INSURANCE CASES

G.R. No. L-66935 November 11, 1985

ISABELA ROQUE, doing busines under the name and style of Isabela Roque Timber
Enterprises and ONG CHIONG, petitioners,

vs.

HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND SURETY

CORPORATION, respondent.

GUTIERREZ, JR., J.:

This petition for certiorari asks for the review of the decision of the Intermediate Appellate Court
which absolved the respondent insurance company from liability on the grounds that the vessel
carrying the insured cargo was unseaworthy and the loss of said cargo was caused not by the
perils of the sea but by the perils of the ship.

On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a common carrier,
entered into a contract with the petitioners whereby the former would load and carry on board its
barge Mable 10 about 422.18 cubic meters of logs from Malampaya Sound, Palawan to North
Harbor, Manila. The petitioners insured the logs against loss for P100,000.00 with respondent
Pioneer Insurance and Surety Corporation (Pioneer).

On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at Malampaya
Sound, Palawan for carriage and delivery to North Harbor, Port of Manila, but the shipment
never reached its destination because Mable 10 sank with the 811 pieces of logs somewhere off
Cabuli Point in Palawan on its way to Manila. As alleged by the petitioners in their complaint
and as found by both the trial and appellate courts, the barge where the logs were loaded was not
seaworthy such that it developed a leak. The appellate court further found that one of the hatches
was left open causing water to enter the barge and because the barge was not provided with the
necessary cover or tarpaulin, the ordinary splash of sea waves brought more water inside the
barge.

On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of
P150,000.00 for the loss of the shipment plus P100,000.00 as unrealized profits but the latter
ignored the demand. Another letter was sent to respondent Pioneer claiming the full amount of
P100,000.00 under the insurance policy but respondent refused to pay on the ground that its
hability depended upon the "Total loss by Total Loss of Vessel only". Hence, petitioners
commenced Civil Case No. 86599 against Manila Bay and respondent Pioneer.

After hearing, the trial court found in favor of the petitioners. The dispositive portion of the
decision reads:

FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:

(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer Insurance and
Surety Corporation to pay plaintiffs, jointly and severally, the sum of P100,000.00;

(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in addition, the
sum of P50,000.00, plus P12,500.00, that the latter advanced to the former as down payment for
transporting the logs in question;

(c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed, for lack
of merit, but as to its cross-claim against its co-defendant Manila Bay Lighterage Corporation,
the latter is ordered to reimburse the former for whatever amount it may pay the plaintiffs as
such surety;

(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed for lack
of merit;
(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary damages are
ordered dismissed, for lack of merits; plaintiffs' claim for attorney's fees in the sum of
P10,000.00 is hereby granted, against both defendants, who are, moreover ordered to pay the
costs; and

(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent (6%) from
March 25, 1975, until amount is fully paid.

Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not appeal.
According to the petitioners, the transportation company is no longer doing business and is
without funds.

During the initial stages of the hearing, Manila Bay informed the trial court that it had salvaged
part of the logs. The court ordered them to be sold to the highest bidder with the funds to be
deposited in a bank in the name of Civil Case No. 86599.

On January 30, 1984, the appellate court modified the trial court's decision and absolved Pioneer
from liability after finding that there was a breach of implied warranty of seaworthiness on the
part of the petitioners and that the loss of the insured cargo was caused by the "perils of the ship"
and not by the "perils of the sea". It ruled that the loss is not covered by the marine insurance
policy.

After the appellate court denied their motion for reconsideration, the petitioners filed this petition
with the following assignments of errors:

THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES OF

MARINE CARGO INSURANCE, THERE IS A WARRANTY OF SEAWORTHINESS BY
THE CARGO OWNER.
II

THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE LOSS OF

THE CARGO IN THIS CASE WAS CAUSED BY "PERILS OF THE SHIP" AND NOT BY
"PERILS OF THE SEA."

III

THE INTERMEDIATE APPELLATE COURT ERRED IN NOT ORDERING THE RETURN

TO PETITIONER OF THE AMOUNT OF P8,000.00 WHICH WAS DEPOSITED IN THE
TRIAL COURT AS SALVAGE VALUE OF THE LOGS THAT WERE RECOVERED.

In their first assignment of error, the petitioners contend that the implied warranty of
seaworthiness provided for in the Insurance Code refers only to the responsibility of the
shipowner who must see to it that his ship is reasonably fit to make in safety the contemplated
voyage.

The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to
do with its seaworthiness. They argue that a cargo owner has no control over the structure of the
ship, its cables, anchors, fuel and provisions, the manner of loading his cargo and the cargo of
other shippers, and the hiring of a sufficient number of competent officers and seamen. The
petitioners' arguments have no merit.

There is no dispute over the liability of the common carrier Manila Bay. In fact, it did not bother
to appeal the questioned decision. However, the petitioners state that Manila Bay has ceased
operating as a firm and nothing may be recovered from it. They are, therefore, trying to recover
their losses from the insurer.

The liability of the insurance company is governed by law. Section 113 of the Insurance Code
provides:
In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the
subject of marine insurance, a warranty is implied that the ship is seaworthy.

Section 99 of the same Code also provides in part.

Marine insurance includes:

(1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...

From the above-quoted provisions, there can be no mistaking the fact that the term "cargo" can
be the subject of marine insurance and that once it is so made, the implied warranty of
seaworthiness immediately attaches to whoever is insuring the cargo whether he be the
shipowner or not.

As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton
(40 Phil. 40):

The same conclusion must be reached if the question be discussed with reference to the
seaworthiness of the ship. It is universally accepted that in every contract of insurance upon
anything which is the subject of marine insurance, a warranty is implied that the ship shall be
seaworthy at the time of the inception of the voyage. This rule is accepted in our own Insurance
Law (Act No. 2427, sec. 106). ...

Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is immaterial
in ordinary marine insurance and may not be used by him as a defense in order to recover on the
marine insurance policy.
As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406):

There was no look-out, and both that and the rate of speed were contrary to the Canadian Statute.
The exception of losses occasioned by unseaworthiness was in effect a warranty that a loss
should not be so occasioned, and whether the fact of unseaworthiness were known or unknown
would be immaterial.

Since the law provides for an implied warranty of seaworthiness in every contract of ordinary
marine insurance, it becomes the obligation of a cargo owner to look for a reliable common
carrier which keeps its vessels in seaworthy condition. The shipper of cargo may have no control
over the vessel but he has full control in the choice of the common carrier that will transport his
goods. Or the cargo owner may enter into a contract of insurance which specifically provides that
the insurer answers not only for the perils of the sea but also provides for coverage of perils of
the ship.

We are constrained to apply Section 113 of the Insurance Code to the facts of this case. As stated
by the private respondents:

In marine cases, the risks insured against are "perils of the sea" (Chute v. North River Ins. Co.,
Minn214 NW 472, 55 ALR 933). The purpose of such insurance is protection against
contingencies and against possible damages and such a policy does not cover a loss or injury
which must inevitably take place in the ordinary course of things. There is no doubt that the term
'perils of the sea' extends only to losses caused by sea damage, or by the violence of the
elements, and does not embrace all losses happening at sea. They insure against losses from
extraordinary occurrences only, such as stress of weather, winds and waves, lightning, tempests,
rocks and the like. These are understood to be the "perils of the sea" referred in the policy, and
not those ordinary perils which every vessel must encounter. "Perils of the sea" has been said to
include only such losses as are of extraordinary nature, or arise from some overwhelming power,
which cannot be guarded against by the ordinary exertion of human skill and prudence. Damage
done to a vessel by perils of the sea includes every species of damages done to a vessel at sea, as
distinguished from the ordinary wear and tear of the voyage, and distinct from injuries suffered
by the vessel in consequence of her not being seaworthy at the outset of her voyage (as in this
case). It is also the general rule that everything which happens thru the inherent vice of the thing,
or by the act of the owners, master or shipper, shall not be reputed a peril, if not otherwise borne
in the policy. (14 RCL on Insurance, Sec. 384, pp. 1203- 1204; Cia. de Navegacion v. Firemen's
Fund Ins. Co., 277 US 66, 72 L. ed. 787, 48 S. Ct. 459).

With regard to the second assignment of error, petitioners maintain, that the loss of the cargo was
caused by the perils of the sea, not by the perils of the ship because as found by the trial court,
the barge was turned loose from the tugboat east of Cabuli Point "where it was buffeted by storm
and waves." Moreover, petitioners also maintain that barratry, against which the cargo was also
insured, existed when the personnel of the tugboat and the barge committed a mistake by turning
loose the barge from the tugboat east of Cabuli Point. The trial court also found that the stranding
and foundering of Mable 10 was due to improper loading of the logs as well as to a leak in the
barge which constituted negligence.

On the contention of the petitioners that the trial court found that the loss was occasioned by the
perils of the sea characterized by the "storm and waves" which buffeted the vessel, the records
show that the court ruled otherwise. It stated:

xxx xxx xxx

... The other affirmative defense of defendant Lighterage, 'That the supposed loss of the logs was
occasioned by force majeure... "was not supported by the evidence. At the time Mable 10 sank,
there was no typhoon but ordinary strong wind and waves, a condition which is natural and
normal in the open sea. The evidence shows that the sinking of Mable 10 was due to improper
loading of the logs on one side so that the barge was tilting on one side and for that it did not
navigate on even keel; that it was no longer seaworthy that was why it developed leak; that the
personnel of the tugboat and the barge committed a mistake when it turned loose the barge from
the tugboat east of Cabuli point where it was buffeted by storm and waves, while the tugboat
proceeded to west of Cabuli point where it was protected by the mountain side from the storm
and waves coming from the east direction. ..."

In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of defendant carrier
developed a leak which allowed water to come in and that one of the hatches of said barge was
negligently left open by the person in charge thereof causing more water to come in and that "the
loss of said plaintiffs' cargo was due to the fault, negligence, and/or lack of skill of defendant
carrier and/or defendant carrier's representatives on barge Mable 10."
It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the
perils of the sea. The facts clearly negate the petitioners' claim under the insurance policy. In the
case of Go Tiaoco y Hermanos v. Union Ins. Society of Canton, supra, we had occasion to
elaborate on the term "perils of the ship." We ruled:

It must be considered to be settled, furthermore, that a loss which, in the ordinary course of
events, results from the natural and inevitable action of the sea, from the ordinary wear and tear
of the ship, or from the negligent failure of the ship's owner to provide the vessel with proper
equipment to convey the cargo under ordinary conditions, is not a peril of the sea. Such a loss is
rather due to what has been aptly called the "peril of the ship." The insurer undertakes to insure
against perils of the sea and similar perils, not against perils of the ship. As was well said by
Lord Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A. C.,
503, 509), there must, in order to make the insurer liable, be some casualty, something which
could not be foreseen as one of the necessary incidents of the adventure. The purpose of the
policy is to secure an indemnity against accidents which may happen, not against events which
must happen.

In the present case the entrance of the sea water into the ship's hold through the defective pipe
already described was not due to any accident which happened during the voyage, but to the
failure of the ship's owner properly to repair a defect of the existence of which he was apprised.
The loss was therefore more analogous to that which directly results from simple
unseaworthiness than to that which result from the perils of the sea.

xxx xxx xxx

Suffice it to say that upon the authority of those cases there is no room to doubt the liability of
the shipowner for such a loss as occurred in this case. By parity of reasoning the insurer is not
liable; for generally speaking, the shipowner excepts the perils of the sea from his engagement
under the bill of lading, while this is the very perils against which the insurer intends to give
protection. As applied to the present case it results that the owners of the damaged rice must look
to the shipowner for redress and not to the insurer.
Neither can petitioners allege barratry on the basis of the findings showing negligence on the part
of the vessel's crew.

Barratry as defined in American Insurance Law is "any willful misconduct on the part of master
or crew in pursuance of some unlawful or fraudulent purpose without the consent of the owners,
and to the prejudice of the owner's interest." (Sec. 171, U.S. Insurance Law, quoted in Vance,
Handbook on Law of Insurance, 1951, p. 929.)

Barratry necessarily requires a willful and intentional act in its commission. No honest error of
judgment or mere negligence, unless criminally gross, can be barratry. (See Vance on Law of
Insurance, p. 929 and cases cited therein.)

In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent acts
of the vessel's crew. There was only simple negligence or lack of skill. Hence, the second
assignment of error must likewise be dismissed.

Anent the third assignment of error, we agree with the petitioners that the amount of P8,000.00
representing the amount of the salvaged logs should have been awarded to them. However, this
should be deducted from the amounts which have been adjudicated against Manila Bay
Lighterage Corporation by the trial court.

WHEREFORE, the decision appealed from is AFFIRMED with the modification that the amount
of P8,000.00 representing the value of the salvaged logs which was ordered to be deposited in
the Manila Banking Corporation in the name of Civil Case No. 86599 is hereby awarded and
ordered paid to the petitioners. The liability adjudged against Manila Bay Lighterage
Corporation in the decision of the trial court is accordingly reduced by the same amount.

SO ORDERED.

G.R. No. L-54216 July 19, 1989

THE PHILIPPINE AMERICAN INSURANCE COMPANY, petitioner,

vs.

HONORABLE GREGORIO G. PINEDA in his capacity as Judge of the Court of First Instance
of Rizal, and RODOLFO C. DIMAYUGA, respondents.

PARAS, J.:

Challenged before Us in this petition for review on certiorari are the Orders of the respondent
Judge dated March 19, 1980 and June 10, 1980 granting the prayer in the petition in Sp. Proc.
No. 9210 and denying petitioner's Motion for Reconsideration, respectively.

The undisputed facts are as follows:

On January 15, 1968, private respondent procured an ordinary life insurance policy from the
petitioner company and designated his wife and children as irrevocable beneficiaries of said
policy.

Under date February 22, 1980 private respondent filed a petition which was docketed as Civil
Case No. 9210 of the then Court of First Instance of Rizal to amend the designation of the
beneficiaries in his life policy from irrevocable to revocable.

Petitioner, on March 10, 1980 filed an Urgent Motion to Reset Hearing. Also on the same date,
petitioner filed its Comment and/or Opposition to Petition.

When the petition was called for hearing on March 19, 1980, the respondent Judge Gregorio G.
Pineda, presiding Judge of the then Court of First Instance of Rizal, Pasig Branch XXI, denied
petitioner's Urgent Motion, thus allowing the private respondent to adduce evidence, the
consequence of which was the issuance of the questioned Order granting the petition.

Petitioner promptly filed a Motion for Reconsideration but the same was denied in an Order June
10, 1980. Hence, this petition raising the following issues for resolution:

WHETHER OR NOT THE DESIGNATION OF THE IRREVOCABLE BENEFICIARIES

COULD BE CHANGED OR AMENDED WITHOUT THE CONSENT OF ALL THE
IRREVOCABLE BENEFICIARIES.

II

WHETHER OR NOT THE IRREVOCABLE BENEFICIARIES HEREIN, ONE OF WHOM IS

ALREADY DECEASED WHILE THE OTHERS ARE ALL MINORS, COULD VALIDLY
GIVE CONSENT TO THE CHANGE OR AMENDMENT IN THE DESIGNATION OF THE
IRREVOCABLE BENEFICIARIES.

We are of the opinion that his Honor, the respondent Judge, was in error in issuing the
questioned Orders.

Needless to say, the applicable law in the instant case is the Insurance Act, otherwise known as
Act No. 2427 as amended, the policy having been procured in 1968. Under the said law, the
beneficiary designated in a life insurance contract cannot be changed without the consent of the
beneficiary because he has a vested interest in the policy (Gercio v. Sun Life Ins. Co. of Canada,
48 Phil. 53; Go v. Redfern and the International Assurance Co., Ltd., 72 Phil. 71).

In this regard, it is worth noting that the Beneficiary Designation Indorsement in the policy
which forms part of Policy Number 0794461 in the name of Rodolfo Cailles Dimayuga states
that the designation of the beneficiaries is irrevocable (Annex "A" of Petition in Sp. Proc. No.
9210, Annex "C" of the Petition for Review on Certiorari), to wit:

It is hereby understood and agreed that, notwithstanding the provisions of this policy to the
contrary, inasmuch as the designation of the primary/contingent beneficiary/beneficiaries in this
Policy has been made without reserving the right to change said beneficiary/ beneficiaries, such
designation may not be surrendered to the Company, released or assigned; and no right or
privilege under the Policy may be exercised, or agreement made with the Company to any
change in or amendment to the Policy, without the consent of the said beneficiary/beneficiaries.
(Petitioner's Memorandum, p. 72, Rollo)

Be it noted that the foregoing is a fact which the private respondent did not bother to disprove.

Inevitably therefore, based on the aforequoted provision of the contract, not to mention the law
then applicable, it is only with the consent of all the beneficiaries that any change or amendment
in the policy concerning the irrevocable beneficiaries may be legally and validly effected. Both
the law and the policy do not provide for any other exception, thus, abrogating the contention of
the private respondent that said designation can be amended if the Court finds a just, reasonable
ground to do so.

Similarly, the alleged acquiescence of the six (6) children beneficiaries of the policy (the
beneficiary-wife predeceased the insured) cannot be considered an effective ratification to the
change of the beneficiaries from irrevocable to revocable. Indubitable is the fact that all the six
(6) children named as beneficiaries were minors at the time,** for which reason, they could not
validly give their consent. Neither could they act through their father insured since their interests
are quite divergent from one another. In point is an excerpt from the Notes and Cases on
Insurance Law by Campos and Campos, 1960, reading-

The insured ... can do nothing to divest the beneficiary of his rights without his consent. He
cannot assign his policy, nor even take its cash surrender value without the consent of the
beneficiary. Neither can the insured's creditors seize the policy or any right thereunder. The
insured may not even add another beneficiary because by doing so, he diminishes the amount
which the beneficiary may recover and this he cannot do without the beneficiary's consent.
Therefore, the parent-insured cannot exercise rights and/or privileges pertaining to the insurance
contract, for otherwise, the vested rights of the irrevocable beneficiaries would be rendered
inconsequential.

Of equal importance is the well-settled rule that the contract between the parties is the law
binding on both of them and for so many times, this court has consistently issued
pronouncements upholding the validity and effectivity of contracts. Where there is nothing in the
contract which is contrary to law, good morals, good customs, public policy or public order the
validity of the contract must be sustained. Likewise, contracts which are the private laws of the
contracting parties should be fulfilled according to the literal sense of their stipulations, if their
terms are clear and leave no room for doubt as to the intention of the contracting parties, for
contracts are obligatory, no matter in what form they may be, whenever the essential requisites
for their validity are present (Phoenix Assurance Co., Ltd. vs. United States Lines, 22 SCRA
675, Phil. American General Insurance Co., Inc. vs. Mutuc, 61 SCRA 22.)

In the recent case of Francisco Herrera vs. Petrophil Corporation, 146 SCRA 385, this Court
ruled that:

... it is settled that the parties may establish such stipulations, clauses, terms, and conditions as
they may want to include; and as long as such agreements are not contrary to law, good morals,
good customs, public policy or public order, they shall have the force of law between them.

Undeniably, the contract in the case at bar, contains the indispensable elements for its validity
and does not in any way violate the law, morals, customs, orders, etc. leaving no reason for Us to
deny sanction thereto.

Finally, the fact that the contract of insurance does not contain a contingency when the change in
the designation of beneficiaries could be validly effected means that it was never within the
contemplation of the parties. The lower court, in gratuitously providing for such contingency,
made a new contract for them, a proceeding which we cannot tolerate. Ergo, We cannot help but
conclude that the lower court acted in excess of its authority when it issued the Order dated
March 19, 1980 amending the designation of the beneficiaries from "irrevocable" to "revocable"
over the disapprobation of the petitioner insurance company.
WHEREFORE, premises considered, the questioned Orders of the respondent Judge are hereby
nullified and set aside.

SO ORDERED.

G.R. No. L-25579 March 29, 1972

EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN, GIL T. BIAGTAN

and GRACIA T. BIAGTAN, plaintiffs-appellees,

vs.

THE INSULAR LIFE ASSURANCE COMPANY, LTD., defendant-appellant.

Tanopo, Millora, Serafica, and Saez for plaintiff-appellees.

Araneta, Mendoza and Papa for defendant-appellant.

MAKALINTAL, J.:p

This is an appeal from the decision of the Court of First Instance of Pangasinan in its Civil Case
No. D-1700.

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

On the night of May 20, 1964, or during the first hours of the following day a band of robbers
entered the house of the insured Juan S. Biagtan. What happened then is related in the decision
of the trial court as follows:

...; that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said life policy
and supplementary contract were in full force and effect, the house of insured Juan S. Biagtan
was robbed by a band of robbers who were charged in and convicted by the Court of First
Instance of Pangasinan for robbery with homicide; that in committing the robbery, the robbers,
on reaching the staircase landing on the second floor, rushed towards the door of the second floor
room, where they suddenly met a person near the door of oneof the rooms who turned out to be
the insured Juan S. Biagtan who received thrusts from their sharp-pointed instruments, causing
wounds on the body of said Juan S. Biagtan resulting in his death at about 7 a.m. on the same
day, May 21, 1964;

Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance company
paid the basic amount of P5,000.00 but refused to pay the additional sum of P5,000.00 under the
accidental death benefit clause, on the ground that the insured's death resulted from injuries
intentionally inflicted by third parties and therefore was not covered. Plaintiffs filed suit to
recover, and after due hearing the court a quo rendered judgment in their favor. Hence the
present appeal by the insurer.

The only issue here is whether under the facts are stipulated and found by the trial court the
wounds received by the insured at the hands of the robbers nine in all, five of them mortal and
four non-mortal were inflicted intentionally. The court, in ruling negatively on the issue,
stated that since the parties presented no evidence and submitted the case upon stipulation, there
was no "proof that the act of receiving thrust (sic) from the sharp-pointed instrument of the
robbers was intended to inflict injuries upon the person of the insured or any other person or
merely to scare away any person so as to ward off any resistance or obstacle that might be
offered in the pursuit of their main objective which was robbery."
The trial court committed a plain error in drawing the conclusion it did from the admitted facts.
Nine wounds were inflicted upon the deceased, all by means of thrusts with sharp-pointed
instruments wielded by the robbers. This is a physical fact as to which there is no dispute. So is
the fact that five of those wounds caused the death of the insured. Whether the robbers had the
intent to kill or merely to scare the victim or to ward off any defense he might offer, it cannot be
denied that the act itself of inflicting the injuries was intentional. It should be noted that the
exception in the accidental benefit clause invoked by the appellant does not speak of the purpose
whether homicidal or not of a third party in causing the injuries, but only of the fact that
such injuries have been "intentionally" inflicted this obviously to distinguish them from
injuries which, although received at the hands of a third party, are purely accidental. This
construction is the basic idea expressed in the coverage of the clause itself, namely, that "the
death of the insured resulted directly from bodily injury effected solely through external and
violent means sustained in an accident ... and independently of all other causes." A gun which
discharges while being cleaned and kills a bystander; a hunter who shoots at his prey and hits a
person instead; an athlete in a competitive game involving physical effort who collides with an
opponent and fatally injures him as a result: these are instances where the infliction of the injury
is unintentional and therefore would be within the coverage of an accidental death benefit clause
such as thatin question in this case. But where a gang of robbers enter a house and coming face
to face with the owner, even if unexpectedly, stab him repeatedly, it is contrary to all reason and
logic to say that his injuries are not intentionally inflicted, regardless of whether they prove fatal
or not. As it was, in the present case they did prove fatal, and the robbers have been accused and
convicted of the crime of robbery with homicide.

The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the trial court in support
of its decision. The facts in that case, however, are different from those obtaining here. The
insured there was a watchman in a certain company, who happened to be invited by a policeman
to come along as the latter was on his way to investigate a reported robbery going on in a private
house. As the two of them, together with the owner of the house, approached and stood in front
of the main gate, a shot was fired and it turned out afterwards that the watchman was hit in the
abdomen, the wound causing his death. Under those circumstances this Court held that it could
not be said that the killing was intentional for there was the possibility that the malefactor had
fired the shot to scare people around for his own protection and not necessarrily to kill or hit the
victim. A similar possibility is clearly ruled out by the facts in the case now before Us. For while
a single shot fired from a distance, and by a person who was not even seen aiming at the victim,
could indeed have been fired without intent to kill or injure, nine wounds inflicted with bladed
weapons at close range cannot conceivably be considered as innocent insofar as such intent is
concerned. The manner of execution of the crime permits no other conclusion.
Court decisions in the American jurisdiction, where similar provisions in accidental death benefit
clauses in insurance policies have been construed, may shed light on the issue before Us. Thus, it
has been held that "intentional" as used in an accident policy excepting intentional injuries
inflicted by the insured or any other person, etc., implies the exercise of the reasoning faculties,
consciousness and volition. 1 Where a provision of the policy excludes intentional injury, it is
the intention of the person inflicting the injury that is controlling. 2 If the injuries suffered by the
insured clearly resulted from the intentional act of a third person the insurer is relieved from
liability as stipulated. 3

In the case of Hutchcraft's Ex'r v. Travelers' Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am. St. Rep.
484, the insured was waylaid and assassinated for the purpose of robbery. Two (2) defenses were
interposed to the action to recover indemnity, namely: (1) that the insured having been killed by
intentional means, his death was not accidental, and (2) that the proviso in the policy expressly
exempted the insurer from liability in case the insured died from injuries intentionally inflicted
by another person. In rendering judgment for the insurance company the Court held that while
the assassination of the insured was as to him an unforeseen event and therefore accidental, "the
clause of the proviso that excludes the (insurer's) liability, in case death or injury is intentionally
inflicted by another person, applies to this case."

In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811, the insured
was shot three times by a person unknown late on a dark and stormy night, while working in the
coal shed of a railroad company. The policy did not cover death resulting from "intentional
injuries inflicted by the insured or any other person." The inquiry was as to the question whether
the shooting that caused the insured's death was accidental or intentional; and the Court found
that under the facts, showing that the murderer knew his victim and that he fired with intent to
kill, there could be no recovery under the policy which excepted death from intentional injuries
inflicted by any person.

WHEREFORE, the decision appealed from is reversed and the complaint dismissed, without
pronouncement as to costs.

Zaldivar, Castro, Fernando and Villamor, JJ., concur.

Makasiar, J., reserves his vote.

Separate Opinions

BARREDO, J., concurring

During the deliberations in this case, I entertained some doubts as to the correctness and validity
of the view upheld in the main opinion penned by Justice Makalintal. Further reflection has
convinced me, however, that there are good reasons to support it.

At first blush, one would feel that every death not suicidal should be considered accidental, for
the purposes of an accident insurance policy or a life insurance policy with a double indemnity
clause in case death results from accident. Indeed, it is quite logical to think that any event
whether caused by fault, negligence, intent of a third party or any unavoidable circumstance,
normally unforeseen by the insured and free from any possible connivance on his part, is an
accident in the generally accepted sense of the term. And if I were convinced that in including in
the policy the provision in question, both the insurer and the insured had in mind to exclude
thereby from the coverage of the policy only suicide whether unhelped or helped somehow by a
third party, I would disregard the American decisions cited and quoted in the main opinion as not
even persuasive authorities. But examining the unequivocal language of the provision in
controversy and considering that the insured accepted the policy without asking that it be made
clear that the phrase "injury intentionally inflicted by a third party" should be understood to refer
only to injuries inflicted by a third party without any wilful intervention on his part (of the
insured) or, in other words, without any connivance with him (the insured) in order to augment
the proceeds of the policy for his benificiaries, I am inclined to agree that death caused by
criminal assault is not covered by the policies of the kind here in question, specially if the
assault, as a matter of fact, could have been more or less anticipated, as when the insured
happens to have violent enemies or is found in circumstances that would make his life fair game
of third parties.

As to the rest, I have no doubt that the killing of the insured in this case is as intentional as any
intentional act can be, hence this concurrence.

TEEHANKEE, J., dissenting:

The sole issue at bar is the correctness in law of the lower court's appealed decision adjudging
defendant insurance company liable, under its supplementary contract denominated "Accidental
Death Benefit Clause" with the deceased insured, to plaintiffs-beneficiaries (excluding plaintiff
Emilia T. Biagtan) in an additional amount of P5,000.00 (with corresponding legal interest) and
ruling that defendant company had failed to present any evidence to substantiate its defense that
the insured's death came within the stipulated exceptions.

Defendant's accidental death benefit clause expressly provides:

ACCIDENTAL DEATH BENEFIT. (hereinafter called the benefit). Upon receipt and approval
of due proof that the death of the Insured resulted directly from bodily injury effected solely
through external and violent means sustained in an accident, within ninety days after the date of
sustaining such injury, and independently of all other causes, this Company shall pay, in addition
to the sum insured specified on the first page of this Policy, a further sum equal to said sum
insured payable at the same time and in the same manner as said sum insured, provided, that
such death occurred during the continuance of this Clause and of this Policy and before the
sixtieth birthday of the Insured." 1

A long list of exceptions and an Automatic Discontinuance clause immediately follow thereafter,
thus:
EXCEPTIONS. The Benefit shall not apply if the Insured's death shall result, either directly or
indirectly, from any one of the following causes:

(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or insane;

(2) Bodily or mental infirmity or disease of any kind;

(3) Poisoning or infection, other than infection occurring simultaneously with and in
consequence of a cut or wound sustained in an accident;

(4) Injuries of which there is no visible contusions or wound on the exterior of the body,
drowning and internal injuries revealed by autopsy excepted;

(5) Any injuries received (a) while on police duty in any military, naval or police
organization; (b) in any riot, civil commotion, insurrection or war or any act incident thereto; (c)
while travelling as a passenger or otherwise in any form of submarine transportation, or while
engaging in submarine operations; (d) in any violation of the law by the Insured or assault
provoked by the Insured; (e) that has been inflicted intentionally by a third party, either with or
without provocation on the part of the Insured, and whether or not the attack or the defense by
the third party was caused by a violation of the law by the Insured;

(6) Operating or riding in or descending from any kind of aircraft if the Insured is a pilot,
officer or member of the crew of the aircraft or is giving or receiving any kind of training or
instruction or has any duties aboard the aircraft or requiring descent therefrom; and

(7) Atomic energy explosion of any nature whatsoever.

The Company, before making any payment under this Clause, shall have the right and
opportunity to examine the body and make an autopsy thereof.
AUTOMATIC DISCONTINUANCE. This Benefit shall automatically terminate and the
additional premium therefor shall cease to be payable when and if:

(1) This Policy is surrendered for cash, paid-up insurance or extended term insurance; or

(2) The benefit under the Total and Permanent Disability Waiver of Premium Certificate is
granted to the insured; or

(3) The Insured engages in military, naval or aeronautic service in time of war; or

(4) The policy anniversary immediately preceding the sixtieth birthday of the Insured is
reached. 2

It is undisputed that, as recited in the lower court's decision, the insured met his death, as
follows: "that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said life
policy and supplementary contract were in full force and effect, the house of insured Juan S.
Biagtan was robbed by a band of robbers who were charged in and convicted by the Court of
First Instance of Pangasinan for robbery with homicide; that in committing the robbery, the
robbers, on reaching the staircase landing of the second floor, rushed towards the doors of the
second floor room, where they suddenly met a person near the door of one of the rooms who
turned out to be the insured Juan S. Biagtan who received thrust from their sharp-pointed
instruments, causing wounds on the body of said Juan S. Biagtan resulting in his death at about 7
a.m. on the same day, May 21, 1964." 3

Defendant company, while admitting the above-recited circumstances under which the insured
met his death, disclaimed liability under its accidental death benefit clause under paragraph 5 of
its stipulated "Exceptions" on its theory that the insured's death resulted from injuries
"intentionally inflicted by a third party," i.e. the robbers who broke into the insured's house and
inflicted fatal injuries on him.

The case was submitted for decision upon the parties' stipulation of facts that (1) insurance
companies such as the Lincoln National Life Insurance Co. and Sun Life Assurance Co. of
Canada with which the deceased insured Juan S. Biagtan was also insured for much larger sums
under similar contracts with accidental death benefit provisions have promptly paid the benefits
thereunder to plaintiffs-beneficiaries; (2) the robbers who caused the insured's death were
charged in and convicted by the Court of First Instance of Pangasinan for the crime of robbery
with homicide; and (3) the injuries inflicted on the insured by the robbers consisted of five
mortal and four non-mortal wounds. 4

The lower court thereafter rendered judgment against defendant, as follows:

There is no doubt that the insured, Juan S. Biagtan, met his death as a result of the wounds
inflicted upon him by the malefactors on the early morning of May 21, 1964 by means of thrusts
from sharp-pointed instruments delivered upon his person, and there is likewise no question that
the thrusts were made on the occasion of the robbery. However, it is defendants' position that the
killing of the insured was intentionally done by the malefactors, who were charged with and
convicted of the crime of robbery with homicide by the Court of First Instance of Pangasinan.

It must be noted here that no evidence whatsoever was presented by the parties who submitted
the case for resolution upon the stipulation of facts presented by them. Thus, the court does not
have before it proof that the act of receiving thrust(s) from the sharp-pointed instrument of the
robbers was intended to inflict injuries upon the person of the insured or any other person or
merely to scare away any person so as to ward off any resistance or obstacle that might be
offered in the pursuit of their main objective which was robbery. It was held that where a
provision of the policy excludes intentional injury, it is the intention of the person inflicting the
injury that is controlling ... and to come within the exception, the act which causes the injury
must be wholly intentional, not merely partly.

The case at bar has some similarity with the case of Virginia Calanoc vs. Court of Appeals, et al.,
L-8151, promulgated December 16, 1965, where the Supreme Court ruled that "the shot (which
killed the insured) was merely to scare away the people around for his own protection and not
necessarily to kill or hit the victim."

In the Calanoc case, one Melencio Basilio, a watchman of a certain company, took out life
insurance from the Philippine American Life Insurance Company in the amount of P2,000.00 to
which was attached a supplementary contract covering death by accident. Calanoc died of
gunshot wounds on the occasion of a robbery committed in the house of a certain Atty. Ojeda in
Manila. The insured's widow was paid P2,000.00, the face value of the policy, but when she
demanded payment of the additional sum of P2,000.00 representing the value of the
supplemental policy, the company refused alleging, as main defense, that the deceased died
because he was murdered by a person who took part in the commission of the robbery and while
making an arrest as an officer of the law which contingencies were (as in this case) expressly
excluded in the contract and have the effect of exempting the company from liability.

The facts in the Calanoc case insofar as pertinent to this case are, as found by the Court of
Appeals in its decision which findings of fact were adopted by the Supreme Court, as follows:

"...that on the way to the Ojeda residence (which was then being robbed by armed men), the
policeman and Atty. Ojeda passed by Basilio (the insured) and somehow or other invited the
latter to come along; that as the three approached the Ojeda residence and stood in front of the
main gate which was covered by galvanized iron, the fence itself being partly concrete and partly
adobe stone, a shot was fired; ... that it turned out afterwards that the special watchman Melencio
Basilio was hit in the abdomen, the wound causing his instantaneous death ..."

The Court of Appeals arrived at the conclusion that the death of Basilio, although unexpected,
was not caused by an accident, being a voluntary and intentional act on the part of the one who
robbed, or one of those who robbed, the house of Atty. Ojeda.

In reversing this conclusion of the Court of Appeals, the Supreme Court said in part:

"... Nor can it be said that the killing was intentional for there is the possibility that the
malefactors had fired the shot merely to scare away the people around for his own protection and
not necessarily to kill or hit the victim. In any event, while the act may not exempt the
triggerman from ability for the damage done, the fact remains that the happening was a pure
accidentt on the part of the victim."

With this ruling of the Supreme Court, and the utter absence of evidence in this case as to the
real intention of the malefactors in making a thrust with their sharp-pointed instrument on any
person, the victim in particular, the case falls squarely within the ruling in the Calanoc vs. Court
of Appeals case.

It is the considered view of this Court that the insured died because of an accident which
happened on the occasion of the robbery being committed in his house. His death was not sought
(at least no evidence was presented to show it was), and therefore was fortuitous. "Accident" was
defined as that which happens by chance or fortuitously, without intention or design, and which
is unexpected, unusual and unforeseen, or that which takes place without one's foresight or
expectation an event that proceeds from an unknown cause, or is an unusual effect of a known
cause, and therefore not expected. (29 Am. Jur. 706).

There is no question that the defense set up by the defendant company is one of those included
among the risks excluded in the supplementary contract. However, there is no evidence here that
the thrusts with sharp-pointed instrument (which led to the death of the insured) was
"intentional," (sic) so as to exempt the company from liability. It could safely be assumed that it
was purely accidental considering that the principal motive of the culprits was robbery, the
thrusts being merely intended to scare away persons who might offer resistance or might obstruct
them from pursuing their main objective which was robbery. 5

It is respectfully submitted that the lower court committed no error in law in holding defendant
insurance company liable to plaintiffs-beneficiaries under its accidental death benefit clause, by
virtue of the following considerations:

1. The case of Calanoc cited by the lower court is indeed controlling here. 6 This Court,
there construing a similar clause, squarely ruled that fatal injuries inflicted upon an insured by a
malefactor(s) during the latter's commission of a crime are deemed accidental and within the
coverage of such accidental death benefit clauses and the burden of proving that the killing was
intentional so as to have it fall within the stipulated exception of having resulted from injuries
"intentionally inflicted by a third party" must be discharged by the insurance company. This
Court there clearly held that in such cases where the killing does not amount to murder, it must
be held to be a "pure accident" on the part of the victim, compensable with double-indemnity,
even though the malefactor is criminally liable for his act. This Court rejected the insurance-
company's contrary claim, thus:
Much less can it be pretended that Basilio died in the course of an assault or murder considering
the very nature of these crimes. In the first place, there is no proof that the death of Basilio is the
result of either crime for the record is barren of any circumstance showing how the fatal shot was
fired. Perhaps this may be clarified in the criminal case now pending in court a regards the
incident but before that is done anything that might be said on the point would be a mere
conjecture. Nor can it be said that the killing was intentional for there is the possibility that the
malefactor had fired the shot merely to scare away the people around for his own protection and
not necessarily to kill or hit the victim. In any event, while the act may not exempt the
triggerman from liability for the damage done, the fact remains that the happening was a pure
accident on the part of the victim. The victim could have been either the policeman or Atty.
Ojeda for it cannot be pretended that the malefactor aimed at the deceased precisely because he
wanted to take his life. 7

2. Defendant company patently failed to discharge its burden of proving that the fatal
injuries were inflicted upon the deceased intentionally, i.e. deliberately. The lower court
correctly held that since the case was submitted upon the parties' stipulation of facts which did
not cover the malefactors' intent at all, there was an "utter absence of evidence in this case as to
the real intention of the malefactors in making a thrust with their sharp-pointed instrument(s) on
any person, the victim in particular." From the undisputed facts, supra, 8 the robbers had "rushed
towards the doors of the second floor room, where they suddenly met a person ... who turned out
to be the insured Juan S. Biagtan who received thrusts from their pointed instruments." The
thrusts were indeed properly termed "purely accidental" since they seemed to be a reflex action
on the robbers' part upon their being surprised by the deceased. To argue, as defendant does, that
the robbers' intent to kill must necessarily be deduced from the four mortal wounds inflicted
upon the deceased is to beg the question. Defendant must suffer the consequences of its failure to
discharge its burden of proving by competent evidence, e.g. the robbers' or eyewitnesses'
testimony, that the fatal injuries were intentionally inflicted upon the insured so as to exempt
itself from liability.

3. Furthermore, plaintiffs-appellees properly assert in their brief that the sole error assigned
by defendant company, to wit, that the fatal injuries were not accidental as held by the lower
court but should be held to have been intentionally inflicted, raises a question of fact which
defendant is now barred from raising, since it expressly limited its appeal to this Court purely
"on questions of law", per its noitice of appeal, 9 Defendant is therefore confined to "raising only
questions of law" and "no other questions" under Rule 42, section 2 of the Rules of Court 10 and
is deemed to have conceded the findings of fact of the trial court, since he thereby waived all
questions of facts. 11
4. It has long been an established rule of construction of so-called contracts of adhesion
such as insurance contracts, where the insured is handed a printed insurance policy whose fine-
print language has long been selected with great care and deliberation by specialists and legal
advisers employed by and acting exclusively in the interest of the insurance company, that the
terms and phraseology of the policy, particularly of any exception clauses, must be clearly
expressed so as to be easily understood by the insured and any "ambiguous, equivocal or
uncertain terms" 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 a forfeiture is involved.

The Court so expressly held in Calanoc that:

... While as a general rule "the parties may limit the coverage of the policy to certain particular
accidents and risks or causes of loss, and may expressly except other risks or causes of loss
therefrom" (45 C.J.S. 781-782), however, it is to be desired that the terms and phraseology of the
exception clause be clearly expressed so as to be within the easy grasp and understanding of the
insured, for if the terms are doubtful or obscure the same must of necessity be interpreted or
resolved against the one who has caused the obscurity. (Article 1377, new Civil Code) And so it
has been generally held that the "terms in an insurance policy, which are ambiguous, equivocal,
or uncertain ... are to be construed strictly and most strongly against the insurer, and liberally in
favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured,
especially where a forfeiture is involved" (29 AM. Jur., 181), and the reason for this rule 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." (44
C.J.S., p. 1174)

Insurance is, in its nature, complex and difficult for the layman to understand. Policies are
prepared by experts who know and can anticipate the bearing and possible complications of
every contingency. So long as insurance companies insist upon the use of ambiguous, intricate
and technical provisions, which conceal rather than frankly disclose, their own intentions, the
courts must, in fairness to those who purchase insurance construe every ambiguity in favor of the
insured." (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324 LRA 1917A, 1237.)
"An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the
very purpose for which the policy was procured." (Moore vs. Aetna Life Insurance Co., LRA
1915D, 164). 12

The Court has but recently reiterated this doctrine in Landicho vs. GSIS 13 and again applied the
provisions of Article 1377 of our Civil Code that "The interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity."

5. The accidental death benefit clause assuring the insured's beneficiaries of double
indemnity, upon payment of an extra premium, in the event that the insured meets violent
accidental death is contractually stipulated as follows in the policy: "that the death of the insured
resulted directly from bodily injury effected solely through external and violent means sustained
in an accident," supra. The policy then lists numerous exceptions, which may be classified as
follows:

Injuries effected through non-external means which are excepted: self-destruction, bodily or
mental infirmity or disease, poisoning or infection, injuries with no visible contusions or exterior
wounds (exceptions 1 to 4 of policy clause);

Injuries caused by some act of the insured which is proscribed by the policy, and are therefore
similarly exepted: injuries received while on police duty, while travelling in any form of
submarine transportation, or in any violation of law by the insured or assault provoked by the
insured, or in any aircraft if the insured is a pilot or crew member; [exceptions 5 (a), (c) and (d),
and 6 of the policy clause]; and

Accidents expressly excluded: where death resulted in any riot, civil commotion, insurrection
or war or atomic energy explosion. (Exceptions 5[b] and 7 of policy clause).

The only exception which is not susceptible of classification is that provided in paragraph 5 (e),
the very exception herein involved, which would also except injuries "inflicted intentionally by a
third party, either with or without provocation on the part of the insured, and whether or not the
attack or the defense by the third party was caused by a violation of the law by the insured."
This ambiguous clause conflicts with all the other four exceptions in the same paragraph 5
particularly that immediately preceding it in item (d) which excepts injuries received where the
insured has violated the law or provoked the injury, while this clause, construed as the insurance
company now claims, would seemingly except also all other injuries, intentionally inflicted by a
third party, regardless of any violation of law or provocation by the insured, and defeat the very
purpose of the policy of giving the insured double indemnity in case of accidental death by
"external and violent means" in the very language of the policy."

It is obvious from the very classification of the exceptions and applying the rule of noscitus a
sociis that the double-indemnity policy covers the insured against accidental death, whether
caused by fault, negligence or intent of a third party which is unforeseen and unexpected by the
insured. All the associated words and concepts in the policy plainly exclude the accidental death
from the coverage of the policy only where the injuries are self-inflicted or attended by some
proscribed act of the insured or are incurred in some expressly excluded calamity such as riot,
war or atomic explosion.

Finally, the untenability of herein defendant insurer's claim that the insured's death fell within the
exception is further heightened by the stipulated fact that two other insurance companies which
likewise covered the insured for which larger sums under similar accidental death benefit clauses
promptly paid the benefits thereof to plaintiffs-beneficiaries.

I vote accordingly for the affirmance in toto of the appealed decision, with costs against
defendant-appellant.

Concepcion, C.J. and Reyes, J.B.L., J., concur.

Separate Opinions

BARREDO, J., concurring

During the deliberations in this case, I entertained some doubts as to the correctness and validity
of the view upheld in the main opinion penned by Justice Makalintal. Further reflection has
convinced me, however, that there are good reasons to support it.

At first blush, one would feel that every death not suicidal should be considered accidental, for
the purposes of an accident insurance policy or a life insurance policy with a double indemnity
clause in case death results from accident. Indeed, it is quite logical to think that any event
whether caused by fault, negligence, intent of a third party or any unavoidable circumstance,
normally unforeseen by the insured and free from any possible connivance on his part, is an
accident in the generally accepted sense of the term. And if I were convinced that in including in
the policy the provision in question, both the insurer and the insured had in mind to exclude
thereby from the coverage of the policy only suicide whether unhelped or helped somehow by a
third party, I would disregard the American decisions cited and quoted in the main opinion as not
even persuasive authorities. But examining the unequivocal language of the provision in
controversy and considering that the insured accepted the policy without asking that it be made
clear that the phrase "injury intentionally inflicted by a third party" should be understood to refer
only to injuries inflicted by a third party without any wilful intervention on his part (of the
insured) or, in other words, without any connivance with him (the insured) in order to augment
the proceeds of the policy for his benificiaries, I am inclined to agree that death caused by
criminal assault is not covered by the policies of the kind here in question, specially if the
assault, as a matter of fact, could have been more or less anticipated, as when the insured
happens to have violent enemies or is found in circumstances that would make his life fair game
of third parties.

As to the rest, I have no doubt that the killing of the insured in this case is as intentional as any
intentional act can be, hence this concurrence.

TEEHANKEE, J., dissenting:

The sole issue at bar is the correctness in law of the lower court's appealed decision adjudging
defendant insurance company liable, under its supplementary contract denominated "Accidental
Death Benefit Clause" with the deceased insured, to plaintiffs-beneficiaries (excluding plaintiff
Emilia T. Biagtan) in an additional amount of P5,000.00 (with corresponding legal interest) and
ruling that defendant company had failed to present any evidence to substantiate its defense that
the insured's death came within the stipulated exceptions.

Defendant's accidental death benefit clause expressly provides:

ACCIDENTAL DEATH BENEFIT. (hereinafter called the benefit). Upon receipt and approval
of due proof that the death of the Insured resulted directly from bodily injury effected solely
through external and violent means sustained in an accident, within ninety days after the date of
sustaining such injury, and independently of all other causes, this Company shall pay, in addition
to the sum insured specified on the first page of this Policy, a further sum equal to said sum
insured payable at the same time and in the same manner as said sum insured, provided, that
such death occurred during the continuance of this Clause and of this Policy and before the
sixtieth birthday of the Insured." 1

A long list of exceptions and an Automatic Discontinuance clause immediately follow thereafter,
thus:

EXCEPTIONS. The Benefit shall not apply if the Insured's death shall result, either directly or
indirectly, from any one of the following causes:

(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or insane;

(2) Bodily or mental infirmity or disease of any kind;

(3) Poisoning or infection, other than infection occurring simultaneously with and in
consequence of a cut or wound sustained in an accident;
(4) Injuries of which there is no visible contusions or wound on the exterior of the body,
drowning and internal injuries revealed by autopsy excepted;

(5) Any injuries received (a) while on police duty in any military, naval or police
organization; (b) in any riot, civil commotion, insurrection or war or any act incident thereto; (c)
while travelling as a passenger or otherwise in any form of submarine transportation, or while
engaging in submarine operations; (d) in any violation of the law by the Insured or assault
provoked by the Insured; (e) that has been inflicted intentionally by a third party, either with or
without provocation on the part of the Insured, and whether or not the attack or the defense by
the third party was caused by a violation of the law by the Insured;

(6) Operating or riding in or descending from any kind of aircraft if the Insured is a pilot,
officer or member of the crew of the aircraft or is giving or receiving any kind of training or
instruction or has any duties aboard the aircraft or requiring descent therefrom; and

(7) Atomic energy explosion of any nature whatsoever.

The Company, before making any payment under this Clause, shall have the right and
opportunity to examine the body and make an autopsy thereof.

AUTOMATIC DISCONTINUANCE. This Benefit shall automatically terminate and the

additional premium therefor shall cease to be payable when and if:

(1) This Policy is surrendered for cash, paid-up insurance or extended term insurance; or

(2) The benefit under the Total and Permanent Disability Waiver of Premium Certificate is
granted to the insured; or

(3) The Insured engages in military, naval or aeronautic service in time of war; or
(4) The policy anniversary immediately preceding the sixtieth birthday of the Insured is
reached. 2

It is undisputed that, as recited in the lower court's decision, the insured met his death, as
follows: "that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said life
policy and supplementary contract were in full force and effect, the house of insured Juan S.
Biagtan was robbed by a band of robbers who were charged in and convicted by the Court of
First Instance of Pangasinan for robbery with homicide; that in committing the robbery, the
robbers, on reaching the staircase landing of the second floor, rushed towards the doors of the
second floor room, where they suddenly met a person near the door of one of the rooms who
turned out to be the insured Juan S. Biagtan who received thrust from their sharp-pointed
instruments, causing wounds on the body of said Juan S. Biagtan resulting in his death at about 7
a.m. on the same day, May 21, 1964." 3

Defendant company, while admitting the above-recited circumstances under which the insured
met his death, disclaimed liability under its accidental death benefit clause under paragraph 5 of
its stipulated "Exceptions" on its theory that the insured's death resulted from injuries
"intentionally inflicted by a third party," i.e. the robbers who broke into the insured's house and
inflicted fatal injuries on him.

The case was submitted for decision upon the parties' stipulation of facts that (1) insurance
companies such as the Lincoln National Life Insurance Co. and Sun Life Assurance Co. of
Canada with which the deceased insured Juan S. Biagtan was also insured for much larger sums
under similar contracts with accidental death benefit provisions have promptly paid the benefits
thereunder to plaintiffs-beneficiaries; (2) the robbers who caused the insured's death were
charged in and convicted by the Court of First Instance of Pangasinan for the crime of robbery
with homicide; and (3) the injuries inflicted on the insured by the robbers consisted of five
mortal and four non-mortal wounds. 4

The lower court thereafter rendered judgment against defendant, as follows:

There is no doubt that the insured, Juan S. Biagtan, met his death as a result of the wounds
inflicted upon him by the malefactors on the early morning of May 21, 1964 by means of thrusts
from sharp-pointed instruments delivered upon his person, and there is likewise no question that
the thrusts were made on the occasion of the robbery. However, it is defendants' position that the
killing of the insured was intentionally done by the malefactors, who were charged with and
convicted of the crime of robbery with homicide by the Court of First Instance of Pangasinan.

It must be noted here that no evidence whatsoever was presented by the parties who submitted
the case for resolution upon the stipulation of facts presented by them. Thus, the court does not
have before it proof that the act of receiving thrust(s) from the sharp-pointed instrument of the
robbers was intended to inflict injuries upon the person of the insured or any other person or
merely to scare away any person so as to ward off any resistance or obstacle that might be
offered in the pursuit of their main objective which was robbery. It was held that where a
provision of the policy excludes intentional injury, it is the intention of the person inflicting the
injury that is controlling ... and to come within the exception, the act which causes the injury
must be wholly intentional, not merely partly.

The case at bar has some similarity with the case of Virginia Calanoc vs. Court of Appeals, et al.,
L-8151, promulgated December 16, 1965, where the Supreme Court ruled that "the shot (which
killed the insured) was merely to scare away the people around for his own protection and not
necessarily to kill or hit the victim."

In the Calanoc case, one Melencio Basilio, a watchman of a certain company, took out life
insurance from the Philippine American Life Insurance Company in the amount of P2,000.00 to
which was attached a supplementary contract covering death by accident. Calanoc died of
gunshot wounds on the occasion of a robbery committed in the house of a certain Atty. Ojeda in
Manila. The insured's widow was paid P2,000.00, the face value of the policy, but when she
demanded payment of the additional sum of P2,000.00 representing the value of the
supplemental policy, the company refused alleging, as main defense, that the deceased died
because he was murdered by a person who took part in the commission of the robbery and while
making an arrest as an officer of the law which contingencies were (as in this case) expressly
excluded in the contract and have the effect of exempting the company from liability.

The facts in the Calanoc case insofar as pertinent to this case are, as found by the Court of
Appeals in its decision which findings of fact were adopted by the Supreme Court, as follows:
"...that on the way to the Ojeda residence (which was then being robbed by armed men), the
policeman and Atty. Ojeda passed by Basilio (the insured) and somehow or other invited the
latter to come along; that as the three approached the Ojeda residence and stood in front of the
main gate which was covered by galvanized iron, the fence itself being partly concrete and partly
adobe stone, a shot was fired; ... that it turned out afterwards that the special watchman Melencio
Basilio was hit in the abdomen, the wound causing his instantaneous death ..."

The Court of Appeals arrived at the conclusion that the death of Basilio, although unexpected,
was not caused by an accident, being a voluntary and intentional act on the part of the one who
robbed, or one of those who robbed, the house of Atty. Ojeda.

In reversing this conclusion of the Court of Appeals, the Supreme Court said in part:

"... Nor can it be said that the killing was intentional for there is the possibility that the
malefactors had fired the shot merely to scare away the people around for his own protection and
not necessarily to kill or hit the victim. In any event, while the act may not exempt the
triggerman from ability for the damage done, the fact remains that the happening was a pure
accidentt on the part of the victim."

With this ruling of the Supreme Court, and the utter absence of evidence in this case as to the
real intention of the malefactors in making a thrust with their sharp-pointed instrument on any
person, the victim in particular, the case falls squarely within the ruling in the Calanoc vs. Court
of Appeals case.

It is the considered view of this Court that the insured died because of an accident which
happened on the occasion of the robbery being committed in his house. His death was not sought
(at least no evidence was presented to show it was), and therefore was fortuitous. "Accident" was
defined as that which happens by chance or fortuitously, without intention or design, and which
is unexpected, unusual and unforeseen, or that which takes place without one's foresight or
expectation an event that proceeds from an unknown cause, or is an unusual effect of a known
cause, and therefore not expected. (29 Am. Jur. 706).
There is no question that the defense set up by the defendant company is one of those included
among the risks excluded in the supplementary contract. However, there is no evidence here that
the thrusts with sharp-pointed instrument (which led to the death of the insured) was
"intentional," (sic) so as to exempt the company from liability. It could safely be assumed that it
was purely accidental considering that the principal motive of the culprits was robbery, the
thrusts being merely intended to scare away persons who might offer resistance or might obstruct
them from pursuing their main objective which was robbery. 5

It is respectfully submitted that the lower court committed no error in law in holding defendant
insurance company liable to plaintiffs-beneficiaries under its accidental death benefit clause, by
virtue of the following considerations:

1. The case of Calanoc cited by the lower court is indeed controlling here. 6 This Court,
there construing a similar clause, squarely ruled that fatal injuries inflicted upon an insured by a
malefactor(s) during the latter's commission of a crime are deemed accidental and within the
coverage of such accidental death benefit clauses and the burden of proving that the killing was
intentional so as to have it fall within the stipulated exception of having resulted from injuries
"intentionally inflicted by a third party" must be discharged by the insurance company. This
Court there clearly held that in such cases where the killing does not amount to murder, it must
be held to be a "pure accident" on the part of the victim, compensable with double-indemnity,
even though the malefactor is criminally liable for his act. This Court rejected the insurance-
company's contrary claim, thus:

Much less can it be pretended that Basilio died in the course of an assault or murder considering
the very nature of these crimes. In the first place, there is no proof that the death of Basilio is the
result of either crime for the record is barren of any circumstance showing how the fatal shot was
fired. Perhaps this may be clarified in the criminal case now pending in court a regards the
incident but before that is done anything that might be said on the point would be a mere
conjecture. Nor can it be said that the killing was intentional for there is the possibility that the
malefactor had fired the shot merely to scare away the people around for his own protection and
not necessarily to kill or hit the victim. In any event, while the act may not exempt the
triggerman from liability for the damage done, the fact remains that the happening was a pure
accident on the part of the victim. The victim could have been either the policeman or Atty.
Ojeda for it cannot be pretended that the malefactor aimed at the deceased precisely because he
wanted to take his life. 7
2. Defendant company patently failed to discharge its burden of proving that the fatal
injuries were inflicted upon the deceased intentionally, i.e. deliberately. The lower court
correctly held that since the case was submitted upon the parties' stipulation of facts which did
not cover the malefactors' intent at all, there was an "utter absence of evidence in this case as to
the real intention of the malefactors in making a thrust with their sharp-pointed instrument(s) on
any person, the victim in particular." From the undisputed facts, supra, 8 the robbers had "rushed
towards the doors of the second floor room, where they suddenly met a person ... who turned out
to be the insured Juan S. Biagtan who received thrusts from their pointed instruments." The
thrusts were indeed properly termed "purely accidental" since they seemed to be a reflex action
on the robbers' part upon their being surprised by the deceased. To argue, as defendant does, that
the robbers' intent to kill must necessarily be deduced from the four mortal wounds inflicted
upon the deceased is to beg the question. Defendant must suffer the consequences of its failure to
discharge its burden of proving by competent evidence, e.g. the robbers' or eyewitnesses'
testimony, that the fatal injuries were intentionally inflicted upon the insured so as to exempt
itself from liability.

3. Furthermore, plaintiffs-appellees properly assert in their brief that the sole error assigned
by defendant company, to wit, that the fatal injuries were not accidental as held by the lower
court but should be held to have been intentionally inflicted, raises a question of fact which
defendant is now barred from raising, since it expressly limited its appeal to this Court purely
"on questions of law", per its noitice of appeal, 9 Defendant is therefore confined to "raising only
questions of law" and "no other questions" under Rule 42, section 2 of the Rules of Court 10 and
is deemed to have conceded the findings of fact of the trial court, since he thereby waived all
questions of facts. 11

4. It has long been an established rule of construction of so-called contracts of adhesion

such as insurance contracts, where the insured is handed a printed insurance policy whose fine-
print language has long been selected with great care and deliberation by specialists and legal
advisers employed by and acting exclusively in the interest of the insurance company, that the
terms and phraseology of the policy, particularly of any exception clauses, must be clearly
expressed so as to be easily understood by the insured and any "ambiguous, equivocal or
uncertain terms" 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 a forfeiture is involved.

The Court so expressly held in Calanoc that:

... While as a general rule "the parties may limit the coverage of the policy to certain particular
accidents and risks or causes of loss, and may expressly except other risks or causes of loss
therefrom" (45 C.J.S. 781-782), however, it is to be desired that the terms and phraseology of the
exception clause be clearly expressed so as to be within the easy grasp and understanding of the
insured, for if the terms are doubtful or obscure the same must of necessity be interpreted or
resolved against the one who has caused the obscurity. (Article 1377, new Civil Code) And so it
has been generally held that the "terms in an insurance policy, which are ambiguous, equivocal,
or uncertain ... are to be construed strictly and most strongly against the insurer, and liberally in
favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured,
especially where a forfeiture is involved" (29 AM. Jur., 181), and the reason for this rule 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." (44
C.J.S., p. 1174)

Insurance is, in its nature, complex and difficult for the layman to understand. Policies are
prepared by experts who know and can anticipate the bearing and possible complications of
every contingency. So long as insurance companies insist upon the use of ambiguous, intricate
and technical provisions, which conceal rather than frankly disclose, their own intentions, the
courts must, in fairness to those who purchase insurance construe every ambiguity in favor of the
insured." (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324 LRA 1917A, 1237.)

"An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the
very purpose for which the policy was procured." (Moore vs. Aetna Life Insurance Co., LRA
1915D, 164). 12

The Court has but recently reiterated this doctrine in Landicho vs. GSIS 13 and again applied the
provisions of Article 1377 of our Civil Code that "The interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity."

5. The accidental death benefit clause assuring the insured's beneficiaries of double
indemnity, upon payment of an extra premium, in the event that the insured meets violent
accidental death is contractually stipulated as follows in the policy: "that the death of the insured
resulted directly from bodily injury effected solely through external and violent means sustained
in an accident," supra. The policy then lists numerous exceptions, which may be classified as
follows:

Injuries effected through non-external means which are excepted: self-destruction, bodily or
mental infirmity or disease, poisoning or infection, injuries with no visible contusions or exterior
wounds (exceptions 1 to 4 of policy clause);

Injuries caused by some act of the insured which is proscribed by the policy, and are therefore
similarly exepted: injuries received while on police duty, while travelling in any form of
submarine transportation, or in any violation of law by the insured or assault provoked by the
insured, or in any aircraft if the insured is a pilot or crew member; [exceptions 5 (a), (c) and (d),
and 6 of the policy clause]; and

Accidents expressly excluded: where death resulted in any riot, civil commotion, insurrection
or war or atomic energy explosion. (Exceptions 5[b] and 7 of policy clause).

The only exception which is not susceptible of classification is that provided in paragraph 5 (e),
the very exception herein involved, which would also except injuries "inflicted intentionally by a
third party, either with or without provocation on the part of the insured, and whether or not the
attack or the defense by the third party was caused by a violation of the law by the insured."

This ambiguous clause conflicts with all the other four exceptions in the same paragraph 5
particularly that immediately preceding it in item (d) which excepts injuries received where the
insured has violated the law or provoked the injury, while this clause, construed as the insurance
company now claims, would seemingly except also all other injuries, intentionally inflicted by a
third party, regardless of any violation of law or provocation by the insured, and defeat the very
purpose of the policy of giving the insured double indemnity in case of accidental death by
"external and violent means" in the very language of the policy."

It is obvious from the very classification of the exceptions and applying the rule of noscitus a
sociis that the double-indemnity policy covers the insured against accidental death, whether
caused by fault, negligence or intent of a third party which is unforeseen and unexpected by the
insured. All the associated words and concepts in the policy plainly exclude the accidental death
from the coverage of the policy only where the injuries are self-inflicted or attended by some
proscribed act of the insured or are incurred in some expressly excluded calamity such as riot,
war or atomic explosion.

Finally, the untenability of herein defendant insurer's claim that the insured's death fell within the
exception is further heightened by the stipulated fact that two other insurance companies which
likewise covered the insured for which larger sums under similar accidental death benefit clauses
promptly paid the benefits thereof to plaintiffs-beneficiaries.

I vote accordingly for the affirmance in toto of the appealed decision, with costs against
defendant-appellant.

Concepcion, C.J. and Reyes, J.B.L., J., concur.

G.R. No. 92383 July 17, 1992

SUN INSURANCE OFFICE, LTD., petitioner,

vs.

THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

CRUZ, J.:

The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of
P200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, his
wife Nerissa Lim sought payment on the policy but her claim was rejected. The petitioner agreed
that there was no suicide. It argued, however that there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6,
1982, at about 10 o'clock in the evening, after his mother's birthday party. According to Nalagon,
Lim was in a happy mood (but not drunk) and was playing with his handgun, from which he had
previously removed the magazine. As she watched television, he stood in front of her and
pointed the gun at her. She pushed it aside and said it might he loaded. He assured her it was not
and then pointed it to his temple. The next moment there was an explosion and Lim slumped to
the floor. He was dead before he fell. 1

The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was sustained.
2 The petitioner was sentenced to pay her P200,000.00, representing the face value of the policy,
with interest at the legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary damages;
P5,000.00 as actual and compensatory damages; and P5,000.00 as attorney's fees, plus the costs
of the suit. This decision was affirmed on appeal, and the motion for reconsideration was denied.
3 The petitioner then came to this Court to fault the Court of Appeals for approving the payment
of the claim and the award of damages.

The term "accident" has been defined as follows:

The words "accident" and "accidental" have never acquired any technical signification in law,
and when used in an insurance contract are to be construed and considered according to the
ordinary understanding and common usage and speech of people generally. In-substance, the
courts are practically agreed that the words "accident" and "accidental" mean that which happens
by chance or fortuitously, without intention or design, and which is unexpected, unusual, and
unforeseen. The definition that has usually been adopted by the courts is that an accident is an
event that takes place without one's foresight or expectation an event that proceeds from an
unknown cause, or is an unusual effect of a known case, and therefore not expected. 4

An accident is an event which happens without any human agency or, if happening through
human agency, an event which, under the circumstances, is unusual to and not expected by the
person to whom it happens. It has also been defined as an injury which happens by reason of
some violence or casualty to the injured without his design, consent, or voluntary co-operation. 5
In light of these definitions, the Court is convinced that the incident that resulted in Lim's death
was indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, 6
says that "there is no accident when a deliberate act is performed unless some additional,
unexpected, independent and unforeseen happening occurs which produces or brings about their
injury or death." There was such a happening. This was the firing of the gun, which was the
additional unexpected and independent and unforeseen occurrence that led to the insured person's
death.

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

Exceptions

The company shall not be liable in respect of

1. Bodily injury

xxx xxx xxx

b. consequent upon

i) The insured person attempting to commit suicide or willfully exposing himself to

needless peril except in an attempt to save human life.

To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner
contends that the insured willfully exposed himself to needless peril and thus removed himself
from the coverage of the insurance policy.
It should be noted at the outset that suicide and willful exposure to needless peril are in pari
materia because they both signify a disregard for one's life. The only difference is in degree, as
suicide imports a positive act of ending such life whereas the second act indicates a reckless
risking of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one
thousand meters above the ground and without any safety device may not actually be intending
to commit suicide, but his act is nonetheless suicidal. He would thus be considered as "willfully
exposing himself to needless peril" within the meaning of the exception in question.

The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully
exposed himself to needless peril and so came under the exception. The theory is that a gun is
per se dangerous and should therefore be handled cautiously in every case.

That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the
magazine from the gun and believed it was no longer dangerous. He expressly assured her that
the gun was not loaded. It is submitted that Lim did not willfully expose himself to needless peril
when he pointed the gun to his temple because the fact is that he thought it was not unsafe to do
so. The act was precisely intended to assure Nalagon that the gun was indeed harmless.

The contrary view is expressed by the petitioner thus:

Accident insurance policies were never intended to reward the insured for his tendency to show
off or for his miscalculations. They were intended to provide for contingencies. Hence, when I
miscalculate and jump from the Quezon Bridge into the Pasig River in the belief that I can
overcome the current, I have wilfully exposed myself to peril and must accept the consequences
of my act. If I drown I cannot go to the insurance company to ask them to compensate me for my
failure to swim as well as I thought I could. The insured in the case at bar deliberately put the
gun to his head and pulled the trigger. He wilfully exposed himself to peril.

The Court certainly agrees that a drowned man cannot go to the insurance company to ask for
compensation. That might frighten the insurance people to death. We also agree that under the
circumstances narrated, his beneficiary would not be able to collect on the insurance policy for it
is clear that when he braved the currents below, he deliberately exposed himself to a known
peril.
The private respondent maintains that Lim did not. That is where she says the analogy fails. The
petitioner's hypothetical swimmer knew when he dived off the Quezon Bridge that the currents
below were dangerous. By contrast, Lim did not know that the gun he put to his head was
loaded.

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

It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor
of the assured. There is no reason to deviate from this rule, especially in view of the
circumstances of this case as above analyzed.

On the second assigned error, however, the Court must rule in favor of the petitioner. The basic
issue raised in this case is, as the petitioner correctly observed, one of first impression. It is
evident that the petitioner was acting in good faith then it resisted the private respondent's claim
on the ground that the death of the insured was covered by the exception. The issue was indeed
debatable and was clearly not raised only for the purpose of evading a legitimate obligation. We
hold therefore that the award of moral and exemplary damages and of attorney's fees is unjust
and so must be disapproved.

In order that a person may be made liable to the payment of moral damages, the law requires that
his act be wrongful. The adverse result of an action does not per se make the act wrongful and
subject the act or to the payment of moral damages. The law could not have meant to impose a
penalty on the right to litigate; such right is so precious that moral damages may not be charged
on those who may exercise it erroneously. For these the law taxes costs. 7

The fact that the results of the trial were adverse to Barreto did not alone make his act in bringing
the action wrongful because in most cases one party will lose; we would be imposing an unjust
condition or limitation on the right to litigate. We hold that the award of moral damages in the
case at bar is not justified by the facts had circumstances as well as the law.

If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses, since it is not
the fact of winning alone that entitles him to recover such damages of the exceptional
circumstances enumerated in Art. 2208. Otherwise, every time a defendant wins, automatically
the plaintiff must pay attorney's fees thereby putting a premium on the right to litigate which
should not be so. For those expenses, the law deems the award of costs as sufficient. 8

WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far as it

holds the petitioner liable to the private respondent in the sum of P200,000.00 representing the
face value of the insurance contract, with interest at the legal rate from the date of the filing of
the complaint until the full amount is paid, but MODIFIED with the deletion of all awards for
damages, including attorney's fees, except the costs of the suit.

SO ORDERED.

Grio-Aquino, Medialdea and Bellosillo, JJ., concur.

G.R. No. L-8151 December 16, 1955

VIRGINIA CALANOC, petitioner,

vs.

COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE CO.,

respondents.

Lucio Javillonar for petitioner.

J. A. Wolfson, Manuel Y. Mecias, Emilio Abello and Anselmo A. Reyes for respondents.
BAUTISTA ANGELO, J.:

This suit involves the collection of P2,000 representing the value of a supplemental policy
covering accidental death which was secured by one Melencio Basilio from the Philippine
American Life Insurance Company. The case originated in the Municipal Court of Manila and
judgment being favorable to the plaintiff it was appealed to the court of first instance. The latter
court affirmed the judgment but on appeal to the Court of Appeals the judgment was reversed
and the case is now before us on a petition for review.

Melencio Basilio was a watchman of the Manila Auto Supply located at the corner of Avenida
Rizal and Zurbaran. He secured a life insurance policy from the Philippine American Life
Insurance Company in the amount of P2,000 to which was attached a supplementary contract
covering death by accident. On January 25, 1951, he died of a gunshot wound on the occasion of
a robbery committed in the house of Atty. Ojeda at the corner of Oroquieta and Zurbaan streets.
Virginia Calanoc, the widow, was paid the sum of P2,000, face value of the policy, but when she
demanded the payment of the additional sum of P2,000 representing the value of the
supplemental policy, the company refused alleging, as main defense, that the deceased died
because he was murdered by a person who took part in the commission of the robbery and while
making an arrest as an officer of the law which contingencies were expressly excluded in the
contract and have the effect of exempting the company from liability.

The pertinent facts which need to be considered for the determination of the questions raised are
those reproduced in the decision of the Court of Appeals as follows:

The circumstances surrounding the death of Melencio Basilio show that when he was killed at
about seven o'clock in the night of January 25, 1951, he was on duty as watchman of the Manila
Auto Supply at the corner of Avenida Rizal and Zurbaran; that it turned out that Atty. Antonio
Ojeda who had his residence at the corner of Zurbaran and Oroquieta, a block away from
Basilio's station, had come home that night and found that his house was well-lighted, but with
the windows closed; that getting suspicious that there were culprits in his house, Atty. Ojeda
retreated to look for a policeman and finding Basilio in khaki uniform, asked him to accompany
him to the house with the latter refusing on the ground that he was not a policeman, but
suggesting that Atty. Ojeda should ask the traffic policeman on duty at the corner of Rizal
Avenue and Zurbaran; that Atty. Ojeda went to the traffic policeman at said corner and reported
the matter, asking the policeman to come along with him, to which the policeman agreed; that on
the way to the Ojeda residence, the policeman and Atty. Ojeda passed by Basilio and somehow
or other invited the latter to come along; that as the tree approached the Ojeda residence and
stood in front of the main gate which was covered with galvanized iron, the fence itself being
partly concrete and partly adobe stone, a shot was fired; that immediately after the shot, Atty.
Ojeda and the policeman sought cover; that the policeman, at the request of Atty. Ojeda, left the
premises to look for reinforcement; that it turned out afterwards that the special watchman
Melencio Basilio was hit in the abdomen, the wound causing his instantaneous death; that the
shot must have come from inside the yard of Atty. Ojeda, the bullet passing through a hole waist-
high in the galvanized iron gate; that upon inquiry Atty. Ojeda found out that the savings of his
children in the amount of P30 in coins kept in his aparador contained in stockings were taken
away, the aparador having been ransacked; that a month thereafter the corresponding
investigation conducted by the police authorities led to the arrest and prosecution of four persons
in Criminal Case No. 15104 of the Court of First Instance of Manila for 'Robbery in an Inhabited
House and in Band with Murder'.

It is contended in behalf of the company that Basilio was killed which "making an arrest as an
officer of the law" or as a result of an "assault or murder" committed in the place and therefore
his death was caused by one of the risks excluded by the supplementary contract which exempts
the company from liability. This contention was upheld by the Court of Appeals and, in reaching
this conclusion, made the following comment:

From the foregoing testimonies, we find that the deceased was a watchman of the Manila Auto
Supply, and, as such, he was not boud to leave his place and go with Atty. Ojeda and Policeman
Magsanoc to see the trouble, or robbery, that occurred in the house of Atty. Ojeda. In fact,
according to the finding of the lower court, Atty. Ojeda finding Basilio in uniform asked him to
accompany him to his house, but the latter refused on the ground that he was not a policeman
and suggested to Atty. Ojeda to ask help from the traffic policeman on duty at the corner of Rizal
Avenue and Zurbaran, but after Atty. Ojeda secured the help of the traffic policeman, the
deceased went with Ojeda and said traffic policeman to the residence of Ojeda, and while the
deceased was standing in front of the main gate of said residence, he was shot and thus died. The
death, therefore, of Basilio, although unexpected, was not caused by an accident, being a
voluntary and intentional act on the part of the one wh robbed, or one of those who robbed, the
house of Atty. Ojeda. Hence, it is out considered opinion that the death of Basilio, though
unexpected, cannot be considered accidental, for his death occurred because he left his post and
joined policeman Magsanoc and Atty. Ojeda to repair to the latter's residence to see what
happened thereat. Certainly, when Basilio joined Patrolman Magsanoc and Atty. Ojeda, he
should have realized the danger to which he was exposing himself, yet, instead of remaining in
his place, he went with Atty. Ojeda and Patrolman Magsanoc to see what was the trouble in Atty.
Ojeda's house and thus he was fatally shot.

We dissent from the above findings of the Court of Appeals. For one thing, Basilio was a
watchman of the Manila Auto Supply which was a block away from the house of Atty. Ojeda
where something suspicious was happening which caused the latter to ask for help. While at first
he declied the invitation of Atty. Ojeda to go with him to his residence to inquire into what was
going on because he was not a regular policeman, he later agreed to come along when prompted
by the traffic policeman, and upon approaching the gate of the residence he was shot and died.
The circumstance that he was a mere watchman and had no duty to heed the call of Atty. Ojeda
should not be taken as a capricious desire on his part to expose his life to danger considering the
fact that the place he was in duty-bound to guard was only a block away. In volunteering to
extend help under the situation, he might have thought, rightly or wrongly, that to know the truth
was in the interest of his employer it being a matter that affects the security of the neighborhood.
No doubt there was some risk coming to him in pursuing that errand, but that risk always existed
it being inherent in the position he was holding. He cannot therefore be blamed solely for doing
what he believed was in keeping with his duty as a watchman and as a citizen. And he cannot be
considered as making an arrest as an officer of the law, as contended, simply because he went
with the traffic policeman, for certainly he did not go there for that purpose nor was he asked to
do so by the policeman.

Much less can it be pretended that Basilio died in the course of an assault or murder considering
the very nature of these crimes. In the first place, there is no proof that the death of Basilio is the
result of either crime for the record is barren of any circumstance showing how the fatal shot was
fired. Perhaps this may be clarified in the criminal case now pending in court as regards the
incident but before that is done anything that might be said on the point would be a mere
conjecture. Nor can it be said that the killing was intentional for there is the possibility that the
malefactor had fired the shot merely to scare away the people around for his own protection and
not necessarily to kill or hit the victim. In any event, while the act may not excempt the
triggerman from liability for the damage done, the fact remains that the happening was a pure
accident on the part of the victim. The victim could have been either the policeman or Atty.
Ojeda for it cannot be pretended that the malefactor aimed at the deceased precisely because he
wanted to take his life.
We take note that these defenses are included among the risks exluded in the supplementary
contract which enumerates the cases which may exempt the company from liability. While as a
general rule "the parties may limit the coverage of the policy to certain particular accidents and
risks or causes of loss, and may expressly except other risks or causes of loss therefrom" (45 C.
J. S. 781-782), however, it is to be desired that the terms and phraseology of the exception clause
be clearly expressed so as to be within the easy grasp and understanding of the insured, for if the
terms are doubtful or obscure the same must of necessity be interpreted or resolved aganst the
one who has caused the obscurity. (Article 1377, new Civil Code) And so it has bene generally
held that the "terms in an insurance policy, which are ambiguous, equivacal, or uncertain . . . are
to be construed strictly and most strongly against the insurer, and liberally in favor of the insured
so as to effect the dominant purpose of indemnity or payment to the insured, especially where a
forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule is that he "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." (44 C. J. S., p. 1174.)

Insurance is, in its nature, complex and difficult for the layman to understand. Policies are
prepared by experts who know and can anticipate the bearings and possible complications of
every contingency. So long as insurance companies insist upon the use of ambiguous, intricate
and technical provisions, which conceal rather than frankly disclose, their own intentions, the
courts must, in fairness to those who purchase insurance, construe every ambiguity in favor of
the insured. (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)lawphi1.net

An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the
very purpose for which the policy was procured. (Moore vs. Aetna Life Insurance Co., LRA
1915D, 264.)

We are therefore persuaded to conclude that the circumstances unfolded in the present case do
not warrant the finding that the death of the unfortunate victim comes within the purview of the
exception clause of the supplementary policy and, hence, do not exempt the company from
liability.

Wherefore, reversing the decision appealed from, we hereby order the company to pay
petitioner-appellant the amount of P2,000, with legal interest from January 26, 1951 until fully
paid, with costs.
G.R. No. L-36413 September 26, 1988

MALAYAN INSURANCE CO., INC., petitioner,

vs.

THE HON. COURT OF APPEALS (THIRD DIVISION) MARTIN C. VALLEJOS, SIO

CHOY, SAN LEON RICE MILL, INC. and PANGASINAN TRANSPORTATION CO., INC.,
respondents.

Freqillana Jr. for petitioner.

B.F. Estrella & Associates for respondent Martin Vallejos.

Vicente Erfe Law Office for respondent Pangasinan Transportation Co., Inc.

Nemesio Callanta for respondent Sio Choy and San Leon Rice Mill, Inc.

PADILLA, J.:

Review on certiorari of the judgment * of the respondent appellate court in CA-G.R. No. 47319-
R, dated 22 February 1973, which affirmed, with some modifications, the decision, ** dated 27
April 1970, rendered in Civil Case No. U-2021 of the Court of First Instance of Pangasinan.

The antecedent facts of the case are as follows:

On 29 March 1967, herein petitioner, Malayan Insurance Co., Inc., issued in favor of private
respondent Sio Choy Private Car Comprehensive Policy No. MRO/PV-15753, effective from 18
April 1967 to 18 April 1968, covering a Willys jeep with Motor No. ET-03023 Serial No.
351672, and Plate No. J-21536, Quezon City, 1967. The insurance coverage was for "own
damage" not to exceed P600.00 and "third-party liability" in the amount of P20,000.00.

During the effectivity of said insurance policy, and more particularly on 19 December 1967, at
about 3:30 o'clock in the afternoon, the insured jeep, while being driven by one Juan P.
Campollo an employee of the respondent San Leon Rice Mill, Inc., collided with a passenger bus
belonging to the respondent Pangasinan Transportation Co., Inc. (PANTRANCO, for short) at
the national highway in Barrio San Pedro, Rosales, Pangasinan, causing damage to the insured
vehicle and injuries to the driver, Juan P. Campollo, and the respondent Martin C. Vallejos, who
was riding in the ill-fated jeep.

As a result, Martin C. Vallejos filed an action for damages against Sio Choy, Malayan Insurance
Co., Inc. and the PANTRANCO before the Court of First Instance of Pangasinan, which was
docketed as Civil Case No. U-2021. He prayed therein that the defendants be ordered to pay him,
jointly and severally, the amount of P15,000.00, as reimbursement for medical and hospital
expenses; P6,000.00, for lost income; P51,000.00 as actual, moral and compensatory damages;
and P5,000.00, for attorney's fees.

Answering, PANTRANCO claimed that the jeep of Sio Choy was then operated at an excessive
speed and bumped the PANTRANCO bus which had moved to, and stopped at, the shoulder of
the highway in order to avoid the jeep; and that it had observed the diligence of a good father of
a family to prevent damage, especially in the selection and supervision of its employees and in
the maintenance of its motor vehicles. It prayed that it be absolved from any and all liability.

Defendant Sio Choy and the petitioner insurance company, in their answer, also denied liability
to the plaintiff, claiming that the fault in the accident was solely imputable to the PANTRANCO.

Sio Choy, however, later filed a separate answer with a cross-claim against the herein petitioner
wherein he alleged that he had actually paid the plaintiff, Martin C. Vallejos, the amount of
P5,000.00 for hospitalization and other expenses, and, in his cross-claim against the herein
petitioner, he alleged that the petitioner had issued in his favor a private car comprehensive
policy wherein the insurance company obligated itself to indemnify Sio Choy, as insured, for the
damage to his motor vehicle, as well as for any liability to third persons arising out of any
accident during the effectivity of such insurance contract, which policy was in full force and
effect when the vehicular accident complained of occurred. He prayed that he be reimbursed by
the insurance company for the amount that he may be ordered to pay.

Also later, the herein petitioner sought, and was granted, leave to file a third-party complaint
against the San Leon Rice Mill, Inc. for the reason that the person driving the jeep of Sio Choy,
at the time of the accident, was an employee of the San Leon Rice Mill, Inc. performing his
duties within the scope of his assigned task, and not an employee of Sio Choy; and that, as the
San Leon Rice Mill, Inc. is the employer of the deceased driver, Juan P. Campollo, it should be
liable for the acts of its employee, pursuant to Art. 2180 of the Civil Code. The herein petitioner
prayed that judgment be rendered against the San Leon Rice Mill, Inc., making it liable for the
amounts claimed by the plaintiff and/or ordering said San Leon Rice Mill, Inc. to reimburse and
indemnify the petitioner for any sum that it may be ordered to pay the plaintiff.

After trial, judgment was rendered as follows:

WHEREFORE, in view of the foregoing findings of this Court judgment is hereby rendered in
favor of the plaintiff and against Sio Choy and Malayan Insurance Co., Inc., and third-party
defendant San Leon Rice Mill, Inc., as follows:

(a) P4,103 as actual damages;

(b) P18,000.00 representing the unearned income of plaintiff Martin C. Vallejos for the
period of three (3) years;

(c) P5,000.00 as moral damages;

(d) P2,000.00 as attomey's fees or the total of P29,103.00, plus costs.

The above-named parties against whom this judgment is rendered are hereby held jointly and
severally liable. With respect, however, to Malayan Insurance Co., Inc., its liability will be up to
only P20,000.00.

As no satisfactory proof of cost of damage to its bus was presented by defendant Pantranco, no
award should be made in its favor. Its counter-claim for attorney's fees is also dismissed for not
being proved. 1

On appeal, the respondent Court of Appeals affirmed the judgment of the trial court that Sio
Choy, the San Leon Rice Mill, Inc. and the Malayan Insurance Co., Inc. are jointly and severally
liable for the damages awarded to the plaintiff Martin C. Vallejos. It ruled, however, that the San
Leon Rice Mill, Inc. has no obligation to indemnify or reimburse the petitioner insurance
company for whatever amount it has been ordered to pay on its policy, since the San Leon Rice
Mill, Inc. is not a privy to the contract of insurance between Sio Choy and the insurance
company. 2

Hence, the present recourse by petitioner insurance company.

The petitioner prays for the reversal of the appellate court's judgment, or, in the alternative, to
order the San Leon Rice Mill, Inc. to reimburse petitioner any amount, in excess of one-half
(1/2) of the entire amount of damages, petitioner may be ordered to pay jointly and severally
with Sio Choy.

The Court, acting upon the petition, gave due course to the same, but "only insofar as it concerns
the alleged liability of respondent San Leon Rice Mill, Inc. to petitioner, it being understood that
no other aspect of the decision of the Court of Appeals shall be reviewed, hence, execution may
already issue in favor of respondent Martin C. Vallejos against the respondents, without
prejudice to the determination of whether or not petitioner shall be entitled to reimbursement by
respondent San Leon Rice Mill, Inc. for the whole or part of whatever the former may pay on the
P20,000.00 it has been adjudged to pay respondent Vallejos." 3
However, in order to determine the alleged liability of respondent San Leon Rice Mill, Inc. to
petitioner, it is important to determine first the nature or basis of the liability of petitioner to
respondent Vallejos, as compared to that of respondents Sio Choy and San Leon Rice Mill, Inc.

Therefore, the two (2) principal issues to be resolved are (1) whether the trial court, as upheld by
the Court of Appeals, was correct in holding petitioner and respondents Sio Choy and San Leon
Rice Mill, Inc. "solidarily liable" to respondent Vallejos; and (2) whether petitioner is entitled to
be reimbursed by respondent San Leon Rice Mill, Inc. for whatever amount petitioner has been
adjudged to pay respondent Vallejos on its insurance policy.

As to the first issue, it is noted that the trial court found, as affirmed by the appellate court, that
petitioner and respondents Sio Choy and San Leon Rice Mill, Inc. are jointly and severally liable
to respondent Vallejos.

We do not agree with the aforesaid ruling. We hold instead that it is only respondents Sio Choy
and San Leon Rice Mill, Inc, (to the exclusion of the petitioner) that are solidarily liable to
respondent Vallejos for the damages awarded to Vallejos.

It must be observed that respondent Sio Choy is made liable to said plaintiff as owner of the ill-
fated Willys jeep, pursuant to Article 2184 of the Civil Code which provides:

Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former,
who was in the vehicle, could have, by the use of due diligence, prevented the misfortune it is
disputably presumed that a driver was negligent, if he had been found guilty of reckless driving
or violating traffic regulations at least twice within the next preceding two months.

If the owner was not in the motor vehicle, the provisions of article 2180 are applicable.

On the other hand, it is noted that the basis of liability of respondent San Leon Rice Mill, Inc. to
plaintiff Vallejos, the former being the employer of the driver of the Willys jeep at the time of
the motor vehicle mishap, is Article 2180 of the Civil Code which reads:
Art. 2180. The obligation imposed by article 2176 is demandable not only for one's own acts or
omissions, but also for those of persons for whom one is responsible.

xxx xxx xxx

Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged ill any
business or industry.

xxx xxx xxx

The responsibility treated in this article shall cease when the persons herein mentioned proved
that they observed all the diligence of a good father of a family to prevent damage.

It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are the principal
tortfeasors who are primarily liable to respondent Vallejos. The law states that the responsibility
of two or more persons who are liable for a quasi-delict is solidarily. 4

On the other hand, the basis of petitioner's liability is its insurance contract with respondent Sio
Choy. If petitioner is adjudged to pay respondent Vallejos in the amount of not more than
P20,000.00, this is on account of its being the insurer of respondent Sio Choy under the third
party liability clause included in the private car comprehensive policy existing between petitioner
and respondent Sio Choy at the time of the complained vehicular accident.

In Guingon vs. Del Monte, 5 a passenger of a jeepney had just alighted therefrom, when he was
bumped by another passenger jeepney. He died as a result thereof. In the damage suit filed by the
heirs of said passenger against the driver and owner of the jeepney at fault as well as against the
insurance company which insured the latter jeepney against third party liability, the trial court,
affirmed by this Court, adjudged the owner and the driver of the jeepney at fault jointly and
severally liable to the heirs of the victim in the total amount of P9,572.95 as damages and
attorney's fees; while the insurance company was sentenced to pay the heirs the amount of
P5,500.00 which was to be applied as partial satisfaction of the judgment rendered against said
owner and driver of the jeepney. Thus, in said Guingon case, it was only the owner and the
driver of the jeepney at fault, not including the insurance company, who were held solidarily
liable to the heirs of the victim.

While it is true that where the insurance contract provides for indemnity against liability to third
persons, such third persons can directly sue the insurer, 6 however, the direct liability of the
insurer under indemnity contracts against third party liability does not mean that the insurer can
be held solidarily liable with the insured and/or the other parties found at fault. The liability of
the insurer is based on contract; that of the insured is based on tort.

In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot,
as incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors
namely respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were
solidarily liable with said two (2) respondents by reason of the indemnity contract against third
party liability-under which an insurer can be directly sued by a third party this will result in a
violation of the principles underlying solidary obligation and insurance contracts.

In solidary obligation, the creditor may enforce the entire obligation against one of the solidary
debtors. 7 On the other hand, insurance is defined as "a contract whereby one undertakes for a
consideration to indemnify another against loss, damage, or liability arising from an unknown or
contingent event." 8

In the case at bar, the trial court held petitioner together with respondents Sio Choy and San
Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00,
with the qualification that petitioner's liability is only up to P20,000.00. In the context of a
solidary obligation, petitioner may be compelled by respondent Vallejos to pay the entire
obligation of P29,013.00, notwithstanding the qualification made by the trial court. But, how can
petitioner be obliged to pay the entire obligation when the amount stated in its insurance policy
with respondent Sio Choy for indemnity against third party liability is only P20,000.00?
Moreover, the qualification made in the decision of the trial court to the effect that petitioner is
sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is made solidary,
is an evident breach of the concept of a solidary obligation. Thus, We hold that the trial court, as
upheld by the Court of Appeals, erred in holding petitioner, solidarily liable with respondents Sio
Choy and San Leon Rice Mill, Inc. to respondent Vallejos.

As to the second issue, the Court of Appeals, in affirming the decision of the trial court, ruled
that petitioner is not entitled to be reimbursed by respondent San Leon Rice Mill, Inc. on the
ground that said respondent is not privy to the contract of insurance existing between petitioner
and respondent Sio Choy. We disagree.

The appellate court overlooked the principle of subrogation in insurance contracts. Thus

... Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs. Moses, 287
U.S. 530, 77 L. ed. 477). 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 (44 Am. Jur. 2nd 745, citing Standard Marine Ins. Co.
vs. Scottish Metropolitan Assurance Co., 283 U.S. 284, 75 L. ed. 1037).

The right of subrogation is of the highest equity. The loss in the first instance is that of the
insured but after reimbursement or compensation, it becomes the loss of the insurer (44 Am. Jur.
2d, 746, note 16, citing Newcomb vs. Cincinnati Ins. Co., 22 Ohio St. 382).

Although many policies including policies in the standard form, now provide for subrogation,
and thus determine the rights of the insurer in this respect, the equitable right of subrogation as
the legal effect of payment inures to the insurer without any formal assignment or any express
stipulation to that effect in the policy" (44 Am. Jur. 2nd 746). Stated otherwise, when the
insurance company pays for the loss, such payment operates as an equitable assignment to the
insurer of the property and all remedies which the insured may have for the recovery thereof.
That right is not dependent upon , nor does it grow out of any privity of contract (emphasis
supplied) or upon written assignment of claim, and payment to the insured makes the insurer
assignee in equity (Shambley v. Jobe-Blackley Plumbing and Heating Co., 264 N.C. 456, 142 SE
2d 18). 9

It follows, therefore, that petitioner, upon paying respondent Vallejos the amount of riot
exceeding P20,000.00, shall become the subrogee of the insured, the respondent Sio Choy; as
such, it is subrogated to whatever rights the latter has against respondent San Leon Rice Mill,
Inc. Article 1217 of the Civil Code gives to a solidary debtor who has paid the entire obligation
the right to be reimbursed by his co-debtors for the share which corresponds to each.

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or
more solidary debtors offer to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to
each, with the interest for the payment already made. If the payment is made before the debt is
due, no interest for the intervening period may be demanded.

xxx xxx xxx

In accordance with Article 1217, petitioner, upon payment to respondent Vallejos and thereby
becoming the subrogee of solidary debtor Sio Choy, is entitled to reimbursement from
respondent San Leon Rice Mill, Inc.

To recapitulate then: We hold that only respondents Sio Choy and San Leon Rice Mill, Inc. are
solidarily liable to the respondent Martin C. Vallejos for the amount of P29,103.00. Vallejos may
enforce the entire obligation on only one of said solidary debtors. If Sio Choy as solidary debtor
is made to pay for the entire obligation (P29,103.00) and petitioner, as insurer of Sio Choy, is
compelled to pay P20,000.00 of said entire obligation, petitioner would be entitled, as subrogee
of Sio Choy as against San Leon Rice Mills, Inc., to be reimbursed by the latter in the amount of
P14,551.50 (which is 1/2 of P29,103.00 )

WHEREFORE, the petition is GRANTED. The decision of the trial court, as affirmed by the
Court of Appeals, is hereby AFFIRMED, with the modification above-mentioned. Without
pronouncement as to costs.

SO ORDERED.
Melencio-Herrera (Chairperson), Paras, Sarmiento and Regalado, JJ., concur.

G.R. No. L-60887 November 13, 1991

PERLA COMPANIA DE SEGUROS, INC., petitioner,

vs.

HON. JOSE R. RAMOLETE, PRIMITIVA Y. PALMES, HONORATO BORBON, SR.,

OFFICE OF THE PROVINCIAL SHERIFF, PROVINCE OF CEBU, respondents.

Hector L. Fernandez for petitioner.

Domingo Quibranza and Vicente A. Quibranza for private respondents.

FELICIANO, J.:p

The present Petition for Certiorari seeks to annul: (a) the Order dated 6 August 1979 1 which
ordered the Provincial Sheriff to garnish the third-party liability insurance policy issued by
petitioner Perla Compania de Seguros, Inc. ("Perla") in favor of Nelia Enriquez, judgment debtor
in Civil Case No. R-15391; (b) the Order dated 24 October 1979 2 which denied the motion for
reconsideration of the 6 August 1979 Order; and (c) the Order dated 8 April 1980 3 which
ordered the issuance of an alias writ of garnishment against petitioner.

In the afternoon of 1 June 1976, a Cimarron PUJ owned and registered in the name of Nelia
Enriquez, and driven by Cosme Casas, was travelling from Cebu City to Danao City. While
passing through Liloan, Cebu, the Cimarron PUJ collided with a private jeep owned by the late
Calixto Palmes (husband of private respondent Primitiva Palmes) who was then driving the
private jeep. The impact of the collision was such that the private jeep was flung away to a
distance of about thirty (30) feet and then fell on its right side pinning down Calixto Palmes. He
died as a result of cardio-respiratory arrest due to a crushed chest. 4 The accident also caused
physical injuries on the part of Adeudatus Borbon who was then only two (2) years old.

On 25 June 1976, private respondents Primitiva Palmes (widow of Calixto Palmes) and Honorato
Borbon, Sr. (father of minor Adeudatus Borbon) filed a complaint 5 against Cosme Casas and
Nelia Enriquez (assisted by her husband Leonardo Enriquez) before the then Court of First
Instance of Cebu, Branch 3, claiming actual, moral, nominal and exemplary damages as a result
of the accident.

The claim of private respondent Honorato Borbon, Sr., being distinct and separate from that of
co-plaintiff Primitiva Palmes, and the amount thereof falling properly within the jurisdiction of
the inferior court, respondent Judge Jose R. Ramolete ordered the Borbon claim excluded from
the complaint, without prejudice to its being filed with the proper inferior court.

On 4 April 1977, the Court of First Instance rendered a Decision 6 in favor of private respondent
Primitiva Palmes, ordering common carrier Nelia Enriquez to pay her P10,000.00 as moral
damages, P12,000.00 as compensatory damages for the death of Calixto Palmes, P3,000.00 as
exemplary damages, P5,000.00 as actual damages, and P1,000.00 as attorney's fees.

The judgment of the trial court became final and executory and a writ of execution was thereafter
issued. The writ of execution was, however, returned unsatisfied. Consequently, the judgment
debtor Nelia Enriquez was summoned before the trial court for examination on 23 July 1979. She
declared under oath that the Cimarron PUJ registered in her name was covered by a third-party
liability insurance policy issued by petitioner Perla.

Thus, on 31 July 1979, private respondent Palmes filed a motion for garnishment 7 praying that
an order of garnishment be issued against the insurance policy issued by petitioner in favor of the
judgment debtor. On 6 August 1979, respondent Judge issued an Order 8 directing the Provincial
Sheriff or his deputy to garnish the third-party liability insurance policy.

Petitioner then appeared before the trial court and moved for reconsideration of the 6 August
1979 Order and for quashal of the writ of garnishment, 9 alleging that the writ was void on the
ground that it (Perla) was not a party to the case and that jurisdiction over its person had never
been acquired by the trial court by service of summons or by any process. The trial court denied
petitioner's motion.10 An Order for issuance of an alias writ of garnishment was subsequently
issued on 8 April 1980. 11

More than two (2) years later, the present Petition for Certiorari and Prohibition was filed with
this Court on 25 June 1982 alleging grave abuse of discretion on the part of respondent Judge
Ramolete in ordering garnishment of the third-party liability insurance contract issued by
petitioner Perla in favor of the judgment debtor, Nelia Enriquez. The Petition should have been
dismissed forthwith for having been filed way out of time but, for reasons which do not appear
on the record, was nonetheless entertained.

In this Petition, petitioner Perla reiterates its contention that its insurance contract cannot be
subjected to garnishment or execution to satisfy the judgment in Civil Case No. R-15391 because
petitioner was not a party to the case and the trial court did not acquire jurisdiction over
petitioner's person. Perla further argues that the writ of garnishment had been issued solely on
the basis of the testimony of the judgment debtor during the examination on 23 July 1979 to the
effect that the Cimarron PUJ was covered by a third-party liability insurance issued by Perla,
without granting it the opportunity to set up any defenses which it may have under the insurance
contract; and that the proceedings taken against petitioner are contrary to the procedure laid
down in Economic Insurance Company, Inc. v. Torres, et al., 12 which held that under Rule 39,
Section 45, the Court "may only authorize" the judgment creditor to institute an action against a
third person who holds property belonging to the judgment debtor.

We find no grave abuse of discretion or act in excess of or without jurisdiction on the part of
respondent Judge Ramolete in ordering the garnishment of the judgment debtor's third-party
liability insurance.

Garnishment has been defined as a species of attachment for reaching any property or credits
pertaining or payable to a judgment debtor. 13 In legal contemplation, it is a forced novation by
the substitution of creditors: 14 the judgment debtor, who is the original creditor of the garnishee
is, through service of the writ of garnishment, substituted by the judgment creditor who thereby
becomes creditor of the garnishee. Garnishment has also been described as a warning to a person
having in his possession property or credits of the judgment debtor, not to pay the money or
deliver the property to the latter, but rather to appear and answer the plaintiff's suit. 15
In order that the trial court may validly acquire jurisdiction to bind the person of the garnishee, it
is not necessary that summons be served upon him. The garnishee need not be impleaded as a
party to the case. All that is necessary for the trial court lawfully to bind the person of the
garnishee or any person who has in his possession credits belonging to the judgment debtor is
service upon him of the writ of garnishment.

The Rules of Court themselves do not require that the garnishee be served with summons or
impleaded in the case in order to make him liable.

Rule 39, Section 15 provides:

Sec. 15. Execution of money judgments. The officer must enforce an execution of a
money judgment by levying on all the property, real or personal of every name and nature
whatsoever, and which may be disposed of for value, of the judgment debtor not exempt from
execution . . .

Real property, stocks, shares, debts, credits, and other personal property, or any interest in either
real or personal property, may be levied on in like manner and with like effect as under a writ of
attachment. (Emphasis supplied).

Rule 57, Section 7(e) in turn reads:

Sec. 7. Attachment of real and personal property; recording thereof. Properties shall be
attached by the officer executing the order in the following manner:

xxx xxx xxx

(e) Debts and credits, and other personal property not capable of manual delivery, by leaving
with the person owing such debts, or having his possession or under his control such credits or
other personal property, or with his agent, a copy of the order, and notice that the debts owing by
him to the party against whom attachment is issued, and the credits and other personal property
in his possession, or under his control, belonging to said party, are attached in pursuance of such
order;

xxx xxx xxx

(Emphasis supplied)

Through service of the writ of garnishment, the garnishee becomes a "virtual party" to, or a
"forced intervenor" in, the case and the trial court thereby acquires jurisdiction to bind him to
compliance with all orders and processes of the trial court with a view to the complete
satisfaction of the judgment of the court. In Bautista v. Barredo, 16 the Court, through Mr.
Justice Bautista Angelo, held:

While it is true that defendant Jose M. Barredo was not a party in Civil Case No. 1636 when it
was instituted by appellant against the Philippine Ready Mix Concrete Company, Inc., however,
jurisdiction was acquired over him by the court and he became a virtual party to the case when,
after final judgment was rendered in said case against the company, the sheriff served upon him
a writ of garnishment in behalf of appellant. Thus, as held by this Court in the case of Tayabas
Land Company vs. Sharruf, 41 Phil. 382, the proceeding by garnishment is a species of
attachment for reaching credits belonging to the judgment debtor and owing to him from a
stranger to the litigation. By means of the citation, the stranger becomes a forced intervenor; and
the court, having acquired jurisdiction over him by means of the citation, requires him to pay his
debt, not to his former creditor, but to the new creditor, who is creditor in the main litigation.
(Emphasis supplied).

In Rizal Commercial Banking Corporation v. De Castro, 17 the Court stressed that the asset or
credit garnished is thereupon subjected to a specific lien:

The garnishment of property to satisfy a writ of execution operates as an attachment and fastens
upon the property a lien by which the property is brought under the jurisdiction of the court
issuing the writ. It is brought into custodia legis, under the sole control of such
court. 18 (Emphasis supplied)

In the present case, there can be no doubt, therefore, that the trial court actually acquired
jurisdiction over petitioner Perla when it was served with the writ of garnishment of the third-
party liability insurance policy it had issued in favor of judgment debtor Nelia Enriquez. Perla
cannot successfully evade liability thereon by such a contention.

Every interest which the judgment debtor may have in property may be subjected to execution.19
In the instant case, the judgment debtor Nelia Enriquez clearly had an interest in the proceeds of
the third-party liability insurance contract. In a third-party liability insurance contract, the insurer
assumes the obligation of paying the injured third party to whom the insured is liable. 20 The
insurer becomes liable as soon as the liability of the insured to the injured third person attaches.
Prior payment by the insured to the injured third person is not necessary in order that the
obligation of the insurer may arise. From the moment that the insured became liable to the third
person, the insured acquired an interest in the insurance contract, which interest may be
garnished like any other credit. 21

Petitioner also contends that in order that it may be held liable under the third-party liability
insurance, a separate action should have been commenced by private respondents to establish
petitioner's liability. Petitioner invokes Economic Insurance Company, Inc. vs. Torres, 22 which
stated:

It is clear from Section 45, Rule 39 that if a persons alleged to have property of the judgment
debtor or to be indebted to him claims an interest in the property adverse to him or denies the
debt, the court may only authorize the judgment creditor to institute an action against such
person for the recovery of such interest or debt. Said section does not authorize the court to make
a finding that the third person has in his possession property belonging to the judgment debtor or
is indebted to him and to order said third person to pay the amount to the judgment creditor.

It has been held that the only power of the court in proceedings supplemental to execution is to
niake an order authorizing the creditor to sue in the proper court to recover an indebtedness due
to the judgment debtor. The court has no jurisdiction to try summarily the question whether the
third party served with notice of execution and levy is indebted to defendant when such
indebtedness is denied. To make an order in relation to property which the garnishee claimed to
own in his own right, requiring its application in satisfaction of judgment of another, would be to
deprive the garnishee of property upon summary proceeding and without due process of law.
(Emphasis supplied)

But reliance by petitioner on the case of Economic Insurance Company, Inc. v. Torres (supra) is
misplaced. The Court there held that a separate action needs to be commenced when the
garnishee "claims an interest in the property adverse to him (judgment debtor) or denies the
debt." In the instant case, petitioner Perla did not deny before the trial court that it had indeed
issued a third-party liability insurance policy in favor of the judgment debtor. Petitioner
moreover refrained from setting up any substantive defense which it might have against the
insured-judgment debtor. The only ground asserted by petitioner in its "Motion for
Reconsideration of the Order dated August 6, 1979 and to Quash Notice of Garnishment" was
lack of jurisdiction of the trial court for failure to implead it in the case by serving it with
summons. Accordingly, Rule 39, Section 45 of the Rules of Court is not applicable in the instant
case, and we see no need to require a separate action against Perla: a writ of garnishment suffices
to hold petitioner answerable to the judgment creditor. If Perla had any substantive defenses
against the judgment debtor, it is properly deemed to have waived them by laches.

WHEREFORE, the Petition for Certiorari and Prohibition is hereby DISMISSED for having
been filed out of time and for lack of merit. The assailed Orders of the trial court are hereby
AFFIRMED. Costs against petitioner. This Decision is immediately executory.

SO ORDERED.

Narvasa, CJ., Cruz, Grio-Aquino and Medialdea, JJ., concur.

G.R. No. L-54171 October 28, 1980

JEWEL VILLACORTA, assisted by her husband, GUERRERO VILLACORTA, petitioner,

vs.

THE INSURANCE COMMISSION and EMPIRE INSURANCE COMPANY, respondents.

TEEHANKEE, Acting C.J.:

The Court sets aside respondent Insurance Commission's dismissal of petitioner's complaint and
holds that where the insured's car is wrongfully taken without the insured's consent from the car
service and repair shop to whom it had been entrusted for check-up and repairs (assuming that
such taking was for a joy ride, in the course of which it was totally smashed in an accident),
respondent insurer is liable and must pay insured for the total loss of the insured vehicle under
the theft clause of the policy.

The undisputed facts of the case as found in the appealed decision of April 14, 1980 of
respondent insurance commission are as follows:

Complainant [petitioner] was the owner of a Colt Lancer, Model 1976, insured with respondent
company under Private Car Policy No. MBI/PC-0704 for P35,000.00 Own Damage;
P30,000.00 Theft; and P30,000.00 Third Party Liability, effective May 16, 1977 to May
16, 1978. On May 9, 1978, the vehicle was brought to the Sunday Machine Works, Inc., for
general check-up and repairs. On May 11, 1978, while it was in the custody of the Sunday
Machine Works, the car was allegedly taken by six (6) persons and driven out to Montalban,
Rizal. While travelling along Mabini St., Sitio Palyasan, Barrio Burgos, going North at
Montalban, Rizal, the car figured in an accident, hitting and bumping a gravel and sand truck
parked at the right side of the road going south. As a consequence, the gravel and sand truck
veered to the right side of the pavement going south and the car veered to the right side of the
pavement going north. The driver, Benito Mabasa, and one of the passengers died and the other
four sustained physical injuries. The car, as well, suffered extensive damage. Complainant,
thereafter, filed a claim for total loss with the respondent company but claim was denied. Hence,
complainant, was compelled to institute the present action.

The comprehensive motor car insurance policy for P35,000.00 issued by respondent Empire
Insurance Company admittedly undertook to indemnify the petitioner-insured against loss or
damage to the car (a) by accidental collision or overturning, or collision or overturning
consequent upon mechanical breakdown or consequent upon wear and tear; (b) by fire, external
explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by malicious act.

Respondent insurance commission, however, dismissed petitioner's complaint for recovery of the
total loss of the vehicle against private respondent, sustaining respondent insurer's contention
that the accident did not fall within the provisions of the policy either for the Own Damage or
Theft coverage, invoking the policy provision on "Authorized Driver" clause. 1

Respondent commission upheld private respondent's contention on the "Authorized Driver"

clause in this wise: "It must be observed that under the above-quoted provisions, the policy limits
the use of the insured vehicle to two (2) persons only, namely: the insured himself or any person
on his (insured's) permission. Under the second category, it is to be noted that the words "any
person' is qualified by the phrase

... on the insured's order or with his permission.' It is therefore clear that if the person driving is
other than the insured, he must have been duly authorized by the insured, to drive the vehicle to
make the insurance company liable for the driver's negligence. Complainant admitted that she
did not know the person who drove her vehicle at the time of the accident, much less consented
to the use of the same (par. 5 of the complaint). Her husband likewise admitted that he neither
knew this driver Benito Mabasa (Exhibit '4'). With these declarations of complainant and her
husband, we hold that the person who drove the vehicle, in the person of Benito Mabasa, is not
an authorized driver of the complainant. Apparently, this is a violation of the 'Authorized Driver'
clause of the policy.

Respondent commission likewise upheld private respondent's assertion that the car was not
stolen and therefore not covered by the Theft clause, ruling that "The element of 'taking' in
Article 308 of the Revised Penal Code means that the act of depriving another of the possession
and dominion of a movable thing is coupled ... with the intention. at the time of the 'taking', of
withholding it with the character of permanency (People vs. Galang, 7 Appt. Ct. Rep. 13). In
other words, there must have been shown a felonious intent upon the part of the taker of the car,
and the intent must be an intent permanently to deprive the insured of his car," and that "Such
was not the case in this instance. The fact that the car was taken by one of the residents of the
Sunday Machine Works, and the withholding of the same, for a joy ride should not be construed
to mean 'taking' under Art. 308 of the Revised Penal Code. If at all there was a 'taking', the same
was merely temporary in nature. A temporary taking is held not a taking insured against (48 A
LR 2d., page 15)."

The Court finds respondent commission's dismissal of the complaint to be contrary to the
evidence and the law.

First, respondent commission's ruling that the person who drove the vehicle in the person of
Benito Mabasa, who, according to its finding, was one of the residents of the Sunday Machine
Works, Inc. to whom the car had been entrusted for general check-up and repairs was not an
"authorized driver" of petitioner-complainant is too restrictive and contrary to the established
principle that insurance contracts, being contracts of adhesion where the only participation of the
other party is the signing of his signature or his "adhesion" thereto, "obviously call for greater
strictness and vigilance on the part of courts of justice with a view of protecting the weaker party
from abuse and imposition, and prevent their becoming traps for the unwary. 2

The main purpose of the "authorized driver" clause, as may be seen from its text, supra, is that a
person other than the insured owner, who drives the car on the insured's order, such as his regular
driver, or with his permission, such as a friend or member of the family or the employees of a car
service or repair shop must be duly licensed drivers and have no disqualification to drive a motor
vehicle.

A car owner who entrusts his car to an established car service and repair shop necessarily
entrusts his car key to the shop owner and employees who are presumed to have the insured's
permission to drive the car for legitimate purposes of checking or road-testing the car. The mere
happenstance that the employee(s) of the shop owner diverts the use of the car to his own illicit
or unauthorized purpose in violation of the trust reposed in the shop by the insured car owner
does not mean that the "authorized driver" clause has been violated such as to bar recovery,
provided that such employee is duly qualified to drive under a valid driver's license.

The situation is no different from the regular or family driver, who instead of carrying out the
owner's order to fetch the children from school takes out his girl friend instead for a joy ride and
instead wrecks the car. There is no question of his being an "authorized driver" which allows
recovery of the loss although his trip was for a personal or illicit purpose without the owner's
authorization.
Secondly, and independently of the foregoing (since when a car is unlawfully taken, it is the theft
clause, not the "authorized driver" clause, that applies), where a car is admittedly as in this case
unlawfully and wrongfully taken by some people, be they employees of the car shop or not to
whom it had been entrusted, and taken on a long trip to Montalban without the owner's consent
or knowledge, such taking constitutes or partakes of the nature of theft as defined in Article 308
of the Revised Penal Code, viz. "Who are liable for theft. Theft is committed by any person
who, with intent to gain but without violence against or intimidation of persons nor force upon
things, shall take personal property of another without the latter's consent," for purposes of
recovering the loss under the policy in question.

The Court rejects respondent commission's premise that there must be an intent on the part of the
taker of the car "permanently to deprive the insured of his car" and that since the taking here was
for a "joy ride" and "merely temporary in nature," a "temporary taking is held not a taking
insured against."

The evidence does not warrant respondent commission's findings that it was a mere "joy ride".
From the very investigator's report cited in its comment, 3 the police found from the waist of the
car driver Benito Mabasa Bartolome who smashed the car and was found dead right after the
incident "one cal. 45 Colt. and one apple type grenade," hardly the materials one would bring
along on a "joy ride". Then, again, it is equally evident that the taking proved to be quite
permanent rather than temporary, for the car was totally smashed in the fatal accident and was
never returned in serviceable and useful condition to petitioner-owner.

Assuming, despite the totally inadequate evidence, that the taking was "temporary" and for a "joy
ride", the Court sustains as the better view that which holds that when a person, either with the
object of going to a certain place, or learning how to drive, or enjoying a free ride, takes
possession of a vehicle belonging to another, without the consent of its owner, he is guilty of
theft because by taking possession of the personal property belonging to another and using it, his
intent to gain is evident since he derives therefrom utility, satisfaction, enjoyment and pleasure.
Justice Ramon C. Aquino cites in his work Groizard who holds that the use of a thing constitutes
gain and Cuello Calon who calls it "hurt de uso. " 4
The insurer must therefore indemnify the petitioner-owner for the total loss of the insured car in
the sum of P35,000.00 under the theft clause of the policy, subject to the filing of such claim for
reimbursement or payment as it may have as subrogee against the Sunday Machine Works, Inc.

ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered sentencing
private respondent to pay petitioner the sum of P35,000.00 with legal interest from the filing of
the complaint until full payment is made and to pay the costs of suit.

SO ORDERED.

Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.

G.R. No. L-36480 May 31, 1988

ANDREW PALERMO, plaintiff-appellee,

vs.

PYRAMID INSURANCE CO., INC., defendant- appellant.

GRIO-AQUINO, J:

The Court of Appeals certified this case to Us for proper disposition as the only question
involved is the interpretation of the provision of the insurance contract regarding the "authorized
driver" of the insured motor vehicle.
On March 7, 1969, the insured, appellee Andrew Palermo, filed a complaint in the Court of First
Instance of Negros Occidental against Pyramid Insurance Co., Inc., for payment of his claim
under a Private Car Comprehensive Policy MV-1251 issued by the defendant (Exh. A).

In its answer, the appellant Pyramid Insurance Co., Inc., alleged that it disallowed the claim
because at the time of the accident, the insured was driving his car with an expired driver's
license.

After the trial, the court a quo rendered judgment on October 29, 1969 ordering the defendant "to
pay the plaintiff the sum of P20,000.00, value of the insurance of the motor vehicle in question
and to pay the costs."

On November 26, 1969, the plaintiff filed a "Motion for Immediate Execution Pending Appeal."
It was opposed by the defendant, but was granted by the trial court on December 15, 1969.

The trial court found the following facts to be undisputed:

On October 12,1968, after having purchased a brand new Nissan Cedric de Luxe Sedan car
bearing Motor No. 087797 from the Ng Sam Bok Motors Co. in Bacolod City, plaintiff insured
the same with the defendant insurance company against any loss or damage for P 20,000.00 and
against third party liability for P 10,000.00. Plaintiff paid the defendant P 361.34 premium for
one year, March 12, 1968 to March 12, 1969, for which defendant issued Private Car
Comprehensive Policy No. MV-1251, marked Exhibit "A."

The automobile was, however, mortgaged by the plaintiff with the vendor, Ng Sam Bok Motors
Co., to secure the payment of the balance of the purchase price, which explains why the
registration certificate in the name of the plaintiff remains in the hands of the mortgagee, Ng
Sam Bok Motors Co.

On April 17, 1968, while driving the automobile in question, the plaintiff met a violent accident.
The La Carlota City fire engine crashed head on, and as a consequence, the plaintiff sustained
physical injuries, his father, Cesar Palermo, who was with am in the car at the time was likewise
seriously injured and died shortly thereafter, and the car in question was totally wrecked.

The defendant was immediately notified of the occurrence, and upon its orders, the damaged car
was towed from the scene of the accident to the compound of Ng Sam Bok Motors in Bacolod
City where it remains deposited up to the present time.

The insurance policy, Exhibit "A," grants an option unto the defendant, in case of accident either
to indemnify the plaintiff for loss or damage to the car in cash or to replace the damaged car. The
defendant, however, refused to take either of the above-mentioned alternatives for the reason as
alleged, that the insured himself had violated the terms of the policy when he drove the car in
question with an expired driver's license. (Decision, Oct. 29, 1969, p. 68, Record on Appeal.)

Appellant alleges that the trial court erred in interpreting the following provision of the Private
Car Comprehensive Policy MV-1251:

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 the licensing or other laws or regulations to drive
the Motor Vehicle and is not disqualified from driving such motor vehicle by order of a Court of
law or by reason of any enactment or regulation in that behalf. (Exh. "A.")

There is no merit in the appellant's allegation that the plaintiff was not authorized to drive the
insured motor vehicle because his driver's license had expired. The driver of the insured motor
vehicle at the time of the accident was, the insured himself, hence an "authorized driver" under
the policy.

While the Motor Vehicle Law prohibits a person from operating a motor vehicle on the highway
without a license or with an expired license, an infraction of the Motor Vehicle Law on the part
of the insured, is not a bar to recovery under the insurance contract. It however renders him
subject to the penal sanctions of the Motor Vehicle Law.

The requirement that the driver be "permitted in accordance with the licensing or other laws or
regulations to drive the Motor Vehicle and is not disqualified from driving such motor vehicle by
order of a Court of Law or by reason of any enactment or regulation in that behalf," applies only
when the driver" is driving on the insured's order or with his permission." It does not apply when
the person driving is the insured himself.

This view may be inferred from the decision of this Court in Villacorta vs. Insurance
Commission, 100 SCRA 467, where it was held that:

The main purpose of the "authorized driver" clause, as may be seen from its text, is that a person
other than the insured owner, who drives the car on the insured's order, such as his regular driver,
or with his permission, such as a friend or member of the family or the employees of a car
service or repair shop, must be duly licensed drivers and have no disqualification to drive a
motor vehicle.

In an American case, where the insured herself was personally operating her automobile but
without a license to operate it, her license having expired prior to the issuance of the policy, the
Supreme Court of Massachusetts was more explicit:

... Operating an automobile on a public highway without a license, which act is a statutory crime
is not precluded by public policy from enforcing a policy indemnifying her against liability for
bodily injuries The inflicted by use of the automobile." (Drew C. Drewfield McMahon vs.
Hannah Pearlman, et al., 242 Mass. 367, 136 N.E. 154, 23 A.L.R. 1467.)
WHEREFORE, the appealed decision is affirmed with costs against the defendant-appellant.

G.R. No. 94052 August 9, 1991

ORIENTAL ASSURANCE CORPORATION, petitioner,

vs.

COURT OF APPEALS AND PANAMA SAW MILL CO., INC., respondents.

Alejandro P. Ruiz, Jr. for petitioner.

Federico R. Reyes for private respondent.

MELENCIO-HERRERA, J:p

An action to recover on a marine insurance policy, issued by petitioner in favor of private

respondent, arising from the loss of a shipment of apitong logs from Palawan to Manila.

The facts relevant to the present review disclose that sometime in January 1986, private
respondent Panama Sawmill Co., Inc. (Panama) bought, in Palawan, 1,208 pieces of apitong
logs, with a total volume of 2,000 cubic meters. It hired Transpacific Towage, Inc., to transport
the logs by sea to Manila and insured it against loss for P1-M with petitioner Oriental Assurance
Corporation (Oriental Assurance). There is a claim by Panama, however, that the insurance
coverage should have been for P3-M were it not for the fraudulent act of one Benito Sy Yee
Long to whom it had entrusted the amount of P6,000.00 for the payment of the premium for a
P3-M policy.
Oriental Assurance issued Marine Insurance Policy No. OACM 86/002, which stipulated, among
others:

Name of Insured:

Panama Sawmill, Inc.

Karuhatan, Valenzuela

Metro Manila

Vessel:

MT. 'Seminole' Barge PCT 7,000-1,000 cubic meter apitong Logs

Barge Transpac 1,000-1,000 cubic meter apitong Logs

Voyage or Period of Insurance:

From Palawan-ETD January 16, 1986

To: Manila

Subject matter Insured:

2,000 cubic meters apitong Logs

Agreed Value

Amount Insured Hereunder:

Pesos: One Million Only (P1,000,000.00)

Philippine Currency

Premium P2,500.00 rate 0.250%

Doc. stamps 187.60 Invoice No. 157862

l % P/tax 25.00

TOTAL P2,712.50

CLAUSES, ENDORSEMENTS, SPECIAL CONDITIONS and WARRANTIES

Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the following clauses:

Civil Code Article 1250 Waiver clause

Typhoon warranty clause

Omnibus clause.

The logs were loaded on two (2) barges: (1) on barge PCT-7000,610 pieces of logs with a
volume of 1,000 cubicmeters; and (2) on Barge TPAC-1000, 598 pieces of logs, also with a
volume of 1,000 cubic meters.

On 28 January 1986, the two barges were towed by one tug-boat, the MT 'Seminole' But, as fate
would have it, during the voyage, rough seas and strong winds caused damage to Barge TPAC-
1000 resulting in the loss of 497 pieces of logs out of the 598 pieces loaded thereon.
Panama demanded payment for the loss but Oriental Assurance refuse on the ground that its
contracted liability was for "TOTAL LOSS ONLY." The rejection was upon the
recommendation of the Tan Gatue Adjustment Company.

Unable to convince Oriental Assurance to pay its claim, Panama filed a Complaint for Damages
against Ever Insurance Agency (allegedly, also liable), Benito Sy Lee Yong and Oriental
Assurance, before the Regional Trial Court, Kalookan, Branch 123, docketed as Civil Case No.
C-12601.

After trial on the merit, the RTC 1 rendered its Decision, with the following dispositive portion:

WHEREFORE, upon all the foregoing premises, judgment is hereby rendered:

1. Ordering the defendant Oriental Assurance Corporation to pay plaintiff Panama Saw Mill
Inc. the amount of P415,000.00 as insurance indemnity with interest at the rate of 12% per
annum computed from the date of the filing of the complaint;

2. Ordering Panama Saw Mill to pay defendant Ever Insurance Agency or Antonio Sy Lee
Yong, owner thereof, (Ever being a single proprietorship) for the amount of P20,000.00 as
attorney's fee and another amount of P20,000.00 as moral damages.

3. Dismissing the complaint against defendant Benito Sy Lee Yong.

SO ORDERED.

On appeal by both parties, respondent Appellate Court 2 affirmed the lower Court judgment in
all respects except for the rate of interest, which was reduce from twelve (12%) to six (6%) per
annum.
Both Courts shared the view that the insurance contract should be liberally construed in order to
avoid a denial of substantial justice; and that the logs loaded in the two barges should be treated
separately such that the loss sustained by the shipment in one of them may be considered as
"constructive total loss" and correspondingly compensable.

In this Petition for Review on Certiorari, Oriental Assurance challenges the aforesaid
dispositions. In its Comment, Panama, in turn, maintains that the constructive total loss should be
based on a policy value of P3-M and not P1-M, and prays that the award to Ever Insurance
Agency or Antonio Sy Lee Yong of damages and attorney's fees be set aside.

The question for determination is whether or not Oriental Assurance can be held liable under its
marine insurance policy based on the theory of a divisible contract of insurance and,
consequently, a constructive total loss.

Our considered opinion is that no liability attaches.

The terms of the contract constitute the measure of the insurer liability and compliance therewith
is a condition precedent to the insured's right to recovery from the insurer (Perla Compania de
Seguros, Inc. v. Court of Appeals, G.R. No. 78860, May 28, 1990, 185 SCRA 741). Whether a
contract is entire or severable is a question of intention to be determined by the language
employed by the parties. The policy in question shows that the subject matter insured was the
entire shipment of 2,000 cubic meters of apitong logs. The fact that the logs were loaded on two
different barges did not make the contract several and divisible as to the items insured. The logs
on the two barges were not separately valued or separately insured. Only one premium was paid
for the entire shipment, making for only one cause or consideration. The insurance contract must,
therefore, be considered indivisible.

More importantly, the insurer's liability was for "total loss only." A total loss may be either
actual or constructive (Sec. 129, Insurance Code). An actual total loss is caused by:

(a) A total destruction of the thing insured;

(b) The irretrievable loss of the thing by sinking, or by being broken up;

(c) Any damage to the thing which renders it valueless to the owner for the purpose for
which he held it; or

(d) Any other event which effectively deprives the owner of the possession, at the port of
destination, of the thing insured. (Section 130, Insurance Code).

A constructive total loss is one which gives to a person insured a right to abandon, under Section
139 of the Insurance Code. This provision reads:

SECTION 139. A person insured by a contract of marine insurance may abandon the thing
insured, or any particular portion thereof separately valued by the policy, or otherwise separately
insured, and recover for a total loss thereof, when the cause of the loss is a peril injured against,

(a) If more than three-fourths thereof in value is actually lost, or would have to be expended
to recover it from the peril;

(b) If it is injured to such an extent as to reduce its value more than three-fourths;

xxx xxx xxx

(Emphasis supplied)

Respondent Appellate Court treated the loss as a constructive total loss, and for the purpose of
computing the more than three-fourths value of the logs actually lost, considered the cargo in one
barge as separate from the logs in the other. Thus, it concluded that the loss of 497 pieces of logs
from barge TPAC-1000, mathematically speaking, is more than three-fourths () of the 598
pieces of logs loaded in that barge and may, therefore, be considered as constructive total loss.

The basis thus used is, in our opinion, reversible error. The requirements for the application of
Section 139 of the Insurance Code, quoted above, have not been met. The logs involved,
although placed in two barges, were not separately valued by the policy, nor separately insured.
Resultantly, the logs lost in barge TPAC-1000 in relation to the total number of logs loaded on
the same barge can not be made the basis for determining constructive total loss. The logs having
been insured as one inseparable unit, the correct basis for determining the existence of
constructive total loss is the totality of the shipment of logs. Of the entirety of 1,208, pieces of
logs, only 497 pieces thereof were lost or 41.45% of the entire shipment. Since the cost of those
497 pieces does not exceed 75% of the value of all 1,208 pieces of logs, the shipment can not be
said to have sustained a constructive total loss under Section 139(a) of the Insurance Code.

In the absence of either actual or constructive total loss, there can be no recovery by the insured
Panama against the insurer, Oriental Assurance.

By reason of the conclusions arrived at, Panama's asseverations in its Comment need no longer
be passed upon, besides the fact that no review, in proper form, has been sought by it.

WHEREFORE, the judgment under review is hereby SET ASIDE and petitioner, Oriental
Assurance Corporation, is hereby ABSOLVED from liability under its marine insurance policy
No. OAC-M-86/002. No costs.

SO ORDERED.

Paras, Padilla, Sarmiento and Regalado, JJ., concur.