Keihin-Everett Forwarding Co., Inc vs. Tokio Marine Malayan Insurance Co.

1. In 2005, Honda Trading ordered 80 bundles of Aluminum Alloy Ingots from PT Molten
2. It were loaded in two container vans and was received in Jakarta, Indonesia by Nippon Express
for shipment to Manila
3. The entire shipment was insured with Tokio Marine
4. Honda Trading also engaged the services of the petitioner to clear and withdraw the cargo from
the pier and to transport the same to its warehouse at the Laguna Technopark in Binan, Laguna
5. Meanwhile, petitioner had an accreditation agreement with Sunfreight Forwarders whereby the
latter undertook to render common carrier services for the former and to transport inland
goods within the PH
6. The shipment arrived in Manila on Nov 3, 2005 and was offloaded and temporarily stored at the
CY Area of the Manila International Port pending release by the customs authority
7. On Nov 8, the shipment was caused to be released from the pier by the petitioner and turned
over to Sunfreight for deliver to Honda Trading
8. En route to the latter’s warehouse, the truck carrying the containers was hijacked and only one
container reached the warehouse
9. As a consequence, Honda Trading suffered losses in the total amount of 2M representing 40
bundles of Aluminum Alloy Ingots
10. Tokio Marine after paying Honda Trading claim for the loss commenced a suit against petitioner,
maintaining that it had been subrogated to all the rights and causes of action pertaining to HT
11. Petitioner denied liability for the lost shipment on the ground that the loss occurred while the
same was in possession of Sunfreight. It filed a third-party complaint against Sunfreight, who, in
turn denied liability on the ground that it was not privy to the contract between the petitioner
and HT

RTC: Keihin and Sunfreight were jointly and severally liable to pay Tokio Marine. It found that the driver
of the Sunfreight as the cause of the evil caused and Sunfreight was liable under Art 2180 of the CC
(vicarious or imputed liability)

CA: modified RTC’s ruling insofar as the solidary liability. Because of lack of privity, Sunfreight cannot be
held jointly and severally liable and the petitioner has only right for reimbursement against Sunfreight

Issue: WON petitioner is liable to Tokio Marine

Ruling: Yes, notwithstanding that the cargoes were in the possession of Sunfreight when they were
hijacked, Keilhin is not absolved from its liability as a common carrier. It was Keilhin which was engaged
by HT to clear and withdraw cargoes and transport and deliver the same to its warehouse. As correctly
said by CA, there was no privity of contract between HT and Sunfreight. Hence, Keilhin as the common
carrier, remained responsible to HT for the lost cargoes

Keihin as a common carrier, is mandated to observe extraordinary diligence in the vigilance over the
goods it transports. In the event that the goods are lost, destroyed or deteriorated, it is presumed to
have been at fault or to have acted negligently, unless it proves that it observed extraordinary diligence.
Hence, at the time Keilhin turned over the custody of cargoes to Sunfreight, it is still required to observe
extraordinary diligence. Failure to successfully establish this carries with it the presumption of fault or
negligence, rendering Keilhin liable to HT for breach of contract
Hijacking of goods is not fortuitous event or a force majeure. Nevertheless, a common carrier may
absolve itself of liability if it is proven that the robbery or hijacking was attended by grave or irresistible
threat, violence or force. In this case, Keilhin failed to prove any of these

There was no solidary liability between Keilhin and Sunfreight. 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. Since there was no direct contractual relationship, there was no basis to hold Sunfreight liable
to HT for breach of contract

However, Keihin has the right to be reimbursed based on its Accreditation Agreement with Sunfreight.
By accrediting Sunfreight to render common carrier services to it, Keihin in effect entered into a contract
of carriage with fellow common carrier, Sunfreight. Since Sunfreight failed to prove extraordinary
diligence, it is liable to Keihin for breach of contract

The Insular Assurance Co. vs. The Heirs of Jose Alvarez

Facts:

1. Alvarez and his wife, Adelina, owned a residential lot in Caloocan City
2. Alvarez applied and granted a housing loan by Unionbank in the amount of 648,000 Php
3. The loan was secured by a promissory note, a real estate mortgage over the lot, and a mortgage
redemption insurance taken on the life of Alvarez with Unionbank as beneficiary
4. Alvarez was included in the list of the qualified debtors covered by Group Mortgage Redemption
Insurance that UB had with Insular Life
5. When Alvarez passed away, UB filed with IL a death claim under Alvarez’ name pursuant to the
GMRI
6. IL denied the claim after determining that Alvarez was not eligible for coverage as he was
supposedly more than 60 years old at the time of his loan’s approval
7. As a result, UB sent a demand letter to the heirs of Alvarez ordering them to vacate the lot
within 10 days. Subsequently, the lot was foreclosed and sold at public auction
8. Heirs of Alvarez filed a complaint for declaration of nullity of contract and damages against UB.
They denied knowledge of any loan obtained by Alvarez
9. In its defense, UB asserted that the heirs cannot feign ignorance over the existence of the loan
and mortgage considering the SPA executed by Adelina in favor of her late husband, which
authorized him to apply for a housing loan with UB

RTC: ruled in favor of the Heirs. It found no indication that Alvarez had any fraudulent intent when he
gave UB about his age and date of birth. It noted that if UB’s personnel were mindful of their duties and
if Alvarez appeared to be disqualified for the insurance, they should have immediately informed him of
his disqualification

CA: affirmed RTC’s decision. Fraud is never presumed and fraudulent misrepresentation as a defense of
the insurer to avoid liability must be established by convincing evidence. Insular Life failed to establish
this defense
In response to CA’s reasoning that intent to defraud must be established, IL pinpoints concealment
rather than fraudulent misrepresentation, as the key to the validity of its rescission. It claims that
Alvarez’ concealment of age, whether intentional or unintentional entitles it to rescind the insurance
contract.

Issue: Whether or not there’s concealment

Ruling:

Fraud is not to be presumed, it must be established by clear and convincing evidence.

Insular Life uses Sec 27 of the Insurance Code as a defense which provides that a concealment whether
intentional or unintentional entitles the injured party to rescind the contract of insurance.

While it is true that proof of fraudulent intent is unnecessary for the rescission of the insurance contract
on account of concealment, Insular Life erroneously pleads Section 27

The Insurance Code distinguishes representations from concealments

Section 26 defines concealment as a neglect to communicate that which a party knows and ought to
communicate. However, Alvarez did not withhold information on or neglect to state his age. He made an
actual declaration and assertion about it

What this case involves instead is an allegedly false representation. Section 44 states that a
representation is to be deemed false when the facts fail to correspond with its assertions or stipulations.
If indeed Alvarez misdeclared his age, he made a false representation, not a concealment.

Concealment applies only to material facts. That is, those facts which by their nature would clearly,
unequivocally, and logically be known by the insured as necessary for the insurer to calculate the proper
risks.

On the other hand, when the insured makes a representation, it is incumbent on them to assure
themselves that a representation on a material fact is not false; and if it is false, that is not a fraudulent
misrepresentation of a material fact

Consistent with the requirement of clear and convincing evidence, it was Insular Life’s burden to
establish the merits of its own case. A single piece of evidence (Health Statement Form) hardly qualifies
as clear and convincing

INDUSTRIAL PERSONNEL AND MANAGEMENT SERVICES, INC., PETITIONER, V. COUNTRY BANKERS

INSURANCE CORPORATION, RESPONDENT.

Facts:

1. In 2000, Industrial Personnel and Management Services, Inc. (IPAMS) began recruiting
registered nurses for work deployment in the United States of America (U.S.)
2. As the immigration process requires huge amounts of money, such amounts are advanced [to]
the nurse applicants. By reason of such advances, the nurses were required to post surety bond
 3. The Country Bankers Insurance Corporation (Country Bankers for brevity) and IPAMS agreed to
provide bonds for the said nurses. [Under the agreement of IPAMS and Country Bankers, the
latter will provide surety bonds and the premiums therefor were paid by IPAMS on behalf of the
nurse applicants.
4. [The surety bonds issued specifically state that the liability of the surety company, i.e.,
respondent Country Bankers, "shall be limited only to actual damages arising from Breach of
Contract by the applicant."
B. REQUIREMENTS FOR CLAIM

Requirements are as follows:

SURETY BOND:

F. 1st demand letter requiring his/her to submit complete documents.

G. 2nd Demand letter (follow up of above).
H. Affidavit stating reason of any violation to be executed by responsible office of Recruitment
Agency;
I. Statement of Account (detailed expenses).
J. Transmittal Claim Letter.[35] (Emphasis and underscoring in the original)

5. In 2004, Country Bankers was not able to pay six (6) claims of IPAMS. The claims were not
denied by Country Bankers, which instead asked for time within which to pay the claims, as it
alleged to be cash- strapped at that time
6. Country Bakers, through its letters, acknowledged the obligations and proposed to settle the
claims within a 90 day period
7. However, the counsel of Country Bankers, Atty. Marisol Caleja, started to oppose the payment
of claims and insisted on the production of official receipts of IPAMS on the expenses it incurred
for the application of nurses
8. The Insurance Commission find the insurance company liable to settle the subject claim
9. Country Bankers made an appeal before the [DOF] which was dismissed for lack of merit

CA: reversed; The CA held that respondent Country Bankers was justified in delaying the payment of the
claims to petitioner IPAMS because of the purported lack of submission by petitioner IPAMS of official
receipts and other "competent proof on the expenses incurred by petitioner IPAMS in its recruitment of
nurse applicants.

The CA held that Section 241 (now Section 247) of the Insurance Code, which defines an unfair claim
settlement practice, and Section 247 (now Section 254), which provides for the suspension or revocation
of the insurer's authority to conduct business, should not be made to apply to respondent Country
Bankers because of the failure of petitioner IPAMS to provide competent proof of its claims.

Issue: WON CA erred in finding that Country Bankers has a right to refuse the payment of petitioner
IPAMS

Ruling: No
Article 2199 of the Civil Code should be applied regarding the MOA between petitioner IPAMS and
respondent Country Bankers.

Autonomy of contracts - the contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy

Petitioner IPAMS and respondent Country Bankers in essence made a stipulation to the effect that mere
demand letters, affidavits, and statements of accounts are enough proof of actual damages — that more
direct and concrete proofs of expenditures by the petitioner such as official receipts have been
dispensed with in order to prove actual losses.

Issue 2: Can the parties stipulate on the requirements that must be presented in order to claim against a
surety bond?

YES, pursuant to the autonomy characteristic of contracts, they can. In an insurance contract, founded
on the autonomy of contracts, the parties are generally not prevented from imposing the terms and
conditions that determine the contract's obligatory force

Article 2199 of the Civil Code explicitly provides that the prerequisite of proof for the recovery of actual
damages is not absolute. the requirement of providing actual proof found under Article 2199 for the
recovery of actual and compensatory damages (in that case, funeral expenses) may. be dispensed with,
considering that there was a stipulation to that effect made by the parties.

In the instant case, it is not disputed by any party that in the MOA entered into by the petitioner IPAMS
and respondent Country Bankers, the parties expressly agreed upon a list of requirements to be fulfilled
by the petitioner in order to claim from respondent Country Bankers under the surety bond.

Evidently, the parties did not include as preconditions for the payment of claims the submission of
official receipts or any other more direct or concrete piece of evidence to substantiate the expenditures
of petitioner IPAMS.

Issue 3

a contract of suretyship shall be deemed an insurance contract within the contemplation of the
Insurance Code if made by a surety which is doing an insurance business

In this case, the surety, i.e., respondent Country Bankers, is admittedly an insurance company engaged
in the business of insurance.

The Insurance Code specifically provides applicable provisions on suretyship, stating that pertinent
provisions of the Civil Code shall only apply suppletorily whenever necessary in interpreting the
provisions of a contract of suretyship.
Section 92 of the IC states that all defects in the proof of loss, which the insured might remedy, are
waived as grounds for objection when the insurer omits to specify to him without unnecessary delay. It
is the duty of the insurer to indicate the defects on the proofs of loss given, so that the deficiencies may
be supplied by the insured. When the insurer recognizes his liability to pay the claim, there is waiver by
the insurer of any defect in the proof of loss.

In the instant case, it must be emphasized that respondent Country Bankers, through its General
Manager, Mr. Ong, issued a letter dated November 14, 2005 which readily acknowledged the obligations
of Country Bankers under the surety agreement, apologized for the delay in the payment of claims, and
proposed to amortize the settlement of claims by paying a semi-monthly amount of P850,000.00. In
addition, Country Bankers promised to pay future claims within a 90-day period:

while the Court herein reinstates the IC's Resolution finding that disciplinary action is warranted in the
eventuality that respondent Country Bankers continues to delay settling the claims of petitioner IPAMS,
the matter should be referred back to the IC so that it could determine the remaining amount and
extent of the liability that should be settled by respondent Country Bankers in order to avoid the IC's
disciplinary action.

FGU INSURANCE CORPORATION, PETITIONER, V. SPOUSES FLORO ROXAS AND EUFEMIA ROXAS,
RESPONDENTS.

Doctrine: The liability of a surety is determined strictly in accordance with the actual terms of the
performance bond it issued. It may, however, set up compensation against the amount owed by the
creditor to the principal.

The Spouses Roxas entered into a Contract of Building Construction with Rosendo P. Dominguez, Jr.
(Dominguez) and Philtrust Bank to complete the construction of their housing project known as "Vista
Del Mar Executive Houses

From the terms of the Contract, Philtrust Bank would finance the cost of materials and supplies to the
extent of P 900,000.00, while Dominguez would undertake the construction works for P300,000.00

It was also stipulated that Philtrust Bank may only release the funds for materials upon Dominguez's
request and with the Spouses Roxas' conformity. Invoices covering materials previously purchased
should also be submitted to Philtrust Bank before any subsequent releases of funds were mad

The P300,000.00 cost of labor would be shouldered by the Spouses Roxas, but the Contract stated that:

[W]hether or not the [Spouses Roxas] could provide/supply the funds to finance the labor costs as
aforesaid, the Contractor binds himself to finish and complete the construction of the project within the
stipulated period of One Hundred Fifty (150) working days [from April 25, 1979]

on May 24, 1979, pursuant to the Contract of Building Construction, Dominguez secured a performance
bond, (Surety Bond), with face amount of P450,000.00, from FGU. FGU and Dominguez bound
themselves to jointly and severally pay Floro Roxas (Floro) and Philtrust Bank the agreed amount in the
event of Dominguez's non-performance of his obligation under the Contract
Dominguez averred that on September 20, 1979, he requested an upward adjustment of the contract
price from the Spouses Roxas due to the rising costs of materials and supplies. But the Spouses Roxas
did not heed his request

He added that the Spouses Roxas also failed to make the three (3) payments of P30,000.00 each as
agreed upon. Thus, on October 22, 1979, he formally demanded that they pay the amounts due plus the
stipulated interest of 14% per annum with a warning that he would stop further work and withdraw his
workers unless payment was received on or before October 31, 1979.

Dominguez also asked Philtrust Bank to release the remaining balance of P24,000.00 but to no avail.

On March 28, 1980, Dominguez filed a Complaint against the Spouses Roxas and Philtrust Bank before
Branch 40, Court of First Instance of Manila.

RTC: ruled in favor of Dominguez

CA: reversed

Issue:

Ruling:

Under Section 175 of Presidential Decree No. 612 or the Insurance Code, a contract of suretyship is
defined as an agreement where "a party called the surety guarantees the performance by another party
called the principal or obligor of an obligation or undertaking in favor of a third party called the obligee.

A surety's liability is joint and several with the principal. "Article 2047 of the Civil Code provides that
suretyship arises upon the solidary binding of a person deemed the surety with the principal debtor for
the purpose of fulfilling an obligation."

Although the surety's obligation is merely secondary or collateral to the obligation contracted by the
principal, this Court has nevertheless characterized the surety's liability to the creditor of the principal as
"direct, primary, and absolute[;] [i]n other words, the surety is directly and equally bound with the
principal

Moreover, Article 1216 in relation to Article 2047[68] of the Civil Code provides:

The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not been fully collected.

Pursuant to the foregoing provisions, FGU, as surety, may be sued by the creditor separately or together
with Dominguez as principal, in view of the solidary nature of its liability

Liability under a surety bond is "limited to the amount of the bond" and is determined strictly in
accordance with the particular terms and conditions set out in this bond. It is, thus, necessary to look
into the actual terms of the peformance bond.
The FGU Surety Bond is conditioned upon the full and faithful performance by Dominguez of his
obligations under the Contract of Building Construction. Under the terms of this bond, FGU guaranteed
to pay the amount of P450,000.00 should Dominguez be unable to faithfully comply with the contract
for the completion of the Spouses Roxas' housing project. FGU's obligation to pay is solidary with
Dominguez and is realized once the latter fails to perform his obligation under the Contract of Building
Construction.

FGU's contention that the P450,000.00 face amount simply indicates its maximum potential liability and
that it should only be liable for actual damages or the cost overrun as a result, of the non-completion of
the project is untenable. The terms of the bond were clear; hence, the literal meaning of its stipulation
should control

The specific condition in the FGU Surety Bond did not clearly state the limitation of FGU's liability. From
the terms of this bond, FGU guaranteed to pay the amount of P450,000.00 in the event of Dominguez's
breach of his contractual undertaking. Hence, FGU was bound to pay the stipulated indemnity upon
proof of Dominguez's default without the necessity of proof on the measure of damages caused by the
breach. A stipulation not contrary to law, morals, or public order is binding upon the obligor

If FGU's intention was to limit its liability to the cost overrun or additional cost to the Spouses Roxas to
complete the project up to the extent of P450,000.00, then it should have included in the Surety Bond
specific words indicating this intention. Its failure to do so must be construed against it.

A suretyship agreement is a contract of adhesion ordinarily prepared by the surety or insurance

company. Therefore, its provisions are interpreted liberally in favor of the insured and strictly against
the Insurer who, as the drafter of the bond, had the opportunity to state plainly the terms of its
obligation

FGU, on the other hand, has the right to be indemnified for any payments made, both under the law and
the indemnity agreement

[E]ven as the surety is solidarity bound with the principal debtor to the creditor, the surety who does
pay the creditor has the right to recover the full amount paid, and not just any proportional share, from
the principal debtor or debtors. Such right to full reimbursement falls within the other rights, actions
and benefits which pertain to the surety by reason of the subsidiary obligation assumed by the surety.

What is the source of this right to full reimbursement by the surety? We find the right under Article
2066 of the Civil Code, which assures that "[t]he guarantor who pays for a debtor must be indemnified
by the latter," such indemnity comprising of, among others, "the total amount of the debt." Further,
Article 2067 of the Civil Code likewise establishes that "[t]he guarantor who pays is subrogated by virtue
thereof to all the rights which the creditor had against the debtor."

Jamie Gaisano vs. Development Insurance and Surety Corporation

1. Petitioner was the registered owner of a 1992 Mitsubishi Montero with plate number GTJ-777
(vehicle), while respondent is a domestic corporation engaged in the insurance business
2. On September 27, 1996, respondent issued a comprehensive commercial vehicle policy7 to
petitioner in the amount of ₱1,500,000.00 over the vehicle for a period of one year commencing
 on September 27, 1996 up to September 27, 1997.8 Respondent also issued two other
commercial vehicle policies to petitioner covering two other motor vehicles for the same
period.9
3. To collect the premiums and other charges on the policies, respondent's agent, Trans-Pacific
Underwriters Agency (Trans-Pacific), issued a statement of account to petitioner's company,
Noah's Ark Merchandising (Noah's Ark).
4. Noah's Ark immediately processed the payments and issued a Far East Bank check. the check
bearing the amount of ₱140,893.50 represents payment for the three insurance policies, with
₱55,620.60 for the premium and other charges over the vehicle. However, nobody from Trans-
Pacific picked up the check that day (September 27)
5. In the evening of September 27, 1996, while under the official custody of Noah's Ark marketing
manager Achilles Pacquing (Pacquing) as a service company vehicle, the vehicle was stolen in
the vicinity of SM Megamall at Ortigas, Mandaluyong City.
6. Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28. It issued
an official receipt
7. On October 1, 1996, Pacquing informed petitioner of the vehicle's loss. Thereafter, petitioner
reported the loss and filed a claim with respondent for the insurance proceeds of
₱1,500,000.00.
8. After investigation, respondent denied petitioner's claim on the ground that there was no
insurance contract. Petitioner, through counsel, sent a final demand on July 7, 1997.
Respondent, however, refused to pay the insurance proceeds or return the premium paid on
the vehicle.
9. petitioner filed a complaint for collection of sum of money and damages

RTC: ruled in favor of the petitioner

CA: granted respondent’s appeal

Issue: whether there is a binding insurance contract between petitioner and respondent.

Ruling:

Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.

Just like any other contract, it requires a cause or consideration. The consideration is the premium,
which must be paid at the time and in the way and manner specified in the policy.46 If not so paid, the
policy will lapse and be forfeited by its own terms.

The law, however, limits the parties' autonomy as to when payment of premium may be made for the
contract to take effect. The general rule in insurance laws is that unless the premium is paid, the
insurance policy is not valid and binding.48 Section 77 of the Insurance Code, applicable at the time of
the issuance of the policy, provides:

Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium thereof has
been paid, except in the case of a life or an industrial life policy whenever the grace period provision
applies.

In Tibay v. Court of Appeals, we emphasized the importance of this rule. We explained that in an
insurance contract, both the insured and insurer undertake risks. On one hand, there is the insured, a
member of a group exposed to a particular peril, who contributes premiums under the risk of receiving
nothing in return in case the contingency does not happen; on the other, there is the insurer, who
undertakes to pay the entire sum agreed upon in case the contingency happens. This risk-distributing
mechanism operates under a system where, by prompt payment of the premiums, the insurer is able to
meet its legal obligation to maintain a legal reserve fund needed to meet its contingent obligations to
the public. The premium, therefore, is the elixir vitae or source of life of the insurance business:

Here, there is no dispute that the check was delivered to and was accepted by respondent's agent,
Trans-Pacific, only on September 28, 1996. No payment of premium had thus been made at the time of
the loss of the vehicle on September 27, 1996. While petitioner claims that Trans-Pacific was informed
that the check was ready for pick-up on September 27, 1996, the notice of the availability of the check,
by itself, does not produce the effect of payment of the premium. Trans-Pacific could not be considered
in delay in accepting the check because when it informed petitioner that it will only be able to pick-up
the check the next day, petitioner did not protest to this, but instead allowed Trans-Pacific to do so.
Thus, at the time of loss, there was no payment of premium yet to make the insurance policy effective.

There are, of course, exceptions to the rule that no insurance contract takes effect unless premium is
paid. In UCPB General Insurance Co., Inc. v. Masagana Telamart, Inc.,51 we said:

In UCPB General Insurance Co., Inc., we summarized the exceptions as follows: (1) in case of life or
industrial life policy, whenever the grace period provision applies, as expressly provided by Section 77
itself; (2) where the insurer acknowledged in the policy or contract of insurance itself the receipt of
premium, even if premium has not been actually paid, as expressly provided by Section 78 itself; (3)
where the parties agreed that premium payment shall be in installments and partial payment has been
made at the time of loss, as held in Makati Tuscany Condominium Corp. v. Court of Appeals;53(4) where
the insurer granted the insured a credit term for the payment of the premium, and loss occurs before
the expiration of the term, as held in Makati Tuscany Condominium Corp.; and (5) where the insurer is in
estoppel as when it has consistently granted a 60 to 90-day credit term for the payment of premiums.

Petitioner argues that his case falls under the fourth and fifth exceptions because the parties intended
the contract of insurance to be immediately effective upon issuance, despite non-payment of the
premium. This waiver to a pre-payment in full of the premium places respondent in estoppel.

We do not agree with petitioner.

The fourth and fifth exceptions to Section 77 operate under the facts obtaining in Makati Tuscany
Condominium Corp. and UCPB General Insurance Co., Inc. Both contemplate situations where the
insurers have consistently granted the insured a credit extension or term for the payment of the
premium. Here, however, petitioner failed to establish the fact of a grant by respondent of a credit term
in his favor, or that the grant has been consistent. While there was mention of a credit agreement
between Trans-Pacific and respondent, such arrangement was not proven and was internal between
agent and principal.55 Under the principle of relativity of contracts, contracts bind the parties who
entered into it. It cannot favor or prejudice a third person, even if he is aware of the contract and has
acted with knowledge

The policy states that the insured's application for the insurance is subject to the payment of the
premium.1âwphi1 There is no waiver of pre-payment, in full or in installment, of the premiums under
the policy. Consequently, respondent cannot be placed in estoppel.

Thus, we find that petitioner is not entitled to the insurance proceeds because no insurance policy
became effective for lack of premium payment.

The consequence of this declaration is that petitioner is entitled to a return of the premium paid for the
vehicle in the amount of ₱55,620.60 under the principle of unjust enrichment.

Sun Life of Canada vs. Sandra Tan Kit

Facts:

Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit (Norberto), whose
application for a life insurance policy,4 with face value of ₱300,000.00, was granted by petitioner on
October 28, 1999.

On February 19, 2001, or within the two-year contestability period,5 Norberto died of disseminated
gastric carcinoma.6 Consequently, respondent Tan Kit filed a claim under the subject policy.

In a Letter7 dated September 3, 2001, petitioner denied respondent Tan Kit’s claim on account of
Norberto’s failure to fully and faithfully disclose in his insurance application certain material and
relevant information about his health and smoking history. Specifically, Norberto answered "No" to the
question inquiring whether he had smoked cigarettes or cigars within the last 12 months prior to filling
out said application

However, the medical report of Dr. Anna Chua (Dr. Chua), one of the several physicians that Norberto
consulted for his illness, reveals that he was a smoker and had only stopped smoking in August 1999.
According to petitioner, its underwriters would not have approved Norberto’s application for life
insurance had they been given the correct information.

On October 4, 2002, petitioner filed a Complaint10 for Rescission of Insurance Contract before the
Regional Trial Court (RTC) of Makati City.

RTC: In favor of the respondents

CA: reversed

Issue: whether petitioner is liable to pay interest on the premium to be refunded to respondents.

Ruling:
Petitioner avers that Tio Khe Chio, albeit pertaining to marine insurance, is instructive on the issue of
payment of interest. The Court finds, however, that Tio Khe Chio is not applicable here as it deals with
payment of interest on the insurance proceeds in which the claim therefor was either unreasonably
denied or withheld or the insurer incurred delay in the payment thereof. In this case, what is involved is
an order for petitioner to refund to respondents the insurance premium paid by Norberto as a
consequence of the rescission of the insurance contract on account of the latter’s concealment of
material information in his insurance application. Moreover, petitioner did not unreasonably deny or
withhold the insurance proceeds as it was satisfactorily established that Norberto was guilty of
concealment.

There are two kinds of interest – monetary and compensatory.

"Monetary interest refers to the compensation set by the parties for the use or forbearance of
money."25 No such interest shall be due unless it has been expressly stipulated in writing.26 "On the
other hand, compensatory interest refers to the penalty or indemnity for damages imposed by law or by
the courts."27 The interest mentioned in Articles 2209 and 221228of the Civil Code applies to
compensatory interest.2

Clearly and contrary to respondents’ assertion, the interest imposed by the CA is not monetary interest
because aside from the fact that there is no use or forbearance of money involved in this case, the
subject interest was not one which was agreed upon by the parties in writing. This being the case and
judging from the tenor of the CA, to wit:

The CA incorrectly imposed compensatory interest on the premium refund reckoned from the time of
death of the insured until fully paid

As a form of damages, compensatory interest is due only if the obligor is proven to have failed to comply
with his obligation

In this case, it is undisputed that simultaneous to its giving of notice to respondents that it was
rescinding the policy due to concealment, petitioner tendered the refund of premium by attaching to
the said notice a check representing the amount of refund. However, respondents refused to accept the
same since they were seeking for the release of the proceeds of the policy. Because of this discord,
petitioner filed for judicial rescission of the contract. Petitioner, after receiving an adverse judgment
from the RTC, appealed to the CA. And as may be recalled, the appellate court found Norberto guilty of
concealment and thus upheld the rescission of the insurance contract and consequently decreed the
obligation of petitioner to return to respondents the premium paid by Norberto. Moreover, we find that
petitioner did not incur delay or unjustifiably deny the claim.

Based on the foregoing, we find that petitioner properly complied with its obligation under the law and
contract. Hence, it should not be made liable to pay compensatory interest.

Malayan Insurance Co. vs. Emma Concepcion Lin

Facts:
 Respondent, Emma Lin is a client of both RCBC and Malayan Insurance Co., Inc. Acquired
through various loans from RCBC, she had insured five of the properties which were six clustered
warehouses located at Plaridel, Bulacan to Malayan Insurance Co. The insurance was purposed
specifically against occurrence of fire for P 56 million and P2 million for the remaining warehouse.

On February 24, 2008 five warehouses were gutted by fire and 2 months after on April 8,
2008, the Bureau of Fire Protection (BFP) issued a Fire Clearance Certification to respondent after
having determined that the cause of fire was accidental.

Despite the foregoing, her demand for payment of her insurance claim was denied since
the forensic investigators hired by Malayan claimed that the cause was arson instead of accident.
Respondent then sought assistance from the Insurance Commission (IC) which, after a
reinvestigation into the cause of fire, recommended that Malayan should pay Lin’s insurance claim
to accord with BFP’s findings. Nevertheless, Malayan still refused to do so. As against RCBC,
Lin averred that notwithstanding of the loss of mortgaged properties, the bank refused to go after
Malayan and instead insisted that she herself must pay the loans to the RCBC. The latter also added
that foreclosure proceedings would ensue if the former would not comply; to add insult to injury,
RCBC has been compounding the interest on her loans, despite the former’s refusal to after
Malayan.

Following the aforementioned, respondent then filed a petition to order the petitioners to
pay her insurance claim plus interest on the amounts owing her; that the loans and mortgage to
RCBC be enjoined from foreclosing the mortgage on the properties put up as collaterals.

Later on June 17, 2010, while the case was being filed, Lin filed an administrative case
before the Insurance Commission (IC) against the Malayan represented by Yvonne, thus docketed
as Administrative Case No. 431. The purpose is to put Malayan under liability for unfair claim
settlement practice under Section 241 in relation to Section 247 of the Insurance Code. Thus,
alleging that Malayan’s license to operate as a non-life insurance company should be revoked or
suspended until it fully complies with the IC Resolution.

On August 17, 2010, Malayan filed a motion to dismiss Civil Case No. 10-122738 based
on forum shopping arguing that the administrative case’s purpose is to prompt IC into ordering the
former to pay her claim and that the elements of forum shopping are present; specifically the
identity of parties shared the same interests and were represented in both civil and administrative
cases.

Motion to dismiss the Civil Case was denied by the RTC for lack of merit. Petitioners
then sued out a petition for Certiorari and Prohibition before the CA, whereas it upheld the decision
of the RTC. Petitioner moved for a motion for reconsideration which was also denied by CA.
Hence, this petition.
ISSUE:
Whether or not the CA erred in not dismissing the Civil Case on the ground of willful and
deliberate {forum shopping} despite the fact that the civil case and the administrative case both
seek the payment of the same fire insurance claim.
HELD:

No. The SC held that the case at bar is to be governed by the case law rulings in the Go
and Almendras cases where it was stressed that an administrative case for unfair claim settlement
practice may proceed simultaneously with the civil case for collection of the insurance proceeds
filed by at the same claimant since a judgment in one will not amount to res judicata to the other,
and vice versa, due to the variance or differences in the issues, in the quantum of evidence, and in
the procedure to be followed in prosecuting the cases.

In the present case, petitioners basically insist that Lin committed willful and deliberate
forum shopping which warrants the dismissal of her civil case because it is not much different
from the administrative case in terms of the parties involved, the causes of action pleaded, and the
reliefs prayed for. Petitioners also posit that another ground warranting the dismissal of the civil
case was Lin’s failure to notify the RTC about the pendency of the administrative case within five
days from the filing thereof.

These above-mentioned arguments will not avail. The proscription against forum
shopping is found in Section 5, Rule 7 of the Rules of Court which cover the very essence of forum
shopping itself. It is the filing of multiple suits involving the same parties for the same cause of
action, either simultaneously, for the purpose of obtaining a favorable judgment. It exists where
the elements of litis pendentia are present or where a final judgment in one case will amount to res
judicata in another. The settled rule is that criminal and civil cases are altogether different from
administrative matters as postulated in Almendras Mining Corporation v. Office of the Insurance
Commission.

The Office of the Ombudsman further reiterated and enunciated in the decision that a
civil case before the trial court involving recovery of payment of the insured’s insurance claim
plus damages, can proceed simultaneously with an administrative case before the I.C. As the afore
cited cases are analogous in many aspects to the present case, both in respect to their factual
backdrop and in their jurisprudential teachings, the case law ruling in the Almendras and in the Go
cases must apply with implacable force to the present case. Consistency alone demands----because
of justice cannot be inconsistent, that the final authoritative mandate in the cited cases must
produce and end result not much different from the present case.

Case 1
Heirs of Maramag v. Maramag
G.R. No. 181132 , June 5, 2009
FACTS:
The case stems from a petition filed against respondents with the RTC for revocation and/or reduction
of insurance proceeds for being void and/or inofficious. The petition alleged that: (1) petitioners were
the legitimate wife and children of Loreto Maramag (Loreto), while respondents were Loreto’s
illegitimate family; (2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the
killing of the latter, thus, she is disqualified to receive any proceeds from his insurance policies
from Insular Life Assurance Company, Ltd. (Insular) and Great Pacific Life Assurance Corporation
(Grepalife) (3) the illegitimate children of Loreto—Odessa, Karl Brian, and Trisha Angelie—were entitled
only to one-half of the legitime of the legitimate children, thus, the proceeds released to Odessa and
those to be released to Karl Brian and Trisha Angelie were inofficious and should be reduced; and (4)
petitioners could not be deprived of their legitimes, which should be satisfied first. Insular admitted that
Loreto misrepresented Eva as his legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his
legitimate children, and that they filed their claims for the insurance proceeds of the insurance policies;
that when it ascertained that Eva was not the legal wife of Loreto, it disqualified her as a beneficiary and
divided the proceeds among Odessa, Karl Brian, and Trisha Angelie, as the remaining designated
beneficiaries; and that it released Odessa’s share as she was of age, but withheld the release of the
shares of minors Karl Brian and Trisha Angelie pending submission of letters of guardianship. Insular
alleged that the complaint or petition failed to state a cause of action insofar as it sought to declare as
void the designation of Eva as beneficiary, because Loreto revoked her designation as such in Policy No.
A001544070 and it disqualified her in Policy No. A001693029; and insofar as it sought to declare as
inofficious the shares of Odessa, Karl Brian, and Trisha Angelie, considering that no settlement of
Loreto’s estate had been filed nor had the respective shares of the heirs been determined. Insular
further claimed that it was bound to honor the insurance policies designating the children of Loreto with
Eva as beneficiaries pursuant to Section 53 of the Insurance Code. Grepalife alleged that Eva was not
designated as an insurance policy beneficiary; that the claims filed by Odessa, Karl Brian, and Trisha
Angelie were denied because Loreto was ineligible for insurance due to a misrepresentation in
his application form that he was born on December 10, 1936 and, thus, not more than 65 years old
when he signed it in September 2001; that the case was premature, there being no claim filed by the
legitimate family of Loreto; and that the law on succession does not apply where the designation of
insurance beneficiaries is clear.
ISSUE:
Whether or not illegitimate children can be beneficiaries in an insurance contract.
RULING:
Yes. Section 53 of the Insurance Code states that the insurance proceeds shall be applied exclusively to
the proper interest of the person in whose name or for whose benefit it is made unless otherwise
specified in the policy. Pursuant thereto, it is obvious that the only persons entitled to claim the
insurance proceeds are either the insured, if still alive; or the beneficiary, if the insured is already
deceased, upon the maturation of the policy.The exception to this rule is a situation where the
insurance contract was intended to benefit third persons who are not parties to the same in the form
of favorable stipulations or indemnity. In such a case, third parties may directly sue and claim from the
insurer.
Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not
entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife have no legal obligation
to turn over the insurance proceeds to petitioners. The revocation of Eva as a beneficiary in one policy
and her disqualification as such in another are of no moment considering that the designation of the
illegitimate children as beneficiaries in Loreto’s insurance policies remains valid. Because
no legal proscription exists in naming as beneficiaries the children of illicit relationships by the insured,
the shares of Eva in the insurance proceeds, whether forfeited by the court in view of the prohibition on
donations under Article 739 of the Civil Code or by the insurers themselves for reasons based on the
insurance contracts, must be awarded to the said illegitimate children, the designated beneficiaries, to
the exclusion of petitioners. It is only in cases where the insured has not designated any beneficiary, or
when the designated beneficiary is disqualified by law to receive the proceeds, that the insurance policy
proceeds shall redound to the benefit of the estate of the insured.
ASIAN TERMINALS, INC., vs. FIRST LEPANTO-TAISHO INSURANCE CORPORATION G.R. No. 185964, 16
June 2014

On July 6, 1996,3 3,000 bags of sodium tripolyphosphate contained in 100 plain jumbo bags complete
and in good condition were loaded and received on board M/V "Da Feng" owned by China Ocean
Shipping Co. (COSCO) in favor of consignee, Grand Asian Sales, Inc. (GASI).

Based on a Certificate of Insurance4 dated August 24, 1995, it appears that the shipment was insured
against all risks by GASI with FIRST LEPANTO for ₱7,959,550.50 under Marine Open Policy No. 0123.

The shipment arrived in Manila on July 18, 1996 and was discharged into the possession and custody of
ATI, a domestic corporation engaged in arrastre business. The shipment remained for quite some time
at ATI’s storage area until it was withdrawn by broker, Proven Customs Brokerage Corporation
(PROVEN), on August 8 and 9, 1996 for delivery to the consignee. Upon receipt of the shipment,5 GASI
subjected the same to inspection and found that the delivered goods incurred shortages of 8,600
kilograms and spillage of 3,315 kg for a total of11,915 kg of loss/damage valued at ₱166,772.41.

GASI sought recompense from COSCO, thru its Philippine agent Smith Bell Shipping Lines, Inc. (SMITH
BELL),6 ATI7 and PROVEN8 but was denied. Hence, it pursued indemnification from the shipment’s
insurer

After the requisite investigation and adjustment, FIRST LEPANTO paid GASI the amount of ₱165,772.40
as insurance indemnity.10

Thereafter, GASI executed a Release of Claim11 discharging FIRST LEPANTO from any and all liabilities
pertaining to the lost/damaged shipment and subrogating it to all the rights of recovery and claims the
former may have against any person or corporation in relation to the lost/damaged shipment.

As such subrogee, FIRST LEPANTO demanded from COSCO, its shipping agency in the Philippines, SMITH
BELL, PROVEN and ATI, reimbursement of the amount it paid to GASI. When FIRST LEPANTO’s demands
were not heeded, it filed on May 29, 1997 a Complaint12 for sum of money before the Metropolitan
Trial Court (MeTC) of Manila, Branch 3. FIRST LEPANTO sought that it be reimbursed the amount of
166,772.41, twenty-five percent (25%) thereof as attorney’s fees, and costs of suit.

MeTC dismissed the case. On appeal, the Regional Trial Court (RTC) reversed the MeTC’s findings. ATI
sought recourse with the CA challenging the RTC’s finding that FIRST LEPANTO was validly subrogated to
the rights of GASI with respect to the lost/damaged shipment. ATI argued that there was no valid
subrogation because FIRSTLEPANTO failed to present a valid, existing and enforceable Marine Open
Policy or insurance contract. ATI reasoned that the Certificate of Insurance or Marine Cover Note
submitted by FIRST LEPANTO as evidence is not the same as an actual insurance contract.

Issue: Whether or not the non-presentation of an insurance contract will bar a subrogee from collecting
reimbursement.
At any rate, the non-presentation of the insurance contract is not fatal to FIRST LEPANTO’s right to
collect reimbursement as the subrogee of GASI.

"Subrogation is the substitution of one person in the place of another with reference to a lawful claim or
right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities."42 The right of subrogation springs from Article 2207 of the Civil
Code which states:

Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured against the wrong-doer or the
person who has violated the contract. If the amount paid by the insurance company does not fully cover
the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing
the loss or injury.

As a general rule, the marine insurance policy needs to be presented in evidence before the insurer may
recover the insured value of the lost/damaged cargo in the exercise of its subrogatory right. In Malayan
Insurance Co., Inc. v.Regis Brokerage Corp.,43 the Court stated that the presentation of the contract
constitutive of the insurance relationship between the consignee and insurer is critical because it is the
legal basis of the latter’s right to subrogation.44

Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted exceptions by
declaring that a marine insurance policy is dispensable evidence in reimbursement claims instituted by
the insurer.

In Delsan Transport Lines, Inc. v. CA,49 the Court ruled that the right of subrogation accrues simply upon
payment by the insurance company of the insurance claim. Hence, 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, was held sufficient to establish not only the relationship between the insurer and consignee, but
also the amount paid to settle the insurance claim. The presentation of the insurance contract was
deemed not fatal to the insurer’s cause of action because the loss of the cargo undoubtedly occurred
while on board the petitioner’s vesse

Based on the attendant facts of the instant case, the application of the exception is warranted.1âwphi1
As discussed above, it is already settled that the loss/damage to the GASI’s shipment occurred while
they were in ATI’s custody, possession and control as arrastre operator. Verily, the Certificate of
Insurance53 and the Release of Claim54 presented as evidence sufficiently established FIRST LEPANTO’s
right to collect reimbursement as the subrogee of the consignee, GASI.

With ATI’s liability having been positively established, to strictly require the presentation of the
insurance contract will run counter to the principle of equity upon which the doctrine of subrogation is
premised. Subrogation 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

The payment by the insurer to the insured operates as an equitable assignment to the insurer of all the
remedies which the insured may have against the third party whose negligence or wrongful act caused
the loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of contract
or upon payment by the insurance company of the insurance claim. It accrues simply upon payment by
the insurance company of the insurance claim

H.H. Holero Construction vs. GSIS

On April 26, 1988, the GSIS and petitioner entered into a Project Agreement (Agreement) whereby the
latter undertook the development of a GSIS housing project known as Modesta Village Section B
(Project)

Petitioner obligated itself to insure the Project, including all the improvements, upon the execution of
the Agreement under a Contractors’ All Risks (CAR) Insurance with the GSIS General Insurance
Department for an amount equal to its cost or sound value, which shall not be subject to any automatic
annual reduction

Under both policies, it was provided that: (a) there must be prior notice of claim for loss, damage or
liability within fourteen (14) days from the occurrence of the loss or damage;14 (b) all benefits
thereunder shall be forfeited if no action is instituted within twelve(12) months after the rejection of the
claim for loss, damage or liability;15 and (c) if the sum insured is found to be less than the amount
required to be insured, the amount recoverable shall be reduced tosuch proportion before taking into
account the deductibles stated in the schedule (average clause provision).16

During the construction, three (3) typhoons hit the country which caused considerable damage to the
Project.

Accordingly, petitioner filed several claims for indemnity with the GSIS

GSIS rejected petitioner’s indemnity claims for the damages wrought by Typhoons Biring and Huaning,
finding that no amount is recoverable pursuant to the average clause provision under the policies.

GSIS similarly rejected petitioner’s indemnity claim for damages wrought by Typhoon Saling on a "no
loss" basis, itappearing from its records that the policies were not renewed before the onset of the said
typhoon.

petitioner filed a Complaint26 for Sum of Money and Damages before the RTC

he RTC granted petitioner’s indemnity claims. It held that: (a) the average clause provision in the policies
which did not contain the assentor signature of the petitioner cannot limit the GSIS’ liability, for being
inefficacious and contrary to public policy;33 (b) petitioner has established that the damages it
sustained were due to the peril insured against;34 and (c) CAR Policy No. 88/086 was deemed renewed
when the GSIS withheld the amount of 35,855.00 corresponding to the premium payable,35 from the
retentions it released to petitioner.
CA set aside and reversed the RTC Judgment, thereby dismissing the complaint. It ruled that the
complaint filed on September 27, 1991 was barred by prescription, having been commenced beyond the
twelve-month limitation provided under the policies, reckoned from the final rejection of the indemnity
claims on April 26, 1990 and June 21, 1990. The Issue Before the Court

whether or not the CA committed reversible error in dismissing the complaint onthe ground of
prescription.

Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of
the terms which the parties themselves have used. If such terms are clear and unambiguous, they must
be taken and understood in their plain, ordinary, and popular sense.

Section 1040 of the General Conditions of the subject CAR Policies commonly read:

10. If a claim is in any respect fraudulent, or if any false declaration is made or used in support
thereof, or if any fraudulent means or devices are used by the Insured or anyone acting on his
behalf to obtain any benefit under this Policy, or if a claim is made and rejected and no action or
suit is commenced within twelve months after such rejectionor, in case of arbitration taking place
as provided herein, within twelve months after the Arbitrator or Arbitrators or Umpire have
made their award, all benefit under this Policy shall be forfeited.

In this relation, case law illumines that the prescriptive period for the insured’s action for indemnity
should bereckoned from the "final rejection" of the claim

Here, petitioner insists that the GSIS’s letters dated April 26, 1990 and June 21, 1990 did not amount to
a "final rejection" ofits claims, arguing that they were mere tentative resolutions pending further action
on petitioner’s part or submission of proof in refutation of the reasons for rejection.42 Hence, its causes
of action for indemnity did not accrue on those dates.

As correctly observed by the CA, "final rejection" simply means denial by the insurer of the claims of the
insured and not the rejection or denial by the insurer of the insured’s motion or request for
reconsideration.47 The rejection referred to should be construed as the rejection in the first instance,48
as in the two instances above-discussed.

The crucial issue in this case is: When does the cause of action accrue?

The right of the insured to the payment of his loss accrues from the happening of the loss. However, the
cause of action in an insurance contract does not accrue until the insured’s claim is finally rejected by
the insurer. This is because before such final rejection there is no real necessity for bringing suit.

Since "cause of action" requires as essential elements not only a legal right of the plaintiff and a
correlated obligation of the defendant in violation of the said legal right, the cause of action does not
accrue until the party obligated (surety) refuses, expressly or impliedly, to comply with its duty (in this
case to pay the amount of the bond)."

In light of the foregoing, it is thus clear that petitioner's causes of action for indemnity respectively
accrued from its receipt of the letters dated April 26, 1990 and June 21, 1990, or the date the GSIS
rejected its claims in the first instance. Consequently, given that it allowed more than twelve (12)
months to lapse before filing the necessary complaint before the R TC on September 27, 1991, its causes
of action had already prescribed.

Alpha Insurance and Surety Co vs. Arsenia Sonia Castor

On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No. MAND/CV-
00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL.

The contract of insurance obligates the petitioner to pay the respondent the amount of Six Hundred
Thirty Thousand Pesos (₱630,000.00) in case of loss or damage to said vehicle during the period
covered, which is from February 26, 2007 to February 26, 2008.

On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza
(Lanuza), to bring the above-described vehicle to a nearby auto-shop for a tune-up. However, Lanuza no
longer returned the motor vehicle to respondent and despite diligent efforts to locate the same, said
efforts proved futile. Resultantly, respondent promptly reported the incident to the police and
concomitantly notified petitioner of the said loss and demanded payment of the insurance proceeds in
the total sum of ₱630,000.00.

In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating among
others, thus:

1.) The Company shall not be liable for:

xxxx

(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON
IN THE INSURED’S SERVICE."

Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before the
Regional Trial Court (RTC) of Quezon City

RTC of Quezon City ruled in favor of respondent

CA rendered a Decision affirming in toto the RTC of Quezon City’s decision.

whether or not the loss of respondent’s vehicle is excluded under the insurance policy.

No. Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance
policy subject of this case. This is evident from the very provision of Section III – "Loss or Damage." The
insurance company, subject to the limits of liability, is obligated to indemnify the insured against theft.
Said provision does not qualify as to who would commit the theft. Thus, even if the same is committed
by the driver of the insured, there being no categorical declaration of exception, the same must be
covered.

As correctly pointed out by the plaintiff, "(A)n insurance contract should be interpreted as to carry out
the purpose for which the parties entered into the contract which is to insure against risks of loss or
damage to the goods. Such interpretation should result from the natural and reasonable meaning of
language in the policy. Where restrictive provisions are open to two interpretations, that which is most
favorable to the insured is adopted."

Moreover, contracts of insurance, like other contracts, are to be construed according to the sense and
meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous,
they must be taken and understood in their plain, ordinary and popular sense.8 Accordingly, in
interpreting the exclusions in an insurance contract, the terms used specifying the excluded classes
therein are to be given their meaning as understood in common speech

Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common ordinary
usage. The word "loss" refers to the act or fact of losing, or failure to keep possession, while the word
"damage" means deterioration or injury to property.1âwphi1

Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy under
paragraph 4 of "Exceptions to Section III," since the same refers only to "malicious damage," or more
specifically, "injury" to the motor vehicle caused by a person under the insured’s service. Paragraph 4
clearly does not contemplate "loss of property," as what happened in the instant case.

Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of the
exceptions from coverage, is the damage that is the direct result from the deliberate or willful act of the
insured, members of his family, and any person in the insured’s service, whose clear plan or purpose
was to cause damage to the insured vehicle for purposes of defrauding the insurer

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance contract
contain limitations on liability, courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation, which must be construed liberally in favor of the insured and
strictly against the insurer in order to safeguard the latter’s interest.

Insular Life vs. Feliciano

Evaristo Feliciano, who died on September 29, 1935, was suffering with advanced pulmonary
tuberculosis when he signed his applications for insurance with the petitioner on October 12, 1934.

On that same date Doctor Trepp, who had taken X-ray pictures of his lungs, informed the respondent Dr.
Serafin D. Feliciano, brother of Evaristo, that the latter "was already in a very serious ad practically
hopeless condition.

Nevertheless the question contained in the application — "Have you ever suffered from any ailment or
disease of the lungs, pleurisy, pneumonia or asthma?" — appears to have been answered , "No"

The false answer above referred to, as well as the others, was written by the Company's soliciting agent
Romulo M. David, in collusion with the medical examiner Dr. Gregorio Valdez, for the purpose of
securing the Company's approval of the application so that the policy to be issued thereon might be
credited to said agent in connection with the inter-provincial contest which the Company was then
holding among its soliciting agents to boost the sales of its policies.
After that, Evaristo was made to sign an application form and thereafter the blank spaces were filled by
the medical examiner and the agent making it appear that Evaristo was a fit subject of insurance.
(Evaristo could not read and understand English)

> When Evaristo died, Insular life refused to pay the proceeds because of concealment.

Issue:
Whether or not Insular Life was bound by their agent’s acts.

Held:
Yes.

The insurance business has grown so vast and lucrative within the past century. Nowadays, even people
of modest means enter into insurance contracts. Agents who solicit contracts are paid large
commissions on the policies secured by them. They act as general representatives of insurance
companies.

IN the case at bar, the true state of health of the insured was concealed by the agents of the insurer.
The insurer’s medical examiner approved the application knowing fully well that the applicant was sick.
The situation is one in which of two innocent parties must bear a loss for his reliance upon a third
person. In this case, it is the one who drafted and accepted the policy and consummated the contract.
It seems reasonable that as between the two of them, the one who employed and gave character to the
third person as its agent should be the one to bear the loss. Hence, Insular is liable to the beneficiaries.

Constantino vs Asia Life

the Asia Life Insurance Company (a foreign corporation incorporated under the laws of Delaware,
U.S.A.), issued on September 27, 1941, its Policy No. 93912 for P3,000, whereby it insured the life of
Arcadio Constantino for a term of twenty years.
The plaintiff Paz Lopez de Constantino was regularly appointed beneficiary.
The policy contained these stipulations, among others:

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

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

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

Plaintiffs maintain that, as beneficiaries, they are entitled to receive the proceeds of the policies
minus all sums due for premiums in arrears. They allege that non-payment of the premiums was
caused by the closing of defendant's offices in Manila during the Japanese occupation and the
impossible circumstances created by war.
Defendant on the other hand asserts that the policies had lapsed for non-payment of premiums, in
accordance with the contract of the parties and the law applicable to the situation.

Ruling:

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

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

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

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

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

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

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

Christern Huenefeld Corporation bought a fire insurance policy from Filipinas Compania de Seguros to
cover merchandise contained in a building. During the Japanese military occupation, this same
merchandise and the building were burned, so Huenefeld filed a claim under the policy.

Filipinas Compania refused to pay, alleging that the policy had ceased to be in force when the US
declared war against Germany. Filipinas Compania contended that Huenefeld, although organized and
created under Philippine laws, is a German subject, and hence, a public enemy, since majority of its
stockholders are Germans. On the other hand, Filipinas Compania is under American jurisdiction.

However, the Director of Bureau of Financing, Philippine Executive Commission ordered Filipinas
Compania to pay, so Filipinas Compania did pay. The case at bar is about the recovery of that sum paid.

ISSUES:

W/N Christern Huenefeld is a German subject because majority of its stockholders are under German
jurisdiction, despite the fact that it was organized and created under Philippine laws
If so, W/N the fire insurance policy is enforceable against an enemy state

HELD:

The Court of Appeals ruled that a private corporation is a citizen of the country or state by and under
the laws of which it was created or organized. It rejected the theory that nationality of a private
corporation is determined by the character or citizenship of its controlling stockholders.

But the Supreme Court held that Christern Huenefeld is an enemy corporation since majority of its
stockholders are German subjects. The two American cases relied up by the Court of Appeals have lost
their force in view of a newer case where the control test was adopted.

The Philippine Insurance Law provides that anyone, except a public enemy, may be insured. It stands to
reason that an insurance policy ceases to be allowable as soon as the insured becomes a public enemy.

Since Christern Huenefeld became a public enemy on Dec. 10, 1941, then the policy has ceased to be
enforcible and therefore Huenefeld is not entitled to indemnity. However, elementary rules of justice
require that the premium paid from Dec. 11, 1941 should be returned.

Thus, Filipinas Compania is allowed to recover the sum paid

but only its equivalent in actual Philippine currency, minus the premium that Huenefeld paid after Dec.
11.

Saturnino vs PhilAm (G.R. No. L-16163 February 28, 1963)

Saturnino vs The Philippine American Life Insurance Company

G.R. No. L-16163 February 28, 1963

Facts: The policy sued upon is one for 20-year endowment non-medical insurance. This kind of policy
dispenses with the medical examination of the applicant usually required in ordinary life policies.
However, detailed information is called for in the application concerning the applicant’s health and
medical history. The written application in this case was submitted by Saturnino to appellee on
November 16, 1957, witnessed by appellee’s agent Edward A. Santos. The policy was issued on the same
day, upon payment of the first year’s premium of P339.25. On September 19, 1958 Saturnino died of
pneumonia, secondary to influenza. Appellants here, who are her surviving husband and minor child,
respectively, demanded payment of the face value of the policy. The claim was rejected and this suit
was subsequently instituted. It appears that two months prior to the issuance of the policy or on
September 9, 1957, Saturnino was operated on for cancer, involving complete removal of the right
breast, including the pectoral muscles and the glands found in the right armpit. She stayed in the
hospital for a period of eight days, after which she was discharged, although according to the surgeon
who operated on her she could not be considered definitely cured, her ailment being of the malignant
type. Notwithstanding the fact of her operation Estefania A. Saturnino did not make a disclosure thereof
in her application for insurance. On the contrary, she stated therein that she did not have, nor had she
ever had, among other ailments listed in the application, cancer or other tumors; that she had not
consulted any physician, undergone any operation or suffered any injury within the preceding five years;
and that she had never been treated for nor did she ever have any illness or disease peculiar to her sex,
particularly of the breast, ovaries, uterus, and menstrual disorders. The application also recites that the
foregoing declarations constituted “a further basis for the issuance of the policy.”

Issue: Whether or not the failure of Saturnino to disclose the severity of his previous illness is material to
the avoidance of the insurance policy.

Held: Yes. In the application for insurance signed by the insured in this case, she agreed to submit to a
medical examination by a duly appointed examiner of appellee if in the latter’s opinion such
examination was necessary as further evidence of insurability. In not asking her to submit to a medical
examination, appellants maintain, appellee was guilty of negligence, which precluded it from finding
about her actual state of health. No such negligence can be imputed to appellee. It was precisely
because the insured had given herself a clean bill of health that appellee no longer considered an actual
medical checkup necessary.

In the first place the concealment of the fact of the operation itself was fraudulent, as there could not
have been any mistake about it, no matter what the ailment. Secondly, in order to avoid a policy it is not
necessary to show actual fraud on the part of the insured.

In this jurisdiction a concealment, whether intentional or unintentional, entitles the insurer to rescind
the contract of insurance, concealment being defined as “negligence to communicate that which a party
knows and ought to communicate” (Sections 24 & 26, Act No. 2427). In the case of Argente v. West
Coast Life Insurance Co., 51 Phil. 725, 732, this Court said, quoting from Joyce, The Law of Insurance,
2nd ed., Vol. 3:

“The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the
insurer into accepting the risk, or accepting it at the rate of premium agreed upon. The insurer, relying
upon the belief that the assured will disclose every material fact within his actual or presumed
knowledge, is misled into a belief that the circumstance withheld does not exist, and he is thereby
induced to estimate the risk upon a false basis that it does not exist.”

Insular v Ebrado G.R. No. L-44059 October 28, 1977

Facts:
J. Martin:
Cristor Ebrado was issued by The Life Assurance Co., Ltd., a policy for P5,882.00 with a rider for
Accidental Death. He designated Carponia T. Ebrado as the revocable beneficiary in his policy.
He referred to her as his wife.
Cristor was killed when he was hit by a failing branch of a tree. Insular Life was made liable to
pay the coverage in the total amount of P11,745.73, representing the face value of the policy in the
amount of P5,882.00 plus the additional benefits for accidental death.
Carponia T. Ebrado filed with the insurer a claim for the proceeds as the designated beneficiary
therein, although she admited that she and the insured 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.
Insular commenced an action for Interpleader before the trial court as to who should be given the
proceeds. The court declared Carponia as disqualified.

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

Held: No. Petition

Ratio:
Section 50 of the Insurance Act which provides that "the insurance shall be applied exclusively to
the proper interest of the person in whose name it is made"
The word "interest" highly suggests that the provision refers only to the "insured" and not to the
beneficiary, since a contract of insurance is personal in character. Otherwise, the prohibitory laws
against illicit relationships especially on property and descent will be rendered nugatory, as the
same could easily be circumvented by modes of insurance.
When not otherwise specifically provided for by the Insurance Law, the contract of life insurance
is governed by the general rules of the civil law regulating contracts. And under Article 2012 of
the same Code, any person who is forbidden from receiving any donation under Article 739 cannot
be named beneficiary of a fife insurance policy by the person who cannot make a donation to him.
Common-law spouses are barred from receiving donations from each other.
Article 739 provides that void donations are those made between persons who were guilty of
adultery or concubinage at the time of donation.
There is every reason to hold that the bar in donations between legitimate spouses and those
between illegitimate ones should be enforced in life insurance policies since the same are based
on similar consideration. So long as marriage remains the threshold of family laws, reason and
morality dictate that the impediments imposed upon married couple should likewise be imposed
upon extra-marital relationship.
A conviction for adultery or concubinage isn’t required exacted before the disabilities mentioned
in Article 739 may effectuate. The article says that 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 guilty of the
donee may be proved by preponderance of evidence in the same action.
The underscored clause neatly conveys that no criminal conviction for the offense is a condition
precedent. The law plainly states that the guilt of the party may be proved “in the same acting for
declaration of nullity of donation.” And, it would be sufficient if evidence preponderates.
The insured was married to Pascuala Ebrado with whom she has six legitimate children. He was
also living in with his common-law wife with whom he has two children.

Edillon v. Manila Bankers Life

G.R. No. L-34200, 30 September 1982, 117 SCRA 187

FACTS:

In April 1969, Carmen Lapuz filled out an application form for insurance under Manila Banker
Life Assurance Corporation. She stated that her date of birth was July 11, 1904. Upon payment of
the Php 20.00 premium, she was issued the insurance policy in April 1969. In May 1969, Carmen
Lapuz died in a vehicular accident. Regina Edillon, who was named a beneficiary in the insurance
policy sought to collect the insurance proceeds but Manila Banker denied the claim. Apparently,
it is a rule of the insurance company that they were not to issue insurance policies to “persons who
are under the age of sixteen (16) years of age or over the age of sixty (60) years …” Note, that
Lapuz was already 65 years old when she was applying for the insurance policy.

ISSUE:

Whether or not Edillon is entitled to the insurance claim as a beneficiary.

HELD:

Yes. Carmen Lapuz did not conceal her true age. Despite this, the insurance company still received
premium from Lapuz and issued the corresponding insurance policy to her. When the accident
happened, the insurance policy has been in force for 45 days already and such time was already
sufficient for Manila Banker to notice the fact that Lapuz is already over 60 years old and thereby
cancel the insurance policy. If Manila Banker failed to act, it is either because it was willing to
waive such disqualification; or, through the negligence or incompetence of its employees for which
it has only itself to blame, it simply overlooked such fact. Under the circumstances, Manila Banker
is already deemed in estoppel.

Ng v Asian Crusader G.R. No. L-30685 May 30, 1983

J. Escolin:
Facts:
Kwong Nam applied for a 20-year endowment insurance on his life for the sum of P20,000.00,
with his wife, appellee Ng Gan Zee as beneficiary. On the same date, Asian Crusader, upon receipt
of the required premium from the insured, approved the application and issued the corresponding
policy. Kwong Nam died of cancer of the liver with metastasis. All premiums had been paid at the
time of his death.
Ng Gan Zee presented a claim for payment of the face value of the policy. On the same date, she
submitted the required proof of death of the insured. Appellant denied the claim on the ground that
the answers given by the insured to the questions in his application for life insurance were untrue.
Appellee brought the matter to the attention of the Insurance Commissioner. The latter, after
conducting an investigation, wrote the appellant that he had found no material concealment on the
part of the insured and that, therefore, appellee should be paid the full face value of the policy. The
company refused to settle its obligation.
Appellant alleged that the insured was guilty of misrepresentation when he answered "No" to the
following question appearing in the application for life insurance-
Has any life insurance company ever refused your application for insurance or for reinstatement
of a lapsed policy or offered you a policy different from that applied for? If, so, name company
and date.
The lower court ruled against the company on lack of evidence.
Appellant further maintains that when the insured was examined in connection with his application
for life insurance, he gave the appellant's medical examiner false and misleading information as to
his ailment and previous operation. The company contended that he was operated on for peptic
ulcer 2 years before the policy was applied for and that he never disclosed such an operation.

Issue: WON Asian Crusader was deceived into entering the contract or in accepting the risk at the
rate of premium agreed upon because of insured's representation?

Held: No. Petition dismissed.

Ratio:
Section 27 of the Insurance Law:
Sec. 27. Such party a contract of insurance must communicate to the other, in good faith, all facts
within his knowledge which are material to the contract, and which the other has not the means of
ascertaining, and as to which he makes no warranty.
"Concealment exists where the assured had knowledge of a fact material to the risk, and honesty,
good faith, and fair dealing requires that he should communicate it to the assurer, but he designedly
and intentionally withholds the same."
It has also been held "that the concealment must, in the absence of inquiries, be not only material,
but fraudulent, or the fact must have been intentionally withheld."
Fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract. And as correctly observed by the lower court, "misrepresentation as a defense of the
insurer to avoid liability is an 'affirmative' defense. The duty to establish such a defense by
satisfactory and convincing evidence rests upon the defendant. The evidence before the Court does
not clearly and satisfactorily establish that defense."
It bears emphasis that Kwong Nam had informed the appellant's medical examiner of the tumor.
His statement that said tumor was "associated with ulcer of the stomach" should be construed as
an expression made in good faith of his belief as to the nature of his ailment and operation.
While the information communicated was imperfect, the same was sufficient to have induced
appellant to make further inquiries about the ailment and operation of the insured.
Section 32 of Insurance Law:
Section 32. The right to information of material facts maybe waived either by the terms of
insurance or by neglect to make inquiries as to such facts where they are distinctly implied in other
facts of which information is communicated.
Where a question appears to be not answered at all or to be imperfectly answered, and the insurers
issue a policy without any further inquiry, they waive the imperfection of the answer and render
the omission to answer more fully immaterial.
The company or its medical examiner did not make any further inquiries on such matters from the
hospital before acting on the application for insurance. The fact of the matter is that the defendant
was too eager to accept the application and receive the insured's premium. It would be inequitable
now to allow the defendant to avoid liability under the circumstances."

Thelma Vda. De Canilang v. Court of Appeals

G.R. No. 92492, 17 June 1993, 223 SCRA 443

FACTS:

Canilang was found to have suffered from sinus tachycardia and bronchitis after a check-up from
his doctor. The next day, he applied for a “non-medical” insurance policy with respondent
Grepalife naming his wife, Thelma Canilang, as his beneficiary with the face value of Php19,700.
He died of “congestive heart failure,” “anemia,” and “chronic anemia.” When Thelma filed a claim
with Great Pacific, it was denied on the ground that Jaime concealed material information.
Thelma filed a complaint against Great Pacific with the Insurance Commission for recovery of the
insurance proceeds. She testified that she was not aware of any serious illness suffered by Jaime,
and that what she knew was that he died because of a kidney disorder. Great Pacific presented a
physician who explained that Jaime’s application had been approved based on his medical
declaration, and that medical examinations are required only in cases where applicant indicated
that he has undergone medical consultation and hospitalization.
The Insurance Commissioner ordered Great Pacific to pay P19,700 plus legal interest and
P2,000.00 as attorney’s fees. On appeal by Great Pacific, the Court of Appeals reversed. It found
that the failure of Jaime Canilang to disclose previous medical consultation and treatment
constituted material information which should have been communicated to Great Pacific to enable
the latter to make proper inquiries.

ISSUE:

Whether or not Canilang was guilty of misrepresentation

HELD:
Yes. Petition denied.
There was a right of the insurance company to rescind the contract if it was proven that the insured
committed fraud in not affirming that he was treated for heart condition and other ailments
stipulated.
Apart from certifying that he didn’t suffer from such a condition, Canilang also failed to disclose
that he had twice consulted a doctor who had found him to be suffering from “sinus tachycardia”
and “acute bronchitis.”
Under the Insurance Code:
Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is called
a concealment.
Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith, all
factors within his knowledge which are material to the contract and as to which he makes no
warranty, and which the other has not the means of ascertaining.
The information concealed must be information which the concealing party knew and should have
communicated. The test of materiality of such information is contained in Section 31 which
provides that “materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in forming his
estimate of the disadvantages of the proposed contract, or in making his inquiries.”
The information which Jaime Canilang failed to disclose was material to the ability of Great Pacific
to estimate the probable risk he presented as a subject of life insurance. Had he disclosed his visits
to his doctor, the diagnosis made and medicines prescribed by such doctor, in the insurance
application, it may be reasonably assumed that Great Pacific would have made further inquiries
and would have probably refused to issue a non-medical insurance policy.
Materiality relates rather to the “probable and reasonable influence of the facts” upon the party to
whom the communication should have been made, in assessing the risk involved in making or
omitting to make further inquiries and in accepting the application for insurance; that “probable
and reasonable influence of the facts” concealed must, of course, be determined objectively, by
the judge ultimately.
The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain
information to the insurer was not “intentional” in nature, for the reason that Canilang believed
that he was suffering from minor ailment like a common cold. Section 27 stated that “concealment
whether intentional or unintentional entitles the injured party to rescind a contract of insurance.”
The failure to communicate must have been intentional rather than inadvertent. Canilang 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 two (2) months before applying for non-medical insurance.
Indeed, the last medical consultation took place just the day before the insurance application was
filed. In all probability, Jaime Canilang went to visit his doctor precisely because of the ailment.
Canilang’s failure to set out answers to some of the questions in the insurance application
constituted concealment

Sunlife v CA G.R. No. 105135 June 22, 1995

J. Quiason

Facts:
Robert John B. Bacani procured a life insurance contract for himself from Sunlife. He was issued
a policy for P100,000.00, with double indemnity in case of accidental death. The designated
beneficiary was his mother, Bernarda Bacani.
The insured died in a plane crash. Respondent Bernarda Bacani filed a claim with petitioner,
seeking the benefits of the insurance policy taken by her son. Petitioner conducted an investigation
and its findings prompted it to reject the claim.
Sunlife informed Bacani that the insured did not disclose material facts relevant to the issuance of
the policy, thus rendering the contract of insurance voidable. A check representing the total
premiums paid in the amount of P10,172.00 was attached to said letter.
Petitioner claimed that the insured gave false statements in his application. The deceased answered
claimed that he consulted a Dr. Raymundo of the Chinese General Hospital for cough and flu
complications. The other questions were answered in the negative.
Petitioner discovered that two weeks prior to his application for insurance, the insured was
examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal
failure. During his confinement, the deceased was subjected to urinalysis tests.
Bernarda Bacani and her husband filed an action for specific performance against petitioner with
the RTC. The court ruled in favor of the spouses and ordered Sunlife to pay P100,000.00.
In ruling for private respondents, the trial court concluded that the facts concealed by the insured
were made in good faith and under a belief that they need not be disclosed. The court also held
that the medial history was irrelevant because it wasn’t medical insurance.
The Court of Appeals affirmed the decision of the trial court. The appellate court ruled that
petitioner cannot avoid its obligation by claiming concealment because the cause of death was
unrelated to the facts concealed by the insured. Petitioner's motion for reconsideration was denied.
Hence, this petition.

Issue: WON the insured was guilty of misrepresentation which made the contract void.

Held: Yes. Petition dismissed.

Ratio:
Section 26 of The Insurance Code required a party to a contract of insurance to communicate to
the other, in good faith, all facts within his knowledge which are material to the contract and as to
which he makes no warranty, and which the other has no means of ascertaining.
“A neglect to communicate that which a party knows and ought to communicate, is called
concealment.”
“Materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom communication is due, in forming his estimate of
the disadvantages of the proposed contract or in making his inquiries.”
The terms of the contract are clear. The insured is specifically required to disclose to the insurer
matters relating to his health.
The information which the insured failed to disclose were material and relevant to the approval
and issuance of the insurance policy. The matters concealed would have definitely affected
petitioner's action on his application, either by approving it with the corresponding adjustment for
a higher premium or rejecting the same. Moreover, a disclosure may have warranted a medical
examination of the insured by petitioner in order for it to reasonably assess the risk involved in
accepting the application.
Vda. de Canilang v. Court of Appeals- materiality of the information withheld does not depend on
the state of mind of the insured. Neither does it depend on the actual or physical events which
ensue.
“Good faith" is no defense in concealment. The insured's failure to disclose the fact that he was
hospitalized raises grave doubts about his eligibility. Such concealment was deliberate on his part.
The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable.
Saturnino v. Philippine American Life Insurance " . . . the waiver of a medical examination [in a
non-medical insurance contract] renders even more material the information required of the
applicant concerning previous condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer takes into consideration in deciding
whether to issue the policy or not . . . "
Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is
well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is
sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the
proposed insurance policy or in making inquiries as held in Henson.

Travellers Insurance & Surety Corporation vs Court of Appeals

G.R. No. 82036 May 22, 1997

Facts: At about 5:30 oclock in the morning of July 20, 1980, a 78-year old woman by the name of
Feliza Vineza de Mendoza was on her way to hear mass at the Tayuman Cathedral. While walking
along Tayuman corner Gregorio Perfecto Streets, she was bumped by a taxi that was running fast.
Several persons witnessed the accident, among whom were Rolando Marvilla, Ernesto Lopez and
Eulogio Tabalno. After the bumping, the old woman was seen sprawled on the pavement. Right
away, the good Samaritan that he was, Marvilla ran towards the old woman and held her on his
lap to inquire from her what had happened, but obviously she was already in shock and could not
talk. At this moment, a private jeep stopped. With the driver of that vehicle, the two helped board
the old woman on the jeep and brought her to the Mary Johnston Hospital in Tondo. The victim
was brought to the U.S.T. Hospital where she expired at 9:00 oclock that same morning. Death
was caused by traumatic shock as a result of the severe injuries she sustained. The evidence shows
that at the moment the victim was bumped by the vehicle, the latter was running fast, so much so
that because of the strong impact the old woman was thrown away and she fell on the pavement.
The trial court in it’s decision held Travellers Insurance to be solidarily liable against private
respondent with the taxicab driver and operator.

Issue: Whether or not the trial court’s decision is proper.

Held: No. The right of the person injured to sue the insurer of the party at fault (insured), depends
on whether the contract of insurance is intended to benefit third persons also or on the insured.
And the test applied has been this: Where the contract provides for indemnity against liability to
third persons, then third persons to whom the insured is liable can sue the insurer. Where the
contract is for indemnity against actual loss or payment, then third persons cannot proceed against
the insurer, the contract being solely to reimburse the insured for liability actually discharged by
him thru payment to third persons, said third persons recourse being thus limited to the insured
alone.

While it is true that where the insurance contract provides for indemnity against liability to third
persons, such third persons can directly sue the insurer, however, the direct liability of the insurer
under indemnity contracts against third party liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer
is based on contract; that of the insured is based on tort.

We have certainly ruled with consistency that the prescriptive period to bring suit in court under
an insurance policy, begins to run from the date of the insurers rejection of the claim filed by the
insured, the beneficiary or any person claiming under an insurance contract. This ruling is
premised upon the compliance by the persons suing under an insurance contract, with the
indispensable requirement of having filed the written claim mandated by Section 384 of the
Insurance Code before and after its amendment. Absent such written claim filed by the person
suing under an insurance contract, no cause of action accrues under such insurance contract,
considering that it is the rejection of that claim that triggers the running of the one-year prescriptive
period to bring suit in court, and there can be no opportunity for the insurer to even reject a claim
if none has been filed in the first place, as in the instant case

Great Pacific Life Insurance Corp. v. Court of Appeals

G.R.No. 113899, 13 October 1999, 316 SCRA 677

FACTS:

There was an existing group life insurance executed between Great Pacific Life Assurance
(Grepalife) and the Development Bank of the Philippines (DBP). Grepalife agreed to insure the
lives of eligible housing loan mortgagors of DBP. In November 1983, Wilfredo Leuterio,
mortgagor of DBP applied to be a member of the group life insurance. He filled out a form where
he indicated he never consulted any physician regarding any illness (heart condition etc) and that
he is in good health. He was eventually included in the group life insurance and he was covered
for the amount of his indebtedness (P86,200.00).

In August 1984, Wilfredo died. DBP submitted a death claim but it was denied by Grepalife as it
insisted that Wilfredo actually concealed that he was suffering from hypertension at the time of
his insurance application. Grepalife relied on the statement made by the doctor who issued
Wilfredo’s death certificate wherein it was stated that Wilfredo’s immediate cause of death was
massive cerebral hemorrhage secondary to hypertension or hypertension as a “possible cause of
death”.

Since Grepalife refused to pay the insurance claim filed by DBP, Medarda Leuterio (widow) sued
Grepalife. Grepalife assailed the suit and insisted that Medarda is not a proper party in interest.
The lower court ruled in favor of Medarda and the court ordered Grepalife to pay the amount of
the insurance to DBP. The Court of Appeals affirmed this decision in 1993. Grepalife appealed to
the Supreme Court. In 1995, pending resolution of the case in the SC, DBP foreclosed the property
of Medarda.

ISSUE:

Whether or not DBP has insurable interest as creditor.

HELD:

YES. 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.

Section 8 of the Insurance Code provides: “Unless the policy provides, where a mortgagor of
property effects insurance in his own name providing that the loss shall be payable to the
mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon
the interest of the mortgagor, who does not cease to be a party to the original contract, and any act
of his, prior to the loss, which would otherwise avoid the insurance, will have the same effect,
although the property is in the hands of the mortgagee, but any act which, under the contract of
insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein
named, with the same effect as if it had been performed by the mortgagor.”

The insured Dr. Wilfredo Leuterio did not cede to the mortgagee all his rights or interests in the
insurance. When Grepalife denied payment, DBP collected the debt from the mortgagor and took
the necessary action of foreclosure on the residential lot of Dr. Wilfredo Leuterio.

Insured may be regarded as the real party in interest, although he has assigned the policy for the
purpose of collection, or has assigned as collateral security any judgment he may obtain.

UCPB Gen. Insurance Co. (Insurer) vs Masagana Telemart (Insured)

G.R. No. 137172 June 15, 1999

Facts: Insurer issued 5 fire insurance policies covering various properties of the Insured
(covering the period May 22, 1991-May 22, 1992). Before the expiration of the policy (March
1992), Insurer evaluated the policy and decided not to renew them. Thus, Insurer issued a notice
of non-renewal to Insured’s broker Zuellig (on April 1992). After the expiration of the policy (or
on June 13, 2012), fire razed Insured’s property covered by 3 policies. A month later, Insured
presented 5 checks to the Insurer’s cashier as payment for the renewal of the policy (from May
1192-May 1993), however, no notice of loss was ever filed by Insured. Insurer refused to pay on
the ground that the policies had already expired and were not renewed, and that the fire occurred
before payment of the premium (for renewal).

RTC: Insured fully complied with its duty to pay premium.

CA: following previous practice, Insured was allowed a 60-90 day credit term for the renewal of
its policy, and that the acceptance of the late premium payment suggested an understanding that
payment could be made later, and that no timely notice of non-renewal was sent.

Issue: Whether the fire insurance policies issued by Insurer to Insured had expired on May 1992
or had been extended or renewed by an implied credit arrangement (even though actual tender of
payment was made after the occurrence of the fire).

Held: No, the insurance policies had not been renewed.

An insurance policy, other than life, issued originally or on renewal, is not valid and binding
until actual payment of the premium. Any agreement to the contrary is void.

The parties may not agree expressly or impliedly on the extension of creditor time to pay the
premium and consider the policy binding before actual payment.

Here, the payment of the premium for renewal of the policies was tendered on July 13, 1992, a
month after the fire occurred on June 13, 1992. The assured did not even give the insurer a notice
of loss within a reasonable time after occurrence of the fire.

UCPB v Masagana G.R. No. 137172. April 4, 2001

C.J. Davide

Facts:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision[1] of
the Court of Appeals, which affirmed with modification the judgment of the trial court (a)
allowing Respondent to consign the sum of P225,753.95 as full payment of the premiums for the
renewal of the five insurance policies on Respondent’s properties; (b) declaring the replacement-
renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering
Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned properties covered by
the renewal-replacement policies. The modification consisted in the (1) deletion of the trial
court’s declaration that three of the policies were in force from August 1991 to August 1992; and
(2) reduction of the award of the attorney’s fees from 25% to 10% of the total amount due the
Respondent.
Masagana obtained from UCPB five (5) insurance policies on its Manila properties.
The policies were effective from May 22, 1991 to May 22, 1992. On June 13, 1992, Masagana’s
properties were razed by fire. On July 13, 1992, plaintiff tendered five checks for P225,753.45
as renewal premium payments. A receipt was issued. On July 14, 1992, Masagana made its
formal demand for indemnification for the burned insured properties. UCPB then rejected
Masagana’s claims under the argument that the fire took place before the tender of payment.
Hence Masagana filed this case.
The Court of Appeals disagreed with UCPB’s argument that Masagana’s tender of payment of
the premiums on 13 July 1992 did not result in the renewal of the policies, having been made
beyond the effective date of renewal as provided under Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the
policy period mails or delivers to the assured at the address shown in the policy notice of its
intention not to renew the policy or to condition its renewal upon reduction of limits or
elimination of coverages, the assured shall be entitled to renew the policy upon payment of the
premium due on the effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana,
which had procured insurance coverage from UCPB for a number of years, had been granted a
60 to 90-day credit term for the renewal of the policies. Such a practice had existed up to the
time the claims were filed. Most of the premiums have been paid for more than 60 days after the
issuance. Also, no timely notice of non-renewal was made by UCPB.
The Supreme Court ruled against UCPB in the first case on the issue of whether the fire
insurance policies issued by petitioner to the respondent covering the period from May 22, 1991
to May 22, 1992 had been extended or renewed by an implied credit arrangement though actual
payment of premium was tendered on a later date and after the occurrence of the risk insured
against.
UCPB filed a motion for reconsideration.
The Supreme Court, upon observing the facts, affirmed that there was no valid notice of non-
renewal of the policies in question, as there is no proof at all that the notice sent by ordinary mail
was received by Masagana. Also, the premiums were paid within the grace period.

Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly applied to Petitioner’s
advantage despite its practice of granting a 60- to 90-day credit term for the payment of
premiums.

Held: No. Petition denied.

Ratio:
Section 77 of the Insurance Code provides: No policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has been paid…
An exception to this section is Section 78 which provides: Any acknowledgment in a policy or
contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any stipulation therein that it shall not be binding until
premium is actually paid.
Makati Tuscany v Court of Appeals- Section 77 may not apply if the parties have agreed to the
payment in installments of the premium and partial payment has been made at the time of loss.
Section 78 allows waiver by the insurer of the condition of prepayment and makes the policy
binding despite the fact that premium is actually unpaid. Section 77 does not expressly prohibit
an agreement granting credit extension. At the very least, both parties should be deemed in
estoppel to question the arrangement they have voluntarily accepted.
The Tuscany case has provided another exception to Section 77 that the insurer may grant credit
extension for the payment of the premium. If the insurer has granted the insured a credit term for
the payment of the premium and loss occurs before the expiration of the term, recovery on the
policy should be allowed even though the premium is paid after the loss but within the credit
term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to
provide a credit term within which to pay the premiums. That agreement is not against the law,
morals, good customs, public order or public policy. The agreement binds the parties.
It would be unjust if recovery on the policy would not be permitted against Petitioner, which had
consistently granted a 60- to 90-day credit term for the payment of premiums. Estoppel bars it
from taking refuge since Masagana relied in good faith on such practice. Estoppel then is the
fifth exception.

Philamcare Health Systems, Inc. v. Court of Appeals

G.R. No. 125678, 18 March 2002, 379 SCRA 356

FACTS:

In 1988, Ernani Trinos applied for a health care insurance under the Philamcare Health Systems,
Inc. He was asked if he was ever treated for high blood, heart trouble, diabetes, cancer, liver
disease, asthma, or peptic ulcer; he answered no. His application was approved and it was effective
for one year. His coverage was subsequently renewed twice for one year each. While the coverage
was still in force in 1990, Ernani suffered a heart attack for which he was hospitalized. The cost
of the hospitalization amounted to P76,000.00. Julita Trinos, wife of Ernani, filed a claim before
Philamcare for the latter to pay the hospitalization cost. Philamcare refused to pay as it alleged that
Ernani failed to disclose the fact that he was diabetic, hypertensive, and asthmatic. Julita ended up
paying the hospital expenses. Ernani eventually died. In July 1990, Julita sued Philamcare for
damages. Philamcare alleged that the health coverage is not an insurance contract; that the
concealment made by Ernani voided the agreement.

ISSUE:

Whether or not Philamcare can avoid the health coverage agreement.

HELD:

No.
The health coverage agreement (health care agreement) entered upon by Ernani with Philamcare
is a non-life insurance contract and is covered by the Insurance Law. It is primarily a contract of
indemnity. Once the member incurs hospital, medical or any other expense arising from sickness,
injury or other stipulated contingent, the health care provider must pay for the same to the extent
agreed upon under the contract. There is no concealment on the part of Ernani. He answered the
question with good faith. He was not a medical doctor hence his statement in answering the
question asked of him when he was applying is an opinion rather than a fact. Answers made in
good faith will not void the policy.
Further, Philamcare, in believing there was concealment, should have taken the necessary steps to
void the health coverage agreement prior to the filing of the suit by Julita. Philamcare never gave
notice to Julita of the fact that they are voiding the agreement. Therefore, Philamcare should pay
the expenses paid by Julita.

White Gold Marine Services, Inc. v. Pioneer Insurance and Surety

Corporation and Steamship Mutual Underwriting Association Ltd.
G.R. No. 154514, 28 July 2005, 464 SCRA 448

FACTS:

White Gold, petitioner, procured a protection and indemnity for its vessel from the Steamship
Mutual Underwriting Association through Pioneer Insurance and Security Corporation.
Subsequently, White Gold was issued a Certificate of Entry and Acceptance. When petitioner
failed to fully pay its account, Steamship Mutual refused to renew the coverage.
Steamship thereafter filed a case of collection of sum of money for the unpaid balance of the
petitioner while the latter filed before the Insurance Commissioner a case against Steamship for
violating Sections 186 and 187 of the Insurance Code, while Pioneer violated Sections 299,] 300
and 301 in relation to Sections 302 and 303, thereof.
The Insurance Commissioner dismissed the complaint and said that there is no need for the
Steamship Mutual to procure license because it was not engage in insurance business and was only
a protection and indemnity club. Likewise, it ruled that Pioneer need not secure another license as
an insurance agent and/or a broker of Steamship Mutual because it was not engaged in insurance
business and Pioneer already had a license hence procurement of separate license as an insurance
agent would only be superfluous. CA affirmed the decision of Insurance Commissioner.

ISSUE:

Whether or not Steamship Mutual, a P & I Club, is engaged in the insurance business in the
Philippines (2) Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?

RULING:

For the first issue, the court answered positively.

Section 2(2) of the Insurance Code enumerates what constitutes doing an insurance business or
transacting an insurance business. These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code.
The test to determine if a contract is an insurance contract or not, depends on the nature of the
promise, the act required to be performed, and the exact nature of the agreement in the light of the
occurrence, contingency, or circumstances under which the performance becomes requisite. It is
not by what it is called. In particular, a marine insurance undertakes to indemnify the assured
against marine losses, such as the losses incident to a marine adventure. Section 99[16] of the
Insurance Code enumerates the coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the members are both
the insurer and insured. In it, the members all contribute, by a system of premiums or assessments,
to the creation of a fund from which all losses and liabilities are paid, and where the profits are
divided among themselves, in proportion to their interest.[17] Additionally, mutual insurance
associations, or clubs, provide three types of coverage, namely, protection and indemnity, war
risks, and defense costs.[18]
A P & I Club is a form of insurance against third party liability, where the third party is anyone
other than the P & I Club and the members.[19] By definition then, Steamship Mutual as a P & I
Club is a mutual insurance association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite
certificate of authority mandated by Section 187[20] of the Insurance Code. It maintains a resident
agent in the Philippines to solicit insurance and to collect payments in its behalf. We note that
Steamship Mutual even renewed its P & I Club cover until it was cancelled due to non-payment
of the calls. Thus, to continue doing business here, Steamship Mutual or through its agent Pioneer,
must secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus,
no insurer or insurance company is allowed to engage in the insurance business without a license
or a certificate of authority from the Insurance Commission.
For the second issue, the court ruled that although Pioneer is already licensed as an insurance
company, it needs a separate license to act as insurance agent for Steamship Mutual. Section 299
of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the Philippines
or any agent thereof, without first procuring a license so to act from the Commissioner, which
must be renewed annually on the first day of January, or within six months thereafter. . .

Gulf Resorts, Inc. v. Phil Charter Insurance, Corp.

G.R. No. 156167, 16 May 2005, 458 SCRA 550

FACTS:

Gulf Resorts, Inc at Agoo, La Union was insured with American Home Assurance Company which
includes loss or damage to shock to any of the property insured by this Policy occasioned by or
through or in consequence of earthquake. On July 16, 1990, an earthquake struck Central Luzon
and Northern Luzon so the properties and 2 swimming pools in its Agoo Playa Resort were
damaged. On August 23, 1990, Gulf’s claim was denied on the ground that its insurance policy
only afforded earthquake shock coverage to the two swimming pools of the resort. Petitioner
contends that pursuant to this rider, no qualifications were placed on the scope of the earthquake
shock coverage. Thus, the policy extended earthquake shock coverage to all of the insured
properties.The RTC Favored American Home endorsement rider means that only the two
swimming pools were insured against earthquake shock the CA, affirmed RTC.

ISSUE:

W/N Gulf can claim for its properties aside from the 2 swimming pools

HELD:

YES. Affirmed.

It is basic that all the provisions of the insurance policy should be examined and interpreted in
consonance with each other. All its parts are reflective of the true intent of the parties. Under
Section 2 (1), contrac of insurance as an agreement whereby one undertakes consideration to
indemnify another against loss damages or liability arising from unknown or contingent events.
An insurance premium is the consideration paid an insurer for undertaking to indemnify the
insured against a specified peril. In the subject policy, no premium payments were made with
regard to earthquake shock coverage, except on the two swimming pools

Republic v. Del Monte Motors, Inc.

G.R. No. 156956, 9 October 2006, 504 SCRA 53

FACTS:

On January 15, 2002, the RTC rendered a Decision finding the defendants (Vilfran Liner, Inc.,
Hilaria Villegas and Maura Villegas) jointly and severally liable to pay Del Monte Motors, Inc.,
P11,835,375.50 representing the balance of Vilfran Liners service contracts with respondent. The
trial court further ordered the execution of the Decision against the counterbond posted by Vilfran
Liner and issued by Capital Insurance and Surety Co., Inc. (CISCO).

CISCO opposed the Motion for Execution filed by respondent, claiming that the latter had no
record or document regarding the alleged issuance of the counterbond; thus, the bond was not valid
and enforceable.

ISSUE:

Whether or not the security deposit held by the Insurance Commissioner pursuant to Section 203
of the Insurance Code may be levied or garnished in favor of only one insured.

HELD:

No. The law expressly and clearly states that the security deposit shall be (1) answerable for all
the obligations of the depositing insurer under its insurance contracts; (2) at all times free from
any liens or encumbrance; and (3) exempt from levy by any claimant.
CISCO has valid outstanding policies. Its policy holders have a right under the law to be equally
protected by its security deposit. To allow the garnishment of that deposit would impair the fund
by decreasing it to less than the percentage of paid-up capital that the law requires to be maintained.
Further, this move would create, in favor of respondent, a preference of credit over the other policy
holders and beneficiaries.

Gaisano v Insurance G.R. No. 147839 June 8, 2006

J. Martinez

Facts:
IMC and Levi Strauss (Phils.) Inc. (LSPI) separately obtained from respondent fire insurance
policies with book debt endorsements. The insurance policies provide for coverage on "book
debts in connection with ready-made clothing materials which have been sold or delivered to
various customers and dealers of the Insured anywhere in the Philippines."
The policies defined book debts as the "unpaid account still appearing in the Book of Account of
the Insured 45 days after the time of the loss covered under this Policy." The policies also
provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the
merchandise sold and delivered by the Insured which are outstanding at the date of loss for a
period in excess of six (6) months from the date of the covering invoice or actual delivery of the
merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the
close of every calendar month all amount shown in their books of accounts as unpaid and thus
become receivable item from their customers and dealers.
Gaisano is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the
Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by
fire. Included in the items lost or destroyed in the fire were stocks of ready-made clothing
materials sold and delivered by IMC and LSPI.
Insurance of America filed a complaint for damages against Gaisano. It alleges that IMC and
LSPI were paid for their claims and that the unpaid accounts of petitioner on the sale and
delivery of ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was
P535,613.00.
The RTC rendered its decision dismissing Insurance's complaint. It held that the fire was purely
accidental; that the cause of the fire was not attributable to the negligence of the petitioner. Also,
it said that IMC and LSPI retained ownership of the delivered goods and must bear the loss.
The CA rendered its decision and set aside the decision of the RTC. It ordered Gaisano to pay
Insurance the P 2 million and the P 500,000 the latter paid to IMC and Levi Strauss.
Hence this petition.

Issues:
1. WON the CA erred in construing a fire insurance policy on book debts as one covering the
unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made
clothing materials sold and delivered to petitioner
2. WON IMC bears the risk of loss because it expressly reserved ownership of the goods by
stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing the
payment of the purchase price the above described merchandise remains the property of the
vendor until the purchase price thereof is fully paid."
3. WON petitioner is liable for the unpaid accounts
4. WON it has been established that petitioner has outstanding accounts with IMC and LSPI.

Held: No. Yes. Yes. Yes but account with LSPI unsubstantiated. Petition partly granted.

Ratio:
1. Nowhere is it provided in the questioned insurance policies that the subject of the insurance is
the goods sold and delivered to the customers and dealers of the insured.
Thus, what were insured against were the accounts of IMC and LSPI with petitioner which
remained unpaid 45 days after the loss through fire, and not the loss or destruction of the goods
delivered.
2. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership
therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the
goods are at the buyer's risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been retained by the seller merely
to secure performance by the buyer of his obligations under the contract, the goods are at the
buyer's risk from the time of such delivery
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of
loss is borne by the buyer. Petitioner bears the risk of loss of the goods delivered.
IMC and LSPI had an insurable interest until full payment of the value of the delivered goods.
Unlike the civil law concept of res perit domino, where ownership is the basis for consideration
of who bears the risk of loss, in property insurance, one's interest is not determined by concept of
title, but whether insured has substantial economic interest in the property.
Section 13 of our Insurance Code defines insurable interest as "every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that
a contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of
the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an
inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing
interest in that out of which the expectancy arises.
Anyone has an insurable interest in property who derives a benefit from its existence or would
suffer loss from its destruction. Indeed, a vendor or seller retains an insurable interest in the
property sold so long as he has any interest therein, in other words, so long as he would suffer by
its destruction, as where he has a vendor's lien. In this case, the insurable interest of IMC and
LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time
of the loss covered by the policies.
3. Petitioner's argument that it is not liable because the fire is a fortuitous event under Article
117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article
1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but
for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire.
Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the CA,
where the obligation consists in the payment of money, the failure of the debtor to make the
payment even by reason of a fortuitous event shall not relieve him of his liability. The rationale
for this is that the rule that an obligor should be held exempt from liability when the loss occurs
thru a fortuitous event only holds true when the obligation consists in the delivery of a
determinate thing and there is no stipulation holding him liable even in case of fortuitous event.
It does not apply when the obligation is pecuniary in nature.
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the obligation." This rule is based
on the principle that the genus of a thing can never perish. An obligation to pay money is
generic; therefore, it is not excused by fortuitous loss of any specific property of the debtor.
4. With respect to IMC, the respondent has adequately established its claim. The P 3 m claim has
been proven. The subrogation receipt, by itself, is sufficient to establish not only the relationship
of respondent as insurer and IMC as the insured, but also the amount paid to settle the insurance
claim. The right of subrogation accrues simply upon payment by the insurance company of the
insurance claim Respondent's action against petitioner is squarely sanctioned by Article 2207 of
the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. There
was no evidence that respondent has been subrogated to any right which LSPI may have against
petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery
of P535,613.00.

Gaisano Cagayan, Inc. v. Insurance Company of North America

G.R. NO. 147839, 8 JUNE 2006, 490 SCRA 289

FACTS:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans while Levi Strauss
(Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss
& Co. IMC and LSPI separately obtained from Insurance Company of North America fire
insurance policies for their book debt endorsements related to their ready-made clothing materials
which have been sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines which are unpaid 45 days after the time of the loss.
The policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the
merchandise sold and delivered by the Insured which are outstanding at the date of loss for a period
in excess of six (6) months from the date of the covering invoice or actual delivery of the
merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close
of every calendar month all amount shown in their books of accounts as unpaid and thus become
receivable item from their customers and dealers.
On February 25, 1991, Gaisano Superstore Complex in Cagayan de Oro City, owned by Gaisano
Cagayan, Inc., containing the ready-made clothing materials sold and delivered by IMC and LSPI
was consumed by fire. On February 4, 1992, Insurance Company of North America filed a
complaint for damages against Gaisano Cagayan, Inc. alleges that IMC and LSPI filed their claims
under their respective fire insurance policies which it paid thus it was subrogated to their rights.
The RTC rendered its decision dismissing Insurance’s complaint. It held that the fire was purely
accidental; that the cause of the fire was not attributable to the negligence of the petitioner. Also,
it said that IMC and LSPI retained ownership of the delivered goods and must bear the loss.
The CA rendered its decision and set aside the decision of the RTC. It ordered Gaisano to pay
Insurance the P 2 million and the P 500,000 the latter paid to IMC and Levi Strauss.
Hence this petition.

ISSUE:

W/N Insurance Company of North America can claim against Gaisano Cagayan for the debt that
was isnured

HELD:

YES. petition is partly GRANTED. Order to pay P535,613 is DELETED

The insurance policy is clear that the subject of the insurance is the book debts and NOT goods
sold and delivered to the customers and dealers of the insured.
ART. 1504. Unless otherwise agreed, the goods remain at the seller’s risk until the ownership
therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the
goods are at the buyer’s risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been retained by the seller merely to
secure performance by the buyer of his obligations under the contract, the goods are at the buyer’s
risk from the time of such delivery;

IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until
full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino,
where ownership is the basis for consideration of who bears the risk of loss, in property insurance,
one’s interest is not determined by concept of title, but whether insured has substantial economic
interest in the property

Section 13 of our Insurance Code defines insurable interest as “every interest in property, whether
real or personal, or any relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured.” Parenthetically, under Section 14 of the
same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate
interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that
out of which the expectancy arises.

Anyone has an insurable interest in property who derives a benefit from its existence or would
suffer loss from its destruction. It is sufficient that the insured is so situated with reference to the
property that he would be liable to loss should it be injured or destroyed by the peril against which
it is insured. An insurable interest in property does not necessarily imply a property interest in, or
a lien upon, or possession of, the subject. The matter of the insurance, and neither the title nor a
beneficial interest is requisite to the existence of such an interest.

Insurance in this case is not for loss of goods by fire but for petitioner’s accounts with IMC and
LSPI that remained unpaid 45 days after the fire – obligation is pecuniary in nature. The obligor
should be held exempt from liability when the loss occurs thru a fortuitous event only holds true
when the obligation consists in the delivery of a determinate thing and there is no stipulation
holding him liable even in case of fortuitous event.

Article 1263 of the Civil Code in an obligation to deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the obligation (Genus nunquan perit). The
subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as
insurer and IMC as the insured, but also the amount paid to settle the insurance claim.

Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer
or the person who has violated the contract.

As to LSPI, no subrogation receipt was offered in evidence. Failure to substantiate the claim of
subrogation is fatal to petitioner’s case for recovery of the amount of P535,613

Ong Lim Sing Jr. FEB Leasing & Finance Corporation

G.R. No. 168115 June 8, 2007

Facts: On March 9, 1995, FEB Leasing and Finance Corporation (FEB) entered into a lease of
equipment and motor vehicles with JVL Food Products (JVL). On the same date, Vicente Ong
Lim Sing, Jr. (Lim) executed an Individual Guaranty Agreement with FEB to guarantee the prompt
and faithful performance of the terms and conditions of the aforesaid lease agreement.
Corresponding Lease Schedules with Delivery and Acceptance Certificates over the equipment
and motor vehicles formed part of the agreement. Under the contract, JVL was obliged to pay FEB
an aggregate gross monthly rental of One Hundred Seventy Thousand Four Hundred Ninety-Four
Pesos (P 170,494.00). JVL defaulted in the payment of the monthly rentals. As of July 31, 2000,
the amount in arrears, including penalty charges and insurance premiums, amounted to Three
Million Four Hundred Fourteen Thousand Four Hundred Sixty Eight and 75/100 Pesos
(P3,414,468.75). On August 23, 2000, FEB sent a letter to JVL demanding payment of the said
amount. However, JVL failed to pay.

Issue: Whether or not JVL as the lessee have an insurable interest over the leased items.

Held: Yes. The stipulation in Section 14 of the lease contract, that the equipment shall be insured
at the cost and expense of the lessee against loss, damage, or destruction from fire, theft, accident,
or other insurable risk for the full term of the lease, is a binding and valid stipulation. Petitioner,
as a lessee, has an insurable interest in the equipment and motor vehicles leased. Section 17 of the
Insurance Code provides that the measure of an insurable interest in property is the extent to which
the insured might be damnified by loss or injury thereof. It cannot be denied that JVL will be
directly damnified in case of loss, damage, or destruction of any of the properties leased.

It has also been held that the test of insurable interest in property is whether the assured has a right,
title or interest therein that he will be benefited by its preservation and continued existence or
suffer a direct pecuniary loss from its destruction or injury by the peril insured against.

ETERNAL GARDENS MEMORIAL PARK CORP. V. PHILIPPINE AMERICAN

LIFE INSURANCE CO., G.R. NO. 166245, [APRIL 8, 2008], 574 PHIL 161-
174
FACTS: On December 10, 1980, respondent Philippine American Life Insurance Company
(Philamlife) entered into an agreement denominated as Creditor Group Life Policy No. P-1920
with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the
clients of Eternal who purchased burial lots from it on installment basis would be insured by
Philamlife. The amount of insurance coverage depended upon the existing balance of the
purchased burial lots. The policy was to be effective for a period of one year, renewable on a
yearly basis.

The relevant provisions of the policy are:

ELIGIBILITY.

Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is
indebted to the Assured for the unpaid balance of his loan with the Assured, and is accepted for
Life Insurance coverage by the Company on its effective date is eligible for insurance under the
Policy.

EVIDENCE OF INSURABILITY.

No medical examination shall be required for amounts of insurance up to P50,000.00. However,

a declaration of good health shall be required for all Lot Purchasers as part of the application.
The Company reserves the right to require further evidence of insurability satisfactory to the
Company in respect of the following:

1. Any amount of insurance in excess of P50,000.00.

2. Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT.

The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid
balance of his loan (including arrears up to but not exceeding 2 months) as reported by the
Assured to the Company or the sum of P100,000.00, whichever is smaller. Such benefit shall be
paid to the Assured if the Lot Purchaser dies while insured under the Policy.

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with
the Assured. However, there shall be no insurance if the application of the Lot Purchaser is not
approved by the Company.

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers,
together with a copy of the application of each purchaser, and the amounts of the respective
unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal complied
by submitting a letter dated December 29, 1982, containing a list of insurable balances of its lot
buyers for October 1982. One of those included in the list as “new business” was a certain John
Chuang. His balance of payments was PhP100,000. On August 2, 1984, Chuang died. Eternal
sent a letter dated August 20, 1984 to Philamlife, which served as an insurance claim for
Chuang’s death. Attached to the claim were the following documents: (1) Chuang’s Certificate
of Death; (2) Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3)
Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assured’s Certificate.

In reply, Philamlife wrote Eternal a letter on November 12, 1984, requiring Eternal to submit the
following documents relative to its insurance claim for Chuang’s death: (1) Certificate of
Claimant (with form attached); (2) Assured’s Certificate (with form attached); (3) Application
for Insurance accomplished and signed by the insured, Chuang, while still living; and (4)
Statement of Account showing the unpaid balance of Chuang before his death. Eternal
transmitted the required documents through a letter dated November 14, 1984, which was
received by Philamlife on November 15, 1984. After more than a year, Philamlife had not
furnished Eternal with any reply to the latter’s insurance claim. This prompted Eternal to demand
from Philamlife the payment of the claim for PhP100,000 on April 25, 1986.

ISSUE: WON THE INSURER IS LIABLE.

HELD: YES. As earlier stated, Philamlife and Eternal entered into an agreement denominated as
Creditor Group Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided
that:

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with
the Assured. However, there shall be no insurance if the application of the Lot Purchaser is not
approved by the Company. IcDESA

An examination of the above provision would show ambiguity between its two sentences. The
first sentence appears to state that the insurance coverage of the clients of Eternal already
became effective upon contracting a loan with Eternal while the second sentence appears to
require Philamlife to approve the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to safeguard the
latter’s interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held
that:

Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared
by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words, it should be construed
liberally in favor of the insured and strictly against the insurer. Limitations of liability should be
regarded with extreme jealousy and must be construed in such a way as to preclude the insurer
from noncompliance with its obligations. (Emphasis supplied.) TECcHA

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the
above ruling, stating that:

When the terms of insurance contract contain limitations on liability, courts should construe
them in such a way as to preclude the insurer from non-compliance with his obligation. Being a
contract of adhesion, the terms of an insurance contract are to be construed strictly against the
party which prepared the contract, the insurer. By reason of the exclusive control of the
insurance company over the terms and phraseology of the insurance contract, ambiguity must be
strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid
forfeiture.

Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated
December 10, 1980, must be construed in favor of the insured and in favor of the effectivity of
the insurance contract.

On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a
party’s purchase of a memorial lot on installment from Eternal, an insurance contract covering
the lot purchaser is created and the same is effective, valid, and binding until terminated by
Philamlife by disapproving the insurance application. The second sentence of Creditor Group
Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition
which would lead to the cessation of the insurance contract. Moreover, the mere inaction of the
insurer on the insurance application must not work to prejudice the insured; it cannot be
interpreted as a termination of the insurance contract. The termination of the insurance contract
by the insurer must be explicit and unambiguous.

As a final note, to characterize the insurer and the insured as contracting parties on equal footing
is inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of
experience in the industry purposefully used to its advantage. More often than not, insurance
contracts are contracts of adhesion containing technical terms and conditions of the industry,
confusing if at all understandable to laypersons, that are imposed on those who wish to avail of
insurance. As such, insurance contracts are imbued with public interest that must be considered
whenever the rights and obligations of the insurer and the insured are to be delineated. Hence, in
order to protect the interest of insurance applicants, insurance companies must be obligated to act
with haste upon insurance applications, to either deny or approve the same, or otherwise be
bound to honor the application as a valid, binding, and effective insurance contract.

Lalican vs The Insular Life Assurance Company Limited

G.R. No. 183526 August 25, 2009

Facts: Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio). During his lifetime,
Eulogio applied for an insurance policy with Insular Life. On 24 April 1997, Insular Life, through
Josephine Malaluan (Malaluan), its agent in Gapan City, issued in favor of Eulogio Policy No.
9011992, which contained a 20-Year Endowment Variable Income Package Flexi Plan worth
P500,000.00, with two riders valued at P 500,000.00 each. Thus, the value of the policy amounted
to P1,500,000.00. Violeta was named as the primary beneficiary. P Under the terms of Policy No.
9011992, Eulogio was to pay the premiums on a quarterly basis in the amount of 8,062.00, payable
every 24 April, 24 July, 24 October and 24 January of each year, until the end of the 20-year period
of the policy. According to the Policy Contract, there was a grace period of 31 days for the payment
of each premium subsequent to the first. If any premium was not paid on or before the due date,
the policy would be in default, and if the premium remained unpaid until the end of the grace
period, the policy would automatically lapse and become void. Eulogio paid the premiums due on
24 July 1997 and 24 October 1997. However, he failed to pay the premium due on 24 January
1998, even after the lapse of the grace period of 31 days. Policy No. 9011992, therefore, lapsed
and became void. Eulogio submitted to the Cabanatuan District Office of Insular Life, through
Malaluan, on 26 May 1998, an Application for Reinstatement of Policy No. 9011992, together
with the amount of P 8,062.00 to pay for the premium due on 24 January 1998. In a letter dated 17
July 1998, Insular Life notified Eulogio that his Application for Reinstatement could not be fully
processed because, although he already deposited P8,062.00 as payment for the 24 January 1998
premium, he left unpaid the overdue interest thereon amounting to P322.48. Thus, Insular Life
instructed Eulogio to pay the amount of interest and to file another application for reinstatement.
Eulogio was likewise advised by Malaluan to pay the premiums that subsequently became due on
24 April 1998 and 24 July 1998, plus interest. On 17 September 1998, Eulogio went to Malaluans
house and submitted a second Application for Reinstatement of Policy No. 9011992, including the
amount of P17,500.00, representing payments for the overdue interest on the premium for 24
January 1998, and the premiums which became due on 24 April 1998 and 24 July 1998. As
Malaluan was away on a business errand, her husband received Eulogios second Application for
Reinstatement and issued a receipt for the amount Eulogio deposited. A while later, on the same
day, 17 September 1998, Eulogio died of cardio-respiratory arrest secondary to electrocution.

Issue: Whether or not Eulogio had an existing insurable interest in his own life until the day of his
death in order to have the insurance policy validly reinstated.

Held: No. An insurable interest is one of the most basic and essential requirements in an insurance
contract. In general, an insurable interest is that interest which a person is deemed to have in the
subject matter insured, where he has a relation or connection with or concern in it, such that the
person will derive pecuniary benefit or advantage from the preservation of the subject matter
insured and will suffer pecuniary loss or damage from its destruction, termination, or injury by the
happening of the event insured against. The existence of an insurable interest gives a person the
legal right to insure the subject matter of the policy of insurance. Section 10 of the Insurance Code
indeed provides that every person has an insurable interest in his own life. Section 19 of the same
code also states that an interest in the life or health of a person insured must exist when the
insurance takes effect, but need not exist thereafter or when the loss occurs.

In the instant case, Eulogios death rendered impossible full compliance with the conditions for
reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his
Application for Reinstatement and deposit the amount for payment of his overdue premiums and
interests thereon with Malaluan; but Policy No. 9011992 could only be considered reinstated after
the Application for Reinstatement had been processed and approved by Insular Life during
Eulogios lifetime and good health.

The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written
application does not give the insured absolute right to such reinstatement by the mere filing of an
application. The insurer has the right to deny the reinstatement if it is not satisfied as to the
insurability of the insured and if the latter does not pay all overdue premium and all other
indebtedness to the insurer. After the death of the insured the insurance Company cannot be
compelled to entertain an application for reinstatement of the policy because the conditions
precedent to reinstatement can no longer be determined and satisfied.

Malaluan did not have the authority to approve Eulogios Application for Reinstatement. Malaluan
still had to turn over to Insular Life Eulogios Application for Reinstatement and accompanying
deposits, for processing and approval by the latter.

Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import
and meaning of the provisions of his Policy Contract and/or Application for Reinstatement, both
of which he voluntarily signed. While it is a cardinal principle of insurance law that a policy or
contract of insurance is to be construed liberally in favor of the insured and strictly as against the
insurer company, yet, contracts of insurance, like other contracts, are to be construed according to
the sense and meaning of the terms, which the parties themselves have used. If such terms are clear
and unambiguous, they must be taken and understood in their plain, ordinary and popular sense

PHIL. HEALTH CARE PROVIDERS, INC vs. COMMISSIONER OF INTERNAL REVENUE

July 2, 2014 § Leave a comment

GR. NO. 1677330 September 18, 2009, SPECIAL FIRST DIVISION (CORONA, J.)

FACTS:

Petitioner is a domestic corporation whose primary purpose is to establish, maintain, conduct and
operate a prepaid group practice health care delivery system or a health maintenance
organization to take care of the sick and disabled persons enrolled in the health care plan and to
provide for the administrative, legal, and financial responsibilities of the organization. On
January 27, 2000, respondent CIR sent petitioner a formal deman letter and the corresponding
assessment notices demanding the payment of deficiency taxes, including surcharges and
interest, for the taxable years 1996 and 1997 in the total amount of P224,702,641.18. The
deficiency assessment was imposed on petitioner’s health care agreement with the members of
its health care program pursuant to Section 185 of the 1997 Tax Code. Petitioner protested the
assessment in a letter dated February 23, 2000. As respondent did not act on the protest,
petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation
of the deficiency VAT and DST assessments. On April 5, 2002, the CTA rendered a decision,
ordering the petitioner to PAY the deficiency VAT amounting to P22,054,831.75 inclusive of
25% surcharge plus 20% interest from January 20, 1997 until fully paid for the 1996 VAT
deficiency and P31,094,163.87 inclusive of 25% surcharge plus 20% interest from January 20,
1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is
declared void and without force and effect. The 1996 and 1997 deficiency DST assessment
against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is ORDERED to
DESIST from collecting the said DST deficiency tax. Respondent appealed the CTA decision to
the (CA) insofar as it cancelled the DST assessment. He claimed that petitioner’s health care
agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision which held that petitioner’s health care
agreement was in the nature of a non-life insurance contract subject to DST. Respondent is
ordered to pay the deficiency Documentary Stamp Tax. Petitioner moved for reconsideration but
the CA denied it.

ISSUES:

(1) Whether or not Philippine Health Care Providers, Inc. engaged in insurance business.

(2) Whether or not the agreements between petitioner and its members possess all elements
necessary in the insurance contract.

HELD:

NO. Health Maintenance Organizations are not engaged in the insurance business. The SC said
in June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer
because its agreements are treated as insurance contracts and the DST is not a tax on the business
but an excise on the privilege, opportunity or facility used in the transaction of the business.
Petitioner, however, submits that it is of critical importance to characterize the business it is
engaged in, that is, to determine whether it is an HMO or an insurance company, as this
distinction is indispensable in turn to the issue of whether or not it is liable for DST on its health
care agreements. Petitioner is admittedly an HMO. Under RA 7878 an HMO is “an entity that
provides, offers or arranges for coverage of designated health services needed by plan members
for a fixed prepaid premium. The payments do not vary with the extent, frequency or type of
services provided. Section 2 (2) of PD 1460 enumerates what constitutes “doing an insurance
business” or “transacting an insurance business”which are making or proposing to make, as
insurer, any insurance contract; making or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to any other legitimate business or activity
of the surety; doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the meaning of this Code;
doing or proposing to do any business in substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code.

Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its
curative medical services), but these are incidental to the principal activity of providing them
medical care. The “insurance-like” aspect of petitioner’s business is miniscule compared to its
noninsurance activities. Therefore, since it substantially provides health care services rather than
insurance services, it cannot be considered as being in the insurance business.

New World International Philippines Inc. vs Nyk-FilJapan Shipping Corp.

G.R. No. 171468 August 24, 2011

Facts: Petitioner New World International Development (Phils.), Inc. (New World) bought from
DMT Corporation (DMT) through its agent, Advatech Industries, Inc. (Advatech) three emergency
generator sets worth US$721,500.00. DMT shipped the generator sets by truck from Wisconsin,
United States, to LEP Profit International, Inc. (LEP Profit) in Chicago, Illinois. From there, the
shipment went by train to Oakland, California, where it was loaded on S/S California Luna V59,
owned and operated by NYK Fil-Japan Shipping Corporation (NYK) for delivery to petitioner
New World in Manila. NYK issued a bill of lading, declaring that it received the goods in good
condition. NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72
that it also owned and operated. On its journey to Manila, however, ACX Ruby encountered
typhoon Kadiang whose captain filed a sea protest on arrival at the Manila South Harbor on
October 5, 1993 respecting the loss and damage that the goods on board his vessel suffered. Marina
Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handling operator, received
the shipment on October 7, 1993. Upon inspection of the three container vans separately carrying
the generator sets, two vans bore signs of external damage while the third van appeared unscathed.
The shipment remained at Pier 3s Container Yard under Marinas care pending clearance from the
Bureau of Customs. Eventually, on October 20, 1993 customs authorities allowed petitioners
customs broker, Serbros Carrier Corporation (Serbros), to withdraw the shipment and deliver the
same to petitioner New Worlds job site in Makati City. An examination of the three generator sets
in the presence of petitioner New Worlds representatives, Federal Builders (the project contractor)
and surveyors of petitioner New Worlds insurer, SeaboardEastern Insurance Company (Seaboard),
revealed that all three sets suffered extensive damage and could no longer be repaired. For these
reasons, New World demanded recompense for its loss from respondents NYK, DMT, Advatech,
LEP Profit, LEP International Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK
acknowledged receipt of the demand, both denied liability for the loss.

Issue: Whether or not petitioner is entitled to the claim based from the insurance policy including
interests in the delay of the release of such claim.

Held: Yes. The marine open policy that Seaboard issued to New World was an all-risk policy.
Such a policy insured against all causes of conceivable loss or damage except when otherwise
excluded or when the loss or damage was due to fraud or intentional misconduct committed by the
insured. The policy covered all losses during the voyage whether or not arising from a marine
peril.
Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in
voyage, or vessels unseaworthiness, among others. But Seaboard had been unable to show that
petitioner New Worlds loss or damage fell within some or one of the enumerated exceptions.

Seaboard cannot pretend that the above documents are inadequate since they were precisely the
documents listed in its insurance policy. Being a contract of adhesion, an insurance policy is
construed strongly against the insurer who prepared it. The Court cannot read a requirement in the
policy that was not there.

Section 241 of the Insurance Code provides that no insurance company doing business in the
Philippines shall refuse without just cause to pay or settle claims arising under coverages provided
by its policies. And, under Section 243, the insurer has 30 days after proof of loss is received and
ascertainment of the loss or damage within which to pay the claim. If such ascertainment is not
had within 60 days from receipt of evidence of loss, the insurer has 90 days to pay or settle the
claim. And, in case the insurer refuses or fails to pay within the prescribed time, the insured shall
be entitled to interest on the proceeds of the policy for the duration of delay at the rate of twice the
ceiling prescribed by the Monetary Board.

Notably, Seaboard already incurred delay when it failed to settle petitioner New Worlds claim as
Section 243 required. Under Section 244, a prima facie evidence of unreasonable delay in payment
of the claim is created by the failure of the insurer to pay the claim within the time fixed in Section
243.

Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the
delay until the claim is fully satisfied at the rate of twice the ceiling prescribed by the Monetary
Board. The term ceiling prescribed by the Monetary Board means the legal rate of interest of 12%
per annum provided in Central Bank Circular 416, pursuant to Presidential Decree 116. Section
244 of the Insurance Code also provides for an award of attorneys fees and other expenses incurred
by the assured due to the unreasonable withholding of payment of his claim.

FLORENDO V. PHILAM PLANS, INC., G.R. NO. 186983, [FEBRUARY 22,

2012], 682 PHIL 582-592)
FACTS: On October 23, 1997 Manuel Florendo filed an application for comprehensive pension
plan with respondent Philam Plans, Inc. (Philam Plans) after some convincing by respondent
Perla Abcede. The plan had a pre-need price of P997,050.00, payable in 10 years, and had a
maturity value of P2,890,000.00 after 20 years. Manuel signed the application and left to Perla
the task of supplying the information needed in the application. Respondent Ma. Celeste Abcede,
Perla’s daughter, signed the application as sales counselor.

Aside from pension benefits, the comprehensive pension plan also provided life insurance
coverage to Florendo. This was covered by a Group Master Policy that Philippine American Life
Insurance Company (Philam Life) issued to Philam Plans. Under the master policy, Philam Life
was to automatically provide life insurance coverage, including accidental death, to all who
signed up for Philam Plans’ comprehensive pension plan. If the plan holder died before the
maturity of the plan, his beneficiary was to instead receive the proceeds of the life insurance,
equivalent to the pre-need price. Further, the life insurance was to take care of any unpaid
premium until the pension plan matured, entitling the beneficiary to the maturity value of the
pension plan.

On October 30, 1997 Philam Plans issued Pension Plan Agreement PP43005584 to Manuel, with
petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly
premiums.

Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently,
Lourdes filed a claim with Philam Plans for the payment of the benefits under her husband’s
plan. Because Manuel died before his pension plan matured and his wife was to get only the
benefits of his life insurance, Philam Plans forwarded her claim to Philam Life.

On May 3, 1999 Philam Plans wrote Lourdes a letter, declining her claim. Philam Life found that
Manuel was on maintenance medicine for his heart and had an implanted pacemaker. Further, he
suffered from diabetes mellitus and was taking insulin. Lourdes renewed her demand for
payment under the plan but Philam Plans rejected it, prompting her to file the present action
against the pension plan company before the Regional Trial Court (RTC) of Quezon City.

On March 30, 2006 the RTC rendered judgment, ordering Philam Plans, Perla and Ma. Celeste,
solidarily, to pay Lourdes all the benefits from her husband’s pension plan, namely:
P997,050.00, the proceeds of his term insurance, and P2,890,000.00 lump sum pension benefit
upon maturity of his plan; P100,000.00 as moral damages, and to pay the costs of the suit. The
RTC ruled that Manuel was not guilty of concealing the state of his health from his pension plan
application.

On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision, holding that
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.

ISSUE: WON THERE WAS CONCEALMENT

HELD: YES. One. Lourdes points out that, seeing the unfilled spaces in Manuel’s pension plan
application relating to his medical history, Philam Plans should have returned it to him for
completion. Since Philam Plans chose to approve the application just as it was, it cannot cry
concealment on Manuel’s part. Further, Lourdes adds that Philam Plans never queried Manuel
directly regarding the state of his health. Consequently, it could not blame him for not
mentioning it.

But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the
true state of Manuel’s health. She forgets that since Philam Plans waived medical examination
for Manuel, it had to rely largely on his stating the truth regarding his health in his application.
For, after all, he knew more than anyone that he had been under treatment for heart condition and
diabetes for more than five years preceding his submission of that application. But he kept those
crucial facts from Philam Plans.

Besides, when Manuel signed the pension plan application, he adopted as his own the written
representations and declarations embodied in it. It is clear from these representations that he
concealed his chronic heart ailment and diabetes from Philam Plans.

Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that
Manuel had a pacemaker implanted on his chest in the 70s or about 20 years before he signed up
for the pension plan. But by its tenor, the responsibility for preparing the application belonged to
Manuel. Nothing in it implies that someone else may provide the information that Philam Plans
needed. Manuel cannot sign the application and disown the responsibility for having it filled up.
If he furnished Perla the needed information and delegated to her the filling up of the application,
then she acted on his instruction, not on Philam Plans’ instruction.

Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let
Perla fill in the required details did not make her his agent and bind him to her concealment of
his true state of health. Since there is no evidence of collusion between them, Perla’s fault must
be considered solely her own and cannot prejudice Manuel. But Manuel forgot that in signing the
pension plan application, he certified that he wrote all the information stated in it or had someone
do it under his direction. The same may be said of Manuel, a civil engineer and manager of a
construction company. 33 He could be expected to know that one must read every document,
especially if it creates rights and obligations affecting him, before signing the same. Manuel is
not unschooled that the Court must come to his succor. It could reasonably be expected that he
would not trifle with something that would provide additional financial security to him and to his
wife in his twilight years.|

Three. In a final attempt to defend her claim for benefits under Manuel’s pension plan, Lourdes
points out that any defect or insufficiency in the information provided by his pension plan
application should be deemed waived after the same has been approved, the policy has been
issued, and the premiums have been collected.

The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a
one-year incontestability period. It states:

VIII. INCONTESTABILITY

After this Agreement has remained in force for one ( 1) year, we can no longer contest for health
reasons any claim for insurance under this Agreement, except for the reason that installment has
not been paid (lapsed), or that you are not insurable at the time you bought this pension program
by reason of age. If this Agreement lapses but is reinstated afterwards, the one (1) year
contestability period shall start again on the date of approval of your request for reinstatement.

The above 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.
Since Manuel died on the eleventh month following the issuance of his plan, the one year
incontestability period has not yet set in. Consequently, Philam Plans was not barred from
questioning Lourdes’ entitlement to the benefits of her husband’s pension plan.

United Merchants Corporation vs Country Bankers Insurance Corporation

G.R. No. 198588 July 11, 2012
Facts: Petitioner United Merchants Corporation (UMC) is engaged in the business of buying,
selling, and manufacturing Christmas lights. UMC leased a warehouse at 19-B Dagot Street, San
Jose Subdivision, Barrio Manresa, Quezon City, where UMC assembled and stored its
products. On 6 September 1995, UMCs General Manager Alfredo Tan insured UMCs stocks in
trade of Christmas lights against fire with defendant Country Bankers Insurance Corporation
(CBIC) for P 15,000,000.00. The Fire Insurance Policy No. F-HO/95-576 (Insurance Policy) and
Fire Invoice No. 12959A, valid until 6 September 1996. On 7 May 1996, UMC and CBIC executed
Endorsement F/96-154 and Fire Invoice No. 16583A to form part of the Insurance Policy.
Endorsement F/96-154 provides that UMCs stocks in trade were insured against additional perils,
to wit: typhoon, flood, ext. cover, and full earthquake. The sum insured was also increased to
P50,000,000.00 effective 7 May 1996 to 10 January 1997. On 9 May 1996, CBIC issued
Endorsement F/96-157 where the name of the assured was changed from Alfredo Tan to UMC.
On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM Adjustment
Corporation (CRM) to investigate and evaluate UMCs loss by reason of the fire. CBICs reinsurer,
Central Surety, likewise requested the National Bureau of Investigation (NBI) to conduct a parallel
investigation. On 6 July 1996, UMC, through CRM, submitted to CBIC its Sworn Statement of
Formal Claim, with proofs of its loss.
Issue: Whether or not UMC is entitled to claim from CBIC the full coverage of its fire insurance
policy.
Held: No. Burden of proof is the duty of any party to present evidence to establish his claim or
defense by the amount of evidence required by law, which is preponderance of evidence in civil
cases. The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the
burden of proof to obtain a favorable judgment. Particularly, in insurance cases, once an insured
makes out a prima facie case in its favor, the burden of evidence shifts to the insurer to controvert
the insureds prima facie case. In the present case, UMC established a prima facie case against
CBIC. CBIC does not dispute that UMCs stocks in trade were insured against fire under the
Insurance Policy and that the warehouse, where UMCs stocks in trade were stored, was gutted by
fire on 3 July 1996, within the duration of the fire insurance. However, since CBIC alleged an
excepted risk, then the burden of evidence shifted to CBIC to prove such exception.
An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the
burden of establishing that the loss comes within the purview of the exception or limitation. If loss
is proved apparently within a contract of insurance, the burden is upon the insurer to establish that
the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause
which limits its liability.
In Uy Hu & Co. v. The Prudential Assurance Co., Ltd., the Court held that where a fire insurance
policy provides that if the claim be in any respect fraudulent, or if any false declaration be made
or used in support thereof, or if any fraudulent means or devices are used by the Insured or anyone
acting on his behalf to obtain any benefit under this Policy, and the evidence is conclusive that the
proof of claim which the insured submitted was false and fraudulent both as to the kind, quality
and amount of the goods and their value destroyed by the fire, such a proof of claim is a bar against
the insured from recovering on the policy even for the amount of his actual loss.
In the present case, as proof of its loss of stocks in trade amounting to P 50,000,000.00, UMC
submitted its Sworn Statement of Formal Claim together with the following documents: (1) letters
of credit and invoices for raw materials, Christmas lights and cartons purchased; (2) charges for
assembling the Christmas lights; and (3) delivery receipts of the raw materials. However, the
charges for assembling the Christmas lights and delivery receipts could not support its insurance
claim. The Insurance Policy provides that CBIC agreed to insure UMCs stocks in trade. UMC
defined stock in trade as tangible personal property kept for sale or traffic. Applying UMCs
definition, only the letters of credit and invoices for raw materials, Christmas lights and cartons
may be considered.
It has long been settled that a false and material statement made with an intent to deceive or defraud
voids an insurance policy.
The most liberal human judgment cannot attribute such difference to mere innocent error in
estimating or counting but to a deliberate intent to demand from insurance companies payment for
indemnity of goods not existing at the time of the fire. This constitutes the so-called fraudulent
claim which, by express agreement between the insurers and the insured, is a ground for the
exemption of insurers from civil liability.

MALAYAN INSURANCE vs PHILIPPINE FIRST INSURANCE

FACTS

 Wyeth contracted a contract of carriage with Republic, a common carrier for the transport of its
goods and product.
 Wyeth insured the goods with Philippine First , while Republic insured the same goods with
Malayan insurance
 During transit, certain goods were lost due to hijacking of 10 armed men.
 Philippine first paid the proceeds to Wyeth, subrogating the rights of wyeth to Philippine first
which filed a claim against Republic and Malayan as a 3rd party defendant.
 Republic and Malayan refused the claim of Philippine first. Malayan contended that there was
double insurance and that the first insurer, Philippine First, should bear all the loss.

ISSUE

 W/N Malayan is liable? - YES

 W/N there is double insurance? - NO
 W/N Malayan is solidarily liable with Republic? - NO

HELD

 Malayan is liable because of the insurance contract it executed with Republic for the idemnity for
the loss. The cause of the loss not within the purview of an excepted peril, having been
determined in the lower courts is conclusive upon the SC making Malayan liable for the idemnity.
 There is double insurance when:
 1] The person insured is the same
2] 2 or more insurers insuring separately
3] There is identity of subject matter
4] There is identity of interest insured
5] There is identity of the risk or peril insured against

In the case at bar though the 2 insurance policy, one by Philippine first and one by Malayan
were issued over the same subject matter covering the same peril, it was issued to 2 different
persons and to 2 different interest.

 Philippine first insured wyeth over its own goods

 Malayan insured republic over the latters insurable interest over the safety of the goods
which could become the basis for liability in case of loss or damage.

Malayan is not solidarily liable with Republic because they have different sources from which their
liability arose. Republic arose due to a contract of carriage, while Malayan is that of contract. Solidarity
exist only by express stipulation of the parties or those provided by law, none of which is applicable in
the present case.

Paramount vs Sps Yves

On May 26, 1994, respondents insured with petitioner their 1994 Toyota Corolla sedan under a
comprehensive motor vehicle insurance policy for one year.

During the effectivity of said insurance, respondents’ car was unlawfully taken. Hence, they
immediately reported the theft. In said complaint sheet, respondents alleged that a certain
Ricardo Sales (Sales) took possession of the subject vehicle to add accessories and
improvements thereon, however, Sales failed to return the subject vehicle within the agreed
three-day period.

As a result, respondents notified petitioner to claim for the reimbursement of their lost vehicle.
However, petitioner refused to pay.

Issue: whether or not petitioner is liable under the insurance policy for the loss of respondents’
vehicle.

Petitioner argues that the loss of respondents’ vehicle is not a peril covered by the policy. It
maintains that it is not liable for the loss, since the car cannot be classified as stolen as
respondents entrusted the possession thereof to another person.

Ruling:

In People v. Bustinera,8 this Court had the occasion to interpret the "theft clause" of an insurance
policy. In this case, the Court explained that when one takes the motor vehicle of another without
the latter’s consent even if the motor vehicle is later returned, there is theft – there being intent to
gain as the use of the thing unlawfully taken constitutes gain.

Also, in Malayan Insurance Co., Inc. v. Court of Appeals,9 this Court held that the taking of a vehicle by
another person without the permission or authority from the owner thereof is sufficient to place it
within the ambit of the word theft as contemplated in the policy, and is therefore, compensable.

The principal distinction between the two crimes is that in theft the thing is taken while in estafa
the accused receives the property and converts it to his own use or benefit. However, there may
be theft even if the accused has possession of the property. If he was entrusted only with the
material or physical (natural) or de facto possession of the thing, his misappropriation of the
same constitutes theft, but if he has the juridical possession of the thing his conversion of the
same constitutes embezzlement or estafa.11

In the instant case, Sales did not have juridical possession over the vehicle. Hence, it is apparent
that the taking of repondents’ vehicle by Sales is without any consent or authority from the
former.

Records would show that respondents entrusted possession of their vehicle only to the extent that
Sales will introduce repairs and improvements thereon, and not to permanently deprive them of
possession thereof. Since, Theft can also be committed through misappropriation, the fact that
Sales failed to return the subject vehicle to respondents constitutes Qualified Theft. Hence, since
repondents’ car is undeniably covered by a Comprehensive Motor Vehicle Insurance Policy that
allows for recovery in cases of theft, petitioner is liable under the policy for the loss of
respondents’ vehicle under the "theft clause."

All told, Sales’ act of depriving respondents of their motor vehicle at, or soon after the transfer of
physical possession of the movable property, constitutes theft under the insurance policy, which is
compensable.12

Manila Bankers Life Insurance Corporation vs Aban

G.R. No. 175666 July 29, 2013

Facts: On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Manila Bankers
Life Insurance Corporation (Bankers Life), designating respondent Cresencia P. Aban (Aban), her
niece, as her beneficiary. Petitioner issued Insurance Policy No. 747411 (the policy), with a face
value of P 100,000.00, in Sotero’s favor on August 30, 1993, after the requisite medical
examination and payment of the insurance premium. On April 10, 1996, when the insurance policy
had been in force for more than two years and seven months, Sotero died. Respondent filed a claim
for the insurance proceeds on July 9, 1996. Petitioner conducted an investigation into the claim,
and came out with the following findings: 1. Sotero did not personally apply for insurance
coverage, as she was illiterate; 2. Sotero was sickly since 1990; 3. Sotero did not have the financial
capability to pay the insurance premiums on Insurance Policy No. 747411; 4. Sotero did not sign
the July 3, 1993 application for insurance; and 5. Respondent was the one who filed the insurance
application, and x x x designated herself as the beneficiary. For the above reasons, petitioner denied
respondent’s claim on April 16, 1997 and refunded the premiums paid on the policy.

Issue: Whether or not Manila Bankers is barred from denying the insurance claims based on fraud
or concealment.

Held: Yes. The “incontestability clause” is a provision in law that after a policy of life insurance
made payable on the death of the insured shall have been in force during the lifetime of the insured
for a period of two (2) years from the date of its issue or of its last reinstatement, the insurer cannot
prove that the policy is void ab initio or is rescindible by reason of fraudulent concealment or
misrepresentation of the insured or his agent.

The purpose of the law is to give protection to the insured or his beneficiary by limiting the
rescinding of the contract of insurance on the ground of fraudulent concealment or
misrepresentation to a period of only two (2) years from the issuance of the policy or its last
reinstatement.

The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the
premiums as long as the insured is still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the beneficiary to recover
under the policy.

RCBC vs CA

FACTS

GOYU was granted credit facilities and accommodations by the RCBC initially in the
amount of P 30 million. Upon GOYU’s application, the credit was increased to P50 Million, then
P90 Million, then P117 Million. As security, GOYU executed 2 REM and 2 CM in favor of RCBC,
which were registered with the RD. Under the 4 contracts, GOYU committed itself to insure the
mortgaged properties with an insurance company approved by RCBC, and subsequently endorse
and deliver the insurance policies to RCBC. GOYU then obtained 10 policies from MICO.
GOYU’s buildings were gutted by fire and it claimed indemnity from MICO but the latter denied
the claim on the ground that the insurance policies were either attached pursuant to writs of
attachments/garnishments issued by various courts or that the proceeds were also claimed by other
creditors of GOYU. GOYU, alleging better rights to the proceeds, filed for specific performance
and damges before the RTC of Manila Br 3. The trial court ruled in favor of GOYU for the fire
loss claims but ordered it to pay RCBC its loan obligations. On appeal to the CA, it affirmed the
ruling with regard to the liabilities of MICO and RCBC. The trial court and appellate courts both
held that, since the endorsements do not bear the signature of any officer of GOYU, they concluded
that the endorsements are defective. The CA then ordered GOYU to pay its obligation to RCBC
without any interest, surcharges and penalties.

ISSUE
 Whether or not the ruling of the appellate court is correct.

HELD

The Court held in the negative. The essence or rationale for the payment of interest or cost
of money is separate and distinct from that of surcharges and penalties. The charging of interest
for loans forms a very essential and fundamental element of the banking business.