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11.

PAZ LOPEZ DE CONSTANTINO, plaintiff-appellant,


vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.

G.R. No. L-1670 August 31, 1950

AGUSTINA PERALTA, plaintiff-appellant,


vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee..

BENGZON, J.:

These two cases, appealed from the Court of First Instance of Manila, call for decision of the question whether the beneficiary in a life
insurance policy may recover the amount thereof although the insured died after repeatedly failing to pay the stipulated premiums, such
failure having been caused by the last war in the Pacific.

The facts are these:

First case. In consideration of the sum of P176.04 as annual premium duly paid to it, the Asia Life Insurance Company (a foreign
corporation incorporated under the laws of Delaware, U.S.A.), issued on September 27, 1941, its Policy No. 93912 for P3,000, whereby
it insured the life of Arcadio Constantino for a term of twenty years. The first premium covered the period up to September 26, 1942.
The plaintiff Paz Lopez de Constantino was regularly appointed beneficiary. The policy contained these stipulations, among others:

This POLICY OF INSURANCE is issued in consideration of the written and printed application here for a copy of which is
attached hereto and is hereby made a part hereof made a part hereof, and of the payment in advance during the lifetime and
good health of the Insured of the annual premium of One Hundred fifty-eight and 4/100 pesos Philippine currency1 and of the
payment of a like amount upon each twenty-seventh day of September hereafter during the term of Twenty years or until the
prior death of the Insured. (Emphasis supplied.)

xxx xxx xxx

All premium payments are due in advance and any unpunctuality in making any such payment shall cause this policy to lapse
unless and except as kept in force by the Grace Period condition or under Option 4 below. (Grace of 31 days.)

After that first payment, no further premiums were paid. The insured died on September 22, 1944.

It is admitted that the defendant, being an American corporation , had to close its branch office in Manila by reason of the Japanese
occupation, i.e. from January 2, 1942, until the year 1945.

Second case. On August 1, 1938, the defendant Asia Life Insurance Company issued its Policy No. 78145 (Joint Life 20-Year
Endowment Participating with Accident Indemnity), covering the lives of the spouses Tomas Ruiz and Agustina Peralta, for the sum of
P3,000. The annual premium stipulated in the policy was regularly paid from August 1, 1938, up to and including September 30, 1941.
Effective August 1, 1941, the mode of payment of premiums was changed from annual to quarterly, so that quarterly premiums were
paid, the last having been delivered on November 18, 1941, said payment covering the period up to January 31, 1942. No further
payments were handed to the insurer. Upon the Japanese occupation, the insured and the insurer became separated by the lines of
war, and it was impossible and illegal for them to deal with each other. Because the insured had borrowed on the policy an mount of
P234.00 in January, 1941, the cash surrender value of the policy was sufficient to maintain the policy in force only up to September 7,
1942. Tomas Ruiz died on February 16, 1945. The plaintiff Agustina Peralta is his beneficiary. Her demand for payment met with
defendant's refusal, grounded on non-payment of the premiums.

The policy provides in part:

This POLICY OF INSURANCE is issued in consideration of the written and printed application herefor, a copy of which is
attached hereto and is hereby made apart hereof, and of the payment in advance during the life time and good health of the
Insured of the annual premium of Two hundred and 43/100 pesos Philippine currency and of the payment of a like amount
upon each first day of August hereafter during the term of Twenty years or until the prior death of either of the Insured.
(Emphasis supplied.)

xxx xxx xxx

All premium payments are due in advance and any unpunctuality in making any such payment shall cause this policy to lapse
unless and except as kept in force by the Grace Period condition or under Option 4 below. (Grace of days.) . . .
Plaintiffs maintain that, as beneficiaries, they are entitled to receive the proceeds of the policies minus all sums due for premiums in
arrears. They allege that non-payment of the premiums was caused by the closing of defendant's offices in Manila during the Japanese
occupation and the impossible circumstances created by war.

Defendant on the other hand asserts that the policies had lapsed for non-payment of premiums, in accordance with the contract of the
parties and the law applicable to the situation.

The lower court absolved the defendant. Hence this appeal.

The controversial point has never been decided in this jurisdiction. Fortunately, this court has had the benefit of extensive and
exhaustive memoranda including those of amici curiae. The matter has received careful consideration, inasmuch as it affects the
interest of thousands of policy-holders and the obligations of many insurance companies operating in this country.

Since the year 1917, the Philippine law on Insurance was found in Act No. 2427, as amended, and the Civil Code. 2Act No. 2427 was
largely copied from the Civil Code of California.3 And this court has heretofore announced its intention to supplement the statutory laws
with general principles prevailing on the subject in the United State. 4

In Young vs. Midland Textile Insurance Co. (30 Phil., 617), we said that "contracts of insurance are contracts of indemnity upon the
terms and conditions specified in the policy. The parties have a right to impose such reasonable conditions at the time of the making of
the contract as they may deem wise and necessary. The rate of premium is measured by the character of the risk assumed. The
insurance company, for a comparatively small consideration, undertakes to guarantee the insured against loss or damage, upon the
terms and conditions agreed upon, and upon no other, and when called upon to pay, in case of loss, the insurer, therefore, may justly
insists upon a fulfillment of these terms. If the insured cannot bring himself within the conditions of the policy, he is not entitled for the
loss. The terms of the policy constitute the measure of the insurer's liability, and in order to recover the insured must show himself
within those terms; and if it appears that the contract has been terminated by a violation, on the part of the insured, of its conditions,
then there can be no right of recovery. The compliance of the insured with the terms of the contract is a condition precedent to the right
of recovery."

Recall of the above pronouncements is appropriate because the policies in question stipulate that "all premium payments are due in
advance and any unpunctuality in making any such payment shall cause this policy to lapse." Wherefore, it would seem that pursuant to
the express terms of the policy, non-payment of premium produces its avoidance.

The conditions of contracts of Insurance, when plainly expressed in a policy, are binding upon the parties and should be
enforced by the courts, if the evidence brings the case clearly within their meaning and intent. It tends to bring the law itself
into disrepute when, by astute and subtle distinctions, a plain case is attempted to be taken without the operation of a clear,
reasonable and material obligation of the contract. Mack vs.Rochester German Ins. Co., 106 N.Y., 560, 564.
(Young vs. Midland Textile Ins. Co., 30 Phil., 617, 622.)

In Glaraga vs. Sun Life Ass. Co. (49 Phil., 737), this court held that a life policy was avoided because the premium had not been paid
within the time fixed, since by its express terms, non-payment of any premium when due or within the thirty-day period of grace, ipso
facto caused the policy to lapse. This goes to show that although we take the view that insurance policies should be conserved 5 and
should not lightly be thrown out, still we do not hesitate to enforce the agreement of the parties.

Forfeitures of insurance policies are not favored, but courts cannot for that reason alone refuse to enforce an insurance
contract according to its meaning. (45 C.J.S., p. 150.)

Nevertheless, it is contended for plaintiff that inasmuch as the non-payment of premium was the consequence of war, it should be
excused and should not cause the forfeiture of the policy.

Professor Vance of Yale, in his standard treatise on Insurance, says that in determining the effect of non-payment of premiums
occasioned by war, the American cases may be divided into three groups, according as they support the so-called Connecticut Rule,
the New York Rule, or the United States Rule.

The first holds the view that "there are two elements in the consideration for which the annual premium is paid First, the mere
protection for the year, and second, the privilege of renewing the contract for each succeeding year by paying the premium for that year
at the time agreed upon. According to this view of the contract, the payment of premiums is a condition precedent, the non-performance
would be illegal necessarily defeats the right to renew the contract."

The second rule, apparently followed by the greater number of decisions, hold that "war between states in which the parties reside
merely suspends the contracts of the life insurance, and that, upon tender of all premiums due by the insured or his representatives
after the war has terminated, the contract revives and becomes fully operative."

The United States rule declares that the contract is not merely suspended, but is abrogated by reason of non-payments is peculiarly of
the essence of the contract. It additionally holds that it would be unjust to allow the insurer to retain the reserve value of the policy,
which is the excess of the premiums paid over the actual risk carried during the years when the policy had been in force. This rule was
announced in the well-known Statham6 case which, in the opinion of Professor Vance, is the correct rule.7

The appellants and some amici curiae contend that the New York rule should be applied here. The appellee and other amici
curiae contend that the United States doctrine is the orthodox view.

We have read and re-read the principal cases upholding the different theories. Besides the respect and high regard we have always
entertained for decisions of the Supreme Court of the United States, we cannot resist the conviction that the reasons expounded in its
decision of the Statham case are logically and judicially sound. Like the instant case, the policy involved in the Statham decision
specifies that non-payment on time shall cause the policy to cease and determine. Reasoning out that punctual payments were
essential, the court said:

. . . it must be conceded that promptness of payment is essential in the business of life insurance. All the calculations of the
insurance company are based on the hypothesis of prompt payments. They not only calculate on the receipt of the premiums
when due, but on compounding interest upon them. It is on this basis that they are enabled to offer assurance at the favorable
rates they do. Forfeiture for non-payment is an necessary means of protecting themselves from embarrassment. Unless it
were enforceable, the business would be thrown into confusion. It is like the forfeiture of shares in mining enterprises, and all
other hazardous undertakings. There must be power to cut-off unprofitable members, or the success of the whole scheme is
endangered. The insured parties are associates in a great scheme. This associated relation exists whether the company be a
mutual one or not. Each is interested in the engagements of all; for out of the co-existence of many risks arises the law of
average, which underlies the whole business. An essential feature of this scheme is the mathematical calculations referred to,
on which the premiums and amounts assured are based. And these calculations, again, are based on the assumption of
average mortality, and of prompt payments and compound interest thereon. Delinquency cannot be tolerated nor redeemed,
except at the option of the company. This has always been the understanding and the practice in this department of business.
Some companies, it is true, accord a grace of thirty days, or other fixed period, within which the premium in arrear may be
paid, on certain conditions of continued good health, etc. But this is a matter of stipulation, or of discretion, on the part of the
particular company. When no stipulation exists, it is the general understanding that time is material, and that the forfeiture is
absolute if the premium be not paid. The extraordinary and even desperate efforts sometimes made, when an insured person
is in extremes to meet a premium coming due, demonstrates the common view of this matter.

The case, therefore, is one in which time is material and of the essence and of the essence of the contract. Non-payment at
the day involves absolute forfeiture if such be the terms of the contract, as is the case here. Courts cannot with safety vary the
stipulation of the parties by introducing equities for the relief of the insured against their own negligence.

In another part of the decision, the United States Supreme Court considers and rejects what is, in effect, the New York theory in the
following words and phrases:

The truth is, that the doctrine of the revival of contracts suspended during the war is one based on considerations of equity and
justice, and cannot be invoked to revive a contract which it would be unjust or inequitable to revive.

In the case of Life insurance, besides the materiality of time in the performance of the contract, another strong reason exists
why the policy should not be revived. The parties do not stand on equal ground in reference to such a revival. It would operate
most unjustly against the company. The business of insurance is founded on the law of average; that of life insurance
eminently so. The average rate of mortality is the basis on which it rests. By spreading their risks over a large number of
cases, the companies calculate on this average with reasonable certainty and safety. Anything that interferes with it deranges
the security of the business. If every policy lapsed by reason of the war should be revived, and all the back premiums should
be paid, the companies would have the benefit of this average amount of risk. But the good risks are never heard from; only
the bar are sought to be revived, where the person insured is either dead or dying. Those in health can get the new policies
cheaper than to pay arrearages on the old. To enforce a revival of the bad cases, whilst the company necessarily lose the
cases which are desirable, would be manifestly unjust. An insured person, as before stated, does not stand isolated and alone.
His case is connected with and co-related to the cases of all others insured by the same company. The nature of the business,
as a whole, must be looked at to understand the general equities of the parties.

The above consideration certainly lend themselves to the approval of fair-minded men. Moreover, if, as alleged, the consequences of
war should not prejudice the insured, neither should they bear down on the insurer.

Urging adoption of the New York theory, counsel for plaintiff point out that the obligation of the insured to pay premiums was excused
during the war owing to impossibility of performance, and that consequently no unfavorable consequences should follow from such
failure.

The appellee answers, quite plausibly, that the periodic payment of premiums, at least those after the first, is not an obligation of the
insured, so much so that it is not a debt enforceable by action of the insurer.

Under an Oklahoma decision, the annual premium due is not a debt. It is not an obligation upon which the insurer can maintain
an action against insured; nor is its settlement governed by the strict rule controlling payments of debts. So, the court in a
Kentucky case declares, in the opinion, that it is not a debt. . . . The fact that it is payable annually or semi-annually, or at any
other stipulated time, does not of itself constitute a promise to pay, either express or implied. In case of non-payment the
policy is forfeited, except so far as the forfeiture may be saved by agreement, by waiver, estoppel, or by statute. The payment
of the premium is entirely optional, while a debt may be enforced at law, and the fact that the premium is agreed to be paid is
without force, in the absence of an unqualified and absolute agreement to pay a specified sum at some certain time. In the
ordinary policy there is no promise to pay, but it is optional with the insured whether he will continue the policy or forfeit it. (3
Couch, Cyc. on Insurance, Sec. 623, p. 1996.)

It is well settled that a contract of insurance is sui generis. While the insured by an observance of the conditions may hold the
insurer to his contract, the latter has not the power or right to compel the insured to maintain the contract relation with it longer
than he chooses. Whether the insured will continue it or not is optional with him. There being no obligation to pay for the
premium, they did not constitute a debt. (Noble vs. Southern States M.D. Ins. Co., 157 Ky., 46; 162 S.W., 528.) (Emphasis
ours.)

It should be noted that the parties contracted not only for peacetime conditions but also for times of war, because the policies contained
provisions applicable expressly to wartime days. The logical inference, therefore, is that the parties contemplated uninterrupted
operation of the contract even if armed conflict should ensue.

For the plaintiffs, it is again argued that in view of the enormous growth of insurance business since the Statham decision, it could now
be relaxed and even disregarded. It is stated "that the relaxation of rules relating to insurance is in direct proportion to the growth of the
business. If there were only 100 men, for example, insured by a Company or a mutual Association, the death of one will distribute the
insurance proceeds among the remaining 99 policy-holders. Because the loss which each survivor will bear will be relatively great,
death from certain agreed or specified causes may be deemed not a compensable loss. But if the policy-holders of the Company or
Association should be 1,000,000 individuals, it is clear that the death of one of them will not seriously prejudice each one of the 999,999
surviving insured. The loss to be borne by each individual will be relatively small."

The answer to this is that as there are (in the example) one million policy-holders, the "losses" to be considered will not be the death of
one but the death of ten thousand, since the proportion of 1 to 100 should be maintained. And certainly such losses for 10,000 deaths
will not be "relatively small."

After perusing the Insurance Act, we are firmly persuaded that the non-payment of premiums is such a vital defense of insurance
companies that since the very beginning, said Act no. 2427 expressly preserved it, by providing that after the policy shall have been in
force for two years, it shall become incontestable (i.e. the insurer shall have no defense) except for fraud, non-payment of premiums,
and military or naval service in time of war (sec. 184 [b], Insurance Act). And when Congress recently amended this section (Rep. Act
No. 171), the defense of fraud was eliminated, while the defense of nonpayment of premiums was preserved. Thus the fundamental
character of the undertaking to pay premiums and the high importance of the defense of non-payment thereof, was specifically
recognized.

In keeping with such legislative policy, we feel no hesitation to adopt the United States Rule, which is in effect a variation of the
Connecticut rule for the sake of equity. In this connection, it appears that the first policy had no reserve value, and that the equitable
values of the second had been practically returned to the insured in the form of loan and advance for premium.

For all the foregoing, the lower court's decision absolving the defendant from all liability on the policies in question, is hereby affirmed,
without costs.

12. G.R. No. L-21821-22 and L-21824-27 May 31, 1966

DIOSDADO C. TY, plaintiff-appellant,


vs.
FILIPINAS COMPAIA DE SEGUROS, et al., defendants-appellees.

BARRERA, J.:

These are appeals instituted by Diosdado C. Ty from a single decision of the Court of First Instance of Manila (in Civ. Cases Nos.
26343, 26344, 26404, 26405, 26406, 26442, which were tried together), dismissing the six separate complaints he filed against six
insurance companies (Filipinas Compaia de Seguros, People's Surety & Insurance Co., Inc., South Sea Surety & Insurance Co., Inc.,
The Philippine Guaranty Company, Inc., Universal Insurance & Indemnity Co., and Plaridel Surety & Insurance Co., Inc.) for collection
from each of them, of the sum of P650.00, as compensation for the disability of his left hand.

The facts of these cases are not controverted:

Plaintiff-appellant was an employee of Broadway Cotton Factory at Grace Park, Caloocan City, working as mechanic operator, with
monthly salary of P185.00. In the latter part of 1953, he took Personal Accident Policies from several insurance companies, among
which are herein defendants-appellees, on different dates,1 effective for 12 months. During the effectivity of these policies, or on
December 24, 1953, a fire broke out in the factory where plaintiff was working. As he was trying to put out said fire with the help of a fire
extinguisher, a heavy object fell upon his left hand. Plaintiff received treatment at the National Orthopedic Hospital from December 26,
1953 to February 8, 1954, for the following injuries, to wit:

(1) Fracture, simple, oraximal phalanx, index finger, left;

(2) Fracture, compound, communite proximal phalanx, middle finger, left and 2nd phalanx simple;

(3) Fracture, compound, communite phalanx, 4th finger, left;

(4) Fracture, simple, middle phalanx, middle finger, left;

(5) Lacerated wound, sutured, volar aspect, small finger, left;

(6) Fracture, simple, chip, head, 1st phalanx 5th digit, left.

which injuries, the attending surgeon certified, would cause temporary total disability of appellant's left hand.

As the insurance companies refused to pay his claim for compensation under the policies by reason of the said disability of his left
hand, Ty filed motions in the Municipal Court of Manila, which rendered favorable decision. On appeal to the Court of First Instance by
the insurance companies, the cases were dismissed on the ground that under the uniform terms of the insurance policies, partial
disability of the insured caused by loss of either hand to be compensable, the loss must result in the amputation of that hand. Hence,
these appeals by the insured.1wph1.t

Plaintiff-appellant is basing his claim for indemnity under the provision of the insurance contract, uniform in all the cases, which reads:

"INDEMNITY FOR TOTAL OR PARTIAL DISABILITY

If the Insured sustains any Bodily Injury which is effected solely through violent, external, visible and accidental means, and
which shall not prove fatal but shall result, independently of all other causes and within sixty (60) days from the occurrence,
thereof, in Total or Partial Disability of the Insured, the Company shall pay, subject to the exceptions as provided for
hereinafter, the amount set opposite such injury.

xxx xxx xxx

PARTIAL DISABILITY

LOSS OF:

xxx xxx xxx

Either Hand P650.00

xxx xxx xxx

The loss of a hand shall mean the loss, by amputation through the bones of the wrist.

Appellant contends that to be entitled to indemnification under the foregoing provision, it is enough that the insured is disabled to such
an extent that he cannot substantially perform all acts or duties of the kind necessary in the prosecution of his business. It is argued that
what is compensable is the disability and not the amputation of the hand. The definition of what constitutes loss of hand, placed in the
contract, according to appellant, consequently, makes the provision ambiguous and calls for the interpretation thereof by this Court.

This is not the first time that the proper construction of this provision, which is uniformly carried in personal accident policies, has been
questioned. Herein appellant himself has already brought this matter to the attention of this Court in connection with the other accident
policies which he took and under which he had tried to collect indemnity, for the identical injury that is the basis of the claims in these
cases. And, we had already ruled:

While we sympathize with the plaintiff or his employer, for whose benefit the policies were issued, we can not go beyond the
clear and express conditions of the insurance policies, all of which definite partial disability as loss of either hand
by amputation through the bones of the wrist. There was no such amputation in the case at bar. All that was found by the trial
court, which is not disputed on appeal, was that the physical injuries "caused temporary total disability of plaintiff's left hand."
Note that the disability of plaintiff's hand was merely temporary, having been caused by fractures of the index, the middle and
the fourth fingers of the left hand.

We might add that the agreement contained in the insurance policies is the law between the parties. As the terms of the policies are
clear, express and specific that only amputation of the left hand should be considered as a loss thereof, an interpretation that would
include the mere fracture or other temporary disability not covered by the policies would certainly be unwarranted.2

We find no reason to depart from the foregoing ruling on the matter.


Plaintiff-appellant cannot come to the courts and claim that he was misled by the terms of the contract. The provision is clear enough to
inform the party entering into that contract that the loss to be considered a disability entitled to indemnity, must be severance or
amputation of that affected member from the body of the insured.

Wherefore, finding no error in the decision appealed from, the same is hereby affirmed, without costs. So ordered.

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

SIMEON DEL ROSARIO, plaintiff-appellee,


vs.
THE EQUITABLE INSURANCE AND CASUALTY CO., INC., 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. . . . . . . . P1,000.00

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. . . . . . . . P1,500.00

Section 3. Injury sustained by the burning of a church, theatre, public


library or municipal administration building while the Insured is
therein at the commencement of the fire. . . . . . . . P2,000.00

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. . .


..... P3,000.00

xxx xxx xxx

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 com pany
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.

14. G.R. No. L-21380 May 20, 1966

MISAMIS LUMBER CORPORATION, plaintiff and appellee,


vs.
CAPITAL INSURANCE and SURETY CO., INC., defendant and appellant.
REYES, J.B.L., J.:

Plaintiff-appellee Misamis Lumber Corporation, under its former name, Lanao Timber Mills, Inc., insured its Ford Falcon motor car for
the amount of P14,000 with the defendant-appellant, Capital Insurance & Surety Company, Inc. The pertinent provisions of the policy
provided, as follows:

1. The Company will subject to the Limits of Liability indemnify the Insured against loss or damage to the Motor Vehicle and its
accessories and spare parts whilst thereon.

2. (a) by accidental collision or overturning or collision or overturning consequent when mechanical breakdown or consequent
upon wear and tear.

xxx xxx xxx

3. At its option, the Company may pay in cash the amount of the loss or damage or may repair, reinstate or replace the Motor
Vehicle or any part thereof or its accessories or spare parts. The liability of the Company shall not exceed the value of the
parts lost or damaged and the reasonable cost of fitting such parts or the value of the Motor Vehicle at the time of the loss or
damage whichever is the loss. The Insured's estimate of value stated in the schedule shall be the maximum amount payable
by the Company in respect of any claim for loss or damage.1wph1.t

xxx xxx xxx

4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for which the Company may be liable
under this policy provided that:

(a) the estimated cost of such repair does not exceed the authorized Repair Limit.

(b) a detailed estimate of the cost is forwarded to the Company without delay.

and providing also that the authorized repair limit is P150.00.

At around eleven o'clock in the evening of 25 November 1961, and while the above-mentioned insurance policy was in force, the
insured car, while traveling along in Aurora Boulevard in front of the Pepsi-Cola plant in Quezon City, passed over a water hole which
the driver did not see because an oncoming car did not dim its light. The crankcase and flywheel housing of the car broke when it hit a
hollow block lying alongside the water hole. At the instance of the plaintiff-appellee, the car was towed and repaired by Morosi Motors at
its shop at 1906 Taft Avenue Extension at a total cost of P302.27.

On 29 November 1961, when the repairs on the car had already been made, the plaintiff-appellee made a report of the accident to the
defendant-appellant Capital Insurance & Surety Company.

Since the defendant-appellant refused to pay for the total cost of to wage and repairs, suit was filed in the municipal court originally.

The case before Us is now a direct appeal on a point of law from the judgment of the Court of First Instance of Manila finding for the
plaintiff and against the defendant-insurer in its Civil Case No. 51757. Per our resolution on 13 February 1964, it was resolved to
proceed with the case without the appellee's brief, which was filed late.

The defendant-appellant admits liability in the amount of P150, but not for any excess thereof.

The lower court did not exonerate the said appellant for the excess because, according to it, the company's absolution would render the
insurance contract one-sided and that the said insurer had not shown that the cost of repairs in the sum of P302.27 is unreasonable,
excessive or padded, nor had it shown that it could have undertaken the repairs itself at less expense.

The above reasoning is beside the point, because the insurance policy stipulated in paragraph 4 that if the insured authorizes the repair
the liability of the insurer, per its sub-paragraph (a), is limited to P150.00. The literal meaning of this stipulation must control, it being the
actual contract, expressly and plainly provided for in the policy (Art. 1370, Civil Code; Young vs. Midland Textile Ins. Co., 30 Phil. 617;
Ty vs. First Nat. Surety & Assur. Co., Inc., L-16138-45, 29 April 1961).

The lower court's recourse to legal hermeneutics is not called for because paragraph 4 of the policy is clear and specific and leaves no
room for interpretation. The interpretation given is even unjustified because it opposes what was specifically stipulated. Thus, it will be
observed that the policy drew out not only the limits of the insurer's liability but also the mechanics that the insured had to follow to be
entitled to full indemnity of repairs. The option to undertake the repairs is accorded to the insurance company per paragraph 2. The said
company was deprived of the option because the insured took it upon itself to have the repairs made, and only notified the insurer when
the repairs were done. As a consequence, paragraph 4, which limits the company's liability to P150.00, applies.
The insurance contract may be rather onerous ("one-sided", as the lower court put it), but that in itself does not justify the abrogation of
its express terms, terms which the insured accepted or adhered to and which is the law between the contracting parties.

Finally, to require the insurer to prove that the cost of the repairs ordered by the insured is unreasonable, as the appealed decision
does, when the insurer was not given an opportunity to inspect and assess the damage before the repairs were made, strikes Us as
contrary to elementary justice and equity.

For the foregoing reasons, the appealed decision is hereby modified by ordering the defendant-appellant Capital Insurance & Surety
Company, Inc. to pay not more than P150.00 to the plaintiff-appellee Misamis Lumber Corporation. Each party shall bear its own costs
and attorney's fees.

15. 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.

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 letter-complaint of April 17,
1986 was sufficient in form and substance, and requested that a hearing thereon be conducted.

Petitioner De los Reyes, in his letter to respondent Commissioner dated June 6, 1986, reiterated his claim that private respondent's
letter of May 16, 1986 did not supply the information he needed to enable him to answer the letter-complaint.

On July 14, a hearing on the letter-complaint was held by respondent Commissioner on the validity of the Contract of Agency
complained of by private respondent.

In said hearing, private respondent was required by respondent Commissioner to specify the provisions of the agency contract which he
claimed to be illegal.

On August 4, private respondent submitted a letter of specification to respondent Commissioner dated July 31, 1986, reiterating his
letter of April 17, 1986 and praying that the provisions on charges and fees stated in the Contract of Agency executed between
Philamlife and its agents, as well as the implementing provisions as published in the agents' handbook, agency bulletins and circulars,
be declared as null and void. He also asked that the amounts of such charges and fees already 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 contrac t 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.

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