SEC 1

G.R. No. 81026 April 3, 1990 PAN MALAYAN INSURANCE vs. COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER, respondents. Facts: On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of Makati against private respondents Erlinda Fabie and her driver. PANMALAY averred the following: that it insured a Mitsubishi Colt Lancer car with plate No. DDZ-431 and registered in the name of Canlubang Automotive Resources Corporation [CANLUBANG]; that on May 26, 1985, due to the "carelessness, recklessness, and imprudence" of the unknown driver of a pick-up with plate no. PCR220, the insured car was hit and suffered damages in the amount of P42,052.00; that PANMALAY defrayed the cost of repair of the insured car and, therefore, was subrogated to the rights of CANLUBANG against the driver of the pick-up and his employer, Erlinda Fabie; and that, despite repeated demands, defendants, failed and refused to pay the claim of PANMALAY. Issue: Whether or not the insurer PANMALAY may institute an action to recover the amount it had paid its assured in settlement of an insurance claim against private respondents as the parties allegedly responsible for the damage caused to the insured vehicle. Ruling: Yes. Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed or damaged through the fault or negligence of a party other than the assured, then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operates as an equitable assignment to the former of all remedies which the latter may have against the third party whose negligence or wrongful act caused the loss. CORPORATION, petitioner,

G.R. No. 150094

August 18, 2004

FEDERAL EXPRESS CORPORATION, petitioner, vs. AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE COMPANY, INC., respondents. Facts: SMITHKLINE, USA delivered to BURLINGTON, an agent of FedEx, a shipment of 109 cartons of veterinary biologicals for delivery to consignee SMITHKLINE and French Overseas Company in Makati. The shipment was covered by Burlington Airway Bill with the words, 'REFRIGERATE WHEN NOT IN TRANSIT' and 'PERISHABLE' stamp marked on its face. That same day, Burlington insured the cargoes in the amount of $39,339.00 with AHAC. The following day, Burlington turned over the custody of said cargoes to FedEx which transported the same to Manila. The shipment arrived in Manila which was likewise immediately stored at Cargohaus' warehouse. Prior to the arrival of the cargoes, FedEx informed GETC, the customs broker hired by the consignee to facilitate the release of its cargoes from the Bureau of Customs. Twelve days after the cargoes arrived in Manila, a non-licensed custom's broker who was assigned by GETC to facilitate the release of the subject cargoes, found out, while the cargoes was about to be released, that the same were stored only in a room with two air conditioners running, to cool the place instead of a refrigerator. Thereafter, upon instructions from GETC, did not proceed with the withdrawal of the vaccines and instead, samples of the same were taken and brought to the Bureau of Animal Industry of the Department of Agriculture in the Philippines by SMITHKLINE for examination wherein it was discovered that the 'ELISA reading of vaccinates sera are below the positive reference serum.' As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE abandoned the shipment and, declaring 'total loss' for the

unusable shipment, filed a claim with AHAC through its representative in the Philippines, PHILAM, which recompensed SMITHKLINE for the whole insured amount of $39,339.00. Thereafter, respondents filed an action for damages against the petitioner imputing negligence on either or both of them in the handling of the cargo. Issue: Whether or not respondents have cause of action against the petitioner. Ruling: Yes. Upon receipt of the insurance proceeds, Smithkline executed a subrogation Receipt in favor of respondents. The latter were thus authorized "to file claims and begin suit against any such carrier, vessel, person, corporation or government." Undeniably, the consignee had a legal right to receive the goods in the same condition it was delivered for transport to petitioner. If that right was violated, the consignee would have a cause of action against the person responsible therefore. Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods, the insurer's entitlement to subrogation pro tanto -- being of the highest equity -- equips it with a cause of action in case of a contractual breach or negligence. "Further, the insurer's subrogatory right to sue for recovery under the bill of lading in case of loss of or damage to the cargo is jurisprudentially upheld."

G.R. No. L-27427 April 7, 1976 FIREMAN'S FUND INSURANCE COMPANY and FIRESTONE TIRE AND RUBBER COMPANY OF THE PHILIPPINES, plaintiffs-appellants, vs. JAMILA & COMPANY, INC. and FIRST QUEZON CITY INSURANCE CO., INC., defendants-appellees. Facts: Jamila Scouts Security Agency contracted to supply security guards to Firestone; that Jamila assumed responsibility for the acts of its security guards; that First Quezon City Insurance Co., Inc. executed a bond in the sum of P20,000.00 to guarantee Jamila's obligations under that contract; that on May 18, 1963 properties of Firestone valued at P11,925.00 were lost allegedly due to the acts of its employees who connived with Jamila's security guard; that Fireman's Fund, as insurer, paid to Firestone the amount of the loss; that Fireman's Fund was subrogated to Firestone's right to get reimbursement from Jamila, and that Jamila and its surety, First Quezon City Insurance Co., Inc., failed to pay the amount of the loss in spite of repeated demands. Issue: Whether the complaint of Firestone and Fireman's Fund states a cause of action against Jamila. Ruling: Yes. Fireman's Fund's action against Jamila is squarely sanctioned by article 2207. As the insurer, Fireman's Fund is entitled to go after the person or entity that violated its contractual commitment to answer for the loss insured against. Subrogation is a normal incident of indemnity insurance. Upon payment of the loss, the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against the third person whose negligence or wrongful act caused the loss. FF Cruz and Co. Inc. v. CA (1988) Nature: Petition to review the decision of the CA puts in issue the application of the common law doctrine res ipsa loquitur. Facts: ~ The furniture mnufacturing shop of petitioner in caloocan was situated adjacent to the residence of private respondents. Private respondents request the manager ofthe plant to build a firewall between the shop and the private respondent's residence. The request was repeated severl times bu they fell on deaf ears. Then a fire broke out in petitioners shop. And the fire spread to respondents house. Both the shop and the house were razed on the ground.

~ the respodents had collected 35,000 on the insurance of their house and the contents thereof. The private respondents filed an action for damages against petitioner. RULING OF THE RTC: ~ the rtc held for private respondents. RULING OF THE CA: ~ the ca affirmed the rtc's decision but reduced the award of damages. Issue: ~should the amount received by te respondents from the insurance of their house be deducted from the amount awarded as damages. Held: ~While the court finds that petitioner is liable for damages to private respondents as found by the CA, the fact that private repondents have been indemnified by their insurer in the amount of 35000 for the damages caused to their house and its contents has not escaped the attention of the court. Hence, the court holds that in accordance with art. 2207 of the cc the amount of 35000 should be deducted from the amount awarded as damages. The law is clear and needs no interpretation. Having been indemnified by the insurer, private respondents are only entitled to recover te defficiency from the petitioner. The decision of the CA is hereby affirmed with modifications. Rizal Surety & Insurance Co. Manila Railroad Co. (1968) Nature: ~In this suit for the recovery of the amount paid by the plaintiff, Rizal Surety and Insurance Company, to the consignee based on the applicable Civil Code provision, 1 which speak to the effect that the Insurance Company "shall be subrogated to the rights of the insured," it is its contention that it is entitled to the amount paid by it in full, by virtue of the insurance contract. The lower court, however, relying on the limited liability clause on a management contract with the defendants, could not go along with such a theory. Hence, this appeal. Facts: ~ The vessel, SS Flying Trader, loaded on board at Genoa, Italy for shipment to Manila, Philippines, among other cargoes, 6 cases OMH, Special Single Colour Offset Press Machine, for which Bill of Lading No. 1 was issued, consigned to Suter Inc. ~Such vessel arrived at the Port of Manila, Philippines and subsequently discharged complete and in good order the aforementioned shipment into the custody of defendant Manila Port Service as arrastre operator; ~In the course of the handling, one of the six cases identified as Case No. 2143 containing the OMH, Special Single Colour Offset Press, while the same was being lifted and loaded by the crane of the Manila Port Service into the consignee's truck, it was dropped by the crane and as a consequence, the machine was heavily damaged for which plaintiff as insurer paid to the consignee, Suter Inc. the amount of P16,500.00, representing damages by way of costs of replacement parts and repairs to put the machine in working condition. ~ That the arrastre charges in this particular shipment was paid on the weight or measurement basis whichever is higher, and not on the value thereof. ~Clause 15 of the management contract appeared that the company liability is only limited to 500.00 per package unles the value of the goods is otherwise specified, declared or manifested and the corresponding arrestre charges have been paid. Ruling of the RTC: ~The RTC rendered judgement ordering defendants, jointly and severally, to pay plaintiff the amount of 500.00 with legal interest thereon, cost against said defendant. Issue: ~WON the insurance conpany could recover in full. Held: ~The literal language of Art. 2207 does not warrant that the insurance company could recover in full. It is there made clear

that in the event that the property has been insured and the Insurance Company has paid the indemnity for the injury or loss sustained, it "shall be subrogated to the rights of the insured against the wrong-doer or the person who has violated the contract." ~ Plaintiff-appellant therefore cannot recover from defendants an amount greater than that to which the consignee Coukd lawfully lay claim. The management contract is clear. The amount is limited to Five Hundred Pesos (P500.00). ~ Plaintiff-appellant Rizal Surety and Insurance Company, having been subrogated merely to the rights of the consignee, its recovery necessarily should be limited to what was recoverable by the insured. The decision appealed from is affirmed. With costs against Rizal Surety and Insurance Company. Pioneer Insurance v.CA Facts: ~Jacob S. Lim was engaged in the airline business as owner-operator of Soutern Air Lines (SAL) a single proprietorship. Japan Domestic Airlines (JAD) and Lim entered into and executed a sales contract for the sale and purchase of 2 DC-3A type aircrafts and one set of necessary sare parts to be paid iin installments. ~Pioneer Insurance & Surety Corp, as a surety executed and issued it surety bond no. 6639 in favor of JDA, in behalf of its principl, Lim, for the balance price of the aircraft & spare parts. It apears that Boarder Machinery & Heavy Equipment Company Inc. (Bormaheco), the Cervanteses and Maglana contributed some funds used in the purchase of the aircraft & spare parts. The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airlines business. They executed 2 indemnity agreements in favor of the Pioneer. ~Lim executed in favor of Pioneer a deed of chattle mortgage as security for the latter's suretyship of the former. It was stipulated therein that Lim transferand convey to te surety the 2 aircrafts. ~Lim defaulted on his subsequent installment payment prompting JDA to request payment from te surety. ~Pioneer ten filed a petition for extrajudicial foreclosure of the said chattles which was granted. Thereafter, te petitioner again filed an action for judicial foreclosure with an application of a writ of preliminary attachment against Lim, Bormaheco, the Cervanteses and Maglana. Ruling of the RTC and CA with modifications: ~both courts held, that Lim have to pay pioneer. The CA affirmed the decision but dismissed petitioners complaint against all other defendants. Issue: ~(1) Has Pioneer a cause of action against defendants with respect so much of its obligation to JDA as has been paid by the reinsurrance company. (2) If the answer is in the negative, has Pioneer still have any claim against defendants considering the amount it has realized from the sale of the mortgaged property. Held: (1) Based on the findings ofthe trial court, it appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in favor of JDA, collected the proceeds of such reinsurance in the sum of 295,000.00 and paid with said amount the bulk of its alleged liability to JDA under said surety bond, it is plain that on this score, it no longer has any right to collect to the extent of the said amount. (2) Hence the applicable law is Article 2207 of the new Civil Code, to wit: Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031

[1957]) which we subsequently applied in Manila Mahogany Manufacturing Corporation v. Court of Appeals(154 SCRA 650 [1987]): Note that if a property is insured and the owner receives the indemnity from the insurer, it is provided in said article that the insurer is deemed subrogated to the rights of the insured against the wrongdoer and if the amount paid by the insurer does not fully cover the loss, then the aggrieved party is the one entitled to recover the deficiency. Evidently, under this legal provision, the real party in interest with regard to the portion of the indemnity paid is the insurer and not the insured. It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer. Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's complaint as against the respondents for the reason that the petitioner was not the real party in interest in the complaint and, therefore, has no cause of action against the respondents. The instant petitions are DISMISSED. COMPAIA MARITIMA vs INSURANCE COMPANY OF NORTH AMERICA FACTS: Macleod and Company of the Philippines contracted by telephone the services of the Compaia Maritima, a shipping corporation, for the shipment of 2,645 bales of hemp from the former's Sasa private pier at Davao City to Manila and for their subsequent transhipment to Boston, Massachusetts, U.S.A. on board the S.S. Steel Navigator which was subsequently evidenced by a formal and written booking. Upon loading of the cargo to the lighter of the carrier to be loaded to the carriers vessel, the patron of the lighter issued a carriers receipt stating that they have received the carg o in good condition. Consequently, the lighter sank and the cargo was totally damaged. Macleod promptly notified the carrier's main office in Manila and its branch in Davao advising it of its liability. The damaged hemp was brought to Odell Plantation in Madaum, Davao, for cleaning, washing, reconditioning, and redrying. The total loss added up to P60,421.02. All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT No. 1025, were insured with the Insurance Company of North America against all losses and damages. Macleod filed a claim to the insurance company which they granted and in fact became the subrogee of all the rights and claims of the shipper to the carrier. The insurance company filed a claim against the carrier for the collection of the damages incurred by the shipper. ISSUE: 1. WON there exists a contract of carriage between the shipper and carrier even if there is no bill of lading issued. 2. WON the insurance company is entitled to collect the damages as a subrogee to the rights and claims of the shipper. HELD: 1. The Supreme Court held that there exists a contract of carriage between the shipper and the carrier. The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf at Sasa preparatory to its loading onto the ship Bowline Knot does not in any way impair the contract of carriage already entered into between the carrier and the shipper, for that preparatory step is but part and parcel of said contract of carriage. The lighters were merely employed as the first step of the voyage, but once that step was taken and the hemp delivered to the carrier's employees, the rights and obligations of the parties attached thereby subjecting them to the principles and usages of the maritime law. In other words, here we have a complete contract of carriage the consummation of which has already begun: the shipper delivering the cargo to the carrier, and the latter taking possession thereof by placing it on a lighter manned by its authorized employees, under which Macleod became entitled to the privilege secured to him by law for its safe transportation and delivery, and the carrier to the full payment of its freight upon completion of the voyage. The receipt of goods by the carrier has been said to lie at the foundation of the contract to carry and deliver, and if actually no goods are received there can be no such contract. The liability and responsibility of the carrier under a contract for the carriage of goods commence on their actual delivery to, or receipt by, the carrier or an authorized agent. ... and delivery to a lighter in charge of a vessel for shipment on the vessel, where it is the custom to

deliver in that way, is a good delivery and binds the vessel receiving the freight, the liability commencing at the time of delivery to the lighter. ... and, similarly, where there is a contract to carry goods from one port to another, and they cannot be loaded directly on the vessel and lighters are sent by the vessel to bring the goods to it, the lighters are for the time its substitutes, so that the bill of landing is applicable to the goods as soon as they are placed on the lighters. Whenever the control and possession of goods passes to the carrier and nothing remains to be done by the shipper, then it can be said with certainty that the relation of shipper and carrier has been established. 2. There can also be no doubt that the insurance company can recover from the carrier as assignee of the owner of the cargo for the insurance amount it paid to the latter under the insurance contract. And this is so because since the cargo that was damaged was insured with respondent company and the latter paid the amount represented by the loss, it is but fair that it be given the right to recover from the party responsible for the loss. The instant case, therefore, is not one between the insured and the insurer, but one between the shipper and the carrier, because the insurance company merely stepped into the shoes of the shipper. And since the shipper has a direct cause of action against the carrier on account of the damage of the cargo, no valid reason is seen why such action cannot be asserted or availed of by the insurance company as a subrogee of the shipper. Nor can the carrier set up as a defense any defect in the insurance policy not only because it is not a privy to it but also because it cannot avoid its liability to the shipper under the contract of carriage which binds it to pay any loss that may be caused to the cargo involved therein. WHEREFORE, the decision appealed from is affirmed, with costs against petitioner. SEC. 2 CCC INSURANCE CORPORATION vs. COURT OF APPEALS; CARLOS F. ROBES FACTS: This case is a petition for review of the decision of the Court of Appeals, affirming that of the Court of First Instance of Rizal (Quezon City) allowing insurance indemnification of plaintiff for his damaged car and the payment of attorney's fees. Carlos F. Robes took an insurance, with the CCC Insurance Corporation, on his Dodge Kingsway car against loss or damage through accident for an amount not exceeding P8,000.00 (Policy No. M1156). Consequently, the insured vehicle, while being driven by the owner's driver, became involved in a vehicular collision. The car was damaged, and the repair was estimated to cost P5,300.00. Robes filed a claim to the insurance company, but the insurance denied his claim. Robes instated a civil action against the insurance company for recovery not only of the amount necessary for the repair of the insured car but also of actual and moral damages, attorneys' fees and costs. The insurance company denied their liability contending that there had been violation of the insurance contract because the one driving the car at the time of the incident was not an "authorized driver." The trial court held in favor of the plaintiff and defendant insurer was ordered to pay unto the former the cost of repair of the car in the sum of P5,031.28; the sum of P150.00, for the hauling and impounding of the car at the repair shop; P2,000.00 as actual damages; and P1,000.00 as attorneys' fees, plus costs. The decision was affirmed by the Court of Appeals with modification as to the actual damages. ISSUE: WON the insurance company is liable to pay the insured under the existing insurance policy. WON the driver of the private respondent an authorized driver. HELD: AUTHORIZED DRIVER: Any of the following: (a) The insured;

(b) Any person driving on the Insured's order or with his permission, provided that the person driving is permitted in accordance with licensing laws or regulations to drive the motor vehicle covered by this Policy, or has been so permitted and is not disqualified by order of a court of law or by reason of any enactment or regulation from driving such Motor Vehicle. As per the findings of the CA, the driver, Reyes, cannot read and write and has obtained his license by paying 25.00 without taking an examination. But the purported license bears all the earmarks of a duly issued license, therefore, it is a public document and is conclusive proof that it is genuine. Nevertheless, the appellant insurer insists that, under the established facts of this case, Reyes, being admittedly one who cannot read and write, who has never passed any examination for drivers, and has not applied for a license from the duly constituted government agency entrusted with the duty of licensing drivers, cannot be considered an authorized driver. Under Section 24 of the Revised Motor Vehicles Law, Act 3992 of the Philippine Legislature, as amended by Republic Acts Nos. 587, 1204 and 2863,1 An examination or demonstration to show any applicant's ability to operate motor vehicles may also be required in the discretion of the Chief, Motor Vehicles Office or his deputies. It is thus clear that the issuance of a driving license without previous examination does not necessarily imply that the license issued is invalid. As the law stood in 1961, when the claim arose, the examinations could be dispensed with in the discretion of the Motor Vehicles Office official officials. The issuance of the license is proof that the Motor Vehicles Office official considered Reyes, the driver of the insuredappellee, qualified to operate motor vehicles, and the insured was entitled to rely upon such license. In this connection, it should be observed that the chauffeur, Reyes, had been driving since 1957,2 and without mishap, for all the record shows. With that, the weight of authority is in favor of a liberal interpretation of the insurance policy for the benefit of the party insured, and strictly against the insurer, We find no reason to diverge from the conclusion reached by the Court of Appeals that no breach was committed of the above-quoted provision of the policy.

WHEREFORE, the decision of the Court of Appeals is affirmed, with costs against appellant CCC Insurance Corporation. Association of Baptists for World Evangelism, Inc. v. Fieldmens Insurance Co.,Inc. FACTS: Association of Baptists for World Evangelism, Inc., a domestic religious corporation, had an insurable interest in a Chevrolet Carry-all which was insured with the Fieldmens Insurance Co., Inc under its Private Car Comprehensive Policy. Dr. Antonio Lim, the representative of the association, placed the Chevrolet at the Jones Monument Mobilgas Service Station at Davao City for it to be displayed as being for sale. The Chevrolet was under the care of the stations operator Rene Te. Romeo Catiben, one of the boys at the Jones Monument Mobilgas Service Station, and a nephew of the wife of Rene Te, took the Chevrolet for a joy ride to Toril, Davao City without the prior permission of Lim or Te and on its way backto Davao City, the Chevrolet, due to some mechanical defect, accidentally bumped an electric post causing actual damages. The trial court ordered the insurance company to pay the association P5000 as indemnity for the damage sustained by the vehicle. Dissatisfied, the insurance company filed an appeal to the appellate court. Issue: Whether there must be prior criminal conviction of Romeo Catiben for theft for the damage to the Chevrolet to be compensable under the Fieldmans Private Car Comprehensive Policy. Held: Prior conviction of Catiben is not necessary. The insurance company is liable to pay the association. Rationale: The comprehensive policy issued by the insurance company includes loss of or damage to the motor vehicle by burglary or theft. It is settled that the act of Catiben in taking the vehicle for a joy ride to Toril,Davao City, constitutes theft within the

meaning of the insurance policy and that recovery for damage to the car is not barred by the illegal use of the car by one of the station boys. There need be no prior conviction for the crime of theft to make an insurer liable under the theft clause of the policy. Upon the facts stipulated by the parties it is admitted that Catiben had taken the vehicle for a joy ride and while the same was in his possession he bumped it against an electric post resulting in damages. The act is theft within a policy of insurance. In a civil action for recovery on an automobile insurance, the question whether a person using a certain automobile at the time of the accident stole it or not is to be determined by a fair preponderance of evidence and not by the rule of criminal law requiring proof of guilt beyond reasonable doubt. Besides, there is no provision in the policy requiring prior criminal conviction for theft.

FE DE JOYA LANDICHO, in her own behalf and as judicial guardian of her minor children, RAFAEL J. LANDICHO and MA. LOURDES EUGENIA LANDICHO, plaintiffs-appellees, vs. GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant FACTS: * CFI ordered GSIS to pay Landicho P15,800, with interest, etc. GSIS appealed. SC affirmed. - Flaviano Landicho is a civil engineer of the Bureau of Public Works, stationed at Mamburao, Mindoro Occidental. - F.Landicho filed an application for optional additional life insurance, by filing and signing a printed form of the GSIS; Par. 7 (c,d,e) of the GSIS form states: c. That this application serves as a letter of authority to the Collecting Officer of our Office thru the GSIS to deduct from my salary the monthly premium in the amount of P33.36, beginning the month of May, 1964, and every month thereafter until notice of its discontinuance shall have been received from the System; . d. That the failure to deduct from my salary the month premiums shall not make the policy lapse, however, the premium account shall be considered as indebtedness which, I bind myself to pay the System; . e. That my policy shall be made effective on the first day of the month next following the month the first premium is paid; provided, that it is not more 90 days before or after the date of the medical examination was conducted if required." - On June 1, 1964, GSIS issued in favor of Landicho the optional additional life insurance policy in the sum of P7,900. - On June 29, 1966, F.Landicho died in an airplane crash in Mindoro, while still under employment of the Bureau of Public Works. - Mrs. Landicho, et al then filed with the GSIS a claim for P15,800, as the double indemnity due under the policy, because of the untimely death of the insured owing to said accident. - GSIS denied the claim; Reason is, the application states, the policy (e) "shall be ... effective on the first day of the month next following the month the first premium is paid," and no premium had ever been paid on said policy. - Mrs. Landicho et al filed this action in the CFI Manila. - Plaintiffs invoke the application forms subdivisions (c) and (d), Par. 7, stating that the same shall serve "as a letter of authority to the Collecting Officer of our Office" the Bureau of Public Works "thru the GSIS to deduct from my salary" and that "failure to deduct from my salary the monthly premiums shall notmake the policy lapse ISSUE: The main issue therein is whether or not the insurance policy in question has ever been in force, not a single premium having been paid thereon. (Verbatim) RULING: (Yes) The language, of subdivisions (c), (d) and (e) is such as to create an ambiguity that should be resolved against the party responsible therefor defendant GSIS, as the party who prepared and furnished the application form and in favor of the party misled thereby, the insured employee. The equitable and ethical considerations justifying the foregoing view are bolstered up by two (2) factors, namely: (a) The aforementioned subdivision (c) states "that this application serves as a letter of authority to the Collecting Officer of our Office" the Bureau of Public Works "thru the GSIS to deduct from my salary the monthly premium in the amount of P33.36." No such deduction was made and, consequently, not even the first premium "paid" because the collecting officer of the Bureau of Public Works was not advised by the GSIS to make it (the deduction) pursuant to said authority. Surely, this omission of the GSIS should not inure to its benefit. . (b) The GSIS had impliedly induced the insured to believe that Policy No. OG-136107 was in force, he having been paid by the GSIS the dividends corresponding to said policy. Had the insured had the slightest inkling that the latter was not, as yet, effective for non-payment of the first premium, he would have, in all probability, caused the same to be forthwith satisfied. SC affirmed. Doctrines involved:

Civil Code: The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. Settled rule: "Terms in an insurance policy, which are ambiguous, equivocal, or uncertain ... are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured.

MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES DEPARTMENT, petitioners, vs. CA, SOUTH SEA SURETY AND INSURANCE CO., INC. and the CHARTER INSURANCE CORPORATION, respondents. FACTS: * RTC ruled in favor of petitioners; CA dismissed the complaint by Prescription; SC reinstated RTC decision. - In 1983, Hongkong Government Supplies Department (Hongkong) contracted Mayer Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings. From August to October, 1983, Mayer shipped the pipes and fittings to Hongkong as evidenced by Invoices. - Prior to the shipping, Mayer insured the pipes and fittings against all risks with South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter). - Industrial Inspector certified all the pipes and fittings to be in good order condition before they were loaded in the vessel. Nonetheless, when the goods reached Hongkong, it was discovered that a substantial portion thereof was damaged. - On April 17, 1986, petitioners filed a claim for indemnity under the insurance contract, but the respondents refused to pay the total cost of repair of the damaged pipes. - Trial court ruled in favor of petitioners. Reason: The damages are not due to manufacturing defects; that the insurance covers all risks. The only exceptions (to the all risks are those excluded in the policy, or those sustained due to fraud or intentional misconduct on the part of the insured.) - Private respondents elevated the case to the CA. - CA agreed on the trial courts finding, however, CA dismissed the complaint. Reason: Prescription, since it was filed only on April 17, 1986, more than 2 years from the time the goods were unloaded from the vessel. Section 3(6) of the Carriage of Goods by Sea Act provides that "the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods..." ISSUE: WON the CA erred in holding that petitioners action had already prescribed; WON CA erred in dismissing the complaint. RULING: Yes, CA erred. Under the provision, only the carrier's liability is extinguished if no suit is brought within one year. But the liability of the insurer is not extinguished because the insurer's liability is based not on the contract of carriage but on the contract of insurance. The insurer, like the shipper, may no longer file a claim against the carrier beyond the one-year period provided in the law. But it does not mean that the shipper may no longer file a claim against the insurer because the basis of the insurer's liability is the insurance contract. Thus, when private respondents issued the "all risks" policies to petitioner Mayer, they bound themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes in ten years, in accordance with Article 1144 of the New Civil Code. FYI: An insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to indemnify another for loss or damage which he may suffer from a specified peril. An "all risks" insurance policy covers all kinds of loss other than those due to willful and fraudulent act of the insured.

GREAT PACIFIC LIFE ASSURANCE CORP., petitioner, vs. CA AND MEDARDA V. LEUTERIO, respondents. FACTS: * Devt Bank of the Phil is the creditor of one Wilfredo Leuterio who is insured under the GPLAC/Grepalife. RTC adjudged the Grepalife to pay the DBP. CA affirmed. SC affirmed with modification, entitling the heirs, not DBP, the insurance money. - A contract of group life insurance was executed between Grepalife and DBP). Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.

- Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership. In an application form, Dr. Leuterio answered re his health that he had not consulted a physician for a heart condition, HB pressure, cancer, etc. and he is in good health. - On August 6, 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." - Grepalife denied him the insurance alleging that Dr. Leuterio was not physically healthy when he applied for an insurance coverage. Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his death. - Dr. Leuterios widow filed a complaint with the RTC against Grepalife for Specific Performance with Damages. - One Dr. Hernando Mejia, who issued the death certificate, testified that (based sa kwento ni Mrs. Leuterio) Dr. Leuterio complained of headaches presumably due to high blood pressure, thus the hypertension as the possible cause of death, though Dr. Leuterio was not autopsied. - RTC ruled in favor of Medarda Leuterio; CA affirmed. ISSUES: 1. Whether the CA erred in holding petitioner liable to DBP as beneficiary in a group life insurance contract from a complaint filed by the widow of the decedent/mortgagor. 2. WON the CA erred in not finding that Dr. Leuterio concealed that he had hypertension, which would vitiate the insurance contract. 3. Whether the CA erred in holding Grepalife liable in the amount of P86,200.00 without proof of the actual outstanding mortgage payable by the mortgagor to DBP. RULING: 1. Yes. The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating that: "In the event of the debtor's death before his indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor." When DBP submitted the insurance claim against petitioner, the latter denied payment thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private respondent. 2. No, it is the Grepalifes obligation to prove it. Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, and that the widow's declaration that her husband had "possible hypertension several years ago" should not be considered as hearsay, but as part of res gestae. On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body of the decedent. Dr. Mejia stated that he had no knowledge of Dr. Leuterio's any previous hospital confinement and that hypertension was only "the possible cause of death." Hence, the statement of the physician was properly considered by the trial court as hearsay. Appellant insurance company had failed to establish that there was concealment made by the insured, hence, it cannot refuse payment of the claim. The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. 3. No. A life insurance policy is a valued policy. Unless the interest of a person insured is susceptible of exact pecuniary measurement, the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. The mortgagor paid the premium according to the coverage of his insurance, which states that: upon receipt of due proof of the Debtor's death during the terms of this insurance, a death benefit in the amount of P86,200.00 shall be paid. Note that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor's outstanding loan. Considering this supervening event, the insurance proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the expense of another. Hence, it cannot collect the insurance proceeds, after it already foreclosed on the mortgage. The proceeds now rightly belong to Dr. Leuterio's heirs represented by his widow, herein private respondent Medarda Leuterio. FYI: Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate it to the assured, but he designedly and intentionally withholds the same.

AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. TANTUCO ENTERPRISES, INC., respondent. [G.R. No. 138941. October 8, 2001]

Facts: Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining industry.

It appears that respondent commenced its business operations with only one oil mill. In 1988, it started operating its second oil mill (known later as new oil mill). The two oil mills were separately covered by fire insurance policies issued by petitioner American Home Assurance Co., Philippine Branch. Official receipts indicating payment for the full amount of the premium were issued by the petitioner's agent. A fire that broke out and consumed the new oil mill. Respondent immediately notified the petitioner of the incident. The latter then sent its appraisers who inspected the burned premises and the properties destroyed. Thereafter, petitioner rejected respondents claim for the insurance proceeds on the ground that no policy was issued by it covering the burned oil mill stating Our policy extend insurance coverage to your oil mill under Building No . 5, whilst the affected oil mill was under Building No. 14. A complaint for specific performance and damages was consequently instituted by the respondent. The lower court rendered a Decision finding the petitioner liable on the insurance policy. American home appealed to the CA which was subsequently denied. MR was also denied, hence the petition.

Issue: Whether the oil mill gutted by fire is covered by the insurance policy.

Held: The petition is devoid of merit.

The primary reason advanced by the petitioner in resisting the claim of the respondent is that the burned oil mill is not covered by any insurance policy. According to it, the oil mill insured is specifically described in the policy by its boundaries. However, it argues that this specific boundary description clearly pertains, not to the burned oil mill, but to the other mill. What exacerbates respondents predicament, petitioner posits, is that it did not have the supposed wrong description or mistake corrected. Despite the fact that the policy in question was issued way back in 1988, or about three years before the fire, and despite the Important Notice in the policy that Please read and examine the policy and if incorrect, return it immediately for alteration, respondent apparently did not call petitioners attention with respect to the misdescription. In construing the words used descriptive of a building insured, the greatest liberality is shown by the courts in giving effect to the insurance.[11] In view of the custom of insurance agents to examine buildings before writing policies upon them, and since a mistake as to the identity and character of the building is extremely unlikely, the courts are inclined to consider that the policy of insurance covers any building which the parties manifestly intended to insure, however inaccurate the description may be.[12]

Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that what the parties manifestly intended to insure was the new oil mill. This is obvious from the categorical statement embodied in the policy, extending its protection: On machineries and equipment with complete accessories usual to a coconut oil mill including stocks of copra, copra cake and copra mills whilst contained in thenew oil mill building, situate (sic) at UNNO. ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY UNBLOCKED.[13] (emphasis supplied.) If the parties really intended to protect the first oil mill, then there is no need to specify it as new.

Indeed, it would be absurd to assume that respondent would protect its first oil mill for different amounts and leave uncovered its second one.

RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS and TRANSWORLD KNITTING MILLS, INC., respondents. [G.R. No. 112360. July 18, 2000] Facts: Rizal Surety & Insurance Company (Rizal Insurance) issued Fire Insurance Policy in favor of Transworld Knitting Mills, Inc. (Transworld), initially for One Million (P1,000,000.00) Pesos and eventually increased to One Million Five Hundred Thousand (P1,500,000.00) Pesos, covering the period from August 14, 1980 to March 13, 1981. Pertinent portions of subject policy on the buildings insured, and location thereof, read: "On stocks of finished and/or unfinished products, raw materials and supplies of every kind and description, the properties of the Insureds and/or held by them in trust, on commission or on joint account with others and/or for which they (sic) responsible in case of loss whilst contained and/or stored during the currency of this Policy in the premises occupied by them forming part of the buildings situate (sic) within own Compound at MAGDALO STREET, BARRIO UGONG, PASIG, METRO MANILA, PHILIPPINES, BLOCK NO. 601. xxx...............xxx...............xxx Said building of four-span lofty one storey in height with mezzanine portions is constructed of reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and occupied as hosiery mills, garment and lingerie factory, transistor-stereo assembly plant, offices, warehouse and caretaker's quarters. The same pieces of property insured with the petitioner were also insured with New India Assurance Company, Ltd., (New India). On January 12, 1981, fire broke out in the compound of Transworld, razing the middle portion of its four-span building and partly gutting the left and right sections thereof. A two-storey building (behind said four-span building) where fun and amusement machines and spare parts were stored, was also destroyed by the fire. Transworld filed its insurance claims with Rizal Surety & Insurance Company and New India Assurance Company but to no avail. Private respondent brought against the said insurance companies an action for collection of sum of money and damages, Petitioner Rizal Insurance countered that its fire insurance policy sued upon covered only the contents of the fourspan building, which was partly burned, and not the damage caused by the fire on the two-storey annex building. The trial court rendered its decision Ordering defendant Rizal Surety And Insurance Company to pay Transwrold Dismissing the case as against The New India Assurance Co., Ltd. The decision of the court below is MODIFIED in that defendant New India Assurance Company and Rizal Surety has and is hereby required to pay plaintiff Transworld based on the actual losses sustained by it. New India appealed to this Court theorizing inter alia that the private respondent could not be compensated for the loss of the fun and amusement machines and spare parts stored at the two-storey 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 respondent Transworld, interposed a Motion for Reconsideration which was denied, hence, the petition. Issue: Whether the two-storey building which was also destroyed by the fire is covered by the insurance policy.. Ruling: The Petition is not impressed with merit. The issues posited here hinges on the proper interpretation of the stipulation in subject fire insurance policy regarding its coverage, which reads:

"xxx contained and/or stored during the currency of this Policy in the premises occupied by them forming part of the buildings situate (sic) within own Compound xxx" Therefrom, it can be gleaned unerringly that the fire insurance policy in question did not limit its coverage to what were stored in the four-span building. As opined by the trial court of origin, two requirements must concur in order that the said fun and amusement machines and spare parts would be deemed protected by the fire insurance policy under scrutiny, to wit: "First, said properties must be contained and/or stored in the areas occupied by Transworld and second, said areas must form part of the building described in the policy xxx"[14] 'Said building of four-span lofty one storey in height with mezzanine portions is constructed of reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and occupied as hosiery mills, garment and lingerie factory, transistor-stereo assembly plant, offices, ware house and caretaker's quarter.' The Court is mindful of the well-entrenched doctrine that factual findings by the Court of Appeals are conclusive on the parties and not reviewable by this Court, and the same carry even more weight when the Court of Appeals has affirmed the findings of fact arrived at by the lower court.[15] In the case under consideration, both the trial court and the Court of Appeals found that the so called "annex " was not an annex building but an integral and inseparable part of the four-span building described in the policy and consequently, the machines and spare parts stored therein were covered by the fire insurance in dispute. The letter-report of the Manila Adjusters and Surveyor's Company, which petitioner itself cited and invoked, describes the "annex" building as follows: "Two-storey building constructed of partly timber and partly concrete hollow blocks under g.i. roof which is adjoining and intercommunicating with the repair of the first right span of the lofty storey building and thence by property fence wall."[16] Verily, the two-storey building involved, a permanent structure which adjoins and intercommunicates with the "first right span of the lofty storey building",[17] formed part thereof, and meets the requisites for compensability under the fire insurance policy sued upon. After a careful study, the Court does not find any basis for disturbing what the lower courts found and arrived at. Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has created a doubt regarding the portions of the building insured thereby. Article 1377 of the New Civil Code provides: "Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity" Conformably, it stands to reason that the doubt should be resolved against the petitioner, Rizal Surety Insurance Company, whose lawyer or managers drafted the fire insurance policy contract under scrutiny. Citing the aforecited provision of law in point, the Court in Landicho vs. Government Service Insurance System,[19] ruled: "This is particularly true as regards insurance policies, in respect of which it is settled that the 'terms in an insurance policy, which are ambiguous, equivocal, or uncertain x x x are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where forfeiture is involved' (29 Am. Jur., 181), and the reason for this is that the 'insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company. PERLA COMPANIA DE SEGUROS, INC., petitioner, vs. HONORABLE COURT OF APPEALS and MILAGROS CAYAS, respondents. G.R. No. 78860 May 28, 1990 Facts: Private respondent Milagros Cayas was the registered owner of a Mazda bus which was insured with Perla Compania de Seguros, Inc. (PCSI). The bus figured in an accident in Naic, Cavite injuring several of its passengers. One of them, 19-year old Edgardo Perea, sued Milagros Cayas for damages in the Court of First Instance of Cavite. (Civil Case No. NC-794) For failure to appear, she was declared in default. After trial, the court rendered a decision in favor of Perea. Milagros Cayas filed a complaint for a sum of money and damages against PCSI in the Court of First Instance of Cavite. She alleged therein that to satisfy the judgment in Civil Case No. NC-794, her house and lot were levied upon and sold at public auction and that to avoid numerous suits and the "detention" of the insured vehicle, she paid each of the injured passengers. (3, Perea not included). That she could not have suffered said financial setback had the counsel for PCSI, who also represented her, appeared at the trial of Civil Case No. NC-794 and attended to the claims of the three other victims. In view of Milagros Cayas' failure to prosecute the case, the court motu propio ordered its dismissal without prejudice. Milagros Cayas moved for the reconsideration of the dismissal order. Said motion for reconsideration was acted upon favourably. About two months later, Milagros Cayas filed a motion to declare PCSI in default for its failure to file an answer. The motion was granted and plaintiff was allowed to adduce evidence ex-parte. The court rendered judgment by default ordering PCSI to pay Milagros Cayas.

Said decision was set aside after the PCSI filed a motion therefor. Trial of the case ensued. In due course, the court promulgated a decision in favor of Milagros Cayas. PCSI appealed to the Court of Appeals seeking to limit its liability only to the payment made by private respondent to Perea and only up to the amount of P12,000.00. It altogether denies liability for the payments made by private respondents to the other three (3) injured passengers Rosario del Carmen, Ricardo Magsarili and Charlie Antolin in the amount of P4,000.00 each or a total of P12,000.00. CA which affirmed the lower courts decision. Issue: Whether the liability of PCSI is limited only to the payment made by Milagros to Perea. Held: There is merit in petitioner's assertions. The insurance policy involved explicitly limits petitioner's liability to P12,000.00 per person and to P50,000.00 per accident. We have ruled in Stokes vs. Malayan Insurance Co., Inc., 14 that the terms of the contract constitute the measure of the insurer's liability and compliance therewith is a condition precedent to the insured's right of recovery from the insurer. In the case at bar, the insurance policy clearly and categorically placed petitioner's liability for all damages arising out of death or bodily injury sustained by one person as a result of any one accident at P12,000.00. Said amount complied with the minimum fixed by the law then prevailing, Section 377 of Presidential Decree No. 612 (which was retained by P.D. No. 1460, the Insurance Code of 1978), which provided that the liability of land transportation vehicle operators for bodily injuries sustained by a passenger arising out of the use of their vehicles shall not be less than P12,000. In other words, under the law, the minimum liability is P12,000 per passenger. Petitioner's liability under the insurance contract not being less than P12,000.00, and therefore not contrary to law, morals, good customs, public order or public policy, said stipulation must be upheld as effective, valid and binding as between the parties. We observe that although Milagros Cayas was able to prove a total loss of only P44,000.00, petitioner was made liable for the amount of P50,000.00, the maximum liability per accident stipulated in the policy. This is patent error. An insurance indemnity, being merely an assistance or restitution insofar as can be fairly ascertained, cannot be availed of by any accident victim or claimant as an instrument of enrichment by reason of an accident. ZENITH INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS and LAWRENCE FERNANDEZ, respondents. NATURE OF THE CASE: Assailed in this petition is the decision of the Court of Appeals in CA-G.R. C.V. No. 13498 entitled, "Lawrence L. Fernandez, plaintiff-appellee v. Zenith Insurance Corp., defendant-appellant" which affirmed in toto the decision of the Regional Trial Court of Cebu, Branch XX in Civil Case No. CEB-1215 and the denial of petitioner's Motion for Reconsideration. FACTS: Private respondent Lawrence Fernandez insured his car for "own damage" under private car Policy No. 50459 with petitioner Zenith Insurance Corporation. The car figured in an accident and suffered actual damages in the amount of P3,640.00. After allegedly being given a run around by Zenith for two (2) months, Fernandez filed a complaint with the Regional Trial Court of Cebu for sum of money and damages resulting from the refusal of Zenith to pay the amount claimed. Fernandez also prayed for moral damages in the amount of P10,000.00, exemplary damages of P5,000.00, attorney's fees of P3,000.00 and litigation expenses of P3,000.00. After trial, a decision was rendered by the trial court in favor of private respondent Fernandez ordering the defendant to pay: 1. The amount of P3,640.00 representing the damage incurred plus interest at the rate of twice the prevailing interest rates; 2. The amount of P20,000.00 by way of moral damages; 3. The amount of P20,000.00 by way of exemplary damages; 4. The amount of P5,000.00 as attorney's fees; 5. The amount of P3,000.00 as litigation expenses; and

6. Costs. On appeal, the Court of Appeals rendered its decision affirming in toto the decision of the trial court. The Motion for Reconsideration was also denied for lack of merit. Hence, the instant petition. ISSUE: WON it is proper to award of moral damages, exemplary damages and attorney's fees? RULING: Under the Insurance Code, in case of unreasonable delay in the payment of the proceeds of an insurance policy, the damages that may be awarded are: 1) attorney's fees; 2) other expenses incurred by the insured person by reason of such unreasonable denial or withholding of payment; 3) interest at twice the ceiling prescribed by the Monetary Board of the amount of the claim due the injured; and 4) the amount of the claim. As regards the award of moral and exemplary damages, the rules under the Civil Code of the Philippines shall govern. "The purpose of moral damages is essentially indemnity or reparation, not punishment or correction. Moral damages are emphatically not intended to enrich a complainant at the expense of a defendant, they are awarded only to enable the injured party to obtain means, diversions or amusements that will serve to alleviate the moral suffering he has undergone by reason of the defendant's culpable action." The act of petitioner of delaying payment for two months cannot be considered as so wanton or malevolent to justify an award of P20,000.00 as moral damages, taking into consideration also the fact that the actual damage on the car was only P3,460. In the pre-trial of the case, it was shown that there was no total disclaimer by respondent. The reason for petitioner's failure to indemnify private respondent within the two-month period was that the parties could not come to an agreement as regards the amount of the actual damage on the car. The amount of P10,000.00 prayed for by private respondent as moral damages is equitable. On the other hand, exemplary or corrective damages are imposed by way of example or correction for the public good (Art. 2229, New Civil Code of the Philippines). In this case, since the insurance compant had not acted in wanton, oppressive or malevolent manner, exemplary damages were not awarded. Moreover, the amount of P5,000.00 awarded as attorney's fees is justified under the circumstances of this case and as regards the actual damages incurred by private respondent, the amount of P3,640.00 had been established before the trial court and affirmed by the appellate court. Therefore, the award of moral damages is reduced to P10,000.00 and the award of exemplary damages is hereby deleted. The awards due to private respondent Fernandez are as follows: 1) P3,640.00 as actual claim plus interest of twice the ceiling prescribed by the Monetary Board computed from the time of submission of proof of loss; 2) P10,000.00 as moral damages; 3) P5,000.00 as attorney's fees; 4) P3,000.00 as litigation expenses; and 5) Costs. ACCORDINGLY, the appealed decision is MODIFIED as above stated.

SEC. 3 DIONISIA, EULOGIO, MARINA, GUILLERMO and NORBERTO all surnamed GUINGON, plaintiffs-appellees, vs. ILUMINADO DEL MONTE, JULIO AGUILAR and CAPITAL INSURANCE and SURETY CO., INC., defendants. CAPITAL INSURANCE and SURETY CO., INC., defendant-appellant.

FACTS:

Julio Aguilar owned and operated several jeepneys, entered into a contract with the Capital Insurance & Surety Co., Inc. insuring the operation of his jeepneys against accidents with third-party liability.

During the effectivity of such insurance policy Iluminado del Monte, one of the drivers of the jeepneys operated by Aguilar, bumped in one Gervacio Guingon who had just alighted from another jeepney and as a consequence the latter died some days thereafter.

A corresponding information for homicide thru reckless imprudence was filed against Iluminado del Monte, who pleaded guilty.

As a corollary to such action, the heirs of Gervacio Guingon filed an action for damages praying that the sum of P82,771.80 be paid to them jointly and severally by the defendants, driver Iluminado del Monte, owner and operator Julio Aguilar, and the Capital Insurance & Surety Co., Inc.

Capital Insurance & Surety Co., Inc. answered, alleging that the plaintiff has no cause of action against it.

The Court of First Instance of Manila rendered its judgment sentencing Iluminado del Monte and Julio Aguilar jointly and severally to pay plaintiffs the sum of P8,572.95 as damages for the death of their father, plus P1,000.00 for attorney's fees plus costs. The defendant Capital Insurance and Surety Co., Inc. is sentenced to pay the plaintiffs the sum of Five Thousand (P5,000.00) Pesos plus Five Hundred (P500.00) Pesos as attorney's fees and costs. These sums of P5,000.00 and P500.00 adjudged against Capital Insurance and Surety Co., Inc. shall be applied in partial satisfaction of the judgment rendered against Iluminado del Monte and Julio Aguilar in this case.

ISSUES:

(1) Can plaintiffs sue the insurer at all? (2) If so, can plaintiffs sue the insurer jointly with the insured?

RULING:

The policy in the present case, as aforequoted, is one whereby the insurer agreed to indemnify the insured "against all sums . . . which the Insured shall become legally liable to pay in respect of: a. death of or bodily injury to any person . . . ."

Clearly, therefore, it is one for indemnity against liability;1 from the fact then that the insured is liable to the third person, such third person is entitled to sue the insurer.1wph1.t

The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the contract of insurance is intended to benefit third persons also or only the insured. And the test applied has been this: Where the

contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable, can sue the insurer. Where the contract is for indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him thru payment to third persons, said third persons' recourse being thus limited to the insured alone.2

The next question is on the right of the third person to sue the insurer jointly with the insured. The policy requires, as afore-stated, that suit and final judgment be first obtained against the insured; that only "thereafter" can the person injured recover on the policy; it expressly disallows suing the insurer as a co-defendant of the insured in a suit to determine the latter's liability. As adverted to before, the query is which procedure to follow that of the insurance policy or the Rules of Court.

The "no action" clause in the policy of insurance cannot prevail over the Rules of Court provision aimed at avoiding multiplicity of suits. In a case squarely on the point, American Automobile Ins. Co. vs. Struwe, 218 SW 534 (Texas CCA), it was held that a "no action" clause in a policy of insurance cannot override procedural rules aimed at avoidance of multiplicity of suits. We quote:

The rule has often been announced in Texas that when two causes of action are connected with each other, or grow out of the same transaction, they may be properly joined, and in such suit all parties against whom the plaintiff asserts a common or an alternative liability may be joined as defendants. . . . Even if appellants had presented any plea in abatement as to joinder of damages arising from a tort with those arising from a contract, it could not, under the facts of this case, be sustained, for the rule is that a suit may include an action for breach of contract and one for tort, provided they are connected with each other or grew out of the same transaction.

Similarly, in the instant suit, Sec. 5 of Rule 2 on "Joinder of causes of action" and Sec. 6 of Rule 3 on "Permissive joinder of parties" cannot be superseded, at least with respect to third persons not a party to the contract, as herein, by a "no action" clause in the contract of insurance.

Wherefore, the judgment appealed from is affirmed in toto. Costs against appellant. So ordered. ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner, vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.

THE NATURE OF THE CASE: Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November 26, 2004 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the insurer on the insurance application be considered as approval of the application?

THE FACTS

Respondent Philippine American Life Insurance Company (Philamlife) entered into an agreement denominated as Creditor Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis.

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of the application of each purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal complied by submitting a letter dated December 29, 1982,4 containing a list of insurable balances of its lot buyers for October 1982. One of those included in the list as "new business" was a certain John Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang died.

Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for Chuangs death. Attached to the claim were the following documents: (1) Chuangs Certificate of Death; (2) Identification Certificate stati ng that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assureds Certificate.

In reply, Philamlife wrote Eternal a letter on November 12, 1984,6 requiring Eternal to submit the following documents relative to its insurance claim for Chuangs death: (1) Certificate of Claimant (with form attached); (2) Assureds Certifica te (with form attached); (3) Application for Insurance accomplished and signed by the insured, Chuang, while still living; and (4) Statement of Account showing the unpaid balance of Chuang before his death.

Eternal transmitted the required documents through a letter dated November 14, 1984,7 which was received by Philamlife on November 15, 1984.

After more than a year, Philamlife had not furnished Eternal with any reply to the latters insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986.8

In response to Eternals demand, Philamlife denied Eternals insurance claim in a letter dated May 20, 1986,9 a portion of which reads:

The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens Memorial Park in October 1982 for the total maximum insurable amount of P100,000.00 each. No application for Group Insurance was submitted in our office prior to his death on August 2, 1984.

Since no application had been submitted by the Insured/Assured, prior to his death, for our approval but was submitted instead on November 15, 1984, after his death, Mr. John Uy Chuang was not covered under the Policy.

Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money against Philamlife which the trial court decided in favor of Eternal.

The RTC found that Eternal submitted Chuangs application for insurance which he accomplished before his death, as testified to by Eternals witness and evidenced by the letter dated December 29, 1982, stating, among others: "Encl: Phil Am Life Insurance Application Forms & Cert."10 It further ruled that due to Philamlifes inaction from the submission of the requirements of the group insurance on December 29, 1982 to Chuangs death on August 2, 1984, as well as Philamlifes acceptance of the premiums during the same period, Philamlife was deemed to have approved Chuangs application. The RTC said that since the contract is a group life insurance, once proof of death is submitted, payment must follow.

Philamlife appealed to the CA, which REVERSED and SET ASIDE the decision of the RTC, and the complaint is DISMISSED.

Hence, this petition.

ISSUE: WON Philamlife assumed the risk of loss without approving the application.

RULING: This question must be answered in the affirmative.

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

EFFECTIVE DATE OF BENEFIT.

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

An examination of the above provision would show ambiguity between its two sentences. The first sentence appears to state that the insurance coverage of the clients of Eternal already became effective upon contracting a loan with Eternal while the second sentence appears to require Philamlife to approve the insurance contract before the same can become effective.

It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order to safeguard the latters inte rest.

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

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

As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of experience in the industry purposefully used to its advantage. More often than not, insurance contracts are contracts of adhesion containing technical terms and

conditions of the industry, confusing if at all understandable to laypersons, that are imposed on those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must be considered whenever the rights and obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance companies must be obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise be bound to honor the application as a valid, binding, and effective insurance contract.21

WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED:

(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of Chuang;

(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time of extra-judicial demand by Eternal until Philamlifes receipt of the May 29, 1996 RTC Decision on June 17, 1996;

(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June 17, 1996 until full payment of this award; and

(4) To pay Eternal attorneys fees in the amount of PhP 10,000.

No costs.

SO ORDERED. Blue Cross Health Care, Inc. vs. Olivares 544 SCRA 580 (2008)

FACTS: Respondent Neomi T. Olivares applied for a health care program with petitioner Blue Cross Health Care, Inc., a health maintenance firm. For the period October 16, 2002 to October 15, 2003, she paid the amount of P11,117. For the same period, she also availed of the additional service of limitless consultations for an additional amount of P1,000. She paid these amounts in full on October 17, 2002. In the health care agreement, ailments due to pre-existing conditions were excluded from the coverage. Barely 38 days from the effectivity of her health insurance, respondent Neomi suffered a stroke and was admitted at the Medical City which was one of the hospitals accredited by petitioner. She incurred hospital expenses amounting to P34,217.20. Consequently, she requested from the representative of petitioner at Medical City a letter of authorization in order to settle her medical bills. But petitioner refused to issue the letter and suspended payment pending the submission of a certification from her attending physician that the stroke she suffered was not caused by a pre-existing condition. When Blue Cross still refused to pay, she filed suit in the MTC. The health care company rebutted by saying that the physician didnt disclose the condition due to the patients invocation of the doctor -client privilege. The MTC dismissed the complaint for lack of cause of action. On appeal, the RTC, reversed the ruling of MTC and held that it was the burden of petitioner to prove that the stroke of respondent Neomi was excluded from the coverage of the health care program for being caused by a preexisting condition.

ISSUE: Whether petitioner was able to prove that respondent Neomi's stroke was caused by a pre-existing condition and therefore was excluded from the coverage of the health care agreement. RULING: NO. Philamcare Health Systems, Inc. v. CA- a health care agreement is in the nature of a non-life insurance. It is an established rule in insurance contracts that when their terms contain limitations on liability, they should be construed strictly against the insurer. These are contracts of adhesion the terms of which must be interpreted and enforced stringently against the insurer which prepared the contract. This doctrine is equally applicable to health care agreements. The agreement defined a pre-existing condition as: a disability which existed before the commencement date of membership whose natural history can be clinically determined, whether or not the Member was aware of such illness or condition. Such conditions also include disabilities existing prior to reinstatement date in the case of lapse of an Agreement. Under this provision, disabilities which existed before the commencement of the agreement are excluded from its coverage if they become manifest within one year from its effectivity. Petitioners still averred that the non-disclosure of the pre-existing condition made a presumption in its favor. Respondents still maintained that the petitioner had the duty to prove its accusation. Petitioner never presented evidence to prove its presumption that the Doctors report would work against Neomi. They only perceived that the invocation of the privilege made the report adverse to Neomi and such was a disreputable presumption. They should have made an independent assessment of Neomis condition when it failed to obta in the report. They shouldnt have waited for the attending physicians report to come out.

Malayan Insurance Co., Inc. vs. Regis Brokerage Corp.

FACTS: Around 1 February 1995, Fasco Motors Group loaded 120 pieces of motors on board China Airlines bou nd for Manila from the United States. The cargo was to be delivered to consignee ABB Koppel, Inc. (ABB Koppel).[ When the cargo arrived at the Ninoy Aquino International Airport, it was discharged without exception and forwarded to Peoples Aircargo & Warehousing Corp.s (Paircargos) warehouse for temporary storage pending release by the Bureau of Customs. When the shipment arrived at ABB Koppels warehouse, it was discovered that only 65 of the 120 pieces of motors were actually delivered and that the remaining 55 motors, valued at US$2,374.35, could not be accounted for. The shipment was purportedly insured with Malayan by ABB Koppel. Demand was first made upon Regis and Paircargo for payment of the value of the missing motors, but both refused to pay. Thus, Malayan paid ABB Koppel the amount of P156,549.55 apparently pursuant to its insurance agreement and Malayan was on that basis subrogated to the rights of ABB Koppel against Regis and Paircargo. Malayan filed a complaint for damages against Regis and Paircargo with the Metropolitan Trial Court (MeTC) of Manila, Branch 9. In the course of trial, Malayan presented Marine Risk Note No. RN-0001-19832 (Marine Risk Note) dated 21 March 1995 as proof that the cargo was insured by Malayan. The MeTC rendered a Decision[11] dated 25 May 2001 adjudging Regis alone liable to Malayan. With the exception of the award of attorneys fees, the MeTC decision was affirmed on appeal to the Regional Trial Court (RTC) of Manila. On 23 December 2005, the Court of Appeals promulgated its decision vacating the RTC judgment and ordering the dismissal of Malayans complaint. The central finding that formed the Court of Appeals decision was that the Marine Risk Note presented as proof that the cargo was insured was invalid.] It was observed that the Marine Risk Note was procured from Malayan only on 21 March 1995, when in fact the insured, ABB Koppel, had learned of the partial loss of the motors as early as 7 March 1995. Issue: Whether or not the Marine Risk Note sufficiently established a valid insurance covering the subject motors.

Ruling: NO. Certainly it would be obtuse for us to even entertain the idea that the insurance contract between Malayan and ABB Koppel was actually constituted by the Marine Risk Note alone. We find guidance on this point in Aboitiz Shipping Corporation v. Philippine American General Insurance, Co., where a trial court had relied on the contents of a marine risk note, not the insurance policy itself, in dismissing a complaint. For this act, the Cou rt faulted the trial court in [obviously mistaking] said Marine Risk Note as an insurance policy when it is not. The Court proceeded to characterize the marine risk note therein as an acknowledgment or declaration of the private respondent confirming th e specific shipment covered by its Marine Open Policy, the evaluation of the cargo, and the chargeable premium, a description that is reflective as well of the present Marine Risk Note, if not of marine risk notes in this country in general. Malayan correctly points out that the Marine Risk Note itself adverts to Marine Cargo Policy Number Open Policy-000100410 as well as to the standard Marine Cargo Policy and the Companys Marine Open Policy. What the Marine Risk Note bears, as a matter of evidence, is that it is not apparently the contract of insurance by itself, but merely a complementary or supplementary document to the contract of insurance that may have existed as between Malayan and ABB Koppel. And while this observation may deviate from the te nor of the assailed Court of Appeals Decision, it does not presage any ruling in favor of petitioner. Fundamentally, since Malayan failed to introduce in evidence the Marine Insurance Policy itself as the main insurance contract, or even advert to said document in the complaint, ultimately then it failed to establish its cause of action for restitution as a subrogee of ABB Koppel.

Eastern Shipping vs. Prudential Guarantee

FACTS: On November 1995, fifty-six cases of completely knock-down auto parts of Nissan motor vehicle (cargoes) were loaded on board M/V Apollo Tujuh (carrier) at Nagoya, Japan, to be shipped to Manila. The carrier was owned and operated by petitioner Eastern Shipping Lines, Inc. On November 22, 1995, the shipment was then discharged from the vessel onto the custody of the arrastre operator, Asian Terminals, Inc. (ATI), complete and in good condition, except for four cases. A survey of the shipment was conducted by Tan-Gaute Adjustment Company, Inc. (surveyor) at Nissans warehouse. The surveyor submitted its report with a finding that there were short (missing) items in Cases Nos. 10/A26/T3K and 10/A26/7K and broken/scratched and broken items in Case No. 10/A26/70K; and that (i)n (its) opinion, the shortage and damage sustained by the shipment were due to pilferage and improper handling, respectively while in the custody of the vessel and/or Arrastre Contractors. As a result, Nissan demanded the sum of P1,047,298.34 representing the cost of the damages sustained by the shipment from petitioner, the owner of the vessel, and ATI, the arrastre operator. However, the demands were not heeded. As insurer of the shipment against all risks per Marine Open Policy No. 86-168 and Marine Cargo Risk Note No. 3921/95, respondent Prudential Guarantee and Assurance Inc. paid Nissan the sum of P1,047,298.34. October 1996, respondent sued petitioner and ATI for reimbursement of the amount it paid to Nissan before the Regional Trial Court (RTC) of Makati City, Branch 148, docketed as Civil Case No. 96-1665, entitled Prudential Guarantee and Assurance, Inc. v. Eastern Shipping Lines, Inc. Respondent claimed that it was subrogated to the rights of Nissan by virtue of said payment.

ISSUE: Whether or not, a marine cargo risk note and a subrogation receipt, without the Marine Insurance Policy, are sufficient to prove respondents right of subrogation.

RULING: NO.

The Marine Risk Note relied upon by respondent as the basis for its claim for subrogation is insufficient to prove said claim. The Marine Risk Note was issued only on November 16, 1995; hence, without a copy of the marine insurance policy, it would be impossible and simply guesswork to know whether the cargo was insured during the voyage which started on November 8, 1995. Again, without the marine insurance policy, it would be impossible for this Court to know the following: first, the specifics of the Institute Cargo Clauses A and other terms and conditions per Marine Open Policy -86-168 as alluded to in the Marine Risk Note; second, if the said terms and conditions were actually complied with before respondent paid Nissans claim. The marine risk note in the case at bar is questionable because: first, it is dated on the same day the cargoes arrived at the port of Manila and not during the duration of the voyage; second, without the Marine Insurance Policy to elucidate on the specifics of the terms and conditions alluded to in the marine risk note, it would be simply guesswork to know if the same were complied with. In conclusion, this Court rules that based on the applicable jurisprudence, because of the inadequacy of the Marine Cargo Risk Note for the reasons already stated, it was incumbent on respondent to present in evidence the Marine Insurance Policy, and having failed in doing so, its claim of subrogation must necessarily fail.

SEC. 7

Paramount Insurance v Remondeulaz Facts: Respondents insured with petitioner their 1994 Toyota Corolla sedan under a comprehensive motor vehicle insurance policy for one year. During the effectivity of said insurance, respondents car was unlawfully taken. Hence, they immediately reported the theft to the PNP who made them accomplish a complaint sheet. In said complaint sheet, respondents alleged that a certain Ricardo Sales (Sales) took possession of the subject vehicle to add accessories and improvements thereon, however, Sales failed to return the subject vehicle within the agreed three-day period. As a result, respondents notified petitioner to claim for the reimbursement of their lost vehicle. However, petitioner refused to pay. Accordingly, respondents lodged a complaint for a sum of money against petitioner before the RTC of Makati City praying for the payment of the insured value of their car plus damages. After presentation of respondents evidence, petitioner filed a Demurrer to Evidence. Acting thereon, the trial court dismissed the complaint filed by respondents. Not in conformity with the trial courts Order, respondents interposed an appeal to the Court of Appeals. In its Decision, the appellate court reversed and set aside the Order issued by the trial court. Consequently, petitioner filed a petition for review on certiorari before this Court. Issue: whether or not petitioner is liable under the insurance policy for th e loss of respondents vehicle. Held: Adverse to petitioners claim, respondents policy clearly undertook to indemnify the insured against loss of or damage to the scheduled vehicle when caused by theft.

Apropos, we now resolve the issue of whether the loss of respondents vehicle falls within the concept of the theft clause under the insurance policy. In People v. Bustinera, this Court had the occasion to interpret the theft clause of an insurance policy. In this case, the Court explained that when one takes the motor vehicle of another without the latters consent even if the motor vehicle is later returned, there is theft there being intent to gain as the use of the thing unlawfully taken constitutes gain. Also, in Malayan Insurance Co., Inc. v. Court of Appeals, this Court held that the taking of a vehicle by another person without the permission or authority from the owner thereof is sufficient to place it within the ambit of the word theft as contemplated in the policy, and is therefore, compensable. The principal distinction between the two crimes is that in theft the thing is taken while in estafa the accused receives the property and converts it to his own use or benefit. However, there may be theft even if the accused has possession of the property. If he was entrusted onlv with the material or physical (natural) or de facto possession of the thing, his misappropriation of the same constitutes theft, but if he has the juridical possession of the thing, his conversion of the same constitutes embezzlement or estafa. In the instant case, Sales did not have juridical possession over the vehicle. Here, it is apparent that the taking of respondents' vehicle by Sales is without any consent or authority from the former. Records would show that respondents entrusted possession of their vehide only to the extent that Sales will introduce repairs and not to permanently deprive them of possession thereof. Since, Theft can also be committed through misappropriation, the fact that Sales failed to return the subject vehicle to respondents constitutes Qualified Theft. Hence, since respondents' car is undeniably covered by a Comprehensive Motor Vehicle Insurance Policy that allows for recovery in cases of theft, petitioner is liable under the policy for the loss of respondents' vehicle under the "theft clause." All told, Sales' act of depriving respondents of their motor vehicle at, or soon after the transfer of physical possession of the movable property, constitutes theft under the insurance policy, which is compensable. WHEREFORE, the instant petition is DENIED. The Decision and Resolution of the Court of Appeals are hereby AFFIRMED in toto.

United Merchants v. Country Bankers Facts: Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and manufacturing Christmas lights. UMC leased a warehouse in Barrio Manresa, Quezon City, where UMC assembled and stored its products. UMCs General Manager Alfredo Tan insured UMCs stocks in trade of Christmas lights against fire with defendant Country Bankers Insurance Corporation (CBIC) for P15,000,000.00. UMC and CBIC executed Endorsement and Fire Invoice to form part of the Insurance Policy. Endorsement provides that UMCs stocks in trade were insured against additional perils, to wit: typhoon, flood, ext. cover, and full earthquake. The sum insured was also increased to P50,000,000.00. A fire gutted the warehouse rented by UMC. CBIC designated CRM to investigate and evaluate UMCs loss by reason of the fire. CBICs reinsurer, Central Surety, likewise requested the NBI to conduct a parallel investigation. UMC, through CRM, submitted to CBIC its Sworn Statement of Formal Claim, with proofs of its loss. UMC demanded for at least fifty percent (50%) payment of its claim fr om CBIC. UMC received CBICs letter rejecting UMCs claim due to breach of Condition No. 15 of the Insurance Policy. Condition No. 15 states: If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the Insured or anyone acting in his behalf to obtain any benefit under this Policy; or if the loss or damage be occasioned by the willful act, or with the connivance of the Insured, all the benefits under this Policy shall be forfeited. UMC filed a Complaint against CBIC with the RTC of Manila. UMC anchored its insurance claim on the Insurance Policy,

the Sworn Statement of Formal Claim earlier submitted, and the Certification made by Deputy Fire Chief/Senior Superintendent of the Bureau of Fire Protection. The Certification dated provides that no evidence was gathered to prove that the establishment was willfully, feloniously and intentionally set on fire. That the investigation of the fire incident is already closed being ACCIDENTAL in nature. In its Answer with Compulsory Counterclaim, CBIC admitted the issuance of the Insurance Policy to UMC but alleged that UMCs claim was fraudulent because UMCs Statement of Inventory showed that it had no stocks in trade and that UMCs suspicious purchases did not even amount to P25,000,000.00. UMCs GIS and Financial Reports further revealed that it had insufficient capital, which meant UMC could not afford the alleged P50,000,000.00 worth of stocks in trade. In its Reply, UMC denied violation of Condition No. 15 of the Insurance Policy. UMC claimed that it did not make any false declaration because the invoices were genuine and the Statement of Inventory was for internal revenue purposes only, not for its insurance claim. During trial, UMC presented five witnesses. The first witness was Ebora, UMCs disbursing officer. Ebora testified that UMCs stocks in trade, at the time of the fire. Ebora also presented UMCs Balance Sheet, Income Statement and Statement of Cash Flow. The next witness, Pabustan, testified that her company provided about 25 workers to assemble and pack Christmas lights for UMC. The third witness, Metropolitan Bank Officer Martinez, stated that UMC opened letters of credit with MBTC for the year 1995 only. The fourth witness presented was Luna, the delivery checker of Straight Commercial Cargo Forwarders. Luna affirmed the delivery of UMCs goods to its warehouse. Lastly, CRMs adjuster Victorio testified that he inspected UMCs warehouse and prepared preliminary reports in this connection. On the other hand, CBIC presented the claims manager Caguindagan, a SEC representative, Atty. Cabrera and NBI Investigator Lazaro. Caguindagan testified that he inspected the burned warehouse, took pictures of it and referred the claim to an independent adjuster. Cabrera and Lazaro testified that they were hired by Central Surety to investigate UMCs claim. They concluded that arson was committed based from their interview with barangay officials and the pictures showing that blackened surfaces were present at different parts of the warehouse. On cross-examination, Lazaro admitted that they did not conduct a forensic investigation of the warehouse, nor did they file a case for arson. The RTC of Manila rendered a Decision in favor of UMC. The RTC found no dispute as to UMCs fire insurance contract with CBIC. Thus, the RTC ruled for UMCs entitlement to the insurance proceeds. Hence, CBIC filed an appeal with the Court of Appeals (CA). The CA promulgated its Decision in favor of CBIC. The CA ruled that UMCs claim under the Insurance Policy is void. The CA found that the fire was intentional in origin, considering the array of evidence submitted by CBIC, particularly the pictures taken and the reports of Cabrera and Lazaro, as opposed to UMCs failure to explain the details of the alleged fire accident. In addition, it found that UMCs claim was overvalued through fraudulent transactions. UMC filed a Motion for Reconsideration, which the CA denied in its Resolution. Hence, this petition. Issue: whether UMC is entitled to claim from CBIC the full coverage of its fire insurance policy. Held: UMC contends that because it had already established a prima facie case against CBIC which failed to prove its defense, UMC is entitled to claim the full coverage under the Insurance Policy. On the other hand, CBIC contends that because arson and fraud attended the claim, UMC is not entitled to recover under Condition No. 15 of the Insurance Policy. Burden of proof is the duty of any party to present evidence to establish his claim or defense by the amount of evidence required by law, which is preponderance of evidence in civil cases. The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof to obtain a favorable judgment. Particularly, in insurance cases, once an insured makes out a prima facie case in its favor, the burden of evidence shifts to the insurer to controvert the

insureds prima facie case. In the present case, UMC established a prima facie case against CBIC. CBIC does not dispute that UMCs stocks in trade were insured against fire under the Insurance Policy and that the warehouse, where UMCs stocks in trade were stored, was gutted by fire within the duration of the fire insurance. However, since CBIC alleged an excepted risk, then the burden of evidence shifted to CBIC to prove such exception. An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of establishing that the loss comes within the purview of the exception or limitation. If loss is proved apparently within a contract of insurance, the burden is upon the insurer to establish that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability. In the present case, CBIC failed to discharge its primordial burden of establishing that the damage or loss was caused by arson, a limitation in the policy. In the present case, CBICs evidence did not prove that the fire was intentionally caused by the insured. First, the findings of CBICs witnesses, Cabrera and Lazaro, were based on an investigation conducted more than four months after the fire. The testimonies of Cabrera and Lazaro, as to the boxes doused with kerosene as told to them by barangay officials, are hearsay because the barangay officials were not presented in court. Cabrera and Lazaro even admitted that they did not conduct a forensic investigation of the warehouse nor did they file a case for arson. Second, the Sworn Statement of Formal Claim submitted by UMC, through CRM, states that the cause of the fire was faulty electrical wiring/accidental in nature. CBIC is bound by this evidence because in its Answer, it admitted that it designated CRM to evaluate UMCs loss. Third, the Certification by the Bureau of Fire Protection states that the fire was accidental in origin. This Certification enjoys the presumption of regularity, which CBIC failed to rebut. Contrary to UMCs allegation, CBICs failure to prove arson does not mean that it also failed to prove fraud. In the present case, arson and fraud are two separate grounds based on two different sets of evidence, either of which can void the insurance claim of UMC. The absence of one does not necessarily result in the absence of the other. Thus, on the allegation of fraud, we affirm the findings of the Court of Appeals. In Uy Hu & Co. v. The Prudential Assurance Co., Ltd., the Court held that where a fire insurance policy provide s that if the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the Insured or anyone acting on his behalf to obtain any benefit under this Policy, and th e evidence is conclusive that the proof of claim which the insured submitted was false and fraudulent both as to the kind, quality and amount of the goods and their value destroyed by the fire, such a proof of claim is a bar against the insured from recovering on the policy even for the amount of his actual loss. In the present case, as proof of its loss of stocks in trade amounting to P50,000,000.00, UMC submitted its Sworn Statement of Formal Claim together with the following documents: (1) letters of credit and invoices for raw materials, Christmas lights and cartons purchased; (2) charges for assembling the Christmas lights; and (3) delivery receipts of the raw materials. However, the charges for assembling the Christmas lights and delivery receipts could not support its insurance claim. The Insurance Policy provides that CBIC agreed to insure UMCs stocks in trade. UMC defined stock in trade as tangible personal property kept for sale or traffic. Applying UMCs definition, only the letters of credit and invoices for raw materials, Christmas lights and cartons may be considered. The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade purchased for 1996 amounts to P20,000,000.00 which were purchased in one month. Thus, UMC needs to prove purchases amounting to P30,000,000.00 worth of stocks in trade for 1995 and prior years. However, in the Statement of Inventory it submitted to the BIR, which is considered an entry in official records, UMC stated that it had no stocks in trade as of 31 December 1995. . Thus, either amount in UMCs Income Statement or Financial Reports is twenty-five times the claim UMC seeks to enforce. The RTC itself recognized that UMC padded its claim. The most liberal human judgment cannot attribute such difference to mere innocent error in estimating or counting but to a deliberate intent to demand from insurance companies payment for indemnity of goods not existing at the time of the fire. This constitutes the so-called fraudulent claim which, by express agreement between the insurers and the insured, is a ground for the exemption of insurers from civil liability. On UMCs allegation that it did not breach any warranty, it may be argued that the discrepancies do not, by themselves, amount to a breach of warranty. However, the Insurance Code provides that a policy may declare that a violation of specified provisions thereof shall avoid it. Considering that all the circumstances point to the inevitable conclusion that UMC padded its claim and was guilty of fraud, UMC violated Condition No. 15 of the Insurance Policy. Thus, UMC forfeited whatever benefits it may be entitled under

the Insurance Policy, including its insurance claim. While it is a cardinal principle of insurance law that a contract of insurance is to be construed liberally in favor of the insured and strictly against the insurer company, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Courts are not permitted to make contracts for the parties; the function and duty of the courts is simply to enforce and carry out the contracts actually made. WHEREFORE, we DENY the petition. We AFFIRM the Decision and the Resolution of the Court of Appeals.

SEC. 8

RCBC v CA FACTS: GOYU applied for credit facilities and accommodations with RCBC at its Binondo Branch. After due evaluation, RCBC Binondo Branch, through its key officers, petitioners recommended GOYUs application for approval by RCBCs executive committee. A credit facility was initially granted. Upon GOYUs application and Uys and Laos recomme ndation, RCBCs executive committee increased GOYUs credit facility to P50 million, then to P90 million, and finally to P117 million. As security for its credit facilities with RCBC, GOYU executed two real estate mortgages and two chattel mortgages in favor of RCBC. Under each of these four mortgage contracts, GOYU committed itself to insure the mortgaged property with an insurance company approved by RCBC, and subsequently, to endorse and deliver the insurance policies to RCBC. GOYU obtained in its name a total of ten insurance policies from MICO. Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan insurance policies, issued nine endorsements in favor of RCBC. One of GOYUs factory buildings in Valenzuela was gutted by fire. Consequently, GOYU submitted its claim for indemnity on account of the loss insured against. MICO denied the claim on the ground that the insurance policies were either attached pursuant to writs of attachments/garnishments issued by various courts or that the insurance proceeds were also claimed by other creditors of GOYU alleging better rights to the proceeds than the insured. GOYU filed a complaint for specific performance and damages. RCBC, one of GOYUs creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but said claims were also denied for the same reasons that MICO denied GOYUs claims. The RTC of Manila confirmed that GOYUs other creditors, namely, Urban Bank, Alfredo Sebastian, and Philippine Trust Company obtained their respective writs of attachments from various courts and ordered that the proceeds of the ten insurance policies be deposited with the said court. Accordingly, MICO deposited the amount of P50,505,594.60 with the Manila RTC. In the meantime, another notice of garnishment was handed down by another Manila RTC sala. After trial, Manila RTC rendered judgment in favor of GOYU and against the defendant, Malayan Insurance Company, Inc. and Rizal Commercial Banking Corporation. From this judgment, all parties interposed their respective appeals. GOYU was unsatisfied with the amounts awarded in its favor. MICO and RCBC disputed the trial courts findings of liability on their part. The Court of Appeals partly granted GOYUs appeal, but sustained the findings of the trial court with respect to MICO and RCBCs liabilities. RCBC and MICO are now before us, seeking review and consequent reversal of the above dispositions of the Court of Appeals. Issue: whether or not RCBC, as mortgagee, has any right over the insurance policies taken by GOYU, the mortgagor, in case of the occurrence of loss.

Held: It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same mortgaged property, such that each one of them may insure the same property for his own sole benefit. There is no question that GOYU could insure the mortgaged property for its own exclusive benefit. In the present case, although it appears that GOYU obtained the subject insurance policies naming itself as the sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity. It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in favor of any particular beneficiary or payee other than the insured had not such named payee or beneficiary been specifically disclosed by the insured itself. It is also significant that GOYU voluntarily and purposely took the insurance policies from MICO, a sister company of RCBC, and not just from any other insurance company. Alchester would not have found out that the subject pieces of property were mortgaged to RCBC had not such information been voluntarily disclosed by GOYU itself. Had it not been for GOYU, Alchester would not have known of GOYUs intention of obtaining insurance coverage in compliance with its undertaking in the mortgage contracts with RCBC, and verily, Alchester would not have endorsed the policies to RCBC had it not been so directed by GOYU. On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of mortgagor RCBC. Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain Mr. Yam, she prepared in quadruplicate the nine endorsement documents for GOYUs nine insurance policies in favor of RCBC. The original copies of each of these nine endorsement documents were sent to GOYU, and the others were sent to RCBC and MICO, while the fourth copies were retained for Alchesters file. GOYU has not denied having received from Alchester the originals of these endorsements. RCBC, in good faith, relied upon the endorsement documents sent to it as this was only pursuant to the stipulation in the mortgage contracts. We find such reliance to be justified under the circumstances of the case. GOYU failed to seasonably repudiate the authority of the person or persons who prepared such endorsements. Over and above this, GOYU continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After the occurrence of the loss insured against, it was too late for GOYU to disown the endorsements for any imagined or contrived lack of authority of Alchester to prepare and issue said endorsements. If there had not been actually an implied ratification of said endorsements by virtue of GOYUs inaction in this case, GOYU is at the very least estopped from assailin g their operative effects. To permit GOYU to capitalize on its non-confirmation of these endorsements while it continued to enjoy the benefits of the credit facilities of RCBC which believed in good faith that there was due endorsement pursuant to their mortgage contracts, is to countenance grave contravention of public policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot sanction. Under the peculiar circumstances obtaining in this case, the Court is bound to recognize RCBCs right to the proceeds of the insurance policies if not for the actual endorsement of the policies, at least on the basis of the equitable principle of estoppel. GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case presents a justification to take exception to the strict application of said provision, it having been sufficiently established that it was the intention of the parties to designate RCBC as the party for whose benefit the insurance policies were taken out. This Court can not over stress the fact that upon receiving its copies of the endorsement documents prepared by Alchester, GOYU, despite the absence of its written conformity thereto, obviously considered said endorsement to be sufficient compliance with its obligation under the mortgage contracts since RCBC accordingly continued to extend the benefits of its credit facilities and GOYU continued to benefit therefrom. Just as plain too is the intention of the parties to constitute RCBC as the beneficiary of the various insurance policies obtained by GOYU. The intention of the parties will have to be given full force and effect in this particular case. The insurance proceeds may, therefore, be exclusively applied to RCBC, which under the factual circumstances of the case, is truly the person or entity for whose benefit the policies were clearly intended. WHEREFORE, the petitions are hereby GRANTED and the decision and resolution are hereby REVERSED and SET ASIDE.

Topics: Title:

Insurance; Insurable interest; Mortgage; compensation Palileo vs. Cosio, 97 Phil. 919 (1955) BAUTISTA ANGELO, J.

Facts:

To secure the payment of the agreed loan, defendant required plaintiff to sign a document known as "Conditional Sale of Residential Building", purporting to convey to defendant, a two-story building of strong materials belonging to plaintiff. Defendant insured for himself the building against fire. The building was partly destroyed by fire and, after proper demand, defendant collected from the insurance company an indemnity. Plaintiff demanded from defendant that she be credited with the necessary amount to pay her obligation out of the insurance proceeds but defendant refused to do so.

Issue: Ruling: Legal Basis:

Is the obligation of plaintiff fully compensated by the insurance amount? No. The proceeds of the insurance should be delivered to the defendant but that her claim against the plaintiff should be considered assigned to the insurance company who is deemed subrogated to the rights of the defendant to the extent of the money paid as indemnity.

SEC. 10

Topics:

Insurance law: Insurable Interest; Corporate beneficiary; Proceeds; income El Oriente vs. Posada, 56 Phil. 147 (1931) MALCOLM, J.:

excluded to gross

Title:

Facts:

The plaintiff-Corporation is the sole beneficiary of the duly paid policy on the life of its manager. Upon the death of the manager, the plaintiff-Corporation received all the proceeds of the said policy. The defendant Collector of Internal Revenue levied income tax on the proceeds which the plaintiff paid under protest. The defendant overruled said protest based on the Philippine Income Tax Law (Act No. 2833, enforced in 1920) Section 10 that there shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources by every corporation. Is the proceeds taken by a corporation are taxable as income under the Philippine Income Tax Law (Act No. 2833, enforced in 1920)? No. The proceeds of the life insurance policy in question as representing an indemnity and not taxable income, it is a capital. Moreover there is lack of express legislative intention to tax the proceeds of life insurance policies paid to corporate beneficiaries.

Issue:

Ruling: Legal Basis:

Note:

In the present National Internal Revenue Code 1997, the proceed of life insurance is still not subject to income tax as a general rule.

SEC. 11

INSURANCE LAW

(Sec. 11) Insular Life v. Ebrado [80 SCRA 181]

Facts: Buenaventura Ebrado was issued by Insular Life Assurance Co. a whole life plan for P5,882.00 with a rider for Accidental Death Benefits for the same amount. Ebrado designated Carponia Ebrado as the revocable beneficiary in his policy, referring to her as his wife. Ebrado died when he was accidentally hit by a falling branch of tree.

Insurer by virtue of the contract was liable for 11,745.73, and Carponia filed her claim, although she admitted that she and the insured were merely living as husband and wife without the benefit of marriage. Pascuala Ebrado also filed her claim as the widow of the deceased insured. Insular life filed an interpleader case and the lower court found in favor of Pascuala.

Issue: Between Carponia and Pascuala, who is entitled to the proceeds?

Held: Pascuala. It is quite unfortunate that the Insurance Act or our own Insurance Code does not contain a specific provision grossly resolutory of the prime question at hand. Rather, the general rules of civil law should be applied to resolve this void in the insurance law. Art. 2011 of the NCC states: The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code. When not otherwise specifically provided for in the insurance law, the contract of life insurance is governed by the general rules of civil law regulating contracts.

Under Art. 2012, NCC: Any person who is forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a life insurance policy by a person who cannot make any donation to him, according to said article . Under Art. 739, donations between persons who were guilty of adultery or concubinage at the time of the donation shall be void.

In essence, a life insurance policy is no different from civil donations insofar as the beneficiary is concerned. Both are founded on the same consideration of liberality. A beneficiary is like a donee because from the premiums of the policy which the insured pays, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Art. 739 should equally operate in life insurance contracts.

Therefore, since common-law spouses are barred from receiving donations, they are likewise barred from receiving proceeds of a life insurance contract.

(Sec. 18) Cha v. United Insurance Inc., Cha [277 SCRA 690] (1997)

Facts: Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with CKS Development Corporation (CKS), as lessor. One of the stipulations of the one (1) year lease contract states:

"18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own benefit; . . ."

Notwithstanding the above stipulation, the Cha spouses insured against loss by fire their merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance without the written consent CKS. On the day that the lease contract was to expire, fire broke out inside the leased premises. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the United a demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses.

United insurance refused to pay CKS, alleging that the latter had no insurable interest. Hence, the latter filed a complaint against the Cha spouses and United.

Issue: Whether or not CKS Development Corporation can claim the proceeds of the fire insurance.

Held: No. CKS Development Corporation has no insurable interest.

Sec. 18 of the Insurance Code provides:

"Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured."

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code which provide: "Section 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury thereof."

Therefore, CKS cannot, under the Insurance Code a special law be validly a beneficiary of the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured.