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DEVICES FOR ASCERTAINING AND CONTROLLING RISK AND LOSS

1. Great Pacific Life Assurance Corp. v. Court of Appeals v Medarda V. Leuterio

Facts:

Petitioner executed a contract of group life insurance in favor of Development Bank of the Philippines
(DBP) to insure the lives of their eligible housing loans mortgagor. Dr. Wilfredo Leuterio is a housing
debtor of DBP and was issued an insurance coverage to the extent of his mortgage indebtedness to
DBP. Later on, he died due to “massive cerebral hemorrhage.” DBP submitted a death claim to
Grepalife but it was denied on the ground that insured-debtor was not physically healthy when he
applied for an insurance coverage. It was found out that insured-debtor was suffering from
hypertension which caused his death and such constituted concealment.

Issue:
1. WON there was concealment that would exonerate Petitioner from liability

Ruling:

There is NO concealment.

Concealment exist where the assured had knowledge of a fact material to the risk, and honesty, good
faith, and fair dealing requires that he should communicate it to the assured, but he designedly and
intentionally withholds the same. As a defense of the insurer to avoid liability is only an affirmative
defense. It is the duty of the insurer to establish such defense by satisfactory and convincing evidence.
In the case, petitioner failed to do so. The question was aptly answered by the appellate court, thus:

"The insured, Dr. Leuterio, had answered in his insurance application that he was in good
health and that he had not consulted a doctor or any of the enumerated ailments, including
hypertension; when he died the attending physician had certi ed in the death certi cate
that the former died of cerebral hemorrhage, probably secondary to hypertension. From
this report, the appellant insurance company refused to pay the insurance claim. Appellant
alleged that the insured had concealed the fact that he had hypertension.

Contrary to appellant's allegations, there was no su cient proof that the insured had
suffered from hypertension. Aside from the statement of the insured's widow who was
not even sure if the medicines taken by Dr. Leuterio were for hypertension, the appellant
had not proven nor produced any witness who could attest to Dr. Leuterio's medical
history. . .

xxx xxx xxx

Appellant insurance company had failed to establish that there was concealment made by
the insured, hence, it cannot refuse payment of the claim."

Therefore, petitioned is liable to pay the proceeds of the insurance.


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. On the part of the mortgagor so that in the
event of death; the mortgage obligation will be extinguished by the application of the insurance
proceeds to the mortgage indebtedness. Consequently, where the mortgagor pays the insurance
premium under the group insurance policy, making the loss payable to the mortgagee, the insurance
is on the mortgagor's interest, and the mortgagor continues to be a party to the contract. In this type
of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable
clause does not make the mortgagee a party to the contract.

In the case, when DBP submitted the insurance claim against petitioner, the latter denied payment
thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected
the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of
private respondent. Thus, considering this supervening event, the insurance proceeds shall insure to
the benefit of the heirs of the deceased person his beneficiaries. Equity dictates that DBP should not
unjustly enrich itself at the expense of another. In other words, it cannot collect the insurance proceeds
after it already foreclosed on the mortgage. The proceeds now rightly belong to Dr. Leuterio’s heirs
represented by his widow, herein respondent.

Petition denied.

2. Sunlife Assurance Company of Canada v CA and Sps. Bacani

Facts:

Respondent procured a life insurance contract with petitioner designating as beneficiary his mother.
Soon after insured died in a plane crash. His mother filed a claim with petition to recover the benefits
under the insurance policy. Such application was denied by petitioner on the ground that insured did
not disclose material facts relevant to the issuance of the policy. Allegedly, two weeks prior to
insured’s application for insurance he was examined and confined at the Lung Center of the
Philippines, where he was diagnosed for renal failure. The deceased was also subjected to urinalysis,
ultra-sonography and dermatology tests. Thus rendering the contract of insurance voidable.

Issue: WON there was material concealment

Ruling:

Yes. There was material concealment.

Section 26 of the Insurance Code, provides: “A neglect to communicate that which a party knows and
ought to communicate, is called concealment.” It is explicit from such section that a party to a contract
of insurance is required to communicate to the other, in good faith, all facts within his knowledge
which are material to the contract and as to which he makes no warranty, and which the other has no
means of ascertaining. Therefore, the fact that the insured failed to disclose that he was hospitalized
two weeks prior to filing his application raises grave doubts about his good faith. Thus, such
concealment should be considered as deliberate on his part.

Moreover under Section 31 of the Insurance Code materiality is to be determined not by the event,
but solely by the probable and reasonable influence of the facts upon the party to whom
communication is due, in forming his estimate of the disadvantages of the proposed contract or in
making his inquiries. In the case, the information which the insured failed to disclose were material
and relevant to the approval and the issuance of the insurance policy. The insured need not die of the
disease he had failed to disclose to insurer. It is sufficient that his non-disclosure misled the insurer in
forming his estimates of the risks of the proposed insurance policy or in making inquiries. Therefore,
“good faith” is no defense in concealment.

Petition is granted.

3. Philamcare Health Systems v CA and Julita Trinos

Facts:

Ernani Trinos, husband of respondent wife Julita Trinos, applied for a health care coverage with
petitioner Philamcare Health Systems. It covers hospitalization benefits and out-patient benefits.
During the period of his coverage he suffered a heart attach and was confined in the hospital.
Respondent tried to claim for the benefits under the healthcare agreement but it was refused on the
ground that there was material concealment regarding Ernani’s medical history.

Issue: WON respondent should be given reimbursement for hospitalization expenses

Ruling:

No. There was no material concealment. Respondent is entitled for the reimbursement on the
hospitalization expenses.

Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the
provider or insurer. In the case the petitioner did not provide any satisfactory and convincing evidence
to refuse payment. The liability of the health care provider attaches once the member is hospitalized
for the disease or injury covered by the agreement or whenever he avails of the covered benefits which
he has prepaid.

Moreover, questions relating to the medical history of the applicant’s medical history largely depends
on opinion rather than a fact, especially coming from respondent’s husband who was not a medical
doctor. It must be remembered where matters of opinion or judgment are called for, answers made
in good faith and without intent to deceive will not avoid a policy even though they are untrue.

Therefore, petitioner is bound to answer the same to the extent agreed upon.
Petition is denied.

4. Thelma Vda. de Canilang v CA v Great Pacific Life Insurance Corp.

Facts:

Jaime Canilang applied for a “non-medical” insurance policy with respondent designating as
beneficiary his wife, herein peititoner. Soon after, Jaime died of congestive heart failure, anemia, and
chronic anemia. The wife filed a claim for the benefits of the coverage however such application was
denied on the ground that insured had concealed material informations.

Petitioner testified that she was aware of any serious illness suffered by her late husband and that, as
far as she knew, her husband died because of kidney disorder. She presented Dr. Wilfredo Claudio,
the family physician, to testify that he had previously treated the deceased only for sinus tachycardia
and acute bronchitis.

While respondent presented Dr. Esperanza Quismorio, insurer’s company physician and medical
underwriter, who testified that the deceased’s insurance application had been approved on the basis
of his medical declaration. Further stating that as a rule they only require medical examinations in
cases where the applicant has indicated in his application that he has previously undergone medical
consultation and hospitalization.

Issue: WON there was material concealment

Ruling:

Yes. There was material concealment.

Materiality of information does not depend upon the state of mind of the applicant. Neither does
materiality depend upon the actual or physical events which ensue. Rather materiality relates to the
“probable and reasonable influence of the facts” upon the party to whom the communication
should have been made, in assessing the risk involved in making or omitting to make further inquiries
and in accepting the application for insurance. Those facts concealed relating to such must be
determined objectively through proof of external acts or failure to act from which inferences as to his
subjective belief may be reasonably drawn.

In the case Jaime Canilang failed to disclose his visits to his doctor, the diagnosis made and the
medicined prescribed by such doctor in the insurance application. He could not have been unaware
that his heart beat would at times rise to high and alarming levels and that he had consulted a doctor
twice in the 2 months before applying for non-medical insurance. While the last medical consultation
took place just the day before the insurance application was filed. Had the deceased disclose those
facts, it may then be reasonably assumed that Great Pacific would have made further inquiries and
would have probably refused to issue a non-medical insurance policy or, at the very least, required
higher premium for the same coverage.
Moreove, Section 27 of Insurance Code provides that, “a concealment entitles the injured party to
rescind a contract of insurance.” The word concealment should be construed as any concealment
whether intentional or unintentional. As a simple matter of grammar, it may be noted that intentional
or unintentional cancel each other out. Therefore, the nature of facts nit conveyed to the insurer was
such that the failure to communicate must have been intentional rather than merely inadvertent.

Petition is denied.

5. Ma. Lourdes Florendo v Philam Plans Inc. and Perla Abcede and Celeste Abcede

Facts:

After some convincing by respondent Perla Abcede, Manuel Florendo applied for a comprehensive
pension plan with respondent Philam Plans. Applicant signed the application and left to Perla the task
of supplying the information needed in the application. Thereafter, Perla made her daughter signed
the application as sales counselor. The comprehensive plan included pension benefits and life
insurance coverage which was covered by a Group Master Policy.

Eleven months later, Manuel died of blood poisoning before his pension plan matured and his wife
was to get only the benefits of his life insurance. However, petitioner’s claim was declined on the
ground that at the time of her husband’s application he was already on maintenance medicine for his
heart and had an implanted pacemaker. Further, he suffered from diabetes mellitus and was taking
insulin. All those matters were allegedly concealed by him.

Issue: WON there was material concealment

Ruling:

Yes. There was material concealment.

Insurance policies are traditionally contracts uberrimae fidae or contracts of utmost good faith. As
such, it required Manuel to disclose to Philam Plans conditions affecting the risk of which he was
aware or material facts that he knew or ought to know. In the case, it was found out that Manuel had
the pacemaker when he applied for a pension plan. Therefore, when Manuel signed the application
without filling in the details regarding his continuing treatments for heart condition and diabetes, the
assumption is that he has never been treated for the said illnesses in the last five years preceding his
application.

Moreover, petitioner cannot hide from the fact that it was the soliciting agent who provided the
information on the application. When Manuel signed the pension plan application, he adopted as his
own the written representations and declaration embodied in it. It is clear from these representations
that he concealed his chronic heart ailment and diabetes from Philam Plans. Ha cannot sign the
application and disown the responsibility for having it filled up. If he furnished the Perla the needed
information and delegated to her the filling up of the application, then such soliciting agent acted on
his own instruction and not on Philam Plans’ instruction.
Further, the comprehensive pension plan issued contained a 1 year incontestability period. Such
incontestability clause precludes the insurer from disowning liability under the policy it issued on the
ground of concealment or misrepresentation regarding the health of the insured after a year of its
issuance. In the case, Manuel died on the eleventh month following the issuance of his plan. Therefore,
Under Section 27 of the Insurance Code, Manuel’s concealment entitles Philam Plans to rescind its
contract of insurance with him.

Petition is denied.

PERSONS ENTITLED TO RECOVER ON THE POLICY AND CONDITIONS TO


RECOVERY

6. FGU Insurance Corp. v CA

Facts:
San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, several cargoes. SMC contracted
with Anco Enterprises Company (ANCO) which was engaged in the shipping business. It owned the
M/T ANCO tugboat and the D/B Lucio barge which were operated as common carriers.

On Sept. 30, 1979, the D/B Lucio was towed by the M/T ANCO to San Jose, Antique. SMC's District
Sales Supervisor, Fernando Macabuag, requested ANCO's representative to transfer the barge to a
safer place because the clouds over the area were dark and the waves were already big. ANCO's
representative did not heed the request. At around midnight, the barge run aground and was broken
and the cargoes of beer in the barge were swept away.

SMC filed a complaint for Breach of Contract of Carriage and Damages against ANCO for the
amount of P1,346,197.00, plus interest, litigation expenses and 25% of the total claim as attorney's
fees. ANCO claimed that it had an agreement with SMC that ANCO would not be liable for any losses
or damages by reason of fortuitous event. ANCO asserted that there was an agreement between them
and SMC to insure the cargoes in order to recover indemnity in case of loss. Pursuant to that
agreement, the cargoes to the extent of 20,000 cases was insured with FGU Insurance Corporation
(FGU) for the total amount of P858,500.00.

ANCO filed a Third-Party Complaint against FGU. FGU alleged that ANCO and SMC failed to
exercise ordinary diligence or the diligence of a good father of the family in the care and supervision
of the cargoes.

ISSUE:
1. WON ANCO is liable notwithstanding that the loss of the cargoes was caused by a typhoon, a
fortuitous event.
2. WON FGU can be held liable under the insurance policy to reimburse ANCO for the loss of the
cargoes despite the blatant negligence to the latter’s employees.

RULING:
1. Yes, ANCO is liable, notwithstanding a fortuitous event.
Caso fortuito or force majeure by definition, are extraordinary events not foreseeable or avoidable,
events that could not be foreseen, or which though foreseen, were inevitable. It is therefore not
enough that the event should not have been foreseen or anticipated, as is commonly believed but it
must be one impossible to foresee or to avoid. The following provisions should be considered:

Art. 1733. Common carriers, from the nature of their business and for reasons of public policy are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case.

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

Art. 1739. In order that the common carrier may be exempted from responsibility, the natural
disaster must have been the proximate and only cause of the loss. However, the common carrier
must exercise due diligence to prevent or minimize loss before, during and after the
occurrence of flood, storm, or other natural disaster in order that the common carrier may be
exempted from liability for the loss, destruction, or deterioration of the goods.
While the loss of the cargoes was admittedly caused by the typhoon, ANCO could not escape liability
to SMC. The records show there was failure from ANCO's representatives to exercise the
extraordinary degree of diligence. To be exempted from responsibility, the natural disaster should
have been the proximate and only cause of the loss. There must have been no contributory negligence
on the part of the common carrier.

We agree with the finding of CA, there was blatant negligence on the part of M/T ANCO's crew
members, first in leaving the engine-less barge D/B Lucio at the mercy of the storm without the
assistance of the tugboat, and again in failing to heed the request of SMC's representatives to have the
barge transferred to a safer place, as was done by the other vessels in the port; thus, making said blatant
negligence the proximate cause of the loss of the cargoes.

2. FGU is exonerated from liability in light of the blatant negligence of ANCO's employees amounting
to gross negligence.

The blatant negligence on the part of the employees of defendants- appellants when the patron
(operator) of the tug boat immediately left the barge at the San Jose, Antique wharf despite the
looming bad weather. Negligence was likewise exhibited by the defendants-appellants' representative
who did not heed Macabuag's request that the barge be moved to a more secure place. The prudent
thing to do, as was done by the other sea vessels at San Jose, Antique during the time in question, was
to transfer the vessel to a safer wharf. Therefore, ANCO's representatives had failed to exercise
extraordinary diligence required of common carriers in the shipment of SMC's cargoes. Such blatant
negligence being the proximate cause of the loss of the cargoes amounting to One Million Three
Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00)

Petition is granted.
7. Bonifacio Bros Inc. v Mora

Facts:

Enrique Mora mortgaged his Odlsmobile sedan car to HS Reyes Inc. with the condition that Mora
would insure the car with HS Reyes as beneficiary. The car was then insured with State Insurance
Company and the policy delivered to Mora. During the effectivity of the insurance contract, the car
figured in an accident. The company then assigned the accident to an insurance appraiser for
investigation and appraisal of the damage. Mora without the knowledge and consent of HS Reyes,
authorized Bonifacio Bros to fix the car, using materials supplied by the Ayala Auto Parts Company.
For the cost of Labor and materials, Mora was billed P2,102.73. The bill was sent to the insurer’s
appraiser. The insurance company drew a check in the amount of the insurance proceeds and
entrusted the check to its appraiser for delivery to the proper party. The car was delivered to Mora
without the consent of HS Reyes, and without payment to Bonifacio Bros and Ayala. Upon the theory
that the insurance proceeds should be directly paid to them, Bonifacio and Ayala filed a complaint
against Mora and the insurer with the municipal court for the collection of P2,102.73. The insurance
company filed its answer with a counterclaim for interpleader, requiring Bonifacio and HS Reyes to
interplead in order to determine who has a better right to the proceeds.

Issue: WON there is privity of contract between the Bonifacio Bros. Inc and the Ayala Auto Parts Co.
on the one hand and the insurance company on the other.

Ruling:

There is no privity. It is fundamental that contracts take effect only between the parties thereto, except
on some specific instances provided by law where the contract contains some stipulation in favor of
a third person (Art. 1311, Civil Code). Such stipulation is known as stipulation pour autrui or a
provision in favor of a third person not a party to the contract. Under this doctrine, a third person is
allowed to avail himself of a benefit granted to him by the terms of the contract, provided that the
contracting parties have clearly and deliberately conferred a favor upon such person (Art. 1311, Civil
Code; Uy Tam, et al. vs. Leonard, 30 Phil.. 471 ). Consequently, a third person not a party to the
contract has no action against the parties thereto, and cannot generally demand the enforcement of
the same (Manila Railroad Co. vs. Compañia Transatlantica, 38 Phil. 676).

The question of whether a third person has an enforceable interest in a contract, must be settled by
determining whether the contracting parties intended to tender him such an interest by deliberately
inserting terms in their agreement with the avowed purpose of conferring a favor upon such third
person. In this connection, this Court has laid down the rule that the fairest test to determine whether
the interest of a third person in a contract is a stipulation pour autrui or merely an incidental interest,
is to rely upon the intention of the parties as disclosed by their contract ( Uy Tam, et
al. vs. Leonard, supra). A policy of insurance is a distinct and independent contract between the
insured and insurer, and third persons have no right either in a court of equity, or in a court of law, to
the proceeds of it, unless there be some contract of trust, expressed or implied, by the insured and
third person (Lampano vs.Jose, 30 Phil. 537).

8. The Insular Life Assurance v Carponia T. Ebrado and Pascuala Vda. de Ebrado
Facts:

Buenaventura Cristor Ebrado was issued by the Insular Life Assurance Co., Ltd., a policy on a whole-
life plan with a rider for Accidental Death Benefits. He designated respondent, Carponia T. Ebrado, as
the revocable beneficiary in his policy. He referred to her as his wife.

Insured died as a result of an accident when he was hit by a falling branch of a tree. As the insurance
policy was in force, The Insular Life Assurance Co., Ltd. stands liable to pay the coverage of the policy
in an 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.

Respondent filed with the insurer a claim for the proceeds of the policy as the designated beneficiary
therein, although she admits that she and the insured Buenaventura were merely living as husband and
wife without the benefit of marriage. Pascuala Vda. de Ebrado also filed her claim as the widow of
the deceased insured. She asserts that she is the one entitled to the insurance proceeds, not the
common-law wife, Carponia.

Issue: WON a common-law wife named as beneficiary in the life insurance policy of a legally married
man can claim the proceeds thereof

Ruling:

The proceeds of the policy should be paid to the estate of the deceased insured because a common-
law wife is disqualified from recovering proceeds under Life Insurance Policy.

The general rules of civil law should be applied to resolve matters not specifically provided in the
Insurance Law. 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.” Moreover, Article 739 of the new Civil Code provides:

“The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the time
of donation;
2. Those made between persons found guilty of the same criminal offense, in
consideration thereof;
3. Those made to a public officer or his wife, descendants or ascendants by reason of his
office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by
the spouse of the donor or donee; and the guilt of the donee may be proved by
preponderance of evidence in the same action.”
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. Therefore, common-law spouses are barred from receiving
donations from each other. Also, conviction for adultery or concubinage is not required as only
preponderance of evidence is necessary.

9. Basilia Berdin Vda. de Consuegra v GSIS and Rosario Diaz

Facts:

Jose Consuegra contracted two marriages in his lifetime; first with the respondent solemnized on July
15, 1937; second with the petitioned solemnized on May 1, 1957. Upon the death of Jose in 1965 he
was employed as shop foreman of the office of the District Engineer in the province of Surigao-del
Norte. He was a member of the GSIS covering life insurance policy no. 601801. Also, he is entitled
to retirement insurance benefits having been in the service of the government for a period of 22.5028
years.

The life insurance policy was paid by GSIS to petitioner and her children who were the designate
beneficiaries in the policy. With respect to the retirement insurance benefits no beneficiary was
designated by Jose. Thus, respondent widow from the first married filed a claim with the GSIS asking
for the insurance benefits be paid to her as the only legal heir of the deceased. A similar claim was
filed by petitioner and her children asserting that being the beneficiary named in the life insurance
policy, they are the only ones entitled to receive the retirement insurance benefits due the deceased.

Issue: To whom should the retirement insurance benefits of Jose Consuegra be paid having failed to
designate any beneficiary.

Ruling:

There are two separate and distinct systems of benefits offered by GSIS to its members - one is life
insurance and the other is retirement insurance. For life insurance, the same are paid to whoever is
named beneficiary in the policy. It may not necessarily be an heir of the insured. Insured has the
discretion to designate any person unless disqualified to be so under the provisions of the Civil Code.
Absence of any beneficiary, the proceeds of the insurance will go to the estate of the insured. For
retirement insurance, if the employee reaches the age of retirement he gets the benefits even to the
exclusion of the beneficiary named in his application. The beneficiary designated can only claim the
proceeds if employee dies before retirement. If, however, employee failed to provide a beneficiary the
proceeds will accrue to his estate and will be given to his legal heirs in accordance with law.

Therefore, there was no error committed when the retirement insurance benefit amounting to
P6,304.47 was divided equally between his first living wife Rosario and his second wife Basilia and her
children. The first pertains to the conjugal partnership of the first marriage. While the second pertains
to one-half in the property acquired by petitioner and deceased. And the lower court did not commit
error when it confirmed the action of the GSIS, it being accepted as a fact that the second marriage
of Jose Consuegra to Basilia Berdin was contracted in good faith.
In construing the rights of two women who were married to the same man — a situation more or less
similar to the case of appellant Basilia Berdin and appellee Rosario Diaz — held "that since the
defendant's first marriage has not been dissolved or declared void the conjugal partnership established
by that marriage has not ceased. Nor has the first wife lost or relinquished her status as putative heir
of her husband under the new Civil Code, entitled to share in his estate upon his death should she
survive him. As to the second marriage, although it can be presumed to be void ab initio as it was
celebrated while the first marriage was still subsisting, still there is need for judicial declaration of such
nullity. And inasmuch as the conjugal partnership formed by the second marriage was dissolved
before judicial declaration of its nullity, "[t]he only just and equitable solution in this case would be to
recognize the right of the second wife to her share of one-half in the property acquired by her and her
husband, and consider the other half as pertaining to the conjugal partnership of the first marriage.”

Petition affirmed.

10. G.R. No. 171406, April 4, 2011


ASIAN TERMINALS, INC. vs. MALAYAN INSURANCE, CO., INC.
Facts:

On November 14, 1995, Shandong Weifang Soda Ash Plant shipped on board the vessel MV
"Jinlian I" 60,000 plastic bags of soda ash dense from China to Manila. The shipment, with an invoice
value of US$456,000.00, was insured with respondent Malayan Insurance Company, Inc., and covered
by a Bill of Lading issued by Tianjin Navigation Company with Philippine Banking Corporation as
the consignee and Chemphil Albright and Wilson Corporation as the notify party. On November 21,
1995, upon arrival of the vessel in Manila, the stevedores of petitioner Asian Terminals, Inc., a duly
registered domestic corporation engaged in providing arrastre and stevedoring services, unloaded the
60,000 bags of soda ash dense from the vessel and brought them to the open storage area of petitioner
for temporary storage and safekeeping. When the unloading of the bags was completed on November
28, 1995, 2,702 bags were found to be in bad order condition. On November 29, 1995, the stevedores
of petitioner began loading the bags in the trucks of MEC Customs Brokerage for transport and
delivery to the consignee. On December 28, 1995, after all the bags were unloaded in the warehouses
of the consignee, a total of 2,881 bags were in bad order condition due to spillage, caking, and
hardening of the contents. On April 19, 1996, respondent, as insurer, paid the value of the lost/
damaged cargoes to the consignee in the amount of P643,600.25.

On November 20, 1996, respondent, as subrogee of the consignee, filed before the RTC of
Manila a complaint for damages against petitioner (Asian Terminals, Inc.), the shipper (Inchcape
Shipping Services), and the cargo broker (MEC Customs Brokerage). The RTC rendered a decision
finding petitioner liable for the damage/loss sustained by the shipment but absolving the other
defendants - Inchcape Shipping Services and MEC Customs Brokerage. The RTC found that the
proximate cause of the damage/loss was the negligence of petitioner’s stevedores who handled the
unloading of the cargoes from the vessel. The RTC emphasized that despite the admonitions of
Marine Cargo Surveyors not to use steel hooks in retrieving and picking-up the bags, petitioner’s
stevedores continued to use such tools, which pierced the bags and caused the spillage. The RTC,
thus, ruled that petitioner, as employer, is liable for the acts and omissions of its stevedores and is
ordered to pay plaintiff Malayan Insurance Company, Inc.

Aggrieved, petitioner appealed to the CA but the appeal was denied. The CA agreed with the
RTC that the damage/loss was caused by the negligence of petitioner’s stevedores in handling and
storing the subject shipment. The CA likewise rejected petitioner’s assertion that it received the subject
shipment in bad order condition as this was disproved by the Marine Cargo Surveyors who testified
that the actual counting of bad order bags was done only after all the bags were unloaded from the
vessel and that the Turn Over Survey of Bad Order Cargoes (TOSBOC) upon which petitioner
anchors its defense was prepared only on November 28, 1995 or after the unloading of the bags was
completed. Petitioner moved for reconsideration but the CA denied the same in a Resolution for lack
of merit.
Petitioner’s Arguments
1. Petitioner contends that respondent has no cause of action because it failed to present the
insurance contract or policy covering the subject shipment. Petitioner argues that the
Subrogation Receipt presented by respondent is not sufficient to prove that the subject
shipment was insured and that respondent was validly subrogated to the rights of the
consignee. Thus, petitioner submits that without proof of a valid subrogation, respondent is
not entitled to any reimbursement.
2. Petitioner likewise puts in issue the finding of the RTC, which was affirmed by the CA, that
the proximate cause of the damage/loss to the shipment was the negligence of petitioner’s
stevedores. Petitioner avers that such finding is contrary to the documentary evidence, i.e., the
TOSBOC, the Request for Bad Order Survey (RESBOC) and the Report of Survey. According
to petitioner, these documents prove that it received the subject shipment in bad order
condition and that no additional damage was sustained by the subject shipment under its
custody. Petitioner asserts that although the TOSBOC was prepared only after all the bags
were unloaded by petitioner’s stevedores, this does not mean that the damage/loss was caused
by its stevedores.
3. Petitioner also claims that the amount of damages should not be more than P5,000.00,
pursuant to its Management Contract for cargo handling services with the PPA. Petitioner
contends that the CA should have taken judicial notice of the said contract since it is an official
act of an executive department subject to judicial cognizance.
Respondent’s Arguments
1. Respondent, on the other hand, argues that the non-presentation of the insurance contract or
policy was not raised in the trial court. Thus, it cannot be raised for the first time on appeal.
Respondent likewise contends that under prevailing jurisprudence, presentation of the
insurance policy is not indispensable. Respondent further avers that "the right of subrogation
has its roots in equity - it is designed to promote and to accomplish justice and is the mode
which equity adopts to compel the ultimate payment of a debt by one who in justice, equity
and good conscience ought to pay."
2. Respondent likewise maintains that the RTC and the CA correctly found that the damage/loss
sustained by the subject shipment was caused by the negligent acts of petitioner’s stevedores.
Such factual findings of the RTC, affirmed by the CA, are conclusive and should no longer be
disturbed. In fact, under Section 1 of Rule 45 of the Rules of Court, only questions of law may
be raised in a petition for review on certiorari.
3. As to the Management Contract for cargo handling services, respondent contends that this is
outside the operation of judicial notice. And even if it is not, petitioner’s liability cannot be
limited by it since it is a contract of adhesion.
Issues:

(1) Whether the non-presentation of the insurance contract or policy is fatal to respondent’s cause of
action;

(2) Whether the proximate cause of the damage/loss to the shipment was the negligence of petitioner’s
stevedores; and

(3) Whether the court can take judicial notice of the Management Contract between petitioner and the
Philippine Ports Authority (PPA) in determining petitioner’s liability.

Ruling: The petition is bereft of merit.


(1) Whether or not the respondent’s non-presentation of the insurance contract or policy
between the respondent and the consignee is fatal to its cause of action. – NO.

 Non-presentation of the insurance contract or policy is not fatal in the instant case.

First of all, this was never raised as an issue before the RTC. Basic is the rule that "issues or
grounds not raised below cannot be resolved on review by the Supreme Court, for to allow the parties
to raise new issues is antithetical to the sporting idea of fair play, justice and due process." Besides,
non-presentation of the insurance contract or policy is not necessarily fatal.

 In Delsan Transport Lines, Inc. v. Court of Appeals, the presentation in evidence of the
marine insurance policy is not indispensable before the insurer may recover from the common
carrier the insured value of the lost cargo in the exercise of its subrogatory right. The
subrogation receipt, by itself, is sufficient to establish not only the relationship of the insurer
and the assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to
settle the insurance claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.
 In Home Insurance Corporation v. CA, the presentation of the insurance policy was
necessary because the shipment therein (hydraulic engines) passed through several stages with
different parties involved in each stage. In the absence of proof of stipulations to the contrary,
the hauler can be liable only for any damage that occurred from the time it received the cargo
until it finally delivered it to the consignee. Ordinarily, it cannot be held responsible for the
handling of the cargo before it actually received it.
However, as in every general rule, there are admitted exceptions. In Delsan Transport Lines, Inc.
v. Court of Appeals, the Court stated that the presentation of the insurance policy was not fatal
because the loss of the cargo undoubtedly occurred while on board the petitioner’s vessel, unlike in
Home Insurance in which the cargo passed through several stages with different parties and it could
not be determined when the damage to the cargo occurred, such that the insurer should be liable for
it. As in Delsan, there is no doubt that the loss of the cargo in the present case occurred while in
petitioner’s custody. Similarly, in this case, the presentation of the insurance contract or policy was
not necessary. Although petitioner objected to the admission of the Subrogation Receipt in its
Comment to respondent’s formal offer of evidence on the ground that respondent failed to present
the insurance contract or policy, a perusal of petitioner’s Answer and Pre-Trial Brief shows that
petitioner never questioned respondent’s right to subrogation, nor did it dispute the coverage of the
insurance contract or policy. Since there was no issue regarding the validity of the insurance contract
or policy, or any provision thereof, respondent had no reason to present the insurance contract or
policy as evidence during the trial. Hence, the factual findings of the CA, affirming the RTC, are
binding and conclusive.
(2) Whether or not the proximate cause of the damage/loss to the shipment was the
negligence of petitioner’s stevedores. – YES.

Both the RTC and the CA found the negligence of petitioner’s stevedores to be the proximate
cause of the damage/loss to the shipment. In disregarding the contention of petitioner that such
finding is contrary to the documentary evidence, the CA had this to say: ATI, however, contends that
the finding of the trial court was contrary to the documentary evidence of record, particularly, the
Turn Over Survey of Bad Order Cargoes dated November 28, 1995, which was executed prior to the
turn-over of the cargo by the carrier to the arrastre operator ATI, and which showed that the shipment
already contained 2,702 damaged bags. However, contrary to ATI’s assertion, the witnesses – marine
cargo surveyors of Inchcape for the vessel Jinlian I which arrived on November 21, 1995 and up to
completion of discharging on November 28, 1995, testified that it was only after all the bags were
unloaded from the vessel that the actual counting of bad order bags was made.
There is no cogent reason to depart from the ruling of the trial court that ATI should be made
liable for the 2,702 bags of damaged shipment. Needless to state, it is hornbook doctrine that the
assessment of witnesses and their testimonies is a matter best undertaken by the trial court, which had
the opportunity to observe the demeanor, conduct or attitude of the witnesses. The findings of the
trial court on this point are accorded great respect and will not be reversed on appeal, unless it
overlooked substantial facts and circumstances which, if considered, would materially affect the result
of the case. The proximate cause of the damage (i.e., torn bags, spillage of contents and
caked/hardened portions of the contents) was the improper handling of the cargoes by ATI’s
stevedores; and ATI has not satisfactorily rebutted plaintiff-appellee’s evidence on the negligence of
ATI’s stevedores in the handling and safekeeping of the cargoes.
Indeed, from the nature of the damage caused to the shipment, i.e., torn bags, spillage of contents
and hardened or caked portions of the contents, it is not difficult to see that the damage caused was
due to the negligence of ATI’s stevedores who used steel hooks to retrieve the bags from the higher
portions of the piles thereby piercing the bags and spilling their contents, and who piled the bags in
the open storage area of ATI with insufficient cover thereby exposing them to the elements and
[causing] the contents to cake or harden. Clearly, the finding of negligence on the part of petitioner’s
stevedores is supported by both testimonial and documentary evidence. Hence, we see no reason to
disturb the same.
(3) Whether the court can take judicial notice of the Management Contract between
petitioner and the Philippine Ports Authority (PPA) in determining petitioner’s
liability. – NO.

Finally, petitioner implores us to take judicial notice of Section 7.01, Article VII of the
Management Contract for cargo handling services it entered with the PPA, which limits petitioner’s
liability to P5,000.00 per package. Unfortunately for the petitioner, it cannot avail of judicial notice.

The Management Contract entered into by petitioner and the PPA is not among the matters which
the courts can take judicial notice of. It cannot be considered an official act of the executive
department. The PPA, which was created by virtue of Presidential Decree No. 857, as amended, is a
government-owned and controlled corporation in charge of administering the ports in the country.
Obviously, the PPA was only performing a proprietary function when it entered into a Management
Contract with petitioner. As such, judicial notice cannot be applied.

LOSS

11. Phil-Nippon Kyoei, Corp.

FACTS

a domestic shipping corporation purchased a "Ro-Ro" passenger/cargo vessel "MV Mahlia" in Japan
in February 2003. For the vessel's one month conduction voyage from Japan to the Philippines,
petitioner, as local principal, and Top Ever Marine Management Maritime Co., Ltd. (TMCL), as
foreign principal, hired Edwin C. Gudelosao, Virgilio A. Tancontian, and six other crew members.
They were hired through the local manning agency of TMCL, Top Ever Marine Management
Philippine Corporation (TEMMPC). TEMMPC, through their president and general manager, Capt.
Oscar Orbeta (Capt. Orbeta), and the eight crewmembers signed separate contracts of employment.
Petitioner secured a Marine Insurance Policy (Maritime Policy No. 00001) from SSSICI over the vessel
for P10,800,000.00 against loss, damage, and third party liability or expense, arising from the
occurrence of the perils of the sea for the voyage of the vessel from Onomichi, Japan to Batangas,
Philippines. This Marine Insurance Policy included Personal Accident Policies for the eight
crewmembers for P3,240,000.00 each in case of accidental death or injury.
On February 24, 2003, while still within Japanese waters, the vessel sank due to extreme bad weather
condition. Only Chief Engineer Nilo Macasling survived the incident while the rest of the
crewmembers, including Gudelosao and Tancontian, perished. Respondents, as heirs and beneficiaries
of Gudelosao and Tancontian, filed separate complaints for death benefits and other damages against
peti... tioner, TEMMPC, Capt. Orbeta, TMCL, and SSSICI, with the Arbitration Branch of the
National Labor Relations Commission (NLRC).
Labor Arbiter
Magat rendered a Decision... finding solidary liability among petitioner, TEMMPC, TMCL and Capt.
Orbeta. The LA also found SSSICI liable to the respondents for the proceeds of the Personal Accident
Policies and attorney's fees. The LA, however, ruled that the liability of petitioner shall be deemed
extinguished only upon SSSICI's payment of the insurance proceeds. On appeal, the NLRC modified
the LA Decision in a Resolution The NLRC absolved petitioner, TEMMPC and TMCL and Capt.
Orbeta from any liability based on the limited liability rule. It, however, affirmed SSSICI's liability after
finding that the Personal Accident Policies answer for the death benefit claims under the Philippine
Overseas Employment Administration Standard Employment Contract (POEA-SEC)
The CA found that the NLRC erred when it ruled that the obligation of petitioner, TEMMPC and
TMCL for the payment of death benefits under the POEA-SEC was ipso facto transferred to SSSICI
upon the death of the seafarers TEMMPC and TMCL cannot raise the defense of the total loss of the
ship because its liability under POEA-SEC is separate and distinct from the liability of the shipowner.
To disregard the contract, which has the force of law between the parties, would defeat the purpose
of the Labor Code and the rules and regulations issued by the Department of Labor and Employment
(DOLE) in setting the minimum terms and conditions of employment for the protection of Filipino
seamen. The CA noted that the benefits being claimed are not dependent upon whether there is total
loss of the vessel, because the liability attaches even if the vessel did not sink. Thus, it was error for
the NLRC to absolve TEMMPC and TMCL on the basis of the limited liability rule. Significantly
though, the CA ruled that petitioner is not liable under the POEA-SEC, but by virtue of its being a
shipowner. Thus, petitioner is liable for the injuries to passengers even without a determination of its
fault or negligence. It is for this reason that petitioner obtained insurance from SSSICI - to protect
itself against the consequences of a total loss of the vessel caused by the perils of the sea. Consequently,
SSSICI's liability as petitioner's insurer directly arose from the contract of insurance against liability
The CA then ordered that petitioner's liability will only be extinguished upon payment by SSSICI of
the insurance proceeds.
Issues:
1.Whether the doctrine of real and hypothecary nature of maritime law (also known as the limited
liability rule) applies in favor of petitioner.
2.Whether the doctrine of real and hypothecary nature of maritime law (also known as the limited
liability rule) applies in favor of petitioner.
Ruling:
Doctrine of limited liability is not applicable to claims under POEA-SEC.
Article 837 applies the limited liability rule in cases of collision. Meanwhile, Articles 587 and 590
embody the universal principle of limited liability in all cases wherein the shipowner or agent may be
properly held liable for the negligent or illicit acts of the captain.[
These articles precisely intend to limit the liability of the shipowner or agent to the value of the vessel,
its appurtenances and freightage earned in the voyage, provided that the owner or agent abandons the
vessel.
When the vessel is totally lost, in which case abandonment is not required because there is no vessel
to abandon, the liability of the shipowner or agent for damages is extinguished.
Nonetheless, the limited liability rule is not absolute and is without exceptions. It does not apply in
cases: (1) where the injury or death to a passenger is due either to the fault of the shipowner, or to the
concurring negligence of the shipowner and the captain; (2) where the vessel is insured; and (3) in
workmen's compensation claims.
In Abueg v. San Diego,... we ruled that the limited liability rule found in the Code of Commerce is
inapplicable in a liability created by statute to compensate employees and laborers, or the heirs and
dependents, in cases of injury received by or inflicted upon them while engaged in the performance
of their work or employment, to wit:
The real and hypothecary nature of the liability of the shipowner or agent embodied in the provisions
of the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing conditions of the
maritime trade and sea voyages during the medieval ages, attended by innumerable hazards and perils.
To offset against these adverse conditions and to encourage shipbuilding and maritime commerce, it
was deemed necessary to confine the liability of the owner or agent arising from the operation of a
ship to the vessel, equipment, and freight, or insurance, if any, so that if the shipowner or agent
abandoned the ship, equipment, and freight, his liability was extinguished.
But the provisions of the Code of Commerce invoked by appellant have no room in the application
of the Workmen's Compensation Act which seeks to improve, and aims at the amelioration of, the
condition of laborers and employees. It is not the liability for the damage or loss of the cargo or injury
to, or death of, a passenger by or through the misconduct of the captain or master of the ship; nor the
liability for the loss of the ship as a result of collision; nor the responsibility for wages of the crew, but
a liability created by a statute to compensate employees and laborers in cases of injury received by or
inflicted upon them, while engaged in the performance of their work or employment, or the heirs and
dependents of such laborers and employees in the event of death caused by their employment.
We see no reason why the above doctrine should not apply here.
Thus, the claim for death benefits under the POEA-SEC is the same species as the workmen's
compensation claims under the Labor Code - both of which belong to a different realm from that of
Maritime Law. Therefore, the limited liability rule does not apply to petitioner's liability under the
POEA-SEC.

12. ROQUE vs IAC

Roque v. Intermediate Appellate Court


G.R. No. L-66935 Nov. 11, 1985
Justice Gutierrez, Jr.

Facts:

Isabela Roque (Roque of Isabela Roque Timber Enterprises) hired the Manila Bay Lighterage
Corp. (Manila Bay) to load and carry its logs from Palawan to North Harbor, Manila. The logs were
insured with Pioneer Insurance and Surety Corp. (Pioneer). The logs never reached Manila due to
certain circumstances (as alleged by Roque and found by the appellate court), such as the fact that the
barge was not seaworthy that it developed a leak, that one of the hatches were left open causing water
to enter, and the absence of the necessary cover of tarpaulin causing more water to enter the barge.
When Roque demanded payment from Pioneer, but the latter refused on the ground that its liability
depended upon the “Total Loss by Total Loss of Vessel Only.” The trial court ruled in favor of Roque
in the civil complaint filed by the latter against Pioneer, but the decision was reversed by the appellate
court.

Issue:

WON in cases of marine insurance, there is a warranty of seaworthiness by the cargo owner;
WON the loss of the cargo was due to perils of the sea, not perils of the ship.

Held:

Yes, there is. The liability of the insurance company is governed by law. Section 113 of the
Insurance Code provides that “In every marine insurance upon a ship or freight, or freightage, or
upon anything which is the subject of marine insurance, a warranty is implied that the ship is
seaworthy.” Hence, there can be no mistaking the fact that the term "cargo" can be the subject of
marine insurance and that once it is so made, the implied warranty of seaworthiness immediately
attaches to whoever is insuring the cargo whether he be the shipowner or not. Moreover, the fact that
the unseaworthiness of the ship was unknown to the insured is immaterial in ordinary marine
insurance and may not be used by him as a defense in order to recover on the marine insurance policy.
As to the second issue, by applying Sec. 113 of the Insurance Code, there is no doubt that the
term 'perils of the sea' extends only to losses caused by sea damage, or by the violence of the elements,
and does not embrace all losses happening at sea; it is said to include only such losses as are
of extraordinary nature, or arise from some overwhelming power, which cannot be guarded against by the
ordinary exertion of human skill and prudence. t is also the general rule that everything which happens
thru the inherent vice of the thing, or by the act of the owners, master or shipper, shall not be reputed
a peril, if not otherwise borne in the policy. It must be considered to be settled, furthermore, that a
loss which, in the ordinary course of events, results from the natural and inevitable action of the sea,
from the ordinary wear and tear of the ship, or from the negligent failure of the ship's owner to provide
the vessel with proper equipment to convey the cargo under ordinary conditions, is not a peril of the
sea. Such a loss is rather due to what has been aptly called the "peril of the ship." The insurer
undertakes to insure against perils of the sea and similar perils, not against perils of the ship. Neither
barratry can be used as a ground by Roque. Barratry as defined in American Insurance Law is "any
willful misconduct on the part of master or crew in pursuance of some unlawful or fraudulent purpose
without the consent of the owners, and to the prejudice of the owner's interest." Barratry necessarily
requires a willful and intentional act in its commission. No honest error of judgment or mere
negligence, unless criminally gross, can be barratry. In the case at bar, there is no finding that the loss
was occasioned by the willful or fraudulent acts of the vessel's crew. There was only simple negligence
or lack of skill.

13. La Razon Social "Go Tiaoco y Hermanos" vs. Union Insurance Society of Canton Ltd.
[GR 13983, 1 September 1919]

Facts: A cargo of rice belonging to the Go Tiaoco Brothers, was transported in the early days of May,
1915, on the steamship Hondagua from the port of Saigon to Cebu. On discharging the rice from one
of the compartments in the after hold, upon arrival at Cebu, it was discovered that 1,473 sacks had
been damaged by sea water. The loss so resulting to the owners of rice, after proper deduction had
been made for the portion saved, was P3,875. The policy of insurance, covering the shipment, was
signed upon a form long in use among companies engaged in maritime insurance. It purports to insure
the cargo from the following among other risks: "Perils . . . of the seas, men, of war, fire, enemies,
pirates, rovers, thieves, .jettisons, . . . barratry of the master and mariners, and of all other perils, losses,
and misfortunes that have or shall come to the hurt, detriment, or damage of the said goods and
merchandise or any part thereof." It was found out that the drain pipe which served as a discharge
from the water closet passed down through the compartment where the rice in question was stowed
and thence out to sea through the wall of the compartment, which was a part of the wall of the ship.
The joint or elbow where the pipe changed its direction was of cast iron; and in course of time it had
become corroded and abraded until a longitudinal opening had appeared in the pipe about one inch
in length. This hole had been in existence before the voyage was begun, and an attempt had been
made to repair it by filling with cement and bolting over it a strip of iron. The effect of loading the
boat was to submerge the vent, or orifice, of the pipe until it was about 18 inches or 2 feet below the
level of the sea. As a consequence the sea water rose in the pipe. Navigation under these conditions
resulted in the washing out of the cement-filling from the action of the sea water, thus permitting the
continued flow of the salt water into the compartment of rice. An action on a policy of marine
insurance issued by the Union Insurance Society of Canton, Ltd., upon the cargo of rice belonging to
the Go Tiaoco Brothers was filed. The trial court found that the inflow of the sea water during the
voyage was due to a defect in one of the drain pipes of the ship and concluded that the loss was not
covered by the policy of insurance. Judgment was accordingly entered in favor of Union Insurance
and Go Tiaoco Brothers appealed.

Issue 1: Whether perils of the sea includes “entrance of water into the ship’s hold through a defective
pipe.”

Held 1: NO. It is determined that the words "all other perils, losses, and misfortunes" are to be
interpreted as covering risks which are of like kind (ejusdem generis) with the particular risks which
are enumerated in the preceding part of the same clause of the contract. According to the ordinary
rules of construction these words must be interpreted with reference to the words which immediately
precede them. They were no doubt inserted in order to prevent disputes founded on nice distinctions.
Their office is to cover in terms whatever may be within the spirit of the cases previously enumerated,
and so they have a greater or less effect as a narrower or broader view is taken of those cases. For
example, if the expression "perils of the seas" is given its widest sense the general words have little or
no effect as applied to that case. If on the other hand that expression is to receive a limited
construction and loss by perils of the seas is to be confined to loss ex marine tempestatis discrimine,
the general words become most important. But still, when they first became the subject of judicial
construction, they have always been held or assumed to be restricted to cases "akin to" or "resembling"
or "of the same kind as" those specially mentioned. I see no reason for departing from this settled
rule. In marine insurance it is above all things necessary to abide by settled rules and to avoid anything
like novel refinements or a new departure. It must be considered to be settled, furthermore, that a loss
which, in the ordinary course of events, results from the natural and inevitable action of the sea, from
the ordinary wear and tear of the ship, or from the negligent failure of the ship's owner to provide the
vessel with proper equipment to convey the cargo under ordinary conditions, is not a peril of the sea.
Such a loss is rather due to what has been aptly called the "peril of the ship." The insurer undertakes
to insure against perils of the sea and similar perils, not against perils of the ship. There must, in order
to make the insurer liable, be "some casualty, something which could not be foreseen as one of the
necessary incidents of the adventure. The purpose of the policy is to secure an indemnity against
accidents which may happen, not against events which must happen." Herein, the entrance of the sea
water into the ship's hold through the defective pipe already described was not due to any accident
which happened during the voyage, but to the failure of the ship's owner properly to repair a defect
of the existence of which he was apprised. The loss was therefore more analogous to that which
directly results from simple unseaworthiness than to that which results from perils of the sea.

Issue 2: Whether there is an implied warranty on the seaworthy of the vessel in every marine insurance
contract.

Held 2: YES. It is universally accepted that in every contract of insurance upon anything which is the
subject of marine insurance, a warranty is implied that the ship shall be seaworthy at the time of the
inception of the voyage. This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). It
is also well settled that a ship which is seaworthy for the purpose of insurance upon the ship may yet
be unseaworthy for the purpose of insurance upon the cargo (Act No. 2427, sec. 106).

14. CATHAY INSURANCE CO., vs. HON. CA and REMINGTON INDUSTRIAL SALES
CORPORATION
G.R. No. 76145 June 30, 1987

FACTS:
This was a complaint filed by Remington Industrial Sales Corporation against Cathay Insurance
seeking collection of the sum of P868,339.15 representing Remington's losses and damages incurred
in a shipment of seamless steel pipes under an insurance contract in favor of the Remington as the
insured, consignee or importer of aforesaid merchandise while in transit from Japan to the Philippines
on board vessel SS "Eastern Mariner." The total value of the shipment was P2,894,463.83 at the
prevailing rate of P7.95 to a dollar in June and July 1984, when the shipment was made.

The trial court decided in favor of private respondent corporation by ordering petitioner to pay it the
sum of P866,339.15 as its recoverable insured loss equivalent to 30% of the value of the seamless steel
pipes; ordering petitioner to pay private respondent interest on the aforecited amount at the rate of
34% or double the ceiling prescribed by the Monetary Board per annum from February 3, 1982 or 90
days from private respondent's submission of proof of loss to petitioner until paid as provided in the
settlement of claim provision of the policy; and ordering petitioner to pay private respondent certain
amounts for marine surveyor's fee, attorney's fees and costs of the suit.

This petition seeks the review of the decision of the CA affirming the decision of the RTC and the
Resolution of the appellate court denying petitioner's motion for reconsideration.
Respondent’s contention:
1. Alleged contractual limitations contained in insurance policies are regarded with extreme caution
by courts and are to be strictly construed against the insurer; obscure phrases and exceptions should
not be allowed to defeat the very purpose for which the policy was procured.
2. Rust is not an inherent vice of the seamless steel pipes without interference of external factors.
3. The placing of notation "rusty" in the way bills is not only private respondent's right but a natural
and spontaneous reaction of whoever received the seamless steel pipes in a rusty condition at private
respondent's bodega.

Petitioner’s contention:
(1) Private respondent does not dispute the fact that, contrary to the finding of the respondent Court
(the petitioner has failed "to present any evidence of any viable exeption to the application of the
policy") there is in fact an express exeption to the application of the policy.
(2) The insistence of private respondent that rusting is a peril of the sea is erroneous.
(3) Private respondent inaccurately invokes the rule of strict construction against insurer under the
guise of construction in order to impart a non-existing ambiguity or doubt into the policy so as to
resolve it against the insurer.
(4) Rusting is not a risk insured against, since a risk to be insured against should be a casualty or some
casualty, something which could not be foreseen as one of the necessary incidents of adventure.

ISSUE:
Whether the rusting of steel pipes in the course of a voyage is a "peril of the sea," and whether rusting
is a risk insured against.

HELD:
YES. There is no question that the rusting of steel pipes in the course of a voyage is a "peril of the
sea" in view of the toll on the cargo of wind, water, and salt conditions. At any rate if the insurer
cannot be held accountable therefor, we would fail to observe a cardinal rule in the interpretation of
contracts, namely, that any ambiguity therein should be construed against the maker/issuer/drafter
thereof, namely, the insurer. Besides the precise purpose of insuring cargo during a voyage would be
rendered fruitless. Finally, it is a cardinal rule that save for certain exceptions, findings of facts of the
appellate tribunal are binding on the SC. Not one of said exceptions can apply to this case.

15. FILIPINO MERCHANTS INSURANCE CO., Inc. v. CA


GR No. 85141 Nov. 28, 1989 Second Division [Regalado]

TOPIC: Limitation to commence action/insurable interest in property

Facts:

This is a story about a consignee/buyer who bought fishmeal products from


Bangkok and had it delivered to the port of Manila. He entered into an insurance
contract with defendant insurance company (FilMerchant) under policy no. M-2678
for P267,653.59 and for goods described as 600 metric tons of fishmeal in new gunny
bags of 90 kilos each. What was actually imported was 59.940mtons in 666 gunny
bags. Upon arrival at Manila, arrastre and defendant’s surveyor found 227 bags in bad
order condition. Because of this loss, buyer formally claimed from FilMerchant but
the said insurance company refused to pay. He brought suit. Trial court ruled for him
and against FilMerchant, CA affirmed trial court hence this petition.

FilMerchant argues: (1) CA erred in the interpretation and application of the “all risk” clause of
maritime insurance policy. It says it should not be held liable for partial loss
notwithstanding the clear absence of proof of some fortuitous event, casualty,
or accidental cause to which the loss is attributable.

(2) Respondent had no insurable interest in the subject cargo. The shipment
reveals that it is a “C & F” contract of shipment. The seller, not the consignee,
paid for the shipment. As there was yet no delivery to the consignee,
ownership (and interest) does not yet pass to him.

Issues: W/N CA was correct in its interpretation of the “all risk” clause in the
maritime insurance contract.

W/N the insured had insurable interest over the property insured.

Ruling:

a) “All risks policy” has no technical meaning.

The clause in question reproduced:

“5. This insurance is against all risks of loss or damage to the subject-matter
insured but shall in no case be deemed to extend to cover loss, damage, or
expense proximately caused by delay or inherent vice or nature of the subject-
matter insured. Claims recoverable hereunder shall be payable irrespective of
percentage “

An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by
an accidental cause of any kind. The very nature of the term "all risks" must be given a broad and
comprehensive meaning as covering any loss other than a willful and fraudulent act of the insured. 7
This is pursuant to the very purpose of an "all risks" insurance to give protection to the insured in
those cases where difficulties of logical explanation or some mystery surround the loss or damage to
property.

Burden of proof shifts to the insurer.

Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but
under an "all risks" policy the burden is not on the insured to prove the precise cause of loss or damage
for which it seeks compensation. 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; thereafter, the burden then shifts to the insurer to
show the exception to the coverage.

b) Vendee/Consignee has insurable interest

SC: The shipment contract being that of cost and freight (C&F) is immaterial in the
determination of insurable interest. The perfected contract of sale vests in the vendee an equitable
title, an interest sufficient enough to be insurable. Further, Art. 1523 NCC provides that where,
in pursuance of a contract of sale, the seller is authorized or required to send the goods to the
buyer, delivery of the goods to a carrier, whether named by the buyer or not, for, the purpose of
transmission to the buyer is deemed to be a delivery of the goods to the buyer, the exceptions to
said rule not obtaining in the present case. The Court has heretofore ruled that the delivery of
the goods on board the carrying vessels partake of the nature of actual delivery since, from
that time, the foreign buyers assumed the risks of loss of the goods and paid the insurance
premium covering them.

WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court
of Appeals is AFFIRMED in toto.

16. ORIENTAL ASSURANCE CORPO VS CA

Doctrine: The terms of the contract constitute the measure of the insurer liability and compliance
therewith is a condition precedent to the insured’s right to recovery from the insurer. Whether a
contract is entire or severable is a question of intention to be determined by the language employed
by the parties.

Summary : Panama Sawmill Co bought apitong logs to be shipped from Palawan to Manila. These
logs were insured against loss with Oriental Assurance corporation. The logs were loaded on two
barges. On the way to Manila, one of the barges was damages were damaged causing loss of 497 out
of the 598 logs loaded on it. When Panama demanded payment for the loss, Oriental refused to pay
since not all the shipment were lost. Both RTC and CA ruled in favor of Panama saying that the
insurance contract should be liberally construed in order to avoid a denial of substantial justice and
that the logs loaded in the two barges should be treated separately. SC reversed the decision saying
that liability does not attach since the loss is not total loss as contemplated in the insurance code.

FACTS
-Jan. 1986 - Panama Sawmill bought 1, 208 peices of apitong logs
- It hired Transpacific towage inc, to transport the logs by sea to manila and insured it against loss for
1M with petitioner Oriental assurance corpo
- The logs were loaded on two barges , and those barges were towed by one tug boat but during the
voyage rough seas caused damage to the barge.
-Panama demanded payment for the loss but Oriental assurance refuse on the ground that its
contracted liability was for “TOTAL LOSS ONLY” as recommended by the Tan Gatue Adjusment
Company
-Unable to convince Oriental Assurance to pay its claim, Panama filed a complaint for damages before
the Caloocan RTC. The trial court ruled in favor of Panama asking Oriental Assurance to pay 415,
000 as insurance indemnity with interest at the rate of 12 % per annum computed from the date of
the filing of the complaint
-On appeal by both parties, CA affirmed RTC’s decision with modification on the rate of interest ,
which was reduce from 12 % to 6 % per annum.

ISSUES/ ARGUMENTS
1. WON oriental assurance can be held liable under its marine insurance policy based on the theory
of divisible contract of insurance and a constructive total loss. (NO)

a) (See Doctrine) - Based on the facts one can see that the intention is to have an indivisible
contract of insurance :
(i) Subject matter insured was the entire shipment of 2,000 cubic meters of apitong
logs-logs being loaded on two different barges did not make the contract several and divisible as to
the items insured.
(ii) logs on the two barges were not separately valued or separately insured - only one
premium was paid for the entire shipment, making for only one cause or consideration

b) Insurer’s liability is for total loss only. Total loss can either be actual or constructive.
(i) Under the actual total loss, it is caused by :
-total destruction of the thing insured
- the irretrievable loss of the thing by sinking , or by being broken up
- any damage to the thing which renders it valueless to the owner for the
purpose for which he held it , or
- any other event which effectively deprives the owner of the possession , at
the port of destination , of the thing insured
(ii) A constructive total loss is one which gives to a person insured a right to abandon
, under Sec. 139 of the Insurance code.

c) Contrary to CA’s findings ( treating the loss as a constructive total loss based on its computation
that the loss of 497 pieces form barge , mathematically speaking, is more than three fourths of
the 598 pieces of logs by treating the cargo in one barge as separate from the logs in the other) ,
the requirements for the application of Sec. 139 of the insurance code have not been met.
d) The logs, even though place in two barges, were not separately valued by the policy nor separately
insured. The logs having been insured as one inseperable unit, the correct basis for determining
the existence of constructive total loss os the totality of the shipment of logs. Of the entirety of
1, 208 pieces of logs, only 497 pieces thereof were lost of the entire shipment. Since the cost of
those 497 pieces does not exceed 75 % of the value of all 1,208 pieces of logs, the shipment
cannot be said to have sustained a constructive total loss under Sec. 139 (a) of the insurance Code.

19. Malayan Insurance Co., Inc vs Philippines First Insurance Co., Inc
G.R. No. 184300 July 11, 2012
Facts: Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services,
Inc. (Reputable) had been annually executing a contract of carriage, whereby the latter undertook to
transport and deliver the former’s products to its customers, dealers or salesmen. On November 18,
1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from respondent Philippines
First Insurance Co., Inc. (Philippines First) to secure its interest over its own products. Philippines
First thereby insured Wyeth’s nutritional, pharmaceutical and other products usual or incidental to the
insured’s business while the same were being transported or shipped in the Philippines. The policy
covers all risks of direct physical loss or damage from any external cause, if by land, and provides a
limit of P6,000,000.00 per any one land vehicle. On December 1, 1993, Wyeth executed its annual
contract of carriage with Reputable. It turned out, however, that the contract was not signed by
Wyeth’s representative/s. Nevertheless, it was admittedly signed by Reputable’s representatives, the
terms thereof faithfully observed by the parties and, as previously stated, the same contract of carriage
had been annually executed by the parties every year since 1989. Under the contract, Reputable
undertook to answer for “all risks with respect to the goods and shall be liable to the COMPANY
(Wyeth), for the loss, destruction, or damage of the goods/products due to any and all causes
whatsoever, including theft, robbery, flood, storm, earthquakes, lightning, and other force majeure
while the goods/products are in transit and until actual delivery to the customers, salesmen, and
dealers of the COMPANY”. The contract also required Reputable to secure an insurance policy on
Wyeth’s goods. Thus, on February 11, 1994, Reputable signed a Special Risk Insurance Policy (SR
Policy) with petitioner Malayan for the amount of P1,000,000.00. On October 6, 1994, during the
effectivity of the Marine Policy and SR Policy, Reputable received from Wyeth 1,000 boxes of Promil
infant formula worth P2,357,582.70 to be delivered by Reputable to Mercury Drug Corporation in
Libis, Quezon City. Unfortunately, on the same date, the truck carrying Wyeth’s products was hijacked
by about 10 armed men. They threatened to kill the truck driver and two of his helpers should they
refuse to turn over the truck and its contents to the said highway robbers. The hijacked truck was
recovered two weeks later without its cargo. Malayan questions its liability based on sections 5 and 12
of the SR Policy.
Issue: 1) Whether Reputable is a private carrier; 2) Whether Reputable is strictly bound by the
stipulations in its contract of carriage with Wyeth, such that it should be liable for any risk of loss or
damage, for any cause whatsoever, including that due to theft or robbery and other force majeure; 3)
Whether Reputable is solidarily liable with Malayan.
Held: 1.) Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms,
or associations engaged in the business of carrying or transporting passenger or goods, or both by
land, water or air for compensation, offering their services to the public. On the other hand, a private
carrier is one wherein the carriage is generally undertaken by special agreement and it does not hold
itself out to carry goods for the general public. A common carrier becomes a private carrier when
it undertakes to carry a special cargo or chartered to a special person only. For all intents and
purposes, therefore, Reputable operated as a private/special carrier with regard to its contract of
carriage with Wyeth.

2.) The extent of a private carrier's obligation is dictated by the stipulations of a


contract it entered into, provided its stipulations, clauses, terms and conditions are not contrary to
law, morals, good customs, public order, or public policy. "The Civil Code provisions on common
carriers should not be applied where the carrier is not acting as such but as a private carrier. Public
policy governing common carriers has no force where the public at large is not involved." 30
Thus, being a private carrier, the extent of Reputable's liability is fully governed by the stipulations of
the contract of carriage, one of which is that it shall be liable to Wyeth for the loss of the
goods/products due to any and all causes whatsoever, including theft, robbery and other force majeure
while the goods/products are in transit and until actual delivery to Wyeth's customers, salesmen and
dealers.

3.) No.There is solidary liability only when the obligation expressly so states, when the law so provides
or when the nature of the obligation so requires. In Heirs of George Y. Poe v. Malayan Insurance
Company, Inc., 42 the Court ruled that:

[W]here the insurance contract provides for indemnity against liability to third persons, the liability of
the insurer is direct and such third persons can directly sue the insurer. The direct liability of the
insurer under indemnity contracts against third party[-]liability does not mean, however, that the
insurer can be held solidarily liable with the insured and/or the other parties found at fault, since they
are being held liable under different obligations. The liability of the insured
carrier or vehicle owner is based on tort, in accordance with the provisions of the Civil Code; while
that of the insurer arises from contract, particularly, the insurance policy

Suffice it to say that Malayan's and Reputable's respective liabilities arose from different obligations
— Malayan's is based on the SR Policy while Reputable's is based on the contract of carriage.

20. FORTUNE INSURANCE AND SURETY CO., INC. , petitioner, vs. COURT OF
APPEALS and PRODUCERS BANK OF THE PHILIPPINES,
respondents.

Facts: Producers Bank’s money was stolen while it was being transported from Pasay to Makati. The
people guarding the money were charged with the theft. The bank filed a claim for the amount of Php
725,000, and such was refused by the insurance corporation due to the stipulation:

GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of

(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee,
partner, director, trustee or authorized representative of the Insured whether acting alone or in
conjunction with others. . . .
In the trial court, the bank claimed that the suspects were not any of the above mentioned. They won
the case. The appellate court affirmed on the basis that the bank had no power to hire or dismiss the
guard and could only ask for replacements from the security agency.

Issue: Whether the petitioner is liable under the Money, Security, and Payroll Robbery policy it issued
to the private respondent or whether recovery thereunder is precluded under the general exceptions
clause thereof

Held: It should be noted that the insurance policy entered into by the parties is a theft
or robbery insurance policy which is a form of casualty insurance. Section 174 of the Insurance Code
provides:

Sec. 174. Casualty insurance is insurance covering loss or liability


arising from accident or mishap, excluding certain types of loss which by law or custom are considered
as falling exclusively within the scope of insurance such as fire or marine. It includes, but is not limited
to, employer's liability insurance, public liability insurance, motor vehicle liability insurance, plate glass
insurance, burglary and theft insurance, personal accident and health insurance as written by non-life
insurance companies, and other substantially similar kinds of insurance.

Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no
other provisions applicable to casualty insurance or to robbery insurance in particular. These contracts
are, therefore, governed by the general provisions applicable to all types of insurance. Outside of these,
the rights and obligations of the parties must be determined by the terms of their contract, taking into
consideration its purpose and always in accordance with the general principles of insurance law.

It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud
the insurer — the moral hazard — is so great that insurers have found it necessary to fill up their
policies with countless restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured against." Persons frequently excluded under
such provisions are those in the insured's service and employment. The purpose of the exception is
to guard against liability should the theft be committed by one having unrestricted access to the
property." In such cases, the terms specifying the excluded classes are to be given their meaning as
understood in common speech. The terms "service" and "employment" are generally associated with
the idea of selection, control, and compensation.

Producers entrusted the three with the specific duty to safely transfer the money to its head office,
with Alampay to be responsible for its custody in transit; Magalong to drive the armored vehicle which
would carry the money; and Atiga to provide the needed security for the money, the vehicle, and his
two other companions. In short, for these particular tasks, the three acted as agents of Producers. A
"representative" is defined as one who represents or stands in the place of another; one who represents
others or another in a special capacity, as an agent, and is interchangeable with "agent." In view of the
foregoing, Fortune is exempt from liability under the general exceptions clause of the insurance policy.

21. Tiu vs. Arriesgado


G.R. No. 138060, September 1, 2004

Facts: D Rough Riders passenger bus driven by Virgilio Te Laspiñas was cruising along the national
highway of Sitio Aggies, Poblacion, Compostela, Cebu. The passenger bus was also bound for Cebu
City, and had come from Maya, Daanbantayan, Cebu. Among its passengers were the Spouses Pedro
A. Arriesgado and Felisa Pepito Arriesgado, who were seated at the right side of the bus, about three
(3) or four (4) places from the front seat.

As the bus was approaching the bridge, Laspiñas saw the stalled truck, which was then about 25 meters
away. He applied the breaks and tried to swerve to the left to avoid hitting the truck. But it was too
late; the bus rammed into the trucks left rear. The impact damaged the right side of the bus and left
several passengers injured. Pedro Arriesgado lost consciousness and suffered a fracture in his right
colles. His wife died shortly thereafter.

Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage, damages
and attorneys fees before the Regional Trial Court of Cebu City, Branch 20, against the petitioners, D
Rough Riders bus operator William Tiu and his driver, Virgilio Te Laspiñas on May 27, 1987. The
respondent alleged that the passenger bus in question was cruising at a fast and high speed along the
national road, and that petitioner Laspiñas did not take precautionary measures to avoid the accident.

The petitioners, for their part, filed a Third-Party Complaint against the following: respondent
Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tiu’s insurer.

Issue: WON the petitioner is negligent

Held: The rules which common carriers should observe as to the safety of their passengers are set
forth in the Civil Code, Articles 1733, 32 1755 33 and 1756. In this case, respondent Arriesgado and
his deceased wife contracted with petitioner Tiu, as owner and operator of D’ Rough Riders bus
service, for transportation from Maya, Daanbantayan, Cebu, to Cebu City for the price of P18.00. It
is undisputed that the respondent and his wife were not safely transported to the destination agreed
upon. In actions for breach of contract, only the existence of such contract, and the fact that
the obligor, in this case the common carrier, failed to transport his passenger safely to his
destination are the matters that need to be proved. This is because under the said contract of
carriage, the petitioners assumed the express obligation to transport the respondent and his
wife to their destination safely and to observe extraordinary diligence with due regard for all
circumstances. Any injury suffered by the passengers in the course thereof is immediately attributable
to the negligence of the carrier. Upon the happening of the accident, the presumption of
negligence at once arises, and it becomes the duty of a common carrier to prove that he
observed extraordinary diligence in the care of his passengers. It must be stressed that in
requiring the highest possible degree of diligence from common carriers and in creating a presumption
of negligence against them, the law compels them to curb the recklessness of their drivers. While
evidence may be submitted to overcome such presumption of negligence, it must be shown that the
carrier observed the required extraordinary diligence, which means that the carrier must show the
utmost diligence of very cautious persons as far as human care and foresight can provide, or that the
accident was caused by fortuitous event. As correctly found by the trial court, petitioner Tiu failed
to conclusively rebut such presumption. The negligence of petitioner Laspiñas as driver of the
passenger bus is, thus, binding against petitioner Tiu, as the owner of the passenger bus engaged as a
common carrier.

AS TO INSURER’S LIABILITY
As can be gleaned from the Certificate of Cover, such insurance contract was issued pursuant to the
Compulsory Motor Vehicle Liability Insurance Law. It was expressly provided therein that the limit
of the insurer’s liability for each person was P12,000, while the limit per accident was pegged at
P50,000. An insurer in an indemnity contract for third party liability is directly liable to the injured
party up to the extent specified in the agreement but it cannot be held solidarily liable beyond that
amount. The respondent PPSII could not then just deny petitioner Tiu’s claim; it should have paid
P12,000 for the death of Felisa Arriesgado, and respondent Arriesgado’s hospitalization expenses of
P1,113.80, which the trial court found to have been duly supported by receipts. The total amount of
the claims, even when added to that of the other injured passengers which the respondent PPSII
claimed to have settled, 60 would not exceed the P50,000 limit under the insurance agreement.

Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is such that it is primarily
intended to provide compensation for the death or bodily injuries suffered by innocent third parties
or passengers as a result of the negligent operation and use of motor vehicles. The victims and/or
their dependents are assured of immediate financial assistance, regardless of the financial capacity of
motor vehicle owners. As the Court, speaking through Associate Justice Leonardo A. Quisumbing,
explained in Government Service Insurance System v. Court of Appeals:

However, although the victim may proceed directly against the insurer for indemnity, the third party
liability is only up to the extent of the insurance policy and those required by law. While it is true that
where the insurance contract provides for indemnity against liability to third persons, and such persons
can directly sue the insurer, the direct liability of the insurer under indemnity contracts
against third party liability does not mean that the insurer can be held liable in solidum with the insured
and/or the other parties found at fault. For the liability of the insurer is based on contract; that of the
insured carrier or vehicle owner is
based on tort . . .

Obviously, the insurer could be held liable only up to the extent of what was provided for by the
contract of insurance, in accordance with the CMVLI law.
At the time of the incident, the schedule of indemnities for death and bodily injuries, professional fees
and other charges payable under a CMVLI coverage was provided for under the Insurance
Memorandum Circular (IMC) No. 5-78 which was approved on November 10, 1978. As therein
provided, the maximum indemnity for death was twelve thousand (P12,000.00) pesos per victim. The
schedules for medical expenses were also provided by said IMC, specifically in paragraphs (C) to (G).

22. Sun Insurance Office ltd., v CA G.R. No. 92383 July 17, 1992
Facts: The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value
of P200,000.00. Lim accidentally killed himself with his gun after removing the magazine, showing
off, pointing the gun at his secretary, and pointing the gun at his temple. The widow, the beneficiary,
sought payment on the policy but her claim was rejected. The petitioner agreed that there was no
suicide. It argued, however, that there was no accident either.

Isuue: WON there was an accident.

Held: The term "accident" has been defined as follows:

The words "accident" and "accidental" have never acquired any technical signification in law, and
when used in an insurance contract are to be construed and considered according to the ordinary
understanding and common usage and speech of people generally. In substance, the courts are
practically agreed that the words "accident" and "accidental" mean that which happens by change or
fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen. The
definition that has usually been adopted by the courts is that an accident is an event that takes place
without one's foresight or expectation — an event that proceeds from an unknown cause, or is an
unusual effect of a known case, and therefore not expected.
An accident is an event which happens without any human agency or, if happening through human
agency, an event which, under the circumstances, is unusual to and not expected by the person to
whom it happens. It has also been defined as an injury which happens by reason of some violence or
casualty to the insured without his design, consent, or voluntary co-operation.

In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was
indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, says that
"there is no accident when a deliberate act is performed unless some additional, unexpected,
independent and unforeseen happening occurs which produces or brings about their injury or death."
There was such a happening. This was the firing of the gun, which was the additional unexpected and
independent and unforeseen occurrence that led to the insured person's death.

The petitioner also cites one of the four exceptions provided for in the insurance contract
and contends that the private petitioner's claim is barred by such provision. It is there
stated:

Exceptions —
The company shall not be liable in respect of.
1. Bodily injury.
xxx xxx xx
b. consequent upon.
i) The insured persons attempting to commit suicide or wilfully exposing himself to needless peril
except in an attempt to save human life.

The petitioner maintains that by the mere act of pointing the gun to his temple, Lim had willfully
exposed himself to needless peril and so came under the exception. The theory is that a gun is per se
dangerous and should therefore be handled cautiously in every case. That posture is arguable. But
what is not is that, as the secretary testified, Lim had removed the magazine from the gun and believed
it was no longer dangerous.

Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent
his widow from recovering from the insurance policy he obtained precisely against accident. There is
nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon
if the insured is shown to have contributed to his own accident. Indeed, most accidents are caused by
negligence. There are only four exceptions expressly made in the contract to relieve the insurer from
liability, and none of these exceptions is applicable in the case at bar.

23. EMILIA T. BIAGTAN v. INSULAR LIFE ASSURANCE COMPANY, GR No. L-25579,


1972-03-29

Facts:

Juan S. Biagtan was insured with defendant Insular Life Assurance Company under Policy No. 398075
for the sum of P5,000.00 and, under a supplementary contract denominated "Accidental Death Benefit
Clause, for an additional sum of P5,000.00 if "the... death of the Insured resulted directly from bodily
injury effected solely through external and violent means sustained in an accident * * * and
independently of all other causes." The clause, however, expressly provided that it would not apply
where death resulted from an injury

"intentionally inflicted by a third party."

On the night of May 20, 1964 or during the first hours of the following day a band of robbers entered
the house of the insured Juan S. Biagtan.

that in committing the robbery, the robbers, on, reaching the staircase landing of the second floor,
rushed towards the doors of the second floor room, where they suddenly met a person near the door
of one of the... rooms who turned out to be the insured Juan S. Biagtan who received thrusts from
their sharp-pointed instruments, causing wounds on the body of said Juan S. Biagtan resulting in his
death at about 7 a.m. on the same day, May 21, 1964

Plaintiffs, as beneficiaries of the insured, filed a claim under the policy.

The insurance company paid the basic amount of P5,000.00 but refused to pay the additional sum of
P5,000.00 under the accidental death benefit clause, on the ground that the insured's death... resulted
from injuries intentionally inflicted by third parties and therefore was not covered.

Plaintiffs filed suit to recover, and after due hearing the court a quo rendered judgment in their favor.

Issues: Whether under the facts as stipulated and found by the trial court the wounds received by the
insured at the hands of the robbers nine in all, five of them mortal and four non-mortal were inflicted
intentionally.

Ruling: The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the trial court in
support of its decision. The facts in that case, however, are different from those obtaining here.

For while a single shot fired from a distance, and by a person who was not even seen... aiming at the
victim, could indeed have been fired without intent to kill or injure, nine wounds inflicted with bladed
weapons at close range cannot conceivably be considered as innocent insofar as such intent is
concerned. The manner of execution of the crime permits no... other conclusion.

Thus, it has been held that "intentional" as used in an accident policy excepting... intentional injuries
inflicted by the insured or any other person, etc., implies the exercise of the reasoning faculties,
consciousness, and volition.[1] Where a provision of the policy excludes intentional injury, it is the
intention of the person... inflicting the injury that is controlling.[2] If the injuries suffered by the
insured clearly resulted from the intentional act of a third person the insular is relieved from liability
as stipulated.

24. Perla v CA G.R. No. 96452 May 7, 1992

Facts: The Lim spouses opened a chattel mortgage and bought a Ford Laser from Supercars for Php
77,000 and insured it with Perla Compania de Seguros. The vehicle was stolen while Evelyn Lim was
driving it with an expired license. The spouses requested for a moratorium on payments but this was
denied by FCP, the assignee of rights over collection of the mortgage amount of the car. The spouses
also called on the insurance company to pay the balance of the mortgage due to theft but this was
denied by the company due to the spouses’ violation of the Authorized Driver clause stating (driving
with an expired license before being carnapped):
Any of the following: (a) The Insured (b) Any person driving on the Insured's order, or with his
permission. Provided that the person driving is permitted, in accordance with the licensing or other
laws or regulations, to drive the Scheduled Vehicle, or has been permitted and is not disqualified by
order of a Court of Law or by reason of any enactment or regulation in that behalf.
Since the spouses didn’t pay the mortgage, FCP filed suit against them. The trial court ruled in its
favor ordering spouses to pay. The appellate court reversed their decision. FCP and Perla appealed to
the SC.

Issues: 1.Was there grave abuse of discretion on the part of the appellate court in holding that private
respondents did not violate the insurance contract because the authorized driver clause is not
applicable to the "Theft" clause of said Contract?
2. Whether or not the loss of the collateral exempted the debtor from his admitted obligations under
the promissory note particularly the payment of interest, litigation expenses and attorney's fees.

Held: No, No. Petition dismissed.


1. The car was insured against a malicious act such as theft. Therefore the “Theft” clause in the
contract should apply and not the authorized driver clause. The risk against accident is different from
the risk against theft.
The appellate court stated: The "authorized driver clause" in a typical insurance policy is in
contemplation or anticipation of accident in the legal sense in which it should be understood, and not
in contemplation or anticipation of an event such as theft. The distinction — often seized upon by
insurance companies in resisting claims from their assureds — between death occurring as a result of
accident and death occurring as a result of intent may, by analogy, apply to the case at bar.
There was no connection between valid possession of a license and the loss of a vehicle. Ruling in a
different way would render the policy a sham because the company can then easily cite restrictions
not applicable to the claim.
2. The Supreme Court stated:
“The chattel mortgage constituted over the automobile is merely an accessory contract to the
promissory note. Being the principal contract, the promissory note is unaffected by whatever befalls
the subject matter of the accessory contract. Therefore, the unpaid balance on the promissory note
should be paid, and not just the installments due and payable before the automobile was carnapped,
as erronously held by the Court of Appeals.”
The court, however, construed the insurance, chattel mortgage, and promissory note as interrelated
contracts, hence eliminating the payment of interests, litigation expenses, and attorney’s fees stated in
the promissory note. The promissory note required securing a chattel mortage which in turn required
opening an insurance contract. The insurance was made as an accessory to the principal contract,
making sure that the value in the promissory note will be paid even if the car was lost. The insurance
company promised to pay FCP for loss or damage of the property.

25. First Quezon City v CA GR. 98414 Feb 8, 1993

Facts: One Jose del Rosario was injured while boarding a bus owned by DMTC in the Manila
International Airport. He was hospitalized for forty days. He filed suit against the bus company and
the court granted him of over 100,000 pesos in damages. The appellate court reduced damages to
55,090 pesos. The insurance company’s liability was limited to 12,000. The amount for insurance was
made Php 50,000 in the appellate court’s decision.
First Quezon City, the insurer of DTMC, filed a motion for reconsideration to limit the damages back
to 12,000 pesos, the amount stipulated in the contract. This was denied hence this petition for review.

Issue: Can the amount of the insurance company’s liability be limited to Php 12,000?

Held: Yes. The contract stipulated liability at Php 12,000 per passenger and at Php 50,000 as the
maximum liability per accident. This means that the insurer’s liability for a single accident will not
exceed 50,000 pesos. The court gave the example of 10 persons injured leaving a total of Php 120,000
in insurance liability payments. But with the Php 50,000 limit, only such value was to be paid by the
company to the insured.