, 2000 of the Insurance Commission in I.C. Adm. Case No. RD-277. Both decisions held that there was no violation of the Insurance Code and the respondents do not need license as insurer and insurance agent/broker. The facts are undisputed. White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for its vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer). Subsequently, White Gold was issued a Certificate of Entry and Acceptance. [3] Pioneer also issued receipts evidencing payments for the coverage. When White Gold failed to fully pay its accounts, Steamship Mutual refused to renew the coverage. Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the latter's unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission claiming that Steamship Mutual violated Sections 186 [4] and 187 [5] of the Insurance Code, while Pioneer violated Sections' 299, [6] 300 [7] and 301 [8] in relation to Sections 302 and 303, thereof. The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutual to secure a license because it was not engaged in the insurance business. It explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another license as insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was not engaged in the insurance business. Moreover, Pioneer was already licensed, hence, a separate license solely as agent/broker of Steamship Mutual was already superfluous. The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate court distinguished between P & I Clubs vis--vis conventional insurance. The appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual. In this petition, petitioner assigns the following errors allegedly committed by the appellate court, FIRST ASSIGNMENT OF ERROR THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE PHILIPPINES. SECOND ASSIGNMENT OF ERROR THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS. THIRD ASSIGNMENT OF ERROR THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.

FOURTH ASSIGNMENT OF ERROR THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN NOT REMOVING] THE OFFICERS AND DIRECTORS OF RESPONDENT PIONEER. [9] Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines? (2) Does Pioneer need a license as an insurance agent/broker for Steamship Mutual? The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not have a license to do business in the Philippines although Pioneer is its resident agent. This relationship is reflected in the certifications issued by the Insurance Commission. Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To buttress its assertion, it cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals [10] as 'an association composed of shipowners in general who band together for the specific purpose of providing insurance cover on a mutual basis against liabilities incidental to shipowning that the members incur in favor of third parties. It stresses that as a P & I Club, Steamship Mutual's primary purpose is to solicit and provide protection and indemnity coverage and for this purpose, it has engaged the services of Pioneer to act as its agent. Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the insurance business in the Philippines. It is merely an association of vessel owners who have come together to provide mutual protection against liabilities incidental to shipowning. [11] Respondents aver Hyopsung is inapplicable in this case because the issue in Hyopsung was the jurisdiction of the court over Hyopsung. Is Steamship Mutual engaged in the insurance business? Section 2(2) of the Insurance Code enumerates what constitutes doing an insurance business' or 'transacting an insurance business' . These are: (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 to any other legitimate business or activity 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. ... The same provision also provides, the fact that no profit is derived from the making of insurance contracts, agreements or transactions, or that no separate or direct consideration is received therefor, shall not preclude the existence of an insurance business. [12] The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the act required to be performed, and the exact nature of the agreement in the light of the occurrence, contingency, or circumstances under which the performance becomes requisite. It is not by what it is called. [13] Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. [14] In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the losses incident to a marine adventure. [15] Section 99 [16] of the Insurance Code enumerates the coverage of marine insurance.

Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer and insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities are paid, and where the profits are divided among themselves, in proportion to their interest. [17] Additionally, mutual insurance associations, or clubs, provide three types of coverage, namely, protection and indemnity, war risks, and defense costs. [18] A P & I Club is 'a form of insurance against third party liability, where the third party is anyone other than the P & I Club and the members. [19] By definition then, Steamship Mutual as a P & I Club is a mutual insurance association engaged in the marine insurance business. The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate of authority mandated by Section 187 [20] of the Insurance Code. It maintains a resident agent in the Philippines to solicit insurance and to collect payments in its behalf. We note that Steamship Mutual even renewed its P & I Club cover until it was cancelled due to non-payment of the calls. Thus, to continue doing business here, Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance Commission. Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer or insurance company is allowed to engage in the insurance business without a license or a certificate of authority from the Insurance Commission. [21] Does Pioneer, as agent/broker of Steamship Mutual, need a special license? Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration [22] issued by the Insurance Commission. It has been licensed to do or transact insurance business by virtue of the certificate of authority [23] issued by the same agency. However, a Certification from the Commission states that Pioneer does not have a separate license to be an agent/broker of Steamship Mutual. [24] Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states: SEC. 299 . . . No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines or any agent thereof, without first procuring a license so to act from the Commissioner, which must be renewed annually on the first day of January, or within six months thereafter. . . Finally, White Gold seeks revocation of Pioneer's certificate of authority and removal of its directors and officers. Regrettably, we are not the forum for these issues. WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission is hereby REVERSED AND SET ASIDE. The Steamship Mutual Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to obtain licenses and to secure proper authorizations to do business as insurer and insurance agent, respectively. The petitioner's prayer for the revocation of Pioneer's Certificate of Authority and removal of its directors and officers, is DENIED. Costs against respondents. SO ORDERED. Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

Endnotes: [1] Rollo, pp. 28-41. Penned by Associate Justice Delilah Vidallon-Magtolis, with Associate Justices Candido V. Rivera, and Sergio L. Pestao concurring. [2] CA Rollo, pp. 43-51.

[3] Id. at 103. [4] SEC. 186. No person, partnership, or association of persons shall transact any insurance business in the Philippines except as agent of a person or corporation authorized to do the business of insurance in the Philippines, unless possessed of the capital and assets required of an insurance corporation doing the same kind of business in the Philippines and invested in the same manner; nor unless the Commissioner shall have granted to him or them a certificate to the effect that he or they have complied with all the provisions of law which an insurance corporation doing business in the Philippines is required to observe. Every person, partnership, or association receiving any such certificate of authority shall be subject to the insurance laws of the Philippines and to the jurisdiction and supervision of the Commissioner in the same manner as if an insurance corporation authorized by the laws of the Philippines to engage in the business of insurance specified in the certificate. [5] SEC. 187. No Insurance Company shall transact any insurance business in the Philippines until after it shall have obtained a certificate of authority for that purpose from the Commissioner upon application therefor and payment by the company concerned of the fees hereinafter prescribed. ... [6] SEC. 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay any commission or other compensation to any person for services in obtaining insurance, unless such person shall have first procured from the Commissioner a license to act as an insurance agent of such company or as an insurance broker as hereinafter provided. No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines or any agent thereof, without first procuring a license so to act from the Commissioner, . . . [7] SEC. 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the intent of this section and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance agent is subject. [8] SEC. 301. Any person who for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself, shall be an insurance broker within the intent of this Code, and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance broker is subject. [9] Rollo, pp. 144-145. [10] No. L-77369, 31 August 1988, 165 SCRA 258, 260. [11] Rollo, p. 176. [12] THE INSURANCE CODE OF THE PHILIPPINES, Section 2(2). [13] 43 AM JUR. 2d Insurance Sec. 4 (1982). [14] Rufus B. Rodriguez, The Insurance Code of the Philippines Annotated 4 (4th ed., 1999), citing BUIST M. ANDERSON, Vance on Insurance 83 (3rd ed., 1951). [15] Eduardo F. Hernandez and Antero A. Peasales, Philippine Admiralty and Maritime Law 612 (1 st ed., 1987). [16] SEC. 99. Marine insurance includes: (1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, securities, choses in action, evidences of debt, valuable papers, bottomry, and respondentia interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting shipment, or during any delays, storage, trasshipment, or reshipment incident thereto, including war risks, marine builder's risks, and all personal property floater risks. (b) Person or property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, including liability for loss of or damage arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of such insurance (but not including life insurance or surety bonds nor insurance against loss by reason of bodily injury to any person arising out of the ownership, maintenance, or use of automobiles). (c) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise. (d) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their furniture and furnishings, fixed contents and supplies held in storage); piers, wharves, docks and slips, and other aids to navigation and transportation, including dry docks and marine railways, dams and appurtenant facilities for the control of waterways. (2) 'Marine protection and indemnity insurance, meaning insurance against, or against legal liability of the insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in use in ocean or inland waterways, including liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person. [17] Supra, note 13 at Sec. 65. [18] Howard Bennett, The Law of Marine Insurance 236 (1996). [19] Supra, note 15 at 733. [20] Supra, note 5. [21] Supra, note 12 at Sec. 187. [22] CA Rollo, p. 154. [23] Id. at 153. [24] Id. at 112. Certification issued by the Insurance Commission which certified that Pioneer is not a registered broker for any foreign corporation.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. L-109937 March 21, 1994 DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION INSURANCE POOL, respondents. Office of the Legal Counsel for petitioner. Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption Insurance Pool.

QUIASON, J.: This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the decision of the Court of Appeals in CA-G.R CV No. 26434 and its resolution denying reconsideration thereof. We affirm the decision of the Court of Appeals with modification. I In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool). A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and released on August 11, 1987. From the proceeds of the loan, DBP deducted the amount of P1,476.00 as payment for the MRI premium. On August 15, 1987, Dans accomplished and submitted the "MRI Application for Insurance" and the "Health Statement for DBP MRI Pool." On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit. On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible for MRI coverage, being over the acceptance age limit of 60 years at the time of application. On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI application. The DBP offered to refund the premium of P1,476.00 which the deceased had paid, but Candida Dans refused to accept the same, demanding payment of the face value of the MRI or an amount equivalent to the loan. She, likewise, refused to accept an ex gratia settlement of P30,000.00, which the DBP later offered. On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for "Collection of Sum of Money with Damages." Respondent Estate alleged that Dans became insured by the DBP MRI Pool when DBP, with full knowledge of Dans' age at the time of application, required him to apply for MRI, and later collected the insurance

premium thereon. Respondent Estate therefore prayed: (1) that the sum of P139,500.00, which it paid under protest for the loan, be reimbursed; (2) that the mortgage debt of the deceased be declared fully paid; and (3) that damages be awarded. The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a cross-claim against the latter. At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by respondent Estate. As a result of these admissions, the trial court narrowed down the issues and, without opposition from the parties, found the case ripe for summary judgment. Consequently, the trial court ordered the parties to submit their respective position papers and documentary evidence, which may serve as basis for the judgment. On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against DBP. The DBP MRI Pool, however, was absolved from liability, after the trial court found no privity of contract between it and the deceased. The trial court declared DBP in estoppel for having led Dans into applying for MRI and actually collecting the premium and the service fee, despite knowledge of his age ineligibility. The dispositive portion of the decision read as follows: WHEREFORE, in view of the foregoing consideration and in the furtherance of justice and equity, the Court finds judgment for the plaintiff and against Defendant DBP, ordering the latter: 1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of interest as amortization payment paid under protest; 2. To consider the mortgage loan of P300,000.00 including all interest accumulated or otherwise to have been settled, satisfied or set-off by virtue of the insurance coverage of the late Juan B. Dans; 3. To pay plaintiff the amount of P10,000.00 as attorney's fees; 4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other expenses, and other relief just and equitable. The Counterclaims of Defendants DBP and DBP MRI POOL are hereby dismissed. The Crossclaim of Defendant DBP is likewise dismissed (Rollo, p. 79) The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate court affirmed in toto the decision of the trial court. The DBP's motion for reconsideration was denied in a resolution dated April 20, 1993. Hence, this recourse. II When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP MRI Pool" (Exh. "5Bank") with the following declaration: I hereby declare and agree that all the statements and answers contained herein are true, complete and correct to the best of my knowledge and belief and form part of my application for insurance. It is understood and agreed that no insurance coverage shall be effected unless and until this application is approved and the full premium is paid during my continued good health (Records, p. 40). Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall be approved by the insurance pool; and (2) when the full premium is paid during the continued good health of the applicant. These two conditions, being joined conjunctively, must concur.

Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool, however, did not approve the application of Dans. There is also no showing that it accepted the sum of P1,476.00, which DBP credited to its account with full knowledge that it was payment for Dan's premium. There was, as a result, no perfected contract of insurance; hence, the DBP MRI Pool cannot be held liable on a contract that does not exist. The liability of DBP is another matter. It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI coverage. Instead of allowing Dans to look for his own insurance carrier or some other form of insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When Dan's loan was released on August 11, 1987, DBP already deducted from the proceeds thereof the MRI premium. Four days latter, DBP made Dans fill up and sign his application for MRI, as well as his health statement. The DBP later submitted both the application form and health statement to the DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBP deducted 10 percent of the premium collected by it from Dans. In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an insurance agent. As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby leading him and his family to believe that they had already fulfilled all the requirements for the MRI and that the issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dan's application was never going to be approved. The maximum age for MRI acceptance is 60 years as clearly and specifically provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in 1984 by all the insurance companies concerned (Exh. "1-Pool"). Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers." The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age (Exh. "1Pool"). Knowing all the while that Dans was ineligible for MRI coverage because of his advanced age, DBP exceeded the scope of its authority when it accepted Dan's application for MRI by collecting the insurance premium, and deducting its agent's commission and service fee. The liability of an agent who exceeds the scope of his authority depends upon whether the third person is aware of the limits of the agent's powers. There is no showing that Dans knew of the limitation on DBP's authority to solicit applications for MRI. If the third person dealing with an agent is unaware of the limits of the authority conferred by the principal on the agent and he (third person) has been deceived by the non-disclosure thereof by the agent, then the latter is liable for damages to him (V Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The rule that the agent is liable when he acts without authority is founded upon the supposition that there has been some wrong or omission on his part either in misrepresenting, or in affirming, or concealing the authority under which he assumes to act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the agency carries with it the implication that a deception was perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code of the Philippines come into play. Article 19 provides: Every person must, in the exercise of his rights and in the performance of his duties, act with justice give everyone his due and observe honesty and good faith. Article 20 provides: Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same. Article 21 provides:

Any person, who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that were it not for DBP's concealment of the limits of its authority, Dans would have secured an MRI from another insurance company, and therefore would have been fully insured by the time he died, is highly speculative. Considering his advanced age, there is no absolute certainty that Dans could obtain an insurance coverage from another company. It must also be noted that Dans died almost immediately, i.e., on the nineteenth day after applying for the MRI, and on the twentythird day from the date of release of his loan. One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved (Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not only be capable of proof, but must be actually proved with a reasonable degree of certainty (Refractories Corporation v. Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co., 34 Phil. 447 [1916]). Speculative damages are too remote to be included in an accurate estimate of damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]). While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof of pecuniary loss is required in the assessment of said kind of damages (Civil Code of Philippines, Art. 2216). The same may be recovered in acts referred to in Article 2219 of the Civil Code. The assessment of moral damages is left to the discretion of the court according to the circumstances of each case (Civil Code of the Philippines, Art. 2216). Considering that DBP had offered to pay P30,000.00 to respondent Estate in ex gratia settlement of its claim and that DBP's non-disclosure of the limits of its authority amounted to a deception to its client, an award of moral damages in the amount of P50,000.00 would be reasonable. The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the Philippines, Article 2208 [11]). WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate of Juan B. Dans the amount of P1,476.00 with legal interest from the date of the filing of the complaint until fully paid; and (2) to PAY said Estate the amount of Fifty Thousand Pesos (P50,000.00) as moral damages and the amount of Ten Thousand Pesos (P10,000.00) as attorney's fees. With costs against petitioner. SO ORDERED. Cruz, Davide, Jr., Bellosillo and Kapunan, JJ., concur. EN BANC [G.R. No. 137172. April 4, 2001] UCPB GENERAL INSURANCE CO. INC., petitioner, vs. MASAGANA TELAMART, INC., respondent. RESOLUTION DAVIDE, JR., C.J.: In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision of the Court of Appeals, which affirmed with modification the judgment of the trial court (a) allowing Respondent to consign the sum of P225,753.95 as full payment of the premiums for the renewal of the five insurance policies on Respondents properties; (b) declaring the replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned properties covered by the renewal-replacement policies. The modification consisted in the (1) deletion of the trial courts declaration that three of the policies were in force from August 1991 to August 1992; and (2) reduction of the award of the attorneys fees from 25% to 10% of the total amount due the Respondent.

The material operative facts upon which the appealed judgment was based are summarized by the Court of Appeals in its assailed decision as follows: Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5) insurance policies (Exhibits "A" to "E", Record, pp. 158-175) on its properties [in Pasay City and Manila]. All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to 4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiff's properties located at 2410-2432 and 2442-2450 Taft Avenue, Pasay City were razed by fire. On July 13, 1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank Manager's Checks in the total amount of P225,753.45 as renewal premium payments for which Official Receipt Direct Premium No. 62926 (Exhibit "Q", Record, p. 191) was issued by defendant. On July 14, 1992, Masagana made its formal demand for indemnification for the burned insured properties. On the same day, defendant returned the five (5) manager's checks stating in its letter (Exhibit "R"/"8", Record, p. 192) that it was rejecting Masagana's claim on the following grounds: "a) b) Said policies expired last May 22, 1992 and were not renewed for another term; Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier; and

c) The properties covered by the said policies were burned in a fire that took place last June 13, 1992, or before tender of premium payment." (Record, p. 5) Hence Masagana filed this case. The Court of Appeals disagreed with Petitioners stand that Respondents tender of payment of the premiums on 13 July 1992 did not result in the renewal of the policies, having been made beyond the effective date of renewal as provided under Policy Condition No. 26, which states: 26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the policy period mails or delivers to the assured at the address shown in the policy notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages, the assured shall be entitled to renew the policy upon payment of the premium due on the effective date of renewal. Both the Court of Appeals and the trial court found that sufficient proof exists that Respondent, which had procured insurance coverage from Petitioner for a number of years, had been granted a 60 to 90-day credit term for the renewal of the policies. Such a practice had existed up to the time the claims were filed. Thus: Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium was paid more than 90 days later on August 31, 1990 under O.R. No. 4771 (Exhs. "T" and "T-1"). Fire Insurance Policy No. 34660 for Insurance Risk Coverage from May 22, 1990 to May 22, 1991 was issued by UCPB on May 4, 1990 but premium was collected by UCPB only on July 13, 1990 or more than 60 days later under O.R. No. 46487 (Exhs. "V" and "V-1"). And so were as other policies: Fire Insurance Policy No. 34657 covering risks from May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium therefor was paid only on July 19, 1990 under O.R. No. 46583 (Exhs. "W" and "W-1"). Fire Insurance Policy No. 34661 covering risks from May 22, 1990 to May 22, 1991 was issued on May 3, 1990 but premium was paid only on July 19, 1990 under O.R. No. 46582 (Exhs. "X' and "X-1"). Fire Insurance Policy No. 34688 for insurance coverage from May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium was paid only on July 19, 1990 under O.R. No. 46585 (Exhs. "Y" and "Y-1"). Fire Insurance Policy No. 29126 to cover insurance risks from May 22, 1989 to May 22, 1990 was issued on May 22, 1989 but premium therefor was collected only on July 25, 1990[sic] under O.R. No. 40799 (Exhs. "AA" and "AA-1"). Fire Insurance Policy No. HO/F-26408 covering risks from January 12, 1989 to January 12, 1990 was issued to Intratrade Phils. (Masagana's sister company) dated December 10, 1988 but premium therefor was paid only on February 15, 1989 under O.R. No. 38075 (Exhs. "BB" and "BB-1"). Fire Insurance Policy No. 29128 was issued on May 22, 1989 but premium was paid only on July 25, 1989 under O.R. No. 40800 for insurance coverage from May 22, 1989 to May 22, 1990 (Exhs. "CC" and "CC-1"). Fire Insurance Policy No. 29127 was issued on May 22, 1989 but premium was paid only on July 17, 1989 under O.R. No. 40682 for insurance risk coverage from May 22, 1989 to May 22, 1990 (Exhs. "DD" and "DD-1"). Fire Insurance Policy No. HO/F-29362 was issued on June 15, 1989 but premium was paid only on February 13, 1990 under O.R. No. 39233 for insurance coverage from May 22, 1989 to May 22, 1990 (Exhs. "EE" and "EE-1"). Fire Insurance Policy No. 26303 was issued on November 22,

1988 but premium therefor was collected only on March 15, 1989 under O.R. NO. 38573 for insurance risks coverage from December 15, 1988 to December 15, 1989 (Exhs. "FF" and "FF-1"). Moreover, according to the Court of Appeals the following circumstances constitute preponderant proof that no timely notice of non-renewal was made by Petitioner: (1) Defendant-appellant received the confirmation (Exhibit 11, Record, p. 350) from Ultramar Reinsurance Brokers that plaintiffs reinsurance facility had been confirmed up to 67.5% only on April 15, 1992 as indicated on Exhibit 11. Apparently, the notice of non-renewal (Exhibit 7, Record, p. 320) was sent not earlier than said date, or within 45 days from the expiry dates of the policies as provided under Policy Condition No. 26; (2) Defendant insurer unconditionally accepted, and issued an official receipt for, the premium payment on July 1[3], 1992 which indicates defendant's willingness to assume the risk despite only a 67.5% reinsurance cover[age]; and (3) Defendant insurer appointed Esteban Adjusters and Valuers to investigate plaintiffs claim as shown by the letter dated July 17, 1992 (Exhibit 11, Record, p. 254). In our decision of 15 June 1999, we defined the main issue to be whether the fire insurance policies issued by petitioner to the respondent covering the period from May 22, 1991 to May 22, 1992 had been extended or renewed by an implied credit arrangement though actual payment of premium was tendered on a later date and after the occurrence of the (fire) risk insured against. We resolved this issue in the negative in view of Section 77 of the Insurance Code and our decisions in Valenzuela v. Court of Appeals; South Sea Surety and Insurance Co., Inc. v. Court of Appeal; and Tibay v. Court of Appeals. Accordingly, we reversed and set aside the decision of the Court of Appeals. Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It alleges in the motion that we had made in the decision our own findings of facts, which are not in accord with those of the trial court and the Court of Appeals. The courts below correctly found that no notice of non-renewal was made within 45 days before 22 May 1992, or before the expiration date of the fire insurance policies. Thus, the policies in question were renewed by operation of law and were effective and valid on 30 June 1992 when the fire occurred, since the premiums were paid within the 60- to 90-day credit term. Respondent likewise disagrees with our ruling that parties may neither agree expressly or impliedly on the extension of credit or time to pay the premium nor consider a policy binding before actual payment. It urges the Court to take judicial notice of the fact that despite the express provision of Section 77 of the Insurance Code, extension of credit terms in premium payment has been the prevalent practice in the insurance industry. Most insurance companies, including Petitioner, extend credit terms because Section 77 of the Insurance Code is not a prohibitive injunction but is merely designed for the protection of the parties to an insurance contract. The Code itself, in Section 78, authorizes the validity of a policy notwithstanding non-payment of premiums. Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its awareness of Section 77 Petitioner persuaded and induced Respondent to believe that payment of premium on the 60- to 90-day credit term was perfectly alright; in fact it accepted payments within 60 to 90 days after the due dates. By extending credit and habitually accepting payments 60 to 90 days from the effective dates of the policies, it has implicitly agreed to modify the tenor of the insurance policy and in effect waived the provision therein that it would pay only for the loss or damage in case the same occurred after payment of the premium. Petitioner filed an opposition to the Respondents motion for reconsideration. It argues that both the trial court and the Court of Appeals overlooked the fact that on 6 April 1992 Petitioner sent by ordinary mail to Respondent a notice of non-renewal and sent by personal delivery a copy thereof to Respondents broker, Zuellig. Both courts likewise ignored the fact that Respondent was fully aware of the notice of non-renewal. A reading of Section 66 of the Insurance Code readily shows that in order for an insured to be entitled to a renewal of a non-life policy, payment of the premium due on the effective date of renewal should first be made. Respondents argument that Section 77 is not a prohibitive provision finds no authoritative support. Upon a meticulous review of the records and reevaluation of the issues raised in the motion for reconsideration and the pleadings filed thereafter by the parties, we resolved to grant the motion for reconsideration. The following facts, as found by the trial court and the Court of Appeals, are indeed duly established: 1. For years, Petitioner had been issuing fire policies to the Respondent, and these policies were annually renewed. 2. Petitioner had been granting Respondent a 60- to 90-day credit term within which to pay the premiums on the renewed policies.

3. There was no valid notice of non-renewal of the policies in question, as there is no proof at all that the notice sent by ordinary mail was received by Respondent, and the copy thereof allegedly sent to Zuellig was ever transmitted to Respondent. 4. The premiums for the policies in question in the aggregate amount of P225,753.95 were paid by Respondent within the 60- to 90-day credit term and were duly accepted and received by Petitioners cashier. The instant case has to rise or fall on the core issue of whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460) must be strictly applied to Petitioners advantage despite its practice of granting a 60- to 90-day credit term for the payment of premiums. Section 77 of the Insurance Code of 1978 provides: SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies. This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated on 18 December 1974. In turn, this Section has its source in Section 72 of Act No. 2427 otherwise known as the Insurance Act as amended by R.A. No. 3540, approved on 21 June 1963, which read: SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the peril insured against, unless there is clear agreement to grant the insured credit extension of the premium due. No policy issued by an insurance company is valid and binding unless and until the premium thereof has been paid. (Underscoring supplied) It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an agreement to extend the period to pay the premium. But are there exceptions to Section 77? The answer is in the affirmative. The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace period provision applies. The second is that covered by Section 78 of the Insurance Code, which provides: SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until premium is actually paid. A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals, wherein we ruled that Section 77 may not apply if the parties have agreed to the payment in installments of the premium and partial payment has been made at the time of loss. We said therein, thus: We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that the petitioners and private respondent intended subject insurance policies to be binding and effective notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three years, the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurers intention to honor the policies it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and accepting the premiums, although paid on installments, and later deny liability on the lame excuse that the premiums were not prepaid in full. Not only that. In Tuscany, we also quoted with approval the following pronouncement of the Court of Appeals in its Resolution denying the motion for reconsideration of its decision: While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, We are not prepared to rule that the request to make installment payments duly approved by the insurer would prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in

the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy (De Leon, The Insurance Code, p. 175). So is an understanding to allow insured to pay premiums in installments not so prescribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted. By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for the payment of the premium. This simply means that if the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is paid after the loss but within the credit term. Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term within which to pay the premiums. That agreement is not against the law, morals, good customs, public order or public policy. The agreement binds the parties. Article 1306 of the Civil Code provides: ART. 1306. The contracting parties may establish such stipulations clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be permitted against Petitioner, which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge under said Section, since Respondent relied in good faith on such practice. Estoppel then is the fifth exception to Section 77. WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and SET ASIDE, and a new one is hereby entered DENYING the instant petition for failure of Petitioner to sufficiently show that a reversible error was committed by the Court of Appeals in its challenged decision, which is hereby AFFIRMED in toto. No pronouncement as to cost. SO ORDERED. Bellosillo, Kapunan, Mendoza, Panganiban, Buena, Gonzaga-Reyes, Ynares-Santiago, De Leon, Jr., and Sandoval-Gutierrez, JJ., concur. Vitug, J., Please see separate opinion. Melo, J., I join the dissents of Justices Vitug and Pardo. Pardo, J., I dissent. See attached. Puno and Quisumbing, JJ., I join the dissent of J. Pardo.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-24833 September 23, 1968

FIELDMEN'S INSURANCE CO., INC., petitioner, vs. MERCEDES VARGAS VDA. DE SONGCO, ET AL. and COURT OF APPEALS, respondents. Jose S. Suarez for petitioner. Eligio G. Lagman for respondents.

FERNANDO, J.: An insurance firm, petitioner Fieldmen's Insurance Co., Inc., was not allowed to escape liability under a common carrier insurance policy on the pretext that what was insured, not once but twice, was a private vehicle and not a common carrier, the policy being issued upon the insistence of its agent who discounted fears of the insured that his privately owned vehicle might not fall within its terms, the insured moreover being "a man of scant education," finishing only the first grade. So it was held in a decision of the lower court thereafter affirmed by respondent Court of Appeals. Petitioner in seeking the review of the above decision of respondent Court of Appeals cannot be so sanguine as to entertain the belief that a different outcome could be expected. To be more explicit, we sustain the Court of Appeals. The facts as found by respondent Court of Appeals, binding upon us, follow: "This is a peculiar case. Federico Songco of Floridablanca, Pampanga, a man of scant education being only a first grader ..., owned a private jeepney with Plate No. 41-289 for the year 1960. On September 15, 1960, as such private vehicle owner, he was induced by Fieldmen's Insurance Company Pampanga agent Benjamin Sambat to apply for a Common Carrier's Liability Insurance Policy covering his motor vehicle ... Upon paying an annual premium of P16.50, defendant Fieldmen's Insurance Company, Inc. issued on September 19, 1960, Common Carriers Accident Insurance Policy No. 45-HO- 4254 ... the duration of which will be for one (1) year, effective September 15, 1960 to September 15, 1961. On September 22, 1961, the defendant company, upon payment of the corresponding premium, renewed the policy by extending the coverage from October 15, 1961 to October 15, 1962. This time Federico Songco's private jeepney carried Plate No. J-68136-Pampanga-1961. ... On October 29, 1961, during the effectivity of the renewed policy, the insured vehicle while being driven by Rodolfo Songco, a duly licensed driver and son of Federico (the vehicle owner) collided with a car in the municipality of Calumpit, province of Bulacan, as a result of which mishap Federico Songco (father) and Rodolfo Songco (son) died, Carlos Songco (another son), the latter's wife, Angelita Songco, and a family friend by the name of Jose Manuel sustained physical injuries of varying degree." 1 It was further shown according to the decision of respondent Court of Appeals: "Amor Songco, 42-year-old son of deceased Federico Songco, testifying as witness, declared that when insurance agent Benjamin Sambat was inducing his father to insure his vehicle, he butted in saying: 'That cannot be, Mr. Sambat, because our vehicle is an "owner" private vehicle and not for passengers,' to which agent Sambat replied: 'whether our vehicle was an "owner" type or for passengers it could be insured because their company is not owned by the Government and the Government has nothing to do with their company. So they could do what they please whenever they believe a vehicle is insurable' ... In spite of the fact that the present case was filed and tried in the CFI of Pampanga, the defendant company did not even care to rebut Amor Songco's testimony by calling on the witness-stand agent Benjamin Sambat, its Pampanga Field Representative." 2 The plaintiffs in the lower court, likewise respondents here, were the surviving widow and children of the deceased Federico Songco as well as the injured passenger Jose Manuel. On the above facts they prevailed, as had been mentioned, in the lower court and in the respondent Court of Appeals.1awphl.nt The basis for the favorable judgment is the doctrine announced in Qua Chee Gan v. Law Union and Rock Insurance Co., Ltd., 3 with Justice J. B. L. Reyes speaking for the Court. It is now beyond question that where inequitable conduct is shown by an insurance firm, it is "estopped from enforcing forfeitures in its favor, in order to forestall fraud or imposition on the insured." 4

As much, if not much more so than the Qua Chee Gan decision, this is a case where the doctrine of estoppel undeniably calls for application. After petitioner Fieldmen's Insurance Co., Inc. had led the insured Federico Songco to believe that he could qualify under the common carrier liability insurance policy, and to enter into contract of insurance paying the premiums due, it could not, thereafter, in any litigation arising out of such representation, be permitted to change its stand to the detriment of the heirs of the insured. As estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will befall the innocent party due to its injurious reliance, the failure to apply it in this case would result in a gross travesty of justice. That is all that needs be said insofar as the first alleged error of respondent Court of Appeals is concerned, petitioner being adamant in its far-from-reasonable plea that estoppel could not be invoked by the heirs of the insured as a bar to the alleged breach of warranty and condition in the policy. lt would now rely on the fact that the insured owned a private vehicle, not a common carrier, something which it knew all along when not once but twice its agent, no doubt without any objection in its part, exerted the utmost pressure on the insured, a man of scant education, to enter into such a contract. Nor is there any merit to the second alleged error of respondent Court that no legal liability was incurred under the policy by petitioner. Why liability under the terms of the policy 5 was inescapable was set forth in the decision of respondent Court of Appeals. Thus: "Since some of the conditions contained in the policy issued by the defendant-appellant were impossible to comply with under the existing conditions at the time and 'inconsistent with the known facts,' the insurer 'is estopped from asserting breach of such conditions.' From this jurisprudence, we find no valid reason to deviate and consequently hold that the decision appealed from should be affirmed. The injured parties, to wit, Carlos Songco, Angelito Songco and Jose Manuel, for whose hospital and medical expenses the defendant company was being made liable, were passengers of the jeepney at the time of the occurrence, and Rodolfo Songco, for whose burial expenses the defendant company was also being made liable was the driver of the vehicle in question. Except for the fact, that they were not fare paying passengers, their status as beneficiaries under the policy is recognized therein." 6 Even if it be assumed that there was an ambiguity, an excerpt from the Qua Chee Gan decision would reveal anew the weakness of petitioner's contention. Thus: "Moreover, taking into account the well known rule that ambiguities or obscurities must be strictly interpreted against the party that caused them, the 'memo of warranty' invoked by appellant bars the latter from questioning the existence of the appliances called for in the insured premises, since its initial expression, 'the undernoted appliances for the extinction of fire being kept on the premises insured hereby, ... it is hereby warranted ...,' admits of interpretation as an admission of the existence of such appliances which appellant cannot now contradict, should the parol evidence rule apply." 7 To the same effect is the following citation from the same leading case: "This rigid application of the rule on ambiguities has become necessary in view of current business practices. The courts cannot ignore that nowadays monopolies, cartels and concentration of capital, endowed with overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared 'agreements' that the weaker party may not change one whit, his participation in the 'agreement' being reduced to the alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats d'adhesion), in contrast to those entered into by parties bargaining on an equal footing, such contracts (of which policies of insurance and international bills of lading are prime examples) obviously call for greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker party from abuses and imposition, and prevent their becoming traps for the unwary (New Civil Code. Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942)." 8 The last error assigned which would find fault with the decision of respondent Court of Appeals insofar as it affirmed the lower court award for exemplary damages as well as attorney's fees is, on its face, of no persuasive force at all. The conclusion that inescapably emerges from the above is the correctness of the decision of respondent Court of Appeals sought to be reviewed. For, to borrow once again from the language of the Qua Chee Gan opinion: "The contract of insurance is one of perfect good faith (uberima fides) not for the insured alone,but equally so for the insurer; in fact, it is more so for the latter, since its dominant bargaining position carries with it stricter responsibility." 9 This is merely to stress that while the morality of the business world is not the morality of institutions of rectitude like the pulpit and the academe, it cannot descend so low as to be another name for guile or deception. Moreover, should it happen thus, no court of justice should allow itself to lend its approval and support.1awphl.nt We have no choice but to recognize the monetary responsibility of petitioner Fieldmen's Insurance Co., Inc. It did not succeed in its persistent effort to avoid complying with its obligation in the lower court and the Court of Appeals. Much less should it find any receptivity from us for its unwarranted and unjustified plea to escape from its liability.

WHEREFORE, the decision of respondent Court of Appeals of July 20, 1965, is affirmed in its entirety. Costs against petitioner Fieldmen's Insurance Co., Inc. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Angeles, JJ., concur. Footnotes
1

Brief for Defendant-Appellant, Appendix A, pp. 27-28. Ibid, p. 31. 98 Phil. 85 (1955). Ibid, p. 92.

The policy provided as follows: "The company will, subject to the limits of liability and under terms of this policy, indemnify the insured in the event of accident caused by or arising out of the use of motor vehicle against all sums which the insured will become liable to pay in respect of: death or bodily injury to any fare-paying passenger including the driver, conductor, and/or inspector who is riding in the motor vehicle insured at the time of the accident or injury (RA 9)." (Brief for Defendant-Appellant, p. 36.)
6

Ibid, p. 37. 98 Phil. 85, 92-93 (1955). Ibid, p. 95. Ibid, p. 95.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-16215 June 29, 1963

SIMEON DEL ROSARIO, plaintiff-appellee, vs. THE EQUITABLE INSURANCE AND CASUALTY CO., INC., defendant-appellant. Vicente J. Francisco and Jose R. Francisco for plaintiff-appellee. K. V. Faylona for defendant-appellant. PAREDES, J.: On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued Personal Accident Policy No. 7136 on the life of Francisco del Rosario, alias Paquito Bolero, son of herein plaintiff-appellee, binding itself to pay the sum of P1,000.00 to P3,000.00, as indemnity for the death of the insured. The pertinent provisions of the Policy, recite: Part I. Indemnity For Death If the insured sustains any bodily injury which is effected solely through violent, external, visible and accidental means, and which shall result, independently of all other causes and within sixty (60) days from the occurrence thereof, in the Death of the Insured, the Company shall pay the amount set opposite such injury: Section 1. Injury sustained other than those specified below unless excepted hereinafter. . . . . . . . Section 2. Injury sustained by the wrecking or disablement of a railroad passenger car or street railway car in or on which the Insured is travelling as a farepaying passenger. . . . . . . . Section 3. Injury sustained by the burning of a church, theatre, public library or municipal administration building while the Insured is therein at the commencement of the fire. . . . . . . . Section 4. Injury sustained by the wrecking or disablement of a regular passenger elevator car in which the Insured is being conveyed as a passenger (Elevator in mines excluded) P2,500.00 Section 5. Injury sustained by a stroke of lightning or by a cyclone. . . . . . . . xxx xxx xxx P3,000.00

P1,000.00

P1,500.00

P2,000.00

Part VI. Exceptions This policy shall not cover disappearance of the Insured nor shall it cover Death, Disability, Hospital fees, or Loss of Time, caused to the insured: . . . (h) By drowning except as a consequence of the wrecking or disablement in the Philippine waters of a passenger steam or motor vessel in which the Insured is travelling as a farepaying passenger; . . . . A rider to the Policy contained the following:

IV. DROWNING It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the policy is hereby waived by the company, and to form a part of the provision covered by the policy. On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while on board the motor launch "ISLAMA" together with 33 others, including his beneficiary in the Policy, Remedios Jayme, were forced to jump off said launch on account of fire which broke out on said vessel, resulting in the death of drowning, of the insured and beneficiary in the waters of Jolo. 1wph1.t On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, filed a claim for payment with defendant company, and on September 13, 1957, defendant company paid to him (plaintiff) the sum of P1,000.00, pursuant to Section 1 of Part I of the policy. The receipt signed by plaintiff reads RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC., the sum of PESOS ONE THOUSAND (P1,000.00) Philippine Currency, being settlement in full for all claims and demands against said Company as a result of an accident which occurred on February 26, 1957, insured under out ACCIDENT Policy No. 7136, causing the death of the Assured. In view of the foregoing, this policy is hereby surrendered and CANCELLED. LOSS COMPUTATION Amount of Insurance P1,000.00 __________ vvvvv

On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote defendant company acknowledging receipt by his client (plaintiff herein), of the P1,000.00, but informing said company that said amount was not the correct one. Atty. Francisco claimed The amount payable under the policy, I believe should be P1,500.00 under the provision of Section 2, part 1 of the policy, based on the rule of pari materia as the death of the insured occurred under the circumstances similar to that provided under the aforecited section. Defendant company, upon receipt of the letter, referred the matter to the Insurance Commissioner, who rendered an opinion that the liability of the company was only P1,000.00, pursuant to Section 1, Part I of the Provisions of the policy (Exh. F, or 3). Because of the above opinion, defendant insurance company refused to pay more than P1,000.00. In the meantime, Atty. Vicente Francisco, in a subsequent letter to the insurance company, asked for P3,000.00 which the Company refused, to pay. Hence, a complaint for the recovery of the balance of P2,000.00 more was instituted with the Court of First Instance of Rizal (Pasay City, Branch VII), praying for it further sum of P10,000.00 as attorney's fees, expenses of litigation and costs. Defendant Insurance Company presented a Motion to Dismiss, alleging that the demand or claim is set forth in the complaint had already been released, plaintiff having received the full amount due as appearing in policy and as per opinion of the Insurance Commissioner. An opposition to the motion to dismiss, was presented by plaintiff, and other pleadings were subsequently file by the parties. On December 28, 1957, the trial court deferred action on the motion to dismiss until termination of the trial of the case, it appearing that the ground thereof was not indubitable. In the Answer to the complaint, defendant company practically admitted all the allegations therein, denying only those which stated that under the policy its liability was P3,000.00. On September 1, 1958, the trial court promulgated an Amended Decision, the pertinent portions of which read xxx xxx xxx

Since the contemporaneous and subsequent acts of the parties show that it was not their intention that the payment of P1,000.00 to the plaintiff and the signing of the loss receipt exhibit "1" would be considered as releasing the defendant completely from its liability on the policy in question, said intention of the parties should prevail over the contents of the loss receipt "1" (Articles 1370 and 1371, New Civil Code).

". . . . Under the terms of this policy, defendant company agreed to pay P1,000.00 to P3,000.00 as indemnity for the death of the insured. The insured died of drowning. Death by drowning is covered by the policy the pertinent provisions of which reads as follows: xxx xxx xxx

"Part I of the policy fixes specific amounts as indemnities in case of death resulting from "bodily injury which is effected solely thru violence, external, visible and accidental means" but, Part I of the Policy is not applicable in case of death by drowning because death by drowning is not one resulting from "bodily injury which is affected solely thru violent, external, visible and accidental means" as "Bodily Injury" means a cut, a bruise, or a wound and drowning is death due to suffocation and not to any cut, bruise or wound." xxx xxx xxx

Besides, on the face of the policy Exhibit "A" itself, death by drowning is a ground for recovery apart from the bodily injury because death by bodily injury is covered by Part I of the policy while death by drowning is covered by Part VI thereof. But while the policy mentions specific amounts that may be recovered for death for bodily injury, yet, there is not specific amount mentioned in the policy for death thru drowning although the latter is, under Part VI of the policy, a ground for recovery thereunder. Since the defendant has bound itself to pay P1000.00 to P3,000.00 as indemnity for the death of the insured but the policy does not positively state any definite amount that may be recovered in case of death by drowning, there is an ambiguity in this respect in the policy, which ambiguity must be interpreted in favor of the insured and strictly against the insurer so as to allow greater indemnity. xxx xxx xxx

. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already paid the amount of P1,000.00 to the plaintiff so that there still remains a balance of P2,000.00 of the amount to which plaintiff is entitled to recover under the policy Exhibit "A". The plaintiff asks for an award of P10,000.00 as attorney's fees and expenses of litigation. However, since it is evident that the defendant had not acted in bad faith in refusing to pay plaintiff's claim, the Court cannot award plaintiff's claim for attorney's fees and expenses of litigation. IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside its decision dated July 21, 1958 and hereby renders judgment, ordering the defendant to pay plaintiff the sum of Two Thousand (P2,000.00) Pesos and to pay the costs. The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in a Resolution dated September 29, 1959, elevated the case to this Court, stating that the genuine issue is purely legal in nature. All the parties agree that indemnity has to be paid. The conflict centers on how much should the indemnity be. We believe that under the proven facts and circumstances, the findings and conclusions of the trial court, are well taken, for they are supported by the generally accepted principles or rulings on insurance, which enunciate that where there is an ambiguity with respect to the terms and conditions of the policy, the same will be resolved against the one responsible thereof. It should be recalled in this connection, that generally, the insured, has little, if any, participation in the preparation of the policy, together with the drafting of its terms and Conditions. The interpretation of obscure stipulations in a contract should not favor the party who cause the obscurity (Art. 1377, N.C.C.), which, in the case at bar, is the insurance company. . . . . And so it has been generally held that the "terms in an insurance policy, which are ambiguous, equivocal or uncertain . . . are to be construed strictly against, the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved," (29 Am. Jur. 181) and the reason for this rule is that the "insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by expert and legal advisers employed by, and acting exclusively in the interest of, the insurance company" (44 C.J.S. 1174). Calanoc v. Court of Appeals, et al., G.R. No. L-8151, Dec. 16, 1955.

. . . . Where two interpretations, equally fair, of languages used in an insurance policy may be made, that which allows the greater indemnity will prevail. (L'Engel v. Scotish Union & Nat. F. Ins. Co., 48 Fla. 82, 37 So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas. 749). At any event, the policy under consideration, covers death or disability by accidental means, and the appellant insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for death of the insured. In view of the conclusions reached, it would seem unnecessary to discuss the other issues raised in the appeal. The judgment appealed from is hereby affirmed. Without costs. Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Dizon and Regala, JJ., concur. Makalintal, J., reserves his vote.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-28866 March 17, 1972 FE DE JOYA LANDICHO, in her own behalf and as judicial guardian of her minor children, RAFAEL J. LANDICHO and MA. LOURDES EUGENIA LANDICHO,plaintiffs-appellees, vs. GOVERNMENT SERVICE INSURANCE SYSTEM,defendant-appellant. . Vedasto J. Hernandez for plaintiffs-appellees.Government Corporate Counsel Leopoldo M. Abellera and Trial Attorney Arsenio J. Magpale defendant-appellant.

CONCEPCION, C.J.:p Appeal of the Government Service Insurance System hereinafter referred to as GSIS, for the sake of brevity from a decision of the Court of First Instance of Manila directing said defendant to pay to the plaintiffs-appellees, Fe de Joya Landicho and her minor children, Rafael J. and Maria Lourdes Eugenia, both surnamed Landicho, the sum of P15,800, with interest thereon, at the legal rate, from September 26, 1967, until fully paid, in addition to the sum of P1,000, as and for attorney's fees, and the costs. The facts are not in dispute. On June 1, 1964, the GSIS issued in favor of Flaviano Landicho, a civil engineer of the Bureau of Public Works, stationed at Mamburao, Mindoro Occidental, optional additional life insurance policy No. OG-136107 in the sum of P7,900. The policy states on its face: This insurance is granted subject to the terms and conditions hereinafter set forth and in consideration of the "Information" therefor and of the payment on the day this Policy takes effect of the monthly premiums stated above, due from and payable by the Insured, and the like payments on the last day of every month during the lifetime of the Insured until maturity of this Policy or until prior death of the Insured. On page 2 of said policy, condition No. 1 provides, in part: . 1. PAYMENT OF PREMIUMS: . ... . Premiums are due and payable at the Office of the System in Manila or at any of its branches. When any premium or installment thereof remains unpaid after its due date, such due date is the date of default in payment of premiums. The mere possession of this Policy does not imply that it is in force unless the premiums due thereon are paid on time or the policy has sufficient cash value to keep it in force. Condition No. 18, on page 8 of the policy, is of the following tenor: . 18. ENTIRE CONTRACT IN THIS POLICY: . This Policy together with the "Information" sheet signed by the Insured, a copy of which is attached hereto, is issued under the provisions of Commonwealth Act No. 186, as amended, and constitutes the entire contract.

All statements made by the Insured shall, in the absence of fraud, be deemed representations and no warranties, and no statement shall void the Policy or be used as a defense to claim hereunder unless it be contained in written information and a copy of such information be endorsed upon or attached to the Policy when issued. Before the issuance of said policy, the insured had filed an application, by filing and signing a printed form of the GSIS on the basis of which the policy was issued. Paragraph 7 of said application States: 7. I hereby declare that all the above statements and answers as well as those I may make to the System's Medical Examiner in continuation of this application, to be true and co direct to the best of my knowledge and belief, and I hereby agree as follows: . a. That this declaration, with the answers to be given by me to the Medical Officer, shall be made the basis the policy and form part of the same; . b. That acceptance of my policy issued on this application will constitute a ratification by me of any correction or addition to this application made by the System; . c. That this application serves as a letter of authority to the Collecting Officer of our Office thru the GSIS to deduct from my salary the monthly premium in the amount of P33.36, beginning the month of May, 1964, and every month thereafter until notice of its discontinuance shall have beenreceived from the System; . d. That the failure to deduct from my salary the month premiums shall not make the policy lapse, however, the premium account shall be considered as indebtedness which, I bind myself to pay the System; . e. That my policy shall be made effective on the first day of the month next following the month the first premium is paid; provided, that it is not more ninety (90) days before or after the date of the medical examination,was conducted if required." . While still under the employment of the Bureau of Public Works, Mr. Landicho met his death, on June 29, 1966, in an airplane crash in Mindoro. Thereupon, Mrs. Landicho, in her own behalf and that of her co-plaintiffs and minor children, Rafael J. and Maria Lourdes Eugenia, filed with the GSIS a claim for P15,800, as the double indemnity due under policy No. OG-136107, because of the untimely death of the insured owing to said accident. The GSIS denied the claim, upon the ground that the policy had never been in force because, pursuant to subdivision (e) of the abovequoted paragraph 7 of the application, the policy "shall be ... effective on the first day of the month next following the month the first premium is paid," and no premium had ever been paid on said policy. Upon refusal of the GSIS to reconsider its stand, this action was filed, September 22, 1967, in the Court of First Instance of Manila, in which the GSIS reiterated its aforementioned defense. Thereafter submitted by both parties for judgment on the pleadings, upon the ground thatthe case involve purely questions of law, said court rendered, in due course, its abovementioned decision, from which the GSIS has taken the present appeal. The main issue therein is whether or not the insurance policy in question has ever been in force, not a single premium having been paid thereon. In support of the affirmative, plaintiffs invoke the stipulation in the policy to the effect that the information contained in the application filed by the insured shall form part of the contract between him and the GSIS, and, especially, subdivisions (c) and (d) of paragraph 7 of said application stating that the same shall serve "as a letter of authority to the Collecting Officer of our Office" the Bureau of Public Works "thru the GSIS to deduct from my salary the monthly premium in the amount of P33.36 beginning the month of May, 1964, and every month thereafter," and that "failure to deduct from my salary the monthly premiums shall not make the policy lapse, however, the premium account shall be considered as indebtedness which, I" the insured "bind myself to pay 1 the System." The GSIS maintains, however, the negative, relying upon subdivision (e) of the same paragraph No. 7, which provides that the "policy shall be made effective on the first day of the month next following the month the first premium is paid." Under this theory, subdivisions (c) and (d) of said paragraph 7 would not apply unless and until the first premium shall have been actually paid, pursuant to subdivision (e) of the same paragraph. Although it may not be entirely farfetched, this view is not likely to be in accord with the understanding of many, if not most, government employees who obtain an optional additional life insurance policy. As a consequence, the actual receipt by them of their full pay without any deduction for premiums on their optional additional life insurance

policies may not impart to them the warning which, otherwise, it would necessarily convey that said policy is not, as yet, in force, for they are liable to believe "that failure to deduct" from the salary of the insured "the monthly premiums shall not" in the language of subdivision (d) "make the policy lapse" and that "the premiums account shall be considered as indebtedness," to be paid or deducted later, because, after all, the so called "payment" of premiums is nothing but a "paper" or "accounting" process, whereby funds are merely transferred, not physically, but constructively, from one office of the government to another. In other words, the language, of subdivisions (c), (d) and (e) is such as to create an ambiguity that should be resolved against the party responsible therefor defendant GSIS, as the party who prepared and furnished the application form and in favor of the party misled thereby, the insured employee. Indeed, our Civil Code provides: The interpretation of obscure words or stipulations in a contract shall not favor the party who 2 caused the obscurity. This is particularly true as regards insurance policies, in respect of which it is settled that the " "terms in an insurance policy, which are ambiguous, equivocal, or uncertain ... are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule is the "insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the 3 interest of, the insurance company." (44 C.J.S., p. 1174.) . The equitable and ethical considerations justifying the foregoing view are bolstered up by two (2) factors, namely: (a) The aforementioned subdivision (c) states "that this application serves as a letter of authority to the Collecting Officer of our Office" the Bureau of Public Works "thru the GSIS to deduct from my salary the monthly premium in the amount of P33.36." No such deduction was made and, consequently, not even the first premium "paid" because the collecting officer of the Bureau of Public Works was not advised by the GSIS to make it (the deduction) pursuant to said authority. Surely, this omission of the GSIS should not inure to its benefit. . (b) The GSIS had impliedly induced the insured to believe that Policy No. OG-136107 was in force, he having been paid by the GSIS the dividends corresponding to said policy. Had the insured had the slightest inkling that the latter was not, as yet, effective for non-payment of the first premium, he would have, in all probability, caused the same to be forthwith satisfied. WHEREFORE, the decision appealed from should be, it is hereby affirmed, with costs against the defendantappellant, Government Service Insurance System. It is so ordered. . Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Villamor, Barredo and Makasiar, JJ., concur.

Footnotes 1 Emphasis ours. . 2 Art. 1377 thereof.. 3 Calanoc v. Court of Appeals, 98 Phil. 79, 84. See, also, H.E. Heacock Co. v. Macondray, 42 Phil. 205; Rivero v. Robe, 54 Phil. 982; Asturias Sugar Central v. The Pure Cane Molasses Co., 57 Phil. 519; Gonzales v. La Previsora Filipina, 74 Phil. 165; Del Rosario v. The Equitable Insurance, 620 O.G. 5400, 5403-04.

SECOND DIVISION [G.R. No. 166245, April 09, 2008] ETERNAL GARDENS MEMORIAL PARK CORPORATION, PETITIONER, VS. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, RESPONDENT. DECISION VELASCO JR., J.: The Case Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November 26, 2004 Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the insurer on the insurance application be considered as approval of the application? The Facts On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered into an agreement denominated as Creditor Group Life Policy No. P-1920[2] with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis. The relevant provisions of the policy are: ELIGIBILITY. Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the Assured for the unpaid balance of his loan with the Assured, and is accepted for Life Insurance coverage by the Company on its effective date is eligible for insurance under the Policy. EVIDENCE OF INSURABILITY. No medical examination shall be required for amounts of insurance up to P50,000.00. However, a declaration of good health shall be required for all Lot Purchasers as part of the application. The Company reserves the right to require further evidence of insurability satisfactory to the Company in respect of the following: 1. 2. Any amount of insurance in excess of P50,000.00. Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT. The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance of his loan (including arrears up to but not exceeding 2 months) as reported by the Assured to the Company or the sum of P100,000.00, whichever is smaller. Such benefit shall be paid to the Assured if the Lot Purchaser dies while insured under the Policy. EFFECTIVE DATE OF BENEFIT. The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company. [3] Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of the application of each purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal complied by submitting a letter dated December 29, 1982,[4] containing a list of insurable balances of its lot buyers for October 1982. One of those included in the list as "new business" was a certain John Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang died. Eternal sent a letter dated August 20, 1984[5] to Philamlife, which served as an insurance claim for Chuang's death. Attached to the claim were the following documents: (1) Chuang's Certificate of Death; (2) Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assured's Certificate.

In reply, Philamlife wrote Eternal a letter on November 12, 1984, [6] requiring Eternal to submit the following documents relative to its insurance claim for Chuang's death: (1) Certificate of Claimant (with form attached); (2) Assured's Certificate (with form attached); (3) Application for Insurance accomplished and signed by the insured, Chuang, while still living; and (4) Statement of Account showing the unpaid balance of Chuang before his death. Eternal transmitted the required documents through a letter dated November 14, 1984, [7] which was received by Philamlife on November 15, 1984. After more than a year, Philamlife had not furnished Eternal with any reply to the latter's insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986. [8] In response to Eternal's demand, Philamlife denied Eternal's insurance claim in a letter dated May 20, 1986, [9] a portion of which reads: The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens Memorial Park in October 1982 for the total maximum insurable amount of P100,000.00 each. No application for Group Insurance was submitted in our office prior to his death on August 2, 1984. In accordance with our Creditor's Group Life Policy No. P-1920, under Evidence of Insurability provision, "a declaration of good health shall be required for all Lot Purchasers as party of the application." We cite further the provision on Effective Date of Coverage under the policy which states that "there shall be no insurance if the application is not approved by the Company." Since no application had been submitted by the Insured/Assured, prior to his death, for our approval but was submitted instead on November 15, 1984, after his death, Mr. John Uy Chuang was not covered under the Policy. We wish to point out that Eternal Gardens being the Assured was a party to the Contract and was therefore aware of these pertinent provisions. With regard to our acceptance of premiums, these do not connote our approval per se of the insurance coverage but are held by us in trust for the payor until the prerequisites for insurance coverage shall have been met. We will however, return all the premiums which have been paid in behalf of John Uy Chuang. Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money against Philamlife, docketed as Civil Case No. 14736. The trial court decided in favor of Eternal, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL, against Defendant PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the sum of P100,000.00, representing the proceeds of the Policy of John Uy Chuang, plus legal rate of interest, until fully paid; and, to pay the sum of P10,000.00 as attorney's fees. SO ORDERED. The RTC found that Eternal submitted Chuang's application for insurance which he accomplished before his death, as testified to by Eternal's witness and evidenced by the letter dated December 29, 1982, stating, among others: "Encl: Phil-Am Life Insurance Application Forms & Cert."[10] It further ruled that due to Philamlife's inaction from the submission of the requirements of the group insurance on December 29, 1982 to Chuang's death on August 2, 1984, as well as Philamlife's acceptance of the premiums during the same period, Philamlife was deemed to have approved Chuang's application. The RTC said that since the contract is a group life insurance, once proof of death is submitted, payment must follow. Philamlife appealed to the CA, which ruled, thus: WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is REVERSED and SET ASIDE, and the complaint is DISMISSED. No costs. SO ORDERED.[11] The CA based its Decision on the factual finding that Chuang's application was not enclosed in Eternal's letter dated December 29, 1982. It further ruled that the non-accomplishment of the submitted application form violated Section 26 of the Insurance Code. Thus, the CA concluded, there being no application form, Chuang was not covered by Philamlife's insurance. Hence, we have this petition with the following grounds: The Honorable Court of Appeals has decided a question of substance, not therefore determined by this Honorable Court, or has decided it in a way not in accord with law or with the applicable jurisprudence, in holding that: I. II. III. The application for insurance was not duly submitted to respondent PhilamLife before the death of John Chuang; There was no valid insurance coverage; and Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996.

The Court's Ruling As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the CA and first level courts, considering their findings of facts are conclusive and binding on this Court. However, such rule is subject to exceptions, as enunciated in Sampayan v. Court of Appeals: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the [CA] went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings [of the CA] are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.[12] (Emphasis supplied.) In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review them. Eternal claims that the evidence that it presented before the trial court supports its contention that it submitted a copy of the insurance application of Chuang before his death. In Eternal's letter dated December 29, 1982, a list of insurable interests of buyers for October 1982 was attached, including Chuang in the list of new businesses. Eternal added it was noted at the bottom of said letter that the corresponding "Phil-Am Life Insurance Application Forms & Cert." were enclosed in the letter that was apparently received by Philamlife on January 15, 1983. Finally, Eternal alleged that it provided a copy of the insurance application which was signed by Chuang himself and executed before his death. On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that Eternal must present evidence showing that Philamlife received a copy of Chuang's insurance application. The evidence on record supports Eternal's position. The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that the insurance forms for the attached list of burial lot buyers were attached to the letter. Such stamp of receipt has the effect of acknowledging receipt of the letter together with the attachments. Such receipt is an admission by Philamlife against its own interest.[13] The burden of evidence has shifted to Philamlife, which must prove that the letter did not contain Chuang's insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed to have received Chuang's insurance application. To reiterate, it was Philamlife's bounden duty to make sure that before a transmittal letter is stamped as received, the contents of the letter are correct and accounted for. Philamlife's allegation that Eternal's witnesses ran out of credibility and reliability due to inconsistencies is groundless. The trial court is in the best position to determine the reliability and credibility of the witnesses, because it has the opportunity to observe firsthand the witnesses' demeanor, conduct, and attitude. Findings of the trial court on such matters are binding and conclusive on the appellate court, unless some facts or circumstances of weight and substance have been overlooked, misapprehended, or misinterpreted,[14] that, if considered, might affect the result of the case. [15] An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked facts of substance and value. Philamlife primarily claims that Eternal did not even know where the original insurance application of Chuang was, as shown by the testimony of Edilberto Mendoza: Atty. Arevalo: Q Where is the original of the application form which is required in case of new coverage? [Mendoza:] A It is [a] standard operating procedure for the new client to fill up two copies of this form and the original of this is submitted to Philamlife together with the monthly remittances and the second copy is remained or retained with the marketing department of Eternal Gardens. Atty. Miranda: We move to strike out the answer as it is not responsive as counsel is merely asking for the location and does not [ask] for the number of copy. Atty. Arevalo: Q Where is the original? [Mendoza:] A As far as I remember I do not know where the original but when I submitted with that payment together with the new clients all the originals I see to it before I sign the transmittal letter the originals are attached therein. [16]

In other words, the witness admitted not knowing where the original insurance application was, but believed that the application was transmitted to Philamlife as an attachment to a transmittal letter. As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two insurance application forms were accomplished and the testimony of Mendoza on who actually filled out the application form, these are minor inconsistencies that do not affect the credibility of the witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies are too trivial to affect the credibility of witnesses, and these may even serve to strengthen their credibility as these negate any suspicion that the testimonies have been rehearsed.[17] We reiterated the above ruling in Merencillo v. People: Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecution's evidence as a whole or reflect on the witnesses' honesty. The test is whether the testimonies agree on essential facts and whether the respective versions corroborate and substantially coincide with each other so as to make a consistent and coherent whole. [18] In the present case, the number of copies of the insurance application that Chuang executed is not at issue, neither is whether the insurance application presented by Eternal has been falsified. Thus, the inconsistencies pointed out by Philamlife are minor and do not affect the credibility of Eternal's witnesses. However, the question arises as to whether Philamlife assumed the risk of loss without approving the application. This question must be answered in the affirmative. As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that: EFFECTIVE DATE OF BENEFIT. The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company. An examination of the above provision would show ambiguity between its two sentences. The first sentence appears to state that the insurance coverage of the clients of Eternal already became effective upon contracting a loan with Eternal while the second sentence appears to require Philamlife to approve the insurance contract before the same can become effective. It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order to safeguard the latter's interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that: Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations.[19] (Emphasis supplied.) In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating that: 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. [20] Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980, must be construed in favor of the insured and in favor of the effectivity of the insurance contract. On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a party's purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the insurance application. The second sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance contract. Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The termination of the insurance contract by the insurer must be explicit and unambiguous. As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of experience in the industry purposefully used to its advantage. More often than not, insurance contracts are contracts of adhesion containing technical terms and conditions of the industry, confusing if at all understandable to laypersons, that are imposed on those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must be considered whenever the rights and obligations of the insurer and the

insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance companies must be obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise be bound to honor the application as a valid, binding, and effective insurance contract.[21] WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED: (1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of Chuang; (2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time of extra-judicial demand by Eternal until Philamlife's receipt of the May 29, 1996 RTC Decision on June 17, 1996; (3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June 17, 1996 until full payment of this award; and (4) To pay Eternal attorney's fees in the amount of PhP 10,000. No costs. SO ORDERED. Carpio-Morales, (Acting Chairperson), Tinga, Brion, and Chico-Nazario, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 119599 March 20, 1997 MALAYAN INSURANCE CORPORATION, petitioner, vs. THE HON. COURT OF APPEALS and TKC MARKETING CORPORATION, respondents.

ROMERO, J.: Assailed in this petition for review on certiorari is the decision of the Court of Appeals in CA-G. R. No. 43023 which affirmed, with slight modification, the decision of the Regional Trial Court of Cebu, Branch 15. Private respondent TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric tons of soya bean meal which was loaded on board the ship MV Al Kaziemah on or about September 8, 1989 for carriage from the port of Rio del Grande, Brazil, to the port of Manila. Said cargo was insured against the risk of loss by petitioner Malayan Insurance Corporation for which it issued two (2) Marine Cargo policy Nos. M/LP 97800305 amounting to P18,986,902.45 and M/LP 97800306 amounting to P1,195,005.45, both dated September 1989. While the vessel was docked in Durban, South Africa on September 11, 1989 enroute to Manila, the civil authorities arrested and detained it because of a lawsuit on a question of ownership and possession. As a result, private respondent notified petitioner on October 4, 1989 of the arrest of the vessel and made a formal claim for the amount of US$916,886.66, representing the dollar equivalent on the policies, for non-delivery of the cargo. Private respondent likewise sought the assistance of petitioner on what to do with the cargo. Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the policies. Private respondent, accordingly, advised petitioner that it might tranship the cargo and requested an extension of the insurance coverage until actual transhipment, which extension was approved upon payment of additional premium. The insurance coverage was extended under the same terms and conditions embodied in the original policies while in the process of making arrangements for the transhipment of the cargo from Durban to Manila, covering the period October 4 - December 19, 1989. However, on December 11, 1989, the cargo was sold in Durban, South Africa, for US$154.40 per metric ton or a total of P10,304,231.75 due to its perishable nature which could no longer stand a voyage of twenty days to Manila and another twenty days for the discharge thereof. On January 5, 1990, private respondent forthwith reduced its claim to US$448,806.09 (or its peso equivalent of P9,879,928.89 at the exchange rate of P22.0138 per $1.00) representing private respondent's loss after the proceeds of the sale were deducted from the original claim of $916,886.66 or P20,184,159.55. Petitioner maintained its position that the arrest of the vessel by civil authorities on a question of ownership was an excepted risk under the marine insurance policies. This prompted private respondent to file a complaint for damages praying that aside from its claim, it be reimbursed the amount of P128,770.88 as legal expenses and the interest it paid for the loan it obtained to finance the shipment totalling P942,269.30. In addition, private respondent asked for moral damages amounting to P200,000.00, exemplary damages amounting to P200,000.00 and attorney's fees equivalent to 30% of what will be awarded by the court. The lower court decided in favor of private respondent and required petitioner to pay, aside from the insurance claim, consequential and liquidated damages amounting to P1,024,233.88, exemplary damages amounting to P100,000.00, reimbursement in the amount equivalent to 10% of whatever is recovered as attorney's fees as well as the costs of the suit. On private respondent's motion for reconsideration, petitioner was also required to further pay interest at the
1

rate of 12% per annum on all amounts due and owing to the private respondent by virtue of the lower court decision counted from the inception of this case until the same is paid. On appeal, the Court of Appeals affirmed the decision of the lower court stating that with the deletion of Clause 12 of the policies issued to private respondent, the same became automatically covered under subsection 1.1 of Section 1 of the Institute War Clauses. The arrests, restraints or detainments contemplated in the former clause were those effected by political or executive acts. Losses occasioned by riot or ordinary judicial processes were not covered therein. In other words, arrest, restraint or detainment within the meaning of Clause 12 (or F.C. & S. Clause) rules out detention by ordinary legal processes. Hence, arrests by civil authorities, such as what happened in the instant case, is an excepted risk under Clause 12 of the Institute Cargo Clause or the F.C. & S. Clause. However, with the deletion of Clause 12 of the Institute Cargo Clause and the consequent adoption or institution of the Institute War Clauses (Cargo), the arrest and seizure by judicial processes which were excluded under the former policy became one of the covered risks. The appellate court added that the failure to deliver the consigned goods in the port of destination is a loss compensable, not only under the Institute War Clause but also under the Theft, Pilferage, and Non-delivery Clause (TNPD) of the insurance policies, as read in relation to Section 130 of the Insurance Code and as held in Williams v. 2 Cole. Furthermore, the appellate court contended that since the vessel was prevented at an intermediate port from completing the voyage due to its seizure by civil authorities, a peril insured against, the liability of petitioner continued until the goods could have been transhipped. But due to the perishable nature of the goods, it had to be promptly sold to minimize loss. Accordingly, the sale of the goods being reasonable and justified, it should not operate to discharge petitioner from its contractual liability. Hence this petition, claiming that the Court of Appeals erred: 1. In ruling that the arrest of the vessel was a risk covered under the subject insurance policies. 2. In ruling that there was constructive total loss over the cargo. 3. In ruling that petitioner was in bad faith in declining private respondent's claim. 4. In giving undue reliance to the doctrine that insurance policies are strictly construed against the insurer. In assigning the first error, petitioner submits the following: (a) an arrest by civil authority is not compensable since the term "arrest" refers to "political or executive acts" and does not include a loss caused by riot or by ordinary judicial process as in this case; (b) the deletion of the Free from capture or Seizure Clause would leave the assured covered solely for the perils specified by the wording of the policy itself; (c) the rationale for the exclusion of an arrest pursuant to judicial authorities is to eliminate collusion between unscrupulous assured and civil authorities. As to the second assigned error, petitioner submits that any loss which private respondent may have incurred was in the nature and form of unrecovered acquisition value brought about by a voluntary sacrifice sale and not by arrest, detention or seizure of the ship. As to the third issue, petitioner alleges that its act of rejecting the claim was a result of its honest belief that the arrest of the vessel was not a compensable risk under the policies issued. In fact, petitioner supported private respondent by accommodating the latter's request for an extension of the insurance coverage, notwithstanding that it was then under no legal obligation to do so. Private respondent, on the other hand, argued that when it appealed its case to the Court of Appeals, petitioner did not raise as an issue the award of exemplary damages. It cannot now, for the first time, raise the same before this Court. Likewise, petitioner cannot submit for the first time on appeal its argument that it was wrong for the Court of Appeals to have ruled the way it did based on facts that would need inquiry into the evidence. Even if inquiry into the facts were possible, such was not necessary because the coverage as ruled upon by the Court of Appeals is evident from the very terms of the policies.

It also argued that petitioner, being the sole author of the policies, "arrests" should be strictly interpreted against it because the rule is that any ambiguity is to be taken contra proferentum. Risk policies should be construed reasonably and in a manner as to make effective the intentions and expectations of the parties. It added that the policies clearly stipulate that they cover the risks of non-delivery of an entire package and that it was petitioner itself that invited and granted the extensions and collected premiums thereon. The resolution of this controversy hinges on the interpretation of the "Perils" clause of the subject policies in relation to the excluded risks or warranty specifically stated therein. By way of a historical background, marine insurance developed as an all-risk coverage, using the phrase "perils of 3 the sea" to encompass the wide and varied range of risks that were covered. The subject policies contain the "Perils" clause which is a standard form in any marine insurance policy. Said clause reads: Touching the adventures which the said MALAYAN INSURANCE CO., are content to bear, and to take upon them in this voyage; they are of the Seas; Men-of-War, Fire, Enemies, Pirates, Rovers, Thieves, Jettisons, Letters of Mart and Counter Mart, Suprisals, Takings of the Sea, Arrests, Restraints and Detainments of all Kings, Princess and Peoples, of what Nation, Condition, or quality soever, Barratry of the Master and Mariners, and of all other Perils, Losses, and Misfortunes, that have come to hurt, detriment, or damage of the said goods and merchandise or any part thereof . AND in case of any loss or misfortune it shall be lawful to the ASSURED, their factors, servants and assigns, to sue, labour, and travel for, in and about the defence, safeguards, and recovery of the said goods and merchandises, and ship, & c., or any part thereof, without prejudice to this INSURANCE; to the charges whereof the said COMPANY, will contribute according to the rate and quantity of the sum herein INSURED. AND it is expressly declared and agreed that no acts of the Insurer or Insured in recovering, saving, or preserving the Property insured shall be considered as a Waiver, or Acceptance of Abandonment. And it is agreed by the said COMPANY, that this writing or Policy of INSURANCE shall be of as much Force and Effect as the surest Writing or policy of INSURANCE made in LONDON. And so the said MALAYAN INSURANCE COMPANY., INC., are contented, and do hereby promise and bind themselves, their Heirs, Executors, Goods and Chattel, to the ASSURED, his or their Executors, Administrators, or Assigns, for the true Performance of the Premises; confessing themselves paid the Consideration due unto them for this INSURANCE at and after the rate arranged. (Emphasis supplied) The exception or limitation to the "Perils" clause and the "All other perils" clause in the subject policies is specifically referred to as Clause 12 called the "Free from Capture & Seizure Clause" or the F.C. & S. Clause which reads, thus: Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof or of any attempt thereat; also from the consequences of hostilities and warlike operations, whether there be a declaration of war or not; but this warranty shall not exclude collision, contact with any fixed or floating object (other than a mine or torpedo), stranding, heavy weather or fire unless caused directly (and independently of the nature of the voyage or service which the vessel concerned or, in the case of a collision, any other vessel involved therein is performing) by a hostile act by or against a belligerent power and for the purpose of this warranty "power" includes any authorities maintaining naval, military or air forces in association with power. Further warranted free from the consequences of civil war, revolution, insurrection, or civil strike arising therefrom or piracy. Should Clause 12 be deleted, the relevant current institute war clauses shall be deemed to form part of this insurance. (Emphasis supplied) However, the F. C. & S. Clause was deleted from the policies. Consequently, the Institute War Clauses (Cargo) was deemed incorporated which, in subsection 1.1 of Section 1, provides: 1. This insurance covers: 1.1 The risks excluded from the standard form of English Marine Policy by the clause warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof of hostilities or warlike operations, whether there be a declaration of war or not; but this warranty shall not

exclude collision, contact with any fixed or floating object (other than a mine or torpedo), stranding, heavy weather or fire unless caused directly (and independently of the nature on voyage or service which the vessel concerned or, in the case of a collision any other vessel involved therein is performing) by a hostile act by or against a belligerent power; and for the purpose of this warranty "power" includes any authority maintaining naval, military or air forces in association with a power. Further warranted free from the consequences of civil war, revolution, rebellion, insurrection, or civil strike arising therefrom, or piracy. According to petitioner, the automatic incorporation of subsection 1.1 of section 1 of the Institute War Clauses (Cargo), among others, means that any "capture, arrest, detention, etc." pertained exclusively to warlike operations if this Court strictly construes the heading of the said clauses. However, it also claims that the parties intended to include arrests, etc. even if it were not the result of hostilities or warlike operations. It further claims that on the strength of jurisprudence on the matter, the term "arrests" would only cover those arising from political or executive acts, concluding that whether private respondent's claim is anchored on subsection 1.1 of Section 1 of the Institute 4 War Clauses (Cargo) or the F.C. & S. Clause, the arrest of the vessel by judicial authorities is an excluded risk. This Court cannot agree with petitioner's assertions, particularly when it alleges that in the "Perils" Clause, it assumed the risk of arrest caused solely by executive or political acts of the government of the seizing state and thereby excludes "arrests" caused by ordinary legal processes, such as in the instant case. With the incorporation of subsection 1.1 of Section 1 of the Institute War Clauses, however, this Court agrees with the Court of Appeals and the private respondent that "arrest" caused by ordinary judicial process is deemed included among the covered risks. This interpretation becomes inevitable when subsection 1.1 of Section 1 of the Institute War Clauses provided that "this insurance covers the risks excluded from the Standard Form of English Marine Policy by the clause "Warranted free of capture, seizure, arrest, etc. . . ." or the F.C. & S. Clause. Jurisprudentially, "arrests" caused by ordinary judicial process is also a risk excluded from the Standard Form of English Marine Policy by the F.C. & S. Clause. Petitioner cannot adopt the argument that the "arrest" caused by ordinary judicial process is not included in the covered risk simply because the F.C. & S. Clause under the Institute War Clauses can only be operative in case of hostilities or warlike operations on account of its heading "Institute War Clauses." This Court agrees with the Court of Appeals when it held that ". . . . Although the F.C. & S. Clause may have originally been inserted in marine policies to protect against risks of war, (see generally G. Gilmore & C. Black, The Law of Admiralty Section 2-9, at 71-73 [2d Ed. 1975]), its interpretation in recent years to include seizure or detention by civil authorities seems consistent with the 5 general purposes of the clause, . . . ." In fact, petitioner itself averred that subsection 1.1 of Section 1 of the Institute 6 War Clauses included "arrest" even if it were not a result of hostilities or warlike operations. In this regard, since what was also excluded in the deleted F.C. & S. Clause was "arrest" occasioned by ordinary judicial process, logically, such "arrest" would now become a covered risk under subsection 1.1 of Section 1 of the Institute War Clauses, regardless of whether or not said "arrest" by civil authorities occurred in a state of war. Petitioner itself seems to be confused about the application of the F.C. & S. Clause as well as that of subsection 1.1 of Section 1 of the Institute War Clauses (Cargo). It stated that "the F.C. & S. Clause was "originally incorporated in insurance policies to eliminate the risks of warlike operations". It also averred that the F.C. & S. Clause applies even 7 if there be no war or warlike operations . . . ." In the same vein, it contended that subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) "pertained exclusively to warlike operations" and yet it also stated that "the deletion of the F.C. & S. Clause and the consequent incorporation of subsection 1.1 of Section 1 of the Institute War Clauses 8 (Cargo) was to include "arrest, etc. even if were not a result of hostilities or warlike operations. This Court cannot help the impression that petitioner is overly straining its interpretation of the provisions of the policy in order to avoid being liable for private respondent's claim. This Court finds it pointless for petitioner to maintain its position that it only insures risks of "arrest" occasioned by executive or political acts of government which is interpreted as not referring to those caused by ordinary legal processes as contained in the "Perils" Clause; deletes the F.C. & S. Clause which excludes risks of arrest occasioned by executive or political acts of the government and naturally, also those caused by ordinary legal processes; and, thereafter incorporates subsection 1.1 of Section 1 of the Institute War Clauses which now includes in the coverage risks of arrest due to executive or political acts of a government but then still excludes "arrests" occasioned by ordinary legal processes when subsection 1.1 of Section 1 of said Clauses should also have included "arrests" previously excluded from the coverage of the F.C. & S. Clause.

It has been held that a strained interpretation which is unnatural and forced, as to lead to an absurd conclusion or to 9 render the policy nonsensical, should, by all means, be avoided. Likewise, it must be borne in mind that such contracts are invariably prepared by the companies and must be accepted by the insured in the form in which they 10 11 are written. Any construction of a marine policy rendering it void should be avoided. Such policies will, therefore, be construed strictly against the company in order to avoid a forfeiture, unless no other result is possible from the 12 language used. If a marine insurance company desires to limit or restrict the operation of the general provisions of its contract by 13 special proviso, exception, or exemption, it should express such limitation in clear and unmistakable language. Obviously, the deletion of the F.C. & S. Clause and the consequent incorporation of subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) gave rise to ambiguity. If the risk of arrest occasioned by ordinary judicial process was expressly indicated as an exception in the subject policies, there would have been no controversy with respect to the interpretation of the subject clauses. Be that as it may, exceptions to the general coverage are construed most strongly against the company. Even an express exception in a policy is to be construed against the underwriters by whom the policy is framed, and for whose 15 benefit the exception is introduced. An insurance contract should be so interpreted as to carry out the purpose for which the parties entered into the contract which is, to insure against risks of loss or damage to the goods. Such interpretation should result from the 16 natural and reasonable meaning of language in the policy. Where restrictive provisions are open to two 17 interpretations, that which is most favorable to the insured is adopted. Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity 18 therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from 19 noncompliance with its obligations. In view of the foregoing, this Court sees no need to discuss the other issues presented. WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED. SO ORDERED. Regalado, Puno, Mendoza, and Torres, Jr., JJ., concur.
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THIRD DIVISION [G.R. No. 112360. July 18, 2000] RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS and TRANSWORLD KNITTING MILLS, INC., respondents. DECISION PURISIMA, J.: At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to annul and set aside the July 15, 1993 Decision1[1] and October 22, 1993 Resolution2[2] of the Court of Appeals3[3] in CAG.R. CV NO. 28779, which modified the Ruling4[4] of the Regional Trial Court of Pasig, Branch 161, in Civil Case No. 46106. The antecedent facts that matter are as follows: On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued Fire Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc. (Transworld), initially for One Million (P1,000,000.00) Pesos and eventually increased to One Million Five Hundred Thousand (P1,500,000.00) Pesos, covering the period from August 14, 1980 to March 13, 1981. Pertinent portions of subject policy on the buildings insured, and location thereof, read: "On stocks of finished and/or unfinished products, raw materials and supplies of every kind and description, the properties of the Insureds and/or held by them in trust, on commission or on joint account with others and/or for which they (sic) responsible in case of loss whilst contained and/or stored during the currency of this Policy in the premises occupied by them forming part of the buildings situate (sic) within own Compound at MAGDALO STREET, BARRIO UGONG, PASIG, METRO MANILA, PHILIPPINES, BLOCK NO. 601. xxx...............xxx...............xxx Said building of four-span lofty one storey in height with mezzanine portions is constructed of reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and occupied as

hosiery mills, garment and lingerie factory, transistor-stereo assembly plant, offices, warehouse and caretaker's quarters. 'Bounds in front partly by one-storey concrete building under galvanized iron roof occupied as canteen and guardhouse, partly by building of two and partly one storey constructed of concrete below, timber above undergalvanized iron roof occupied as garage and quarters and partly by open space and/or tracking/ packing, beyond which is the aforementioned Magdalo Street; on its right and left by driveway, thence open spaces, and at the rear by open spaces.'"5[5] The same pieces of property insured with the petitioner were also insured with New India Assurance Company, Ltd., (New India). On January 12, 1981, fire broke out in the compound of Transworld, razing the middle portion of its fourspan building and partly gutting the left and right sections thereof. A two-storey building (behind said fourspan building) where fun and amusement machines and spare parts were stored, was also destroyed by the fire. Transworld filed its insurance claims with Rizal Surety & Insurance Company and New India Assurance Company but to no avail. On May 26, 1982, private respondent brought against the said insurance companies an action for collection of sum of money and damages, docketed as Civil Case No. 46106 before Branch 161 of the then Court of First Instance of Rizal; praying for judgment ordering Rizal Insurance and New India to pay the amount of P2,747, 867.00 plus legal interest, P400,000.00 as attorney's fees, exemplary damages, expenses of litigation of P50,000.00 and costs of suit.6[6] Petitioner Rizal Insurance countered that its fire insurance policy sued upon covered only the contents of the four-span building, which was partly burned, and not the damage caused by the fire on the two-storey annex building.7[7] On January 4, 1990, the trial court rendered its decision; disposing as follows: "ACCORDINGLY, judgment is hereby rendered as follows: (1)Dismissing the case as against The New India Assurance Co., Ltd.; (2) Ordering defendant Rizal Surety And Insurance Company to pay Transwrold (sic) Knitting Mills, Inc. the amount of P826, 500.00 representing the actual value of the losses suffered by it; and (3) Cost against defendant Rizal Surety and Insurance Company. SO ORDERED."8[8]

Both the petitioner, Rizal Insurance Company, and private respondent, Transworld Knitting Mills, Inc., went to the Court of Appeals, which came out with its decision of July 15, 1993 under attack, the decretal portion of which reads: "WHEREFORE, and upon all the foregoing, the decision of the court below is MODIFIED in that defendant New India Assurance Company has and is hereby required to pay plaintiff-appellant the amount of P1,818,604.19 while the other Rizal Surety has to pay the plaintiff-appellant P470,328.67, based on the actual losses sustained by plaintiff Transworld in the fire, totalling P2,790,376.00 as against the amounts of fire insurance coverages respectively extended by New India in the amount of P5,800,000.00 and Rizal Surety and Insurance Company in the amount of P1,500,000.00. No costs. SO ORDERED."9[9] On August 20, 1993, from the aforesaid judgment of the Court of Appeals New India appealed to this Court theorizing inter alia that the private respondent could not be compensated for the loss of the fun and amusement machines and spare parts stored at the two-storey building because it (Transworld) had no insurable interest in said goods or items. On February 2, 1994, the Court denied the appeal with finality in G.R. No. L-111118 (New India Assurance Company Ltd. vs. Court of Appeals). Petitioner Rizal Insurance and private respondent Transworld, interposed a Motion for Reconsideration before the Court of Appeals, and on October 22, 1993, the Court of Appeals reconsidered its decision of July 15, 1993, as regards the imposition of interest, ruling thus: "WHEREFORE, the Decision of July 15, 1993 is amended but only insofar as the imposition of legal interest is concerned, that, on the assessment against New India Assurance Company on the amount of P1,818,604.19 and that against Rizal Surety & Insurance Company on the amount of P470,328.67, from May 26, 1982 when the complaint was filed until payment is made. The rest of the said decision is retained in all other respects. SO ORDERED."10[10] Undaunted, petitioner Rizal Surety & Insurance Company found its way to this Court via the present Petition, contending that: I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT THE ANNEX BUILDING WHERE THE BULK OF THE BURNED PROPERTIES WERE STORED, WAS INCLUDED IN THE COVERAGE OF THE INSURANCE POLICY ISSUED BY RIZAL SURETY TO TRANSWORLD.

II.....SAID DECISION AND RESOLUTION (ANNEXES A AND B) ERRED IN NOT CONSIDERING THE PICTURES (EXHS. 3 TO 7-C-RIZAL SURETY), TAKEN IMMEDIATELY AFTER THE FIRE, WHICH CLEARLY SHOW THAT THE PREMISES OCCUPIED BY TRANSWORLD, WHERE THE INSURED PROPERTIES WERE LOCATED, SUSTAINED PARTIAL DAMAGE ONLY. III. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING THAT TRANSWORLD HAD ACTED IN PALPABLE BAD FAITH AND WITH MALICE IN FILING ITS CLEARLY UNFOUNDED CIVIL ACTION, AND IN NOT ORDERING TRANSWORLD TO PAY TO RIZAL SURETY MORAL AND PUNITIVE DAMAGES (ART. 2205, CIVIL CODE), PLUS ATTORNEY'S FEES AND EXPENSES OF LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL CODE).11[11] The Petition is not impressed with merit. It is petitioner's submission that the fire insurance policy litigated upon protected only the contents of the main building (four-span),12[12] and did not include those stored in the two-storey annex building. On the other hand, the private respondent theorized that the so called "annex" was not an annex but was actually an integral part of the four-span building13[13] and therefore, the goods and items stored therein were covered by the same fire insurance policy. Resolution of the issues posited here hinges on the proper interpretation of the stipulation in subject fire insurance policy regarding its coverage, which reads: "xxx contained and/or stored during the currency of this Policy in the premises occupied by them forming part of the buildings situate (sic) within own Compound xxx" Therefrom, it can be gleaned unerringly that the fire insurance policy in question did not limit its coverage to what were stored in the four-span building. As opined by the trial court of origin, two requirements must concur in order that the said fun and amusement machines and spare parts would be deemed protected by the fire insurance policy under scrutiny, to wit: "First, said properties must be contained and/or stored in the areas occupied by Transworld and second, said areas must form part of the building described in the policy xxx"14[14] 'Said building of four-span lofty one storey in height with mezzanine portions is constructed of reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and occupied as hosiery mills, garment and lingerie factory, transistor-stereo assembly plant, offices, ware house and caretaker's quarter.'

The Court is mindful of the well-entrenched doctrine that factual findings by the Court of Appeals are conclusive on the parties and not reviewable by this Court, and the same carry even more weight when the Court of Appeals has affirmed the findings of fact arrived at by the lower court.15[15] In the case under consideration, both the trial court and the Court of Appeals found that the so called "annex " was not an annex building but an integral and inseparable part of the four-span building described in the policy and consequently, the machines and spare parts stored therein were covered by the fire insurance in dispute. The letter-report of the Manila Adjusters and Surveyor's Company, which petitioner itself cited and invoked, describes the "annex" building as follows: "Two-storey building constructed of partly timber and partly concrete hollow blocks under g.i. roof which is adjoining and intercommunicating with the repair of the first right span of the lofty storey building and thence by property fence wall."16[16] Verily, the two-storey building involved, a permanent structure which adjoins and intercommunicates with the "first right span of the lofty storey building",17[17] formed part thereof, and meets the requisites for compensability under the fire insurance policy sued upon. So also, considering that the two-storey building aforementioned was already existing when subject fire insurance policy contract was entered into on January 12, 1981, having been constructed sometime in 1978,18[18] petitioner should have specifically excluded the said two-storey building from the coverage of the fire insurance if minded to exclude the same but if did not, and instead, went on to provide that such fire insurance policy covers the products, raw materials and supplies stored within the premises of respondent Transworld which was an integral part of the four-span building occupied by Transworld, knowing fully well the existence of such building adjoining and intercommunicating with the right section of the four-span building. After a careful study, the Court does not find any basis for disturbing what the lower courts found and arrived at. Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has created a doubt regarding the portions of the building insured thereby. Article 1377 of the New Civil Code provides: "Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity" Conformably, it stands to reason that the doubt should be resolved against the petitioner, Rizal Surety Insurance Company, whose lawyer or managers drafted the fire insurance policy contract under scrutiny.

Citing the aforecited provision of law in point, the Court in Landicho vs. Government Service Insurance System,19[19] ruled: "This is particularly true as regards insurance policies, in respect of which it is settled that the 'terms in an insurance policy, which are ambiguous, equivocal, or uncertain x x x are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where forfeiture is involved' (29 Am. Jur., 181), and the reason for this is that the 'insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company.' (44 C.J.S., p. 1174).""20[20] Equally relevant is the following disquisition of the Court in Fieldmen's Insurance Company, Inc. vs. Vda. De Songco,21[21] to wit: "'This rigid application of the rule on ambiguities has become necessary in view of current business practices. The courts cannot ignore that nowadays monopolies, cartels and concentration of capital, endowed with overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared 'agreements' that the weaker party may not change one whit, his participation in the 'agreement' being reduced to the alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats [sic] d'adhesion), in contrast to these entered into by parties bargaining on an equal footing, such contracts (of which policies of insurance and international bills of lading are prime example) obviously call for greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker party from abuses and imposition, and prevent their becoming traps for the unwary (New Civil Code, Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942.)'"22[22] The issue of whether or not Transworld has an insurable interest in the fun and amusement machines and spare parts, which entitles it to be indemnified for the loss thereof, had been settled in G.R. No. L-111118, entitled New India Assurance Company, Ltd., vs. Court of Appeals, where the appeal of New India from the decision of the Court of Appeals under review, was denied with finality by this Court on February 2, 1994. The rule on conclusiveness of judgment, which obtains under the premises, precludes the relitigation of a particular fact or issue in another action between the same parties based on a different claim or cause of action. "xxx the judgment in the prior action operates as estoppel only as to those matters in issue or points controverted, upon the determination of which the finding or judgment was rendered. In fine, the previous

judgment is conclusive in the second case, only as those matters actually and directly controverted and determined and not as to matters merely involved therein."23[23] Applying the abovecited pronouncement, the Court, in Smith Bell and Company (Phils.), Inc. vs. Court of Appeals,24[24] held that the issue of negligence of the shipping line, which issue had already been passed upon in a case filed by one of the insurers, is conclusive and can no longer be relitigated in a similar case filed by another insurer against the same shipping line on the basis of the same factual circumstances. Ratiocinating further, the Court opined: "In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai Maru') had been negligent, or so negligent as to have proximately caused the collision between them, was an issue that was actually, directly and expressly raised, controverted and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J., resolved that issue in his Decision and held the 'Don Carlos' to have been negligent rather than the 'Yotai Maru' and, as already noted, that Decision was affirmed by this Court in G.R. No. L48839 in a Resolution dated 6 December 1987. The Reyes Decision thus became final and executory approximately two (2) years before the Sison Decision, which is assailed in the case at bar, was promulgated. Applying the rule of conclusiveness of judgment, the question of which vessel had been negligent in the collision between the two (2) vessels, had long been settled by this Court and could no longer be relitigated in C.A.-G.R. No. 61206-R. Private respondent Go Thong was certainly bound by the ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of Appeals fell into clear and reversible error when it disregarded the Decision of this Court affirming the Reyes Decision."25[25] The controversy at bar is on all fours with the aforecited case. Considering that private respondent's insurable interest in, and compensability for the loss of subject fun and amusement machines and spare parts, had been adjudicated, settled and sustained by the Court of Appeals in CA-G.R. CV NO. 28779, and by this Court in G.R. No. L-111118, in a Resolution, dated February 2, 1994, the same can no longer be relitigated and passed upon in the present case. Ineluctably, the petitioner, Rizal Surety Insurance Company, is bound by the ruling of the Court of Appeals and of this Court that the private respondent has an insurable interest in the aforesaid fun and amusement machines and spare parts; and should be indemnified for the loss of the same. So also, the Court of Appeals correctly adjudged petitioner liable for the amount of P470,328.67, it being the total loss and damage suffered by Transworld for which petitioner Rizal Insurance is liable.26[26] All things studiedly considered and viewed in proper perspective, the Court is of the irresistible conclusion, and so finds, that the Court of Appeals erred not in holding the petitioner, Rizal Surety Insurance Company, liable for the destruction and loss of the insured buildings and articles of the private respondent.

WHEREFORE, the Decision, dated July 15, 1993, and the Resolution, dated October 22, 1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are AFFIRMED in toto. No pronouncement as to costs. SO ORDERED. Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 156167 May 16, 2005

GULF RESORTS, INC., petitioner, vs. PHILIPPINE CHARTER INSURANCE CORPORATION, respondent. DECISION PUNO, J.: Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court by petitioner GULF RESORTS, INC., against respondent PHILIPPINE CHARTER INSURANCE CORPORATION. Petitioner assails the appellate court decision1 which dismissed its two appeals and affirmed the judgment of the trial court. For review are the warring interpretations of petitioner and respondent on the scope of the insurance companys liability for earthquake damage to petitioners properties. Petitioner avers that, pursuant to its earthquake shock endorsement rider, Insurance Policy No. 31944 covers all damages to the properties within its resort caused by earthquake. Respondent contends that the rider limits its liability for loss to the two swimming pools of petitioner. The facts as established by the court a quo, and affirmed by the appellate court are as follows: [P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said resort insured originally with the American Home Assurance Company (AHAC-AIU). In the first four insurance policies issued by AHAC-AIU from 1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs. "C", "D", "E" and "F"; also Exhs. "1", "2", "3" and "4" respectively), the risk of loss from earthquake shock was extended only to plaintiffs two swimming pools, thus, "earthquake shock endt." (Item 5 only) (Exhs. "C-1"; "D-1," and "E" and two (2) swimming pools only (Exhs. "C1"; D-1", "E" and "F-1"). "Item 5" in those policies referred to the two (2) swimming pools only (Exhs. "1-B", "2-B", "3-B" and "F-2"); that subsequently AHAC(AIU) issued in plaintiffs favor Policy No. 206-4182383-0 covering the period March 14, 1988 to March 14, 1989 (Exhs. "G" also "G-1") and in said policy the earthquake endorsement clause as indicated in Exhibits "C-1", "D-1", Exhibits "E" and "F-1" was deleted and the entry under Endorsements/Warranties at the time of issue read that plaintiff renewed its policy with AHAC (AIU) for the period of March 14, 1989 to March 14, 1990 under Policy No. 206-4568061-9 (Exh. "H") which carried the entry under "Endorsement/Warranties at Time of Issue", which read "Endorsement to Include Earthquake Shock (Exh. "6-B-1") in the amount of P10,700.00 and paid P42,658.14 (Exhs. "6-A" and "6-B") as premium thereof, computed as follows: Item P7,691,000.00 on the Clubhouse only @ .392%; 1,500,000.00 393,000.00 116,600.00 a) Tilter House b) Power House c) House Shed on the furniture, etc. contained in the building above-mentioned@ .490%; on the two swimming pools, only (against the peril of earthquake shock only) @ 0.100% other buildings include as follows: P19,800.00 P41,000.00 P55,000.00 0.551% 0.551% 0.540%

P100,000.00 -

for furniture, fixtures, lines air-con and operating equipment

that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU) Policy No. 206-4568061-9 (Exh. "H") provided that the policy wording and rates in said policy be copied in the policy to be issued by defendant; that defendant issued Policy No. 31944 to plaintiff covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92 (Exh. "I"); that in the computation of the premium, defendants Policy No. 31944 (Exh. "I"), which is the policy in question, contained on the right-hand upper portion of page 7 thereof, the following: Rate-Various Premium Doc. Stamps F.S.T. Prem. Tax TOTAL P37,420.60 F/L 2,061.52 1,030.76 393.00 3,068.10 776.89 409.05 45,159.92; Typhoon EC ES

that the above break-down of premiums shows that plaintiff paid only P393.00 as premium against earthquake shock (ES); that in all the six insurance policies (Exhs. "C", "D", "E", "F", "G" and "H"), the premium against the peril of earthquake shock is the same, that is P393.00 (Exhs. "C" and "1-B"; "2-B" and "3-B-1" and "3-B-2"; "F-02" and "4-A1"; "G-2" and "5-C-1"; "6-C-1"; issued by AHAC (Exhs. "C", "D", "E", "F", "G" and "H") and in Policy No. 31944 issued by defendant, the shock endorsement provide(sic): In consideration of the payment by the insured to the company of the sum included additional premium the Company agrees, notwithstanding what is stated in the printed conditions of this policy due to the contrary, that this insurance covers loss or damage to shock to any of the property insured by this Policy occasioned by or through or in consequence of earthquake (Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C"); that in Exhibit "7-C" the word "included" above the underlined portion was deleted; that on July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiffs properties covered by Policy No. 31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort were damaged. 2 After the earthquake, petitioner advised respondent that it would be making a claim under its Insurance Policy No. 31944 for damages on its properties. Respondent instructed petitioner to file a formal claim, then assigned the investigation of the claim to an independent claims adjuster, Bayne Adjusters and Surveyors, Inc.3 On July 30, 1990, respondent, through its adjuster, requested petitioner to submit various documents in support of its claim. On August 7, 1990, Bayne Adjusters and Surveyors, Inc., through its Vice-President A.R. de Leon,4 rendered a preliminary report5 finding extensive damage caused by the earthquake to the clubhouse and to the two swimming pools. Mr. de Leon stated that "except for the swimming pools, all affected items have no coverage for earthquake shocks."6 On August 11, 1990, petitioner filed its formal demand 7 for settlement of the damage to all its properties in the Agoo Playa Resort. On August 23, 1990, respondent denied petitioners claim on the ground that its insurance policy only afforded earthquake shock coverage to the two swimming pools of the resort. 8 Petitioner and respondent failed to arrive at a settlement.9 Thus, on January 24, 1991, petitioner filed a complaint10 with the regional trial court of Pasig praying for the payment of the following: 1.) The sum of P5,427,779.00, representing losses sustained by the insured properties, with interest thereon, as computed under par. 29 of the policy (Annex "B") until fully paid; 2.) The sum of P428,842.00 per month, representing continuing losses sustained by plaintiff on account of defendants refusal to pay the claims; 3.) The sum of P500,000.00, by way of exemplary damages; 4.) The sum of P500,000.00 by way of attorneys fees and expenses of litigation; 5.) Costs.11

Respondent filed its Answer with Special and Affirmative Defenses with Compulsory Counterclaims.12 On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz: The above schedule clearly shows that plaintiff paid only a premium of P393.00 against the peril of earthquake shock, the same premium it paid against earthquake shock only on the two swimming pools in all the policies issued by AHAC(AIU) (Exhibits "C", "D", "E", "F" and "G"). From this fact the Court must consequently agree with the position of defendant that the endorsement rider (Exhibit "7-C") means that only the two swimming pools were insured against earthquake shock. Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, where the language used in an insurance contract or application is such as to create ambiguity the same should be resolved against the party responsible therefor, i.e., the insurance company which prepared the contract. To the mind of [the] Court, the language used in the policy in litigation is clear and unambiguous hence there is no need for interpretation or construction but only application of the provisions therein. From the above observations the Court finds that only the two (2) swimming pools had earthquake shock coverage and were heavily damaged by the earthquake which struck on July 16, 1990. Defendant having admitted that the damage to the swimming pools was appraised by defendants adjuster at P386,000.00, defendant must, by virtue of the contract of insurance, pay plaintiff said amount. Because it is the finding of the Court as stated in the immediately preceding paragraph that defendant is liable only for the damage caused to the two (2) swimming pools and that defendant has made known to plaintiff its willingness and readiness to settle said liability, there is no basis for the grant of the other damages prayed for by plaintiff. As to the counterclaims of defendant, the Court does not agree that the action filed by plaintiff is baseless and highly speculative since such action is a lawful exercise of the plaintiffs right to come to Court in the honest belief that their Complaint is meritorious. The prayer, therefore, of defendant for damages is likewise denied. WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of THREE HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00) representing damage to the two (2) swimming pools, with interest at 6% per annum from the date of the filing of the Complaint until defendants obligation to plaintiff is fully paid. No pronouncement as to costs.13 Petitioners Motion for Reconsideration was denied. Thus, petitioner filed an appeal with the Court of Appeals based on the following assigned errors:14 A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY RECOVER FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS FIRE POLICY NO. 31944, CONSIDERING ITS PROVISIONS, THE CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID POLICY AND THE ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE OF JULY 16, 1990. B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANTS RIGHT TO RECOVER UNDER DEFENDANT-APPELLEES POLICY (NO. 31944; EXH "I") BY LIMITING ITSELF TO A CONSIDERATION OF THE SAID POLICY ISOLATED FROM THE CIRCUMSTANCES SURROUNDING ITS ISSUANCE AND THE ACTUATIONS OF THE PARTIES AFTER THE EARTHQUAKE OF JULY 16, 1990. C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS ENTITLED TO THE DAMAGES CLAIMED, WITH INTEREST COMPUTED AT 24% PER ANNUM ON CLAIMS ON PROCEEDS OF POLICY. On the other hand, respondent filed a partial appeal, assailing the lower courts failure to award it attorneys fees and damages on its compulsory counterclaim. After review, the appellate court affirmed the decision of the trial court and ruled, thus:

However, after carefully perusing the documentary evidence of both parties, We are not convinced that the last two (2) insurance contracts (Exhs. "G" and "H"), which the plaintiff-appellant had with AHAC (AIU) and upon which the subject insurance contract with Philippine Charter Insurance Corporation is said to have been based and copied (Exh. "I"), covered an extended earthquake shock insurance on all the insured properties. xxx We also find that the Court a quo was correct in not granting the plaintiff-appellants prayer for the imposition of interest 24% on the insurance claim and 6% on loss of income allegedly amounting to P4,280,000.00. Since the defendant-appellant has expressed its willingness to pay the damage caused on the two (2) swimming pools, as the Court a quo and this Court correctly found it to be liable only, it then cannot be said that it was in default and therefore liable for interest. Coming to the defendant-appellants prayer for an attorneys fees, long-standing is the rule that the award thereof is subject to the sound discretion of the court. Thus, if such discretion is well-exercised, it will not be disturbed on appeal (Castro et al. v. CA, et al., G.R. No. 115838, July 18, 2002). Moreover, being the award thereof an exception rather than a rule, it is necessary for the court to make findings of facts and law that would bring the case within the exception and justify the grant of such award (Country Bankers Insurance Corp. v. Lianga Bay and Community Multi-Purpose Coop., Inc., G.R. No. 136914, January 25, 2002). Therefore, holding that the plaintiff-appellants action is not baseless and highly speculative, We find that the Court a quo did not err in granting the same. WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and judgment of the Trial Court hereby AFFIRMED in toto. No costs.15 Petitioner filed the present petition raising the following issues:16 A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER RESPONDENTS INSURANCE POLICY NO. 31944, ONLY THE TWO (2) SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVERED THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK. B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONERS PRAYER FOR DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED, ATTORNEYS FEES AND EXPENSES OF LITIGATION. Petitioner contends: First, that the policys earthquake shock endorsement clearly covers all of the properties insured and not only the swimming pools. It used the words "any property insured by this policy," and it should be interpreted as all inclusive. Second, the unqualified and unrestricted nature of the earthquake shock endorsement is confirmed in the body of the insurance policy itself, which states that it is "[s]ubject to: Other Insurance Clause, Typhoon Endorsement, Earthquake Shock Endt., Extended Coverage Endt., FEA Warranty & Annual Payment Agreement On Long Term Policies." 17 Third, that the qualification referring to the two swimming pools had already been deleted in the earthquake shock endorsement. Fourth, it is unbelievable for respondent to claim that it only made an inadvertent omission when it deleted the said qualification. Fifth, that the earthquake shock endorsement rider should be given precedence over the wording of the insurance policy, because the rider is the more deliberate expression of the agreement of the contracting parties. Sixth, that in their previous insurance policies, limits were placed on the endorsements/warranties enumerated at the time of issue. Seventh, any ambiguity in the earthquake shock endorsement should be resolved in favor of petitioner and against respondent. It was respondent which caused the ambiguity when it made the policy in issue.

Eighth, the qualification of the endorsement limiting the earthquake shock endorsement should be interpreted as a caveat on the standard fire insurance policy, such as to remove the two swimming pools from the coverage for the risk of fire. It should not be used to limit the respondents liability for earthquake shock to the two swimming pools only. Ninth, there is no basis for the appellate court to hold that the additional premium was not paid under the extended coverage. The premium for the earthquake shock coverage was already included in the premium paid for the policy. Tenth, the parties contemporaneous and subsequent acts show that they intended to extend earthquake shock coverage to all insured properties. When it secured an insurance policy from respondent, petitioner told respondent that it wanted an exact replica of its latest insurance policy from American Home Assurance Company (AHAC-AIU), which covered all the resorts properties for earthquake shock damage and respondent agreed. After the July 16, 1990 earthquake, respondent assured petitioner that it was covered for earthquake shock. Respondents insurance adjuster, Bayne Adjusters and Surveyors, Inc., likewise requested petitioner to submit the necessary documents for its building claims and other repair costs. Thus, under the doctrine of equitable estoppel, it cannot deny that the insurance policy it issued to petitioner covered all of the properties within the resort. Eleventh, that it is proper for it to avail of a petition for review by certiorari under Rule 45 of the Revised Rules of Court as its remedy, and there is no need for calibration of the evidence in order to establish the facts upon which this petition is based. On the other hand, respondent made the following counter arguments:18 First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended coverage against earthquake shock to petitioners insured properties other than on the two swimming pools. Petitioner admitted that from 1984 to 1988, only the two swimming pools were insured against earthquake shock. From 1988 until 1990, the provisions in its policy were practically identical to its earlier policies, and there was no increase in the premium paid. AHAC-AIU, in a letter19 by its representative Manuel C. Quijano, categorically stated that its previous policy, from which respondents policy was copied, covered only earthquake shock for the two swimming pools. Second, petitioners payment of additional premium in the amount of P393.00 shows that the policy only covered earthquake shock damage on the two swimming pools. The amount was the same amount paid by petitioner for earthquake shock coverage on the two swimming pools from 1990-1991. No additional premium was paid to warrant coverage of the other properties in the resort. Third, the deletion of the phrase pertaining to the limitation of the earthquake shock endorsement to the two swimming pools in the policy schedule did not expand the earthquake shock coverage to all of petitioners properties. As per its agreement with petitioner, respondent copied its policy from the AHAC-AIU policy provided by petitioner. Although the first five policies contained the said qualification in their riders title, in the last two policies, this qualification in the title was deleted. AHAC-AIU, through Mr. J. Baranda III, stated that such deletion was a mere inadvertence. This inadvertence did not make the policy incomplete, nor did it broaden the scope of the endorsement whose descriptive title was merely enumerated. Any ambiguity in the policy can be easily resolved by looking at the other provisions, specially the enumeration of the items insured, where only the two swimming pools were noted as covered for earthquake shock damage. Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, the phrase "Item 5 P393,000.00 on the two swimming pools only (against the peril of earthquake shock only)" meant that only the swimming pools were insured for earthquake damage. The same phrase is used in toto in the policies from 1989 to 1990, the only difference being the designation of the two swimming pools as "Item 3." Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid for all the properties covered. In all of its seven insurance policies, petitioner only paid P393.00 as premium for coverage of the swimming pools against earthquake shock. No other premium was paid for earthquake shock coverage on the other properties. In addition, the use of the qualifier "ANY" instead of "ALL" to describe the property covered was done deliberately to enable the parties to specify the properties included for earthquake coverage. Sixth, petitioner did not inform respondent of its requirement that all of its properties must be included in the earthquake shock coverage. Petitioners own evidence shows that it only required respondent to follow the exact provisions of its previous policy from AHAC-AIU. Respondent complied with this requirement. Respondents only deviation from the agreement was when it modified the provisions regarding the replacement cost endorsement. With regard to the issue under litigation, the riders of the old policy and the policy in issue are identical.

Seventh, respondent did not do any act or give any assurance to petitioner as would estop it from maintaining that only the two swimming pools were covered for earthquake shock. The adjusters letter notifying petitioner to present certain documents for its building claims and repair costs was given to petitioner before the adjuster knew the full coverage of its policy. Petitioner anchors its claims on AHAC-AIUs inadvertent deletion of the phrase "Item 5 Only" after the descriptive name or title of the Earthquake Shock Endorsement. However, the words of the policy reflect the parties clear intention to limit earthquake shock coverage to the two swimming pools. Before petitioner accepted the policy, it had the opportunity to read its conditions. It did not object to any deficiency nor did it institute any action to reform the policy. The policy binds the petitioner. Eighth, there is no basis for petitioner to claim damages, attorneys fees and litigation expenses. Since respondent was willing and able to pay for the damage caused on the two swimming pools, it cannot be considered to be in default, and therefore, it is not liable for interest. We hold that the petition is devoid of merit. In Insurance Policy No. 31944, four key items are important in the resolution of the case at bar. First, in the designation of location of risk, only the two swimming pools were specified as included, viz: ITEM 3 393,000.00 On the two (2) swimming pools only (against the peril of earthquake shock only) 20 Second, under the breakdown for premium payments,21 it was stated that: PREMIUM RECAPITULATION ITEM NOS. xxx 3 393,000.00 0.100%-E/S 393.0022] AMOUNT RATES PREMIUM

Third, Policy Condition No. 6 stated: 6. This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly of any of the following occurrences, namely:-(a) Earthquake, volcanic eruption or other convulsion of nature. 23 Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To Include the Perils of Explosion, Aircraft, Vehicle and Smoke)," stated, viz: ANNUAL PAYMENT AGREEMENT ON LONG TERM POLICIES THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS INSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A DISCOUNT OF 5% OR 7 % OF THE NET PREMIUM x x x POLICY HEREBY UNDERTAKES TO CONTINUE THE INSURANCE UNDER THE ABOVE NAMED x x x AND TO PAY THE PREMIUM. Earthquake Endorsement In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . . . . . . . . . . additional premium the Company agrees, notwithstanding what is stated in the printed conditions of this Policy to the contrary, that this insurance covers loss or damage (including loss or damage by fire) to any of the property insured by this Policy occasioned by or through or in consequence of Earthquake.

Provided always that all the conditions of this Policy shall apply (except in so far as they may be hereby expressly varied) and that any reference therein to loss or damage by fire should be deemed to apply also to loss or damage occasioned by or through or in consequence of Earthquake. 24 Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the earthquake shock coverage. Thus, the policy extended earthquake shock coverage to all of the insured properties. It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance with each other. 25 All its parts are reflective of the true intent of the parties. The policy cannot be construed piecemeal. Certain stipulations cannot be segregated and then made to control; neither do particular words or phrases necessarily determine its character. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other provisions. All the provisions and riders, taken and interpreted together, indubitably show the intention of the parties to extend earthquake shock coverage to the two swimming pools only. A careful examination of the premium recapitulation will show that it is the clear intent of the parties to extend earthquake shock coverage only to the two swimming pools. 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. Thus, 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.26 (Emphasis ours) An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril. 27 In fire, casualty, and marine insurance, the premium payable becomes a debt as soon as the risk attaches.28 In the subject policy, no premium payments were made with regard to earthquake shock coverage, except on the two swimming pools. There is no mention of any premium payable for the other resort properties with regard to earthquake shock. This is consistent with the history of petitioners previous insurance policies from AHAC-AIU. As borne out by petitioners witnesses: CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991 pp. 12-13 Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policy during the period from March 4, 1984 to March 4, 1985 the coverage on earthquake shock was limited to the two swimming pools only? A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty, there is a provision here that it was only for item 5. Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two swimming pools only? A. Yes, sir. CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991 pp. 23-26 Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange for the procurement of this policy?

A. Yes, sir. Q. Did you also do this through your insurance agency? A. If you are referring to Forte Insurance Agency, yes. Q. Is Forte Insurance Agency a department or division of your company? A. No, sir. They are our insurance agency. Q. And they are independent of your company insofar as operations are concerned? A. Yes, sir, they are separate entity. Q. But insofar as the procurement of the insurance policy is concerned they are of course subject to your instruction, is that not correct? A. Yes, sir. The final action is still with us although they can recommend what insurance to take. Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14, 1989, did you give written instruction to Forte Insurance Agency advising it that the earthquake shock coverage must extend to all properties of Agoo Playa Resort in La Union? A. No, sir. We did not make any written instruction, although we made an oral instruction to that effect of extending the coverage on (sic) the other properties of the company. Q. And that instruction, according to you, was very important because in April 1987 there was an earthquake tremor in La Union? A. Yes, sir. Q. And you wanted to protect all your properties against similar tremors in the [future], is that correct? A. Yes, sir. Q. Now, after this policy was delivered to you did you bother to check the provisions with respect to your instructions that all properties must be covered again by earthquake shock endorsement? A. Are you referring to the insurance policy issued by American Home Assurance Company marked Exhibit "G"? Atty. Mejia: Yes. Witness: A. I examined the policy and seeing that the warranty on the earthquake shock endorsement has no more limitation referring to the two swimming pools only, I was contented already that the previous limitation pertaining to the two swimming pools was already removed. Petitioner also cited and relies on the attachment of the phrase "Subject to: Other Insurance Clause, Typhoon Endorsement, Earthquake Shock Endorsement, Extended Coverage Endorsement, FEA Warranty & Annual Payment Agreement on Long Term Policies"29 to the insurance policy as proof of the intent of the parties to extend the coverage for earthquake shock. However, this phrase is merely an enumeration of the descriptive titles of the riders, clauses, warranties or endorsements to which the policy is subject, as required under Section 50, paragraph 2 of the Insurance Code.

We also hold that no significance can be placed on the deletion of the qualification limiting the coverage to the two swimming pools. The earthquake shock endorsement cannot stand alone. As explained by the testimony of Juan Baranda III, underwriter for AHAC-AIU: DIRECT EXAMINATION OF JUAN BARANDA III30 TSN, August 11, 1992 pp. 9-12 Atty. Mejia: We respectfully manifest that the same exhibits C to H inclusive have been previously marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to review of (sic) these six (6) policies issued by your company [in favor] of Agoo Playa Resort? WITNESS: Yes[,] I remember having gone over these policies at one point of time, sir. Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H respectively carries an earthquake shock endorsement[?] My question to you is, on the basis on (sic) the wordings indicated in Exhibits C to H respectively what was the extent of the coverage [against] the peril of earthquake shock as provided for in each of the six (6) policies? xxx WITNESS: The extent of the coverage is only up to the two (2) swimming pools, sir. Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H? A. Yes, sir. ATTY. MEJIA: What is your basis for stating that the coverage against earthquake shock as provided for in each of the six (6) policies extend to the two (2) swimming pools only? WITNESS: Because it says here in the policies, in the enumeration "Earthquake Shock Endorsement, in the Clauses and Warranties: Item 5 only (Earthquake Shock Endorsement)," sir. ATTY. MEJIA: Witness referring to Exhibit C-1, your Honor. WITNESS: We do not normally cover earthquake shock endorsement on stand alone basis. For swimming pools we do cover earthquake shock. For building we covered it for full earthquake coverage which includes earthquake shock COURT:

As far as earthquake shock endorsement you do not have a specific coverage for other things other than swimming pool? You are covering building? They are covered by a general insurance? WITNESS: Earthquake shock coverage could not stand alone. If we are covering building or another we can issue earthquake shock solely but that the moment I see this, the thing that comes to my mind is either insuring a swimming pool, foundations, they are normally affected by earthquake but not by fire, sir. DIRECT EXAMINATION OF JUAN BARANDA III TSN, August 11, 1992 pp. 23-25 Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E and F inclusive [remained] its coverage against earthquake shock to two (2) swimming pools only but that Exhibits G and H respectively entend the coverage against earthquake shock to all the properties indicated in the respective schedules attached to said policies, what can you say about that testimony of plaintiffs witness? WITNESS: As I have mentioned earlier, earthquake shock cannot stand alone without the other half of it. I assure you that this one covers the two swimming pools with respect to earthquake shock endorsement. Based on it, if we are going to look at the premium there has been no change with respect to the rates. Everytime (sic) there is a renewal if the intention of the insurer was to include the earthquake shock, I think there is a substantial increase in the premium. We are not only going to consider the two (2) swimming pools of the other as stated in the policy. As I see, there is no increase in the amount of the premium. I must say that the coverage was not broaden (sic) to include the other items. COURT: They are the same, the premium rates? WITNESS: They are the same in the sence (sic), in the amount of the coverage. If you are going to do some computation based on the rates you will arrive at the same premiums, your Honor. CROSS-EXAMINATION OF JUAN BARANDA III TSN, September 7, 1992 pp. 4-6 ATTY. ANDRES: Would you as a matter of practice [insure] swimming pools for fire insurance? WITNESS: No, we dont, sir. Q. That is why the phrase "earthquake shock to the two (2) swimming pools only" was placed, is it not? A. Yes, sir. ATTY. ANDRES:

Will you not also agree with me that these exhibits, Exhibits G and H which you have pointed to during your direct-examination, the phrase "Item no. 5 only" meaning to (sic) the two (2) swimming pools was deleted from the policies issued by AIU, is it not? xxx ATTY. ANDRES: As an insurance executive will you not attach any significance to the deletion of the qualifying phrase for the policies? WITNESS: My answer to that would be, the deletion of that particular phrase is inadvertent. Being a company underwriter, we do not cover. . it was inadvertent because of the previous policies that we have issued with no specific attachments, premium rates and so on. It was inadvertent, sir. The Court also rejects petitioners contention that respondents contemporaneous and subsequent acts to the issuance of the insurance policy falsely gave the petitioner assurance that the coverage of the earthquake shock endorsement included all its properties in the resort. Respondent only insured the properties as intended by the petitioner. Petitioners own witness testified to this agreement, viz: CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, January 14, 1992 pp. 4-5 Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did you tell Atty. Omlas (sic) to copy from Exhibit "H" for purposes of procuring the policy from Philippine Charter Insurance Corporation? A. I told him that the insurance that they will have to get will have the same provisions as this American Home Insurance Policy No. 206-4568061-9. Q. You are referring to Exhibit "H" of course? A. Yes, sir, to Exhibit "H". Q. So, all the provisions here will be the same except that of the premium rates? A. Yes, sir. He assured me that with regards to the insurance premium rates that they will be charging will be limited to this one. I (sic) can even be lesser. CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, January 14, 1992 pp. 12-14 Atty. Mejia: Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the provisions and scope of coverage of Exhibits "I" and "H" sometime in the third week of March, 1990 or thereabout? A. Yes, sir, about that time. Q. And at that time did you notice any discrepancy or difference between the policy wordings as well as scope of coverage of Exhibits "I" and "H" respectively?

A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that the policy wordings and rates were copied from the insurance policy I sent them but it was only when this case erupted that we discovered some discrepancies. Q. With respect to the items declared for insurance coverage did you notice any discrepancy at any time between those indicated in Exhibit "I" and those indicated in Exhibit "H" respectively? A. With regard to the wordings I did not notice any difference because it was exactly the same P393,000.00 on the two (2) swimming pools only against the peril of earthquake shock which I understood before that this provision will have to be placed here because this particular provision under the peril of earthquake shock only is requested because this is an insurance policy and therefore cannot be insured against fire, so this has to be placed. The verbal assurances allegedly given by respondents representative Atty. Umlas were not proved. Atty. Umlas categorically denied having given such assurances. Finally, petitioner puts much stress on the letter of respondents independent claims adjuster, Bayne Adjusters and Surveyors, Inc. But as testified to by the representative of Bayne Adjusters and Surveyors, Inc., respondent never meant to lead petitioner to believe that the endorsement for earthquake shock covered properties other than the two swimming pools, viz: DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and Surveyors, Inc.) TSN, January 26, 1993 pp. 22-26 Q. Do you recall the circumstances that led to your discussion regarding the extent of coverage of the policy issued by Philippine Charter Insurance Corporation? A. I remember that when I returned to the office after the inspection, I got a photocopy of the insurance coverage policy and it was indicated under Item 3 specifically that the coverage is only for earthquake shock. Then, I remember I had a talk with Atty. Umlas (sic), and I relayed to him what I had found out in the policy and he confirmed to me indeed only Item 3 which were the two swimming pools have coverage for earthquake shock. xxx Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except for the swimming pools all affected items have no coverage for earthquake shock? xxx A. I based my statement on my findings, because upon my examination of the policy I found out that under Item 3 it was specific on the wordings that on the two swimming pools only, then enclosed in parenthesis (against the peril[s] of earthquake shock only), and secondly, when I examined the summary of premium payment only Item 3 which refers to the swimming pools have a computation for premium payment for earthquake shock and all the other items have no computation for payment of premiums. In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the general rule that insurance contracts are contracts of adhesion which should be liberally construed in favor of the insured and strictly against the insurer company which usually prepares it.31 A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto. Through the years, the courts have held that in these type of contracts, the parties do not bargain on equal footing, the weaker party's participation being reduced to the alternative to take it or leave it. Thus, these contracts are viewed as traps for the weaker party whom the courts of justice must protect.32 Consequently, any ambiguity therein is resolved against the insurer, or construed liberally in favor of the insured.33 The case law will show that this Court will only rule out blind adherence to terms where facts and circumstances will show that they are basically one-sided.34 Thus, we have called on lower courts to remain careful in scrutinizing the factual circumstances behind each case to determine the efficacy of the claims of contending parties. In Development Bank of the Philippines v. National Merchandising Corporation, et al.,35 the parties, who were acute businessmen of experience, were presumed to have assented to the assailed documents with full knowledge.

We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot claim it did not know the provisions of the policy. From the inception of the policy, petitioner had required the respondent to copy verbatim the provisions and terms of its latest insurance policy from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct participant in securing the insurance policy of petitioner, is reflective of petitioners knowledge, viz: DIRECT EXAMINATION OF LEOPOLDO MANTOHAC36 TSN, September 23, 1991 pp. 20-21 Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those facilities in Agoo Playa? A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine Charter Insurance Corporation as long as it will follow the same or exact provisions of the previous insurance policy we had with American Home Assurance Corporation. Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in the American Home Insurance policy are to be incorporated in the PCIC policy? A. Yes, sir. Q. What steps did you take? A. When I examined the policy of the Philippine Charter Insurance Corporation I specifically told him that the policy and wordings shall be copied from the AIU Policy No. 206-4568061-9. Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-4568061-9 in drafting its Insurance Policy No. 31944. It is true that there was variance in some terms, specifically in the replacement cost endorsement, but the principal provisions of the policy remained essentially similar to AHAC-AIUs policy. Consequently, we cannot apply the "fine print" or "contract of adhesion" rule in this case as the parties intent to limit the coverage of the policy to the two swimming pools only is not ambiguous.37 IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition for certiorari is dismissed. No costs. SO ORDERED. Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.