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ABOITIZ SHIPPING CORPORATION V NEWINDIA ASSURANCE COMPANY, LTD.

[CITATION]QUISUMBING; May 2, 2006 NATURE Petition for review on certiorari FACTS - Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals from France on boarda vessel owned by Franco-Belgian Services, Inc.- The cargo was consigned to General Textile, Inc., inM a n i l a a n d i n s u r e d b y r e s p o n d e n t N e w I n d i a Assurance Company, Ltd.- While in Hongkong, the cargo was transferred to M/V P. Aboitiz for transshipment to Manila.- Before departing, the vessel was advised that itwas safe to travel to its destination, but while at sea,the vessel received a report of a typhoon movingwithin its path.- T o a v o i d t h e t y p h o o n , t h e v e s s e l c h a n g e d i t s course. However, it was still at the fringe of thetyphoon when its hull leaked.- O n O c t o b e r 3 1 , 1 9 8 0 , t h e v e s s e l s a n k , b u t t h e captain and his crew were saved.On November 3, 1980, the captain of M / V P . Aboitiz filed his Marine Protest, stating that thewind force was at 10 to 15 knots at the time the shipfoundered and described the weather as moderatebreeze, small waves, becoming longer, fairly frequentwhite horse- Petitioner notified the consignee of the total loss of the vessel and all of its cargoes.- General Textile, lodged a claim with respondent forthe amount of its loss.R e s p o n d e n t p a i d G e n e r a l T e x t i l e a n d w a s subro gated to the rights of the latter.- Respondent hired a surveyor to investigate, and thesame concluded that the cause was the flooding of the holds brought about by the vessels questionableseaworthiness.- Respondent filed a complaint for damages againstpetitioner Aboitiz, FrancoBelgian Services and the latters local agent, F.E. Zuellig, Inc. (Zuellig)

- On November 20, 1989, the trial court ruled i nfavor of respondent and held petitioner Aboitiz liablefor the total value of the lost cargo plus legal interest- The complaint with respect to Franco and Zuellig was dismissedPetitioner elevated the case to the Court of A ppeals, which in turn, affirmed in toto the trial courts decision.- Petitioner moved for reconsideration but the samewas denied.- Hence, this petition for review Petitioners Claim > Petitioner contends that respondents claim ford a m a g e s s h o u l d o n l y b e a g a i n s t t h e i n s u r a n c e proc eeds and limited to its pro-rata share in view of the doctrine of limited liability Respondents Comments > Respondent counters that the doctrine of real andhypothecary nature of maritime law is not applicablein the present case because petitioner was found toh a v e b e e n n e g l i g e n t . H e n c e , a c c o r d i n g t o respondent, petitioner should be held liable for thetotal value of the lost cargo ISSUE WON the limited liability doctrine applies in this case HELD NO Ratio Where the shipowner fails to overcome thepresumption of negligence, the doctrine of limitedliability cannot be applied. Reasoning - From the nature of their business and for reasonso f p u b l i c p o l i c y , c o m m o n c a r r i e r s a r e b o u n d t o observe extraordinary diligence over the goods theytransport according to all the circumstances of eachc a s e . I n t h e e v e n t o f l o s s , d e s t r u c t i o n o r deterioration of the insured goods, common carriersare responsible, unless they can prove that the

loss,destruction or deterioration was brought about bythe causes specified in Article 1734 1 of the Civil Code. In all o t h e r c a s e s , c o m m o n c a r r i e r s a r e presumed to have been at fault or to have actednegligently, unless they prove that they observedextraordinary diligence. Moreover, where the vesseli s f o u n d u n s e a w o r t h y , t h e s h i p o w n e r i s a l so 1 Art. 1734. Common carriers are responsible for the loss, destruction,or deterioration of the goods, unless the same is due to any of thefollowing causes only:(1) Flood, storm, earthquake, lightning, or other natural disaster orcalamity;(2) Act of the public enemy in war, whether international or civil;(3) Act of omission of the shipper or owner of the goods;(4) The character of the goods or defects in the packing or in thecontainers;(5) Order or act of competent public authority. presumed to be negligent since it is tasked with themaintenance of its vessel. Though this duty can bedelegated, still, the shipowner must exercise closesupervision over its men.- In the present case, petitioner has the burden of showing that it exercised extraordinary diligence inthe transport of the goods it had on board in order toinvoke the limited liability doctrine. Differently put,to limit its liability to the amount of the insurance proceeds, petitioner has the burden of proving thatthe unseaworthiness of its vessel was not due to itsfault or negligence.C o n s i d e r i n g t h e e v i d e n c e p r e s e n t e d a n d t h e circumst ances obtaining in this case, we find thatpetitioner failed to discharge this burden. Both thetrial and the appellate courts, in this case, found thatthe sinking was not due to the typhoon but to its unseaworthiness. Evidence on record showed thatthe weather was moderate when the vessel sank.T h e s e f a c t u a l f i n d i n g s o f t h e C o u r t o f A p p e a l s , affirming those of the trial court are n o t t o b e disturbed on appeal, but must be accorded

greatweight. These findings are conclusive not only on the parties but on this Court as well. Disposition Petition is denied for lack of merit. P H I L A M C A R E H E A L T H S Y S T E M S , I N C . V C A (TRINOS) 379 SCRA 357YNARES-SANTIAGO; March 18, 2002 NATURE Petition for review of CA decision FACTS - Ernani TRINOS, deceased husband of respondentJulita, applied for a health care coverage withPhilamcare Health Systems, Inc . In the standardapplication form, he answered no to the question: Have you or any of your family members e v e r consulted or been treated for high blood pressure,heart trouble, diabetes, cancer, liver disease, asthmaor peptic ulcer? (If Yes, give details). - The application was approved for period of oneyear; upon termination, it was extended for another2 years. Amount of coverage was increased to amaximum sum of P75T per disability. - During this period, Ernani suffered a HEARTATTACK and w a s c o n f i n e d a t t h e M a n i l a M e d i c a l Center (MMC) for one month. While her husband wasi n t h e h o s p i t a l , J u l i t a t r i e d t o c l a i m t h e hospitalization benefits. Petitioner treated the Health Care Agreement (HCA) as void since there was a concealment regarding Ernanis medical history . Doctors at t h e M M C a l l e g e d l y d i s c o v e r e d a t t h e t i m e o f h i s confinement, he was hypertensive, diabetic and a s t h m a t i c . J u l i t a t h e n p a i d t h e h o s p i t a l i z a t i o n expen

ses herself, amounting to about P76T.- After her husband died, Julita instituted action fordamages against Philamcare and its Pres. Aftertrial, the lower court ruled in her favor and orderedP h i l a m c a r e t o r e i m b u r s e m e d i c a l a n d h o s p i t a l coverage amounting to P76T plus interest, until fullypaid; pay moral damages of P10T; pay exemplary damages of P10T; attys fees of P20T.- C A a f f i r m e d t h e d e c i s i o n o f t h e t r i a l court butd e l e t e d a l l a w a r d s f o r d a m a g e s a n d a b s o l v e d petitioner Reverente. Petitioners Claims (1) Agreement grants living benefits s u c h a s medical checku p s a n d h o s p i t a l i z a t i o n w h i c h a member may immediately enjoy so long as he is alive upon effectivity of the agreement until itsexpiration.(2) Only medical and hospitalization benefits areg i v e n u n d e r t h e a g r e e m e n t w i t h o u t a n y indemnification , unlike in an insurance contract where the insured is indemnified for his loss .( 3 ) H C A s a r e only for a period of one year ;therefore, incontestability clause does not apply, as itrequires effectivity period of at least 2 yrs.(4) It is not an insurance company, governed by Insurance Commission, but a Health MaintenanceOrganization under the authority of DOH .(5) Trinos concealed a material fact i n h i s application.(6) Julita was not the legal wife since

at the timeo f t h e i r m a r r i a g e , t h e d e c e a s e d w a s p r e v i o u s l y m arried to another woman who was still alive.* ISSUES 1. WON a health care agreement is an insurancecontract (If so, incontestability clause under theInsurance Code is applicable)2. WON the HCA can be invalidated on the basis of alleged concealment HELD YES Ratio Every person has an insurable interest in thel i f e a n d h e a l t h o f h i m s e l f 2 .T h e h e a l t h c a r e agreement was in the nature of non life insurance, which is primarily a contract of indemnity. Once them e m b e r i n c u r s h o s p i t a l , m e d i c a l o r a n y o t h e r e x p e n s e a r i s i n g f r o m s i c k n e s s , i n j u r y o r o t h e r stipulated contingent, the health care provider mustpay for the same to the extent agreed upon under the contract. ReasoningA contract of insurance 3 is an agreement wherebyone undertakes for a consideration to indemnifyanother against loss, damage or liability arising froman unknown or contingent event.- An insurance contract exists where the followingelements concur: (a) The insured has an insurable interest; (b) The insured is subject to a risk of loss by the happening of the peril; (c) The insurer assumes the risk; (d)

Such assumption of risk is part of a generalscheme to distribute actual losses among a largegroup of persons bearing a similar risk; and (e) I n consideration of the insurers promise, theinsured pays a premium.2. NO Ratio Where matters of opinion or judgment arecalled for, answers made in good faith and withoutintent to deceive will not avoid a policy even thoughthey are untrue; since in such case the insurer is not j u s t i f i e d i n r e l y i n g u p o n s u c h s t a t e m e n t , b u t i s obligated to make further inquiry. ReasoningThe fraudulent intent on the part of the insuredmust be established to warrant rescission of theinsurance contract. The right to rescind should be exercised p r e v i o u s t o t h e c o m m e n c e m e n t o f a n action o n t h e c o n t r a c t . N o r e s c i s s i o n w a s m a d e . Besides, the cancellation of health care agreementsas in insurance policies requires : (a) Prior notice of cancellation to insured; 2 Sec.10. Every person has an insurable interest in the life andhealth: (1) of himself, of his spouse and of his children;(2) of any person on whom he depends wholly or in part for educationor support, or in whom he has a pecuniary interest;(3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness mightdelay or prevent the performance; and(4) of any person upon whose life any estate or interest vested in himdepends. 3 Section 2 (1) of the Insurance Code (b)

Notice must be based on the occurrence aftereffective date of the policy of one or more of the grounds mentioned; (c) Must be in writing, mailed or delivered to the insured at the address shown in the policy; (d) Must state the grounds relied upon provided inSection 64 of the Insurance Code and upon requestof insured, to furnish facts on which cancellation is based.These conditions have not been met. When theterms of insurance contract contain limitations onliability, courts should construe them in such a waya s t o p r e c l u d e i n s u r e r f r o m n o n c o m p l i a n c e o f obligation. Being a contract of adhesion, terms of ani n s u r a n c e c o n t r a c t a r e t o b e c o n s t r u e d s t r i c t l y agai nst the party which prepared it the insurer.- Also, Philamcare had 12 months from the date of issuance of the Agreement within which to contestthe membership of the patient if he had previousailment of asthma, and six months from the issuanceof the agreement if the patient was sick of diabetesor hypertension. * The health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It isc l e a r t h a t r e s p o n d e n t p a i d a l l t h e h o s p i t a l a n d medical bills; thus, she is entitled to reimbursement. Disposition Petition DENIED. P I N E D A V C A ( I N S U L A R L I F E I N S U R A N C E COMPANY) 226 SCRA 755DAVIDE; September 27, 1993 NATURE Appeal by certiorari for review and set aside theDecision of the public respondent Court of Appeals and its Resolution denying the petitioners' motion forreconsideration FACTS - I n 1 9 8 3 , P r i m e M a r i n e S e r v i c e s , I n c . ( P M S I ) procured a group policy from Insular Life to providelife insurance coverage to its

sea-based employeesenrolled under the plan. During the effectivity of thepolicy, 6 covered employees perished at sea. Theyw e r e s u r v i v e d b y c o m p l a i n a n t s a p p e l l e e s , t h e beneficiaries under the policy.- c o m p l a i n a n t s a p p e l l e e s s o u g h t t o c l a i m d e a t h benefits due them and approached Capt. RobertoNuval, President and GM of PMSI, then executed special powers of attorney authorizing Capt. Nuval to follow up, ask, demand, collect and receive fort h e i r b e n e f i t i n d e m n i t i e s o f s u m s o f m o n e y d u e them U n k n o w n t o t h e c o m p l a i n a n t s , P M S I f i l e d w i t h Insula r Life claims for and in behalf of them throughC a p t . N u v a l , e v e n u s i n g t h e 5 s p e c i a l p o w e r s o f attorney that they executed as documents. Insular Life then released 6 checks, payable to the order of the complainant-appellees, to the treasurer of PMSI( w h o h a p p e n e d t o b e C a p t . N u v a l s s o n - i n law).Capt. Nuval then endorsed and deposited these checks (which were for the complainants) in his bankaccount.- 3 years after, the complainants-appellees found outt h a t t h e y w e r e e n t i t l e d , a s b e n e f i c i a r i e s , t o l i f e i nsular benefits under a group policy wit h respondent -appellant so they sought to recoverthese benefits from Insular Life. Insular Life deniedthe claim, saying that their liability to complainantsw a s a l r e a d y e x t i n g u i s h e d u p o n d e l i v e r y t o andr e c e i p t b y P M S I o f t h e 6 c h e c k s i s s u e d i n t h e complainants names. Complainants filed case withthe Insurance Commission which decided in theirfavor.- Insurance Commission held that the special powersof attorney executed by complainants in favor of thecomplainants do not contain in unequivocal and clearterms authority to Capt. Nuval to obtain, receive,r e c e i p t f r o m r e s p o n d e n t c o m p a n y i n s u r a n c e proceeds arising from the death of the seamaninsured; also, that Insular Life did not convincinglyrefuted the claim of Mrs. Alarcon that neither she norher husband executed a special

power of authority infavor of Capt. Nuval (and therefore, the companyshould have not released the check to Capt. Nuval-PMSI); and that it did not observe Sec 180(3), asrepealed by Art. 225 of the Family Code, when itreleased the benefits due to the minor children of Ayo and Lontok, when the said complainants did notpost a bond as required- Insular Life appeal ed to the CA; CA modified thedecision of the Insurance Commission, eliminating the award to the Lontoks and Ayo ISSUES 1. WON Insular Life should be liable to t h e complainants when they relied on the special powerso f a t t o r n e y , w h i c h C a p t . N u v a l p r e s e n t e d a s documents, when they released the checks to thelatter2 . W O N I n s u l a r L i f e s h o u l d b e l i a b l e t o t h e complainants when they released the check in favorof Ayo and LOntok, even if no bond was posted asrequired HELD 1. YES Ratio Third persons deal with agents at t heir peril a n d a r e b o u n d t o i n q u i r e a s t o t h e e x t e n t o f t h e power of the agent with whom they contract. The person dealing with an agent must also act w i t h o r d i n a r y p r u d e n c e a n d r e a s o n a b l e diligence. O b v i o u s l y , i f h e k n o w s o r h a s g o o d reason to believe that the agent is exceeding hisa u t h o r i t y , h e c a n n o t c l a i m p r o t e c t i o n . S o i f t h e su ggestions of probable limitations be of such a clearand reasonable quality, or if the character assumedby the agent is of such a suspicious or unreasonablenature, or if the authority which he seeks to exerciseis of such an unusual or improbable character, aswould suffice to put an ordinarily prudent man uponhis guard, the party dealing with him may not shuthis eyes to the real state of the case, but should either

refuse to deal with the agent at all, or shouldascertain from the principal the true condition of affairs. ReasoningThe execution by the principals of special powers of attorney, which clearly appeared to be in prepared forms and only had to be filled up with their names,r e s i d e n c e s , d a t e s o f e x e c u t i o n , d a t e s o f acknowledgement and others, excludes any intent togrant a general power of attorney or to constitute auniversal agency. Being special powers of attorney,they must be strictly construed. Insular Life knew that a power of attorney in favor of Capt. Nuval for the collection and receipt of such proceeds was adeviation from its practice with respect to group policies (that the employer-policyholder is the agent of the insurer).The employer acts as a functionary in the collectionand payment of premiums and in performing relatedd u t i e s . L i k e w i s e f a l l i n g w i t h i n t h e a m b i t o f administration of a group policy is the disbursemento f i n s u r a n c e p a y m e n t s b y t h e e m p l o y e r t o t h e employees. Most policies, such as the one in thiscase, require an employee to pay a portion of thepremium, which the employer deducts from wages while the remainder is paid by the employer. This isk n o w n a s a contributory plan as compared to anon-contributory plan where the premiums are solelypaid by the employer.the labor of the employees is the true sourceof the benefits, which are a form of additionalcompensation to them. the employer is the agent of the insurer in performing the duties of administering groupinsurance policies. I t c a n n o t b e s a i d t h a t t h e employer acts entirely for its own benefit or for theb e n e f i t o f i t s e m p l o y e e s i n u n d e r t a k i n g administrative functions. While a reduced premiummay result if the employer relieves the insurer of these tasks, and

this, of course, is advantageous toboth the employer and the employees, the insurera l s o e n j o y s s i g n i f i c a n t a d v a n t a g e s f r o m t h e arrangement. The reduction in the premium whichresults from employeradministration permits theinsurer to realize a larger volume of sales, insurer torealize a larger volume of sales, and at the samet i m e t h e i n s u r e r ' s o w n a d m i n i s t r a t i v e c o s t s a r e markedly reduced.- the employee has no knowledge of or control overthe employer's actions in handling the policy or itsadministration. An agency relationship is based uponconsent by one person that another shall act in his behalf and be subject to his control. It is clear fromthe evidence regarding procedural techniques herethat the insurer-employer relationship meets thisagency test with regard to the administration of thepolicy, whereas that be tween the employer and itsemployees fails to reflect true agency. The insurerd i r e c t s t h e p e r f o r m a n c e o f t h e e m p l o y e r ' s administrative acts, and if these d u t i e s a r e n o t undertaken properly the insurer is in a position toe x e r c i s e m o r e c o n s t r i c t e d c o n t r o l o v e r t h e em ployer's conduct.ON GROUP INSURANCE: Group insurance is essentially a single insurance contract that provides coverage for many individuals. In itsoriginal and most common form, group insurance provides life or health insurance coverage for the employees of one employer . The coverageterms for group insurance are usually stated in amaster agreement or policy that is issued by theinsurer to a representative of the group or to anadministrator of the insurance program, such as anemployer. Although the employer may be the titularo r n a m e d i n s u r e d ,

t h e i n s u r a n c e i s a c t u a l l y related to the life and health of the employee .Indeed, the employee is in the position of a real party t o t h e m a s t e r p o l i c y , a n d e v e n i n a n o n - contributory plan, the payment by the employer of t h e e n t i r e p r e m i u m i s a p a r t o f t h e t o t a l compensation paid for the services of the employee 2. YES Ratio Regardless of the value of the unemancipatedcommon child's property, the father and mother ipso j u r e b e c o m e t h e l e g a l g u a r d i a n o f t h e c h i l d ' s p r o p e r t y . H o w e v e r , i f t h e m a r k e t v a l u e o f t h e prop erty or the annual income of the child exceedsP50,000,00, a bond has to be posted by the parentsc o n c e r n e d t o g u a r a n t e e t h e p e r f o r m a n c e o f t h e obligations of a general guardian. Reasoning - Sec 180, Insurance Code: 'In the absence of a j u d i c i a l g u a r d i a n , t h e f a t h e r , o r i n t h e l a t t e r ' s abse nce or incapacity, the mother of any minor, whois an insured or a beneficiary under a contract of life,health or accident insurance, may exercise, in behalf of said minor, any right under the policy, withoutnecessity of court authority or the giving of a bondwhere the interest of the minor in the particular actinvolved does not exceed twenty thousand pesos "- repealed by Art. 225, Family Code: "ART. 225. The father and the mother shall jointly exercise legalg u a r d i a n s h i p o v e r t h e p r o p e r t y o f t h e i r unemancipated common child without the necessityof a court appointment. In case of disagreement, thefather's decision shall prevail, unless there is judicialorder to the contrary.W h e r e t h e m a r k e t v a l u e o f t h e p r o p e r t y o r t h e annual income of the child exceeds P50,000, the parent concerned shall be required to furnish a bondin such amount as the court may

determine, but notless than ten per centum (10%) of the value of thep r o p e r t y o r a n n u a l i n c o m e , t o g u a r a n t e e t h e performance of the obligations prescribed for generalguardians.""market value of the property or the annualincome of the child": the aggregate of the child'sp r o p e r t y o r a n n u a l i n c o m e ; i f t h i s e x c e e d sP50,000.00, a bond is required T h e r e i s n o evidence that the share of each of the minors in thep r o c e e d s o f t h e g r o u p p o l i c y i n q u e s t i o n i s t h e minor's only property. Without such evidence, itwould not be safe to conclude that, indeed, that is his only property. Disposition the instant petition is GRANTED. The Decision of 10 October 1991 and the Resolution of 19May 1992 of the public respondent in CA-G.R. SP No.2 2 9 5 0 a r e S E T A S I D E a n d t h e D e c i s i o n o f t h e Insurance Commission in IC Case No. RD-058 isREINSTATED. Costs against the private respondent.SO ORDERED. CEBU SHIPYARD ENGINEERING WORKS, INC. VW I L L I A M L I N E S , I N C . a n d P R U D E N T I A L GUARAN TEE and ASSURANCE COMPANY, INC. [CITATION]PURISIMA; May 5, 1999 NATURE Petition for review on certiorari FACTS - C e b u S h i p y a r d a n d E n g i n e e r i n g W o r k s , I n c . (CSEW) is engaged in the business of dry -dockingand repairing of marine vessels while the PrudentialGuarantee and Assurance, Inc. (Prudential) is in thenon-life insurance business.- William Lines, Inc. is in the shipping business. Itw a s t h e o w n e r o f M / V M a n i l a C i t y , a l u x u r y passenger -cargo vessel, which caught fire and sankon Feb. 16, 1991. At the time of the unfortunateoccurrence sued upon, subject vessel was insuredwith Prudential for P45M for hull and machinery.

TheH u l l P o l i c y i n c l u d e d a n A d d i t i o n a l P e r i l s (INCHMAREE) Clause covering loss of or damage tothe vessel through the negligence of, among others,ship repairmen- Petitioner CSEW was also insured by Prudential forthird party liability under a Shiprepairers LegalLiability Insurance Policy. The policy was for P10million only, under the limited liability clause, to wit:- On Feb. 5, 1991, William Lines, Inc. brought itsvessel, M/V Manila City, to the Cebu Shipyard inLapulapu City for annual dry-docking and repair.- On Feb. 6, 1991, an arrival conference was heldbetween representatives of William Lines, Inc. andCSEW to discuss the work to be undertaken on the M/V Manila City. The contracts, denominated as WorkOrders, were signed thereafter., with the followingstipulations: 10. The Contractor shall replace at its own work andat its own cost any work or material which can beshown to be defective and which is communicated inwriting within one (1) month of redelivery of thevessel or if the vessel was not in the Contractors P o s s e s s i o n , t h e w i t h d r a w a l o f t h e C o n t r a c t o r s workmen, or at its option to pay a sum equal to thecost of such replacement at its own works. These conditions shall apply to any such replacements.11. Save as provided in Clause 10, the Contractor shall not be under any liability to the Customer eitherin contract or for delict or quasi-delict or otherwiseexcept for negligence and such liability shall itself besubject to the following overriding limitations andexceptions, namely:( a ) T h e t o t a l l i a b i l i t y o f t h e C o n t r a c t o r t o t h e Customer (over and above the liability to replaceunder Clause 10) or of any sub-contractor shall belimited in respect of any defect or event (and a seriesof accidents arising out of the same defect or eventshall constitute one defect or event) to the su m of Pesos Philippine Currency One Million only.xxx2 0 . T h e i n s u r a n c e o n t h e v e s s e l s h o u l d b e maintained by the customer and/or owner of thevessel during the period the contract is in effect. - While the M/V Manila City was undergoing dry -docking and repairs within the premises of CSEW, themaster, officers and crew of M/V

Manila City stayedin the vessel, using their cabins as living quarters.Other employees hired by William Lines to do repairsa n d m a i n t e n a n c e w o r k o n t h e v e s s e l w e r e a l s o present during the dry-docking.- On February 16, 1991, after subject vessel wastransferred to the docking quay, it caught fire and sank, resulting to its eventual total loss.- On February 21, 1991, William Lines, Inc. filed a complaint for damages against CSEW, alleging thatt h e f i r e w h i c h b r o k e o u t i n M / V M a n i l a C i t y w a s caused by CSEWs negligence and lack of care.- On July 15, 1991 was filed an Amended Complaintimpleading Prudential as co-plaintiff, after the latterhad paid William Lines, Inc. the value of the hull andmachinery insurance on the M/V Manila City. As a result of such payment Prudential was subrogated tothe claim of P45 million, representing the value of the said insurance it paid.On June 10, 1994, the trial court a quo came outwith a judgment against CSEW:1. To pay unto plaintiff Prudential Guarantee and Assurance, Inc., the subrogee, the amount of P45M,with interest at the legal rate until full payment ismade; the amount of P56,715,000 representing lossof income of M/V MANILA CITY, with interest at thelegal rate until full payment is made;2 . T o p a y u n t o p l a i n t i f f , W i l l i a m L i n e s , I n c . t h e amount of P11M as payment, in addition to what it received from the insurance company to fully covert h e i n j u r y o r l o s s , i n o r d e r t o r e p l a c e t h e M / V MANILA CITY, with interest at the legal rate until fullpayment is made; the sum of P927,039 for the lossof fuel and lub oil on board the vessel when she wasc o m p l e t e l y g u t t e d b y f i r e a t d e f e n d a n t , C e b u Shipyards quay, with interest at the legal rate untilfull payment is made; the sum of P3,054,677.95 as payment for the spare parts and materials used int h e M / V M A N I L A C I T Y d u r i n g d r y d o c k i n g w i t h interest at the legal rate until full payment is made;P500,000 in moral damages;the amount of P10Minattorneys fees; and to pay the costs of this suit.- O n S e p t e m b e r 3 ,

1 9 9 7 , t h e C o u r t o f A p p e a l s affirmed the appealed decision of the trial court, ordering CSEW to pay Prudential, the subrogee, thesum of P45 Million, with interest at the legal rateuntil full payment is made. CSEWs version: On Feb. 13, 1991, the CSEW completed t h e drydocking of M/V Manila City at its grave dock. Itwas then transferred to the docking quay of CSEWwhere the remaining repair to be done was thereplating of the top of Water Ballast Tank No. 12 which was subcontracted by CSEW to JNB GeneralServices. Tank Top No. 12 was at the rear section of the vessel, on level with the flooring of the crew cabins located on the vessels second deck.At around 7AM of Feb. 16, 1991, the JNB workerstrimmed and cleaned the tank top framing whichinvolved minor hotworks (welding/cutting works).The said work was completed at about 10AM. The JNB workers then proceeded to rig the steel plates,after which they had their lunch break. The rigging was resumed at 1PMW h i l e i n t h e p r o c e s s o f r i g g i n g t h e s e c o n d s t e e l plate, the JNB workers noticed smoke coming fromthe passageway along the crew cabins. When one of t h e w o r k e r s , M r . C a s a s , p r o c e e d e d t o t h e passageway to ascertain the origin of the smoke, henoticed that smoke was gathering on the ceiling of the passageway but did not see any fire as the crewcabins on either side of the passageway were locked.He immediately sought out the proprietor of JNB, Mr.Buenavista, and the Safety Officer of CSEW, Mr.A v e s , w h o s o u n d e d t h e f i r e a l a r m . C S E W s f i r e brigade immediately responded as well as the otherfire fighting units in Metro Cebu. However, therewere no WLI representative, officer or crew to guidethe firemen inside the vessel.- Despite the combined efforts of the firemen of theL a p u l a p u C i t y F i r e D e p t . , M a n d a u e F i r e D e p t . , C o r d o v a F i r e D e p t . E m e r g e n c y R e s c u e U n i t Foundati on, and fire brigade of CSEW, the fire wasnot controlled until 2AM of the following day.- On the early morning of Feb. 17, 1991, gusty windsrekindled the flames on the vessel and fire again broke

out. Then the huge amounts of water pumpedinto the vessel, coupled with the strong current, caused the vessel to tilt until it capsized and sank- When M/V Manila City capsized, steel and angle bars were noticed to have been newly welded alongthe port side of the hull of the vessel, at the level of the crew cabins. William Lines did not previously apply for a permit to do hotworks on the said portionof the ship as it should have done pursuant to its work order with CSEW. Prudentials version > At around 7AM of Feb. 16, 1991, the Chief Mate of M/V Manila City was inspecting the various worksbeing done by CSEW on the vessel, when he saw that some workers of CSEW were cropping out steelplates on Tank Top No. 12 using acetylene, oxygenand welding torch. He also observed that the rubberinsulation wire coming out of the air-conditioning unitwas already burning, prompting him to scold theworkers.> At 2:45 PM of the same day, witnesses saw smokecoming from Tank No. 12. The vessels reefermanr e p o r t e d s u c h o c c u r e n c e t o t h e C h i e f M a t e w h o immediately assembled the crew members to put out the fire. When it was too hot for them to stay onboard and seeing that the fire cannot be controlled,t h e v e s s e l s c r e w w e r e f o r c e d t o w i t h d r a w f r o m CSEWs docking quay.- In the morning of Feb. 17, 1991, M/V Manila Citysank. As the vessel was insured with PrudentialG u a r a n t e e , W i l l i a m L i n e s f i l e d a c l a i m f o r constructive total loss, and after a t h o r o u g h investigation of the surrounding circumstances of thetragedy, Prudential found the said insurance claim tobe meritorious and issued a check in favor of WilliamL i n e s i n t h e a m o u n t o f P 4 5 m i l l i o n p e s o s representing the total value of M/V Manila Citys hulland machinery insurance. ISSUES 1. WON CSEW had management and supervisorycontrol of the m/v manila city at the time the fi rebroke out2 . W O N t h e d o c t r i n e o f r e s i p s a l o q u i t u r a p p l i e s against the crew3. WON CSEWS expert evidence is admissible or of probative value4 . W O N P r u d e n t i a l h a s t h e r i g h t o f s u b r o g a t i o n against its own insured THE

CONTRACTUAL 5. 5. 5.5. WON the provisions limiting csews liability fornegligence to a maximum of p1 million are valid HELD 1. YES- The that factual findings by the CA are conclusive on the parties and are not reviewable by this Court.They are entitled to great weight and respect, evenf i n a l i t y , e s p e c i a l l y w h e n , a s i n t h i s c a s e , t h e C A affirmed the factual findings arrived at by the trialc o u r t . W h e n s u p p o r t e d b y s u f f i c i e n t e v i d e n c e , fin dings of fact by the CA affirming those of the trialc o u r t , a r e n o t t o b e d i s t u r b e d o n a p p e a l . T h e rationale behind this doctrine is that review of thefindings of fact of the CA is not a function that theSupreme Court normally undertakes.- The CA and the Cebu RTC are agreed that the firewhich caused the total loss of subject M/V ManilaCity was due to the negligence of the employees andworkers of CSEW. Both courts found that the M/VManila City was under the custody and control of petitioner CSEW, when the ill-fated vessel caughtfire. The decisions of both the lower court and the CAset forth clearly the evidence sustaining their findingof actionable negligence on the part of CSEW. Thisf a c t u a l f i n d i n g i s a c c o r d e d g r e a t w e i g h t a n d i s conclusive on the parties. The court discerns no basisf o r d i s t u r b i n g s u c h f i n d i n g f i r m l y a n c h o r e d o n e nough evidence.- Furthermore, in petitions for review on certiorari ,o n l y q u e s t i o n s o f l a w m a y b e p u t i n t o i s s u e . Q uestions of fact cannot be entertained. The findingo f negligence by the CA is a question which t h i s Court cannot look into as it would entail going intofactual matters on which the finding of negligence was based. Such an approach cannot be allowed bythis Court in the absence of clear showing that thecase falls under any of the exceptions to the well -established principle.T h e f i n d i n g b y t h e t r i a l c o u r t a n d t h e C o u r t o f Appeals that M/V Manila City caught fire and sank byreason of the negligence of the workers of CSEW, w h e n t h e s a i d v e s s e l

w a s u n d e r t h e e x c l u s i v e custody and control of CSEW is accordingly upheld.2. YES- For the doctrine of res ipsa loquitur to apply to a given situation, the following conditions must concur:( 1 ) t h e a c c i d e n t w a s o f a k i n d w h i c h d o e s n o t ordinarily occur unless someone is negligent; and (2)that the instrumentality or agency which caused theinjury was under the exclusive control of the personcharged with negligence.T h e f a c t s a n d e v i d e n c e o n r e c o r d r e v e a l t h e concurrence of said conditions in the case underscrutiny. First, the fire that occurred and consumedM/V Manila City would not have happened in theordinary course of things if reasonable care and diligence had been exercised. In other words, somenegligence must have occurred. Second, the agencycharged with negligence, as found by the trial courta n d t h e C A a n d a s s h o w n b y t h e r e c o r d s , i s t h e herein petitioner, CSEW, which had control oversubject vessel when it was docked for annual repairs.So also, as found by the RTC, other responsiblecauses, including the conduct of the plaintiff, andthird persons, are sufficiently eliminated by the evidence. What is more, in the present case the trial courtf o u n d d i r e c t e v i d e n c e t o p r o v e t h a t t h e w o r k e r s and/or employees of CSEW were remiss in their dutyof exercising due diligence in the care of subjectv e s s e l . T h e d i r e c t e v i d e n c e s u b s t a n t i a t e s t h e conclusion that CSEW was really negligent. Thus,e v e n w i t h o u t a p p l y i n g t h e d o c t r i n e o f r e s i p s a loquitur, in light of the direct evidence on record, theineluctable conclusion is that CSEW was negligenta n d c o n s e q u e n t l y l i a b l e f o r d a m a g e s t o t h e respondent, William Lines, Inc.3. NOPetitioner maintains that the CA erred i n disregarding the testimonies of the fire experts, Messrs. David Grey and Gregory Michael Southeard,who testified on the probable origin of the fire in M/VManila City. Petitioner avers that since the said fireexperts were one in their opinion that the fire did

notoriginate in the area of Tank Top No. 12 where theJNB workers were doing hotworks but on the crewaccommodation cabins on the portside No. 2 deck, the RTC and the CA should have given weight to suchfinding based on the testimonies of fire experts; petitioner argues.B u t c o u r t s a r e n o t b o u n d b y t h e t e s t i m o n i e s o f expert witnesses. Although they may have probativevalue, reception in evidence of expert testimonies iswithin the discretion of the court, under Section 49,Rule 130 of the Revised Rules of Court. It is nevermandatory for judges to give substantial weight toexpert testimonies. If from the facts and evidence onrecord, a conclusion is readily ascertainable, there isno need for the judge to resort to expert opinione v i d e n c e . I n t h e c a s e u n d e r c o n s i d e r a t i o n , t h e testimonies of the fire experts were not the onlyavailable evidence on the probable cause and originof the fire. There were witnesses who were actuallyon board the vessel when the fire occurred. Betweenthe testimonies of the fire experts who merely basedtheir findings and opinions on interviews and thetestimonies of those present during the fire, thelatter are of more probative value.4. YES- Petitioner contends that Prudential is not entitled tobe subrogated to the rights of William Lines, Inc.,theorizing that (1) the fire which gutted M/V ManilaCity was an excluded risk and (2) it is a co-assuredunder the Marine Hull Insurance Policy.- It is petitioners submission that the loss of M/V Manila City or damage thereto is expressly excludedfrom the coverage of the insurance because thesame resulted from want of due diligence by the Assured, Owners or Managers which is not includedin the risks insured against. Again, this theory of petitioner is bereft of any factual or legal basis. Itproceeds from a wron g premise that the fire whichgutted subject vessel was caused by the negligenceof the employees of William Lines, Inc. To repeat,the issue of who between the parties was negligent has already been resolved against CSEW. Upon proof of payment by Prudential to William Lines, Inc., theformer was subrogated to the right of the latter toindemnification from CSEW. As aptly ruled by theCourt of Appeals, the law on the matter is succinct and clear, to wit:

A r t . 2 2 0 7 . I f t h e p l a i n t i f f s p r o p e r t y h a s b e e n insure d, and he has received indemnity from theinsurance company for the injury or loss arising out of the wrong or breach of contract complained of,the insurance company shall be subrogated to therights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover t h e i n j u r y o r l o s s , t h e a g g r i e v e d p a r t y s h a l l b e entitled to recover the deficiency from the person causing the loss or injury. - Thus, when Prudential, after due verification of themerit and validity of the insurance claim of WilliamLines, Inc., paid the latter the total amount coveredby its insurance policy, it was subrogated to the rightof the latter to recover the insured loss from the liable party, CSEW.- Petitioner the orizes further that there can be noright of subrogation as it is deemed a co-assuredunder the subject insurance policy. To buttress itss t a n c e t h a t i t i s a c o assured, petitioner placedreliance on Clause 2 0 o f t h e W o r k O r d e r w h i c h states: 2 0 . T h e i n s u r a n c e o n t h e v e s s e l s h o u l d b e maintained by the customer and/or owner of thevessel during the period the contract is in effect. - According to petitioner, under the aforecited clause,William Lines, Inc., agreed to assume the risk of lossof the vessel while under drydock or repair and tos u c h e x t e n t , i t i s b e n e f i t e d a n d e f f e c t i v e l y co nstituted as a co-assured under the policy.- This theory of petitioner is devoid of sustainablemerit. Clause 20 of the Work Order in question isclear in the sense that it requires William Lines tomaintain insurance on the vessel during the period of dry-docking or repair. Concededly, such a stipulationworks to the benefit of CSEW as the shiprepairer. However, the fact that CSEW benefits from the saidstipulation does not automatically make it as a co-assured of William Lines. The intention of the partiesto make each other a co-assured under an insurancepolicy is to be gleaned principally from the insurancec o n t r a c t o r p o l i c y i t s e l f a n d n o t f r o m a n y o t h e r contract or agreement because

the insurance policydenominates the assured and the beneficiaries of thei n s u r a n c e . T h e h u l l a n d m a c h i n e r y insuranceprocured by William Lines, Inc. from Prud e n t i a l named only William Lines, Inc. as the assured.T h e r e w a s n o m a n i f e s t a t i o n o f a n y i n t e n t i o n of William Lines, Inc. to constitute CSEW as a coassured under subject policy. It is axiomatic that when the terms of a contract are clear its stipulationscontrol. i] Thus, when the insurance policy involvedn a m e d o n l y W i l l i a m L i n e s , I n c . a s t h e a s s u r e d thereunder, the claim of CSEW that it is a co-assuredis unfounded.- Then too, in the Additional Perils Clause of thesame Marine Insurance Policy, it is provided that: Subject to the conditions of this Policy, thisi nsurance also covers loss of or damage to vessel directly caused by the following: xxx Negligence of Charterers and/or Repairers, provided s u c h C h a r t e r e r s a n d / o r R e p a i r e r s a r e n o t a n Assured hereunder. - As correctly pointed out by respondent Prudential,if CSEW were deemed a co-assured under the policy,it would nullify any claim of William Lines, Inc. fromPrudential for any loss or damage caused by thenegligence of CSEW. Certainly, no shipowner wouldagree to make a shiprepairer a co-assured undersuch insurance policy; otherwise, any claim for lossor damage under the policy would be invalidated. Such result could not have been intended by WilliamLines, Inc.5. NO- Although in this jurisdiction, contracts of adhesionhave been consistently upheld as valid per se; as binding as an ordinary contract, the Court recognizesinstances when reliance on such contracts cannot befavored especially where the facts and circumstanceswarrant that subject stipulations be disregarde d.Thus, in ruling on the validity and applicability of thes t i p u l a t i o n l i m i t i n g t h e l i a b i l i t y o f C S E W f o r negligence to P1M only, the facts and circumstancesvis-a-vis the nature of the provision sought to beenforced should be

considered, bearing in mind theprinciples of equity and fair play.- I t i s w o r t h y t o n o t e t h a t M / V M a n i l a C i t y w a s insured with Prudential for P45M. To determine thevalidity and sustainability of the claim of WilliamLines, Inc., for a total loss, Prudential conducted itsown inquiry. Upon thorough investigation by its hullsurveyor, M/V Manila City was found to be beyondeconomical salvage and repair. The evaluation of theaverage adjuster also reported a constructive totalloss. The said claim of William Lines, Inc., was thenf o u n d t o b e v a l i d a n d c o m p e n s a b l e s u c h t h a t P r u d e n t i a l p a i d t h e l a t t e r t h e t o t a l v a l u e o f i t s ins urance claim. Furthermore, it was ascertained thatthe replacement cost of the vessel (the price of a vessel similar to M/V Manila City), amounts to P55M.- Considering the aforestated circumstances, leta l o n e t h e f a c t t h a t n e g l i g e n c e o n t h e p a r t o f petitioner has been sufficiently proven, it wouldindeed be unfair and inequitable to limit the liabilityof petitioner to One Million Pesos only. As aptly heldby the trial court, it is rather unconscionable if notoverstrained. To allow CSEW to limit its liability toP 1 M n o t w i t h s t a n d i n g t h e f a c t t h a t t h e t o t a l l o s s suffered by the assured and paid for by Prudential amounted to P45M would sanction the exercise of ad e g r e e o f d i l i g e n c e s h o r t o f w h a t i s o r d i n a r i l y require d because, then, it would not be difficult forpetitioner to escape liability by the simple expediento f p a y i n g a n a m o u n t v e r y m u c h l o w e r t h a n t h e actual damage or loss suffered by William Lines, Inc. Disposition Petition is DENIED. Resolution of the CA is AFFIRMED. NEW LIFE ENTERPRISES V CA 207 SCRA 669REGALADO; March 31, 1992 NATURE Appeal by certiorari FACTS - The antecedents of this case show that Julian Sya n d J o s e S y B a n g h a v e f o r m e d a b u s i n e s s partnership in the City of Lucena. Under the

businessn a m e o f N e w L i f e E n t e r p r i s e s , t h e p a r t n e r s h i p engaged in the sale of construction materials at its place of business, a two storey building situated atIyam, Lucena City. The facts show that Julian Syinsured the stocks in trade of New Life Enterprises with Western Guaranty Corporation, Reliance Suretyand Insurance Co. Inc., and Equitable InsuranceCorporation.- On May 15, 1981, Western Guaranty Corporation issued Fire Insurance Policy No. 37201 in the amountof P350,000.00. This policy was renewed on May 13,1982.- On July 30, 1981, Reliance Surety and InsuranceCo., Inc. issued Fire Insurance Policy No. 69135 inthe amount of P300,000.00 (Renewed under RenewalCertificate No. 41997). An additional insurance wasissued by the same company on November 12, 1981under Fire Insurance Policy No. 71547 in the amountof P700,000.00.- O n F e b r u a r y 8 , 1 9 8 2 , E q u i t a b l e I n s u r a n c e Corporation issued Fire Insurance Policy No. 39328 inthe amount of P200,000.00.- Thus when the building occupied by the New LifeEnterprises was gutted by fire at about 2:00 o'clockin the morning of October 19, 1982, the stocks intrade inside said building were insured against fire inthe total amount of P1,550,000.00. According to thecertification issued by the Headquarters, PhilippineC o n s t a b u l a r y / I n t e g r a t e d N a t i o n a l P o l i c e , C a m p Crame, the cause of fire was electrical in nature.A c c o r d i n g t o t h e p l a i n t i f f s , t h e b u i l d i n g a n d t h e stocks inside were burned. After the fire, Julian Sywent to the agent of Reliance Insurance whom hea s k e d t o a c c o m p a n y h i m t o t h e o f f i c e o f t h e company so that he can file his claim. He averredthat in support of his claim, he submitted the fireclearance, the insurance policies and inventory of stocks.H e f u r t h e r t e s t i f i e d t h a t t h e t h r e e i n s u r a n c e companies are sister companies, and as a matter of f a c t w h e n h e w a s f o l l o w i n g u p h i s c l a i m w i t h Equitable Insurance, the Claims Manager told him togo first to Reliance Insurance and if said companya g r e e s t o p a y , t h e y w o u l d a l s o p a y . T h e s a m e treatment was given him by the other

insurancec o m p a n i e s . U l t i m a t e l y , t h e t h r e e i n s u r a n c e companies denied plaintiffs' claim for payment. Respondents comments > Western Guaranty Corporation through ClaimsManager Bernard S. Razon told the plaintiff that hisclaim 'is denied for breach of policy conditions.'Reliance Insurance purveyed the same message as well as Equitable Insurance Corporation.The said policy in question follows:"The insured shall give notice to the Company of anyinsurance or insurances already effected, or whichmay subsequently be effected, covering any of theproperty or properties consisting of stocks in trade,goods in process and/or inventories only herebyinsured, and unless such notice be given and theparticulars of such insurance or insurances be statedt h e r e i n o r e n d o r s e d o n t h i s p o l i c y p u r s u a n t t o Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss ord a m a g e , a l l b e n e f i t s u n d e r t h i s p o l i c y shall bedeemed forfeited, provided however, that th i s condition shall not apply when the total insurance orinsurances in force at the time of loss or damage isnot more than P200,000.00." Petitioners comments > Petitioners contend that they are not to be blamedfor the omissions, alleging that insurance agent LeonA l v a r e z ( f o r W e s t e r n ) a n d Y a p K a m C h u a n ( f o r Reliance and Equitable) knew about the existence of the additional insurance coverage and that they werenot informed about the requirement that such otheror additional insurance should be stated in the policy,as they have not even read said policies. ISSUE WON New Life Enterprises claim for payment be denied HELD YES Ratio Furthermore, when the words and language of d o c u m e n t s a r e c l e a r a n d p l a i n o r r e a d i l y understandable by an ordinary reader thereof, therei s a b s o l u t e l y n o r o o m f o r i n t e r p r e t a t i o n o

r construction anymore. Courts are not allowed tomake contracts for the parties; rather, they willi n t e r v e n e o n l y w h e n t h e t e r m s o f t h e p o l i c y a r e ambiguous, equivocal, or uncertain. The partiesmust abide by the terms of the contract becausesuch terms constitute the measure of the insurer'sliability and compliance therewith is a conditionprecedent to the insured's right of recovery from theinsurer.- While it is a cardinal principle of insurance law thata policy or contract of insurance is to be construedliberally in favor of the insured and strictly against the insurer company, yet contracts of insurance, likeother contracts, are to be construed according to the sense and meaning of the terms which the partiesthemselves have used. If such terms are clear andunambiguous, they must be taken and understood intheir plain, ordinary and popular sense. Moreover,obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Reasoning a. The terms of the contract are clear a n d unambiguous. The insured is specifically required todisclose to the insur er any other insurance and its particulars which he may have effected on the samesubject matter. The knowledge of such insurance bythe insurer's agents, even assuming the acquisitionthereof by the former, is not the "notice" that wouldstop the insurers from denying the claim. Besides, the so-called theory of imputed knowledge, that is,knowledge of the agent is knowledge of the principal,aside from being of dubious applicability here haslikewise been roundly refuted by respondent courtwhose factual findings we find acceptable.b. Petitioners should be aware of the fact that ap a r t y i s n o t r e l i e v e d o f t h e d u t y t o e x e r c i s e t h e ordinary care and prudence that would be exacted inrelation to other contracts. The conformity of theinsured to the terms of the policy is implied from hisfailure to express any disagreement with what isprovided for.

FIRST QUEZON CITY INSURANCE CO. v. CA (DEDIOS MARIKINA TRANSPORT CO) 218 SCRA 526GRINO-AQUINO; February 28, 1993 NATURE PETITION for review of the decision of the Court of Appeals. FQCIC seeks to limit to P12000, the amountspecified in the insurance contract, its liability toindemnify the respomdemt DMTC, for the damagessuffered by a passenger, who accidentally fell off thebug. FACTSAfter sending off certain seamen at the departurearea of MIA, Jose V. del Rosario proceeded to thepublic utility bus stop. While at the bus stop, the plaintiff saw a DMTC bus. While moving at a crawlingpace, it was taking several passengers, all of whommanaged to board the bus while it was already at thebus stop; plaintiff was the last one to board the bus.While the plaintiff was still on the bus with his handon the bus door, the slowly moving bus sped forwardat a high speed, as a result of which, the plaintiff lostb a l a n c e a n d f e l l f r o m t h e b u s . A s p l a i n t i f f c l u n g instinctively to the handle bar, he was dragged by the bus along the asphalted road. The bus driver, GilAgpalo, abruptly stopped the bus. Then fled from thes c e n e , l e a v i n g t h e b u s a n d t h e i n j u r e d p l a i n t i f f b ehind.- The plaintiff was brought to the Manila Sanitariumand Hospital where the doctors performed 2 major surgical operations on plaintiffs right leg.- Plaintiff was confined at the hospital for (40) days,from June 10, 1984 to August 26, 1984. Medicale x p e n s e s t o t a l e d t h e a m o u n t o f P 6 9 , 4 4 4 . 4 1 . Plaintiffs medical expenses were advanced by hisemployer Maglines but he was required to reimburseM a g l i n e s o n a s t a g g e r e d b a s i s b y w a y o f s a l a r y deductions. After his release from the hospital, hereturned to the hospital for further treatment andcheckup. The injuries had left plaintiff with a huge scar on his right leg. Also, the plaintiff incurred lostearning by way of unearned salaries amounting toP 7 , 5 0 0 . 0 0 d u e t o s a i d p h y s i c a l i n j u r i e s a n d t h e con sequent hospital confinement.- P l a i n t i f f f i l e d o n J u n e 2 6 ,

1985 the complaintagainst DMTC and its driver. Agpalo was l a t e r dropped as a party defendant because he could notbe served with summons. Upon filing its answer,defendant DMTC filed a thirdparty complaint againstFirst Quezon City Insurance Co., Inc. September 17,1985, third -party defendant filed its answer to the third-party complaint.- TC held DMTC complaint dismissed for lack of merita n d a s r e g a r d s t h e t h i r d p a r t y c o m p l a i n t F i r s t Quezon City Insurance Co., Inc. was to indemnifythird-party plaintiff DMTC in the sum of P12,000.00with interest. There being no satisfactory warrant thec o u r t d i s m i s s e d t h e r e s t o f t h e c l a i m s i n t h e complaint and third-party complaint.- T h e b u s c o m p a n y a p p e a l e d t o t h e C A , w h i c h modified the dispositive as regards the thirdpartyc o m p l a i n t , t h a t t h e t h i r d party defendant FirstQuezon City Insurance Co., In c . b e o r d e r e d t o indemnify third -party plaintiff DMTC the SUM of P50,000.00 with legal interest. Insurance companyfiled a MFR which was denied.H e n c e , t h i s p e t i t i o n f o r r e v i e w , a s s a i l i n g t h e appellate courts' interpretation of the provision of thei n s u r a n c e c o n t r a c t o n t h e l i m i t o f t h e i n s u r e r ' s lia bility. ISSUE WON the CA erred in the interpretation of theinsurance contract on the l i m i t o f t h e i n s u r e r s liability HELD YES- The insurance policy clearly placed the maximumlimit of the petitioner's liability for damages arisingf r o m d e a t h o r b o d i l y i n j u r y a t P 1 2 , 0 0 0 . 0 0 p e r p assenger and its maximum liability per accident at(P50,000.00. Since only one passenger was injuredin the accident, the insurer's liability for the damagessuffered by said passenger is pegged to the amountof P12,000.00 only.- The limit of P50,000.00 per accident means thatt h e i n s u r e r ' s m a x i m u m l i a b i l i t y f o r a n y s i n g l e acc

ident will not exceed P50,000.00 regardless of thenumber of passengers killed or injured therein.T h e b u s c o m p a n y m a y n o t r e c o v e r f r o m t h e i n s u r a n c e c o m p a n y m o r e t h a n P 1 2 , 0 0 0 . 0 0 p e r pas senger killed or injured, or (P50,000.00) peraccident even if under the judgment of the court, thee r r i n g b u s o p e r a t o r w i l l h a v e t o p a y m o r e t h a n P12,000.00 to each injured passenger. The trialcourt's interpretation of the insurance contract wasthe correct interpretation. Disposition petition for review is GRANTED. Thedecision promulgated by the CA, ordering the thirdparty defendent, First Quezon City Insurance Co.,Inc. to indemnify theI private respondent, (DMTC),t h e s u m o f P 5 0 , 0 0 0 . 0 0 f o r t h e d a m a g e s o f t h e passenger, Jose V. Del Rosario, is hereby modified byreducing the award to 12,000.00 only. Costs againstt h e p r i v a t e r e s p o n d e n t D e D i o s M a r i k i n a Transportation Co., Inc. TY V FIRST NATIONAL SURETY 1 SCRA 1324LABRADOR; April 29, 1961 FACTS - At different times within a period of two monthsp r i o r t o 2 4 D e c e m b e r 1 9 5 3 , D i o s d a d o C . T y , employed as operator mechanic foreman in theB roadway Cotton Factory insured himself in 18 locali n s u r a n c e c o m p a n i e s , a m o n g w h i c h b e i n g t h e 8 a b o v e - n a m e d d e f e n d a n t s , w h i c h i s s u e d t o h i m personal accident policies. Plaintiffs beneficiary washis employer, Broadway Cotton Factory, which paidthe insurance premiums. On 24 December 1953, a fire broke out which totally destroyed the Broadway Cotton Factory. Fighting his way out of the factory,plaintiff was injured on the left hand by a heavyo b j e c t . H e w a s b r o u g h t t o t h e M a n i l a C e n t r a l University hospital, and after receiving first-aid, hew e n t t o t h e N a t i o n a l O r t h o p e d i c H o s p i t a l f o

r treatment of his injuries (fractures in index, middle,fourth, and fifth fingers of left hand). From 26December 1953 to 8 February 1954, he underwentm e d i c a l t r e a t m e n t i n t h e h o s p i t a l . T h e a b o v e - described physical injuries have caused temporary total disability of plaintiffs left hand. Plaintiff filed thecorresponding notice of accident and notice of claimwith all of the above -named defendants to recover indemnity. Defendants rejected plaintiffs claim fori n d e m n i t y f o r t h e r e a s o n t h a t t h e r e b e i n g n o severance of amputation of the l e f t h a n d , t h e disability suffered by him was not covered by hispolicy.- Plaintiff sued the defendants in the MunicipalityCourt of this City, which dismissed his complaints. Thereafter, the plaintiff appealed to the Court of FirstI n s t a n c e M a n i l a , p r e s i d e d b y J u d g e G r e g o r i o S . Narvasa, which absolved the defendants from thecomplaints. Hence, the appeal. ISSUE WON Diosdado Ty is entitled to indemnity under theinsurance policy for the disability of his left hand HELD - The agreement contained in the insurance policiesis the law between the parties. As the terms of thepolicies are clear, express and specific that onlyamputation of the left hand should be considered asa loss thereof, an interpretation that would include the mere fracture or other temporary disability notc o v e r e d b y t h e p o l i c i e s w o u l d c e r t a i n l y b e unwarranted. In the case at bar, due to the clarity of t h e s t i p u l a t i o n , d i s t i n c t i o n b e t w e e n t e m p o r a r y dis ability and total disability need not be made inrelation to ones occupation means that the conditiono f t h e i n s u r a n c e i s s u c h t h a t c o m m o n p r u d e n c e requires him to desist from transacting his businessor renders him incapable of working. While the Courtsympathizes with the plaintiff or his employer, forwhose benefit the policies were issued, it can not

gob e y o n d t h e c l e a r a n d e x p r e s s c o n d i t i o n s o f t h e insu rance policies, all of which define partial disabilityas loss of either hand by a amputation through the bones of the wrist. There was no such amputation inthe case at bar.- The Supreme Court affirmed the appealed decision,with costs against the plaintiff-appellant. MISAMIS LUMBER V CAPITAL INSURANCE 17 SCRA 288REYES; May 20, 1966 NATURE Direct appeal on a point of law from the judgment of the Court of First Instance of Manila FACTS - Misamis Lumber Corporation, under its formername, Lanao Timber Mills, Inc., insured its FordFalcon motor car for the amount of P14,000 withC a p i t a l I n s u r a n c e & S u r e t y C o m p a n y , I n c . T h e p e r t i n e n t p r o v i s i o n s o f t h e p o l i c y p r o v i d e d , a s follows:1 . T h e C o m p a n y w i l l s u b j e c t t o t h e L i m i t s o f Liability indemnify the Insured against loss ordamage to the Motor Vehicle and its accessories and spare parts whilst thereon.2. (a) by accidental collision or overturning orc o l l i s i o n o r o v e r t u r n i n g c o n s e q u e n t w h e n mec hanical breakdown or consequent upon wearand tear.3. At its option, the Company may pay in cash thea m o u n t o f t h e l o s s o r d a m a g e o r m a y r e p a i r , reinstate or replace the Motor Vehicle or any partt h e r e o f o r i t s a c c e s s o r i e s o r s p a r e p a r t s . T h e liabil ity of the Company shall not exceed the valueof the parts lost or damaged and the reasonable cost of fitting such parts or the value of the MotorV e h i c l e a t t h e t i m e o f t h e l o s s o r d a m a g e whichever is the loss. The Insured's estimate of value stated in the schedule shall be the maximumamount payable by the Company in respect of anyclaim for loss or damage.4. The Insured may authorize the repair of theMotor Vehicle necessitated by damage for whicht h e C o m p a n y m a y b e l i a b l e u n d e r t h i s p o l i c y provided that:(a) the estimated cost of such repair does not exceed the authorized Repair Limit.(b) a detailed estimate of the cost is forwardedto the Company

without delay and providing alsothat the authorized repair limit is P150.00.- One night, the insured car, while traveling along inAurora Boulevard, passed over a water hole which the driver did not see because an oncoming car didnot dim its light. The crankcase and flywheel housingo f t h e c a r b r o k e w h e n i t h i t a h o l l o w b l o c k l y i n g alongside the water hole. The car was towed andrepaired by Morosi Motors at a total cost of P302.27.- W h e n t h e r e p a i r s o n t h e c a r h a d a l r e a d y beenmade, Misamis made a report of the accident t o Capital Insurance.- Since Capital refused to pay for the total cost of towage and repairs, suit was filed in the municipalcourt originally.- The defendant-appellant admits liability in theamount of P150, but not for any excess thereof. Thelower court did not exonerate the said appellant forthe excess because the company's absolution wouldrender the insurance contract one-sided and that thesaid insurer had not shown that the cost of repairs inthe sum of P302.27 is unreasonable, excessive orp a d d e d , n o r h a d i t s h o w n t h a t i t c o u l d h a v e undertaken the repairs itself at less expense. ISSUE WON Capital Insurance can be made to pay more than P150 HELD NO- The insurance policy stipulated in paragraph 4 thatif the insured authorizes the repair the liability of theinsurer, per its subparagraph (a), is limited toP150.00. The literal meaning of this stipulation mustcontrol, it being the actual contract, expressly and plainly provided for in the policy.- Recourse to legal hermeneutics is not called forb e c a u s e p a r a g r a p h 4 o f t h e p o l i c y i s c l e a r a n d specific and leaves no room for interpretation.- The option to undertake the repairs is accorded tothe insurance company per paragraph 2. The saidcompany was deprived of the option because the insured took it upon itself to have the repairs made,and only notified the insurer when the repairs weredone. As a consequence, paragraph 4, which limits the company's liability to P150.00, applies.- The insurance contract may be rather onerous("one-sided", as the lower court put it), but that initself does not justify the abrog ation of its

expressterms, terms which the insured accepted or adheredt o a n d w h i c h i s t h e l a w b e t w e e n t h e c o n t r a c t i n g parties.- To require the insurer to prove that the cost of therepairs ordered by the insured is unreasonable, whenthe insurer was not given an opportunity to inspecta n d a s s e s s t h e d a m a g e b e f o r e t h e r e p a i r s w e r e made, is contrary to elementary justice and equity. SUN INSURANCE OFFICE LTD. V CA (TAN) 195 SCRA 193PARAS; March 13, 1991 NATURE Petition for certiorari to review the decision of the CA FACTS - Private respondent Emilio Tan took from t h e petitioner a Peso 300,000 property insurance policyto cover his interest in the electrical insurance storeof his brother housed in a building in Iloilo City on August 15, 1983. Four days after the issuance of thep o l i c y , t h e b u i l d i n g i n c l u d i n g t h e i n s u r e d s t o r e bu rned.- On August 20, 1983, Tan filed his claim for fire loss.Sun Insurance, on February 29, 1984, wrote theprivate respondent denying the claim. On April 3,1984, private respondent wrote another letter to theinsurance company requesting reconsideration of thed e n i a l . T a n s l a w y e r w r o t e a n o t h e r l e t t e r t o t h e ins urance company inquiring about the April 3 letterwhich sought for a reconsideration of the denial. Ini t s r e p l y t o t h e l a w y e r s l e t t e r , S u n I n s u r a n c e reiter ated its denial of the claim and enclosed thereincopies of the two previous denials dated February 29, 1984 and May 17, 1985.On November 20, 1985, Tan filed a civil case withthe RTC. Petition filed a motion to dismiss on the alleged ground that the action has already prescribedbased on Condition 27 of the Insurance Policy whichstated that the window to file the appropriate actionwith either the Insurance Commission or in any courtof competent jurisdiction is twelve months from therejection of the claim. RTC denied the motion and thes u b s e q u e n t m o t i o n f o r r e c o n s i d e r a t i o n . T h e C A likewise denied the petition of Sun Insurance.

ISSUE 1. WON the court the filing of a motion f o r reconsideration interrupts the 12 months prescriptionperiod to contest the denial of the insurance claim2. WON the rejection of the claim shall be deemedfinal only if it contains words to the effect that the denial is final HELD 1. NO- The SC held that Condition 27 of the Insurancep o l i c y i s v e r y c l e a r a n d f r e e f r o m a n y d o u b t o r ambiguity. It has to be taken in its plain, ordinary,and popular sense. The rejection letter of February29, 1984 was clear and plain. The Court noted that the one year period is likewise in accord with Section2 3 o f t h e I n s u r a n c e C o d e w h i c h s t a t e s t h a t a n y condition which limits the time for commencing anaction to a period of less than one year when the cause of action accrues is void. The right of action,according to the SC, accrues at the time that theclaim is rejected at the first instance. A request forreconsideration of the denial cannot suspend therunning of the prescriptive period. The Court notedthat the rationale for the one year period is to ensurethat the evidence as to the origin and cause of the destruction have not yet disappeared.2. NO- The Court clarified its ruling in Eagle Star InsuranceC o . v s C h i a Y u w h e r e i t r u l e d t h a t t h e c a u s e o f action in an insurance contract does not accrue untilthe Insureds claim is finally rejected by the Insurer by stating the use of the word finally cannot beconstrued to mean the rejection of a petition forreconsideration. What the court referred to in effectis the rejection in the first instance as claimed by Sun Insurance Disposition The decision of the CA is reversed andset aside. The case is dismissed FORTUNE INSURANCE AND SURETY CO. INC.VCA (PRODUCERS BANK OF THE PHILIPPINES) 244 SCRA 308DAVIDE; May 23, 1995 NATURE Petition for Review on certiorari of CA decision FACTS-

Producers Bank of the Philippines filed a complaintagainst Fortune Insurance and Surety Co., Inc. forrecovery of P725,000.00 under the policy issued byFortune. The sum was allegedly lost on June 29, 1987 during a robbery of Producer's armored vehiclewhile it was in transit to transfer the money from itsPasay City Branch to its head office in Makati underthe custody of its teller, Maribeth Alampay. Thearmored car was driven by Benjamin Magalong Y deVera, escorted by Security Guard Saturnino Atiga YR o s e t e . D r i v e r M a g a l o n g w a s a s s i g n e d b y P R C Manag ement Systems.- After an investigation by the Pasay poli ce, driverMagalong and guard Atiga were charged, together with Batigue , Aquino and John Doe, with violation of P.D. 532 (AntiHighway Robbery Law)- Demands were made by the Producers upon theF o r t u n e t o p a y t h e a m o u n t o f t h e l o s s o f P725,000.00 but the latter refused to pay as the lossis excluded from the coverage of the insurance policyspecifically under "General Exceptions"> The company shall not be liable under thispolicy in respect of x x x (b) any loss caused byany dishonest, fraudulent or criminal act of thei n s u r e d o r a n y o f f i c e r , e m p l o y e e , p a r t n e r , director, trustee or authorized representative of t h e I n s u r e d w h e t h e r a c t i n g a l o n e o r i n c onjunction with others. Fortune opposes the contention of Producers thatAtiga and Magalong are not its "officer, employee, x xx trustee or authorized representative x x x at the time of the robbery - Trial Court > On being EMPLOYEES M a g a l o n g a n d A t i g a w e r e n o t e m p l o y e e s o r representatives of Producers as their services asarmored car driver and as security guard havingbeen merely offered by PRC Management and byUnicorn Security and which latter firms assignedthem to plaintiff. The wages and salaries of bothMagalong and Atiga are presumably paid by theirrespective firms, which alone wields the power

todismiss them> On being AUTHORIZED REPRESENTATIVE They were merely an assigned armored car driverand security guard for the money transfer. It wasteller Maribeth Alampay who had "custody" of theP725,000.00 cash being transferred along a specifiedmoney route - Court of Appeals > affirmed in toto> A policy or contract of insurance is to be construedliberally in favor of the insured and strictly againstthe insurance company (New Life Enterprises vs.Court of Appeals; Sun Insurance Office, Ltd. vs.Court of Appeals). Contracts of insurance, like othercontracts, are to be construed according to the sensea n d m e a n i n g o f t h e t e r m s w h i c h t h e p a r t i e s themselves have used. If such terms are cl ear andunambiguous, they must be taken and understood intheir plain, ordinary and popular sense (New LifeEnterprises Case; Sun Insurance Office).> The language used by Fortune in the policy isplain, ordinary and simple. No other interpretation isnecessary. The word "employee" should be taken tomean in the ordinary sense. The Labor Code is a special law specifically dealing with/and specificallydesigned to protect labor and therefore its definition as to employer-employee relationships insofar as theapplication/enforcement of said Code is concernedmust necessarily be inapplicable to an insurancecontract. Had it intended to apply the Labor Code indefining what the word "employee" refers to, it must/should have so stated expressly in the insurancepolicy. Said driver and security guard cannot beconsidered as employees of Producers bank becauseit has no power to hire or to dismiss said driver andsecurity guard under the contracts except only to askfor their replacements from the contractors. - Fortunes Contention

> when Producers commissioned a guard and adriver to transfer its funds from one b r a n c h t o another, they effectively and necessarily became itsauthorized representatives in the care and custody of t h e m o n e y . A s s u m i n g t h a t t h e y c o u l d n o t b e considered authorized representatives, they were,nevertheles s, employees of Producers. It asserts thatthe existence of an employeremployee relationship"is determined by law and being such, it cannot bethe subject of agreement." Thus, if there was inreality an employer-employee relationship betweenP r o d u c e r s , o n t h e o n e h a n d , a n d M a g a l o n g a n d Atiga, on the other, the provisions in the contracts of P r o d u c e r s w i t h P R C M a n a g e m e n t S y s t e m f o r Magalong and with Unicorn Security Services forA t i g a w h i c h s t a t e t h a t P r o d u c e r s i s n o t t h e i r employer and that it is absolved from any liability asan employer, would not obliterate the relationship.> an employer-employee relationship depends uponfour standards:(1) the manner of selection and engagement of theputative employee(2) the mode of payment of wages(3) the presence or absence of a power to dismiss and(4) the presence and absence of a power to controlthe putative employee's conduct.> Of the four, the right-ofcontrol test has been heldto be the decisive factor. It asserts that the power of control over Magalong and Atiga was vested in andexercised by Producers. Fortune further insists thatP R C M a n a g e m e n t S y s t e m a n d U n i c o r n S e c u r i t y S e r v i c e s a r e b u t " l a b o r - o n l y " c o n t r a c t o r s u n d e r Article 106 of the Labor Code which provides:Art. 106. Contractor or subcontractor. - There is" l a b o r o n l y " c o n t r a c t i n g w h e r e t h e p e r s o n supplying workers to an employer does not havesubstantial capital or investment in the form of tools, equipment, machineries, work premises,a m o n g o t h e r s , a n d t h e w o r k e r s r e c r u i t e d a n d placed by such persons are performing activities which are directly related to the principal businessof such employer. In such cases, the person orintermediary shall be considered merely as anagent of the employer who shall be responsible tothe workers in the same

manner and extent as if the latter were directly employed by him.> International Timber Corp. vs. NLRC - a "labor-only" contractor is equivalent to a finding that thereis an employeremployee relationship between theowner of the project and the employee of the "labor-only" contractor - Producers Contention > Magalong and Atiga were not its employees since ith a d n o t h i n g t o d o w i t h t h e i r s e l e c t i o n a n d e n g a g e m e n t , t h e p a y m e n t o f t h e i r w a g e s , t h e i r dis missal, and the control of their conduct.> International Timber Corp. is not applicable to allcases but only when it becomes necessary to preventany violation or circumvention of the Labor Code, asocial legislation whose provisions may set asidecontracts entered into by parties in order to giveprotection to the working man.> A m e r i c a n P r e s i d e n t L i n e s v s . C l a v e s h o u l d b e a pplied which statedI n d e t e r m i n i n g t h e e x i s t e n c e o f e m p l o y e r employee relationship, the following elements aregenerally considered, namely: (1) the selectiona n d e n g a g e m e n t o f t h e e m p l o y e e ; ( 2 ) t h e payment of wages; (3) the power of dismissal; and(4) the power to control the employee's conduct.S i n c e u n d e r P r o d u c e r s ' c o n t r a c t w i t h P R C Man agement Systems it is the latter which assignedMagalong as the driver of Producers' armored carand was responsible for his faithful discharge of hisduties and responsibilities, and since Producers paidthe monthly compensation of P1,400.00 per driver toPRC Management Systems and not to Magalong, it isclear that Magalong was not Producers' employee. Asto Atiga, Producers relies on the provision of itsc o n t r a c t w i t h U n i c o r n S e c u r i t y S e r v i c e s w h i c h p r o v i d e s t h a t t h e g u a r d s o f t h e l a t t e r " a r e i n n o sense employees of the CLIENT." ISSUE WON Fortune Insurance and Surety Co. Inc. is liableunder the Money, Security, and Payroll Robberypolicy it issued to Producers Bank of the Philippinesor WON recovery is precluded under the generalexceptions clause of the policy HELD

NO Ratio A contract of insurance is a contract of adhesion, thus any ambiguity there in should ber e s o l v e d a g a i n s t t h e i n s u r e r , o r i t s h o u l d b e construed liberally in favor of the insured and strictlyagainst the insurer. Limitations of liability should ber e g a r d e d w i t h e x t r e m e j e a l o u s y a n d m u s t b e construed in such a way as to pre clude the insurerfrom non-compliance with its obligation. It goeswithout saying then that if the terms of the contractare clear and unambiguous, there is no room forconstruction and such terms cannot be enlarged or diminished by judicial construction.- An insurance contract is a contract of indemnity upon the terms and conditions specified therein. It issettled that the terms of the policy constitute the measure of the insurer's liability. In the absence of s t a t u t o r y p r o h i b i t i o n t o t h e c o n t r a r y , i n s u r a n c e co mpanies have the same rights as individuals tolimit their liability and to impose whatever conditionst h e y d e e m b e s t u p o n t h e i r o b l i g a t i o n s n o t inconsistent with public policy. Reasoning - It should be noted that the insurance policy enteredinto by the parties is a theft or robbery insurance policy which is a form of casualty insurance. Section174 of the Insurance Code provides:Sec. 174. Casualty insurance is insurance coveringloss or liability arising from accident or mishap,excluding certain types of loss which by law orcustom are considered as failing exclusively withinthe scope of insurance such as fire or marine. Itincludes, but is not limited to, employer's liabilityinsurance, public liability insurance, motor vehicleliability insurance, plate glass insurance, burglaryand theft insurance, personal accident and healthi n s u r a n c e a s w r i t t e n b y n o n l i f e i n s u r a n c e companies, and other substantially similar kinds of insurance. (italics supplied)- Except with respect to compulsory motor vehicleliability insurance, the Insurance Code contains no other provisions

applicable to casualty insurance orto robbery insurance in particular. These contractsare, therefore, governed by the general provisions applicable to all types of insurance. Outside of these,the rights and obliga tions of the parties must be determined by the terms of their contract, taking intoconsideration its purpose and always in accordancewith the general principles of insurance law.With the foregoing principles in mind, it may nowbe asked whether Magalong and Atiga qualify asemployees or authorized representatives has been aptly observed that in burglary, robbery, and theftinsurance, "the opportunity to defraud the insurer -the moral hazard - is so great that insurers have f o u n d i t n e c e s s a r y t o f i l l u p t h e i r p o l i c i e s w i t h countless restrictions, many designed to reduce thishazard. Seldom does the insurer assume the risk of a l l l o s s e s d u e t o t h e h a z a r d s i n s u r e d a g a i n s t . " Pers ons frequently excluded under such provisionsare those in the insured's service and employment.The purpose of the exception is to guard against liability should the theft be committed by one havingunrestricted access to the property. In such cases,the terms specifying the excluded classes are to beg i v e n t h e i r m e a n i n g a s u n d e r s t o o d i n c o m m o n s peech. The terms "service" and "employment" areg e n e r a l l y a s s o c i a t e d w i t h t h e i d e a o f s e l e c t i o n , control, and compensation.- There is marked disagreement between the partieson the correct meaning of the terms "employee"and "authorized representatives." It is clear to us that insofar as Fortune is concerned,i t w a s its intention to exclude and exempt fromp r o t e c t i o n a n d c o v e r a g e l o s s e s a r i s i n g f r o m dishonest, fraudulent, or criminal acts of personsgranted or having unrestricted access to Producers'm o n e y o r p a y r o l l . W h e n i t u s e d t h e n t h e t e r m "employee," it must have had in mind any personwho qualifies as such as generally

and universallyunderstood, or jurisprudentially established in thelight of the four standards in the determination of theemployer-employee relationship or as statutorilydeclared even in a limited sense as in the case of Article 106 of the Labor Code which considers thee m p l o y e e s u n d e r a " l a b o r o n l y " c o n t r a c t a s employees of the party employing them and not of the party who supplied them to the employer.- But even granting for the sake of argument that these contracts were not "labor-only" contracts, andPRC Management Systems and Unicorn SecurityServices were truly independent contractors, we aresatisfied that Magalong and Atiga were, in respect of the transfer of Producer's money from its Pasay Citybranch to its head office in Makati, its "authorizedrepresentatives" who served as such with its tellerMaribeth Alampay. Howsoever viewed, Producersentru sted the three with the specific duty to safely transfer the money to its head office, with Alampayto be responsible for its custody in transit; Magalongto drive the armored vehicle which would carry themoney; and Atiga to provide the needed security fort h e m o n e y , t h e v e h i c l e , a n d h i s t w o o t h e r companions. In short, for these particular tasks, thet h r e e a c t e d a s a g e n t s o f P r o d u c e r s . A "representative" is defined as one who represents orstands in the place of another; one who representsothers or another in a special capacity, as an agent,and is interchangeable with "agent." Disposition instant petition is hereby GRANTED. CAdecision and RTC Makati decision are REVERSED andSET ASIDE. Civil Case is DISMISSED. VERENDIA V CA (FIDELITY & SURETY CO. OF THE PHILS) 217 SCRA 417MELO; January 22, 1993 NATURE Petition to review decision of the CA FACTS - Fidelity Co. issued a Fire Insurance Policy coveringVerendias residential building in the amount of P385k. Verendia also insured the same building withtwo other companies (Country Bankers Insurance forP56k, and

Development Insurance for P400k).- W h i l e a l l 3 p o l i c i e s w e r e i n f o r c e , t h e i n s u r e d property was completely destroyed by fire. Verendiafiled a claim against Fidelity, but the latter refusedpayment, thus a complaint was filed in the RTC.Fidelitys reason for refusal: the policy was avoidedb y r e a s o n o f o v e r i n s u r a n c e , a n d t h a t V e r e n d i a maliciously represented that the building was underlease to a Roberto Garcia, when it was actually a Marcelo Garcia who was the lessee.- RTC: policy was violated by Verendia when it failedto inform Fidelity of his other insurance coverages,thus no need to pay.- CA: reversed decision ISSUE (There is a procedural issue involved here, but is irrelevant to our discussion. It concerns the filing of am o t i o n f o r e x t e n s i o n o f t i m e t o f i l e a m o t i o n f o r reconsideration, where the court said that although itn o w p r o h i b i t s f i l i n g o f s u c h m o t i o n , t h e i n s t a n t mot ion was filed before the effectivity of this rule, thus allowing the adjudication of the case)WON Fidelity was liable to pay Verendia consideringthe circumstances HELD 1. NO Ratio As the insurance contract is the law betweenthe parties, Verendia is deemed to have forfeited hisright to claim by the misrepresentation he made. Reasoning - the court reviewed the factual findings of the courtsb e l o w , s i n c e i t a p p e a r s t h a t t h e r e w a s a misapprehension of the facts by the CA.Verendia is found to have concocted t h e l e a s e contract to deflect responsibility for the fire towardsan alleged lessee, even making it appear that the alleged lessee had disappeared, inflated the value of the property, and insured same property with twoother companies.- A n i n s u r a n c e contract is the law between theparties, its terms and conditions constitute the measure of the insurers liability and compliancetherewith

is a condition precedent to th e insureds right to recovery from the insurer.- As it is also a contract of adhesion, an insurancecontract should be liberally construed in favor of theinsured and strictly against the insurer companywhich usually prepares it.- Considering, however, the fact that Verendia used afalse lease contract to support his claim, the terms of the policy should be strictly construed against theinsured. Verendia failed to live by the terms of thep o l i c y , s p e c i f i c a l l y S e c t i o n 1 3 t h e r e o f w h i c h i s ex pressed in terms that are clear and unambiguous,that all benefits under the policy shall be forfeited If the claim be in any respect fraudulent, or if any falsedeclaration be made or used in support thereof, or if any fraudulent means or devises are used by theInsured or anyone acting in his behalf to obtain anybenefit under the policy. Verendia, having presenteda false declaration to support his claim for benefits inthe form of a fraudulent lease contract, he forfeitedall benefits therein by virtue of Section 13 of thepolicy in the absence of proof that Fidelity waivedsuch provision. Worse yet, by presenting a falselease contract, Verendia reprehensibly disregardedthe principle that insurance contracts are uberrimaefidae and demand the most abundant good faith. Disposition Decision of CA reversed, and that of RTC is reinstated. FIELDMEN'S INSURANCE CO. INC V VDA. DESONGCO 25 SCRA 20FERNANDO; 1968 FACTSAn insurance firm, petitioner Fieldmen's InsuranceCo., Inc., was not allowed to escape liability under a common carrier insurance policy on the pretext thatwhat was insured, not once but twice, was a privatevehicle and not a common carrier, the policy beingi s s u e d u p o n t h e i n s i s t e n c e o f i t s a g e n t w h o discounted fears of the insured that his privatelyowned vehicle might not fall within its terms, theinsured moreover being "a man of scant education,"finishing

only the first grade. So it was held in adecision of the lower court thereafter affirmed byrespondent Court of Appeals. Petitioner in seekingthe review of the above decision of respondent Courtof Appeals cannot be so sanguine as to entertain thebelief that a different outcome could be expected. Tobe more explicit, we sustain the Court of Appeals.- The facts as found by respondent Court of Appeals,binding upon us, follow: "This is a peculiar case. Federico Songco of Floridablanca, Pampanga, a manof scant education being only a first grader ..., owneda private jeepney with Plate No. 41-289 for the year1 9 6 0 . O n S e p t e m b e r 15, 1960, as such privatevehicle owner, he was ind uced by Fieldmen'sInsurance Company Pampanga a g e n t B e n j a m i n Sambat to apply for a Common Carrier's LiabilityInsurance Policy covering his motor vehicle ... Uponpaying an annual premium of P16.50, defendantF i e l d m e n ' s I n s u r a n c e C o m p a n y , I n c . i s s u e d o n September 19, 1960, Common Carriers AccidentInsurance Policy No. 45-HO- 4254 ... the duration of which will be for one (1) year, effective September15, 1960 to September 15, 1961. On September 22,1961, the defendant company, upon payment of thec o r r e s p o n d i n g p r e m i u m , r e n e w e d t h e p o l i c y b y ext ending the coverage from October 15, 1961 toO c t o b e r 1 5 , 1 9 6 2 . T h i s t i m e F e d e r i c o S o n g c o ' sp r i v a t e j e e p n e y c a r r i e d P l a t e N o . J - 6 8 1 3 6 Pampanga-1961. ... On October 29, 1961, during theeffectivity of the renewed policy, the insured vehiclewhile being driven by Rodolfo Songco, a duly licensedd r i v e r a n d s o n o f F e d e r i c o ( t h e v e h i c l e o w n e r ) collided with a car in the municipality of Calumpit,province of Bulacan, as a result of which mishap Federico Songco (father) and Rodolfo Songco (son)died, Carlos Songco (another son), the latter's wife,Angelita Songco, and a family friend by the name of Jose Manuel sustained physical injuries of varyingdegree." 1 - It was further shown according to the decision of respondent Court of Appeals: "Amor Songco, 42-year-old son of deceased Federico Songco,

testifyinga s w i t n e s s , d e c l a r e d t h a t w h e n i n s u r a n c e a g e n t Benjamin Sambat was inducing his father to insurehis vehicle, he butted in saying: 'That cannot be, Mr.Sambat, because our vehicle is an "owner" privatev e h i c l e a n d n o t f o r p a s s e n g e r s , ' t o w h i c h a g e n t Sambat replied: 'whether our vehicle was an "owner"type or for passengers it could be insured because their company is not owned by the Government andt h e G o v e r n m e n t h a s n o t h i n g t o d o w i t h t h e i rcompany. So they could do what they pleasew henever they believe a vehicle is insurable' ... In spite of the fact that the present case was filed andt r i e d i n t h e C F I o f P a m p a n g a , t h e d e f e n d a n t company did not even care to rebut Amor Songco'stestimony by calling on the witness -stand agentB e n j a m i n S a m b a t , i t s P a m p a n g a F i e l d Representative." 2 T h e p l a i n t i f f s i n t h e l o w e r c o u r t , l i k e w i s e resp ondents here, were the surviving widow and children of the deceased Federico Songco as well asthe injured passenger Jose Manuel. On the above facts they prevailed, as had been mentioned, in thel o w e r c o u r t a n d i n t h e r e s p o n d e n t C o u r t o f Appeals. 1awphl.nt - The basis for the favorable judgment is the doctrineannounced in Qua Chee Gan v. Law Union and Rock Insurance Co., Ltd. , 3 w i t h J u s t i c e J . B . L . R e y e s speaking for the Court. It is now beyond questiont h a t w h e r e i n e q u i t a b l e c o n d u c t i s s h o w n b y a n i n s u r a n c e f i r m , i t i s " e s t o p p e d f r o m e n f o r c i n g forfei tures in its favor, in order to forestall fraud orimposition on the insured." 4

- As much, if not much more so than the Qua CheeGan decision, this is a case where the doctrine of e s t o p p e l u n d e n i a b l y c a l l s f o r a p p l i c a t i o n . A f t e r pet itioner Fieldmen's Insurance Co., Inc. had led theinsured Federico Songco to believe that he couldqualify under the common carrier liability insurancepolicy, and to enter into contract of insurance payingthe premiums due, it could not, thereafter, in anyl i t i g a t i o n a r i s i n g o u t o f s u c h r e p r e s e n t a t i o n , b e p ermitted to change its stand to the detriment of theheirs of the insured. As estoppel is primarily basedon the doctrine of good faith and the avoidance of harm that will befall the innocent party due to its injurious reliance, the failure to apply it in this casewould result in a gross travesty of justice.- That is all that needs be said insofar as the firsta l l e g e d e r r o r o f r e s p o n d e n t C o u r t o f A p p e a l s i s concerned, petitioner being adamant in its far-from-reasonable plea that estoppel could not be invokedby the heirs of the insured as a bar to the allegedbreach of warranty and condition in the policy. ltwould now rely on the fact that the insured owned aprivate vehicle, not a common carrier, somethingwhich it knew all along when not once but twice itsagent, no doubt without any objection in its part,exerted the utmost pressure on the insured, a manof scant education, to enter into such a contract.Nor is there any merit to the second alleged erroro f r e s p o n d e n t C o u r t t h a t n o l e g a l l i a b i l i t y w a s incurred under the policy by petitioner. Why liabilityunder the terms of the policy 5 was inescapable wass e t f o r t h i n t h e d e c i s i o n of respondent Court of Appeals. Thus: "Since some o f t h e c o n d i t i o n s contained in the policy issued by the defendant-appellant were impossible to comply with under theexisting conditions at the time and 'inconsistent witht h e k n o w n f a c t s , ' t h e i n s u r e r ' i s e s t o p p e d f r o m a s s e r t i n g b r e a c h o f s u c h c o n d i t i o n s . ' F r o m t h i s jurispr udence, we find no valid reason to deviate andconsequently hold

that the decision appealed from should be affirmed. The injured parties, to wit, CarlosSongco, Angelito Songco and Jose Manuel, for whoseh o s p i t a l a n d m e d i c a l e x p e n s e s t h e d e f e n d a n t co mpany was being made liable, were passengers of t h e jeepney at the time of the occurrence, andRodolfo Songco, for whose burial ex p e n s e s t h e defendant company was also being made liable wasthe driver of the vehicle in question. Except for thefact, that they were not fare paying passengers, theirstatus as beneficiaries under the policy is recognizedtherein." 6 - Even if it be assumed that there was an ambiguity,an excerpt from the Qua Chee Gan decision wouldreveal anew the weakness of petitioner's contention.Thus: "Moreover, taking into account the well knownrule that ambiguities or obscurities must be strictlyinterpreted against the party that caused them, the'memo of warranty' invoked by appellant bars thel a t t e r f r o m q u e s t i o n i n g t h e e x i s t e n c e o f t h e appliances called for in the insured premises, sinceits initial expression, 'the undernoted appliances forthe extinction of fire being kept on the premises insured hereby , ... it is hereby warranted ...,' admitsof interpretation as an admission of the existence of s u c h a p p l i a n c e s w h i c h a p p e l l a n t c a n n o t n o w contradict, should the parol evidence rule apply." 7 - To the same effect is the following citation from thesame leading case: "This rigid application of the ruleon ambiguities has become necessary in view of current business practices. The courts cannot ignorethat nowadays monopolies, cartels and concentrationof capital, endowed with overwhelming econ omicpower, manage to impose upon parties dealing witht h e m c u n n i n g l y p r e p a r e d ' a g r e e m e n t s ' t h a t t h e w eaker party may not change one whit, his

participation in the 'agreement' being reduced to thea l t e r n a t i v e t o ' t a k e i t o r l e a v e i t ' l a b e l l e d s i n c e Ra ymond Saleilles 'contracts by adherence' ( contratsd'adhesion ), in contrast to those entered into byp a r t i e s b a r g a i n i n g o n a n equal footing, suchcontracts (of which polici e s o f i n s u r a n c e a n d international bills of lading are prime examples)obviously call for greater strictness and vigilance onthe part of courts of justice with a view to protectingthe weaker party from abuses and imposition, andprevent their becoming traps for the unwary (NewCivil Code. Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942)." 8 - The last error assigned which would find fault withthe decision of respondent Court of Appeals insofaras it affirmed the lower court award for exemplary damages as well as attorney's fees is, on its face, of no persuasive force at all.- The conclusion that inescapably emerges from thea b o v e i s t h e c o r r e c t n e s s o f t h e d e c i s i o n o f respondent Court of Appeals sought to be reviewed.For, to borrow once again from the language of theQua Chee Gan opinion: "The contract of insurance isone of perfect good faith ( uberima fides ) not for theinsured alone,but equally so for the insurer; in fact,i t i s m o r e s o f o r t h e l a t t e r , s i n c e i t s dominantb a r g a i n i n g p o s i t i o n c a r r i e s w i t h i t s t r i c t e r responsibility." 9 - This is merely to stress that while the morality of the business world is not the morality of institutionso f r e c t i t u d e l i k e t h e p u l p i t a n d t h e a c a d e m e , i t cannot descend so low as to be another name for guile or deception. Moreover, should it happen thus,n o c o u r t o f j u s t i c e s h o u l d a l l o w i t s e l f t o l e n d i t s approval and support. 1awphl.nt

- We have no choice but to recognize the monetaryresponsibility of petitioner Fieldmen's Insurance Co.,Inc. It did not succeed in its persistent effort to avoidcomplying with its obligation in the lower court andthe Court of Appeals. Much less should it find anyr e c e p t i v i t y f r o m u s f o r i t s u n w a r r a n t e d a n d unjustified plea to escape from its liability. M A L A Y A N I N S U R A N C E C O R P . V C A ( T K C MARKETI NG CORP.) 270 SCRA 242ROMERO; March 20, 1997 NATURE Petition for review on certiorari FACTS - TKC Marketing Corp. was the owner/consignee of s o m e 3 , 1 8 9 . 1 7 1 m e t r i c t o n s o f s o y a b e a n m e a l which was loaded on board the ship MV Al Kaziemahfor carriage from the port of Rio del Grande, Brazil,to the port of Manila. Said cargo was insured againstt h e r i s k o f l o s s b y p e t i t i o n e r M a l a y a n I n s u r a n c e Corporation for which it issued two (2) Marine CargoPolicies.While the vessel was d o c k e d i n D u r b a n , S o u t h Africa the civil authorities arrested and detained it because of a lawsuit on a question of ownership andpossession. TKC Marketing notified Malayan of thearrest of the vessel and made a formal claim for thedollar equivalent on the policies (US$916,886.66) fornondelivery of the cargo. It likewise sought the assistance of Malayan on what to do with the cargo.- Malayan replied that the arrest of the vessel by civilauthority was not a peril covered by the policies. TKCadvised Malayan that it might tranship the cargo andrequested an extension of the insurance coverageu n t i l a c t u a l t r a n s h i p m e n t , w h i c h e x t e n s i o n w a s approved upon payment of additional premium. Theinsurance coverage was extended under the samet e r m s a n d c o n d i t i o n s e m b o d i e d i n t h e o r i g i n a l p olicies while in the process of making arrangementsfor the transhipment of the cargo from Durban toM a n i l a . H o w e v e r t h e c a r g o w a s s o l d i n D u r b a n , South Africa, for US$154.40 per metric ton or a totalof

P10,304,231.75 due to its perishable nature whichcould no longer stand a voyage of twenty days toManila and another twenty days for the dischargethereof. It reduced its claim to US$448,806.09 (or itspeso equivalent of P9,879,928.89 at the exchangerate of P22.0138 per $1.00) representing its lossafter the proceeds of the sale were deducted fromthe original claim.Malayan maintained its positionthat the arrest of the vessel by civil authorities on aquestion of ownership was an excepted risk underthe marine insurance policies. Petitioners Claim - an arrest by civil authority is not compensable s i n c e t h e t e r m " a r r e s t " r e f e r s t o " p o l i t i c a l o r executive acts" and does not include a loss causedby riot or by ordinary judicial process as in this case- the deletion of the Free from Capture or SeizureClause would leave the assured covered solely for the perils specified by the wording of the policy itself - the rationale for the exclusion of an arrest pursuantt o j u d i c i a l a u t h o r i t i e s i s t o e l i m i n a t e c o l l u s i o n between unscrupulous assured and civil authorities.a n y l o s s w h i c h p r i v a t e r e s p o n d e n t m a y h a v e incurred was in the nature and form of unrecovereda c q u i s i t i o n v a l u e b r o u g h t a b o u t b y a v o l u n t a r y sacrifice sale and not by arrest, detention or seizureof the ship.- its act of rejecting the claim was a result of its honest belief that the arrest of the vessel was not acompensable risk under the policies issued Respondents Comments - petitioner, being the sole author of the policies,"arrests" should be strictly interpreted against itbecause the rule is that any ambiguity is to be takenc o n t r a p r o f e r e n t u m . R i s k p o l i c i e s s h o u l d b e construed reasonably and in a manner as to makee f f e c t i v e t h e i n t e n t i o n s a n d e x p e c t a t i o n s o f t h e parties.- the policies clearly stipulate that they cover therisks of non-delivery of an entire package and that itwas petitioner itself that invited and granted theextensions and collected premiums thereon.

ISSUES 1. WON the arrest of the vessel was a risk coveredunder the subject insurance policies2 . W O N i n s u r a n c e p o l i c i e s s h o u l d b e s t r i c t l y construed against the insurer HELD 1.YES- With the incorporation of subsection 1.1 of Section1 of the Institute War Clauses, "arrest" caused by ordinary judicial process is deemed included amongt h e c o v e r e d r i s k s . T h i s i n t e r p r e t a t i o n b e c o m e s inevitable when subsection 1.1 of Section 1 of the Institute War Clauses provided that "this insurancecovers the risks excluded from the Standard Form of English Marine Policy by the clause 'Warranted free of capture, seizure, arrest, etc. x x x'" or the F.C. & S.C l a u s e . J u r i s p r u d e n t i a l l y , " a r r e s t s " c a u s e d b y ordin ary judicial process is also a risk excluded fromthe Standard Form of English Marine Policy by the F.C. & S. Clause.Petitioner cannot adopt the argument that the"arrest" caused by ordinary judicial process is notincluded in the covered risk simply because the F.C.& S. Clause under the Institute War Clauses can onlyb e o p e r a t i v e i n c a s e o f h o s t i l i t i e s o r w a r l i k e operations on account of its heading "Institute WarClauses."2. YES Ratio I n s u r a n c e P o l i c i e s s h o u l d b e c o n s t r u e d liberally in favor of the insured and strictly against the insurer. Reasoning - An insurance contract should be so interpreted ast o c a r r y o u t t h e p u r p o s e f o r w h i c h t h e p a r t i e s entered into the contract which is, to insure againstr i s k s o f l o s s o r d a m a g e t o t h e g o o d s . S u c h interpretation should result from the natural andreasonable meaning of language in the policy. Whererestrictive provisions are open to two interpretations,t h a t w h i c h i s m o s t f a v o r a b l e t o t h e i n s u r e d i s adopted.I n d e m n i t y a n d l i a b i l i t y i n s u r a n c e p o l i c i e s a r e construed in accordance with the general

rule of r e s o l v i n g a n y a m b i g u i t y t h e r e i n i n f a v o r o f t h e insured, where the contract or policy is prepared bythe insurer. A contract of insurance, being a contractof adhesion, par excellence, any ambiguity therein should be resolved against the insurer.Limitations of liability should be regarded with extreme jealousyand must be construed in such a way as to precludethe insurer from noncompliance with its obligations- It must be borne in mind that such contracts areinvariably prepared by the companies and must beaccepted by the insured in the form in which they arew r i t t e n . A n y c o n s t r u c t i o n o f a m a r i n e p o l i c y rendering it void should be avoided. Such policieswill, therefore, be construed strictly against thecompany in order to avoid a forfeiture, unless no other result is possible from the language used.- If a marine insurance company desires to limit orrestrict the operation of the general provisions of itscontract by special proviso, exception, or exemption,i t s h o u l d e x p r e s s s u c h l i m i t a t i o n i n c l e a r a n d unmistakable language.Be that as it may, exceptions to the general coverageare construed most strongly against the company.E v e n a n e x p r e s s e x c e p t i o n i n a p o l i c y i s t o b e construed against the underwriters by whom thepolicy is framed, and for whose benefit the exceptionis introduced. W E S T E R N G U A R A N T Y C O R P O R A T I O N V C A (RODRIGU EZ, and DE DIOS TRANSPORTATIONCO) 187 SCRA 652FELICIANO; July 20, 1990 FACTS - At around 4:30 in the afternoon of 27 March 1982,while crossing Airport Road on a pedestrian lane onher way to work, respondent Priscilla E. Rodriguezwas struck by a De Dios passenger bus owned byrespondent De Dios Transportation Co., Inc., thendriven by one Walter Saga y Aspero. The bus driverd i s r e g a r d e d t h e s t o p s i g n a l g i v e n b y a t r a f f i c pol iceman to allow pedestrians to cross the road.P r i s c i l l a w a s t h r o w n t o t h e g r o u n d , h i t t i n g h e r f orehead. She was treated at the Protacio EmergencyHospital and later

on hospitalized at the San Juan DeDios Hospital. Her face was permanently disfigured,causing her serious anxiety and moral distress.R e s p o n d e n t b u s c o m p a n y w a s i n s u r e d w i t h peti tioner Western Guaranty Corporation ("Western")under its Master Policy which enumerated specificliabilities of the insurance company and ended with aclause to clarify the limitations of the amount whichcould be granted as indemnity.- Respondent Priscilla Rodriguez filed a complaint fordamages before the Regional Trial Court of Makatiagainst De Dios Transportation Co. and Walter A.Saga. Respondent De Dios Transportation Co., int u r n , f i l e d a t h i r d p a r t y c o m p l a i n t a g a i n s t i t s insurance carrier, petitioner Western.- O n 6 A u g u s t 1 9 8 5 , t h e t r i a l c o u r t r e n d e r e d a decision in favor of respondent Priscilla E. Rodriguez,On appeal, the Court of Appeals affirmed in totothe decision of the trial court. Petitioner moved forthe reconsideration of the appellate court's decision.In a Resolution dated 10 January 1990, the Court of Appeals denied the motion for reconsideration forlack of merit. Petitioner Western is now before us ona P e t i t i o n f o r R e v i e w a l l e g i n g t h a t t h e C o u r t o f Appeals erred in holding petitioner liable to payb e y o n d t h e l i m i t s s e t f o r t h i n t h e S c h e d u l e Indemnities and in finding Western liable for loss of e a r n i n g s , m o r a l d a m a g e s a n d a t t o r n e y ' s f e e s . Succi nctly stated, it is petitioner Western's positionthat it cannot be held liable for loss of earnings,moral damages and attorney's fees because these items are not among those included in the ScheduleIndemnities set forth in the insurance policy.Petitioner Western in effect contends before thisCourt, as it did before the Court of Appeals, thatb e c a u s e t h e S c h e d u l e o f I n d e m n i t i e s l i m i t s t h e a mount payable for certain kinds of expenses" h o s p i t a l r o o m " , " s u r g i c a l e x p e n s e s " , " a n aesthesi ologists' fee", "operating room" and "medicale x p e n s e s " t h a t S c h e d u l e s h o u l d b e r e a d a s exc luding liability for any other type of expense ordamage or loss even though actually sustained

ori n c u r r e d b y t h e t h i r d p a r t y v i c t i m . W e a r e n o t persuaded by Western's contention. ISSUE WON the Schedule of indemnities as stated in thei n s u r a n c e p o l i c y s h o u l d b e c o n s t r u e d s t r i c t l y t o e xclude all others not explicitly stated therein HELD NO Ratio An insurance policy being in the nature of anadhesion contract is to be strictly construed againstthe insurer and liberally in favor of the insured. Reasoning F i r s t l y , t h e S c h e d u l e o f I n d e m n i t i e s d o e s n o t purport to restrict the kinds of damages that may beawarded against Western once liability has arisen.Section 1, quoted above, does refer to certain "Limitso f L i a b i l i t y " w h i c h i n t h e c a s e o f t h e t h i r d p a r t y liability section of the Master Policy, is apparentlyP50,000.00 per person per accident. Within thisove r-all quantitative limit, all kinds of damagesa l l o w a b l e b y l a w " a c t u a l o r c o m p e n s a t o r y damages"; "moral damages"; "nominal damages";" t e m p e r a t e o r m o d e r a t e d a m a g e s " ; " l i q u i d a t e d damages "; and "exemplary damages" may beawarded by a competent court against the insurero n c e l i a b i l i t y i s s h o w n t o h a v e a r i s e n , a n d t h e essential requisites or conditions for grant of eachspecies of damages are present. It appears to usself-evident that the Schedule of Indemnities was notintended to be an enumeration, much less a closedenumeration, of the specific kinds of damages whichmay be awarded under the Master Policy Western has issued.- Secondly, the reading urged by Western of theSchedule of Indemnities comes too close to workingf r a u d u p o n b o t h t h e i n s u r e d a n d t h e t h i r d p a r t y beneficiary of Section 1, quoted above. For Western'sreading would drastically and without warning

limitt h e o t h e r w i s e u n l i m i t e d ( s a v e f o r t h e o v e r a l l quantitative limit of liability of P50,000.00 per personper accident) and comprehensive scope of liabilityassumed by the insurer Western under Section 1:" a l l s u m s n e c e s s a r y t o d i s c h a r g e l i a b i l i t y o f t h e ins ured in respect of [bodily injury to a third party]".This result which is not essentially different fromtaking away with the left hand what had been givenwith the right hand we must avoid as obviouslyrepugnant to public policy. If what Western nowurges is what Western intended to achieve by itsSchedule of Indemnities, it was incumbent uponW e s t e r n t o u s e l a n g u a g e f a r m o r e s p e c i f i c a n d p recise than that used in fact by Western, so that the insured, and potential purchasers of its Master Policy,and the Office of the Insurance Commissioner, maybe properly informed and act accordingly.- Petitioner Western would have us construe theSchedule of Indemnities as comprising contractuallimitations of liability which, as a lready noted, iscomprehensively defined in Section 1 "Liability toth e Public" of the Master Policy. It is well-settled,however, that contractual limitations of liability foundin insurance contracts should be regarded by courtswith a jaundiced eye and extreme care and should b e s o c o n s t r u e d a s t o p r e c l u d e t h e i n s u r e r f r o m evading compliance with its just obligations.Finally, an insurance contract is a contract of a d h e s i o n . T h e r u l e i s w e l l e n t r e n c h e d i n o u r jurispr udence that the terms of such contract are tob e c o n s t r u e d s t r i c t l y a g a i n s t t h e p a r t y w h i c h prepared the contract, which in this case happens tobe petitioner Western. Q U A C H E E G A N V L A W U N I O N A N D R O C K INSURA NCE CO., LTD. 96 PHIL 85REYES; December 17, 1955 NATURE An appeal by defendant insurance company from thedecision of CFI in favor of the plaintiff

FACTS - before the last war, plaintiff-appellee owned 4warehouses or bodegas in Tabaco, Albay, used forthe storage of stocks of copra and of hemp, baledand loose, in which the appellee dealt extensively.They had been, with their contents, insured with thedefendant Company since 1937, and the loose madepayable to the Philippine National Bank as mortgageof the hemp and crops, to the extent of its interest.- Fire of undetermined origin that broke out in theearly morning of July 21, 1940, and lasted almostone week, gutted and completely destroyed BodegasN o s . 1 , 2 a n d 4 , w i t h t h e m e r c h a n d i s e s t o r e d therein. Plaintiffappellee informed the insurer bytelegram on the same date; and on the next day, thef i r e a d j u s t e r s e n g a g e d b y a p p e l l a n t i n s u r a n c e com pany arrived and proceeded to examine andphotograph the premises, pored over the books of t h e i n s u r e d a n d c o n d u c t e d a n e x t e n s i v e investigation. The plaintiff having submitted thecorresponding fire claims, totalling P398,562.81 (butr e d u c e d t o t h e f u l l a m o u n t o f t h e i n s u r a n c e,P370,000), the Insurance Company resisted p a y m e n t , c l a i m i n g v i o l a t i o n o f w a r r a n t i e s a n d conditi ons, filing of fraudulent claims, and tha t thefire had been deliberately caused by the insured orby other persons in connivance with him.- Que Chee Gan, with his brother, Qua Chee Pao, andsome employees of his, were indicted and tried in1940 for the crime of arson, it being claimed thatthey had s et fire to the destroyed warehouses to collect the insurance. They were, however, acquittedby the trial court.- t h e c i v i l suit to collect the insurance moneyproceeded to its t r i a l w i t h t h e C F I h o l d i n g t h a t : judgment is rendered for the plaintiff and against thedefendant condemning the latter to pay the former (a) Under the first cause of action, the sum of P146,394.48; (b) Under the second cause of action,the sum of P150,000; (c) Under the third cause of a c t i o n , t h e s u m o f P 5 , 0 0 0 ; ( d ) U n d e r t h e f o u r t h cause of action, the sum of P15,000; and (e) Underthe fifth cause of action, the sum of

P40,000; all of w h i c h s h a l l b e a r i n t e r e s t a t t h e r a t e of 8% perannum in accordance with Section 91 (b) o f t h e Insurance Act from September 26, 1940, until eachis paid, with costs against the defendant.I n i t s f i r s t a s s i g n m e n t o f e r r o r , t h e i n s u r a n c e compa ny alleges that the trial Court should have heldthat the policies were avoided for breach of warranty,specifically the one appearing on a rider pasted (withother similar riders) on the face of the policies. 4 It is argued that since the bodegas insured had anexternal wall perimeter of 500 meters or 1,640 feet,the appellee should have 11 fire hydrants in thecompound, and that he actually had only 2, with a further pair nearby, belonging to the municipality of Tabaco. ISSUES 4 Memo. of Warranty . The undernoted Appliances for the extinctionof fire being kept on the premises insured hereby, and it being declaredand understood that there is an ample and constant water supply withsufficient pressure available at all seasons for the same, it is herebywarr ante d that the said appliances shall be maintained in efficientworking order during the currency of this policy, by reason whereof adiscount of 2 1/2 per cent is allowed on the premium chargeable underthis policy. Hydrants in the compound, not less in number than one for each 150feet of external wall measurement of building, protected, with not lessthan 100 feet of hose piping and nozzles for every two hydrants keptunder cover in convenient places, the hydrants being supplied withwater pressure by a pumping engine, or from some other source,capable of discharging at the rate of not less than 200 gallons of waterper minute into the upper story of the highest building

protected, and atrained brigade of not less than 20 men to work the same.' 1 . W O N t h e d e f e n d a n t - a p p e l l a n t c a n c l a i m t h e policies it had issued as void ab initio2. WON the insured violated the "Hemp Warranty"provisions of Policy No. 2637165 against the storageof gasoline3 . W O N t h e i n s u r e d c o n n i v e d a t t h e l o s s a n d fraudulently inflated the quantity of the insured stockin the burnt bodegas HELD 1. NO Ratio It is usually held that where the insurer, at thetime of the issuance of a policy of insurance, hasknowledge of existing facts which, if insisted on, would invalidate the contract from its very inception,such knowledge constitutes a waiver of conditions inthe contract inconsistent with the facts, and theinsurer is stopped thereafter from asserting theb r e a c h o f s u c h c o n d i t i o n s . T h e l a w i s c h a r i t a b l e e nough to assume, in the absence of any showing tothe contrary, that an insurance company intends toexecuted a valid contract in return for the premiumreceived; and when the policy contains a conditionwhich renders it voidab le at its inception, and thisresult is known to the insurer, it will be presumed tohave intended to waive the conditions and to executea binding contract, rather than to have deceived theinsured into thinking he is insured when in fact he isn o t , a n d t o h a v e t a k e n h i s m o n e y w i t h o u t consideration. ReasoningThe appellant is barred estoppel to claim violationof the so-called fire hydrants warranty, for the reasonthat knowing fully all that the number of hydrantsd e m a n d e d t h e r e i n n e v e r e x i s t e d f r o m t h e v e r y b e g i n n i n g , t h e a p p e l l a n t n e v e r t h l e s s i s s u e d t h e po licies in question subject to such warranty, and received the corresponding premiums. The insurancecompany was aware, even before the policies were issued, that in the premises insured

there were onlytwo fire hydrants installed by Qua Chee Gan and twoothers nearby, owned by the municipality of Tabaco,c o n t r a r y t o t h e r e q u i r e m e n t s o f t h e w a r r a n t y i n questionThe plain, human justice of this doctrine isp e r f e c t l y a p p a r e n t . T o a l l o w a c o m p a n y t o accept one's money for a policy of insurance which it then knows to be void and of no effect,though it knows as it must, that the assuredb e l i e v e s i t t o b e v a l i d a n d b i n d i n g , i s s o contrary to the dictates of honesty and fairdealing, and so closely related to positive fraud,

a s t o t h e a b h o r r e n t t o f a i r - m i n d e d m e n . I t would be to allow the company to treat thepolicy as valid long enough to get the premiumon it, and leave it at liberty to repudiate it thenext moment. This cannot be deemed to be thereal intenti on of the parties. To hold that a literal construction of the policy expressed thet r u e i n t e n t i o n o f t h e c o m p a n y w o u l d b e t o indict it, for fraudulent purposes and designswhich we cannot believe it to be guilty of. - The appellant company so worded the policies thatwhile exacting the greater number of fire hydrants and appliances, it kept the premium discount at theminimum of 2 1/2%, thereby giving the insurance company a double benefit. Such abnormal treatmentof the insured strongly points at an abuse of theinsurance company's selection of the words andterms of the contract, over which it had absolute control.Receipt of Premiums or Assessments after Causefor Forfeiture Other than Nonpayment . It is a wells e t t l e d r u l e o f l a w t h a t a n i n s u r e r w h i c h w i t h knowledge of facts entitling it to treat a policy as nolonger in force, receives and accepts a premium ont h e p o l i c y , e s t o p p e d t o t a k e a d v a n t a g e o f t h e forfei

ture. It cannot treat the policy as void for the purpose of defense to an action to recover for a lossthereafter occurring and at the same time treat it asvalid for the purpose of earning and collecting furtherpremiums.- Moreover, taking into account the well known rulet h a t a m b i g u i t i e s o r o b s c u r i t i e s m u s t b e s t r i c t l y in terpreted against the party that caused them, the"memo of warranty" invoked by appellant bars thel a t t e r f r o m q u e s t i o n i n g t h e e x i s t e n c e o f t h e appliances called for in the insured premises On the alleged violations of the plaintiff Thealleged violation of the warranty of 100 feet of fireh o s e f o r e v e r y t w o h y d r a n t s , m u s t b e e q u a l l y rejected, since the appellant's argument thereon isbased on the assumption that the insured was boundto maintain no less than eleven hydrants, which requirement appellant is estopped from enforcing.- As to maintenance o f a trained fire brigade of 20men, the record is preponderant that the same wasorganized, and drilled, from time to give, althoughn o t m a i n t a i n e d a s a p e r m a n e n t l y s e p a r a t e u n i t , which the warranty did not require.2. NO Ratio Here, again, by reason of the exclusive controlo f t h e i n s u r a n c e c o m p a n y o v e r t h e t e r m s a n d phraseology of the contract, the ambiguity must beheld strictly against the insurer and liberally in favoro f t h e i n s u r e d , s p e c i a l l y t o a v o i d a f o r f e i t u r e . Insurance is, in its nature, complex and difficultf o r t h e l a y m a n t o u n d e r s t a n d . P o l i c i e s a r e prepared by experts who know and cana n t i c i p a t e t h e h e a r i n g a n d p o s s i b l e complic ations of every contingency. So long asinsurance companies insist upon the use of ambiguous, intricate and technical provisions,which conceal rather than frankly disclose, t h e i r o w n i n t e n t i o n s , t h e c o u r t s m u s t , i n fairness to those who purchase insurance,c o n s t r u e e v e r y a m b i g u i t y i n f a v o r o f t h e insured. An

insurer should not be allowed, bythe use of obscure phrases and exceptions, todefeat the very purpose for which the policywas procured. ReasoningAppellee admitted that there were 36 cans of gasoli n e i n t h e b u i l d i n g d e s i g n e d . I t H o w e v e r , gasoline is no t specifically mentioned among thep r o h i b i t e d a r t i c l e s l i s t e d i n t h e s o c a l l e d " h e m p warranty." The cause relied upon by the insurers p e a k s o f " o i l s ( a n i m a l a n d / o r v e g e t a b l e a n d / o r mineral and/or their liquid products having a flashp o i n t b e l o w 3 0 0 F a h r e n h e i t ) " , a n d i s d e c i d e d l y a mbiguous and uncertain; for in ordinary parlance," O i l s " m e a n " l u b r i c a n t s " a n d n o t g a s o l i n e o r kerosene. And how many insured, it may well bew o n d e r e d , a r e i n a p o s i t i o n t o u n d e r s t a n d o r determine "flash point below 300 Fahrenheit.- If the company intended to rely upon a condition of t h a t c h a r a c t e r , i t o u g h t t o h a v e b e e n p l a i n l y expressed in the policy.- The contract of insurance is one of perfect good faith not for the insured alone, but equally so for theinsurer; in fact, it is mere so for the latter, since itsdominant bargaining position carries with it stricterresponsibility.- Another point that is in favor of the insured is thatthe gasoline kept in Bodega No. 2 was only incidentalto his business, being no more than a customary 2 day's supply for the five or six motor vehicles usedfor transporting of the stored merchandise. "It is wellsettled that the keeping of inflammable oils on thepremises though prohibited by the policy does notvoid it if such keeping is incidental to the business." On the submission of books, voucbers, etc. Thecharge that the insured failed or refused to submit tothe examiners of the insurer the books, vouchers,etc. demanded by them was found unsubstantiatedby the trial Court, and no reason has been shown toalter this finding. The insured gave the insuranceexaminer all the date he asked for, and the examinereven kept and photographed some of the examinedbooks in his possession.

What does appear to havebeen rejected by the insured was the demand that h e s h o u l d s u b m i t " a list of all books, vouchers,receipts and other records", but the refusal of the insured in this instance was well justified, since thedemand for a list of all the vouchers (which were notin use by the insured) and receipts was positivelyu n r e a s o n a b l e , c o n s i d e r i n g t h a t s u c h l i s t i n g wassuperfluous because the insurer was not denie d access to the records, that the volume of Qua CheeG a n ' s b u s i n e s s r a n into millions, and that thed e m a n d w a s m a d e j u s t a f t e r t h e f i r e w h e n everything was in turmoil. That the representativesof the insurance company were able to secure all thed a t e t h e y n e e d e d i s p r o v e d b y t h e f a c t t h a t t h e adjuster Alexander Stewart was able to prepare hiso w n b a l a n c e s h e e t t h a t d i d n o t d i f f e r f r o m t h a t submitted by the insured except for the valuation of the merchandise, as expressly found by the Court inthe criminal case for arson.3. NO Ratio B o t h d e f e n s e s a r e p r e d i c t e d o n t h e assum p t i o n t h a t t h e i n s u r e d w a s i n f i n a n c i a l difficulties and set the fire to defraud the insurancec o m p a n y , p r e s u m a b l y i n o r d e r t o p a y o f f t h e Philippine National Bank, to which most of t h e insured hemp and copra was pledged. Both defensesare fatally undermined by the established fact that,notwithstanding the insurer's refusal to pay the valueof the policies the extensive resources of the insuredenabled him to pay off the National Bank in a shorttime; and if he was able to do so, no motive appearsf o r a t t e m p t t o d e f r a u d t h e i n s u r e r . W h i l e t h e a cquittal of the insured in the arson case is not res judicata

on the present civil action, the insurer'sevidence, to judge from the decision in the criminalcase, is practically identical in both cases and mustlead to the same result, since the proof to establisht h e defense of connivance at the fire in order todefraud the insurer "cannot be materiall y l e s s convincing than that required in order to convict theinsured of the crime of arson."- As to the defense that the burned bodegas could not possibly have contained the quantities of copraand hemp stated in the fire claims, the insurer's caserests almost exclusively on the estimates, inferencesand conclusions of its adjuster investigator whoexamined the premises during and after the fire. Histestimony, however, was based on inferences from

the photographs and traces found after the fire, andmust yield to the contradictory testimony of those who actually saw the contents of the bodegas shortlyb e f o r e t h e f i r e , w h i l e i n s p e c t i n g t h e m f o r t h e mortgagee Bank. Disposition W e f i n d n o r e v e r s i b l e e r r o r i n t h e judgment appealed from, wherefore the same ishereby affirmed. D E L R O S A R I O V E Q U I T A B L E I N S U R A N C E & CASUALT Y CO., INC 8 SCRA 343PAREDES; June 29, 1963 NATURE Appeal from judgment of CFI Rizal FACTS - Francisco del Rosario was insured by EquitableI n s u r a n c e a n d C a s u a l t y C o . I n c u n d e r P e r s o n a l Accident Policy no. 7136. The Company bound itself to pay P1000 to P3000 as indemnity for the death of the insured.Under the policy: Part I. Indemnity for Death

If the insured sustains any bodily injurywhich is effected solely through violent,external, visible and accidental means,and which shall result, independently of a l l o t h e r c a u s e s a n d w i t h i n s i x t y d a y s from the occurrence thereof, in the Deathof the Insured, the Company shall pay theamount set opposite such injury:Section 1. Injury sustained other thanthose specified below unless exceptedh e r e i n a f t e r P 1 0 0 0 Section 2. Injury sustained by t h e w r e c k i n g o r d i s a b l e m e n t o f a r a i l r o a d passenger car or street railway car in or o n w h i c h t h e I n s u r e d i s traveling as af a r e p a y i n g p a s s e n g e r P 1 5 0 0 S ection 3. Injury sustained by the burningo f a c h u r c h , t h e a t r e , p u b l i c l i b r a r y o r municipa l administration building whilet h e I n s u r e d i s t h e r e i n a t t h e commencement of the fireP2000S e c t i o n 4 . I n j u r y s u s t a i n e d b y t h e wrecki ng or disablement of a regularp a s s e n g e r e l e v a t o r c a r i n w h i c h t h e Insure d is being conveyed as a passenger( E l e v a t o r i n m i n e s e x l u d e d ) P 2 5 0 0 Section 5. Injury sustained by a stroke of l i g h t n i n g o r by a cycloneP3000x x x x x x x x x x x x Part VI. Exceptions This policy shall not cover disappearanceof the Insured nor shall it cover Death, Disability, Hospital fees, or Loss of time,caused to the insured:x x x ( h ) B y d r o w n i n g e x c e p t a s a c o n s e q u e n c e o f t h e w r e c k i n g o r disa blement in the Philippine waters of ap a s s e n g e r s t e a m o r motor vessel i n w h i c h t h e I n s u r e d i s t r a v e l i n g a s a farepaying passenger; x x x- A rider to the Policy contained the following;IV. DROWNINGI t i s h e r e b y d e c l a r e d a n d a g r e e d t h a t exemption clause Letter (h) in PART VI

of t h e p o l i c y i s h e r e b y w a i v e d b y t h e c o m p a n y , a n d t o f o r m a p a r t o f t h e provision covered by the policy.Feb 24, 1957, Francisco del Rosario while on boardthe motor launch ISLAMA, with his beneficiary to thepolicy, Remedios Jayme, were forced to jump off saidlaunch on account of fire which broke out on saidvessel, resulting in the death by drowning of theinsured and his beneficiary.- Simeon del Rosario, the insureds father, filed aclaim for payment with the company. The companypaid him P1000 pursuant to section 1 Part I of thepolicy.- On the same date, Atty. Francisco wrote to thecompany acknowledging receipt by his client of theP1000 but informing said company that said amountwas not the correct one. He claimed that the amountp a y a b l e s h o u l d b e P 1 5 0 0 u n d e r t h e p r o v i s i o n o f Section 2 Part I, based on the rule of pari materia.- The company referred the matter to the InsuranceC o o m i s s i o n e r , w h o w a s o f t h e o p i n i o n t h a t t h e liability of the company was only P1000. thus thecompany refused to pay more that P1000. Atty.Francisco wrote a subsequent letter to companyasking for p3000, which the company refused to pay.- A complaint for recovery of the balance of P2000 w a s i n s t i t u t e d w i t h t h e C F I R i z a l , p r a y i n g f o r a further sum of P10000 as attorneys fees, expensesof litigation and costs.C F I r u l e d i n f a v o r o f p e t i t i o n e r , o r d e r i n g t h e compan y to pay P2000 to del Rosario. ISSUE How much should the indemnity be HELD - All the parties agree that indemnity has to be paid,but the conflict centers on how much it should be.- Where there is ambiguity with respect to the termsa n d c o n d i t i o n s o f t h e p o l i c y , t h e s a m e w i l l b e r e s o l v e d a g a i n s t t h e o n e r e s p o n s i b l e t h e r e o f . Generally, the insured has little, if any, participationin the preparation of the policy, together with thed r a f t i n g o f i t s t e r m s a n d c o n d i t i o n s . T h e interpretation of obscure stipulations in a contractshould not favor the party

who caused the obscurity.- SC agreed with the ruling of the lower court: x x x death by drowning is a ground for recovery apart from the bodily injury because death by bodily injury is covered by Part I of the policy while death by drowning is covered by Part VI thereof. But while the policy mentions specific amounts that may be recovered for death for bodily injury, yet, there is not specific amount mentioned in the policy for death thru drowningalthough the latter is, under Part VI of the policy,a g r o u n d f o r r e c o v e r y t h e r e u n d e r . S i n c e t h e d e f e n d a n t h a s b o u n d i t s e l f t o p a y P 1 0 0 0 t o P3000 as indemnity for the death of the insured b u t t h e p o l i c y d o e s n o t p o s i t i v e l y s t a t e a n y definite amount that may be recovered in case of death by drowning, there is an ambiguity in thisrespect in the policy, which ambiguity must beinterpreted in favor of the insured and strictly a g a i n s t t h e i n s u r e r s o a s t o a l l o w a g r e a t e r indemnity. x x x plaintiff is therefore entitled torecover P3000. Disposition Judgment appealed from is affirmed. G E A G O N I A v . C A ( C O U N T R Y B A N K E R S I NSURANCE) 8 SCRA 343DAVIDE; February 6 1995 FACTS -Geagonia is the owner of Norman's Mart located inthe public market of San Francisco, Agusan del Sur.O n 2 2 D e c 1 9 8 9 , h e o b t a i n e d f r o m t h e p r i v a t e respondent fire insurance policy for P100,000.00. The period of the policy was from 22 Dec 1989 to 22D e c 1 9 9 0 a n d c o v e r e d t h e f f : " S t o c k - i n t r a d e consisting principally of dry goods such as RTW's formen and women wear and other usual to assured's business.-The policy contained the following condition:

"3. The insured shall give notice to the Company of any insurance or insurances already effected, or which may subsequently be effected, covering any of the property

or properties consisting of stocks int r a d e , g o o d s i n p r o c e s s a n d / o r i n v e n t o r i e s o n l y hereby insured, and unless notice be given and theparticulars of such insurance or insurances be statedtherein or endorsed in this policy pursuant to Section50 of the Insurance Code, by or on behalf of theC o m p a n y b e f o r e t h e o c c u r r e n c e o f a n y l o s s o r d a mage, all benefits under this policy shall bedeemed forfeited, p r o v i d e d h o w e v e r , t h a t t h i s condition shall not apply when the total insurance orinsurances in force at the time of the loss or damageis not more than P200,000.00."-On 27 May 1990, fire of accidental origin broke outat around 7:30 p.m. at the pub lic market of San Francisco, Agusan del Sur. The petitioner's insuredstocks-in-trade were completely destroyed promptinghim to file w/ the private respondent a claim underthe policy. On 28 Dec 1990, the private respondentdenied the claim because it found that at the time of the loss the petitioner's stocks-in-trade were likewisec o v e r e d b y t w o f i r e i n s u r a n c e p o l i c i e s f o r P100,000.00 each, issued by the Cebu Branch of thePhilippines First Insurance Co., Inc. (PFIC).-The basis of the private respondent's denial was thepetitioner's alleged violation of Condition 3 of thepolicy.- Geagonia then filed a complaint against the privaterespondent w/ the Insurance Commission for therecovery of P100,000.00 under fire insurance policy,for attorney's fees, and costs of litigation. He claimsthat the time he obtained the private respondent'sfire insurance policy he knew that the two policiesi s s u e d b y t h e P F I C w e r e a l r e a d y i n e x i s t e n c e ; however, he had no knowledge of the provision in theprivate respondent's policy requiring him to inform ito f t h e p r i o r p o l i c i e s ; t h i s r e q u i r e m e n t w a s n o t mentioned to him by the private respondent's agent;and had it been so mentioned, he would not havewithheld such information. He further asserted thatthe total of the amounts claimed under the threepolicies was below the actual value of his stocks at the time of loss, w/c was P1M.-

T h e I n s u r a n c e C o m m i s s i o n f o u n d t h a t t h e petit ioner did not violate Condition 3 as he had no knowledge of the existence of the two fire insurancepolicies obtained from the PFIC; that it was CebuTesing Textiles w/c procured the PFIC policies w/o informing him or securing his consent; and that CebuTesing Textile, as his creditor, had insurable intereston the stocks. These findings were based on thepetitioner's testimony that he ca me to know of thePFIC policies only when he filed his claim with theprivate respondent and that Cebu Tesing Textile o b t a i n e d t h e m a n d p a i d f o r their premiums w/oinforming him. The Insurance C o m m i s s i o n t h e n ordered the respondent company to pay complainantthe sum of P100,000.00 with legal interest from thetime the complaint was filed until fully satisfied plusthe amount of P10,000.00 as attorney's fees.C A r e v e r s e d t h e d e c i s i o n o f t h e I n s u r a n c e Com mission because it found that the petitioner knew of the existence of the two other policies issuedby the PFIC ISSUES 1. WON the petitioner had prior knowledge of thetwo insurance policies issued by the PFIC when heobtained the fire insurance policy from the privaterespondent, thereby, for not disclosing such fact ,violating Condition 3 of the policy2. if he had, WON he is precluded from recoveringtherefrom HELD 1. YES- We agree w/ the CA that the petitioner knew of theprior policies issued by the PFIC. His letter of 18January 1991 to the private respondent conclusivelyproves this knowledge. His testimony to the contrarybefore the Insurance Commissioner and which thel a t t e r r e l i e d u p o n c a n n o t p r e v a i l o v e r a w r i t t e n a dmission made ante litem motam. It was, indeed,i n c r e d i b l e t h a t h e d i d n o t k n o w a b o u t t h e p r i o r policies since these policies were not new or original.2. NO- It must, however, be underscored that unlike

the" o t h e r i n s u r a n c e " c l a u s e s i n v o l v e d i n G e n e r a l I n s u r a n c e a n d S u r e t y C o r p . v s . N g H u a o r i n Pioneer Insurance & Surety Corp. vs. Yap, whichread:"The insured shall give notice to the company of anyinsurance or insurances already effected, or whichmay subsequently be effected covering any of the property hereby insured, and unless such notice beg i v e n a n d t h e p a r t i c u l a r s o f s u c h i n s u r a n c e o r insu rances be stated in or endorsed on this Policy byor on behalf of the Company before the occurrenceof any loss or damage, all benefits under this Policyshall be forfeited." or in the 1930 case of Santa Anavs. Commercial Union Assurance Co. whichprovided "that any outstanding insurance upon thewhole or a portion of the objects thereby assuredmust be declared by the insured in writing and hemust cause the company to add or insert it in thepolicy, without which such policy shall be null andv o i d , a n d t h e i n s u r e d w i l l n o t b e e n t i t l e d t o indemnity in case of loss," C o n d i t i o n 3 i n t h e private respondent's policy No. F-14622 doesn o t a b s o l u t e l y d e c l a r e v o i d a n y v i o l a t i o n t h e r e o f . I t e x p r e s s l y p r o v i d e s t h a t t h e condition " s h a l l n o t a p p l y w h e n t h e t o t a l insurance or insurances in force at the time of t h e l o s s o r d a m a g e i s n o t m o r e t h a n P200,000.00."- Interpretation: It is a cardinal rule on insurancet h a t a p o l i c y o r i n s u r a n c e c o n t r a c t i s t o b e interpreted liberally in favor of the insured an d s t r i c t l y a g a i n s t t h e c o m p a n y , t h e r e a s o n b e i n g , und oubtedly, to afford the greatest protection whicht h e i n s u r e d w a s e n d e a v o r i n g t o s e c u r e w h e n h e applied for insurance. It is also a cardinal principle of law that forfeitures are not favored and that anyconstruction which would result in the forfeiture of t h e p o l i c y b e n e f i t s f o r t h e p e r s o n c l a i m i n g t h e r e u n d e r , w i l l b e a v o i d e d , i f i t i s p o s s i b l e t o constru e the policy in a manner which would permitrecovery, as,

for example, by finding a waiver forsuch forfeiture. Stated differently, provisions ,conditions or exceptions in policies which tendto work a forfeiture of insurance policies shouldbe construed most strictly against those forwhose benefits they are inserted, and mostfavorably toward those against whom they areintended to operate. The reason for this is that,except for riders which may later be inserted, the insured sees the contract already in its final form andhas had no voice in the selection or arrangement of the words employed therein. On the other hand, thelanguage of the contract was carefully chosen and deliberated upon by experts and legal advisers whohad acted exclusively in the interest of the insurersa n d t h e t e c h n i c a l l a n g u a g e e m p l o y e d t h e r e i n i s rarely understood by ordinary laymen.With these principles in mind, we are of theopinion that Condition 3 of the subject policy isnot totally free from ambiguity and must bemeticulously analyzed. Such analysis leads usto conclude that (a) the prohibition applies onlyto double insurance, and (b) the nullity of thepolicy shall only be to the extent exceeding P200,000.00 of the total policies obtained. - Furthermore, by stating within Condition 3 itself t h a t s u c h c o n d i t i o n s h a l l n o t a p p l y i f t h e total insurance in force at the time of loss does not exceedP200,000.00, the private respondent was amenableto assume a co-insurer's liability up to a loss notexceeding P200,000.00. What it had in mind was todiscourage overinsurance. Indeed, the rationalebehind the incorporation of "other insurance" clausein fire policies is to prevent over-insurance and thusavert the perpetration of fraud. When a propertyowner obtains insurance policies from two or morei n s u r e r s i n a t o t a l a m o u n t t h a t e x c e e d s t hep r o p er t y ' s v a l u e , th e i n s u r e d ma y h a v e a n inducement to destroy the property for the purposeof collecting

the insurance. The public as well as theinsurer is interested in preventing a situation in which a fire would be profitable to the insured. Disposition Petition granted. The decision of theCourt of Appeals in CA G.R. SP No. 31916 is SET ASIDE and the decision of the Insurance Commissionin Case No. 3340 is REINSTATED. SUN INSURANCE OFFICE, LTD. V CA (LIM) 211 SCRA 554CRUZ; July 17, 1992 NATURE Petition for review from the decision of the Court of Appeals FACTS - Felix Lim was issued a Personal Accident Policyinsurance with petitioner company with a face valueof P200,000. His beneficiary was his wife Nerissa.- October 6, 1982 Felix accidentally shot himself inthe head with his own gun. - He was playing with the handgun after he had removed the guns magazine ( kasi naman ).- He pointed the gun at his secretary and onlywitness Pilar Nalagon as a joke and assured her that the gun was not loaded ( are you sure ).- He then put the gun to his temple and fired it ( haaay, sabi ko na nga ba ).- Both parties are in agreement that there was nosuicide.N e r i s s a c l a i m e d a s F e l i x s b e n e f i c i a r y b u t S u n Insura nce would not grant her claim, saying that herhusbands death was not an accident.- Nerissa sued Sun Insurance and won the case. SunI n s u r a n c e w a s o r d e r e d t o p a y h e r P 2 0 0 , 0 0 0 representing th e face value of the claim along withmoral, exemplary and compensatory damages andattorneys fees. The decision was affirmed by the CA. Petitioners Claim - Sun Insurance cites one of the four exceptions in the contract of insurance which includes bodily injuryconsequent upon

the insured person attempting toc o m m i t s u i c i d e o r w i l l f u l l y e x p o s i n g h i m s e l f t o need less peril in an attempt to save a human life.- There mere act of pointing the gun to his temple showed that Felix willfully exposed himself to dangerb e c a u s e a g u n s h o u l d a l w a y s b e h a n d l e d w i t h caution. Respondents Comments - Felix believed the gun to be safe because he had removed the magazine.- He repeatedly assured his secretary that the gunwas not loaded. ISSUES 1. WON Felix Lims death was a n a c c i d e n t , t h u s making his widow Nerissa liable to claim the accidentinsurance2. WON the award of damages to Nerissa Lim was justified HELD 1. YES, Felix Lims death was an accident. Ratio There is no accident when a deliberate act isp e r f o r m e d u n l e s s s o m e a d d i t i o n a l , u n e x p e c t e d , inde pendent and unforeseen happening occurs whichproduces or brings bout their injury or death. Reasoning - An accident has been defined to b e t h a t w h i c h happens by chance or fortuitously without intentionor design and which is unexpected, unusual andunforeseen. It an event that takes pace without o n e s f o r e s i g h t o r e x p e c t a s t i o n a n e v e n t t h a t proceeds from an unknown cause or is an unusualeffect of a known case and therefore not expected.It happens without any human agency, an eventwhich, under the circumstances, is unusual to andnot expected by the person to whom it happens.- T h e f i r i n g of the gun was deemed to be theunexpected and independent and unfore s e e n occurrence that led to the insured persons death.- There was no willful exposure to needless peril forthe part of Felix. Suicide and exposure to needlessp e r i l a r e s i m i l a r i n t h e

s e n s e t h a t b o t h s i g n i f y disregard for ones life. Suicide imparts a positive act of ending ones life whereas the latter indicatesrecklessness that is almost suicidal in intent.- Accident insurance policies were never meant toreward the insured for his tendency to show off or forhis miscalculations. They were intended to providefor contingencies.- Lim was unquestionably negligent but it should notp r e v e n t h i s w i d o w f r o m r e c o v e r i n g f r o m t h e i n s u r a n c e p o l i c y h e o b t a i n e d p r e c i s e l y a g a i n s t accident .- Insurance contracts are, as a rule, supposed to beinterpreted liberally in favor of the assured.2. NO, the claim for damages should not be grantedfor being unjust. Ratio A person may be made liable to the paymentof moral damages if his act is wrongful. The adverser e s u l t o f a n a c t i o n d o e s n o t p e r s e m a k e t h e a c t wrongful and subject the act or to the payment of moral damages. Reasoning - Petitioner was acting in good faith when it resistedthe private respondents claim on the ground that thedeath of the insured was covered by the exception.- The issue was debatable and was clearly not raisedo n l y f o r t h e p u r p o s e o f e v a d i n g a l e g i t i m a t e obligation. RIZAL SURETY & INSURANCE COMPANY V CA(TRANSWORLD KNITTING MILLS, INC.) 336 SCRA 12PURISIMA; July 18, 2000 NATURE Petition for Review on Certiorari under Rule 45 of theRules of Court FACTS Rizal Surety & Insurance Company (Riza l Insurance) issued Fire Insurance Policy No. 45727 infavor of Transworld Knitting Mills, Inc. (Transworld).- Pertinent portions of subject policy on the buildingsinsured, and location thereof, read:" O n s t o c k s o f f i n i s h e d a n d / o r u n f i n i s h e d products

, raw materials and supplies of everykind and description, the properties of theI n s u r e d s a n d / o r h e l d b y t h e m i n t r u s t , o n commission or on joint account with othersand/or for which they (sic) responsible in caseof loss whilst contained and/or stored duringthe currency of this Policy in the premisesoccupied by them forming part of the buildingss i t u a t e ( s i c ) w i t h i n o w n C o m p o u n d a t MAGDALO STREET, BARRIO UGONG, PASIG,M E T R O M A N I L A , P H I L I P P I N E S , B L O C K N O . 601. xxx...............xxx...............xxx Said building of four-span lofty one storey inheight with mezzanine portions is constructedo f r e i n f o r c e d c o n c r e t e a n d h o l l o w b l o c k s an d/or concrete under galvanized iron roof and occupied as hosiery mills, garment andlingerie factory, transistorstereo assemblyp l a n t , o f f i c e s , w a r e h o u s e a n d c a r e t a k e r ' s quarters. 'Bounds in front partly by one-storey concretebuilding under galvanized iron roof occupied as canteen and guardhouse, partly by buildingof two and partly one storey constructed of concrete below, timber above undergalvanized iron roof occupied as garage and quarters and p a r t l y b y o p e n s p a c e a n d / o r t r a c k i n g / pac king, beyond which is the aforementioned M a g d a l o S t r e e t ; o n i t s r i g h t a n d l e f t b y driveway, thence open spaces, and at the rear by open spaces.'" - The same pieces of property insured w ith thep e t i t i o n e r w e r e a l s o i n s u r e d w i t h N e w I n d i a Assura nce Company, Ltd., (New India).- Fire broke out in the compound of Transworld, razing the middle portion of its fourspan buildinga n d p a r t l y g u t t i n g t h e l e f t a n d r i g h t s e c t i o n s thereof. A two-storey building (behind said fours p a n b u i l d i n g ) w h e r e f u n a n d a m u s e m e n t machi nes and spare parts were stored, was also destroyed by the fire.- Transworld filed its insurance claims with

RizalS u r e t y & I n s u r a n c e C o m p a n y a n d N e w I n d i a Assu rance Company but to no avail.P r i v a t e r e s p o n d e n t b r o u g h t a g a i n s t t h e s a i d insuran ce companies an action for collection of sum of money and damages.- Petitioner Rizal Insurance countered that its firei n s u r a n c e p o l i c y s u e d u p o n c o v e r e d o n l y t h e c o n t e n t s o f t h e f o u r - s p a n b u i l d i n g , w h i c h w a s partly burned, and not the damage caused by thefire on the twostorey annex building.- The trial court dismissed the case as against TheN e w I n d i a A s s u r a n c e C o . , L t d . b u t o r d e r e d d efendant Rizal Surety And Insurance Company topay Transwrold (sic) Knitting Mills, Inc.- Both the petitioner, Rizal Insurance Company,and private respondent, Transworld Knitting Mills,Inc., went to the Court of Appeals, which requiredNew India Assurance Company to pay plaintiff -appellant the amount of P1,818,604.19 while theR i z a l S u r e t y h a s t o p a y t h e p l a i n t i f f a p p e l l a n t P470,328.67.- New India appealed to the Court theorizing inter alia that the private respondent could not bec o m p e n s a t e d f o r t h e l o s s o f t h e f u n a n d amusement machines and spare parts stored atthe twostorey building because it (Transworld) had no insurable interest in said goods or items.- The Court denied the appeal with finality.- Petitioner Rizal Insurance and private respondentT r a n s w o r l d , i n t e r p o s e d a M o t i o n f o r Reconsideration before the Court of Appeals, whichr e c o n s i d e r e d i t s d e c i s i o n o f J u l y 1 5 , 1 9 9 3 , a s re gards the imposition of interest.- Undaunted, petitioner Rizal Surety & InsuranceCompany found its way to the Court. ISSUE WON the fire insurance policy litigated uponp rotected only the contents of the main building(four-span), and did not include those stored in thetwo-storey annex building HELD NO- Resolution of the issue posited hinges on the properi n t e r p r e t a t i o n o f t h e s t i p u l a t i o n i n s u b j e c t f i r e insurance policy regarding its coverage, which reads:"xxx contained

and/or stored during the currency of this Policy in the premises occupied by them formingp a r t o f t h e b u i l d i n g s s i t u a t e ( s i c ) w i t h i n o w n Compound xxx"- It can be gleaned unerringly that the fire insurancepolicy in question did not limit its coverage to whatwere stored in the four-span building. As opined byt h e t r i a l c o u r t o f o r i g i n , t w o r e q u i r e m e n t s m u s t co ncur in order that the said fun and amusementm a c h i n e s a n d s p a r e p a r t s w o u l d b e d e e m e d protected by the fire insurance policy under scrutiny,to wit:"First, said properties must be contained and/ors t o r e d i n t h e a r e a s o c c u p i e d b y T r a n s w o r l d a n d second, said areas must form part of the buildingdescribed in the policy xxx"- Said building of four-span lofty one storey in heightwith mezzanine portions is constructed of reinforcedconcrete and hollow blocks and/or concrete underg alvanized iron roof and occupied as hosiery mills,g a r m e n t a n d l i n g e r i e f a c t o r y , t r a n s i s t o r s t e r e o assembly plant, offices, ware house and caretaker'squarter.T h e C o u r t i s m i n d f u l o f t h e w e l l - e n t r e n c h e d doctrine that factual findings by the Court of Appealsare conclusive on the parties and not reviewable bythis Court, and the same carry even more weightwhen the Court of Appeals has affirmed the findingsof fact arrived at by the lower court.- In the case under consideration, both the trial courtand the Court of Appeals found that the so called"annex " was not an annex building but an integral a n d i n s e p a r a b l e p a r t o f t h e f o u r span buildingdescribed in the policy and consequen tly, themachines and spare parts stored therein we r e covered by the fire insurance in dispute.- V e r i l y , t h e t w o storey building involved, ap e r m a n e n t s t r u c t u r e w h i c h a d j o i n s a n d intercommunicates with the "first right span of thel o f t y s t o r e y b u i l d i n g " , f o r m e d p a r t t h e r e o f , a n d m eets the requisites for compensability under thefire insurance policy sued upon.- So also, considering that the twostorey buildingaforementioned was already existing when s ubjectf i r e i n s u r a n c e p o l i c y c o n t r a c t w a s e n t e r e d i n t

o , petitioner should have specifically excluded the saidtwo-storey building from the coverage of the fireinsurance if minded to exclude the same but if didnot, and instead, went on to provide that such fire insurance policy covers the products, raw materialsa n d s u p p l i e s s t o r e d w i t h i n t h e p r e m i s e s o f respondent Transworld which was an integral part of t h e f o u r s p a n b u i l d i n g o c c u p i e d b y T r a n s w o r l d , knowing fully well the existence of such buildingadjoining and intercommunicating with the rightsection of the four-span building.- Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has created adoubt regarding the portions of the building insuredthereby. Article 1377 of the New Civil Code provides: "Art.1377. The interpretation of obscure wordsor stipulations in a contract shall not favor theparty who caused the obscurity" - Conformably, it stands to reason that the doubts h o u l d b e r e s o l v e d a g a i n s t t h e p e t i t i o n e r , RizalS u r e t y I n s u r a n c e C o m p a n y , w h o s e l a w y e r o r managers drafted the fire insurance policy contractunder scrutiny. Citing the aforecited provision of lawi n p o i n t , t h e Court in Landicho vs. Government Service Insurance System , ruled: "This is particularly true as regards insurance policies, in respect of which it is settled that the' t e r m s i n a n i n s u r a n c e p o l i c y , w h i c h a r e ambi guous, equivocal, or uncertain x x x are tobe construed strictly and most strongly against Lim, who was using the vehicle before it wasc arnapped, was in possession of an expired driver'slicense at the time of the loss of said vehicle which isin violation of the authorized driver clause of theinsurance policy, which states, to wit:"AUTHORIZED DRIVER:A n y o f t h e f o l l o w i n g : ( a ) T h e I n s u r e d ( b ) A n y person driving on the Insured's order, or with hispermission. Provided that the person driving ispermitted, in accordance with the licensing orother laws

or regulations, to drive the ScheduledV e h i c l e , o r h a s b e e n p e r m i t t e d a n d i s n o t disqualified by order of a Court of Law or byreason of any e n a c t m e n t o r r e g u l a t i o n i n t h a t behalf."- On Nov17, 1982, private respondents requestedfrom petitioner FCP for a suspension of payment onthe monthly amortization agreed upon due to theloss of the vehicle and, since the carnapped vehiclewas insured with petitioner Perla, said insurancec o m p a n y s h o u l d b e m a d e t o p a y the remainingbalance of the promissory note and th e c h a t t e l mortgage contract.- Perla, however, denied private respondents' claim.Consequently, petitioner FCP demanded that privaterespondents pay the whole balance of the promissorynote or to return the vehicle but the latter refused.- On July25, 1983, petitioner FCP filed a complaintagainst private respondents, who in turn filed anamended third party complaint against petitionerPerla on Dec8, 1983 . After trial on the merits, TC ordered sps Lim to pay jointly and severally, plaintiff the sum of P55,055.93 plus interest thereon at therate of 24% per annum from July 2, 1983 until fullypaid; as well as the cost of suit. It also ordered thedismissal of the Third party complaint against Third-Party Defendant.- Upon appeal, CA reversed said decision- After petitioners' separate MFRs were denied by CA,petitioners filed these separate petitions for reviewon certiorari. ISSUE 1. WON there was grave abuse of discretion on thepart of the appellate court in holding that privaterespondents did not violate the insurance contractbecause the authorized driver clause is not applicableto the "Theft" clause of said Contract2. WON the loss of the collateral exempted thed e b t o r f r o m h i s a d m i t t e d o b l i g a t i o n s u n d e r t h e pr omissory note particularly the payment of interest,litigation expenses and attorney's fees HELD 1. NO- The comprehensive insurance policy issued bypetitioner Perla undertook to indemnify the privaterespondents against loss or damages to the car

(a)by accidental collision or overturning, or collision oroverturning consequent upon mechanical breakdowno r c o n s e q u e n t u p o n w e a r a n d t e a r ; (b) by fire,external explosion, selfignition or lightning orb u r g l a r y , h o u s e b r e a k i n g o r t h e f t ; a n d ( c ) b y malicious act.- Where a car is unlawfully and wrongfully takenwithout the owner's consent or knowledge, suchtaking constitutes theft, and, therefore, it is the"THEFT" clause, and not the "AUTHORIZED DRIVER"clause, that should apply.The risk against accident isdistinct from the risk against theft. The 'authorizedd r i v e r clause' in a typical insurance policy a s i n contemplation or anticipation of accident in the legalsense in which it should be understood, and not incontemplation or anticipation of an event such astheft. The distinction often seized upon by insurancecompanies in resisting claims from their assuredsbetween death occurring as a result of accident anddeath occurring as a result of intent may apply to thecase at bar.- If the insured vehicle had figured in an accident atthe time she drove it with an expired license, then,a p p e l l e e P e r l a C o m p a n i a c o u l d p r o p e r l y r e s i s t ap pellants' claim for indemnification for the loss ordestruction of the vehicle resulting from the accident.B u t i n t h e p r e s e n t c a s e , t h e l o s s o f t h e i n s u r e d vehicle did not result from an accident where intentw a s i n v o l v e d ; t h e l o s s i n t h e present case wascaused b y t h e f t , t h e c o m m i s s i o n o f w h i c h w a s attended by intent."T h e r e i s n o c a u s a l c o n n e c t i o n b e t w e e n t h e pos session of a valid driver's license and the loss of avehicle. To rule otherwise would render car insurancepractically a sham since an insurance company caneasily escape liability by citing restrictions which arenot applicable or germane to the claim, therebyreducing indemnity to a shadow.2. The court agrees with FCP that Lim spouses arenot relieved of their obligation to pay the former theinstallments due on the promissory note on accountof the loss of the automobile. The chattel

mortgagec o n s t i t u t e d o v e r t h e a u t o m o b i l e i s m e r e l y a n accessory contract to the promissory note. Being theprincipal contract, the promissory note is unaffectedb y w h a t e v e r b e f a l l s t h e s u b j e c t m a t t e r o f t h e accessory contract.- The unpaid balance on the promissory note shouldb e p a i d , a n d n o t j u s t t h e i n s t a l l m e n t s d u e a n d payable before the automobile was carnapped, aserronously held by the CAH o w e v e r , t h i s d o e s n o t m e a n t h a t p r i v a t e respo ndents are bound to pay the interest, litigatione x p e n s e s a n d a t t o r n e y ' s f e e s s t i p u l a t e d i n t h e promissory note. Because of the peculiar relationshipbetween the three contracts in this case, i. e., the promissory note, the chattel mortgage contract andt h e i n s u r a n c e p o l i c y , t h e C o u r t i s c o m p e l l e d t o co nstrue all three contracts as intimately interrelatedto each other, despite the fact that at first glancethere is no relationship whatsoever between the parties thereto.U n d e r t h e p r o m i s s o r y n o t e , L i m s p o u s e s a r e obliged to pay Supercars, Inc. the amount statedtherein in accordance with the schedule provided for.To secure said promissory note, private respondentsconstituted a chattel mortgage in favor of Supercars,Inc. over the automobile the former purchased fromthe latter. The chattel mortgage, in turn, required private respondents to insure the automobile and tomake the proceeds thereof payable to Supercars,Inc. The promissory note and chattel mortgage wereassigned by Supercars, Inc. to petitioner FCP, witht h e k n o w l e d g e o f p r i v a t e r e s p o n d e n t s . P r i v a t e res pondents were able to secure an insurance policyf r o m p e t i t i o n e r P e r l a , a n d t h e s a m e w a s m a d e sp ecifically payable to petitioner FCP.- From the abovementioned provision that upon theloss of the insured vehicle, the insurance company Perla undertakes to pay directly to the mortgagor orto their assignee, FCP, the outstanding balance of them o r t g a g e a t t h e t i m e o f s a i d l o s s u n d e r t h e mortgage contract. If the claim on the insurancep o l i c y h a d b e e n a p p r o v e d b y p e t i t i o n e r P e r l a , i t would have paid the proceeds thereof directly

topetitioner FCP, and this would have had the effect of extinguishing private respondents' obligation topetitioner FCP. Therefore, private respondents were justified in asking petitioner FCP to demand theunpaid installments from petitioner Perla.- Because petitioner Perla had unreasonably deniedtheir valid claim, private respondents should not bemade to pay the interest, liquidated damages and attorney's fees as stipulated in the promissory note.As mentioned above, the contract of indemnity wasprocured to insure the return o f the money loanedfrom petitioner FCP, and the unjustified refusal of board Judy VII , a barge leased by Lea Mer, the vesselsank, resulting in the loss of the cargo. ISSUE WON Lea Mer is liable for the loss of the cargo HELD YESCommon carriers are bound to observe extraordinary diligence in their vigilance over theg o o d s a n d t h e s a f e t y o f t h e p a s s e n g e r s t h e y transport, as required by the nature of their businessand for reasons of public policy. Extraordinary diligence requires rendering service with the greatestskill and foresight to avoid damage and destructionto the goods entrusted for carriage and delivery.Common carriers are presumed to have been at fault or to have acted negligently for loss or damaget o t h e g o o d s t h a t t h e y h a v e t r a n s p o r t e d . T h i s presumption can be rebutted only by proof that theyobserved extraordinary diligence, or that the loss ord a m a g e w a s o c c a s i o n e d b y a n y o f t h e f o l l o w i n g caus es: (1) Flood, storm, earthquake, lightning, or othernatural disaster or calamity; ( 2 ) A c t o f t h e p u b l i c e n e m y i n w a r , w h e t h e r international or civil; (3) Act or omission of the shipper or owner of thegoods; (4) The character of the goods or defects in thepacking or in the containers; (5) Order or act of competent

public authority. - To excuse the common carrier fully of any liability,the fortuitous event must have been the proximateand only cause of the loss. It should have exerciseddue diligence to prevent or minimize the loss before,during and after the occurrence of the event. Petitioner bore the burd en of proving that it had exercised extraordinary diligence to avoid the loss, orthat the loss had been occasioned by a fortuitousevent -- an exempting circumstance.- The evidence presented by petitioner in support of i t s d e f e n s e o f f o r t u i t o u s e v e n t w a s s o r e l y insufficient. It was not enough for the commonc a r r i e r t o s h o w t h a t t h e r e w a s a n u n f o r e s e e n o r unexpected occurrence. Disposition Petition is DENIED and the assailedD e c i s i o n a n d R e s o l u t i o n a r e A F F I R M E D . C o s t s against petitioner. LOADSTAR SHIPPING CO INC v. PIONEER ASIAINSURANCE CORP GR No. 157481QUISUMBING; January 24, 2006 NATURE Review on certiorari (1) the Decision dated October15, 2002 and (2) the Resolution dated February 27,2003 of CA FACTS - June 6, 1984 - Petitioner Loadstar Shipping Co., Inc. (LOADSTAR), registered owner and operator of the vessel M/V Weasel , e n t e r e d i n t o a v o y a g e - charter with Northern Mindanao Transport Company,Inc. for the carriage of 65,000 bags of cement fromIligan City to Manila. The shipper was Iligan CementC o r p o r a t i o n , w h i l e t h e c o n s i g n e e i n M a n i l a w a s Market Developers, Inc. (MARKET)- J u n e 2 4 , 1 9 8 4 - 6 7 , 5 0 0 b a g s o f c e m e n t w e r e loaded on board M/V Weasel and stowed in the cargoholds for delivery to the consignee. The shipment was covered by petitioners Bill of Lading dated June23, 1984.- Prior to the voyage, the consignee insured

theshipment of cement with respondent Pioneer AsiaInsurance Corporation (PIONEER) for P1,400,000, forwhich it issued Marine Open Policy No. MOP -006dated September 17, 1980, covering all shipments made on or after September 30, 1980- June 25, 1984 - Captain Montera of M/V Weasel o r d e r e d t h e v e s s e l t o b e f o r c e d a g r o u n d w h i c h rendere d the entire shipment of cement as good asgone due to exposure to sea water. LOASTAR thusfailed to deliver the goods to MARKET in Manila.M A R K E T d e m a n d e d f r o m L O A D S T A R f u l l re imbursement of the cost of the lost shipment. LOADSTAR refused to reimburse the MARKET despiterepeated demands.March 11, 1985 PIONEER paid the M A R K E T P1,400,000 plus an additional amount of P500,000,the value of the lost shipment of cement. In return,t h e M A R K E T e x e c u t e d a L o s s a n d S u b r o g a t i o n R eceipt in favor of PIONEER concerning the latterssubrogation rights against LOADSTAR.- O c t o b e r 1 5 , 1 9 8 6 PIONEER filed a complaintagainst LOADSTAR with t h e R T C M a n i l a a l l e g i n g that: (1) the M/V Weasel was not seaworthy at thecommencement of the voyage; (2) the weather ands e a c o n d i t i o n s t h e n p r e v a i l i n g w e r e u s u a l a n d exp ected for that time of the year and as such, wasan ordinary peril of the voyage for which the M/V Weasel should have been normally able to cope with;and (3) LOADSTAR was negligent in the selection ands u p e r v i s i o n o f i t s a g e n t s a n d e m p l o y e e s t h e n man ning the M/V Weasel .- LOADSTAR alleged that no fault nor negligencecould be attributed to it because it exercised duediligence to make the ship seaworthy, as well asproperly manned and equipped and failure to deliverwas due to force majeure

.- F e b r u a r y 1 5 , 1 9 9 3 - R T C d e c i d e d i n f a v o r o f PIONEER and that LOADSTAR , as a common carrier,b e a r s t h e b u r d e n o f p r o v i n g t h a t i t e x e r c i s e d extraordinary diligence in its vigilance over the goodsit transported. The trial court explained that in caseo f l o s s o r d e s t r u c t i o n o f t h e g o o d s , a s t a t u t o r y presumption arises that the common carrier wasnegligent unless it could prove that it had observedextraordinary diligence. LOADSTARS defense of force majeure was found bereft of factual basis as aPAG-ASA report that at the time of the incident,tropical storm Asiang had moved away from the Philippines was presented.- October 15, 2002 CA affirmed RTC Decision withmodification ISSUES 1 . W O N L O A D S T A R i s a c o m m o n c a r r i e r u n d e r Article 1732 CC2. Assuming it is a common carrier, WON proximatecause of the loss of cargo was not a fortuitous eventbut was allegedly due to the failure of petitioner to exercise extraordinary diligence HELD 1. YESA 1 7 3 2 C C d e f i n e s a c o m m o n c a r r i e r a s follows:Comm on carriers are persons, corporations, firmsor associations engaged in the business of carryingor transporting pass engers or goods or both, byland, water, or air, for compensation, offering theirservices to the public.- LOADSTAR is a corporation engaged in the businessof transporting cargo by water and for compensation,offering its services indiscriminately to the pub lic.Thus, without doubt, it is a common carrier. Even if it entered into a voyage-charter agreement withNorthern Mindanao Transport Company, Inc, it didnot in any way convert the common carrier into a private carrier. > Planters Products, Inc. v. CA - public carrier shall remain as such, notwithstanding the charter of t h e w h o l e o r p o r t i o n o f a v e s s e l b y o n e

o r m o r e persons, provided the charter is limited to the shiponly, as in the case of a time-charter or voyagecharter. It is only when the charter includes both thevessel and its crew, as in a bareboat or demise that acommon carrier becomes private, at least insofar asthe particular voyage covering the charter-party isconcerned.2. YESAs a common carrier, LOADSTAR is required to observe extraordinary diligence in the vigilance overthe goods it transports. When the goods placed in itscare are lost, LOADSTAR is presumed to have beenat fault or to have acted negligently. LOADSTAR hasthe burden of proving that it observed extraordinarydiligence in order to avoid responsibility for the lostcargo.Compania Maritima V CA - It requires commoncarriers to render service with the greatest skill andf o r e s i g h t a n d t o u s e a l l r e a s o n a b l e m e a n s t o ascertain the nature and characteristics of goodstendered for shipment, a nd to exercise due care in the handling and stowage, including such methods astheir nature requires.- A1734 CC enumerates the instances when a carriermight be exempt from liability for the loss of the goods.(1) Flood, storm, earthquake, lightning,or other natural disaster or calamity;( 2 ) A c t o f t h e p u b l i c e n e m y i n w a r , whether international or civil;( 3 ) A c t o r o m i s s i o n o f t h e s h i p p e r o r owner of the goods;(4) The character of the goods or defectsin the packing or in the containers; and( 5 ) O r d e r o r a c t o f c o m p e t e n t p u b l i c authority- LOADSTAR claims that the loss of the goods was due to a fortuitous event under paragraph 1. Yet, itsc l a i m i s not substantiated. It is supported byevidence that the loss of the entire shipment of c e m e n t w a s d u e t o t h e g r o s s n e g l i g e n c e o f LOADSTAR- Records show that in the evening of June 24, 1984,the sea and weather conditions in the vicinity of Negros Occidental were calm. The records revealthat LOADSTAR took a shortcut route, instead of theu s u a l r o u t e , w h i c h e x p o s e d t h e v o y a g e

t o unexpected hazard. LOADSTAR has only itself toblame for its misjudgment. Disposition petition is DENIED