MAYER STEEL PIPE barred under Section 3(6) of the date when they should have been either
ate when they should have been
CORPORATION vs. COURT OF
APPEALS
274 SCRA 432 – Mercantile Law –
Insurance Law – The Policy –
Prescription of Filing of Insurance
Cases
In 1983, Hongkong Government
Supplies Department (HGSD)
contracted Mayer Steel Pipe
Corporation for the latter to
manufacture and deliver various steel
pipes and fittings. Before Mayer Steel
shipped the said pipes, it insured them
with two insurance companies namely,
South Sea Surety and Insurance Co.,
Inc. and Charter Insurance Corporation
– each insurer covering different
portions of the shipment. The
insurance policies cover “all risks”
which include all causes of
conceivable loss or damage.
When the pipes reached Hongkong,
the pipes were discovered to have
been damaged. The insurance
companies refused to make
payment. On April 17 1986, Mayer
Steel sued the insurance companies.
The case reached the Court of
Appeals. The CA ruled that the case
filed by Mayer Steel should be
dismissed. It held that the action is
either by the shipper, the consignee
Carriage of Goods by Sea Act since
it was filed only on April 17, 1986,
more than two years from the time
the goods were unloaded from the
vessel. Section 3(6) of the Carriage
of Goods by Sea Act provides that
“the carrier and the ship shall be
discharged from all liability in
respect of loss or damage unless
suit is brought within one year after
delivery of the goods or the date
when the goods should have been
delivered.” The CA ruled that this
provision applies not only to the carrier
but also to the insurer, citing the case
of Filipino Merchants Insurance Co.,
Inc. vs Alejandro.
ISSUE: Whether or not the Court of
Appeals is correct. NO. Only the
carrier’s liability is extinguished if
no suit is brought within one year.
But the liability of the insurer is not
extinguished because the insurer’s
liability is based not on the contract
of carriage but on the contract of
insurance
HELD: No. Section 3(6) of the Carriage
of Goods by Sea Act states that the
carrier and the ship shall be discharged
from all liability for loss or damage to
the goods if no suit is filed within one
year after delivery of the goods or the
1
delivered. Under this provision, only the or the insurer.
carrier’s liability is extinguished if no
An insurance contract is a contract
suit is brought within one year. But the
whereby one party, for a consideration
liability of the insurer is not
known as the premium, agrees to
extinguished because the insurer’s
indemnify another for loss or damage
liability is based not on the contract of
which he may suffer from a specified
carriage but on the contract of
peril. An “all risks” insurance policy
insurance. A close reading of the law
covers all kinds of loss other than those
reveals that the Carriage of Goods by
due to willful and fraudulent act of the
Sea Act governs the relationship
insured. Thus, when private
between the carrier on the one hand
respondents issued the “all risks”
and the shipper, the consignee and/or
policies to Mayer, they bound
the insurer on the other hand. It defines
themselves to indemnify the latter in
the obligations of the carrier under the
case of loss or damage to the goods
contract of carriage. It does not,
insured. Such obligation prescribes
however, affect the relationship
in ten years, in accordance with Article
between the shipper and the insurer.
1144 of the New Civil Code.
The latter case is governed by the
Insurance Code.
PHIL. HEALTH CARE PROVIDERS,
The Filipino Merchants case is
INC vs. COMMISSIONER OF
different from the case at bar.
INTERNAL REVENUE
In Filipino Merchants, it was the insurer
which filed a claim against the carrier
for reimbursement of the amount it paid GR. NO. 1677330 September 18,
to the shipper. In the case at bar, it was 2009, SPECIAL FIRST DIVISION
the shipper which filed a claim against (CORONA, J.)
the insurer. The basis of the
FACTS:
shipper’s claim is the “all risks”
insurance policies issued by the
insurers to Mayer Steel.The ruling
Petitioner is a domestic corporation
in Filipino Merchants should apply
whose primary purpose is to
only to suits against the carrier filed
establish, maintain, conduct and
operate a prepaid group practice
health care delivery system or a
health maintenance organization to
take care of the sick and disabled
persons enrolled in the health care plan
and to provide for the administrative,
legal, and financial responsibilities of
the organization. On January 27, 2000,
respondent CIR sent petitioner a
formal demand letter and the
corresponding assessment notices
demanding the payment of
deficiency taxes, including
surcharges and interest, for the taxable
years 1996 and 1997 in the total
amount of P224,702,641.18. The
deficiency assessment was
imposed on petitioner’s health care
agreement with the members of its
health care program pursuant to
Section 185 of the 1997 Tax Code.
Petitioner protested the assessment in
a letter dated February 23, 2000.
As respondent did not act on the
protest, petitioner filed a petition for
review in the Court of Tax Appeals
(CTA) seeking the cancellation of the
deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a
decision, ordering the petitioner to PAY
the deficiency VAT amounting to
P22,054,831.75 inclusive of 25%
surcharge plus 20% interest from
January 20, 1997 until fully paid for the
1996 VAT deficiency and
P31,094,163.87 inclusive of 25%
surcharge plus 20% interest from
January 20, 1998 until fully paid for the
1997 VAT deficiency. Accordingly, VAT
Ruling No. [231]-88 is declared void
and without force and effect. The 1996
and 1997 deficiency DST assessment
against petitioner is hereby
CANCELLED AND SET ASIDE.
Respondent is ORDERED to DESIST
from collecting the said DST deficiency
tax. Respondent appealed the CTA
decision to the (CA) insofar as it
cancelled the DST assessment. He
claimed that petitioner’s health care
agreement was a contract of insurance
subject to DST under Section 185 of
the 1997 Tax Code.
On August 16, 2004, the CA rendered
its decision which held that petitioner’s
health care agreement was in the
nature of a non-life insurance contract
subject to DST. Respondent is ordered
to pay the deficiency Documentary
Stamp Tax. Petitioner moved for
reconsideration but the CA denied it.
ISSUES:
2
(1) Whether or not Philippine Health 2008 decision that it is irrelevant that
Care Providers, Inc. engaged in petitioner is an HMO and not an insurer
insurance business. NO because its agreements are treated as
insurance contracts and the DST is not
a tax on the business but an excise on
(2) Whether or not the agreements the privilege, opportunity or facility
between petitioner and its members used in the transaction of the business.
possess all elements necessary in the Petitioner, however, submits that it is of
insurance contract. NO. OVERALL, critical importance to characterize the
PETITIONER APPEARS TO business it is engaged in, that is, to
PROVIDE INSURANCE-TYPE determine whether it is an HMO or an
BENEFITS TO ITS MEMBERS (WITH insurance company, as this distinction
RESPECT TO ITS CURATIVE is indispensable in turn to the issue of
MEDICAL SERVICES), BUT THESE whether or not it is liable for DST on its
ARE INCIDENTAL TO THE health care agreements. Petitioner is
PRINCIPAL ACTIVITY OF admittedly an HMO. Under RA 7878
PROVIDING THEM MEDICAL CARE. an HMO is “an entity that provides,
The “insurance-like” aspect of offers or arranges for coverage of
petitioner’s business is miniscule designated health services needed
compared to its noninsurance by plan members for a fixed prepaid
activities. THEREFORE, SINCE IT premium. The payments do not vary
SUBSTANTIALLY PROVIDES with the extent, frequency or type of
HEALTH CARE SERVICES RATHER services provided. Section 2 (2) of PD
THAN INSURANCE SERVICES, IT 1460 enumerates what constitutes
CANNOT BE CONSIDERED AS “doing an insurance business” or
BEING IN THE INSURANCE “transacting an insurance
BUSINESS. business”which are making or
proposing to make, as insurer, any
insurance contract; making or
HELD:
proposing to make, as surety, any
contract of suretyship as a vocation
Health Maintenance Organizations and not as merely incidental to any
are not engaged in the insurance other legitimate business or activity of
business. The SC said in June 12, the surety; 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; 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.
OVERALL, PETITIONER APPEARS
TO PROVIDE INSURANCE-TYPE
BENEFITS TO ITS MEMBERS (WITH
RESPECT TO ITS CURATIVE
MEDICAL SERVICES), BUT THESE
ARE INCIDENTAL TO THE
PRINCIPAL ACTIVITY OF
PROVIDING THEM MEDICAL CARE.
The “insurance-like” aspect of
petitioner’s business is miniscule
compared to its noninsurance
activities. THEREFORE, SINCE IT
SUBSTANTIALLY PROVIDES
HEALTH CARE SERVICES RATHER
THAN INSURANCE SERVICES, IT
CANNOT BE CONSIDERED AS
BEING IN THE INSURANCE
BUSINESS.
 basic distinction between
medical service corporations
and ordinary health and accident
insurers is that the former
undertake to provide prepaid
medical services through
participating physicians, thus
relieving subscribers of any
further financial burden, while
the latter only undertake to
indemnify an insured for medical
expenses up to, but not beyond,
the schedule of rates contained
in the policy
 A participating provider of health
care services is one who agrees in
writing to render health care
services to or for persons covered
by a contract issued by health
service corporation in return for
which the health service
corporation agrees to make
payment directly to the participating
provider
 any indemnification resulting from
the payment for services rendered
in case of emergency by non-
participating health providers would
still be incidental to petitioner’s
purpose of providing and arranging
for health care services and does
not transform it into an insurer.
 As an HMO, it is its obligation to
maintain the good health of its
members
 its undertaking under its
agreements is not to indemnify its
members against any loss or
3
damage arising from a medical
condition but, on the contrary, to
provide the health and medical
services needed to prevent such
loss or damage
 Principal purpose test -purpose of
determining what "doing an
insurance business" means, we
have to scrutinize the operations of
the business as a whole and not its
mere components
 letter dated September 3, 2000, the
Insurance Commissioner
confirmed that petitioner is not
engaged in the insurance business.
This determination of the
commissioner must be accorded
great weight
 Section 2 (1) of the Insurance Code
defines a contract of insurance as
an agreement whereby one
undertakes for a consideration to
indemnify another against loss,
damage or liability arising from an
unknown or contingent event. An
insurance contract exists where
the following elements concur: -
NOT present
1. The insured has an insurable
interest;
2. The insured is subject to a risk
of loss by the happening of the
designed 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.
 no indemnity
 member can take advantage of the
bulk of the benefits anytime even in
the absence of any peril, loss or
damage on his or her part.
 assumption of the expense by
petitioner is not confined to the
happening of a contingency but
includes incidents even in the
absence of illness or injury
 Since indemnity of the insured was
not the focal point of the agreement
but the extension of medical
services to the member at an
affordable cost, it did not partake of
the nature of a contract of
insurance
 HMO, undertakes a business risk
when it offers to provide health
services. But it is not the risk of the
type peculiar only to insurance
companies. Insurance risk, also
known as actuarial risk, is the risk
that the cost of insurance claims
might be higher than the premiums
paid. The amount of premium is
 calculated on the basis of
assumptions made relative to the
insured.
 IN OUR JURISDICTION, A
COMMENTATOR OF OUR
INSURANCE LAWS HAS
POINTED OUT THAT, EVEN IF A
CONTRACT CONTAINS ALL THE
ELEMENTS OF AN INSURANCE
CONTRACT, IF ITS PRIMARY
PURPOSE IS THE RENDERING
OF SERVICE, IT IS NOT A
CONTRACT OF
INSURANCE. The primary
purpose of the parties in making
the contract may negate the
existence of an insurance contract.
 health care agreements are clearly
not within the ambit of Section 185
of the NIRC and there was never
any legislative intent to impose the
same on HMOs
ETERNAL GARDENS MEMORIAL
PARK CORP. V. PHILIPPINE
AMERICAN LIFE INSURANCE
CORP. (2008)
G.R. No. 166245 April 9, 2008
Lessons Applicable: Exception to
Perfection (Insurance)
FACTS:
 December 10, 1980: Philippine
American Life Insurance Company
(Philamlife) entered into an
agreement denominated as
Creditor Group Life Policy No. P-
19202 with Eternal Gardens
Memorial Park Corporation
(Eternal)
 Under the policy (renewable
annually), the clients of Eternal who
purchased burial lots from it on
installment basis would be insured
by Philamlife
 amount of insurance coverage
depended upon the existing
balance
 Eternal complied by submitting a
letter dated December 29, 1982, a
list of insurable balances of its lot
buyers for October 1982 which
includes John Chuang which was
stamped as received by Philam Life
 August 2, 1984, Chuang died
with a balance of 100,000 php
 April 25, 1986: Philamlife had not
furnished Eternal with any reply
on its insurance claim so its
demanded its claim
 According to Philam Life, since
the application was submitted
only on November 15, 1984, after
his death, Mr. John Uy Chuang
was not covered under the
Policy since his application was
4
not approved. Moreover, the
acceptance of the premiums are
only in trust for and not a sign of
approval.
 RTC: favored Eternal
 CA: Reversed RTC
ISSUE: W/N Philam's inaction or non-
approval meant the perfection of the
insurance contract.. YES. 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.
HELD:
 construed in favor of the insured
and in favor of the effectivity of the
insurance contract
 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
 Moreover, the mere inaction of the
insurer on the insurance
application must not work to
prejudice the insured
 The termination of the insurance
contract by the insurer must be
explicit and unambiguous
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 provision
of the POLICY under effective
date of benefit, 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
 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 the Creditor
Group Life Policy 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.
WESTERN GUARANTY V CA G.R.
NO. 91666 JULY 20, 1990
J. FELICIANO
Facts:
Priscilla Rodriguez was struck by a
bus owned by De Dios. She was
hospitalized and her face was
permanently disfigured. Western
Guaranty, the insurance company of
the bus line, was obliged to pay due
to the bodily injury caused by the
bus. Rodriguez was able to earn a
money judgment from the court to
the tune of 3000 for actual damages,
1500 for loss of earning capacity, and
20000 for moral damages and
attorney’s fees. De Dios filed a
complaint against Western to
indemnify the amount. Western lost
the case in the appellate court, hence
this petition.
Issue: Is Western liable for paying loss
of earnings, moral damages and
attorney's fees even if these items are
not among those included in the
Schedule of Indemnities set forth in the
insurance policy.
Held: Yes. Petition dismissed.
5
Ratio: The schedule of indemnities was not a
closed enumeration of the kinds of
The policy states:
damages Western can award.
Section 1. Liability to the Public —
Western should have used far more
Company will, subject to the Limits of
specific language, not the “pay all sums
Liability, pay all sums necessary to
necessary to discharge liability” clause.
discharge liability of the insured in
respect of — Insurance contracts must be read by
the courts with a jaundiced eye to
(a) death of or bodily injury to or
prevent the insurer from escaping from
damage to property of any passenger
its obligation. Also, contracts of
as defined herein.
adhesion such as policies msut be
There was also a schedule of construed against the party who made
indemnities that specified a certain them, in this case western.
amount for a certain type of injury as
well as hospital service payments.
In this case, the limits on the amount
payable for certain kinds of expenses
were not considered by the court as
“excluding liability for any other type of
expense or damage or loss even
though actually sustained or incurred
by the third party victim.”
The court noted that the limits of the GREAT PACIFIC LIFE VS. CA
liability was at 50,000 per person per
accident. Construing this with section 1 316 SCRA 677 (1999)
means that all kinds of damages
INSURANCE LAW: Parties in
allowable by law were also to be
Insurance Contract
covered by the policy once it was
shown that liability has arisen.
FACTS:
Great Pacific Life Assurance
Corporation (Grepalife) executed a
contract of group life insurance with
Development Bank of the
Philippines (DBP) wherein Grepalife
agreed to insure the lives of eligible
housing loan mortgagors of DBP.
One such loan mortgagor is Dr.
Wilfredo Leuterio. In an application
form, Dr. Leuterio answered
questions concerning his test,
attesting among others that he does
not have any heart conditions and
that he is in good health to the best
of his knowledge.
However, after about a year, Dr.
Leuterio died due to “massive
cerebral hemorrhage.” When DBP
submitted a death claim to Grepalife,
the latter denied the claim, alleging
that Dr. Leuterio did not disclose he
had been suffering from
hypertension, which caused his
death. Allegedly, such non-
disclosure constituted concealment
that justified the denial of the claim.
Hence, the widow of the late Dr.
Leuterio filed a complaint against
Grepalife for “Specific Performance
with Damages.” Both the trial court and
the Court of Appeals found in favor of
the widow and ordered Grepalife to pay
DBP.
ISSUE:
Whether the CA erred in holding
Grepalife liable to DBP as beneficiary
in a group life insurance contract from
a complaint filed by the widow of the
decedent/mortgagor
HELD:
The rationale of a group of insurance
policy of mortgagors, otherwise known
as the “mortgage redemption
insurance,” is a device for the
protection of both the mortgagee and
the mortgagor. On the part of the
mortgagee, it has to enter into such
form of contract so that in the event of
the unexpected demise of the
mortgagor during the subsistence of
the mortgage contract, the proceeds
from such insurance will be applied to
the payment of the mortgage debt,
thereby relieving the heirs of the
mortgagor from paying the obligation.
In a similar vein, ample protection is
given to the mortgagor under such a
concept so that in the event of death,
the mortgage obligation will be
extinguished by the application of the
insurance proceeds to the mortgage
indebtedness. In this type of policy
insurance, the mortgagee is simply an
6
appointee of the insurance fund. Such coverage of Dr. Leuterio, to the extent
loss-payable clause does not make the of his DBP mortgage indebtedness
mortgagee a party to the contract. amounting to P86,200
 August 6, 1984: Dr. Leuterio died
The insured, being the person with due to “massive cerebral
whom the contract was made, is hemorrhage.”
primarily the proper person to bring suit  DBP submitted a death claim to
thereon. Subject to some exceptions, Grepalife
insured may thus sue, although the  Grepalife denied the claim alleging
policy is taken wholly or in part for the that Dr. Leuterio was not physically
benefit of another person, such as a healthy when he applied
mortgagee.  RTC: Favored Medarda V. Leuterio
(widow) and held Grepalife
And since a policy of insurance (insurer) liable to pay DBP (creditor
upon life or health may pass by of the insured Dr. Wilfredo
transfer, will or succession to any Leuterio)
person, whether he has an insurable  CA sustained
interest or not, and such person may
recover it whatever the insured ISSUE:
might have recovered, the widow of 1. W/N DBP has insurable interest
the decedent Dr. Leuterio may file as creditor - YES
the suit against the insurer, 2. W/N Grepalife should be held
Grepalife. liable - YES
Lessons Applicable:
HELD:
 Credit in Life and Health Insurance
1. YES
(Insurance)
 In this type of policy insurance,
 Mortgagor (Insurance)
the mortgagee is simply an
Laws Applicable: Sec. 8 of Insurance
appointee of the insurance fund,
Code
such loss-payable clause does
not make the mortgagee a party
FACTS:
to the contract
November 15, 1983: Grepalife issued
 Section 8 of the Insurance Code
Certificate No. B-18558, as insurance
provides:

“Unless the policy provides, where a
mortgagor of property effects insurance
in his own name providing that the loss
shall be payable to the mortgagee, or
assigns a policy of insurance to a
mortgagee, the insurance is deemed to
be upon the interest of the mortgagor,
who does not cease to be a party to the
original contract, and any act of his,
prior to the loss, which would otherwise
avoid the insurance, will have the same
effect, although the property is in the
hands of the mortgagee, but any act
which, under the contract of insurance,
is to be performed by the mortgagor,
may be performed by the mortgagee
therein named, with the same effect as
if it had been performed by the
mortgagor.”
 The insured Dr. Wilfredo
Leuterio did not cede to the
mortgagee all his rights or interests
in the insurance. When Grepalife
denied payment, DBP collected the
debt from the mortgagor and took
the necessary action of foreclosure
on the residential lot of Dr. Wilfredo
Leuterio
 Insured may be regarded as the
real party in interest, although he
has assigned the policy for the
purpose of collection, or has
assigned as collateral security any
judgment he may obtain
2. YES
 medical findings were not
conclusive because Dr. Mejia did
not conduct an autopsy
 widow who was not even sure if the
medicines taken by Dr. Leuterio
were for hypertension
 Grepalife failed to establish that
there was concealment made by
the insured, hence, it cannot
refuse payment of the claim
 fraudulent intent on the part of the
insured must be established to
entitle the insurer to rescind the
contract. Misrepresentation as a
defense of the insurer to avoid
liability is an affirmative defense
and the duty to establish such
defense by satisfactory and
convincing evidence rests upon the
insurer
 The policy states that upon receipt
of due proof of the Debtor’s death
during the terms of this insurance,
a death benefit in the amount of
P86,200.00 shall be paid. In the
event of the debtor’s death before
his indebtedness with the creditor
shall have been fully paid, an
amount to pay the outstanding
indebtedness shall first be paid to
the Creditor and the balance of the
7
Sum Assured, if there is any shall
then be paid to the beneficiary/ies
designated by the debtor.
 DBP foreclosed in 1995 their
residential lot, in satisfaction of
mortgagor’s outstanding loan
 insurance proceeds shall inure
to the benefit of the heirs of the
deceased person or his
beneficiaries
 Equity dictates that DBP should not
unjustly enrich itself at the expense
of another (Nemo cum alterius
detrimenio protest). Hence, it
cannot collect the insurance
proceeds, after it already
foreclosed on the mortgage
RIZAL SURETY VS. CA, 336 SCRA
12 (2000)
INSURANCE LAW:
INTERPRETATION OF INSURANCE
CONTRACTS
FACTS:
Rizal Surety & Insurance Company
issued a fire insurance policy in
favor of Transworld Knitting Mills,
Inc. The subject policy stated that
Rizal Surety is “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
situated within own Compound xxx.”
The policy also described therein the
four-span building covered by the
same.
On Jan. 12, 1981, fire broke out in the
compound, razing the middle
portion of its four-span building and
partly gutting the left and right
sections thereof. A two-storey
building (behind said four-span
building) was also destroyed by the
fire.
ISSUE:
Whether or not Rizal Surety is liable for
loss of the two-storey building
considering that the fire insurance
policy sued upon covered only the
contents of the four-span building.
YES. Both the trial court and the
Court of Appeals found that the so
called "annex " was not an annex
building but an integral part of the
four-span building described in the
policy and consequently, the
machines and spare parts stored
were covered by the fire insurance.
HELD:
So also, considering that the two-storey
building aforementioned was already
existing when subject fire insurance
policy contract was entered into on Jan.
12, 1981, having been constructed
some time in 1978, 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 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.
Also, in case of doubt in the
stipulation as to the coverage of the
fire insurance policy, under Art.
1377 of the New Civil Code, the
doubt should be resolved against
the Rizal Surety, whose layer or
managers drafted the fire insurance
policy contract under scrutiny.
In Landicho vs. Government Service
Insurance System, the Court ruled 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,
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.”
Facts:
Rizal Surety issued a 1 million peso fire
insurance policy with Transworld. This
was increased to 1.5 million. A four
span building was part of the policy. A
fire broke out and gutted the building,
together with a two storey building
behind it were gaming machines were
stored. The company filed its claims but
to no avail. Hence, it brought a suit in
court. It aimed to make Rizal pay for
almost 3 million including legal interest
and damages. Rizal claimed that the
policy only covered damage on the four
span building and not the two storey
8
building. The trial court ruled in
Transworld’s favor and ordered Rizal to
pay actual damages only. The court of
appeals increased the damages. The
insurance company filed a MFR. The
CA answered by modifying the
imposition of interest. Not satisfied, the
insurance company petitioned to the
Supreme Court.
Ratio:
The policy had clauses on the building
coverage that read:
"contained and/or stored during
the currency of this Policy in the
premises occupied by them
forming part of the buildings
situated within own Compound"
"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"
This generally means that the policy
didn’t limit its coverage to what was
stored in the four-span building.
As to questions of fact, both the trial
court and the Court of Appeals found
that the so called "annex " was not an
annex building but an integral part of
the four-span building described in the
policy and consequently, the machines
and spare parts stored were covered
by the fire insurance.
A report said: "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."
"Art.1377. The interpretation of
obscure words or stipulations in a
contract shall not favor the party who
caused the obscurity"
Landicho v GSIS- 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’
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
another SC case.
PAN MALAYAN VS. CA
184 SCRA 54 GR. NO. 81026 APRIL
30, 1990
Pan Malayan filed a complaint for
damages with the RTC against
private respondent Erlinda Fabie
and her driver. Pan Malayan insured
a vehicle registered in the name of
Canlubang. Due to recklessness of
the unknown driver of a pick up
owned by Fabie, the insured vehicle
was damaged in the amount of Php
42,052. Pan Malayan defrayed the cost
of the repair of the insured car and was
subrogated to the rights of Canlubang
aginst the driver and his employer
Fabie. Defendants refused to pay the
claim of Pan Malayan. Pan Malayan
clarified that the damage caused to the
insured car was settled under the ³own
damage´ coverage of the policy and the
release of claim and subrogation
receipt executed by Canlubang in
favour of Pan Malayan. RTC dismissed
Pan Malayan¶s complaint. CA upheld
RTC’s decision.
ISSUE: WON, the insurer Pan Malayan
may institute an action to recover the
amount it had paid its assured in
settlement of an insurance claim
against private respondents. YES.
Principle of subrogation.
HELD: YES. Art. 2207 of the New Civil
Code provides for the principle of
subrogation. If the insured property is
destroyed or damaged through the
fault or negligence of a party other
than the assured, the insurer, upon
payment to the assured will be
subrogated to the rights of the
assured to recover from the
wrongdoer. Subrogation accrues
upon payment of the insurance claim
by the insurer. The ³own damage´
coverage implies damage to the
insured vehicle being repaired, the
costs of which are assumed by the
insurer.
AMERICAN HOME ASSURANCE V.
TANTUCO, G.R. NO. 138941, 8 OCT.
2001
INSURANCE LAW: Liberality is the
rule of construction in insurance
contracts.
FACTS:
Tantuco Enterprises, Inc. is a
coconut oil milling and refining
company. It owned two mills (the first
oil mill and a new one), both located at
its factory compound at Iyam, Lucena
City. The two oil mills are separately
covered by fire insurance policies
issued by American Home
Assurance Co.
On Sept. 30, 1991, a fire broke out
9
and gutted and consumed the new
oil mill. American Home rejected the
claim for the insurance proceeds on
the ground that no policy was
issued by it covering the burned oil
mill. It stated that the new oil mill
was under Building No. 15 while the
insurance coverage extended only
to the oil mill under Building No. 5.
ISSUE: Whether or not the new oil
mill is covered by the fire insurance
policy. YES. A mistake as to the
identity and character of the
building is extremely unlikely, the
courts are inclined to consider the
policy of insurance covers any
building which the parties
manifestly intended to insure,
however inaccurate the description
may be
HELD:
In construing the words used
descriptive of a building insured, the
greatest liberality is shown by the
courts in giving effect to the
insurance. In view of the custom of
insurance agents to examine
buildings before writing policies
upon them, and since a mistake as
to the identity and character of the
building is extremely unlikely, the
courts are inclined to consider the
policy of insurance covers any
building which the parties
manifestly intended to insure,
however inaccurate the description
may be.
Notwithstanding, therefore, the
misdescription in the policy, it is beyond
dispute, to our mind, that what the
parties manifestly intended to insure
was the new oil mill.
If the parties really intended to protect
the first oil mill, then there is no need to
specify it as new. Indeed, it would be
absurd to assume that the respondent
would protect its first oil mill for different
amounts and leave uncovered its
second one.
MALAYAN INSURANCE CORP VS
CA G.R. 119599 MARCH 20, 1997
J. Romero
Facts:
TKC Marketing imported 3,000
metric tons of soya from Brazil to
Manila. It was insured by Malayan at
the value of almost 20 million pesos.
The vessel, however, was stranded
on South Africa because of a lawsuit
regarding the possession of the
soya. TKC consulted Malayan on
recovery of the amount, but the
latter claimed that it wasn’t covered
by the policy. The soya was sold in
Africa for Php 10 million, but TKC
wanted Malayan to shoulder the
remaining value of 10 million as well.
Petitioner filed suit due to Malayan’s
reticence to pay. Malayan claimed
that arrest by civil authorities wasn’t
covered by the policy. The trial court
ruled in TKC’s favor with damages to
boot. The appellate court affirmed the
decision under the reason that clause
12 of the policy regarding an excepted
risk due to arrest by civil authorities
was deleted by Section 1.1 of the
Institute War Clauses which covered
ordinary arrests by civil authorities.
Failure of the cargo to arrive was also
covered by the Theft, Pilferage, and
Non-delivery Clause of the contract.
Hence this petition.
Issues:
1. WON the arrest of the vessel was a
risk covered under the subject
insurance policies. YES
2. WON the insurance policies must
strictly construed against the insurer.
YES
Held: Yes. Petition dismissed.
Ratio:
1. Section 12 or the "Free from Capture
& Seizure Clause" states: "Warranted
free of capture, seizure, arrest, restraint
or detainment, and the consequences
thereof or of any attempt thereat…
Should Clause 12 be deleted, the
relevant current institute war clauses
shall be deemed to form part of this
insurance.”
This was really replaced by the
subsection 1.1 of section 1 of Institute
War Clauses (Cargo) which included
“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.”
The petitioner’s claim that the Institute
War Clauses can be operative in case
of hostilities or warlike operations on
account of its heading "Institute War
Clauses" is not tenable. It reiterated the
CA’s stand that “its interpretation in
10
recent years to include seizure or
detention by civil authorities seems
consistent with the general purposes of
the clause.” This interpretation was
regardless of the fact whether the
arrest was in war or by civil authorities.
The petitioner was said to have
confused the Institute War clauses and
the F.C.S. in English law.
“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 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 (Cargo) was to
include "arrest, etc. even if it were not a
result of hostilities or warlike
operations."
The court found that the insurance
agency tried to interpret executive and
political acts as those not including
ordinary arrests in the exceptions of the
FCS clause , and claims that the War
Clauses now included executive and
political acts without including ordinary
arrests in the new stipulation.
“A strained interpretation which is
unnatural and forced, as to lead to an
absurd conclusion or to render the
policy nonsensical, should, by all
means, be avoided.”
3. 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,
means that any ambiguity
should be resolved against the
insurer.
FACTS
The two oil mills were separately
covered by fire insurance policies
issued by petitioner American Home
Assurance Co., Philippine
Branch.[1] The first oil mill was insured
for three million pesos (P3,000,000.00)
under Policy No. 306-7432324-3 for the
period March 1, 1991 to 1992.[2] The
new oil mill was insured for six million
pesos (P6,000,000.00) under Policy
No. 306-7432321-9 for the same
term.[3] Official receipts indicating
payment for the full amount of the
premium were issued by the
petitioner's agent.[4]
A fire that broke out in the early
morning of September 30,1991 gutted
and consumed the new oil
mill. Respondent immediately notified
the petitioner of the incident. The latter
then sent its appraisers who inspected
the burned premises and the properties
destroyed. Thereafter, in a letter dated
October 15, 1991, petitioner rejected
respondents claim for the insurance
proceeds on the ground that no policy
was issued by it covering the burned oil
mill. It stated that the description of the
insured establishment referred to
another building thus: Our policy nos.
306-7432321-9 (Ps 6M) and 306-
7432324-4 (Ps 3M) extend insurance
coverage to your oil mill under Building
No. 5, whilst the affected oil mill was
under Building No. 14.[5]
A complaint for specific
performance and damages was
consequently instituted by the
respondent with the RTC, Branch 53 of
Lucena City. On October 16, 1995,
after trial, the lower court rendered a
Decision finding the petitioner liable on
the insurance policy thus:
WHEREFORE, judgment is rendered
in favor of the plaintiff ordering
defendant to pay plaintiff:
(a) P4,406,536.40 representing
damages for loss by fire of its insured
property with interest at the legal rate;
(b) P80,000.00 for litigation expenses;
(c) P300,000.00 for and as attorneys
fees; and
(d) Pay the costs.
SO ORDERED.[6]
Petitioner assailed this judgment
before the Court of Appeals. The
appellate court upheld the same in a
Decision promulgated on January 14,
1999, the pertinent portion of which
states:
WHEREFORE, the instant appeal is
hereby DISMISSED for lack of merit
and the trial courts Decision dated
October 16, 1995 is hereby
AFFIRMED in toto.
SO ORDERED.[7]
Petitioner moved for
reconsideration. The motion, however,
11
was denied for lack of merit in a policy by its boundaries in the following
Resolution promulgated on June 10, manner:
1999.
Front: by a driveway thence at 18
Hence, the present course of
meters distance by Bldg. No. 2.
action, where petitioner ascribes to the
appellate court the following errors:
Right: by an open space thence by
Bldg. No. 4.
(1) The Court of Appeals erred in
its conclusion that the issue of
Left: Adjoining thence an imperfect
non-payment of the premium was
wall by Bldg. No. 4.
beyond its jurisdiction because it
was raised for the first time on
Rear: by an open space thence at 8
appeal.[8]
meters distance.
(2) The Court of Appeals erred in
However, it argues that this specific
its legal interpretation of 'Fire
boundary description clearly pertains,
Extinguishing Appliances
not to the burned oil mill, but to the
Warranty' of the policy.[9]
other mill. In other words, the oil mill
gutted by fire was not the one
(3) With due respect, the
described by the specific boundaries in
conclusion of the Court of
the contested policy.
Appeals giving no regard to the
parole evidence rule and the What exacerbates respondents
principle of estoppel is predicament, petitioner posits, is that it
erroneous.[10] did not have the supposed wrong
description or mistake
The petition is devoid of merit. corrected. Despite the fact that the
policy in question was issued way back
The primary reason advanced by
in 1988, or about three years before the
the petitioner in resisting the claim of
fire, and despite the Important Notice in
the respondent is that the burned oil
the policy that Please read and
mill is not covered by any insurance
examine the policy and if incorrect,
policy. According to it, the oil mill
return it immediately for alteration,
insured is specifically described in the
respondent apparently did not call
petitioners attention with respect to the
misdescription.
By way of conclusion, petitioner
argues that respondent is barred by the
parole evidence rule from presenting
evidence (other than the policy in
question) of its self-serving intention
(sic) that it intended really to insure the
burned oil mill, just as it is barred
by estoppel from claiming that the
description of the insured oil mill in the
policy was wrong, because it retained
the policy without having the same
corrected before the fire by an
endorsement in accordance with its
Condition No. 28.
These contentions can not pass
judicial muster.
In construing the words used
descriptive of a building insured, the
greatest liberality is shown by the
courts in giving effect to the
insurance.[11] In view of the custom of
insurance agents to examine buildings
before writing policies upon them, and
since a mistake as to the identity and
character of the building is extremely
unlikely, the courts are inclined to
consider that the policy of insurance
covers any building which the parties
manifestly intended to insure, however
inaccurate the description may be.[12]
Q: What did you do when you
Notwithstanding, therefore, the
misdescription in the policy, it is beyond
A: I told them as will be shown by
dispute, to our mind, that what the
parties manifestly intended to insure
was the new oil mill. This is obvious
from the categorical statement
embodied in the policy, extending its
protection:
On machineries and equipment with
complete accessories usual to a
coconut oil mill including stocks of
copra, copra cake and copra mills
whilst contained in the new oil
mill building, situate (sic) at UNNO.
ALONG NATIONAL HIGH WAY, BO.
IYAM, LUCENA CITY
UNBLOCKED.[13] (emphasis supplied.)
If the parties really intended to protect
the first oil mill, then there is no need
to specify it as new.
The imperfection in the description
of the insured oil mills boundaries can
be attributed to a misunderstanding
between the petitioners general agent,
Mr. Alfredo Borja, and its policy issuing
clerk, who made the error of copying
It is thus clear that the source of the
the boundaries of the first oil mill when
discrepancy happened during the
typing the policy to be issued for the
preparation of the written contract.
new one. As testified to by Mr.Borja:
12
Atty. G. Camaligan:
received the report?
the map the intention really of
Mr. Edison Tantuco is to cover
the new oil mill that is why when
I presented the existing policy
of the old policy, the policy
issuing clerk just merely (sic)
copied the wording from the old
policy and what she typed is
that the description of the
boundaries from the old
policy was copied but she
inserted covering the new oil
mill and to me at that time the
important thing is that it
covered the new oil mill
because it is just within one
compound and there are only
two oil mill[s] and so just
enough, I had the policy
prepared. In fact, two policies
were prepared having the same
date one for the old one and the
other for the new oil mill and
exactly the same policy period,
sir.[14] (emphasis supplied)
These facts lead us to hold that the
present case falls within one of the
recognized exceptions to the parole
evidence rule. Under the Rules of
Court, a party may present evidence to
modify, explain or add to the terms of
the written agreement if he puts in
issue in his pleading, among others, its
failure to express the true intent and
agreement of the parties
[15]
thereto. Here, the contractual
intention of the parties cannot be
understood from a mere reading of the
instrument. Thus, while the contract
explicitly stipulated that it was for the
insurance of the new oil mill, the
boundary description written on the
policy concededly pertains to the first
oil mill. This irreconcilable difference
can only be clarified by admitting
evidence aliunde, which will explain
the imperfection and clarify the intent of
the parties.
Anent petitioners argument that
the respondent is barred by estoppel
from claiming that the description of the
insured oil mill in the policy was wrong,
we find that the same proceeds from a
wrong assumption. Evidence on record
reveals that respondents operating
manager, Mr. Edison Tantuco, notified
Mr. Borja (the petitioners agent with
whom respondent negotiated for the
contract) about the inaccurate
description in the policy. However, Mr.
Borja assured Mr. Tantuco that the use
of the adjective new will distinguish the
insured property. The assurance
convinced respondent that, despite the
impreciseness in the specification of
the boundaries, the insurance will
cover the new oil mill. This can be seen
from the testimony on cross of Mr.
Tantuco:
"ATTY. SALONGA:
Q: You mentioned, sir, that at least
in so far as Exhibit A is concern
you have read what the policy
contents.(sic)
Kindly take a look in the page of
Exhibit A which was marked as
Exhibit A-2 particularly the
boundaries of the property
insured by the insurance policy
Exhibit A, will you tell us as the
manager of the company
whether the boundaries stated
in Exhibit A-2 are the
boundaries of the old (sic) mill
that was burned or not.
A: It was not, I called up Mr. Borja
regarding this matter and he
told me that what is important
is the word new oil mill. Mr.
Borja said, as a matter of fact,
you can never insured (sic) one
property with two (2) policies,
you will only do that if you will
make to increase the amount
and it is by indorsement not by
another policy, sir."[16]
We again stress that the object of
the court in construing a contract is to
ascertain the intent of the parties to the
contract and to enforce the agreement
which the parties have entered into. In
determining what the parties intended,
the courts will read and construe the
policy as a whole and if possible, give
effect to all the parts of the contract,
keeping in mind always, however, the
prime rule that in the event of doubt,
this doubt is to be resolved against the
insurer. In determining the intent of the
parties to the contract, the courts will
consider the purpose and object of the
contract.[17]
In a further attempt to avoid
liability, petitioner claims that
respondent forfeited the renewal policy
for its failure to pay the full amount of
the premium and breach of the Fire
Extinguishing Appliances Warranty.
The amount of the premium stated
on the face of the policy
was P89,770.20. From the admission
of respondents own witness, Mr. Borja,
13
which the petitioner cited, the former
only paid it P75,147.00, leaving a
difference of P14,623.20. The
deficiency, petitioner argues, suffices
to invalidate the policy, in accordance
with Section 77 of the Insurance
Code.[18]
The Court of Appeals refused to
consider this contention of the
petitioner. It held that this issue was
raised for the first time on appeal,
hence, beyond its jurisdiction to
resolve, pursuant to Rule 46, Section
18 of the Rules of Court.[19]
Petitioner, however, contests this
finding of the appellate court. It insists
that the issue was raised in paragraph
24 of its Answer, viz.:
24. Plaintiff has not complied with
the condition of the policy and
renewal certificate that the
renewal premium should be paid
on or before renewal date.
Petitioner adds that the issue was the
subject of the cross-examination of Mr.
Borja, who acknowledged that the paid
amount was lacking by P14,623.20 by
reason of a discount or rebate, which
rebate under Sec. 361 of the Insurance
Code is illegal.
The argument fails to impress. It is
true that the asseverations petitioner
made in paragraph 24 of its Answer
ostensibly spoke of the policys
condition for payment of the renewal
premium on time and respondents non-
compliance with it. Yet, it did not
contain any specific and definite
allegation that respondent did not pay
the premium, or that it did not pay the
full amount, or that it did not pay the
amount on time.
Likewise, when the issues to be
resolved in the trial court were
formulated at the pre-trial proceedings,
the question of the supposed
inadequate payment was never
raised. Most significant to point,
petitioner fatally neglected to present,
during the whole course of the trial, any
witness to testify that respondent
indeed failed to pay the full amount of
the premium. The thrust of the cross-
examination of Mr. Borja, on the other
hand, was not for the purpose of
proving this fact. Though it briefly
touched on the alleged deficiency, such
was made in the course of discussing a
discount or rebate, which the agent
apparently gave the
respondent. Certainly, the whole tenor
of Mr. Borjas testimony, both during
direct and cross examinations,
implicitly assumed a valid and
subsisting insurance policy. It must be
remembered that he was called to the
stand basically to demonstrate that an
existing policy issued by the petitioner
covers the burned building.
Finally, petitioner contends that
respondent violated the express terms
of the Fire Extinguishing Appliances
Warranty. The said warranty provides:
WARRANTED that during the
currency of this Policy, Fire
Extinguishing Appliances as
mentioned below shall be
maintained in efficient working
order on the premises to which
insurance applies:
- PORTABLE EXTINGUISHERS
- INTERNAL HYDRANTS
- EXTERNAL HYDRANTS
- FIRE PUMP
- 24-HOUR SECURITY SERVICES
BREACH of this warranty shall
render this policy null and void
and the Company shall no longer
be liable for any loss which may
occur.[20]
Petitioner argues that the warranty
clearly obligates the insured to
maintain all the appliances specified
therein. The breach occurred when the
respondent failed to install internal fire
hydrants inside the burned building as
warranted. This fact was admitted by
the oil mills expeller operator, Gerardo
Zarsuela.
Again, the argument lacks
merit. We agree with the appellate
courts conclusion that the
aforementioned warranty did not
require respondent to provide for all the
fire extinguishing appliances
enumerated therein. Additionally, we
find that neither did it require that the
appliances are restricted to those
mentioned in the warranty. In other
words, what the warranty mandates is
that respondent should maintain in
efficient working condition within the
premises of the insured property, fire
fighting equipments such as, but not
limited to, those identified in the list,
which will serve as the oil mills first line
of defense in case any part of it bursts
into flame.
To be sure, respondent was able
to comply with the warranty. Within the
vicinity of the new oil mill can be found
the following devices: numerous
portable fire extinguishers, two fire
14
hoses,[21] fire hydrant,[22] and an
[23]
emergency fire engine. All of these
equipments were in efficient working
order when the fire occurred.
It ought to be remembered that not
only are warranties strictly construed
against the insurer, but they should,
likewise, by themselves be reasonably
interpreted.[24] That reasonableness is
to be ascertained in light of the factual
conditions prevailing in each
case. Here, we find that there is no
more need for an internal hydrant
considering that inside the burned
building were: (1) numerous portable
fire extinguishers, (2) an emergency
fire engine, and (3) a fire hose which
has a connection to one of the external
hydrants.
IN VIEW WHEREOF, finding no
reversible error in the impugned
Decision, the instant petition is hereby
DISMISSED.
SO ORDERED.
Davide, Jr., C.J., (Chairman),
Pardo, and Ynares-Santiago,
JJ., concur.
TIBAY V CA G.R. NO. 119655. MAY
24, 1996
Facts:
Fortune Life issued a fire insurance
Policy to Tibay on her two-storey
residential building at Zobel Street,
Makati City. The insurance was for
P600,000.00 covering the period from
January 23, 1987 to January 23,
1988. On January 23 1987, Tibay only
paid P600.00 of 3,000 peso premium
and left a balance.
The insured building was completely
destroyed by fire. Tibay then paid the
balance. On the same day, she filed a
claim on the policy. Her claim was
accordingly referred to the adjuster,
Goodwill, which immediately wrote
Violeta requesting her to furnish it with
the necessary documents for the
investigation and processing of her
claim. Petitioner complied, and she
signed a non-waiver agreement.
Fortune denied the claim for
violation of the Insurance Code.
Tibay sued for damages in the
amount of P600,000.00 representing
the total coverage of the policy.
The trial court ruled for petitioners and
made fortune liable for the total value of
the insured building and personal
properties. The Court of Appeals
reversed the court by removing liability
from Fortune after returning the
premium.
Hence this petition for review.
The petitioner contended that Fortune
remained liable under the subject fire
insurance policy in spite of the failure of
petitioners to pay their premium in full.
Issue: May a fire insurance policy be
valid, binding and enforceable upon
mere partial payment of premium? NO.
There must be full payment for the
insurance contract to be binding
Held: No. Petition dismissed.
Ratio:
The pertinent provisions read:
2. This policy including any renewal
thereof and/or any endorsement
thereon is not in force until the
premium has been fully paid to and
duly receipted by the Company in
the manner provided herein.
This policy shall be deemed effective,
valid and binding upon the Company
only when the premiums therefor have
actually been paid in full and duly
acknowledged in a receipt signed by
any authorized official of the company
Where the premium has only been
partially paid and the balance paid
only after the peril insured against
has occurred, the insurance
contract did not take effect and the
insured cannot collect at all on the
policy. The Insurance Code which
says that no policy or contract of
insurance issued by an insurance
company is valid and binding unless
and until the premium has been
paid.
What does “unless and until the
premium thereof has been paid” mean?
Escosura v. San Miguel- the legislative
practice was to interpret “with pay” in
accordance to the intention of
distinguish between full and partial
payment, where the modifying term is
used.
Petitioners used Philippine Phoenix v.
Woodworks, where partial payment of
the premium made the policy effective
during the whole period of the policy.
The SC didn’t consider the 1967
Phoenix case as persuasive due to the
different factual scenario.
In Makati Tuscany v CA, the parties
mutually agreed that the premiums
could be paid in installments, hence,
15
this Court refused to invalidate the South Sea v CA stipulated 2
insurance policy. exceptions to the requirement of
payment of the entire premium as a
Nothing in Article 77 of the Code
prerequisite to the validity of the
suggested that the parties may not
insurance contract. These are when
agree to allow payment of the
in case the insurance coverage
premiums in installment, or to consider
relates to life or insurance when a
the contract as valid and binding upon
grace period applies, and when the
payment of the first premium.
insurer makes a written
Phoenix and Tuscany demonstrated acknowledgment of the receipt of
the waiver of prepayment in full by premium to be conclusive evidence
the insurer. In this case however, of payment.
there was no waiver. There was a
Hence, in the absence of clear
stipulation that the policy wasn’t in
waiver of prepayment in full by the
force until the premium has been
insurer, the insured cannot collect
fully paid and receipted.
on the proceeds of the policy.
There was no juridical tie of
“The terms of the insurance policy
indemnification from the fractional
constitute the measure of the insurer’s
payment of premium. The insurance
liability. In the absence of statutory
contract itself expressly provided that
prohibition to the contrary, insurance
the policy would be effective only when
companies have the same rights as
the premium was paid in full.
individuals to limit their liability and to
Verily, it is elemental law that the impose whatever conditions they deem
payment of premium is requisite to best upon their obligations not
keep the policy of insurance in inconsistent with public policy.”
force. If the premium is not paid in
Dissent:
the manner prescribed in the policy
as intended by the parties the policy J. Vitug
is ineffective. Partial payment even
“All the calculations of the company are
when accepted as a partial payment
based on the hypothesis of prompt
will not keep the policy alive.
payments. They not only calculate on
the receipt of the premiums when due,
but on the compounding interest upon
them. It is on this basis that they are
enabled to offer assurance at the
favorable rates they do.”
The failure of appellants to fully pay
their premium prevented the contract of
insurance from becoming binding an
Fortune. This series of acts is tainted
with misrepresentation and violates the
uberrimae fidae principle of insurance
contracts.
Tibay had entered into a "Non-Waiver
Agreement" with the adjuster which
permitted Fortune to claim non-
payment of premium as a defense.
The law neither requires, nor measures
the strength of the vinculum juris by any
specific amount of premium payment.
Payment on the premium, partly or in
full, is made by the insured which the
insurer accepts. In fine, it is either that
a juridical tie exists (by such payment)
or that it is not extant at all (by an
absence thereof). Once the juridical
relation comes into being, the full
efficacy follows. This is a partially
performed contract.
The non-payment of the balance
shouldn’t result in an automatic
cancellation of the contract; otherwise,
the right to decide the effectivity of the
contract would become potestative.
Instead, the parties should be able to
demand from each other the
performance of whatever obligations
they had assumed or, if desired, sue
timely for the rescission of the contract.
In the meanwhile, the contract endures,
and an occurrence of the risk insured
riggers the insurer's liability. Also, legal
compensation arises where insurer's
liability to the insured would simply be
reduced by the balance of the
premium.
It must here be noted that the insured
had made, and the insurer had
accepted partial premium payment on
the policy weeks before the risk insured
against took place. An insurance is an
aleatory contract effective upon its
perfection although the occurrence of a
condition or event may later dictate the
demandability of certain obligations.
Fortune’s stipulation that insurance
shall not "be . . . in force until the
premium has been fully paid," and that
it "shall be deemed effective, valid and
binding upon the company only when
the premiums therefor have actually
been paid in full and duly
acknowledged," override the
efficaciousness of the insurance
contract despite the payment and
acceptance.
16
Article 78 of the Insurance Code “An
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 the
premium is actually paid“
Even if a portion was paid in the
premium, the insurance coverage
becomes effective and binding, any
stipulation in the policy to the contrary
notwithstanding.
Facts:
1. In January 22 1987, the Petitioner
Violeta Tibay (and Nicolas Roralso)
obtained a fire insurance policy for
their 2-storey from the Private
Respondent Fortune Life Insurance
Co. The said policy covers the
period from January 23, 1987 until
January 23, 1988 or one year for
P600, 000 and at the agreed
premium of P2, 983.50. On January
23 or the next day, petitioner made a
partial payment of the premium with
P600.
2. Unfortunately, on March 8 1987, the
said building was burned to the ground.
It was only two days after the fire that
Petitioner Violeta advanced the full
payment of the policy premium
which was accepted by the insurer.
On this same day, petitioner likewise
filed the claim that was then referred to
the insurer's adjuster. Investigation of
the cause of fire commenced and the
petitioner submitted the required proof
of loss.
3. Despite that, the private
respondent Fortune refused to pay
the insurance claim saying it as not
liable due to the non-payment by
petitioner of the full amount of the
premium as stated in the policy.
4. The petitioner then brought the
matter to the Insurance Commission
but nothing good came out. Hence this
case filed.
5. The trial court rule in favor of the
petitioner. Upon appeal, the Court of
Appeals reversed the lower court's
decision and held that Fortune is not
liable but ordered it to return the
premium paid with interest to the
petitioner. Hence, this petition for
review.
Issue: W/N the partial payment of
the premium rendered the insurance
policy ineffective?
YES.
1. Insurance is a contract whereby one
undertakes for a consideration to
indemnify another against loss,
damage or liability arising from an
unknown or contingent event. The
consideration is the premium, which
must be paid at the time, way and
manner as stated in the policy, and if
not so paid as in this case, the policy is
therefore forfeited by its own terms. In
this case, the policy taken out by the
petitioner provides for payment of
premium in full. Since the petitioner
only made partial payment with the
remaining balance paid only after
the fire or peril insured against has
occurred, the insurance contract
therefore did not take effect barring
the insured from claiming or
collecting from the loss of her
building.
· On various dates the Asian Surety &
2. Under Section 77 of the Insurance
Code (Philippine), it provides therein
that "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." Herein case, the controversy
is on the payment of the premium. It
cannot be disputed that premium is
the elixir vitae of the insurance
business because the insurer is
required by law to maintain a
reserve fund to meet its contingent
obligations to the public. Due to this,
it is imperative that the premium is paid
fully and promptly. To allow the
possibility of paying the premium even
after the peril has ensued will surely
undermine the foundation of the
insurance business.
FIELDMEN'S INSURANCE CO.,
INC.,vs. ASIAN SURETY &
INSURANCE, CO., INC. and CA
(1970)
Insurance and the Fieldmen's
insurance entered into 7 reinsurance
agreements or treaties under the
general terms of which ASIAN, as the
ceding company undertook to cede to
FIELDMEN’S, as the reinsuring
company, a specified portion of the
amount of insurance underwritten by
ASIAN upon payment to FIELDMEN'S
of a proportionate share of the gross
rate of the premium applicable with
17
respect to each cession after deducting
a commission.
o agreements were take effect from
certain specific dates and were to be in
force until cancelled by either party
upon previous notice of at least 3
months by registered mail to the other
party, the cancellation to take effect as
of the 31st of December of the year in
which notice was given.
· Sept and Dec 1961 à FIELDMEN’S
sent letters to ASIAN expressing its
desire to cancel all agreements
between them as of DEC 31, 1961
alleging that ASIAN had already
incurred numerous violations àASIAN
received but did not reply
· Feb 1962 à FIELDMEN’S sent
another letter to ASIAn repeating the
fact of cancellation and now requesting
ASIAN to submit its final accounting of
all cessions made to the former for the
preceding months when the
reinsurance agreements were in force.
· Meanwhile one of the risks reinsured
by FIELDMENS issued in favor of the
GSIS became a liability when the
insured property was burned on Feb
1962 à The next day ASIAN sent letter
to FIELDMEN’S notifiying them of the
loss and stating…
o ... we beg to reiterate that your letter of
December 7, 1961, terminating said
treaties by December 31, 1961, is not
in accordance with the terms thereof,
since there was no prior three months'
notice. However, considering the
attitude express (sic) in your aforesaid
letter of December 7, 1961, we are
willing to waive provision that said
treaties may be cancelled on
December 31st of any year, and will
consider them cancelled at the end of
three (3) months from December 7,
1961, by which time we shall be able to
render the final accounting you desire.
· FIELDMEN’S filed a petition for
declaratory relief with CFI Manila
alleging its first letter of notification on
SEPT 19, 1961 was sufficient to meet
the 3 month period before cancellation
and to obtain an order directing ASIAN
to render final accounting of the
transactions between them with
respect to said reinsurance treaties as
of the cut-off date.
· CFI DECISION à 6 of 7 agreements
are cancelled as of DEC 1961 but
agreed with ASIAN that FIELDMEN’S
is still liable for as long the previously
contracted policies are still valid. It also
ordered FIELDMEN'S to make an
accounting with ASIAN within 30 days.
· CA à Affirmed with
modification à the order for accounting
was eliminated
 ISSUE: WON cancellation had the
effect of terminating also the liability of
FIELDMEN'S as reinsurer with respect
to policies or cessions issued prior to
the termination of the principal
reinsurance contracts or treaties?
FIELDMEN STILL LIABLE
· Only the cancelled agreements
are being considered here à 2 of
which contain provisions, which
clearly and expressly recognize the
continuing effectivity of policies
ceded under them for reinsurance
notwithstanding the cancellation of
the contracts themselves.
o Article 10 of the Facultative Obligatory
Reinsurance Treaty Fire provides "that
in the event of termination of this
Agreement ..., the liability of the
Fieldmen's under current cessions
shall continue in full force and effect
until their natural expiry ...;" and the 4th
paragraph of Article VI of the Personal
Accident Reinsurance Treaty states:
o 4. On the termination of this Agreement
from any cause whatever, the liability of
the REINSURER (Fieldmen's) under
any current cession including any
amounts due to be ceded under the
terms of this Agreement and which are
not cancelled in the ordinary course of
business shall continue in full force
until their expiry unless the COMPANY
(Asian) shall, prior to the thirty-first
December next following such notice,
elect to withdraw the existing cessions
....
· It is therefore clear that
FIELDMEN’S is still liable despite
the cancellation àSuch cessions
continued to be in force until their
respective dates of
expiration à GSIS policy still valid
and subsisting at time of
loss à FIELDMEN’S IS LIABLE
· No need to go into other arguments
(did not mention what they are)
because the cancellation of the
agreements made them moot
· SC NOTES à ASIAN only claims
continued liability of FIELDMEN’s as to
the 2 agreements that had the
provision cited above (as compared to
the other 4 cancelled agreements
wherein FIELDMEN’S liability had
terminated with the contracts)
· FIELDMEN'S insists on its
alternative prayer that all cessions
under the six reinsurance agreements
be declared rescinded by reason of
certain violations thereof, as stated by
FIELDMEN'S in its letter of December
7, 1961 à Court reminds them that this
action is for declaratory relief and not
one for rescission and no grounds
18
found by lower courts that can justify
rescission anyway.
WHITE GOLD MARINE SERVICES,
INC. V. PIONEER INSURANCE
SURETY CORP. (2005)
G.R.No. 154514 July 28, 2005
Lessons Applicable: Mutual Insurance
Companies (Insurance)
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)
 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 filed a complaint
before the Insurance Commission
 Steamship Mutual violated
Sections 186[4] and 187[5] of the
Insurance Code
 Pioneer violated Sections 299,[6]
300[7] and 301[8] in relation to
Sections 302 and 303, thereof
 Insurance Commission: dismissed
the complaint
 no need for Steamship Mutual to
secure a license because it
was a Protection and Indemnity
Club (P & I Club) (NOT engaged in
the insurance business)
 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
 CA: affirmed Insurance
Commission
ISSUE:
1. W/N Steamship Mutual, a P & I
Club, is engaged in the
insurance business in the Philippines -
YES.
2. W/N Pioneer as resident agent of
Steamship Mutual is required to obtain
a license as an insurance agent/broker
- YES
HELD: petition is PARTIALLY
GRANTED. CA affirmed. the
revocation of Pioneer’s Certificate of
Authority and removal of its directors
and officers, is DENIED
1. YES
Insurance Code
Sec. 2(2)
(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.
In the application of the provisions
of this Code 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 be deemed
conclusive to show that the making
thereof does not constitute the
doing or transacting of an insurance
business.
 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
 a marine insurance undertakes to
indemnify the assured against
marine losses, such as the losses
incident to a marine adventure
 a mutual insurance company is a
cooperative enterprise where the
members are both the insurer and
insured
19
 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
 provide 3 types of coverage:
 protection and indemnity
 war risks
 defense costs
 P & I Club
 a form of insurance against third
party liability, where the third party
is anyone other than the P & I
Club and the members
 Steamship Mutual as a P & I Club
is a mutual insurance association
engaged in the marine insurance
business
 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
2. YES.
 Although Pioneer is already
licensed as an insurance
company, it needs a separate
license to act as insurance agent
for Steamship Mutual.
Insurance Code
Sec. 299
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 to
act from the Commissioner, which
must be renewed annually on the
first day of January, or within six
months thereafter. Such license
shall be issued by the
Commissioner only upon the written
application of the person desiring it,
such application if for a license to
act as insurance agent, being
approved and countersigned by the
company such person desires to
represent, and shall be upon a form
prescribed by the Commissioner
giving such information as he may
require, and upon payment of the
corresponding fee hereinafter
prescribed. The Commissioner shall
satisfy himself as to competence
and trustworthiness of the applicant
and shall have the right to refuse to
issue or renew and to suspend or
revoke any such license in his
discretion. No such license shall be
valid after the thirtieth day of June
of the year following its issuance
unless it is renewed.
INSULAR LIFE ASSURANCE
COMPANY, LTD. vs. CARPONIA T.
EBRADO
G.R. No. L-44059, October 28, 1977,
FIRST DIVISION (MARTIN, J.)
FACTS:
On September 1, 1968,
Buenaventura Cristor Ebrado was
issued by The Life Assurance Co.,
Ltd., on a whole-life for P5,882.00
with a rider for Accidental Death for
the same amount. He designated
Carponia T. Ebrado, his common-
law wife as the revocable beneficiary
in his policy. He referred to her as
his wife in the policy. On October 21,
1969, He died as a result of an
accident when he was hit by a failing
branch of a tree. As the policy was in
force, the insurance company was
liable to pay the coverage in the total
amount of P11,745.73, representing
the face value of the policy in the
amount of P5,882.00 plus the
additional benefits for accidental death
also in the amount of P5,882.00 and
the refund of P18.00 paid for the
premium due November, 1969, minus
the unpaid premiums and interest
thereon due for January and February,
1969, in the sum of P36.27. Carponia
T. Ebrado filed a claim for the
proceeds of the Policy as the
designated beneficiary therein,
although she admits that she and
the insured Buenaventura C. Ebrado
were merely living as husband and
wife without the benefit of marriage.
Pascual T. Ebrado, also filed a claim
to the insurance company, this time
20
claiming to be the legal wife
Buenaventura. She asserts that she
has a better right over the proceeds
than Carponia who is a common-law
wife. As the insurance company is at a
loss as to whom to give the proceeds,
it commenced an action for
interpleader in court. After the issues
have been joined, a pre-trial
conference was held on July 8, 1972,
that there is no possibility of amicable
settlement. The Court proceeded to
have the parties submit their evidence
for the purpose of the pre-trial and
make admissions for the purpose of
pretrial. On September 25, 1972, the
trial court rendered judgment declaring
among others, Carponia T. Ebrado
disqualified from becoming beneficiary
of the insured Buenaventura Cristor
Ebrado and directing the payment of
the insurance proceeds to the estate of
the deceased insured. From this
judgment, Carponia T. Ebrado
appealed to the Court of Appeals, but
on July 11, 1976, the Appellate Court
certified the case to Us as involving
only questions of law.
ISSUE: Whether or not a common-law
wife named as beneficiary in the life
insurance policy of a legally married
man claim the proceeds thereof in case
of death of the latter. NO. As a
consequence, the proceeds of the
policy are hereby held payable to the
estate of the deceased insured
HELD: Carponia T. Ebrado is hereby
declared disqualified to be the
beneficiary of the late Buenaventura C.
Ebrado in his life insurance policy. As a
consequence, the proceeds of the
policy are hereby held payable to the
estate of the deceased insured. Costs
against Carponia T. Ebrado.
A common-law wife named as a
beneficiary in the life insurance
policy of a legally married man
cannot claim the proceeds thereof in
case the death of the latter. The
contract of insurance is govern by the
provisions of the new civil code on
matters not specifically provided for in
the insurance code. Rather, the
general rules of civil law should be
applied to resolve this void in the
Insurance Law. Article 2011 of the New
Civil Code states: “The contract of
insurance is governed by special laws.
Matters not expressly provided for in
such special laws shall be regulated by
this Code.” When not otherwise
specifically provided for by the
Insurance Law, the contract of life
insurance is governed by the general
rules of the civil law regulating
contracts. And under Article 2012 of the
same Code, “any person who is
forbidden from receiving any donation
under Article 739 cannot be named
beneficiary of a life insurance policy by
the person who cannot make a
donation to him. Common-law
spouses are, definitely, barred from
receiving donations from each
other. Also conviction for adultery
or concubinage is not required as
only preponderance of evidence is
necessary. “In essence, a life
insurance policy is no different from
a civil donation insofar as the
beneficiary is concerned. Both are
founded upon the same consideration:
liberality. A beneficiary is like a donee,
because the premiums of the policy
which the insured pays out of liberality,
the beneficiary will receive the
proceeds or profits of said insurance.”
Section 50 of the Insurance Act which
provides that "the insurance shall be
applied exclusively to the proper
interest of the person in whose name it
is made"
When not otherwise specifically Article 739 may effectuate. The article Loreto Maramag) and his
provided for by the Insurance Law, the says that in the case referred to in No.
concubine Eva de Guzman
contract of life insurance is governed 1, the action for declaration of nullity
Maramag, also suspected in the
by the general rules of the civil law may be brought by the spouse of the
regulating contracts. And under Article donor or donee; and the guilty of the killing of Loreto and his illegitimate
2012 of the same Code, any person donee may be proved by children are claiming for his
who is forbidden from receiving any preponderance of evidence in the insurance.
donation under Article 739 cannot be same action.  Vicenta alleges that Eva is
named beneficiary of a fife insurance The underscored clause neatly disqualified from claiming
policy by the person who cannot make conveys that no criminal conviction for  RTC: Granted - civil code does NOT
a donation to him. Common-law the offense is a condition precedent.
apply
spouses are barred from receiving The insured was married to Pascuala
 CA: dismissed the case for lack of
donations from each other. Ebrado with whom she has six
legitimate children. He was also living jurisdiction for filing beyond
in with his common-law wife with whom reglementary period
Article 739 provides that void donations he has two children. 
are those made between persons who
 ISSUE: W/N Eva can claim even
were guilty of adultery or concubinage HEIRS OF LORETO C. MARAMAG though prohibited under the civil
at the time of donation. There is every
reason to hold that the bar in donations code against donation YES. Any
VS. MARAMAG (2009)
between legitimate spouses and those person who is forbidden from
between illegitimate ones should be G.R. No. 181132 June 5, 2009 receiving any donation under
enforced in life insurance policies since Article 739 cannot be named
the same are based on similar Lessons Applicable: To whom insurance
beneficiary of a life insurance
consideration. So long as marriage proceeds payable (Insurance)
policy of the person who cannot
remains the threshold of family laws,
make any donation to him
reason and morality dictate that the
impediments imposed upon married FACTS:
couple should likewise be imposed
HELD:
upon extra-marital relationship.  Loreto Maramag designated as
beneficiary his concubine Eva de  If a concubine is made the
A conviction for adultery or Guzman Maramag beneficiary, it is believed that the
concubinage isn’t required exacted  Vicenta Maramag and Odessa, Karl insurance contract will still remain
before the disabilities mentioned in
Brian, and Trisha Angelie (heirs of valid, but the indemnity must go to
21
 the legal heirs and not to the  illegitimate family; (2) Eva de Karl Brian, and Trisha Angelie as
concubine, for evidently, what is Guzman Maramag (Eva) was a his legitimate children, and that
prohibited under Art. 2012 is the  This is a petition[1] for review
concubine of Loreto and a they filed their claims for the
naming of the improper beneficiary. on certiorari under Rule 45 of the
suspect in the killing of the latter, insurance proceeds of the
 SECTION 53. The insurance Rules, seeking to reverse and set
thus, she is disqualified to insurance policies; that when it
proceeds shall be applied exclusively aside the Resolution[2] dated
receive any proceeds from his ascertained that Eva was not the
to the proper interest of the person in January 8, 2008 of the Court of
insurance policies from Insular legal wife of Loreto, it disqualified
whose name or for whose benefit it is
Appeals (CA), in CA-G.R. CV No.
made unless otherwise specified in Life Assurance Company, Ltd. her as a beneficiary and divided
85948, dismissing petitioners
the policy. (Insular)[4] and Great Pacific Life the proceeds among Odessa,
appeal for lack of jurisdiction.
 GR: only persons entitled to claim Assurance Corporation Karl Brian, and Trisha Angelie, as

the insurance proceeds are either (Grepalife);[5] (3) the illegitimate the remaining designated
the insured, if still alive; or the  The case stems from a
children of Loreto- Odessa, Karl beneficiaries; and that it released
beneficiary, if the insured is petition[3] filed against
Brian, and Trisha Angelie were Odessas share as she was of
already deceased, upon the respondents with the Regional
entitled only to one-half of the age, but withheld the release of
maturation of the policy. Trial Court, Branch 29, for
legitime of the legitimate children, the shares of minors Karl Brian
 EX: situation where the insurance revocation and/or reduction of
thus, the proceeds released to and Trisha Angelie pending
contract was intended to benefit third insurance proceeds for being
Odessa and those to be released submission of letters of
persons who are not parties to the void and/or inofficious, with
to Karl Brian and Trisha Angelie guardianship. Insular alleged
same in the form of favorable
prayer for a temporary restraining
stipulations or indemnity. In such a were inofficious and should be that the complaint or petition
order (TRO) and a writ of
case, third parties may directly sue reduced; and (4) petitioners failed to state a cause of action
preliminary injunction.
and claim from the insurer could not be deprived of their insofar as it sought to declare as

 It is only in cases where the insured legitimes, which should be void the designation of Eva as
has not designated any beneficiary,  The petition alleged that: (1)
satisfied first. beneficiary, because Loreto
or when the designated beneficiary is petitioners were the legitimate
 revoked her designation as such
disqualified by law to receive the wife and children of Loreto
 In answer,[6] Insular admitted that in Policy No. A001544070 and it
proceeds, that the insurance policy Maramag (Loreto), while
Loreto misrepresented Eva as disqualified her in Policy No.
proceeds shall redound to the benefit respondents were Loretos
his legitimate wife and Odessa, A001693029; and insofar as it
of the estate of the insured

22

sought to declare as inofficious
the shares of Odessa, Karl Brian,
and Trisha Angelie, considering
that no settlement of Loretos
estate had been filed nor had the
respective shares of the heirs
been determined. Insular further
claimed that it was bound to
honor the insurance policies
designating the children of Loreto
with Eva as beneficiaries
pursuant to Section 53 of the
Insurance Code.
 beneficiaries in the policies, not
 In its own answer[7] with
compulsory counterclaim,
Grepalife alleged that Eva was
not designated as an insurance
policy beneficiary; that the claims
filed by Odessa, Karl Brian, and
Trisha Angelie were denied
because Loreto was ineligible for
insurance due to
misrepresentation in
application form that he was born
on December 10, 1936 and, thus,
not more than 65 years old when
answer of defendants whom the insurance
he signed it in September 2001;
Insular Life and Grepalife proceeds shall be paid. It
that the case was premature, is granted with respect to is very clear under Sec.
defendants Odessa, Karl 53 thereof that the
there being no claim filed by the
Brian and Trisha insurance proceeds shall
legitimate family of Loreto; and Maramag. The action be applied exclusively to
shall proceed with the proper interest of the
that the law on succession does
respect to the other person in whose name or
not apply where the designation defendants Eva Verna de for whose benefit it is
Guzman, Insular Life and made, unless otherwise
of insurance beneficiaries is
Grepalife. specified in the
clear.  SO ORDERED.[10] policy. Since the
 defendants are the ones

 named as the primary
 In reply, both Insular and beneficiary (sic) in the
 In so ruling, the trial court
Grepalife countered that the insurances (sic) taken by
ratiocinated thus the deceased Loreto C.
insurance proceeds belong Maramag and there is no

showing that herein
exclusively to the designated  Art. 2011 of the Civil
plaintiffs were also
Code provides that the
included as beneficiary
contract of insurance is
to the estate or to the heirs of the (sic) therein the
governed by the (sic)
insurance proceeds shall
insured. Grepalife also reiterated special laws. Matters not
exclusively be paid to
expressly provided for in
that it had disqualified Eva as a them. This is because
such special laws shall
the beneficiary has a
beneficiary when it ascertained be regulated by this
vested right to the
Code. The principal law
that Loreto was legally married to indemnity, unless the
on insurance is the
insured reserves the right
Vicenta Pangilinan Maramag. Insurance Code, as
to change the
amended. Only in case of
 beneficiary. (Grecio v.
deficiency in the
Sunlife Assurance Co. of
 On September 21, 2004, the trial Insurance Code that the
Canada, 48 Phil. [sic]
Civil Code may be
a court issued a Resolution, the 63).
resorted to. (Enriquez v.

his dispositive portion of which reads Sun Life Assurance Co.,
 Neither could the
41 Phil. 269.)
 plaintiffs invoked (sic) the

 WHEREFORE, the law on donations or the
 The Insurance Code, as
motion to dismiss rules on testamentary
amended, contains a
incorporated in the succession in order to
provision regarding to
defeat the right of herein
23
 defendants to collect the
insurance indemnity. The
beneficiary in a contract
of insurance is not the
donee spoken in the law
of donation. The rules on
testamentary succession
cannot apply here, for the
insurance indemnity
does not partake of a
donation. As such, the
insurance indemnity
cannot be considered as
an advance of the
inheritance which can be
subject to collation (Del
Val v. Del Val, 29 Phil.
534). In the case of
Southern Luzon
Employees Association
v. Juanita Golpeo, et al.,
the Honorable Supreme
Court made the following
pronouncements[:]
 
 With the finding  In [the] light of the above
of the trial court
that the proceeds
to the Life
Insurance Policy
belongs
exclusively to the
defendant as his
individual and
separate
property, we
agree that the
proceeds of an
insurance policy
belong
exclusively to the  Edgardo L. Paras, Civil
beneficiary and  However, herein plaintiffs
not to the estate are not totally bereft of
of the person any cause of action. One
whose life was of the named beneficiary
insured, and that (sic) in the insurances
such proceeds (sic) taken by the late
are the separate Loreto C. Maramag is his
and individual concubine Eva Verna De
property of the Guzman. Any person
beneficiary and who is forbidden from
not of the heirs of receiving any donation
the person under Article 739 cannot
whose life was be named beneficiary of
insured, is the a life insurance policy of
doctrine in the person who cannot
America. We make any donation to
believe that the him, according to said
same doctrine article (Art. 2012, Civil
obtains in Code). If a concubine is
these Islands by made the beneficiary, it is
virtue of Section believed that the
428 of the Code insurance contract will
of Commerce x x still remain valid, but the
x. indemnity must go to the
legal heirs and not to the
concubine, for evidently,
pronouncements, it is what is prohibited under
very clear that the Art. 2012 is the naming of
plaintiffs has (sic) no the improper
sufficient cause of action beneficiary. In such
against defendants case, the action for the
Odessa, Karl Brian and declaration of nullity may
Trisha Angelie Maramag be brought by the spouse
for the reduction and/or of the donor or donee,
declaration of and the guilt of the donor
inofficiousness of and donee may be
donation as primary proved by
beneficiary (sic) in the preponderance of
insurances (sic) of the evidence in the same
late Loreto C. Maramag. action (Comment of
Code of the Philippines,
page 897). Since the
designation of defendant
Eva Verna de Guzman
as one of the primary
beneficiary (sic) in the
insurances (sic) taken by
the late Loreto C.
Maramag is void under
Art. 739 of the Civil Code,
the insurance indemnity
that should be paid to her
must go to the legal heirs
of the deceased which
this court may properly
take cognizance as the
action for the declaration
for the nullity of a void
donation falls within the
general jurisdiction of this
Court.[11]


 Insular[12] and Grepalife[13] filed
their respective motions for
reconsideration, arguing, in the
main, that the petition failed to
state a cause of action. Insular
further averred that the proceeds
were divided among the three
children as the remaining named
beneficiaries. Grepalife, for its
part, also alleged that the
premiums paid had already been
refunded.

24

 children
 Petitioners, in their comment,
reiterated their earlier arguments
and posited that whether the
complaint may be dismissed for
failure to state a cause of action
must be determined solely on the
basis of the allegations in the
complaint, such that the
defenses of Insular and Grepalife
would be better threshed out
during trial.
 and that Insular disqualified her
 On June 16, 2005, the trial court
issued a Resolution, disposing,
as follows:
 illegitimate children of Loreto with
 WHEREFORE, in view of
the foregoing
disquisitions, the Motions
for Reconsideration filed
by defendants Grepalife
and Insular Life are
hereby
GRANTED. Accordingly,
the portion of the
Resolution of this Court
dated 21 September
2004 which ordered the
prosecution of the case
against defendant Eva
Verna De Guzman,
Grepalife and Insular Life
should be reduced lack of jurisdiction, holding that
is hereby SET ASIDE,
and the case against based on the rules on legitime, the decision of the trial court
them is hereby ordered
the trial court held that the dismissing the complaint for
DISMISSED.
 distribution of the insurance failure to state a cause of action
 SO ORDERED.[14]
proceeds is governed primarily involved a pure question of

 by the Insurance Code, and the law. The appellate court also
 In granting the motions for provisions of the Civil Code are noted that petitioners did not file
reconsideration of Insular and irrelevant and inapplicable. With within the reglementary period a
Grepalife, the trial court respect to the Grepalife policy, motion for reconsideration of the
considered the allegations of the trial court noted that Eva was trial courts Resolution, dated
Insular that Loreto revoked the never designated as a September 21, 2004, dismissing
designation of Eva in one policy beneficiary, but only Odessa, the complaint as against Odessa,
Karl Brian, and Trisha Angelie; Karl Brian, and Trisha Angelie;
as a beneficiary in the other thus, it upheld the dismissal of thus, the said Resolution had
policy such that the entire the case as to the illegitimate already attained finality.
proceeds would be paid to the children. It further held that the 
matter of Loretos  Hence, this petition raising the
Eva pursuant to Section 53 of the misrepresentation was following issues:
Insurance Code. It ruled that it is premature; the appropriate 
 a. In
only in cases where there are no action may be filed only upon
determining the merits of
beneficiaries designated, or denial of the claim of the named a motion to dismiss for
failure to state a cause of
when the only designated beneficiaries for the insurance
action, may the Court
beneficiary is disqualified, that proceeds by Grepalife. consider matters which
were not alleged in the
the proceeds should be paid to 
Complaint, particularly
the estate of the insured. As to  Petitioners appealed the June the defenses put up by
the defendants in their
the claim that the proceeds to be 16, 2005 Resolution to the CA,
Answer?
paid to Loretos illegitimate but it dismissed the appeal for

25
 b. In granting
Loreto, hypothetically admitted 1(g), of the Rules of Court, which vulnerable to a motion to dismiss
a motion for
reconsideration of a as true, was raised only in the reads on the ground of failure to state a
motion to dismiss for
answers and motions for  cause of action.[17]
failure to state a cause of
 SECTION 1. Grounds.
action, did not the reconsideration of both Insular 
Within the time for but
Regional Trial Court
and Grepalife. They argue that before filing the answer  When a motion to dismiss is
engage in the
to the complaint or
examination and for a motion to dismiss to prosper premised on this ground, the
pleading asserting a
determination of what
on that ground, only the claim, a motion to ruling thereon should be based
were the facts and their
dismiss may be made on
probative value, or the allegations in the complaint only on the facts alleged in the
any of the following
truth thereof, when it should be considered. They complaint. The court must
grounds:
premised the dismissal

on allegations of the further contend that, even resolve the issue on the strength
 xxxx
defendants in their assuming Insular disqualified  of such allegations, assuming
answer which had not
 (g) That the pleading
been proven? Eva as a beneficiary, her share them to be true. The test of
asserting the claim states
 should not have been distributed sufficiency of a cause of action
no cause of action.
 c. x x x (A)re
to her children with Loreto but,  rests on whether, hypothetically
the members of the

legitimate family entitled instead, awarded to them, being admitting the facts alleged in the
to the proceeds of the  A cause of action is the act or
insurance for the the legitimate heirs of the insured complaint to be true, the court
omission by which a party
concubine?[15] deceased, in accordance with can render a valid judgment upon
 violates a right of another.[16] A
 law and jurisprudence. the same, in accordance with the
complaint states a cause of
 In essence, petitioners posit that  prayer in the complaint. This is
action when it contains the three
their petition before the trial court  The petition should be denied. the general rule.
(3) elements of a cause of
should not have been dismissed  
action(1) the legal right of the
for failure to state a cause of  The grant of the motion to  However, this rule is subject to
plaintiff; (2) the correlative
action because the finding that dismiss was based on the trial well-recognized exceptions, such
obligation of the defendant; and
Eva was either disqualified as a courts finding that the petition that there is no hypothetical
(3) the act or omission of the
beneficiary by the insurance failed to state a cause of action, admission of the veracity of the
defendant in violation of the legal
companies or that her as provided in Rule 16, Section allegations if:
right. If any of these elements is
designation was revoked by 
absent, the complaint becomes

26
 1. the falsity of the disqualified from being the Insurance Code. Section 53  Petitioners are third parties to the
allegations is subject to judicial designated as beneficiary of the of the Insurance Code states insurance contracts with Insular
notice; insurance policies, and that Evas  and Grepalife and, thus, are not
 SECTION 53. The
 2. such allegations are children with Loreto, being entitled to the proceeds
insurance proceeds shall
legally impossible; illegitimate children, are entitled be applied exclusively to thereof. Accordingly,
the proper interest of the
 3. the allegations refer to a lesser share of the proceeds respondents Insular and
person in whose name or
to facts which are inadmissible in of the policies. They also argued for whose benefit it is Grepalife have no legal obligation
made unless otherwise
evidence; that pursuant to Section 12 of the to turn over the insurance
specified in the policy.
 4. by the record or Insurance Code,[19] Evas share  proceeds to petitioners. The

document in the pleading, the in the proceeds should be revocation of Eva as a
 Pursuant thereto, it is obvious
allegations appear unfounded; or forfeited in their favor, the former beneficiary in one policy and her
 5. there is evidence having brought about the death that the only persons entitled to disqualification as such in
which has been presented to the of Loreto. Thus, they prayed that claim the insurance proceeds are another are of no moment
court by stipulation of the parties the share of Eva and portions of either the insured, if still alive; or considering that the designation
the beneficiary, if the insured is
or in the course of the hearings the shares of Loretos illegitimate of the illegitimate children as
already deceased, upon the
related to the case.[18] children should be awarded to beneficiaries in Loretos
 them, being the legitimate heirs maturation of the policy.[20] The insurance policies remains
 In this case, it is clear from the of Loreto entitled to their exception to this rule is a valid. Because no legal
petition filed before the trial court respective legitimes. situation where the insurance proscription exists in naming as
that, although petitioners are the 
contract was intended to benefit beneficiaries the children of illicit
legitimate heirs of Loreto, they  It is evident from the face of the third persons who are not parties relationships by the
to the same in the form of [22]
were not named as beneficiaries complaint that petitioners are not insured, the shares of Eva in
favorable stipulations or
in the insurance policies issued entitled to a favorable judgment the insurance proceeds, whether
indemnity. In such a case, third
by Insular and Grepalife. The in light of Article 2011 of the Civil forfeited by the court in view of
parties may directly sue and
basis of petitioners claim is that Code which expressly provides the prohibition on donations
claim from the insurer.[21]
Eva, being a concubine of Loreto that insurance contracts shall be under Article 739 of the Civil

and a suspect in his murder, is governed by special laws, i.e., Code or by the insurers

27
 themselves for reasons based on
the insurance contracts, must be
awarded to the said illegitimate
children, the designated
beneficiaries, to the exclusion of
petitioners. It is only in cases
where the insured has not
designated any beneficiary,[23] or
when the designated beneficiary
is disqualified by law to receive
the proceeds,[24] that the
insurance policy proceeds shall
redound to the benefit of the
estate of the insured.

 In this regard, the assailed June
16, 2005 Resolution of the trial
court should be upheld. In the
same light, the Decision of the
CA dated January 8, 2008 should
be sustained. Indeed, the
appellate court had no
jurisdiction to take cognizance of
the appeal; the issue of failure to
state a cause of action is a
question of law and not of fact,
there being no findings of fact in  IMC and LSPI separately
the first place.[25] obtained from Insurance
 Company of North America fire
insurance policies for their book
 WHEREFORE, the petition
debt endorsements related to their
is DENIED for lack of
ready-made clothing materials
merit. Costs against petitioners.
which have been sold or delivered
 SO ORDERED.
to various customers and dealers
of the Insured anywhere in the
Philippines which are unpaid 45
GAISANO CAGAYAN, INC. V.
days after the time of the loss
INSURANCE COMPANY OF NORTH
AMERICA (2006), G.R. NO.  February 25, 1991: Gaisano
147839 June 8, 2006 Superstore Complex in Cagayan
de Oro City, owned by Gaisano
Lessons Applicable: Existing Interest Cagayan, Inc., containing the
(Insurance) ready-made clothing materials
Laws Applicable: Article 1504,Article sold and delivered by IMC and
1263, Article 2207 of the Civil LSPI was consumed by fire.
 February 4, 1992: Insurance
Code, Section 13 of Insurance Code
Company of North America filed a
complaint for damages
FACTS: against Gaisano Cagayan,
Inc. alleges that IMC and LSPI filed
 Intercapitol Marketing
their claims under their respective
Corporation (IMC) is the maker
fire insurance policies which it paid
of Wrangler Blue Jeans.
thus it was subrogated to their
while Levi Strauss (Phils.) Inc.
rights
(LSPI) is the local distributor of
 Gaisano Cagayan, Inc: not be held
products bearing trademarks
liable because it was destroyed
owned by Levi Strauss & Co
due to fortuities event or force
majeure
 RTC: IMC and LSPI retained
ownership of the delivered goods
until fully paid, it must bear the loss
(res perit domino)
 CA: Reversed - sales invoices is an
exception under Article 1504 (1) of
the Civil Code to res perit domino
ISSUE: W/N Insurance Company of
North America can claim against
Gaisano Cagayan for the debt that was
insured
HELD: YES. petition is partly
GRANTED. order to pay P535,613 is
DELETED
 insurance policy is clear that the
subject of the insurance is the book
debts and NOT goods sold and
delivered to the customers and
dealers of the insured
 ART. 1504. Unless otherwise
agreed, the goods remain at the
seller's risk until the ownership
therein is transferred to the buyer,
but when the ownership therein is
transferred to the buyer the goods

28
 are at the buyer's risk whether
actual delivery has been made or
not, except that:
(1) Where delivery of the goods has
been made to the buyer or to a
bailee for the buyer, in pursuance
of the contract and the ownership in
the goods has been retained by the
seller merely to secure
performance by the buyer of his
obligations under the contract, the
goods are at the buyer's risk from
the time of such delivery;
 IMC and LSPI did not lose
complete interest over the goods.
They have an insurable interest
until full payment of the value of the
delivered goods. Unlike the civil law
concept of res perit domino, where
ownership is the basis for
consideration of who bears the risk
of loss, in property insurance, one's
interest is not determined by
concept of title, but whether insured
has substantial economic interest
in the property
 Section 13 of our Insurance Code
defines insurable interest as "every
interest in property, whether real or
personal, or any relation thereto, or
liability in respect thereof, of such
nature that a contemplated peril
might directly damnify the insured."
Parenthetically, under Section 14
of the same Code, an insurable
interest in property may consist in:
(a) an existing interest; (b) an
inchoate interest founded on
existing interest; or (c) an
expectancy, coupled with an
existing interest in that out of which
the expectancy arises.
 Anyone has an insurable interest in
property who derives a benefit from
its existence or would suffer loss
from its destruction.
 it is sufficient that the insured is so
situated with reference to the
property that he would be liable to
loss should it be injured or
destroyed by the peril against
which it is insured
 an insurable interest in property
does not necessarily imply a
property interest in, or a lien upon,
or possession of, the subject
 matter of the insurance, and neither
the title nor a beneficial interest is
29
requisite to the existence of such
an interest
 insurance in this case is not for loss
of goods by fire but for petitioner's
accounts with IMC and LSPI that
remained unpaid 45 days after the
fire - obligation is pecuniary in
nature
 obligor should be held exempt from
liability when the loss occurs thru a
fortuitous event only holds true
when the obligation consists in the
delivery of a determinate thing and
there is no stipulation holding him
liable even in case of fortuitous
event
 Article 1263 of the Civil Code in an
obligation to deliver a generic thing,
the loss or destruction of anything
of the same kind does not
extinguish the obligation (Genus
nunquan perit)
 The subrogation receipt, by itself, is
sufficient to establish not only the
relationship of respondent as
insurer and IMC as the insured, but
also the amount paid to settle the
insurance claim
 Art. 2207. If the plaintiff's property
has been insured, and he has
received indemnity from the
insurance company for the injury or
loss arising out of the wrong or
breach of contract complained of,
the insurance company shall be
subrogated to the rights of the
insured against the wrongdoer or
the person who has violated the
contract.
 As to LSPI, no subrogation receipt
was offered in evidence.
 Failure to substantiate the claim of
subrogation is fatal to petitioner's
case for recovery of the amount of
P535,613

Intercapitol Marketing Corporation
(IMC) and Levi Strauss (Phils.), Inc.
(LSPI) obtained a fire insurance policy
with book indebtedness over their
goods. Despite the goods not having
been paid, they were delivered to
Gaisano. After the goods were lost
through a fire, Insurance Co. paid the
benefits and subrogated itself to the
rights of IMC & LSPI. As a defense,
Gaisano claimed that IMC & LSPI had
no insurable interest since the goods
had already been delivered and the fire
was caused by a fortuitous event.
HELD: Gaisano was liable. Under Sec.
17 of the Insurance Code, the measure
of an insurable interest in property is
the extent to which the injured might be
damnified by the loss or injury thereof.
“IMC and LSPI did not lose complete
interest over the goods. They have an
insurable interest until full payment of
the value of the delivered goods. Unlike
the civil law concept of res perit
domino, where ownership is the basis
for consideration of who bears the risk
of loss, in property insurance, one’s
interest is not determined by concept of
title, but whether insured has
substantial economic interest in the
property.”
Here, LSPI was able to recover since it
was damnified by the loss of the goods
which were not yet paid. IMC, however,
failed to show that the goods were not
yet paid.
Property insurance enforceable only to
person having insurable interest
A contract or policy of insurance on
property is only enforceable for the
benefit of a person who has an
insurable interest in the property
insured.[14]
When insurable interest required for
policy to be enforceable
In life or health insurance, the insurable
interest must exist when the insurance
takes effect, but the interest does not
need to exist thereafter or when the
loss occurs. In property insurance, the
insurable interest must exist when the
insurance takes effect and when the
loss occurs, but the interest does not
need to exist in the meantime.[15]
Change of interest suspends insurance
until interest in thing and insurance are
in same person
A change of interest in any part of a
thing insured not accompanied by a
corresponding change of interest in the
insurance results in the suspension of
the insurance to an equivalent extent
until the interest in the thing and in the
interest in the insurance are vested in
the same person.[16] This rule on
change of interest does not apply to the
following:[17]
1. A change of interest in life, accident,
and health insurance does not affect
the insurance contract;[18]
2. A change of interest in a thing insured,
after the occurrence of an injury which
results in a loss, does not affect the
right of the insured to indemnity for the
loss;[19]
3. A change of interest in one or more of
several distinct things, separately
insured by one policy, does not avoid
the insurance as to the others;[20]
30
4. A change of interest, by will or
succession, on the death of the
insured, does not void an insurance;
and his interest in the insurance passes
to the person taking his interest in the
thing insured;[21] and
5. A transfer of interest by one of several
partners, joint owners, or owners in
common, who are jointly insured, to the
others, does not avoid an insurance
even though it has been agreed that
the insurance is to cease upon an
alienation of the thing insured.[22]
Void stipulations
The following stipulations are void:
1. Payment of loss whether or not the
person has insurable interest in the
property insured;
2. Policy received as proof of such
interest; or
3. Policy executed by way of gaming or
wagering.
FILIPINO MERCHANTS INSURANCE
CO. V. COURT OF APPEALS
G.R. NO. 85141, 28 NOVEMBER
1989
 Choa Tiek Seng obtained a
non-life insurance with an
“all risk clause” over the
shipment of fishmeal. When
the goods were unloaded,
105 bags were found in bad
order condition. When Seng
claimed, it was denied by
Filipino Merchants stating
that Seng failed to prove that
the damage was caused by
“some fortuity,” and he had
no insurable interest at that
time.
 HELD: Filipino Merchants
was liable. The insured under
an “all risks insurance
policy” has the initial burden
of proving that the cargo was
in good condition when the
policy attached and that the
cargo was damaged when
unloaded from the vessel;
therafter, the burden then shifts
to the insurer to show the
exception of the coverage. This
Seng was able to do, and
Filipino Merchants was unable
to do. Regarding the insurable
interest, Seng had one based
on the perfected contract of
sale. This is an existing interest
over the goods sufficient to the
subject of insurance. A
perfected contract of sale is
an insurable interest.
 Carrier or depositary has
insurable interest in things held
or in possession
 To the extent of his liability but
not to exceed the value of the
thing held, a carrier or
depositary of any kind has an
insurable interest in the said
item in his possession.[11]
 No insurable interest in mere
contingent or expectant interest
in a thing
 There is no insurable interest in
a mere contingent or expectant
interest on a thing, which is not
founded on an actual right to
the thing or upon any valid
contract for it.[12]
 Measure of insurable interest in
property is extent of indemnity
over loss or injury
 The measure of an insurable
interest in property is the extent
to which the insured might be
damnified by the loss or injury
thereof.[13]
GERCIO V. SUN LIFE ASSURANCE
CO. OF CANADA (1925)
G.R. No. 23703 September 28,
1925
Lessons Applicable:
 Blood relationship (Insurance)
 Revocable Designation
(Insurance)
FACTS:
 January 29, 1910: Sun Life
Assurance Co. of Canada issued
a 20-year endowment insurance
policy on the life of Hilario Gercio
 insurance company agreed to
insure the life of Gercio for the sum
of P2,000, to be paid him on
February 1, 1930, or if the insured
should die before said date, then to
his wife, Mrs. Andrea Zialcita,
should she survive him; otherwise
to the executors, administrators, or
assigns of the insured
 policy did not include any provision
reserving to the insured the right to
change the beneficiary
31
 End of 1919: she was convicted of
the crime of adultery
 September 4, 1920: a decree of
divorce was issued
 March 4, 1922: Gercio formally
notified the Sun Life that he had
revoked his donation in favor of
Andrea Zialcita, and that he had
designated in her stead his present
wife, Adela Garcia de Gercio, as
the beneficiary of the policy
 Sun Life refused
 Gercio filed a petition for
mandamus to compel Sun Life
 Trial Court: favored Gercio
ISSUE: W/N Gercio has the right to
change the beneficiary of the policy
HELD: NO. Dismissed.
 The wife has an insurable interest
in the life of her husband.
 The beneficiary has an absolute
vested interest in the policy from
the date of its issuance and
delivery. So when a policy of life
insurance is taken out by the
husband in which the wife is named
as beneficiary, she has a subsisting
interest in the policy
 applies to a policy to which there
are attached the incidents of a loan
value, cash surrender value, an
automatic extension by premiums
paid, and to an endowment policy,
as well as to an ordinary life
insurance policy.
 If the husband wishes to retain to
himself the control and ownership
of the policy he may so provide in
the policy.
 But if the policy contains no
provision authorizing a change of
beneficiary without the
beneficiary's consent, the insured
cannot make such change.
 Accordingly, it is held that a life
insurance policy of a husband
made payable to the wife as
beneficiary, is the separate
property of the beneficiary and
beyond the control of the husband.
 effect produced by the divorce, the
Philippine Divorce Law, Act No.
2710, merely provides in section 9
that the decree of divorce shall
dissolve the community property as
soon as such decree becomes final
 absence of a statute to the
contrary, that if a policy is taken out
 upon a husband's life the wife is
named as beneficiary therein, a
subsequent divorce does not
destroy her rights under the policy
 Neither the husband, nor the wife,
nor both together had power to
destroy the vested interest of the
children in the policy.
Separate Opinion:

 Johnson, Concurring Opinion:

 I agree with the majority of the
court, that the judgment of the
lower court should be revoked, but
for a different reason. In my
judgment, the action is premature
and should have been dismissed.

32