INSURANCE LAW CASE DIGESTS
I. GENERAL PROVISIONS (Section 1)
A. Origin of Insurance
B. Laws Governing Insurance in the
Philippines
i. Insurance Code of 1978
ii. Civil Code (Articles 739, 2012, 2011,
2207)
iii. Special Laws
C. Insurance Contract (Section 2)
i. Definition
ii. Elements
iii. Characteristics
iv. Interpretation of Insurance Contracts
Simeon del Rosario vs. The Equitable Insurance
and Casualty Co Inc. (1963)
Facts:
On February 7, 1957, Equitable Insurance and
Casualty Co., Inc., issued Personal Accident Policy No.
7136 on the life of Francisco del Rosario, alias Paquito
Bolero, son of Simeon, binding itself to pay the sum of
P1,000.00 to P3,000.00, as indemnity for the death of
the insured.
The provisions of the insurance policy pertinent to the
case are as follows:
Part I. Indemnity For Death
If the insured sustains any bodily injury which is
effected solely through violent, external, visible and
accidental means, and which shall result,
independently of all other causes and within sixty (60)
days from the occurrence thereof, in the Death of the
Insured, the Company shall pay the amount set
opposite such injury:
Section 1. Injury sustained other than those specified
below unless excepted hereinafter. . . . . . . .
P1,000.00
Section 2. Injury sustained by the wrecking or
disablement of a railroad passenger car or street
railway car in or on which the Insured is travelling as a
farepaying passenger. . . . . . . P1,500.00
Part VI. Exceptions
This policy shall not cover disappearance of the
Insured nor shall it cover Death, Disability, Hospital
fees, or Loss of Time, caused to the insured:
. . . (h) By drowning except as a consequence of the
wrecking or disablement in the Philippine waters of a
passenger steam or motor vessel in which the Insured
is travelling as a farepaying passenger; . . . .
A rider to the Policy contained the following:
IV. DROWNING
It is hereby declared and agreed that exemption clause
Letter (h) embodied in PART VI of the policy is hereby
waived by the company, and to form a part of the
provision covered by the policy.
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A fire broke out in the motor launch ISLAMA. As a
consequence of which, Francisco del Rosario and 33
others were forced to jump off the launch. This
resulted in the death of Francisco and his beneficiary
Remedios Jayme.
Equitable insurance paid Simeon del Rosario, father of
Francisco Php1000 pursuant to Sec.1 of Part 1 of the
policy. On the day of receipt, Atty. Francisco wrote
Equitable acknowledging the receipt of Simeon of the
amount of Php1000 but informed the company that the
amount is incorrect as Simeon was entitled to
Php1,500, under Sec.2 Part 1 of the policy.
Equitable referred the matter to the Insurance
Commissioner who opined that the liability of the
company is only Php1000. Thus, Equitable refused to
pay. Subsequently, Atty. Francisco asked for Php3000
from Equitable. The company refused to pay. Hence a
complaint for the recovery of the balance was
instituted.
Issue:
How much should the indemnity be?
Ruling:
The CFI ruled that:
On the face of the policy Exhibit "A" itself, death by
drowning is a ground for recovery apart from the
bodily injury because death by bodily injury is covered
by Part I of the policy while death by drowning is
covered by Part VI thereof. But while the policy
mentions specific amounts that may be recovered for
death for bodily injury, yet, there is not specific
amount mentioned in the policy for death thru
drowning although the latter is, under Part VI of the
policy, a ground for recovery thereunder. Since the
defendant has bound itself to pay P1000.00 to
P3,000.00 as indemnity for the death of the insured
but the policy does not positively state any definite
amount that may be recovered in case of death by
drowning, there is an ambiguity in this respect in the
policy, which ambiguity must be interpreted in favor of
the insured and strictly against the insurer so as to
allow greater indemnity. Thus, del Rosario is entitled to
Php3000. Since Equitable has already paid Php1000, a
balance of Php2000 remains to be paid.
SC upheld the ruling of the CFI for it is supported by
the generally accepted principles of insurance, which
enunciate that where there is an ambiguity with
respect to the terms and conditions of the policy, the
same will be resolved against the one responsible
thereof.
It should be recalled in this connection, that generally,
the insured, has little, if any, participation in the
preparation of the policy, together with the drafting of
its terms and Conditions. The interpretation of obscure
stipulations in a contract should not favor the party
 INSURANCE LAW CASE DIGESTS
who cause the obscurity (Art. 1377, N.C.C.), which, in
the case at bar, is the insurance company.
. . . . 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 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 expert and legal advisers
employed by, and acting exclusively in the interest of,
the insurance company" (44 C.J.S. 1174). Calanoc v.
Court of Appeals, et al., G.R. No. L-8151, Dec. 16,
1955.
. . . . Where two interpretations, equally fair, of
languages used in an insurance policy may be made,
that which allows the greater indemnity will prevail.
(L'Engel v. Scotish Union & Nat. F. Ins. Co., 48 Fla. 82,
37 So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann.
Cas. 749).
At any event, the policy under consideration, covers
death or disability by accidental means, and the
appellant insurance company agreed to pay P1,000.00
to P3,000.00. is indemnity for death of the insured.
FIELDMENS INSURANCE CO. vs. VDA. DE
SONGCO
FACTS:
Federico Songco owned a private jeepney. On
September 15, 1960, he was induced by Fieldmen's
insurance agent Benjamin Sambat to apply for a
Common Carrier's Liability Insurance Policy covering
his motor vehicle. He was issued a Common Carriers
Accident Insurance Policy. On the next year, he
renewed the policy by paying the annual premium.
During the effectivity of the renewed policy, the
insured vehicle collided with another car while being
driven by Rodolfo Songco, a duly licensed driver and
son of Federico (the vehicle owner). As a result,
Federico Songco (father) and Rodolfo Songco (son)
died, along with other passengers.
A claim was filed but was denied by the insurance
company on the pretext that what was insured was a
private vehicle and not a common carrier. During the
trial, it was declared by a witness that when insurance
agent Benjamin Sambat was inducing Songco to insure
his vehicle, the latter butted in saying, Our vehicle is
a private vehicle and not for passengers. But the
agent replied: Regardless of whether your vehicle was
an owner-type or for passengers, it could still be
insured because our company is not owned by the
Government. And the Government has nothing to do
with our company.
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The Court of Appeals rendered a decision in favor of
the claimants. It held that where inequitable conduct is
shown by an insurance firm, it is estopped from
enforcing forfeitures in its favor, in order to forestall
fraud or imposition on the insured. After Fieldmen's
Insurance Co. had led the insured Songco to believe
that he could qualify under the common carrier liability
insurance policy, it could not, thereafter, be permitted
to change its stand to the detriment of the heirs of the
insured. The failure to apply the Doctrine of Estoppel in
this case would result in a gross travesty of justice.
ISSUE:
Whether or not the insurance claim is proper?
RULING:
The fact that the insured owned a private vehicle, not
a common carrier, was something which the company
knew all along. In fact, it exerted the utmost pressure
on the insured, a man of scant education, to enter into
the contract of insurance. The Court of Appeals also
held that since some of the conditions contained in the
policy were impossible to comply with under the
existing conditions at the time, the insurer is estopped
from asserting breach of such conditions.
The Supreme Court, in affirming the decision of the
Court of Appeals, took judicial notice of the fact that
nowadays, monopolies, cartels and concentration of
capital, endowed with overwhelming economic power,
manage to impose upon parties dealing with them
cunningly prepared agreements that the weaker
party may not change one whit, his participation in the
agreement being reduced to the alternative of take it
or leave it labelled since Raymond Saleilles as
contracts by adherence (contrats d'adhesion), in
contrast to those entered into by parties bargaining on
an equal footing, such contracts (i.e. insurance policies
& international bills of lading) obviously call for greater
strictness and vigilance on the part of courts of justice
with a view to protecting the weaker party from
abuses.
Citing the case of Qua Chee Gan vs. Law Union & Rock
Insurance, "The contract of insurance is one of
perfect good faith (uberima fides) not for the insured
alone but equally so for the insurer; in fact, it is more
so for the latter, since its dominant bargaining position
carries with it stricter responsibility."
Landicho vs. GSIS
[G.R. No. L-28866 March 17, 1972]
FACTS:
On June 1, 1964, the GSIS issued in favor of Flaviano
Landicho, a civil engineer of the Bureau of Public
Works, stationed at Mamburao, Mindoro Occidental,
optional additional life insurance policy No. OG-136107
in the sum of P7,900. xxx
 INSURANCE LAW CASE DIGESTS
Before the issuance of said policy, Landicho had filed
an application, by filing and signing a printed form of
the GSIS on the basis of which the policy was issued.
Paragraph 7 of said application States:
7. xxx I hereby agree as follows: xxx
c. That this application serves as a
letter of authority to the Collecting
Officer of our Office thru the GSIS to
deduct from my salary the monthly
premium in the amount of P33.36,
beginning the month of May, 1964,
and every month thereafter until notice
of its discontinuance shall have
beenreceived from the System; .
d. That the failure to deduct from my
salary the month premiums shall not
make the policy lapse, however, the
premium account shall be considered
as indebtedness which, I bind myself to
pay the System; .
e. That my policy shall be made
effective on the first day of the month
next following the month the first
premium is paid; provided, that it is
not more ninety (90) days before or
after the date of the medical
examination, was conducted if
required."
While still an employee of the Bureau of Public Works,
Mr. Landicho died in an airplane crash on June 29,
1966. Mrs. Landicho, in her own behalf and that of her
co-plaintiffs and minor children, Rafael J. and Maria
Lourdes Eugenia, filed with the GSIS a claim for
P15,800, as the double indemnity due under policy No.
OG-136107. GSIS denied the claim, upon the ground
that the policy had never been in force because,
pursuant to subdivision (e) of the above-quoted
paragraph 7 of the application, the policy "shall be ...
effective on the first day of the month next following
the month the first premium is paid," and no premium
had ever been paid on said policy. The Lower Court
decided in favor of the petitioner. GSIS appealed to the
Supreme Court.
ISSUE:
WON the insurance policy in question has ever been in
force, not a single premium having been paid thereon.
RULING: Lower Court decision is sustained.
(T)he language, of subdivisions (c), (d) and (e) is such
as to create an ambiguity that should be resolved
against the party responsible therefor defendant
GSIS, as the party who prepared and furnished the
application form and in favor of the party misled
thereby, the insured employee.
Indeed, our Civil Code provides:
The interpretation of obscure words or
stipulations in a contract shall not favor
the party who caused the obscurity. 2
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This is particularly true as regards insurance policies,
in respect of which it is settled that the " "terms in an
insurance policy, which are ambiguous, equivocal, or
uncertain ... 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 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.) 3.
The equitable and ethical considerations justifying the
foregoing view are bolstered up by two (2) factors,
namely:
(a) The aforementioned subdivision (c) states "that
this application serves as a letter of authority to the
Collecting Officer of our Office" the Bureau of Public
Works "thru the GSIS to deduct from my salary the
monthly premium in the amount of P33.36." No such
deduction was made and, consequently, not even
the first premium "paid" because the collecting
officer of the Bureau of Public Works was not advised
by the GSIS to make it (the deduction) pursuant to
said authority. Surely, this omission of the GSIS should
not inure to its benefit. .
(b) The GSIS had impliedly induced the insured to
believe that Policy No. OG-136107 was in force, he
having been paid by the GSIS the dividends
corresponding to said policy. Had the insured had the
slightest inkling that the latter was not, as yet,
effective for non-payment of the first premium, he
would have, in all probability, caused the same to be
forthwith satisfied.
WHEREFORE, the decision appealed from should be, it
is hereby affirmed, with costs against the defendant-
appellant, Government Service Insurance System. It is
so ordered. .
DELA CRUZ V. CAPITAL INS. & SURETY CO., INC.
DEATH RESULTING FROM BOXING IS AN ACCIDENT
SINCE DEATH IS NOT A NATURAL OR PROBABLE
RESULT OF BOXING.
Facts:
Eduardo de la Cruz, employed as a mucker in the
Itogon-Suyoc Mines, Inc. in Baguio, was the holder of
an accident insurance policy underwritten by the
Capital Insurance & Surety Co., Inc., In connection
with the celebration of the New Year, the Itogon-Suyoc
Mines, Inc. sponsored a boxing contest for general
entertainment wherein the insured Eduardo de la Cruz,
a non-professional boxer participated. In the course of
his bout with another person, likewise a non-
professional, of the same height, weight, and size,
 INSURANCE LAW CASE DIGESTS
Eduardo slipped and was hit by his opponent on the
left part of the back of the head, causing Eduardo to
fall, with his head hitting the rope of the ring. He was
brought to the Baguio General Hospital where he
expired the the following day. The cause of death was
reported as hemorrhage, intracranial, left.
Simon de la Cruz, the father of the insured and who
was named beneficiary under the policy, thereupon
filed a claim with the insurance company for payment
of the indemnity under the insurance policy
Defendant insurer set up the defense that the death of
the insured, caused by his participation in a boxing
contest, was not accidental and, therefore, not covered
by insurance.
blow in the head and would not have died. The fact
that boxing is attended with some risks of external
injuries does not make any injuries received in the
course of the game not accidental.
-Ty
New Life Enterprises vs Court of Appeals
By: Yin Oliveros
FACTS:
Julian Sy and Jose Sy formed a partnership
under the business name of New Life
Enterprises. They were holding their business
in a two-storey building in Lucena City.

Issue: Julian Sy insured the stocks in trade of New

Life Enterprises under three insurance
Whether the death of Eduardo was accidental since he companies.
entered in the boxing contest voluntarily.
INSURANCE TYPE OF AMOUNT
Ruling: COMPANY INSURANCE
Western Fire Insurance 350, 000. 00
The terms "accident" and "accidental", as used in Guaranty Policy
insurance contracts, have not acquired any technical Corporation - This policy
meaning, and are construed by the courts in their was
ordinary and common acceptation. Thus, the terms renewed
have been taken to mean that which happen by chance Reliance Fire Insurance 300, 000. 00
or fortuitously, without intention and design, and which Surety and Policy
is unexpected, unusual, and unforeseen. An accident is
- There was an
Insurance Co., This policy was additional
an event that takes place without one's foresight or Inc. also renewed.
expectation an event that proceeds from an insurance
unknown cause, or is an unusual effect of a known issued in the
cause and, therefore, not expected. amount of
700, 000. 00
It may be mentioned in this connection, that the Equitable Fire Insurance 200, 000. 00
tendency of court decisions in the United States in the Insurance Policy
recent years is to eliminate the fine distinction Corporation
between the terms "accidental" and "accidental means" TOTAL: 1, 550,
and to consider them as legally synonymous. 000. 00

The generally accepted rule is that, death or injury
does not result from accident or accidental means
within the terms of an accident-policy if it is the
natural result of the insured's voluntary act,
unaccompanied by anything unforeseen except the
death or injury. 3 There is no accident when a
deliberate act is performed unless some additional,
unexpected, independent, and unforeseen happening
occurs which produces or brings about the result of
injury or death. 4 In other words, where the death or
injury is not the natural or probable result of the
insured's voluntary act which produces the injury, the
resulting death is within the protection of policies
insuring against the death or injury from accident.
In the present case, while the participation of the
insured in the boxing contest is voluntary, the injury
was sustained when he slid, giving occasion to the
infliction by his opponent of the blow that threw him to
the ropes of the ring. Without this unfortunate
incident, that is, the unintentional slipping of the
deceased, perhaps he could not have received that
The building occupied by New Life Enterprises
was gutted by fire caused by a faulty electrical
wiring. According to the plaintiffs, the stocks in
trade were inside said building and were thus
burned.
Julian Sy, together with an agent of Reliance
Insurance, filed his claim. To support his claim,
he submitted a fire clearance, the insurance
policies and the inventory of stocks. He further
testified that the three insurance companies
are sister companies, and as a matter of fact
when he was following-up his claim with
Equitable Insurance, the Claims Manager told
him to go first to Reliance Insurance and if said
company agrees to pay, they would also pay.
Ultimately, the three insurance companies
denied plaintiffs' claim for payment due to
BREACH OF POLICY CONDITIONS.
Reliance Surety and Insurance Company
claimed that plaintiff violated Policy Condition

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Page 4
 INSURANCE LAW CASE DIGESTS
No. "3" which requires the insured to give
notice of any insurance or insurances already
effected covering the stocks in trade.
The Trial Court ruled in favor of the plaintiff
that was reversed by the Court of Appeals.
ISSUE:
Whether or not the plaintiff incurred a breach
in the policy conditions?
RULING:
The Supreme Court ruled in favor of the
insurance companies.
The terms of the contract are clear and
unambiguous. The insured is specifically
required to disclose to the insurer any other
insurance and its particulars that he may have
effected on the same subject matter. The
knowledge of such insurance by the insurer's
agents is not the "notice" that would estop the
insurers from denying the claim.
Thus, it points out that while petitioner Julian
Sy claimed that he had informed insurance
agent Alvarez regarding the co-insurance on
the property, he contradicted himself by
inexplicably claiming that he had not read the
terms of the policies.
Furthermore, when the words and language
of documents are clear and plain or
readily understandable by an ordinary
reader thereof, there is absolutely no
room for interpretation or construction
anymore. Courts are not allowed to make
contracts for the parties; rather, they will
intervene only when the terms of the
policy are ambiguous, equivocal, or
uncertain. The parties must abide by the
terms of the contract because such terms
constitute the measure of the insurer's liability
and compliance therewith is a condition
precedent to the insured's right of recovery
from the insurer.
While it is a cardinal principle of insurance
law that a policy or contract of insurance
is to be construed liberally in favor of the
insured and strictly against the insurer
company, yet contracts of insurance, like
other contracts, are to be construed
according to the sense and meaning of the
terms which the parties themselves have
used. If such terms are clear and
unambiguous, they must be taken and
understood in their plain, ordinary and
popular sense. Moreover, obligations arising
from contracts have the force of law between
the contracting parties and should be complied
with in good faith.
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It was incumbent upon petitioner Sy to read
the insurance contracts, and this can be
reasonably expected of him considering that he
has been a businessperson since 1965.
Furthermore, the contract concerns indemnity
in case of loss in his moneymaking trade of
which he should have been aware as it was
precisely the reason for his procuring the
insurance.
v. What constitutes doing an insurance
business
D. Perfection of the Contract of Insurance
a. Offer and Acceptance/Consensuality
(1) Delay in Acceptance
(2) Delivery of Policy
II. CONTRACT OF INSURANCE
A. What may be insured (Sections 3, 4 and 5)
B. Parties to the Contract (Sections 6, 7, 8 and
9)
i. Who may be an insurer
ii. Who may be insured
iii. Rules on insurance by mortgagor or
mortgagee
iv. Transfer of insurance from mortgagor to
mortgagee
-Filipinas
-Geagonio
-PNB
PALILEO v. COSIO
[G.R. No. L-7667 November 28, 1955]
FACTS:
On Dec. 18, 1951, Palileo obtained from Cosio a loan in
the sum of 12,000. Pursuant to their agreement,
Palileo paid to Cosio as interest on the loan a total of
P2,250 corresponding to 9 mos from Dec 18, 1951, on
the basis of P250 a month, which is more than the
maximum interest allowed by law. To secure the
payment of the aforesaid loan, defendant required
plaintiff to sign a a document known as Conditional
Sale of Residential Bldg purporting to convey to
defendant, with right to repurchase, a two-story
building of strong materials belonging to plaintiff. This
document did not express the true intention of the
parties, which was merely to place said property as
security for the payment of the loan. After the
execution of the document, defendant insured the
building against fire with the Associated Insurance &
Surety Co., Inc. for the sum of P15000, the insurance
policy having been issued in the name of defendant.
The building was partly destroyed by fire and, after
proper demand, defendant collected from the
insurance company an indemnity of P13,107. Plaintiff
demanded from defendant that she be credited with
 INSURANCE LAW CASE DIGESTS
the necessary amount to pay her obligation out of the
insurance proceeds but defendant refused to do so.
Upon these facts, the trial court held that the
defendant should credit the sum of P13,107 received
by him from the Associated Insurance & Surety Co.,
Inc. to the payment of plaintiffs obligation in the sum
of P12000, thus considering the agreement fully paid
and leaving a balance of P1107 from the insurance
collected by the defendant; and since plaintiff had paid
to defendant P2250 for 9 mos for interest which
exceeds the 12 percent per annum legal interest
(P1440 for one year), plaintiff overpaid P810,
defendant should refund plaintiff the total of P1107
plus P810 and to pay the costs.
ISSUE:
WON the trial court is justified in considering the
obligation of plaintiff fully compensated by the
insurance amount and in ordering defendant to refund
to plaintiff the sum of P1107 representing the
difference of the loan of 12K from the sum of P13107
collected by defendant from insurance notwithstanding
the fact that it was proven that the insurance was
taken for the benefit of the mortgagor?
HELD:
SC modified the judgment of the lower court as
follows: (1) the transaction had between the plaintiff
and defendant was merely an equitable mortgage
intended to secure the payment of the loan of 12K; (2)
that the proceeds of the insurance amounting to P13,
107 was properly collected by defendant who is not
required to account for it to the plaintiff; (3) that the
collection of said insurance proceeds shall not be
deemed to have compensated the obligation of the
plaintiff to the defendant, but bars the latter from
claiming its payment from the former; and (4)
defendant shall pay to the plaintiff the sum of P810
representing the overpayment made by plaintiff by
way of interest on the loan.
The rule is that where a mortgagee, independently of
the mortgagor, insures the mortgaged property in his
own name and for his own interest, he is entitled to
the insurance proceeds in case of loss, but in such
case, he is not allowed to retain his claim against the
mortgagor, but is passed by subrogation to the insurer
to the extent of the money paid. Or, stated in another
way, the mortgagee may insure his interest in the
property independently of the mortgagor. In that
event, upon the destruction of the property the
insurance money paid to the mortgagee will not inure
to the benefit of the mortgagor, and the amount due
under the mortgage debt remains unchanged. The
mortgagee, however, is not allowed to retain his claim
against the mortgagor, but it passes by subrogation to
the insurer, to the extent of the insurance money
paid.
The general rule and the weight of authority is, that
the insurer is thereupon subrogated to the rights of the
EH 403 2010-2011 2011-2012
Page 6
mortgagee under the mortgage. This is put upon the
analogy of the situation of the insurer to that of a
surety.
The correct solution, contrary to the trial courts ruling,
should be that the proceeds of the insurance should be
delivered to the defendant but that her claim against
the plaintiff should be considered assigned to the
insurance company who is deemed subrogated to the
rights of the defendant to the extent of the money paid
as indemnity.
C. Insurable Interest
i. Insurable Interest in life and health
(Section 10)
El Oriente Fabrica de Tabacos, Inc. vs. Juan
Posadas, Collector of Internal Revenue
[G.R. No. 34774, September 21, 1931]
Facts:
Insurer: Manufacturers Life Insurance Co., of Toronto,
Canada, thru its local agent E.E. Elser
Insured: A. Velhagen (manager of El Oriente)
Beneficiary: El Oriente Fabrica de Tabacos, Inc.
El Oriente, in order to protect itself against the loss
that it might suffer by reason of the death of its
manager, whose death would be a serious loss to El
Oriente procured from the Insurer an insurance policy
on the life of the said manager for the sum of 50,000
USD with El Oriente as the designated sole beneficiary.
The insured has no interest or participation in the
proceeds of said life insurance policy.
El Oriente charged as expenses of its business all the
said premiums and deducted the same from its gross
incomes as reported in its annual income tax returns,
which deductions were allowed by Posadas (Collector
of Internal Revenue) upon showing by El Oriente that
such premiums were legitimate expenses of the
business.
Upon the death of the manager, El Oriente received all
the proceeds of the life insurance policy together with
the interest and the dividends accruing thereon,
aggregating P104,957.88. Posadas assessed and
levied the sum of P3,148.74 as income tax on the
proceeds of the insurance policy, which was paid by El
Oriente under protest. El Oriente claiming exemption
under Section 4 of the Income Tax Law.
Issue:
Whether or not the proceeds of insurance taken by a
corporation on the life of an important official to
indemnify it against loss in case of his death, are
taxable as income under the Philippine Income Tax
Law?
Ruling:
 INSURANCE LAW CASE DIGESTS
The Income Tax Law for the Philippines is Act No.
2833, as amended. In chapter I On Individuals, is
to be found section 4 which provides that, "The
following incomes shall be exempt from the provisions
of this law: (a) The proceeds of life insurance policies
paid to beneficiaries upon the death of the
insured ... ." The Chapter on Corporations does not
provide as above. It is certain that the proceeds of life
insurance policies are exempt. It is not so certain that
the proceeds of life insurance policies paid to corporate
beneficiaries upon the death of the insured are likewise
exempt.
The situation will be better elucidated by a brief
reference to laws on the same subject in the United
States. The Income Tax Law of 1916 extended to the
Philippine Legislature, when it came to enact Act No.
2833, to copy the American statute. Subsequently, the
Congress of the United States enacted its Income Tax
Law of 1919, in which certain doubtful subjects were
clarified. Thus, as to the point before us, it was made
clear, when not only in the part of the law concerning
individuals were exemptions provided for beneficiaries,
but also in the part concerning corporations, specific
reference was made to the exemptions in favor of
individuals, thereby making the same applicable to
corporations. This was authoritatively pointed out and
decided by the United States Supreme Court in the
case of United States vs. Supplee-Biddle Hardware Co.
( [1924], 265 U.S., 189), which involved facts quite
similar to those before us.
To quote the exact words in the cited case of Chief
Justice Taft delivering the opinion of the court:
It is earnestly pressed upon us that proceeds of life
insurance paid on the death of the insured are in
fact capital, and cannot be taxed as income that
proceeds of a life insurance policy paid on the
death of the insured are not usually classed as
income.
Considering, therefore, the purport of the stipulated
facts, considering the uncertainty of Philippine law, and
considering the lack of express legislative intention to
tax the proceeds of life insurance policies paid to
corporate beneficiaries, particularly when in the
exemption in favor of individual beneficiaries in the
chapter on this subject, the clause is inserted "exempt
from the provisions of this law," we deem it reasonable
to hold the proceeds of the life insurance policy in
question as representing an indemnity and not taxable
income.
The foregoing pronouncement will result in the
judgment being reversed and in another judgment
being rendered in favor of El Oriente.
ii. Rules on change of beneficiary (Section
11)
Digested by: Anne
EH 403 2010-2011 2011-2012
Page 7
THE INSULAR LIFE ASSURANCE COMPANY, LTD.
vs. CARPONIA T. EBRADO and PASCUALA VDA. DE
EBRADO
[G.R. No. L-44059 October 28, 1977]
Facts of the Case:
On September 1, 1968, Buenaventura Cristor Ebrado
was issued by The Life Assurance Co., Ltd., Policy No.
009929 on a whole-life for P5,882.00 with a, rider for
Accidental Death for the same amount Buenaventura
C. Ebrado designated Carpponia T. Ebrado as the
revocable beneficiary in his policy. He to her as his
wife.
On October 21, 1969, Buenaventura C. Ebrado died
when he was hit by a failing branch of a tree. As the
policy was in force, The Insular Life Assurance Co.,
Ltd. liable to pay the coverage in the total amount of
P11,745.73, representing the face value of the policy
in the amount of P5,882.00 plus the additional benefits
for accidental death also in the amount of P5,882.00
and the refund of P18.00 paid for the premium due
November, 1969, minus the unpaid premiums and
interest thereon due for January and February, 1969,
in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for
the proceeds of the Policy as the designated
beneficiary therein, although she admits that she and
the insured Buenaventura C. Ebrado were merely living
as husband and wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the
widow of the deceased insured. She asserts that she is
the one entitled to the insurance proceeds, not the
common-law wife, Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be
paid, the insurer, The Insular Life Assurance Co., Ltd.
commenced an action for Interpleader before the Court
of First Instance of Rizal on April 29, 1970.
After the issues have been joined, a pre-trial
conference was held. In the pre-trial conference the
parties submits evidence and make admissions.xxx; 8)
that the beneficiary designated by the insured in the
policy is Carponia Ebrado and the insured made
reservation to change the beneficiary but although the
insured made the option to change the beneficiary,
same was never changed up to the time of his death
and the wife did not have any opportunity to write the
company that there was reservation to change the
designation of the parties it agreed that a decision be
rendered based on and stipulation of facts as to who
among the two claimants is entitled to the policy.
On September 25, 1972, the trial court rendered
judgment declaring among others, Carponia T. Ebrado
disqualified from becoming beneficiary of the insured
Buenaventura Cristor Ebrado and directing the
payment of the insurance proceeds to the estate of the
deceased insured. The trial court held that.It is patent
from the last paragraph of Art. 739 of the Civil Code
 INSURANCE LAW CASE DIGESTS
that a criminal conviction for adultery or concubinage
is not essential in order to establish the disqualification
mentioned therein. Neither is it also necessary that a
finding of such guilt or commission of those acts be
made in a separate independent action brought for the
purpose. The guilt of the donee (beneficiary) may be
proved by preponderance of evidence in the same
proceeding (the action brought to declare the nullity of
the donation).
Since it is agreed in their stipulation during the pre-
trial that the deceased insured and defendant Carponia
T. Ebrado were living together as husband and wife
without being legally married and that the marriage of
the insured with the other defendant Pascuala Vda. de
Ebrado was valid and still existing at the time the
insurance in question was purchased there is no
question that defendant Carponia T. Ebrado is
disqualified from becoming the beneficiary of the policy
in question and as such she is not entitled to the
proceeds of the insurance upon the death of the
insured.
Issue of the Case:
Can a common-law wife named as beneficiary in the
life insurance policy of a legally married man claim the
proceeds thereof in case of death of the latter?
Ruling:
The SC affirmed the decision of the trial court.
under Article 2012 of the same Code, "any person who
is forbidden from receiving any donation under Article
739 cannot be named beneficiary of a fife insurance
policy by the person who cannot make a donation to
him. Common-law spouses are, definitely, barred from
receiving donations from each other. Article 739 of the
new Civil Code provides: The following donations shall
be void:
1. Those made between persons who were guilty of
adultery or concubinage at the time of donation;
2. Those made between persons found guilty of the
same criminal offense, in consideration thereof;
3. Those made to a public officer or his wife,
descendants or ascendants by reason of his office.
In the case referred to in No. 1, the action for
declaration of nullity may be brought by the spouse of
the donor or donee; and the guilt of the donee may be
proved by preponderance of evidence in the same
action.
The underscored clause neatly conveys that no
criminal conviction for the offense is a condition
precedent. In fact, it cannot even be from the
aforequoted provision that a prosecution is needed. On
the contrary, the law plainly states that the guilt of the
party may be proved "in the same acting for
declaration of nullity of donation. And, it would be
sufficient if evidence preponderates upon the guilt of
the consort for the offense indicated. The quantum of
proof in criminal cases is not demanded.
EH 403 2010-2011 2011-2012
Page 8
In the caw before Us, the requisite proof of common-
law relationship between the insured and the
beneficiary has been conveniently supplied by the
stipulations between the parties in the pre-trial
conference of the case. It case agreed upon and
stipulated therein that the deceased insured
Buenaventura C. Ebrado was married to Pascuala
Ebrado with whom she has six legitimate children; that
during his lifetime, the deceased insured was living
with his common-law wife, Carponia Ebrado, with
whom he has two children. These stipulations are
nothing less than judicial admissions which, as a
consequence, no longer require proof and cannot be
contradicted. A fortiori, on the basis of these
admissions, a judgment may be validly rendered
without going through the rigors of a trial for the sole
purpose of proving the illicit liaison between the
insured and the beneficiary. In fact, in that pretrial,
the parties even agreed "that a decision be rendered
based on this agreement and stipulation of facts as to
who among the two claimants is entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower
court is hereby affirmed. Carponia T. Ebrado is hereby
declared disqualified to be the beneficiary of the late
Buenaventura C. Ebrado in his life insurance policy. As
a consequence, the proceeds of the policy are hereby
held payable to the estate of the deceased insured.
Costs against Carponia T. Ebrado.
SO ORDERED.
SOUTHERN LUZON EMPLOYEES ASSN. V. GOLPEO
Digested by Margaret Frances Aparte
Note:
A common law wife of the insured who has a legal wife
is disqualified as beneficiary. It is not required that
there be a previous conviction for adultery or
concubinage for the prohibition to apply. However, in
an earlier case (such as the present case), the
common-law wife designated prevailed over the legal
wife because the case took place while the Old Civil
Code was still applicable, under which there was no
provision similar to Art.2012.
FACTS:
Southern Luzon Employees' Association is composed of
laborers and employees of Laguna tayabas Bus Co.,
and Batangas Transportation Company, and one of its
purposes is mutual aid of its members and their
defendants in case of death.
Roman A. Concepcion was a member until his death on
December 13, 1950. In the form required by the
association to be accomplished by its members, with
reference to the death benefit, Roman A. Concepcion
listed as his beneficiaries Aquilina Maloles, Roman M.
 INSURANCE LAW CASE DIGESTS
Concepcion, Jr., Estela M. Concepcion, Rolando M.
Concepcion and Robin M. Concepcion.
After the death of Roman A. Concepcion, the
association was able to collect voluntary contributions
from its members amounting to P2,505. Three sets of
claimants presented themselves, namely, (1) Juanita
Golpeo, legal wife of Roman A. Concepcion, and her
children; (2) Aquilina Maloles, common law wife of
Roman A. Concepcion, and her children, named
beneficiaries by the deceased; and (3) Elsie Hicban,
another common law wife of Roman A. Concepcion,
and her child.
The court rendered a decision, declaring the
defendants Aquiliana Malolos and her children the sole
beneficiaries of the sum of P2,505.00 and ordering the
plaintiff to deliver said amount to them.
ISSUE:
WHETHER OR NOT THE COURT COMMITED ERROR IN
DESIGNATING A COMMON LAW WIFE OF AN INSURED
AS THE BENEFICIARY INSTEAD OF THE LEGAL WIFE.
Remember: This case took place while the Old Civil
Code was still applicable.
HELD: Judgment affirmed.
The decision is based mainly on the theory that the
contract between the plaintiff and the deceased Roman
A. Concepcion partook of the nature of an insurance
and that, therefore, the amount in question belonged
exclusively to the beneficiaries, invoking the following
pronouncements of this Court in the case of Del Val vs.
Del Val, 29 Phil., 534:
With the finding of the trial court that the proceeds
of the life-insurance policy belongs exclusively to
the defendant as his individual and separate
property, we agree. That the proceeds of an
insurance policy belong exclusively to the
beneficiary and not to the estate of the person
whose life was insured, and that such proceeds are
the separate and individual property of the
beneficiary, and not of the heirs of the person
whose life was insured, is the doctrine in America.
We believe that the same doctrine obtains in these
Islands by virtue of section 428 of the Code of
Commerce, which reads:
"The amounts which the underwriter must deliver
to the person insured, in fulfillment of the contract,
shall be the property creditors of any kind
whatsoever of the person who effected the
insurance in favor of the formers."
AS TO THE CONTENTION OF THE COUNSELS
PLAINTIFF THAT THE PROCEEDS OF THE INSURANCE
POLICY WERE DONATION OR GIFT MADE BY THE
FATHER DURING HIS LIFETIME, SUCH THAT UNDER
THE CIVIL CODE ARE NOT BETTERMENTS AND SHALL
BE CONSIDERED AS PART OF THE LEGAL PORTION.
EH 403 2010-2011 2011-2012
Page 9
The court disagrees with this contention. The contract
of life insurance is a special contract and the
destination of the proceeds thereof is determined by
special laws which deal exclusively with that subject.
The Civil Code has no provisions which relate directly
and specifically to life-insurance contract or to the
destination of life-insurance proceeds. That subject is
regulate exclusively by the Code of Commerce which
provides for the terms of the contract, the relations of
the parties and the destination of the proceeds of the
policy.
Digested by: Kwin Asunto
SOCIAL SECURITY SYSTEM vs. CANDELARIA D.
DAVAC
[G.R. No. L-21642. July 30, 1966.]
Facts:
This is an appeal from the resolution of the Social
Security Commission declaring respondent Candelaria
Davac as the person entitled to receive the death
benefits payable for the death of Petronilo Davac.
The late Petronilo Davac, a former employee of Lianga
Bay Logging Co. Inc. became a member of the Social
Security System (SSS for short) on September 1,
1957. He designated respondent Candelaria Davac as
his beneficiary and indicated his relationship to her as
that of "wife". When he died, each of the respondents
(Candelaria Davac and Lourdes Tuplano) filed their
claims for death benefit with the SSS. It appears from
their respective claims and the documents submitted
in support thereof, that the deceased contracted two
marriages, the first, with claimant Lourdes Tuplano on
August 29, 1946, who bore him a child, Romeo Davac
and the second, with claimant Candelaria Davac on
January 18, 1949, with whom he had a minor
daughter, Elizabeth Davac. Due to their conflicting
claims, the processing thereof was held in abeyance,
whereupon the SSS filed this petition praying that
respondents be required to interplead and litigate
between themselves their conflicting claims over the
death benefits in question.
Issue:
Whether or not the Social Security Commission acted
correctly in declaring respondent Candelaria Davac as
the person entitled to receive the death benefits in
question.
Held: yes.
The benefit receivable under the Social Security Act is
in the nature of a special privilege or an arrangement
secured by the law, pursuant to the policy of the State
to provide social security to the workingmen. The
amounts that may thus be received cannot be
considered as property earned by the member during
his lifetime, and, hence, do not form part of the
properties of the conjugal partnership or of the estate
of the said member. They are disbursed from a public
 INSURANCE LAW CASE DIGESTS
special fund created by Congress pursuant to the
declared policy of the Republic "to develop, establish
gradually and perfect a social security system which . .
. shall provide protection against the hazards of
disability, sickness, old age and death." (Section 1,
Republic Act No. 1792.) Consequently, if there is a
named beneficiary and the designation is not invalid, it
is not the heirs of the employee who are entitled to
receive the benefits, unless they are the designated
beneficiaries themselves. It is only when there is no
designated beneficiary or when the designation is void
that the laws of succession become applicable. The
Social Security Act is not a law of succession.
Digested by: Rachel R. Aying
RE: CLAIMS FOR BENEFITS OF THE HEIRS OF THE
LATE MARIO V. CHANLIONGCO, FIDELA B
CHANLIONGCO, MARIO B. CHANLIONGCO II, MA.
ANGELINA C. BUENAVENTURA and MARIO C.
CHANLIONGCO, JR.
Facts:
This matter refers to the claims for retirement benefits
filed by the heirs of the late ATTY. MARIO V.
CHANLIONGCO an attorney of the Court, it is in the
records that at the time of his death, Atty. Chanliongco
was more than 63 years of age, with more than 38
years of service in the government. He did not have
any pending criminal administrative or not case against
him, neither did he have any money or property
accountability. The highest salary he received was
P18,700.00 per annum.
Aside from his widow, Dra. Fidel B. Chanliongco and an
only Intimate Mario it appears that there are other
deceased to namely, Mrs. Angelina C. , Jr., both born
out of wedlock to Angelina R Crespo, and duly
recognized by the deceased. Except Mario, Jr., who is
only 17 years of age, all the claimants are of legal age.
According to law, the benefits accruing to the deceased
consist of: (1) retirement benefits; (2) money value of
terminal leave; (3) life insurance and (4) refund of
retirement premium.
From the records now before US, it appears that the
GSIS had already the release the life insurance
proceeds; and the refund of rent to the claimants.
RULING:
The record also shows that the late Atty. Chanliongco
died ab intestato and that he filed or over to state in
his application for membership with the GSIS the
beneficiary or benefits of his retirement benefits,
should he die before retirement. Hence, the retirement
benefits shall accrue to his estate and will be
distributed among his Legal heirs in with the benefits
on intestate s , as in the caw of a fife if no benefit is
named in the policy (Vda. de vs. GSIS, L-28093, Jan.
30, 1971, 37 SCRA 315, 325).
EH 403 2010-2011 2011-2012
Page 10
AQUINO, J., concurring:
There may be instances, like the instant case, where in
legal succession the estate is distributed according to
the rules on legitime without applying the rules on
intestate ion. The reason is that sometimes the estate
is not even sufficient to satisfy the legitimes. The
legitimes of the primary compulsory heirs, like a child
or descendant, should first be satisfied.
In this case the decedent's legal heirs are his
legitimate child, his widow and two intimate children.
His estate is partitioned among those heirs by giving
them their respective time.
The legitimate child gets one-half of the estate as his
legitime which is regarded as his share as a legal heir
Art 888, Civil Code).
The widow's legitime is one-fourth of the estate. That
represents also her share as a legal heir. The
remaining one-fourth of the estate, which is the free
portion, goes to the illegitimate children in equal
shares, as their legitime, Pursuant to the provision that
'the legitimate of the illegitimate children shall be
taken from the portion of the estate at the free
disposal of the testator, provoked that in no case shall
the total legitime of such illegitimate children exceed
that free portion, and that the legitime of the surviving
spouse must first be fully satisfied.
The rule in Santillon vs. Miranda, L-19281, June 30,
1965, 14 SCRA 563, that when the surviving spouse
concurs with only one legitimate child, the spouse is
entitled to one-half of the estate and the gets the
other half, t to article 996 of the Civil Code, does not
apply to the case because here intimate children
concur with the surviving spouse and the intimate
child.
In this case, to divide the estate between the surviving
spouse and the ligitemate child that deprive the
illegitimate children of their legitime. So, the
decendent's estate is distributed in the proportion of
1/2 for the legitimate child, 1/4 for the widow and 1/8
each for the two illegitimate children.
Also not of possible application to this case is the rule
that the legal of an acknowledge natural child is 1/2 of
the legitime of the legitimate child of that the of the
spurious child is 2/5 of that of the of the intimate child
or 4/5 of that of that of the acknowledged natural
child.
The rule be applied because the estate is not sufficient
to cover legitimes of all compulsory heirs. That is one
of the flaws of the law of succession. A situation as in
the instant case may arise where the illegitimate
children get less than their legitime. With respect to
the decendant's unpaid salary and the money value of
his leave, the same are conjugal properties because of
the rule that property "obtained by the or work, or as
salary of the spouses, or either of them", is conjugal in
character.
 INSURANCE LAW CASE DIGESTS
iii. Forfeiture of beneficiarys interest
(Section 12)
iv. Insurable Interest in property (Sections
13, 14, 15, 16, 17, 18)
TRADERS INSURANCE & SURETY CO vs. JUAN
GOLANGCO Y OTRA
[Sep 21, 1954, En Banc G.R. No. L-6442]
(I really had a hard time deciphering the facts of this
case as it was written in Spanish ( facts from the lower
court as adopted by SC), but I assure you I have full
faith that this digest is as accurate corresponding to
the full text).
Facts:
Tomas Lianco and the Archbishop ( no name indicated)
entered into a contract of lease on a parcel of land
owned by church . As lessee, Lianco erected a building
on the leased portion of the churchs land. Lianco later
transferred ownership of this building to Kaw Eng Si,
who later transferred the same to Golangco. This
transfers by Lianco of his right to lease and the
buildingownership were without consent of the
Archbishop. The Archbishop filed an ejectment case
against Lianco, who appears to be occupants of the
premises building with others paying rent to Golangco.
This right of Golangco to receive rent on the building
was judicially recognized in a case decided between
Lianco and some others occupying the premises
pursuant to a compromise agreement. At the moment,
the Archbishop did not exercise his option to question
Golangcos rights as lessee, as the transfer by Lianco
was without the Archbishops consent. On April 7,
1949,Golangco applied for fire insurance with Traders
Insurance and Surety Co. of which Golangco was
issued fire insurance policy stating that all insurance
covered under said policy, includes the 'rent or other
subject matter of insurance in respect of or in
connection with any building or any property contained
in any building'. On June 5, 1949, fire ravaged the
building premises pursuant of which Golangco
requested Traders Insurance to pay the insurance
amount of 10,000 including the amount of rent P1,100
monthly. Traders insurance refused to pay the
insurance as pertaining to the rent averring that
Golangco has no insurable interest therein.
Issue:
WON Golangco has insurable interest ( in the property)
on the rent of the building premises which may
lawfully/validly be subject of insurance?
Ruling:
Yes, Sec. 13 of the Insurance Code provides that
Every interest in the property, whether real or
personal, or any relation thereto, or liability in respect
thereof of such nature that a contemplated peril might
directly damnify the insured, is an insurable interest.
EH 403 2010-2011 2011-2012
Page 11
By virtue of the contract between Tomas B. Lianco and
the Archbishop, Lianco erected the building of which
the premises in question form part and became owner
thereof . He transferred the ownership of the premises
in question to kaw Eng Si, who in turn transferred it to
plaintiff Juan Golangco .Lianco and the actual occupant
of the premises acknowledged plaintiff's right to collect
rentals thereon in a compromise agreement which was
incorporated in a judicial judgment. Both at the time of
the issuance of the policy and at the time of the fire,
plaintiff Golangco was in legal possession of the
premises, collecting rentals from its occupant. It seems
plain that if the premises were destroyed - as they
were - by fire, Golangco would be, as he was, directly
damnified thereby; and hence he had an insurable
interest therein (section 13, Insurance Law).
It is to be noted that the policy so worded indicates
that the fire insurance policy includes 'rent or other
subject matter of insurance in respect of or in
connection with any building or any property contained
in any building'. The argument of Traders Insurance
that a policy of insurance must specify the interest of
the insured in the property insured, if he is not the
absolute owner thereof, is not meritorious because it
was the Traders, not Golangco, who prepared that
policy, and it cannot take advantage of its own acts to
plaintiff's detriment; and, in any case, this provision
was substantially complied with by Golangco when he
made a full and clear statement of his interests to
Trader's manager.
The contract between Lianco and the Archbishop only
forbade Lianco from transferring 'his rights as LESSEE
but the contracts Lianco made in favor of Kaw Eng Si
and plaintiff Golangco did not transfer such rights; and
hence no written consent thereto was necessary. At
worst, the contract would be voidable, but not a void
contract, at the option of the Archbishop; but this
would not deprive Golangco of his insurable interest
until such option were exercised; and it does not
appear that it was ever exercised.
The ejectment case filed by the Archbishop against
Lianco did not remove nor destroy plaintiff's insurable
interest: first, because plaintiff was not a party thereto
and cannot be bound thereby; and second, because
the judgment of the Municipal Court, at least as late as
February 14, 1950, had not been executed so far as
possession of the premises were concerned; so that,
as far as plaintiff Golangco was concerned, his right to
the premises and to the rentals thereon continued to
exist on June 5, 1949 when the fire took place."
FILIPINO MERCHANTS INSURANCE CO., INC., vs.
COURT OF APPEALS and CHOA TIEK SENG
[G.R. No. 85141 November 28, 1989]
FACTS:
1. CHOA TIEK SENG was the consignee of the shipment
of fishmeal loaded on board a vessel and unloaded at
the Port of Manila. The goods were described as 600
 INSURANCE LAW CASE DIGESTS
metric tons of fishmeal in new gunny bags of 90 kilos
each. He insured said shipment with FILIPINO
MERCHANTS insurance company from Bangkok,
Thailand to Manila against all risks.
2. When the fishmeal were unloaded from the ship at
Manila unto the arrastre contractor and surveyor, it
was ascertained and certified that in such discharge
105 bags were in bad order condition. The extent of
shortage or loss totalling 227 bags amounting to
12,148 kilos was noted in the Bad Order Certificate.
3. The consignee made a formal claim against the
Insurance Company for P51,568.62. The latter refused
to pay the claim so the consignee brought an action
against the insurance company.
4. The trial court rendered judgment, which was affirmed
by the Court of appeals, in favor of the consignee,
ordering the insurance company to pay the former the
sum of P51,568.62.
5. The insurance company claimed that under the "all
risks" clause of the marine insurance policy it is not
liable to the consignee for the partial loss of the cargo
because of the absence of proof of some fortuitous
event, casualty, or accidental cause to which the loss
is attributable. The insurance company argues that the
consignee has the burden to adduce evidence, which it
failed to do, that the alleged loss to the cargo was due
to a fortuitous event.
To put at rest all doubts on the matter, the Court
discussed on the issue of lack of insurable interest,
despite being raised by the insurance company for the
first time on appeal.
ISSUES:
1. Whether or not the consignee had an insurable
interest
2. Whether or not there must be some fortuitous event
for the claim to be compensable under all risks
marine insurance policy
RULING:
1. Yes, the consignee had an insurable interest in said
goods which may be a valid subject of a contract of
insurance.
His interest over the goods is based on the perfected
contract of sale. The perfected contract of sale
between him and the shipper of the goods operates to
vest in him an equitable title even before delivery or
before be performed the conditions of the sale.
Section 13 of the Insurance Code defines insurable
interest in property as every interest in property,
whether real or personal, or any relation thereto, or
liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured.
In principle, anyone has an insurable interest in
property who derives a benefit from its existence or
would suffer loss from its destruction whether he has
or has not any title in, or lien upon or possession of
the property.
EH 403 2010-2011 2011-2012
Page 12
Insurable interest in property may consist in:
(a) an existing interest;
(b) an inchoate interest founded on an existing
interest; or
(c) an expectancy, coupled with an existing interest in
that out of which the expectancy arises.
The contract of shipment, whether under F.O.B.,
C.I.F., or C. & F. as in this case, is immaterial in the
determination of whether the vendee has an insurable
interest or not in the goods in transit. The perfected
contract of sale even without delivery vests in the
vendee an equitable title, an existing interest over the
goods sufficient to be the subject of insurance.
2. No. An "all risks policy" should be read literally as
meaning all risks whatsoever and covering all losses
by an accidental cause of any kind. The very nature
of the term "all risks" must be given a broad and
comprehensive meaning as covering any loss other
than a willful and fraudulent act of the insured.
The term "all risks" cannot be given a strained
technical meaning, to the effect that it extends to all
damages/losses suffered by the insured cargo except:
(a) loss or damage or expense proximately caused by
delay, and
(b) loss or damage or expense proximately caused by
the inherent vice or nature of the subject matter
insured.
Purpose of All Risks insurance
The very purpose of all risks" insurance is to give
protection to the insured in those cases where
difficulties of logical explanation or some mystery
surround the loss or damage to property.
An "all asks" policy has been evolved to grant greater
protection than that afforded by the "perils clause," in
order to assure that no loss can happen through the
incidence of a cause neither insured against nor
creating liability in the ship; it is written against all
losses, that is, attributable to external causes.
Burden of Proof
Generally, the burden of proof is upon the insured to
show that a loss arose from a covered peril, but under
an "all risks" policy the burden is not on the insured to
prove the precise cause of loss or damage for which it
seeks compensation.
The insured only has the initial burden of proving that
the cargo was in good condition when the policy
attached and that the cargo was damaged when
unloaded from the vessel; thereafter, the burden then
shifts to the insurer to show the exception to the
coverage.
The burden of the insured, therefore, is to prove
merely that the goods he transported have been lost,
destroyed or deteriorated. Thereafter, the burden is
shifted to the insurer to prove that the loss was due to
excepted perils. To impose on the insured the burden
 INSURANCE LAW CASE DIGESTS
of proving the precise cause of the loss or damage
would be inconsistent with the broad protective
purpose of "all risks" insurance.
As held in Paris-Manila Perfumery Co. vs. Phoenix
Assurance Co., Ltd. the basic rule is that the
insurance company has the burden of proving that the
loss is caused by the risk excepted and for want of
such proof, the company is liable.
Special type of insurance
Coverage under an "all risks" provision of a marine
insurance policy creates a special type of insurance
which extends coverage to risks not usually
contemplated and avoids putting upon the insured the
burden of establishing that the loss was due to the
peril falling within the policy's coverage. The insurer
can avoid coverage upon demonstrating that a specific
provision expressly excludes the loss from coverage.
A marine insurance policy providing that the insurance
was to be "against all risks" must be construed as
creating a special insurance and extending to other
risks than are usually contemplated, and covers all
losses except such as arise from the fraud of the
insured.
In the present case, there being no showing that the
loss was caused by any of the excepted perils i.e.
delay or the inherent vice or nature of the subject
matter insured, the insurer is liable under the policy.
v. When insurable interest must exist
(Section 19)
Digested by: Birondo
Tai Tong Chuache & Co. v. Insurance Commission
Facts:
Complainants acquired a parcel of land and a building
they assumed the mortgage of the latter in favor of
SSS, which was insured with respondent SSS
Accredited Group of Insurers. On April 19, 1975,
Azucena Palomo obtained a loan from petitioner Tai
Tong Chuache Inc. securing it with a mortgage was
executed over the land and the building in favor of
petitioner. On April 25, 1975, Arsenio
Chua, petitioners representative insured the latter's
interest with Travellers Multi-Indemnity Corporation.
On June 11, 1975, Pedro Palomo secured fire
insurance covering the building with respondent Zenith
Insurance Corporation and on July 16, 1975, another
fire insurance was procured from respondent Philippine
British Assurance Company, covering the same
building and the contents thereof. However, on July
31, 1975, the building and the contents were totally
razed by fire.
Respondents, Zenith Insurance, Phil. British Assurance
and SSS Accredited Group of Insurers, paid their
corresponding shares of the loss. Demand was made
from respondent Travellers Multi-Indemnity for its
EH 403 2010-2011 2011-2012
Page 13
share in the loss but the same was refused. Hence,
complainants demanded from the other three
respondents the balance of each share in the loss but
the same was also refused. Petitioner then filed a
complaint in intervention claiming the proceeds of the
fire insurance policy issued by respondent Travellers
Multi-Indemnity but the latter alleged that it is not
entitled to indemnity for lack of insurable interest
before the loss of the insured premises.
Issue:
Whether or not petitioner has an insurable interest.
Ruling:
Respondent insurance company did not assail the
validity of the insurance policy taken out by petitioner
over the mortgaged property. Neither did it deny that
the said property was totally razed by fire within the
period covered by the insurance. Respondent advanced
an affirmative defense of lack of insurable interest on
the part of the petitioner that before the occurrence of
the peril insured against the Palomos had already paid
their credit due the petitioner. Respondent having
admitted the material allegations in the complaint has
the burden of proof to show that petitioner has no
insurable interest over the insured property at the time
the contingency took place. Upon that point, there is a
failure of proof. Respondent exerted no effort to
present any evidence to substantiate its claim, while
petitioner did. For said respondent's failure, the
decision must be adverse to it.
However, respondent Insurance Commission absolved
respondent insurance company from liability on the
basis of the certification issued by the then Court of
First Instance of Davao, Branch II, that in a certain
civil action against the Palomos, Arsenio Lopez Chua
stands as the complainant and not Tai Tong Chuache.
From said evidence respondent commission inferred
that the credit extended by herein petitioner to the
Palomos secured by the insured property must have
been paid. Such is a glaring error which cannot be
sanctioned. Respondent Commission's findings are
based upon a mere inference.
The record of the case shows that the petitioner to
support its claim for the insurance proceeds offered as
evidence the contract of mortgage which has not been
cancelled nor released. It has been held in a long line
of cases that when the creditor is in possession of the
document of credit, he need not prove non-payment
for it is presumed. The validity of the insurance policy
taken by petitioner was not assailed by private
respondent. Moreover, petitioner's claim that the loan
extended to the Palomos has not yet been paid was
corroborated by Azucena Palomo who testified that
they are still indebted to herein petitioner. Public
respondent argues however, that if the civil case really
stemmed from the loan granted to Azucena Palomo by
petitioner the same should have been brought by Tai
Tong Chuache or by its representative in its own
behalf. From the above premise respondent concluded
 INSURANCE LAW CASE DIGESTS
that the obligation secured by the insured property
must have been paid.
The premise is correct but the conclusion is wrong.
Citing Rule 3, Sec. 2 respondent pointed out that the
action must be brought in the name of the real party in
interest. Correct! However, it should be borne in mind
that petitioner being a partnership may sue and be
sued in its name or by its duly authorized
representative. The fact that Arsenio Lopez Chua is the
representative of petitioner is not questioned.
Petitioner's declaration that Arsenio Lopez Chua acts as
the managing partner of the partnership was
corroborated by respondent insurance company. Thus
Chua as the managing partner of the partnership may
execute all acts of administration including the right to
sue debtors of the partnership in case of their failure to
pay their obligations when it became due and
demandable. Or at the very least, Chua being a
partner of petitioner Tai Tong Chuache & Company is
an agent of the partnership. Being an agent, it is
understood that he acted for and in behalf of the
firm. Public respondent's allegation that the civil case
filed by Arsenio Chua was in his capacity as personal
creditor of spouses Palomo has no basis.
The respondent insurance company having issued a
policy in favor of herein petitioner which policy was of
legal force and effect at the time of the fire, it is bound
by its terms and conditions. Upon its failure to prove
the allegation of lack of insurable interest on the part
of the petitioner, respondent insurance company is and
must be held liable.
vi. Rules in change of interest (Sections 20,
21, 22, 23, 24)
vii. Void Stipulations (Section 25)
D. Concealment
i. Definition (Sections 26, 27)
Digested by: Lo, Justine
GREAT PACIFIC LIFE ASSURANCE COMPANY vs.
HONORABLE COURT OF APPEALS
[G.R. No. L-31845 April 30, 1979]
FACTS:
It appears that on March 14, 1957, private respondent
Ngo Hing filed an application with the Great Pacific Life
Assurance Company (hereinafter referred to as Pacific
Life) for a twenty-year endowment policy in the
amount of P50,000.00 on the life of his one-year old
daughter Helen Go. Said respondent supplied the
essential data which petitioner Lapulapu D.
Mondragon, Branch Manager of the Pacific Life in Cebu
City wrote on the corresponding form in his own
handwriting. Mondragon finally type-wrote the data on
the application form which was signed by private
respondent Ngo Hing. The latter paid the annual
premium the sum of P1,077.75 going over to the
Company, but he retained the amount of P1,317.00 as
his commission for being a duly authorized agent
EH 403 2010-2011 2011-2012
Page 14
of Pacific Life. Upon the payment of the insurance
premium, the binding deposit receipt was issued to
private respondent Ngo Hing. Likewise, petitioner
Mondragon handwrote at the bottom of the back page
of the application form his strong recommendation for
the approval of the insurance application. Then on April
30, 1957, Mondragon received a letter from Pacific Life
disapproving the insurance application. The letter
stated that the said life insurance application for 20-
year endowment plan is not available for minors below
seven years old, but Pacific Life can consider the same
under the Juvenile Triple Action Plan, and advised that
if the offer is acceptable, the Juvenile Non-Medical
Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific
Life was allegedly not communicated by petitioner
Mondragon to private respondent Ngo Hing. Instead,
on May 6, 1957, Mondragon wrote back Pacific Life
again strongly recommending the approval of the 20-
year endowment insurance plan to children, pointing
out that since 1954 the customers, especially the
Chinese, were asking for such coverage.
It was when things were in such state that on May 28,
1957 Helen Go died of influenza with complication of
bronchopneumonia. Thereupon, private respondent
sought the payment of the proceeds of the insurance,
but having failed in his effort, he filed the action for
the recovery of the same before the Court of First
Instance of Cebu, which rendered the adverse decision
as earlier referred to against both petitioners.
ISSUE:
Whether the respondent is entitled to the insurance
SC:
Since petitioner Pacific Life disapproved the insurance
application of respondent Ngo Hing, the binding
deposit receipt in question had never become in force
at any time.
As held by this Court, where an agreement is made
between the applicant and the agent, no liability shall
attach until the principal approves the risk and a
receipt is given by the agent. The acceptance is merely
conditional and is subordinated to the act of the
company in approving or rejecting the application.
Thus, in life insurance, a "binding slip" or "binding
receipt" does not insure by itself
It bears repeating that through the intra-company
communication of April 30, 1957 Pacific Life
disapproved the insurance application in question on
the ground that it is not offering the twenty-year
endowment insurance policy to children less than
seven years of age. What it offered instead is another
plan known as the Juvenile Triple Action, which private
respondent failed to accept. In the absence of a
meeting of the minds between petitioner Pacific Life
and private respondent Ngo Hing over the 20-year
endowment life insurance in the amount of P50,000.00
 INSURANCE LAW CASE DIGESTS
in favor of the latter's one-year old daughter, and with
the non-compliance of the above quoted conditions
stated in the disputed binding deposit receipt, there
could have been no insurance contract duly perfected
between then Acordingly, the deposit paid by private
respondent shall have to be refunded by Pacific Life.
We are not impressed with private respondent's
contention that failure of petitioner Mondragon
to communicate to him the rejection of the
insurance application would not have any
adverse effect on the allegedly perfected
temporary contract In this first place, there was
no contract perfected between the parties who
had no meeting of their minds. Private
respondent, being an authorized insurance agent
of Pacific Life at Cebu branch office, is
indubitably aware that said company does not
offer the life insurance applied for. When he filed
the insurance application in dispute, private
respondent was, therefore, only taking the chance that
Pacific Life will approve the recommendation of
Mondragon for the acceptance and approval of the
application in question along with his proposal that the
insurance company starts to offer the 20-year
endowment insurance plan for children less than seven
years. Nonetheless, the record discloses that Pacific
Life had rejected the proposal and recommendation.
Secondly, having an insurable interest on the life of his
one-year old daughter, aside from being an insurance
agent and an offense associate of petitioner
Mondragon, private respondent Ngo Hing must have
known and followed the progress on the processing of
such application and could not pretend ignorance of
the Company's rejection of the 20-year endowment life
insurance application.
This Court is of the firm belief that private respondent
had deliberately concealed the state of health and
physical condition of his daughter Helen Go. Where
private respondent supplied the required
essential data for the insurance application form,
he was fully aware that his one-year old
daughter is typically a mongoloid child. Such a
congenital physical defect could never be
ensconced nor distinguished. Nonetheless,
private respondent, in apparent bad faith,
withheld the fact material to the risk to be
assumed by the insurance company. As an
insurance agent of Pacific Life, he ought to know,
as he surely must have known. his duty and
responsibility to such a material fact. Had he
diamond said significant fact in the insurance
application form Pacific Life would have verified the
same and would have had no choice but to disapprove
the application outright.
Whether intentional or unintentional the concealment
entitles the insurer to rescind the contract of
insurance. Private respondent appears guilty thereof.
We are thus constrained to hold that no insurance
contract was perfected between the parties with the
noncompliance of the conditions provided in the
EH 403 2010-2011 2011-2012
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binding receipt, and concealment, as legally defined,
having been combated by herein private respondent.
ii. Concealment of Material Fact in bad
faith (Section 28)
SEGUNDINA MUSGI, ET AL., vs. WEST COAST
LIFE INSURANCE CO.
[G.R. No. L-41794 August 30, 1935]
Facts:
The plaintiffs, as beneficiaries, brought suit against the
defendant to recover the value of two life insurance
policies. Arsenio T. Garcia was insured by the
defendant company in the sum of P5, 000. Arsenio T.
Garcia was again insured by the defendant company in
the sum of P10,000. Subsequently, Arsenio died. Even
with the demand made by the plaintiffs to the
defendant company to pay the two policies, defendant
refused to pay
It is to be noted that in both applications, the insured
had to answer inquiries as to his state of health and
that of his family, which he did voluntarily. In each of
the said applications the following question was asked:
"1. What physician or practitioner or any other person
not named above have you consulted or been treated
by, and for what illness, or ailment? (If none, so
state.)" In the first application, the insured answered
"None", and in the second, "No". These answers of the
insured as well as his other statements contained in his
applications were one of the causes or considerations
for the issuance of the policies, and they so positively
appear therein. After the death of the insured and as a
result of the demand made by the beneficiaries upon
the defendant to pay the value of the policies, the
latter discovered that the aforementioned answers
were false and fraudulent, because the truth was that
the insured, before answering and signing the
applications and before the issuance of the policies,
had been treated in the General Hospital by a lady
physician for different ailments.
The defendant contends that the two policies did not
create any valid obligation because they were
fraudulently obtained by the insured.
Issue:
Whether the two answers given by the insured in his
applications are false, and if they were the cause, or
one of the causes, which induced the defendant to
issue the policies?
Ruling:
The concealment and the false statements constituted
fraud because the defendant by reason thereof
accepted the risk which it would otherwise have flatly
refused. When not otherwise specially provided for by
the Insurance Law, the contract of life insurance is
governed by the general rules of the civil law regarding
 INSURANCE LAW CASE DIGESTS
contracts. Article 1261 of the Civil Code provides that
there is no contract unless there should be, in addition
to consent and a definite object, a consideration for
the obligation established. And article 1276 provides
that the statement of a false consideration shall render
the contract void. The two answers being one of the
considerations of the policies, and it appearing that
they are false and fraudulent, it is evident that the
insurance contracts were null and void and did not give
rise to any right to recover their value or amount. A
similar case was already decided by this court in
Argente vs. West Coast Life Insurance Co. (51 Phil.,
725).
In discussing the legal phase of the case, this court
said:
One ground for the rescission of a contract of
insurance under the Insurance Act is a "concealment",
which in section 25 is defined as "A neglect to
communicate that which a party knows and ought to
communicate".
In view of the foregoing, appellant's first two
assignments of error are well founded, wherefore, the
appealed judgment is reversed and the defendant
absolved from the complaint.
Digested by: Brian O. Dalanon
Sunlife Assurance Company of Canada vs. CA
Facts:
On April 15, 1986, Robert John B. Bacani procured a
life insurance contract for himself from petitioner at
P100,000.00 with double indemnity in case of
accidental death. The designated beneficiary was his
mother, respondent Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash.
Respondent Bernarda Bacani filed a claim with
petitioner, seeking the benefits of the insurance policy
taken by her son. Petitioner conducted an investigation
and its findings prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda
Bacani, that the insured did not disclose material facts
relevant to the issuance of the policy, thus rendering
the contract of insurance voidable. A check
representing the total premiums paid in the amount of
P10,172.00 was attached to said letter.
Petitioner claimed that the insured gave false
statements in his application when he answered the
following questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health
practitioner?
b) submitted to: EGG, X-rays, blood tests or other
tests?
c) attended or been admitted to any hospital or
other medical facility?
b) urine, kidney or bladder disorder?
EH 403 2010-2011 2011-2012
Page 16
The deceased answered question No. 5(a) in the
affirmative but limited his answer to a consultation
with a certain Dr. Reinaldo D. Raymundo of the
Chinese General Hospital on February 1986, for cough
and flu complications. The other questions were
answered in the negative.
Petitioner discovered that two weeks prior to his
application for insurance, the insured was examined
and confined at the Lung Center of the Philippines,
where he was diagnosed for renal failure. During his
confinement, the deceased was subjected to urinalysis,
ultra-sonography and hematology tests.
Respondent Bernarda Bacani and her husband,
respondent Rolando Bacani, filed an action for specific
performance against petitioner with the Regional Trial
Court. Petitioner filed its answer with counterclaim and
a list of exhibits consisting of medical records furnished
by the Lung Center of the Philippines.
Petitioner filed its Request for Admissions relative to
the authenticity and due execution of several
documents as well as allegations regarding the health
of the insured. Private respondents failed to oppose
said request or reply thereto, thereby rendering an
admission of the matters alleged.
In ruling for private respondents, the trial court
concluded that the facts concealed by the insured were
made in good faith and under a belief that they need
not be disclosed. Moreover, it held that the health
history of the insured was immaterial since the
insurance policy was "non-medical".
Petitioner appealed to the Court of Appeals, which
affirmed the decision of the trial court. The appellate
court ruled that petitioner cannot avoid its obligation
by claiming concealment because the cause of death
was unrelated to the facts concealed by the insured. It
also sustained the finding of the trial court that
matters relating to the health history of the insured
were irrelevant since petitioner waived the medical
examination prior to the approval and issuance of the
insurance policy. Moreover, the appellate court agreed
with the trial court that the policy was "non-medical.
Issue:
Whether or not the insured concealed informations in
the application of his policy and whether or not the
petitioner has the right to rescind the contract.
Ruling:
Section 26 of The Insurance Code is explicit in
requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts
within his knowledge which are material to the contract
and as to which he makes no warranty, and which the
other has no means of ascertaining. Said Section
provides: A neglect to communicate that which a party
knows and ought to communicate, is called
concealment.
 INSURANCE LAW CASE DIGESTS
The terms of the contract are clear. The insured is
specifically required to disclose to the insurer matters
relating to his health.
The information which the insured failed to disclose
were material and relevant to the approval and
issuance of the insurance policy. The matters
concealed would have definitely affected petitioner's
action on his application, either by approving it with
the corresponding adjustment for a higher premium or
rejecting the same. Moreover, a disclosure may have
warranted a medical examination of the insured by
petitioner in order for it to reasonably assess the risk
involved in accepting the application.
Thus, "goad faith" is no defense in concealment. The
insured's failure to disclose the fact that he was
hospitalized for two weeks prior to filing his application
for insurance, raises grave doubts about his bonafides.
It appears that such concealment was deliberate on his
part.
We, therefore, rule that petitioner properly exercised
its right to rescind the contract of insurance by reason
of the concealment employed by the insured.
iii. Concealment of Matters proving falsity
of a warranty (Section 29)
iv. What need not be disclosed unless
required (Sections 30, 32-35)
v. Test of materiality in concealment
(Section 31)
Digested by: Grace Jayne Dingal
Vda. DE CANILANG v. COURT OF
Facts:
On 18 June 1982, Jaime Canilang consulted Dr.
Claudio and was diagnosed as suffering from "sinus
tachycardia And was latter found to have "acute
bronchitis." On next day, Jaime applied for a "non-
medical" insurance policy with respondent Great Pacific
Life Assurance naming his wife, Thelma Canilang, as
his beneficiary. Jaime was issued ordinary life
insurance Policy effective as of 9 August 1982. On 5
August 1983, Jaime Canilang died of "congestive heart
failure," "anemia," and "chronic anemia." Petitioner,
widow and beneficiary of the insured, filed a claim with
Great Pacific which the insurer denied upon the ground
that the insured had concealed material information
from it. Petitioner filed a complaint against Great
Pacific with the Insurance Commission for recovery of
the insurance proceeds. During the hearing called by
the Insurance Commissioner, petitioner testified that
she was not aware of any serious illness suffered by
her late husband.
The medical declaration which was set out in the
application for insurance executed by Jaime Canilang
read as follows: xxxx
EH 403 2010-2011 2011-2012
Page 17
(1) I have not been confined in any hospital,
sanitarium or infirmary, nor receive any medical or
surgical advice/attention within the last five (5)
years.
(2) I have never been treated nor consulted a
physician for a heart condition, high blood
pressure, cancer, diabetes, lung, kidney, stomach
disorder, or any other physical impairment.
(3) I am, to the best of my knowledge, in good
health.
EXCEPTIONS:
Xxx
Issue:
Whether or not there is a material concealment
Held:
There is a material concealment.
On appeal by Great Pacific, the Court of Appeals
reversed and set aside the decision of the Insurance
Commissioner and dismissed Thelma Canilang's
complaint and Great Pacific's counterclaim. The Court
of Appeals found that the failure of Jaime Canilang to
disclose previous medical consultation and treatment
constituted material information which should have
been communicated to Great Pacific to enable the
latter to make proper inquiries.
Canilang failed to disclose, under the caption
"Exceptions," that he had twice consulted Dr. Claudio
who had found him to be suffering from "sinus
tachycardia" and "acute bronchitis."
The provisions of P.D. No. 1460, also known as the
Insurance Code of 1978 read as follows:
Sec. 26. A neglect to communicate that which a
party knows and ought to communicate, is called a
concealment. xxx xxx xxx
Sec. 28. Each party to a contract of insurance
must communicate to the other, in good faith, all
factors within his knowledge which are material to
the contract and as to which he makes no
warranty, and which the other has not the means
of ascertaining.
The information concealed must be information which
the concealing party knew and "ought to [have]
communicate[d]," that is to say, information which
was "material to the contract." The test of materiality
is contained in Section 31 of the Insurance Code of
1978 which reads:
Sec. 31. Materially is to be determined not by the
event, but solely by the probable and reasonable
influence of the facts upon the party to whom the
communication is due, in forming his estimate of
the disadvantages of the proposed contract, or in
making his inquiries.
The information which Jaime Canilang failed to disclose
was material to the ability of Great Pacific to estimate
the probable risk he presented as a subject of life
 INSURANCE LAW CASE DIGESTS
insurance. Had Canilang disclosed his visits to his
doctor in the insurance application, it may be
reasonably assumed that Great Pacific would have
made further inquiries and would have probably
refused to issue a non-medical insurance policy or, at
the very least, required a higher premium for the same
coverage. The materiality of the information withheld
by Great Pacific did not depend upon the state of mind
of Jaime Canilang. A man's state of mind or subjective
belief is not capable of proof in our judicial process,
except through proof of external acts or failure to act
from which inferences as to his subjective belief may
be reasonably drawn. Neither does materiality depend
upon the actual or physical events which ensue.
Materiality relates rather to the "probable and
reasonable influence of the facts" upon the party to
whom the communication should have been made, in
assessing the risk involved in making or omitting to
make further inquiries and in accepting the application
for insurance; that "probable and reasonable influence
of the facts" concealed must, of course, be determined
objectively, by the judge ultimately.
The insurance Great Pacific applied for was a "non-
medical" insurance policy. In Saturnino v. Philippine-
American Life Insurance Company, this Court held
that:
.. . if anything, the waiver of medical examination
[in a non-medical insurance contract] renders even
more material the information required of the
applicant concerning previous condition of health
and diseases suffered, for such information
necessarily constitutes an important factor which
the insurer takes into consideration in deciding
whether to issue the policy or not . . .
The Insurance Code of 1978 was amended by
B.P. Blg. 874. This subsequent statute modified
Section 27 of the Insurance Code of 1978 so as to read
as follows:
Sec. 27. A concealment whether intentional or
unintentional entitles the injured party to rescind a
contract of insurance.
The Commissioner is wrong when it said that by
deleting the phrase "intentional or unintentional," the
Insurance Code of 1978 (prior to its amendment by
B.P. Blg. 874) intended to limit the kinds of
concealment which generate a right to rescind on the
part of the injured party to "intentional concealments."
"Intentional" and "unintentional" cancel each other out.
The deletion of the phrase "whether intentional or
unintentional" could not have had the effect of
imposing an affirmative requirement that a Pursuant to this application, Bernado Agente and
concealment must be intentional if it is to entitle the
injured party to rescind a contract of insurance. The
restoration in 1985 by B.P. Blg. 874 of the phrase
"whether intentional or unintentional" merely
underscored the fact that all throughout (from 1914 to
1985), the statute did not require proof that
concealment must be "intentional" in order to
authorize rescission by the injured party.
The nature of the facts not conveyed to the insurer
was such that the failure to communicate must have
EH 403 2010-2011 2011-2012
Page 18
been intentional rather than merely inadvertent. For
Jaime Canilang could not have been unaware that his
heart beat would at times rise to high and alarming
levels and that he had consulted a doctor twice in the
2 months before applying for non-medical insurance.
The last medical consultation took place just the day
before the insurance application was filed. Jaime
Canilang went to visit his doctor precisely because of
the discomfort and concern brought about by his
experiencing "sinus tachycardia."
We find it difficult to take seriously the argument that
Great Pacific had waived inquiry into the concealment
by issuing the insurance policy notwithstanding
Canilang's failure to set out answers to some of the
questions in the insurance application. Such failure
precisely constituted concealment on the part of
Canilang. Petitioner's argument, if accepted, would
obviously erase Section 27 from the Insurance Code of
1978.
It remains only to note that the Court of Appeals
finding that the parties had not agreed in the pretrial
before the Insurance Commission that the relevant
issue was whether or not Jaime Canilang had
intentionally concealed material information from the
insurer, was supported by the evidence of record, i.e.,
the Pre-trial Order itself dated 17 October 1984 and
the Minutes of the Pre-trial Conference dated 15
October 1984, which "readily shows that the word
"intentional" does not appear in the statement or
definition of the issue in the said Order and Minutes."
WHEREFORE, the Petition for Review is DENIED for
lack of merit and the Decision of the Court of is
AFFIRMED.
BERNARDO ARGENTE vs. WEST COAST LIFE
INSURANCE CO.
Facts:
On February 9, 1925, Bernardo Argente signed an
application for joint insurance with his wife in the sum
of P2,000. The wife, Vicenta de Ocampo, signed a like
application for the same policy. Both applications, with
the exception of the names and the signatures of the
applicants, were written by Jose Geronimo del Rosario,
an agent for the West Coast Life Insurance Co. But all
the information contained in the applications was
furnished the agent by Bernardo Argente.
Vicenta De Ocampo underwent a medical examination
on February 10, 1925 which was recorded in the
Medical Examiners Report.
On May 9, 1925, Bernardo Argente and his wife
submitted to the West Coast Life Insurance Co. an
amended application for insurance, increasing the
amount thereof to P15,000, and asked that the policy
be dated May 15, 1925. The amended application was
accompanied by the documents entitled "Short Form
 INSURANCE LAW CASE DIGESTS
Medical Report." In both of these documents appear
certain questions and answers.
On November 18, 1925, Vicenta de Ocampo died of
cerebral apoplexy. Thereafter Bernardo Argente
presented a claim in due form to the West Coast Life
Insurance Co. for the payment of the sum of P15,000
the amount of the joint life Insurance policy. In an
investigation conducted by the Manger of the Manila
office of the insurance company, it was found out the
the answers given by the insured in their medical
examinations with regard to their health and previous
illness and medical attention were untrue. On May 25,
1926, wrote him to the effect that the claim was
rejected because the insurance was obtained through
fraud and misrepresentation.
Issue:
WON the alleged concealment was immaterial and
insufficient to avoid the policy?
Held:
One ground for the rescission of a contract of
insurance under the Insurance Act is "a concealment,"
which in section 25 is defined as "A neglect to
communicate that which a party knows and ought to
communicate." In an action on a life insurance policy
where the evidence conclusively shows that the
answers to questions concerning diseases were untrue,
the truth of falsity of the answers becomes the
determining factor. In the policy was procured by
fraudulent representations, the contract of insurance
apparently set forth therein was never legally existent.
It can fairly be assumed that had the true facts been
disclosed by the assured, the insurance would never
have been granted.
The basis of the rule vitiating the contract in case of
concealment is that it misleads or deceives the insurer
into accepting the risk, or accepting it at the rate of
premium agreed upon. The insurer, relying upon the
belief that the assured will disclose every material
within his actual or presumed knowledge, is misled
into a belief that the circumstance withheld does not
exist, and he is thereby induced to estimate the risk
upon a false basis that it does not exist. It therefore
follows that the assurer in assuming a risk is entitled
to know every material fact of which the assured has
exclusive or peculiar knowledge, as well as all material
facts which directly tend to increase the hazard or risk
which are known by the assured, or which ought to be
or are presumed to be known by him. And a
concealment of such facts vitiates the policy.
If the assured has exclusive knowledge of material
facts, he should fully and fairly disclose the same,
whether he believes them material or not. But
notwithstanding this general rule it will not infrequently
happen, especially in life risks, that the assured may
have a knowledge actual or presumed of material
facts, and yet entertain an honest belief that they are
not material. The determination of the point whether
EH 403 2010-2011 2011-2012
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there has or has not been a material concealment
must rest largely in all cases upon the form of the
questions propounded and the exact terms of the
contract.
IGNACIO SATURNINO vs. THE PHILIPPINE
AMERICAN LIFE INSURANCE COMPANY
[G.R. No. L-16163, 28 February 1963]
FACTS:
Estefania Saturnino obtained a 20-year endowment
non-medical insurance. This kind of policy dispenses
with the medical examination of the applicant usually
required in ordinary life policies. However, two months
prior to the issuance of the policy, Saturnino was
operated for cancer, involving mastectomy of the right
breast. She did not make a disclosure in her
application for insurance. On the contrary, she stated
that she did not have, nor had she ever had, among
other ailments listed in the application, cancer or other
tumors. Sometime after, Saturnino died of pneumonia,
secondary to influenza. Appellants, who are her
surviving husband and minor child, demanded
payment of the face value of the policy. The claim was
rejected and hence an action was subsequently
instituted.
ISSUE:
Whether or not the insured made such false
representations of material facts as to avoid the policy
HELD:
YES. The Insurance Law provides that materiality is to
be determined not by the event, but solely by the
probable and reasonable influence of the facts upon
the party to whom the communication is due, in
forming his estimate of the proposed contract, or in
making his inquiries. The waiver of medical
examination renders even more material the
information required of the applicant concerning
previous condition of health and diseases suffered, for
such information necessarily constitutes an important
factor which the insurer takes into consideration in
deciding whether to issue the policy or not. It is logical
to assume that if Estefania had been properly
appraised of the insureds medical history she would at
least have been made to undergo medical examination
in order to determine her insurability.
Concealment, whether intentional or unintentional,
entitles the insurer to rescind the contract of
insurance, concealment being defined as negligence
to communicate that which an Insurance Law case
party knows and ought to communicate. The basis of
the rule vitiating the contract in cases of concealment
is that it misleads or deceives the insurer into
accepting the risk, or accepting it at the rate of
premium agreed upon. The insurer, relying upon the
belief that the assured will disclose every material fact
within his actual or presumed knowledge, is misled
 INSURANCE LAW CASE DIGESTS
into a belief that the circumstance withheld does not
exist, and he is thereby induced to estimate the risk
upon a false basis that it does not exist.
The judgment appealed from, dismissing the complaint
and awarding the return to appellants of the premium
already, paid, with interest at 6% up to January 29,
1959, affirmed, with costs against appellants.
E. Representation
i. Definition, Interpretation (Sections 36-
39)
ii. What representation qualifies or not
(Section 40)
iii. Sections 41-44
Digested by: Gestopa, Gevina V.
Insular Life Ass. Co. vs. Pineda
Facts:
The insured, a fisherman, in his application answered
no to question of whether he drank beer or other
intoxicants, whether he ever suffered from any ailment
of the lungs and whether he had ever spat blood.
Subsequently, the insured signed a statement that he
did drink beer, but very seldom, that he had a chronic
cough for many years and that he had experienced a
few sputums, slightly bloody.
Ruling:
The policy is valid. We do not consider the allegedly
conflicting statements as misrepresentations of
material facts. That the insured drank beer but very
seldom is almost similar to not at all.
We are not aware of the non-insurability of a person
affected with a chronic cough.
With respect to the few sputums slightly bloody, we
consider the statement as not inconsistent with not
having spat blood, since traces of blood in insureds
sputum could be due to some temporary and
unimportant ailments as a bloody tooth, a sore throat
or a bad cold.
iv. Misrepresentation, effect (Section 45)
Digested by: Roxanne A. Huyo
Eguaras v. Great Eastern Life Ass. Co.
Facts:
On April 14, 1913, counsel for Francisca Eguaras filed
a written complaint in the said Laguna court, alleging
as a cause of action that about October 14, 1912, her
son-in-law Dominador Albay had applied in writing to
the defendant insurance company to insure his life for
the sum of P5,000, naming as the beneficiary in case
of his death the plaintiff Francisca Eguaras; that after
EH 403 2010-2011 2011-2012
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compliance with the requisites and the investigation
carried on by the defendant company, and it had been
satisfied concerning the physical condition of the
applicant, it accepted the application for insurance and
on November 6, 1912, issued policy No. 5592, Exhibit
A, which has been made a part of the complaint,
whereby the said insurance company insured the life of
the said Dominador Albay in the sum of P5,000,
payable in the event of his death to Francisca Eguaras;
that on December 6, 1912, said policy No. 5592 being
in force, the insured Dominador Albay, died in the
municipality of Santa Cruz, Laguna, and despite the
fact that the beneficiary submitted satisfactory proofs
of his death and that the defendant company
investigated the event, still it refused and continues to
refuse to pay to the plaintiff the value of the policy,
Exhibit A, thereby causing damages estimated at
P1,000. The court was therefore asked to render
judgment against the Great Eastern Life Assurance
Company, Ltd., and its general agent, West G. Smith,
by sentencing them to pay to the plaintiff the sum of
P5,000, the value of policy No. 5592, plus the sum of
P1,000 for damages inflicted upon them, in addition to
the costs of the suit.
The demurrer filed to the foregoing complaint having
been overruled, counsel for the insurance company
and for West G. Smith replied thereto, admitting the
allegations of the complaint with respect to the legal
status of the parties by denying all the rest, and
setting forth in special defense that the insurance
policy issued in the name of Dominador [Albay] had
been obtained through fraud and deceit known and
consented to by the interested parties and is therefore
completely illegal, void, and ineffective; wherefore he
prayed that the defendants be absolved from the
complaint, with the costs against the plaintiff.
Issue:
WON the life insurance obtained is legal and valid or
whether on the contrary it was issued through fraud
and deceit, and in such case, whether the defendant,
The Great Eastern Life Assurance Company, Ltd., is
still under obligation to pay the value thereof to the
plaintiff.
Ruling:
It appears from the record that the insured had
knowledge of the false replied contained in the two
applications for insurance and knowing permitted fraud
to be practised upon the insurance company, for in his
acknowledgment and consent his mother-in-law was
designated as the beneficiary of the insurance, despite
the fact that he had children and his mother was still
living. In the present case the fraud consisted in the
fact that a healthy and robust person was substituted
in place of insured invalid when Dr. Vidal made the
physical examination of the one who seeking to be
insured, for the real person who desired to be insured
and who ought to have been examined was in bad
health on and before the date of executing the
insurance contract of which facts the insured
 INSURANCE LAW CASE DIGESTS
Dominador Albay and the insurance agent Ponciano
Remigio had full knowledge.
Digested by: Patricia Ko
It is therefore proven that the signatures on the Bernardo Argente vs. West Coast Life Insurance
insurance applications reading "Dominador Albay" are [March 19, 1928, G.R. No. L-24899]
false and forged; that the person who presented
himself to Dr. Vidal to be examined was not the real FACTS:
Dominador Albay, but another different person; that at
the time of the application for insurance and the
Bernardo Argente and his wife Vicenta de Ocampo
issuance of the policy which is the subject matter of
signed an application for joint life insurance for P2,000,
this suit the real Dominador Albay was informed of all
later amended to P15,000. All the information
those machinations, wherefore it is plain that the
contained in the applications was furnished to the
insurance contract between the defendant and
agent by Bernardo Argente.
Dominador Albay is null and void because it is false,
fraudulent and illegal.
Pursuant to their applications, Bernardo and Vicenta
were examined separately by Dr. Cesareo Sta. Ana, a
Article 1269 of the Civil Code states:
medical examiner for the West Coast Life Insurance
There is deceit when by words or insidious
Co., The information or answers to the questions
machinations on the part of one of the contracting
contained on the face of the Medical Examiner's Report
parties the other is induced to execute a contract
were furnished to the doctor by the applicants,
which without them he would not have made.
Bernardo and Vicente Argente.
It is essential to the nature of the deceit, to which the
Later, Vicenta died of cerebral apoplexy. Bernardo
foregoing article refers, that said deceit be prior to or
presented a claim for the payment of the sum of
contemporaneous with the consent that is a necessary
P15,000 the amount of the joint life Insurance policy.
requisite for perfecting the contract, but not that it
After investigation it was discovered that the answers
may have occurred or happened thereafter. A contract
given by the insured in their medical examinations with
is therefore deceitful, for the execution whereof the
regard to their health and previous illness and medical
consent of one of the parties has been secured by
attendance were untrue. For that reason, the West
means of fraud, because he was persuaded by words
Coast Life Insurance Co. refused to pay the claim of
or insidious machinations, statements or false
Bernardo Argente.
promises, and a defective consent wrung from him,
It is admitted that it appears in the Medical Examiner's
even though such do not constitute estafa or any other
Report that Bernardo Argente, in response to the
criminal subject to the penal law.
question asked by the medical examiner, "Have you
ever consulted a physician for, or have you ever
With this array of circumstantial evidence derived from
suffered from any ailment or disease of, the brain or
facts duly proven as a result of the present suit, we
nervous system?" answered "No." To the question,
get, if not a moral certainly, at least a full conviction
"Have you consulted a physician for any ailment or
that when Castor Garcia presented himself to be
disease not included in your above answer," answered
examined by the physician Vidal in place of Dominador
"Yes. Nature of Ailment, Disease or Injury. Scabies,
Albay, serious deceit occurred in perfecting the
Number of attacks 1, Date 1911. Duration 1 month,
insurance contract, for had the agent of the company
Severity Fair, results and, if within five years, name
not been deceived it would not have granted the
and address of every physician consulted. Dr. P.
insurance applied for by Albay, nor would it have
Guazon. Cured. Dr. Guazon is dead now." And to the
executed the contract by virtue of whereof payment is
question, "What physician or physicians, if any, not
claimed of the value of policy obtained through fraud;
named above, have you consulted or been treated by,
and consequently on such assumptions it is improper,
within the last five years and for what illness or
nor is it permitted by the law, to order collection of the
ailment? (If none, so state)" answered "No." It is,
amount claimed.
however, not disputed that on January 10, 11, and 13,
In a contract executed with the requisites fixed in
1923, Bernardo Argente was confined in the Philippine
article 1261, one of the contracting parties may have
General Hospital where he was treated by Dr. Agerico
given his consent through error, violence, intimidation,
B. M. Sison for cerebral congestion and Bell's Palsy.
or deceit, and in any of such cases the contract is void,
even though, despite this nullity, no crime was
And that Vicenta de Ocampo, in response to the
committed. (Article 1265, Civil Code.) There may not
question asked by the medical examiner, "How
have been estafa in the case at bar, but it was
frequently, if at all, and in what quantity do you use
conclusively demonstrated by the trial that deceit
beer, wine, spirits or other intoxicants?" answered
entered into the insurance contract, fulfillment whereof
"Beer only in small quantities occasionally." To the
is claimed, and therefore the conclusions reached by
question, "Have you ever consulted a physician for or
the court in the judgment it rendered in the criminal
have you ever suffered from any ailment or disease of
proceedings for estafa do not affect this suit, nor do
the brain or nervous system?" answered "No." To the
they influence the decision proper herein, nor can they
question, "What physician or physicians, if any, not
produce in the present suit, over the exception of the
named above, have you consulted or been treated by,
defendant, the force of res adjudicata.

EH 403 2010-2011 2011-2012

Page 21
 INSURANCE LAW CASE DIGESTS
within the last five years and for what illness or
ailment? (If none, so state)" answered "None." And to
the question, "Are you in good health as far as you
know and believe?" answered "Yes." It is, however, not
disputed that Vicenta de Ocampo was taken by a
patrolman, at the request of her husband, Bernardo
Argente, on May 19, 1924, to the Meisic police station,
and from there was transferred to the San Lazaro
Hospital. In San Lazaro Hospital, her case was
diagnosed by the admitting physician as "alcoholism,"
but later Doctor Domingo made a diagnosis of probable
"manic-depressive psychosis," and still, later in Mary
Chiles Hospital, made a final diagnosis of "phycho-
neurosis."
ISSUE:
was there false misrepresentation?
RULING:
Yes, there was misrepresentation giving the insurer a
right to rescind the contract.
The court found from the evidence that the
representations made by Bernardo Argente and his
wife in their applications to the defendant for life
insurance were false with respect to their estate of
health during the period of five years preceding the
date of such applications, and that they knew the
representations made by them in their applications
were false.
In the policy was procured by fraudulent
representations, the contract of insurance
apparently set forth therein was never legally
existent. It can fairly be assumed that had the
true facts been disclosed by the assured, the
insurance would never have been granted.
And it is declared that if a material fact concealed
by assured it is equivalent to a false
representation that it does not exist and that the
essentials are the truth of the representations
whether they were intended to mislead and did
insurer accept them as true and act upon them to
his prejudice. So it is decided that under a stipulation
voiding the policy for concealment or
misrepresentation of any material fact or if his interest
is not truly stated or is either than the sole and
unconditional ownership the facts are unimportant that
insured did not intend to deceive or withhold
information as to encumbrances even though no
questions were asked.
x x x x x x x x x False answer above referred to, as well as the others,
The basis of the rule vitiating the contract in case of
concealment is that it misleads or deceives the insurer
into accepting the risk, or accepting it at the rate of
premium agreed upon. The insurer, relying upon
the belief that the assured will disclose every
material within his actual or presumed
EH 403 2010-2011 2011-2012
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knowledge, is misled into a belief that the
circumstance withheld does not exist, and he is
thereby induced to estimate the risk upon a false
basis that it does not exist. The principal question,
therefore, must be, Was the assurer misled or
deceived into entering a contract obligation or in fixing
the premium of insurance by a withholding of material
information of facts within the assured's knowledge or
presumed knowledge?
It therefore follows that the assurer in assuming
a risk is entitled to know every material fact of
which the assured has exclusive or peculiar
knowledge, as well as all material facts which
directly tend to increase the hazard or risk which
are known by the assured, or which ought to be
or are presumed to be known by him. And a
concealment of such facts vitiates the policy. "It does
not seem to be necessary . . . that the . . . suppression
of the truth should have been willful."
If it were but an inadvertent omission, yet if it were
material to the risk and such as the plaintiff should
have known to be so, it would render the policy void.
But it is held that if untrue or false answers are given
in response to inquiries and they relate to material
facts the policy is avoided without regard to the
knowledge or fraud of assured, although under the
statute statements are representations which must be
fraudulent to avoid the policy. So under certain codes
the important inquiries are whether the concealment
was willful and related to a matter material to the risk.
THE INSULAR LIFE ASSURANCE CO., LTD. v.
SERAFIN D. FELICIANO ET AL.
[G.R. No. L-47593 December 29, 1943]
Insular Life filed this case (Motion for reconsideration)
Facts:
Evaristo Feliciano, who died on September 29, 1935,
was suffering with advanced pulmonary tuberculosis
when he signed his applications for insurance with the
petitioner on October 12, 1934. On that same date
Doctor Trepp, who had taken X-ray pictures of his
lungs, informed the respondent Dr. Serafin D.
Feliciano, brother of Evaristo, that the latter "was
already in a very serious ad practically hopeless
condition." Nevertheless the question contained in the
application "Have you ever suffered from any
ailment or disease of the lungs, pleurisy, pneumonia or
asthma?" appears to have been answered , "No".
was written by the Company's soliciting agent David,
in collusion with the medical examiner Dr. Gregorio
Valdez, for the purpose of securing the Company's
approval of the application so that the policy to be
issued thereon might be credited to said agent in
connection with the inter-provincial contest which the
Company was then holding among its soliciting agents
to boost the sales of its policies. Agent David bribed
 INSURANCE LAW CASE DIGESTS
Medical Examiner Valdez with money which the former
borrowed from the applicant's mother by way of
advanced payment on the premium, according to the
finding of the Court of Appeals. Said court also found
that before the insured signed the application he, as
well as the members of his family, told the agent and
the medical examiner that he had been sick and
coughing for some time and that he had gone three
times to the Santol Sanatorium and had X-ray pictures
of his lungs taken; but that in spite of such information
the agent and the medical examiner told them that the
applicant was a fit subject for insurance.
The policy and the application constitute the entire
contract between the parties hereto. Said contract
provides xxx and the Company shall not be bound by
any promise or representation heretofore or hereafter
given by any person other than the above-named
officials, and by them only in writing and signed
conjointly as stated
Issue:
Whether or not Insular Life is bound by the acts of its
agents? Whether or not Feliciano is entitled to the
insurance benefits?
Held:
NO. Sain unsurance policy is void ab initio. Insular Life
is not bound by the acts of its agents, as in this case
there was connivance between the medical examiner,
the agent and Feliciano.From the facts of the case we
cannot escape the conclusion that the insured acted in
connivance with the soliciting agent and the medical
examiner of the Company in accepting the policies in
question." By accepting the policy Feliciano became
charged with knowledge of its contents, whether he
actually read it or not. The insured, therefore, had no
right to rely and we cannot believe he relied in good
faith upon the oral representation of said agent and
medical examiner that he (the applicant) was a fit
subject for insurance notwithstanding that he had been
and was still suffering with advanced pulmonary
tuberculosis. We are to conclude that the insured was
a co-participant, and co-responsible with Agent David
and Medical Examiner Valdez, in the fraudulent
procurement of the policies in question and that by
reason thereof said policies are void ab initio.
SC: motion for reconsideration is sustained and the
judgment of the Court of Appeals is hereby reversed.
Let another judgment be entered in favor of the
respondents and against the petitioner for the refund
of the premiums amounting to P1,389, with legal
interest thereon from the date of the complaint, and
without any finding as to costs.
Digested by: dlanor
Saturnino vs. Philippine American Life Insurance
Facts:
EH 403 2010-2011 2011-2012
Page 23
A 20- year endowment non-medical insurance was
issued to Estefania Saturnino after submission of her
application to the appelle ( Philippine American Life
Insurance) and payment of P339.25 as the first years
premium. The policy dispenses with the medical
examination of the applicant usually required in other
ordinary life policies. Nevertheless, it required for a
detailed information in the application concerning the
applicants health medical history.
It was discovered that prior to the issuance of the
policy, Saturnino was operated on for cancer, involving
complete removal of the right breast, including the
pectoral muscles and the glands found in the right
armpit. Estefania Saturnino however did not the
disclose the fact of operation in the application. She
even stated therein that she did not have, nor had she
ever had, among other ailments listed in the
application, cancer or other tumors; that she had not
consulted any physician, undergone any operation or
suffered any injury within the preceding five years;
and that she had never been treated for nor did she
ever have any illness or disease peculiar to her sex,
particularly of the breast, ovaries, uterus, and
menstrual disorders. The application also recites that
the foregoing declarations constituted "a further basis
for the issuance of the policy."
Saturnino died of pneumonia, prompting the husband
and minor child to demand payment of the face value
of the policy. The claim was rejected and this suit was
subsequently instituted.
Issues:
W/N the insured made such false representations of
material facts to avoid the policy.
Ruling:
There can be no dispute that the information given by
her in her application for insurance was false, namely,
that she had never had cancer or tumors, or consulted
any physician or undergone any operation within the
preceding period of five years.
The Insurance Law (Section 30) provides that
"materiality is to be determined not by the event, but
solely by the probable and reasonable influence of the
facts upon the party to whom the communication is
due, in forming his estimate of the proposed contract,
or in making his inquiries."
It seems to be the contention of appellants that the
facts subject of the representation were not material in
view of the "non-medical" nature of the insurance
applied for, which does away with the usual
requirement of medical examination before the policy
is issued.
The waiver of medical examination renders even
more material the information required of the
applicant concerning previous condition of health
and diseases suffered, for such information
 INSURANCE LAW CASE DIGESTS
necessarily constitutes an important factor which
the insurer takes into consideration in deciding
whether to issue the policy or not.
Appellants also contend there was no fraudulent
concealment of the truth inasmuch as the insured
herself did not know, since her doctor never told her,
that the disease for which she had been operated on
was cancer. In the first place the concealment of the
fact of the operation itself was fraudulent, as there
could not have been any mistake about it, no matter
what the ailment. Secondly, in order to avoid a
policy it is not necessary to show actual fraud on
the part of the insured.
In this jurisdiction a concealment, whether intentional
or unintentional, entitles the insurer to rescind the
contract of insurance, concealment being defined as
"negligence to communicate that which a party knows
and ought to communicate".
v. Materiality of representation (Section 46)
vi. Rules on concealment and representation
(Section 47)
vii. Right of rescission/Incontestability
(Section 48)
Digested by: Kristine Oja
Tan Chay Hong v. West Coast Life Ins Co.
Facts:
In 1925, defendant West Coast Life Insurance
Company accepted and approved a life insurance
policy for the sum of P10,000 in favor of Tan Caeng in
which the plaintiff (Tan Chay Heng) was the sole
beneficiary. Tan Ceang died on May 10, 1925 and in
June, 1925, Tan Chay Heng submitted the proofs of
the death of Tan Ceang with a claim for the payment
of the policy. West Coast refused to pay and in
consequence thereof Tan Chay Heng prayed before the
court for judgment, with legal interest from the date of
the policy, and costs.
West Coast filed an answer in which it made a general
and specific denial on the allegations in the complaint.
West Coast further filed an amended answer, alleging
special defenses that the insurance policy on the life of
Tan Ceang, upon which Tan Chay Hengs action is
based, was obtained in confabulation with one Go
Chulian and Dr. V. S. Locsin, thru fraud and deceit
.West Coast said that it was made to appear that Tan
Caeng was single, a merchant, of good health
condition and not a drug user, when in fact he was
married, a laborer, suffering from tuberculosis and
addicted to drugs. West Coast now denies liability
based on these misrepresentations and prays that it be
absolved from plaintiff's complaint.
To this special defense, Tan Chay Heng, claiming that
it was a cross-complaint, filed a general demurrer upon
the ground that it does not state facts sufficient to
EH 403 2010-2011 2011-2012
Page 24
constitute a cause of defense. Tan Chay further
contends that section 47 of the Insurance Act should
be applied, and that when so applied, defendant is
barred and estopped to plead and set forth the matters
alleged in its special defense. That section is as
follows:
Whenever a right to rescind a contract
of insurance is given to the insurer by any
provision of this chapter, such right must be
exercised previous to the commencement of an
action on the contract.
The Trial court rendered judgment in favor of Tan
Chay Heng holding that an insurer cannot avoid a
policy which has been procured by fraud unless he
brings an action to rescind it before he is sued thereon.
Issue:
WON Section 47 can be applied to the matters alleged
in the special defense of Tan Chay Heng.
Held: NO.
Precisely, the defense of West Coast was that the
policy was acquired through fraud in its execution, the
policy is void ab initio, and therefore, no valid contract
was ever made. Its action then cannot be for rescission
because an action to rescind is founded upon and
presupposes the existence of the contract. Hence,
West Coasts defense is not barred by Sec. 47.
In the instant case, it will be noted that even in its
prayer, the defendant does not seek to have the
alleged insurance contract rescinded. It denies that it
ever made any contract of insurance on the life of Tan
Caeng, or that any such a contract ever existed, and
that is the question which it seeks to have litigated by
its special defense. In the very nature of things, if the
defendant never made or entered into the contract in
question, there is no contract to rescind, and, hence,
section 47 upon which the lower court based its
decision in sustaining the demurrer does not apply.
As stated, an action to rescind a contract is founded
upon and presupposes the existence of the contract
which is sought to be rescinded. If all of the material
matters set forth and alleged in the defendant's special
plea are true, there was no valid contract of insurance,
for the simple reason that the minds of the parties
never met and never agreed upon the terms and
conditions of the contract. We are clearly of the
opinion that, if such matters are known to exist by a
preponderance of the evidence, they would constitute
a valid defense to plaintiff's cause of action. Upon the
question as to whether or not they are or are not true,
we do not at this time have or express any opinion,
but we are clear that section 47 does not apply to the
allegations made in the answer, and that the trial court
erred in sustaining the demurrer.
The judgment of the lower court is reversed and the
case is remanded for such other and further
 INSURANCE LAW CASE DIGESTS
proceedings as are not inconsistent with this opinion,
with costs against the plaintiff.
-Argente
Author: Aldrin Montesco
TAN VS. CA
[174 SCRA 403]
FACTS:
Businessman Tan Lee Siong applied for life insurance
policy with American Life Insurance Company in the
amount of P80,000.00 by virtue of which he was
issued Policy No. 1082467 effective November 6,1973,
with his sons as designated beneficiaries thereof. On
April 1975, Tan Lee Siong died and the sons
subsequently filed their claim for the insurance
proceeds. But in September of the same year, the
company sent a letter denying petitioners' claim and
rescinded the policy by reason of the alleged
misrepresentation and concealment of material facts
made by the deceased Tan Lee Siong in his application
for insurance. The premiums paid on the policy,
however, were thereupon refunded.
ISSUES:
Whether or not the insurance company no longer had
the right to rescind the contract of insurance as
rescission must allegedly be done during the lifetime of
the insured within two years and prior to the
commencement of the action.
RULING:
The so-called "incontestability clause" precludes the
insurer from raising the defenses of false
representations or concealment of material facts
insofar as health and previous diseases are concerned
if the insurance has been in force for at least two years
during the insured's lifetime. The phrase "during the
lifetime" found in Section 48 simply means that the
policy is no longer considered in force after the insured
has died. The key phrase in the second paragraph of
Section 48 is "for a period of two years."
As noted by the Court of Appeals, to wit:
The policy was issued on November 6, 1973 and the
insured died on April 26,1975. The policy was thus in
force for a period of only one year and five months.
Considering that the insured died before the two-year
period had lapsed, respondent company is not,
therefore, barred from proving that the policy is
void ab initio by reason of the insured's fraudulent
concealment or misrepresentation. Moreover,
respondent company rescinded the contract of
insurance and refunded the premiums paid on
September 11, 1975, previous to the commencement
of this action on November 27,1975.
EH 403 2010-2011 2011-2012
Page 25
The deceased, by affixing his signature on the
application form, affirmed the correctness of all the
entries and answers appearing therein. It is but to be
expected that he, a businessman, would not have
affixed his signature on the application form unless he
clearly understood its significance. For, the
presumption is that a person intends the ordinary
consequence of his voluntary act and takes ordinary
care of his concerns. [Sec. 5(c) and (d), Rule 131,
Rules of Court].
The evidence for respondent company shows that on
September 19,1972, the deceased was examined by
Dr. Victoriano Lim and was found to be diabetic and
hypertensive; that by January, 1973, the deceased
was complaining of progressive weight loss and
abdominal pain and was diagnosed to be suffering
from hepatoma, (t.s.n. August 23, 1976, pp. 8-10;
Exhibit 2). Another physician, Dr. Wenceslao Vitug,
testified that the deceased came to see him on
December 14, 1973 for consolation and claimed to
have been diabetic for five years. (t.s.n., Aug.
23,1976, p. 5; Exhibit 6) Because of the concealment
made by the deceased of his consultations and
treatments for hypertension, diabetes and liver
disorders, respondent company was thus misled into
accepting the risk and approving his application as
medically standard (Exhibit 5- C) and dispensing with
further medical investigation and examination (Exhibit
5-A). For as long as no adverse medical history is
revealed in the application form, an applicant for
insurance is presumed to be healthy and physically fit
and no further medical investigation or examination is
conducted by respondent company
F. Insurance Policy
i. Definition (Section 49)
Digested by: Archie Necesario
Vicente Tang vs Court of Appeals, Philippine
American Life Insurance Company
Facts:
Lee See Guat, a widow, 61 years old and an illeterate
who spoke only Chinese, applied on two separate
times for an insurance on her life from Philippine
American Life Insurance Co. (Company), amounting to
a total of P100,000. The application consisted of two
parts, both in the English language. The second part of
her application dealt with her state of health and
because her answers indicated that she was healthy,
the Company approved her two applications, with her
nephew Vicente Tang as her benefeciary.
Less than a year from her application, Lee See Guat
died of lung cancer. Tang tried to claim the value of
the insurance policy but the Company refused to pay
on the ground that the insured was guilty of
concealment and misrepresentation at the time she
applied for the two policies. Both the trial court and
 INSURANCE LAW CASE DIGESTS
the Court of Appeals ruled in favor of the insurance
company.
Issue:
Whether or not Article 1332 of the Civil Code is
applicable to this case.
Ruling:
"Art. 1332. When one of the parties is unable to read,
or if the contract is in a language not understood by
him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms
thereof have been fully explained to the former."
It is the position of the petitioner that because Lee See
Guat was illiterate and spoke only Chinese, she could
not be held guilty of concealment of her health history
because the applications for insurance were in English
and the insurer has not proved that the terms thereof
had been fully explained to her.
It should be noted that under Art. 1332, the obligation
to show that the terms of the contract had been fully
explained to the party who is unable to read or
understand the language of the contract, when fraud
or mistake is alleged, devolves on the party seeking to
enforce it. Here the insurance company is not seeking
to enforce the contracts; on the contrary, it is seeking
to avoid their performance. It is petitioner who is
seeking to enforce them even as fraud or mistake is
not alleged. Accordingly, respondent company was
under no obligation to prove that the terms of the
insurance contracts were fully explained to the other
party. Even if we were to say that the insurer is the
one seeking the performance of the contracts by
avoiding paying the claim, it has to be noted as above
stated that there has been no imputation of mistake or
fraud by the illiterate insured whose personality is
represented by her beneficiary the petitioner herein. In
sum, Art. 1332 is inapplicable to the case at bar.
Decision of the Court of Appeals is affirmed.
ii. Form of insurance Policy; riders,
etc)/Contents (Sections 50-51)
iii. Cover notes (Section 52)
Digested by: Sharmine M. Odchigue
De Lim vs. Sun Life Ass. Co. of Canada
[41 Phil 263]
Facts:
On July 6, 1917, Luis Lim y Garcia of Zamboanga
applied for a policy of insurance on his life (Sun Life
Assurance Company of Canada) in the sum of P5,000.
His wife, Pilar C. de Lim, plaintiff, was the beneficiary.
The first premium of P433 was paid by Lim, and upon
such payment the company issued what was called a
"provisional policy."
EH 403 2010-2011 2011-2012
Page 26
Provisional Policy:
The above-mentioned life is to be assured in
accordance with the terms and conditions contained or
inserted by the Company in the policy which may be
granted by it in this particular case for four months
only from the date of the application, provided that
the Company shall confirm this agreement by issuing a
policy on said application when the same shall be
submitted to the Head Office in Montreal. Should the
Company not issue such a policy, then this agreement
shall be null and void ab initio, and the Company shall
be held not to have been on the risk at all, but in such
case the amount herein acknowledged shall be
returned.
Luis Lim y Garcia died on August 23, 1917, after the
issuance of the provisional policy but before approval
of the application by the home office of the insurance
company. The instant action is brought by the
beneficiary, Pilar C. de Lim, to recover from the Sun
Life Assurance Company of Canada the sum of P5,000,
the amount named in the provisional policy.
Court of First Instance of Zamboanga sustained the
demurrer to plaintiff's complaint on the ground that it
fails to state a cause of action.
Issues:
(1) WON the contract was consummated?
(2) WON this is a form of cover notes? (note: not
100% sure about this )
Ruling:
(1) NO. The contract, to be binding from the date of
the application, must have been a completed contract,
one that leaves nothing to be done, nothing to be
completed, nothing to be passed upon, or determined,
before it shall take effect. There can be no contract of
insurance unless the minds of the parties have met in
agreement. As we read and understand the so-called
provisional policy it amounts to nothing but an
acknowledgment on behalf of the company, that it has
received from the person named therein the sum of
money agreed upon as the first year's premium upon a
policy to be issued upon the application, if the
application is accepted by the company.
SC finds the 2nd rule (Joyce on Insurance, relied by
appellant) to be applicable . The Rule states;
Where an agreement is made between the applicant
and the agent whether by signing an application
containing such condition, or otherwise, that no liability
shall attach until the principal approves the risk and a
receipt is given buy the agent, such acceptance is
merely conditional, and it subordinated to the act of
the company in approving or rejecting; so in life
insurance a "binding slip" or "binding receipt" does not
insure of itself.
(2) NO. Sec 52. Cover notes may be issued to
bind insurance temporarily pending the issuance
 INSURANCE LAW CASE DIGESTS
of the policy. In this case there is no temporary
insurance.
Cases which the COURT find applicable to this case:
In the case of Steinle vs. New York Life Insurance Co.
([1897], 81 Fed., 489} the facts were that the amount
of the first premium had been paid to an insurance
agent and a receipt given therefor. The receipt,
however, expressly declared that if the application was
accepted by the company, the insurance shall take
effect from the date of the application but that if the
application was not accepted, the money shall be
returned. The trite decision of the circuit court of
appeal was, "On the conceded facts of this case, there
was no contract to life insurance perfected and the
judgment of the circuit court must be affirmed."
In the case of Cooksey vs. Mutual Life Insurance Co.
([1904], 73 Ark., 117) the person applying for the life
insurance paid and amount equal to the first premium,
but the application and the receipt for the money paid,
stipulated that the insurance was to become effective
only when the application was approved and the policy
issued. The court held that the transaction did not
amount to an agreement for preliminary or temporary
insurance.
SC did not find any error on the part of trial court in
sustaining the demurrer and dismissing the case.
Lastly, counsel for appellee admits the liability of the
company for the return of the first premium to the
estate of the deceased. Sun Life Assurance Company
of Canada will immediately pay to the estate of the
late Luis Lim y Garcia the of P433. SO ORDERED.
Digested by: Kristine Oja
Pacific Timber Export Corp. v. CA
Facts:
On March 13, 1963, Pacific Timber secured temporary
insurance from the Workmens Insurance Co. for its
exportation of logs to Japan. Workmen Insurance
issued on said date Cover Note 1010 insuring said
cargo. The regular marine policies were issued by
the company in favor of Pacific Timber on April 2,
1963. The two marine policies bore the number
53H01032 and 53H01033. After the issuance of the
cover note but before the issuance of the two policies,
some of the logs intended to be exported were lost
due to a typhoon. Pacific Timber filed its claim with
the company, but the latter refused, contending that
the cover note insuring the cargo is null and void for
lack of valuable consideration.
Issue:
WON the cover note was without consideration, thus
null and void.
Held:
It was with consideration.
EH 403 2010-2011 2011-2012
Page 27
We uphold petitioner's submission that the Cover Note
was not without consideration. The fact that no
separate premium was paid on the Cover Note before
the loss insured against occurred, does not militate
against the validity of petitioner's contention, for no
such premium could have been paid, since by the
nature of the Cover Note, it did not contain, as all
Cover Notes do not contain particulars of the shipment
that would serve as basis for the computation of the
premiums. As a logical consequence, no separate
premiums are intended or required to be paid on a
Cover Note.
At any rate, it is not disputed that petitioner paid in full
all the premiums as called for by the statement issued
by private respondent after the issuance of the two
regular marine insurance policies, thereby leaving no
account unpaid by petitioner due on the insurance
coverage, which must be deemed to include the Cover
Note. If the Note is to be treated as a separate policy
instead of integrating it to the regular policies
subsequently issued, the purpose and function of the
Cover Note would be set at naught or rendered
meaningless, for it is in a real sense a contract, not a
mere application for insurance which is a mere offer.
iv. Application of insurance proceeds
(Section 53)
Digested by: Gayle Opsima
FRANCISCO DEL VAL ET AL.vs. ANDRES DEL VAL
Facts:
Plaintiff and defendant are siblings who are heirs at
law of Gregorio Nacianceno del Val, who died intestate.
The deceased, during his lifetime, took out an
insurance on his life for the sum of P40,000 and made
it payable to the defendant as sole beneficiary.
Plaintiffs contend that the amount of the insurance
policy belonged to the estate of the deceased and not
to the defendant personally; that, therefore, they are
entitled to a partition not only of the real and personal
property, but also of the P40,000 life insurance.
Issue:
Whether or not the insurance policy belongs to the
estate
Ruling:
With the finding of the trial court that the proceeds of
the life-insurance policy belong exclusively to the
defendant as his individual and separate property, we
agree. That the proceeds of an insurance policy belong
exclusively to the beneficiary and not to the estate of
the person whose life was insured, and that such
proceeds are the separate and individual property of
the beneficiary, and not of the heirs of the person
whose life was insured, is the doctrine in America. We
believe that the same doctrine obtains in these Islands
 INSURANCE LAW CASE DIGESTS
by virtue of section 428 of the Code of Commerce,
which reads:
"The amounts which the underwriter must deliver to
the person insured, in fulfillment of the contract, shall
be the property of the latter, even against the claims
of the legitimate heirs or creditors of any kind
whatsoever of the person who effected the insurance
in favor of the former."
It is claimed by the attorney for the plaintiffs that the
proceeds of the insurance policy were a donation or
gift made by the father during his lifetime to the
defendant and that, as such, its ultimate destination is
determined by those provisions of the Civil Code which
relate to donations, especially article 819. This article
provides that "gifts made to children which are not
betterments shall be considered as part of their legal
portion."
We cannot agree with these contentions. The contract
of life insurance is a special contract and the
destination of the proceeds thereof is determined by
special laws which deal exclusively with that subject.
The Civil Code has no provisions which relate directly
and specifically to life-insurance contracts or to the
destination of life insurance proceeds. That subject is
regulated exclusively by the Code of Commerce which
provides for the terms of the contract, the relations of
the parties and the destination of the proceeds of the
policy.
Digested by: Kenn
Bonifacio Bros. vs Mora
Facts:
Enrique Mora mortgaged his car to the H.S. Reyes
with the condition that the former would insure it
with the latter as beneficiary.
He insured it with the State Bonding & Insurance
Co., Inc., with pertinent provisions of the policy
which read:
xxx xxx xxx
4. The Insured may authorize the repair of
the Motor Vehicle necessitated by damage
for which the Company may be liable under
this Policy provided that: (a) The estimated
cost of such repair does not exceed the
Authorized Repair Limit, (b) A detailed
estimate of the cost is forwarded to the
Company without delay, subject to the
condition that "Loss, if any is payable to
H.S. Reyes, Inc.," by virtue of the fact that
said Oldsmobile sedan was mortgaged in favor
of the said H.S. Reyes, Inc. and that under a
clause in said insurance policy, any loss was
made payable to the H.S. Reyes, Inc. as
Mortgagee;
xxx xxx xxx
During the effectivity of the insurance contract, the
car met with an accident. The insurance company
EH 403 2010-2011 2011-2012
Page 28
then assigned the accident to the Bayne
Adjustment Co. for appraisal of the damage.
Enrique Mora, without the knowledge and consent
of the H.S. Reyes, Inc., authorized the Bonifacio
Bros. Inc. to furnish the labor and materials, some
of which were supplied by the Ayala Auto Parts Co.
The insurance company then drew a check as
proceeds of the insurance policy, payable to the
order of Enrique Mora or H.S. Reyes, Inc., and
entrusted the check to the H.H. Bayne Adjustment
Co. for disposition and delivery to the proper party.
In the meantime, the car was delivered to Enrique
Mora without the consent of the H.S. Reyes, Inc.,
and without payment to the Bonifacio Bros.
Inc. and the Ayala Auto Parts Co. of the cost
of repairs and materials.
Upon the theory that the insurance proceeds
should be paid directly to them, the Bonifacio Bros.
Inc. and the Ayala Auto Parts Co. filed this
complaint. Their arguments are based on
paragraph 4 of the insurance contract which
provides that "the insured may authorize the repair
of the Motor Vehicle necessitated by damage for
which the company may be liable under the policy
xxx." It is stressed that the H.H. Bayne Adjustment
Company's recommendation of payment of the
appellants' bill for which the Insurance Company
drew a check indicates that Mora and the H.H.
Bayne Adjustment Co. acted for and in
representation of that insurance company.
Issue:
Whether or not there is privity of contract between the
Bonifacio Bros. Inc. and the Ayala Auto Parts Co. on
the one hand and the insurance company on the other.
Who has better right over the insurance proceeds?
Ruling:
The appellants are not mentioned in the contract as
parties thereto nor is there any clause or provision
thereof from which to infer that there is an obligation
on the part of the insurance company to pay the cost
of repairs directly to them. It is fundamental that
contracts take effect only between the parties thereto,
except in some specific instances provided by law
where the contract contains some stipulation in favor
of a third person. Such stipulation is known as
stipulation pour autrui or a provision in favor of a third
person not a pay to the contract. Under this doctrine, a
third person is allowed to avail himself of a benefit
granted to him by the terms of the contract, provided
that the contracting parties have clearly and
deliberately conferred a favor upon such
person. Consequently, a third person not a party to
the contract has no action against the parties thereto,
and cannot generally demand the enforcement of the
same. The question of whether a third person has an
enforcible interest in a contract, must be settled by
determining whether the contracting parties intended
to tender him such an interest by deliberately inserting
terms in their agreement with the avowed purpose of
conferring a favor upon such third person. In this
 INSURANCE LAW CASE DIGESTS
connection, SC has laid down the rule that the fairest
test to determine whether the interest of a third
person in a contract is a stipulation pour autrui or
merely an incidental interest, is to rely upon the
intention of the parties as disclosed by their
contract. In the instant case the insurance contract
does not contain any words or clauses to disclose an
intent to give any benefit to any repairmen or
materialmen in case of repair of the car in question.
The parties to the insurance contract omitted such
stipulation, which is a circumstance that supports the
said conclusion. On the other hand, the "loss payable"
clause of the insurance policy stipulates that "Loss, if
any, is payable to H.S. Reyes, Inc." indicating that it
was only the H.S. Reyes, Inc. which they intended to
benefit.
Another cogent reason for not recognizing a right of
action by the appellants against the insurance
company is that "a policy of insurance is a distinct and
independent contract between the insured and insurer,
and third persons have no right either in a court of
equity, or in a court of law, to the proceeds of it,
unless there be some contract of trust, expressed or
implied between the insured and third person." 5 In this
case, no contract of trust, expressed or implied exists.
This conclusion is deducible not only from the principle
governing the operation and effect of insurance
contracts in general, but is clearly covered by the
express provisions of section 50 of the Insurance Act
which read:
The insurance shall be applied exclusively to
the proper interests of the person in whose
name it is made unless otherwise specified in
the policy.
The policy in question has been so framed that "Loss,
if any, is payable to H.S. Reyes, Inc.," which
unmistakably shows the intention of the parties.
Digested by: ra osorio
Guingon vs. Del Monte
FACTS:
Julio Aguilar owned and operated several jeepneys. He
entered into a contract with the Capital Insurance &
Surety Co., Inc. insuring the operation of his jeepneys
against accidents with third-party liability. The
insurance policy contains the following provisions:
Section II LIABILITY TO THE PUBLIC
1. The Company, will, subject to the limits of
liability, indemnify the Insured in the event of
accident caused by or arising out of the use of the
Motor Vehicle/s or in connection with the loading
or unloading of the Motor Vehicle/s, against all
sums including claimant's costs and expenses
which the Insured shall become legally liable to
pay in respect of:
a. death of or bodily injury to any person
b. damage to property
EH 403 2010-2011 2011-2012
Page 29
Iluminado del Monte, one of the drivers of the
jeepneys operated by Aguilar, bumped with the
jeepney abovementioned one Gervacio Guingon who
had just alighted from another jeepney and as a
consequence the latter died some days thereafter.
The heirs of Gervacio Guingon filed an action for
damages praying that the sum of P82,771.80 be paid
to them jointly and severally by the defendants, driver
Iluminado del Monte, owner and operator Julio Aguilar,
and the Capital Insurance & Surety Co., Inc. For failure
to answer the complaint, Del Monte and Aguilar were
declared in default. Capital Insurance & Surety Co.,
Inc. answered, alleging that the plaintiff has no cause
of action against it based on the following provision:
E. Action Against Company
No action shall lie against the Company unless, as
a condition precedent thereto, the Insured shall
have fully complied with all of the terms of this
Policy, nor until the amount of the Insured's
obligation to pay shall have been finally
determined either by judgment against the Insured
after actual trial or by written agreement of the
Insured, the claimant, and the Company.
Any person or organization or the legal
representative thereof who has secured such
judgment or written agreement shall thereafter be
entitled to recover under this policy to the extent
of the insurance afforded by the Policy. Nothing
contained in this policy shall give any person or
organization any right to join the Company as a
co-defendant in any action against the Insured to
determine the Insured's liability.
Bankruptcy or insolvency of the Insured or of the
Insured's estate shall not relieve the Company of
any of its obligations hereunder.
Capital Insurance & Surety Co. contends that the "no
action" clause in the policy closes the avenue to any
third party which may be injured in an accident
wherein the jeepney of the insured might have been
the cause of the injury of third persons, alleging the
freedom of contracts.
ISSUE:
WON the heirs of Guingon have a cause of action
against Capital Insurance
RULING: Yes.
The policy in the present case is one whereby the
insurer agreed to indemnify the insured "against all
sums . . . which the Insured shall become legally liable
to pay in respect of: a. death of or bodily injury to any
person . . . ." Clearly, therefore, it is one for indemnity
against liability; from the fact then that the insured is
liable to the third person, such third person is entitled
to sue the insurer
The right of the person injured to sue the insurer of
the party at fault (insured), depends on whether the
contract of insurance is intended to benefit third
persons also or only the insured. And the test applied
has been this: Where the contract provides for
 INSURANCE LAW CASE DIGESTS
indemnity against liability to third persons, then third
persons to whom the insured is liable, can sue the
insurer.
The next question is on the right of the third person to
sue the insurer jointly with the insured. The policy
requires, as afore-stated, that suit and final judgment
be first obtained against the insured; that only
"thereafter" can the person injured recover on the
policy; it expressly disallows suing the insurer as a co-
defendant of the insured in a suit to determine the
latter's liability. As adverted to before, the query is
which procedure to follow that of the insurance
policy or the Rules of Court.
In the discussion of the points thus raised, what is
paramount is the interpretation of the insurance
contract with the aim in view of attaining the
objectives for which the insurance was taken. The
Rules of Court provide that parties may be joined
either as plaintiffs or defendants, as the right to relief
in respect to or arising out of the same transactions is
alleged to exist (Sec. 6, Rule 3).
The "no action" clause in the policy of insurance cannot
prevail over the Rules of Court provision aimed at
avoiding multiplicity of suits.
Similarly, in the instant suit, Sec. 5 of Rule 2 on
"Joinder of causes of action" and Sec. 6 of Rule 3 on
"Permissive joinder of parties" cannot be superseded,
at least with respect to third persons not a party to the
contract, as herein, by a "no action" clause in the
contract of insurance.
Digested by: Mark Recto
MELECIO COQUIA, MARIA ESPANUEVA and
MANILA YELLOW TAXICAB CO.,
INC.vs.FIELDMEN'S INSURANCE CO., INC.
[G.R. No. L-23276, November 29, 1968]
Facts:
Fieldmens Insurance Company issued Manila Yellow
Taxicab Co. a common carrier accident insurance
policy, covering the period from Dec. 1, 1961 to Dec.
1, 1962.
While the policy was in force, or on February 10, 1962,
a taxicab of the Insured, driven by Carlito Coquia, met
a vehicular accident at Mangaldan, Pangasinan, in
consequence of which Carlito died. The Insured filed
therefor a claim for P5,000.00 to which the Company
replied with an offer to pay P2,000.00, by way of
compromise. The Insured rejected the same and made
a counter-offer for P4,000.00, but the Company did
not accept it. Hence, on September 18, 1962, the
Insured and Carlito's parents, namely, Melecio Coquia
and Maria Espanueva the Coquias filed a
complaint against the Company to collect the proceeds
of the aforementioned policy. In its answer, the
Company admitted the existence thereof, but pleaded
lack of cause of action on the part of the plaintiffs.
EH 403 2010-2011 2011-2012
Page 30
The trial court rendered a decision sentencing the
Company to pay to the plaintiffs the sum of P4,000.00
and the costs.
Issue:
Fieldmen appealed, it contended that plaintiffs have no
cause of action because: 1) the Coquias have no
contractual relation with the Company; and 2) the
Insured has not complied with the provisions of the
policy concerning arbitration. (FIRST ISSUE IS the
MAIN TOPIC)
Ruling:
As regards the first defense, it should be noted that,
although, in general, only parties to a contract may
bring an action based thereon, this rule is subject to
exceptions, one of which is found in the second
paragraph of Article 1311 of the Civil Code of the
Philippines, reading:
If a contract should contain some stipulation in favor
of a third person, he may demand its fulfillment
provided he communicated his acceptance to the
obligor before its revocation. A mere incidental benefit
or interest of a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a
favor upon a third person.
In the stipulations, the Company "will indemnify any
authorized Driver who is driving the Motor Vehicle" of
the Insured and, in the event of death of said driver,
the Company shall, likewise, "indemnify his personal
representatives." In fact, the Company "may, at its
option, make indemnity payable directly to the
claimants or heirs of claimants ... it being the true
intention of this Policy to protect ... the liabilities of the
Insured towards the passengers of the Motor Vehicle
and the Public" in other words, third parties.
Thus, the policy under consideration is typical of
contracts pour autrui, this character being made more
manifest by the fact that the deceased driver paid fifty
percent (50%) of the corresponding premiums, which
were deducted from his weekly commissions. Under
these conditions, it is clear that the Coquias who,
admittedly, are the sole heirs of the deceased have
a direct cause of action against the Company, and,
since they could have maintained this action by
themselves, without the assistance of the Insured, it
goes without saying that they could and did properly
join the latter in filing the complaint herein.
The second defense set up by the Company is based
upon Section 17 of the policy reading:
If any difference or dispute shall arise with respect
to the amount of the Company's liability under this
Policy, the same shall be referred to the decision of
a single arbitrator to be agreed upon by both
parties or failing such agreement of a single
arbitrator, to the decision of two arbitrators, one to
be appointed in writing by each of the parties
within one calendar month after having been
required in writing so to do by either of the parties
 INSURANCE LAW CASE DIGESTS
and in case of disagreement between the
arbitrators, to the decision of an umpire who shall
have been appointed in writing by the arbitrators
before entering on the reference and the costs of
and incident to the reference shall be dealt with in
the Award. And it is hereby expressly stipulated
and declared that it shall be a condition precedent
to any right of action or suit upon this Policy that
the award by such arbitrator, arbitrators or umpire
of the amount of the Company's liability hereunder
if disputed shall be first obtained.
The record shows, however, that none of the parties to
the contract invoked this section, or made any
reference to arbitration, during the negotiations
preceding the institution of the present case. In fact,
counsel for both parties stipulated, in the trial court,
that none of them had, at any time during said
negotiations, even suggested the settlement of the
issue between them by arbitration, as provided in said
section. Their aforementioned acts or omissions had
the effect of a waiver of their respective right to
demand an arbitration.
In the decision of the Supreme Court of Minnesota in
Independent School Dist. No. 35, St. Louis County vs.
A. Hedenberg & Co., Inc.7 from which we quote:
The test for determining whether there has been a
waiver in a particular case is stated by the author
of an exhaustive annotation in 117 A.L.R. p. 304,
as follows: "Any conduct of the parties inconsistent
with the notion that they treated the arbitration
provision as in effect, or any conduct which might
be reasonably construed as showing that they did
not intend to avail themselves of such provision,
may amount to a waiver thereof and estop the
party charged with such conduct from claiming its
benefits".
xxx xxx xxx
The decisive facts here are that both parties from
the inception of their dispute proceeded in entire
disregard of the provisions of the contract relating
to arbitration and that neither at any stage of such
dispute, either before or after commencement of
the action, demanded arbitration, either by oral or
written demand, pleading, or otherwise. Their
conduct was as effective a rejection of the right to
arbitrate as if, in the best Coolidge tradition, they
had said, "We do not choose to arbitrate". As
arbitration under the express provisions of article
40 was "at the choice of either party," and was
chosen by neither, a waiver by both of the right to
arbitration followed as a matter of law.
WHEREFORE, the decision appealed from should be as
it is hereby affirmed in toto, with costs against the
herein defendant-appellant, Fieldmen's Insurance Co.,
Inc. It is so ordered.
v. Sections 54-59
vi. Open Policy (Section 60)
Digested by: George
EH 403 2010-2011 2011-2012
Page 31
Development Insurance Corporation v.s. IAC and
PHILIPPINE UNION REALTY DEVELOPMENT
CORPORATION
[G.R. No. 71360 July 16, 1986]
Facts:
A fire broke out in the building of the private
respondent and it sued for recovery of damages from
the petitioner on the basis of an insurance contract
between them. The private respondent's building was
insured by petitioner against fire for P2,500,000.00
under an open policy, Policy No. RY/F-082.
Petitioner refused to pay advancing the argument that
only the building and not the elevators were insured.
Note: Actually, the petitioner in this case already lost
through default. The SC considered its delay
inexcusable, however, it proceeded to discuss the
merits of the case.
Issue:
WON the respondent is entitled to indemnity.
Ruling:
The petitioner's claim that the insurance covered only
the building and not the elevators is absurd, to say the
least. This Court has little patience with puerile
arguments that affront common sense, let alone basic
legal principles with which even law students are
familiar. The circumstance that the building insured is
seven stories high and so had to be provided with
elevators-a legal requirement known to the petitioner
as an insurance company-makes its contention all the
more ridiculous.
No less preposterous is the petitioner's claim that the
elevators were insured after the occurrence of the fire,
a case of shutting the barn door after the horse had
escaped, so to speak. 4 This pretense merits scant
attention. Equally undeserving of serious consideration
is its submission that the elevators were not damaged
by the fire, against the report of The arson
investigators of the INP 5 and, indeed, its own
expressed admission in its answer 6 where it affirmed
that the fire "damaged or destroyed a portion of the
7th floor of the insured building and more particularly
a Hitachi elevator control panel."
There is no reason to disturb the factual findings of the
lower court, as affirmed by the Intermediate Appellate
Court, that the heat and moisture caused by the fire
damaged although they did not actually burn the
elevators. Neither is this Court justified in reversing
their determination, also factual, of the value of the
loss sustained by the private respondent in the amount
of P508,867.00.
The only remaining question to be settled is the
amount of the indemnity due to the private respondent
under its insurance contract with the petitioner. This
 INSURANCE LAW CASE DIGESTS
will require an examination of this contract, Policy No.
RY/F-082, as renewed, by virtue of which the
petitioner insured the private respondent's building
against fire for P2,500,000.00.
The petitioner argues that since at the time of the fire
the building insured was worth P5,800,000.00, the
private respondent should be considered its own
insurer for the difference between that amount and the
face value of the policy and should share pro rata in
the loss sustained. Accordingly, the private respondent
is entitled to an indemnity of only P67,629.31, the rest
of the loss to be shouldered by it alone. In support of
this contention, the petitioner cites Condition 17 of the
policy, which provides:
If the property hereby insured shall, at the
breaking out of any fire, be collectively of greater
value than the sum insured thereon then the
insured shall be considered as being his own
insurer for the difference, and shall bear a ratable
proportion of the loss accordingly. Every item, if
more than one, of the policy shall be separately
subject to this condition.
However, there is no evidence on record that the
building was worth P5,800,000.00 at the time of the
loss; only the petitioner says so and it does not back
up its self-serving estimate with any independent
corroboration. On the contrary, the building was
insured at P2,500,000.00, and this must be
considered, by agreement of the insurer and the
insured, the actual value of the property insured on
the day the fire occurred. This valuation becomes even
more believable if it is remembered that at the time
the building was burned it was still under construction
and not yet completed.
The Court notes that Policy RY/F-082 is an open policy
and is subject to the express condition that:
Open Policy
This is an open policy as defined in Section 57 of
the Insurance Act. In the event of loss, whether
total or partial, it is understood that the amount of
the loss shall be subject to appraisal and the
liability of the company, if established, shall be
limited to the actual loss, subject to the applicable
terms, conditions, warranties and clauses of this
Policy, and in no case shall exceed the amount of
the policy.
As defined in the aforestated provision, which is now
Section 60 of the Insurance Code, "an open
policy is one in which the value of the thing
insured is not agreed upon but is left to be
ascertained in case of loss. " This means that the
actual loss, as determined, will represent the
total indemnity due the insured from the insurer
except only that the total indemnity shall not
exceed the face value of the policy.
The actual loss has been ascertained in this case and,
to repeat, this Court will respect such factual
determination in the absence of proof that it was
arrived at arbitrarily. There is no such showing. Hence,
EH 403 2010-2011 2011-2012
Page 32
applying the open policy clause as expressly agreed
upon by the parties in their contract, we hold that the
private respondent is entitled to the payment of
indemnity under the said contract in the total amount
of P508,867.00.
vii. Valued Policy (Section 61)
Digested by: Mark Rossel Salomon
Harding vs. Commercial Union Ass. Co.
Facts:
Henry Harding bought an automobile which was
subsequently given to her wife as a gift. The said
automobile was repaired and repainted at the Luneta
Garage. Luneta Garage, acting as agent for Smith, Bell
& Company (limited), solicited of the plaintiff Mrs.
Harding the insurance of said automobile by the
Commercial Union Assurance Company. A proposal
was made, followed by an inspection as to thevakue of
the automobile and thereafter Commercial Union
Assurance Company issued a policy of insurance upon
said proposal., in which policy the said automobile was
described as of the 'present value' of P3,000.
Subsequently, the said automobile was totally
destroyed by fire.
Issue:
W/N there was a proper valuation in the insurance
policy.
Ruling: There was a proper valuation.
The ordinary test of the value of property is the price it
will commend in the market if offered for sale. But that
test cannot, in the very nature of the case, be applied
at the time application is made for insurance. Men may
honestly differ about the value of property, or as to
what it will bring in the market; and such differences
are often very marked among those whose special
business it is to buy and sell property of all kinds. The
assured could do no more than estimate such value;
and that, it seems, was all that he was required to do
in this case. His duty was to deal fairly with the
Company in making such estimate. The special finding
shows that he discharged that duty and observed good
faith. We shall not presume that the Company, after
requiring the assured in his application to give the
'estimated value,' and then to covenant that he had
stated all material facts in regard to such value, so far
as known to him, and after carrying that covenant, by
express words, into the written contract, intended to
abandon the theory upon which it sought the contract,
and make the absolute correctness of such estimated
value a condition precedent to any insurance
whatever. The application, with its covenant and
stipulations, having been made a part of the policy,
that presumption cannot be indulged without imputing
to the Company a purpose, by studied intricacy or an
ingenious framing of the policy, to entrap the assured
 INSURANCE LAW CASE DIGESTS
into incurring obligations which, perhaps, he had no
thought of assuming."
Section 163 of the Insurance Law (Act No. 2427)
provides that "the effect of a valuation in a policy of
fire insurance is the same as in a policy of marine
insurance."
By the terms of section 149 of the Act cited, the
valuation in a policy of marine insurance is conclusive
if the insured had an insurable interest and was not
guilty of fraud.
viii. Running Policy (Section 62)
ix. Limitation to commence action (Section
63)
Digested by: Jamee S. Singco
Eagle Star Ins. vs. Chia Yu
Facts:
Atkin, Kroll & Co., loaded on the S. S. Roeph Silverlight
owned and operated by Leigh Hoegh & Co., A/S, of
San Francisco California, 14 bales of assorted
underwear valued at P8,085.23 consigned to Chia Yu
in the City of Manila. The shipment was insured against
all risks by Eagle Star Ins. Co. of San Francisco,
California, under a policy issued to the shipper and by
the latter assigned to the consignee. When the vessel
started discharging its cargo into the custody of the
Manila Terminal Co., Inc., which was then operating
the arrastre service for the Bureau of Customs the 14
bales consigned to Chia Yu, only 10 were delivered to
him as the remaining 3 could not be found. Three of
those delivered were also found damaged to the extent
of 50 per cent. Chia Yu claimed indemnity for the
missing and damaged bales. But the claim was
declined, first, by the carrier and afterward by the
insurer, whereupon Chia Yu brought the present action
against both, including their respective agents in the
Philippines. More than two years after delivery of the
damaged bales and the date when the missing bales
should have been delivered, the action was resisted by
the defendants principally on the ground of
prescription.
The trial court found for plaintiff and rendered
judgment in his favor for the sum claimed plus legal
interest and costs. The judgment was affirmed by the
Court of Appeals.
Issue:
whether plaintiff's action has prescribed
Ruling:
On the part of the carrier the defense of prescription is
made to rest on the following stipulation of the bill of
lading:
In any event the carrier and the ship shall be
discharged from all liability in respect of loss or
damage unless suit is brought within one year
EH 403 2010-2011 2011-2012
Page 33
after the delivery of the goods or the date when
the goods should have been delivered.
The stipulation is but a repetition of a provision
contained in section 3 (6) of the United States Carriage
of Goods by Sea, Act of 1936, which was adopted and
made applicable to the Philippines by Commonwealth
Act 65 and by express agreement incorporated by
reference in the bill of lading.
The case for the insurer stands on a different footing,
for its claim of prescription is founded upon the terms
of the policy and not upon the bill of lading. Under our
law the time limit for bringing a civil action upon a
written contract is ten years after the right of action
accrues. (Sec. 43, Act 190; Art. 1144, New Civil Code.)
But counsel for the insurer claim that this statutory in
the policy:
No suit action on this Policy, for the recovery of
any claim, shall be sustainable in any Court of law
or equity unless the insured shall have fully
complied with all the terms and conditions of this
Policy nor unless commenced with twelve (12)
months next after the happening of the loss . . .
To this the court cannot agree.
Examining the policy sued upon in the present case,
we find that its prescriptive clause, if given effect in
accordance with the terms of the policy, would reduce
the period allowed the insured for bringing his action
to less than one year. This is so because the said
clause makes the prescriptive period begin from the
happening of the loss and at the same time provides
that the no suit on the policy shall be sustainable in
any court unless the insured shall have first fully
complied with all the terms and conditions of the
policy, among them that which requires that, as so as
the loss is determined, written claim therefor be filed
with the carrier and that the letter to the carrier and
the latter's reply should be attached to the claim
papers to be sent to the insurer. It is obvious that
compliance with this condition precedent will
necessarily consume time and thus shorten the period
for bringing suit to less than one year if the period is to
begin, as stated in the policy, from "the happening of
the loss." Being contrary to the law of the forum, such
stipulation cannot be given effect.
When did the cause of action accrue? On that question
we agree with the court below that plaintiff's cause of
action did not accrue until his claim was finally rejected
by the insurance company. This is because, before
such final rejection, there was no real necessity for
bringing suit. As the policy provides that the insured
should file his claim, first, with the carrier and then
with the insurer, he had a right to wait for his claim to
be finally decided before going to court. The law does
not encourages unnecessary litigation.
In concluding, we may state that contractual
limitations contained in insurance policies are regarded
with extreme jealousy by courts and will be strictly
construed against the insurer and should not be
 INSURANCE LAW CASE DIGESTS
permitted to prevent a recovery when their just and
honest application would not produce that result.
Wherefore, the judgment appealed from is reversed
with respect to the carrier and its agents but affirmed
with respect to the insurance company and its agents,
with costs against the latter.
Digested by: Patrina T. Soco
Ang vs. Fulton Fire Insurance Co.
FACTS:
On September 9, 1953, defendant Fulton Fire
Insurance Company issued a policy No. F-4730340, in
favor of P. & S Department Store (Sally C. Ang) over
stocks of general merchandise, consisting principally of
dry goods, contained in a building occupied by the
plaintiffs at Laoag, Ilocos Norte. The insurance was
issued for one year, but the same was renewed for
another year on September 31, 1954. On December
17, 1954, the store containing the goods insured was
destroyed by fire. On December 30, following, plaintiffs
executed the first claim form. On April 6, 1956, the
Fulton Fire Insurance Company wrote the plaintiffs that
their claim was denied. This denial of the claim was
received by the plaintiffs on April 19, 1956.
Defendant claims that under paragraph 13 of the
policy, if the loss or damage is occasioned by the
willful act of the insured, or if the claim is made and
rejected but no action is commenced within 12 months
after such rejection, all benefits under the policy would
be forfeited, and that since the claim of the plaintiffs
was denied and plaintiffs received notice of denial on
April 18, 1956, and they brought the action only on
May 5, 1958, all the benefits under the policy have
been forfeited.
The court below held that the bringing of the action in
the Court of First Instance of Manila on May 11, 1956
to assert their claim, tolled the running of the 12
month period within which the action must be filed. It
said that even if the case was filed against the agent
rather than the defendant, it was merely a procedural
mistake. The complaint was dismissed by the Court
without prejudice on September 3, 1957, and motion
for reconsideration dated September 21, 1957. The
instant complaint was filed on May 8, 1958 therefore it
is still within the one-year prescriptive period.
ISSUE:
Whether the filing of the previous suit tolled or
suspended the running of the prescriptive period.
RULING:
The condition contained in the insurance policy that
claims must be presented within one year after
rejection is not merely a procedural requirement. The
condition is an important matter, essential to a prompt
settlement of claims against insurance companies, as it
demands that insurance suits be brought by the
insured while the evidence as to the origin and cause
EH 403 2010-2011 2011-2012
Page 34
of destruction have not yet disappeared. It is in the
nature of a condition precedent to the liability of the
insurer, or in other terms, a resolutory cause, the
purpose of which is to terminate all liabilities in case
the action is not filed by the insured within the period
stipulated.
The bringing of the action against the Paramount
Surety & Insurance Company, the agent of the
defendant Company cannot have any legal effect
except that of notifying the agent of the claim. Beyond
such notification, the filing of the action can serve no
other purpose. There is no law giving any effect to
such action upon the principal. Besides, there is no
condition in the policy that the action must be filed
against the agent, and this Court cannot by
interpretation, extend the clear scope of the
agreement beyond what is agreed upon by the parties.
Decision of RTC reversed.
Sun Insurance vs CA
[G.R. No. 89741 March 13, 1991]
Facts:
Herein private respondent Emilio Tan took from
petitioner, Sun Insurance, a P300,000.00 property
insurance policy to cover his interest in the electrical
supply store of his brother housed in a building in Iloilo
City. Four (4) days after the issuance of the policy, the
building was burned including the insured store. On
August 20, 1983, Tan filed his claim for fire loss with
petitioner, but on February 29, 1984, petitioner wrote
Tan denying the latter's claim. On April 3, 1984, Tan
wrote petitioner, seeking reconsideration of the denial
of his claim. On September 3, 1985, Tan's counsel
wrote the Insurer inquiring about the status of his April
3, 1984 request for reconsideration. Petitioner
answered the letter on October 11, 1985, advising
Tan's counsel that the Insurer's denial of Tan's claim
remained unchanged, enclosing copies of petitioners'
letters of February 29, 1984 and May 17, 1985
(response to petition for reconsideration). On
November 20, 1985 filed a case with the RTC of Iloilo,
but petitioner filed a motion to dismiss on the alleged
ground that the action had already prescribed. Said
motion was denied; and petitioner's motion for
reconsideration was also denied. CA also denied his
appeal. Thus the instant petition.
Issue:
WON the RTC and CA is correct in ruling against Sun
Insurance when it filed a motion to dismiss Emilio
Tans complaint on the ground that petitioners action
has already prescribed.
Corollary issue:
WON that MOTION FOR RECONSIDERATION filed by
Tan on April 3, 1984 INTERRUPTS THE TWELVE (12)
MONTHS PRESCRIPTIVE PERIOD TO CONTEST THE
DENIAL OF THE INSURANCE CLAIM.
 INSURANCE LAW CASE DIGESTS
Held:
The petition was considered and the CA decision, which
affirms RTC decision, was reversed and set aside. SC
ruled that the MR filed by Tan on April 1984 did not
interrupt the twelve months prescriptive period.
While it is a cardinal principle of insurance law that a
policy or contract of insurance is to be construed
liberally in favor of the insured and strictly against the
insurer company, yet, contracts of insurance, like other
contracts, are to be construed according to the sense
and meaning of the terms which the parties
themselves have used. If such terms are clear and
unambiguous, they must be taken and understood in
their plain, ordinary and popular sense. Condition 27 of
the Insurance Policy, which is the subject of the
conflicting contentions of the parties, reads:
27. Action or suit clause If a claim be made
and rejected and an action or suit be not
commenced either in the Insurance
Commission or in any court of competent
jurisdiction within twelve (12) months from
receipt of notice of such rejection, or in case of
arbitration taking place as provided herein,
within twelve (12) months after due notice of
the award made by the arbitrator or arbitrators
or umpire, then the claim shall for all purposes
be deemed to have been abandoned and shall
not thereafter be recoverable hereunder.
Respondent Tan, in his letter addressed to the
petitioner insurance company dated April 3, 1984
(Rollo, pp. 50-52), admitted that he received a copy of
the letter of rejection on April 2, 1984. Thus, the 12-
month prescriptive period started to run from the said
date of April 2, 1984, for such is the plain meaning and
intention of Section 27 of the insurance policy.
The condition contained in an insurance policy that
claims must be presented within one year after
rejection is not merely a procedural requirement but
an important matter essential to a prompt settlement
of claims against insurance companies as it demands
that insurance suits be brought by the insured while
the evidence as to the origin and cause of destruction
have not yet disappeared.
It is apparent that Section 27 of the insurance policy
was stipulated pursuant to Section 63 of the Insurance
Code, which states that:
Sec. 63. A condition, stipulation or agreement
in any policy of insurance, limiting the time for
commencing an action thereunder to a period
of less than one year from the time when the
cause of action accrues, is void.
The insured's cause of action or his right to file a claim
either in the Insurance Commission or in a court of
competent jurisdiction commences from the time of
the denial of his claim by the Insurer, either
expressly or impliedly.
EH 403 2010-2011 2011-2012
Page 35
But as pointed out by the petitioner insurance
company, the rejection referred to should be construed
as the rejection, in the first instance, for if what is
being referred to is a reiterated rejection conveyed in a
resolution of a petition for reconsideration, such should
have been expressly stipulated.
Thus, to allow the filing of a motion for reconsideration
to suspend the running of the prescriptive period of
twelve months, a whole new body of rules on the
matter should be promulgated so as to avoid any
conflict that may be brought by it.
This Court uses the phrase "final rejection", the same
cannot be taken to mean the rejection of a petition for
reconsideration as insisted by respondents. Such was
clearly not the meaning contemplated by this Court.
The Insurance policy in said case provides that the
insured should file his claim, first, with the carrier and
then with the insurer. The "final rejection" being
referred to in said case is the rejection by the
insurance company.
Digested by: Ugbinar, Krystel Marie
ACCFA vs. Alpha Insurance and Surety Co. Inc.
[G.R. No. L-24566 July 29, 1968]
Facts:
According to the allegations of the complaint, in order
to guarantee the Asingan Farmers' Cooperative
Marketing Association, Inc. (FACOMA) against loss on
account of "personal dishonesty, amounting to larceny
or estafa of its Secretary-Treasurer, Ricardo A.
Ladines, the appellee, Alpha Insurance & Surety
Company had issued, on 14 February 1958, its bond,
No. P-FID-15-58, for the sum of Five Thousand Pesos
(P5,000.00) with said Ricardo Ladines as principal and
the appellee as solidary surety. On the same date, the
Asingan FACOMA assigned its rights to the appellant,
Agricultural Credit Cooperative and Financing
Administration (ACCFA for short), with approval of the
principal and the surety.
During the effectivity of the bond, Ricardo Ladines
converted and misappropriated, to his personal
benefit, some P11,513.22 of the FACOMA funds, of
which P6,307.33 belonged to the ACCFA. Upon
discovery of the loss, ACCFA immediately notified in
writing the survey company on 10 October 1958, and
presented the proof of loss within the period fixed in
the bond; but despite repeated demands the surety
company refused and failed to pay. Whereupon, ACCFA
filed suit against appellee on 30 May 1960.
Defendant Alpha Insurance & Surety Co., Inc., (now
appellee) moved to dismiss the complaint for failure to
state a cause of action, giving as reason that (1) the
same was filed more than one year after plaintiff made
claim for loss, contrary to the eighth condition of the
bond, providing as follows: .
EIGHT LIMITATION OF ACTION
 INSURANCE LAW CASE DIGESTS
No action, suit or proceeding shall be had or
maintained upon this Bond unless the same be
commenced within one year from the time of
making claim for the loss upon which such
action, suit or proceeding, is based, in
accordance with the fourth section hereof.
(2) the complaint failed to show that plaintiff had filed
civil or criminal action against Ladines, as required by
conditions 4 and 11 of the bond; and (3) that Ladines
was a necessary and indispensable party but had not
been joined as such.
At first, the Court of First Instance denied dismissal;
but, upon reconsideration, the court reversed its
original stand, and dismissed the complaint on the
ground that the action was filed beyond the contractual
limitation period
Issue:
whether or not the provision of a fidelity bond that no
action shall be had or maintained thereon unless
commenced within one year from the making of a
claim for the loss upon which the action is based, is
valid or void, in view of Section 61-A of the Insurance
Act invalidating stipulations limiting the time for
commencing an action thereon to less than one year
from the time the cause of action accrues.
Ruling:
We find the appeal meritorious.
A fidelity bond is, in effect, in the nature of a contract
of insurance against loss from misconduct, and is
governed by the same principles of interpretation:
Mechanics Savings Bank & Trust Co. vs. Guarantee
Company, 68 Fed. 459; Pao Chan Wei vs. Nemorosa,
103 Phil. 57. Consequently, the condition of the bond
in question, limiting the period for bringing action
thereon, is subject to the provisions of Section 61-A of
the Insurance Act (No. 2427), as amended by Act
4101 of the pre-Commonwealth Philippine Legislature,
prescribing that:
SEC. 61-A A condition, stipulation or agreement
in any policy of insurance, limiting the time for
commencing an action thereunder to a period of
less than one year from the time when the cause
of action accrues is void.
Since a "cause of action" requires, as essential
elements, not only a legal right of the plaintiff and a
correlative obligation of the defendant but also "an act
or omission of the defendant in violation of said legal
right" (Maao Sugar Central vs. Barrios, 79 Phil. 666),
the cause of action does not accrue until the party
obligated refuses, expressly or impliedly, to comply
with its duty (in this case, to pay the amount of the
bond). The year for instituting action in court must be
reckoned, therefore, from the time of appellee's refusal
to comply with its bond; it can not be counted from the
creditor's filing of the claim of loss, for that does not
import that the surety company will refuse to pay. In
EH 403 2010-2011 2011-2012
Page 36
so far, therefore, as condition eight of the bond
requires action to be filed within one year from the
filing of the claim for loss, such stipulation contradicts
the public policy expressed in Section 61-A of the
Philippine Insurance Act. Condition eight of the bond,
therefore, is null and void, and the appellant is not
bound to comply with its provisions.
As a consequence of the foregoing, condition eight of
the Alpha bond is null and void, and action may be
brought within the statutory period of limitation for
written contracts (New Civil Code, Article 1144). The
case of Ang vs. Fulton Fire Insurance Co., 2 S.C.R.A.
945 (31 July 1961), relied upon by the Court a quo, is
no authority against the views herein expressed, since
the effect of Section 61-A of the Insurance Law on the
terms of the Policy or contract was not there
considered.
The condition of previous conviction (paragraph b,
clause 4, of the contract) having been deleted by
express agreement and the surety having assumed
solidary liability, the other grounds of the motion to
dismiss are equally untenable. A creditor may proceed
against any one of the solidary debtors, or some or all
of them simultaneously (Article 1216, New Civil Code).
WHEREFORE, the appealed order granting the motion
to dismiss is reversed and set aside, and the records
are remanded to the Court of First Instance, with
instructions to require defendant to answer and
thereafter proceed in conformity with the law and the
Rules of Court. Costs against appellee. So ordered.
Digested by: Sheiryl G. Vinas
Mayer Steel Pipe Corp vs. CA
Facts:
Hongkong Govt. contracted Mayer Steel to
manufacture steel pipes. The pipes covered by 3
invoices were insured with South Sea Insurance for
$212K, while the others under another 3 separate
invoices where insured with Charter Insurance for
$149K. They were issued an all risks insurance
policies. When the pipes reached Hongkong, it was
damaged, though it was certified in good condition
before it was loaded in the ship. Mayer filed a claim
with Charter but they were only given HK$49K and so
they filed a case for the remainder of the claim in
court. RTC found for Mayer, which was reversed by CA,
on the ground of prescription.
Issue:
WON COGSA would apply, and therefore the cause of
action has prescribed.
Ruling:
No. COGSA, does not apply and the cause of action will
prescribe only after 10 years. COGSA applies to a
claim against the carrier under the contract of
 INSURANCE LAW CASE DIGESTS
carriage, which must be filed within 2 years from
delivery of the goods. This is a claim against the
insurer under the insurance contract and therefore will
prescribe in 10 years.
Respondent court erred in applying Section 3(6) of the
Carriage of Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act
states that the carrier and the ship shall be discharged
from all liability for loss or damage to the goods if no
suit is filed within one year after delivery of the goods
or the date when they should have been delivered.
Under this provision, only the carrier's liability is
extinguished if no suit is brought within one year. But
the liability of the insurer is not extinguished because
the insurer's liability is based not on the contract of
carriage but on the contract of insurance.
The Filipino Merchants case is different from the case
at bar. In Filipino Merchants, it was the insurer which
filed a claim against the carrier for reimbursement of
the amount it paid to the shipper. The ruling in Filipino
Merchants should apply only to suits against the carrier
filed either by the shipper, the consignee or the
insurer. When the court said in Filipino Merchants that
Section 3(6) of the Carriage of Goods by Sea Act
applies to the insurer, it meant that the insurer, like
the shipper, may no longer file a claim against the
carrier beyond the one-year period provided in the law.
But it does not mean that the shipper may no longer
file a claim against the insurer because the basis of the
insurer's liability is the insurance contract. An
insurance contract is a contract whereby one party, for
a consideration known as the premium, agrees to
indemnify another for loss or damage which he may
suffer from a specified peril . An "all risks" insurance
policy covers all kinds of loss other than those due to
willful and fraudulent act of the insured. 12 Thus, when
private respondents issued the "all risks" policies to
petitioner Mayer, they bound themselves to indemnify
the latter in case of loss or damage to the goods
insured. Such obligation prescribes in ten years, in
accordance with Article 1144 of the New Civil Code.
Granted. CA reversed.
*In no event shall the publisher be held liable for any
consequential damages arising out of or related to the
use or inability to use this case brief material.
INSURANCE LAW barcrammer_jed
limitation to commence action/insurable
interest in property
FILIPINO MERCHANTS INSURANCE CO., Inc. v.
CA
GR No. 85141 Nov. 28, 1989 Second Division
[Regalado]
Nature:
Petition for review on certiorari challenging a CA
decision finding FilMerchant liable to pay plaintiff.
EH 403 2010-2011 2011-2012
Page 37
Facts: This is the story of your moms life.
(oops.)
This is a story about a consignee/buyer who bought
fishmeal products from Bangkok and had it delivered
to the port of Manila. He entered into an insurance
contract with defendant insurance company
(FilMerchant) under policy no. M-2678 for P267,653.59
and for goods described as 600 metric tons of fishmeal
in new gunny bags of 90 kilos each. What was actually
imported was 59.940mtons in 666 gunny bags. Upon
arrival at Manila, arrastre and defendants surveyor
found 227 bags in bad order condition. Because of this
loss, buyer formally claimed from FilMerchant but the
said insurance company refused to pay. He brought
suit. Trial court ruled for him and against FilMerchant,
CA affirmed trial court hence this petition.
FilMerchant argues:
(1) CA erred in the interpretation and application of
the all risk clause of maritime insurance policy. It
says it should not be held liable for partial loss
notwithstanding the clear absence of proof of some
fortuitous event, casualty, or accidental cause to which
the loss is attributable.
(2) Respondent had no insurable interest in the subject
cargo. The shipment reveals that it is a C & F
contract of shipment. The seller, not the consignee,
paid for the shipment. As there was yet no delivery to
the consignee, ownership (and interest) does not yet
pass to him.
Issues:
W/N CA was correct in its interpretation of the all
risk clause in the maritime
insurance contract.
W/N the insured had insurable interest over the
property insured.
Ruling:
a) All risks policy has no technical meaning.
The clause in question reproduced:
5. This insurance is against all risks of loss or
damage to the subject-matter insured but shall
in no case be deemed to extend to cover loss,
damage, or expense proximately caused by
delay or inherent vice or nature of the subject-
matter insured. Claims recoverable hereunder
shall be payable irrespective of percentage
An "all risks policy" should be read literally as meaning
all risks whatsoever and covering all losses by an
accidental cause of any kind. The very nature of the
term "all risks" must be given a broad and
comprehensive meaning as covering any loss other
than a willful and fraudulent act of the insured. 7 This
is pursuant to the very purpose of an "all risks"
insurance to give protection to the insured in those
cases where difficulties of logical explanation or some
mystery surround the loss or damage to property.
 INSURANCE LAW CASE DIGESTS
Burden of proof shifts to the insurer.
Generally, the burden of proof is upon the insured to
show that a loss arose from a covered peril, but under
an "all risks" policy the burden is not on the insured to
prove the precise cause of loss or damage for which it
seeks compensation. The insured under an "all risks
insurance policy" has the initial burden of proving that
the cargo was in good condition when the policy
attached and that the cargo was damaged when
unloaded from the vessel; thereafter, the burden
then shifts to the insurer to show the exception
to the coverage.
b) Vendee/Consignee has insurable interest
SC: The shipment contract being that of cost and
freight (C&F) is immaterial in the determination
of insurable interest. The perfected contract of
sale vests in the vendee an equitable title, an
interest sufficient enough to be insurable.
Further, Art. 1523 NCC provides that where, in
pursuance of a contract of sale, the seller is
authorized or required to send the goods to the
buyer, delivery of the goods to a carrier, whether
named by the buyer or not, for, the purpose of
transmission to the buyer is deemed to be a
delivery of the goods to the buyer, the exceptions
to said rule not obtaining in the present case. The
Court has heretofore ruled that the delivery of
the goods on board the carrying vessels
partake of the nature of actual delivery since,
from that time, the foreign buyers assumed the
risks of loss of the goods and paid the insurance
premium covering them.
WHEREFORE, the instant petition is DENIED and the
assailed decision of the respondent Court of Appeals is
AFFIRMED in toto.
x. Cancellation of Policy (Sections 64-65)
Digested by: Vicente Ynclino
Paulino vs Capital Ins. & Surety Co.
[105 Phil. 1315, May 15, 1959]
Facts:
Plaintiff Paulino secured a fire insurance policy issued
by defendant Capital Insurance on Feb. 8, 1952. On
April 30, 1952 the Plaintiff wrote the defendant
requesting cancellation of the policy, which the latter
received on May 10, 1952.
The plaintiff did not return the policy nor de4manded
for the return of the proportionate premium and
neither did the defendant offer to breturn the
premium. The property covered by the policy was
destroyed by fire on aug. 15, 1952.
The defendant refused to pay plaintiffs claim on the
ground that the policy was cancelled as of May 10,
1952. Plaintiff contends in this appeal that her letter,
dated April 30, 1952, was a mere request orb offer to
cancel the policy and did not terminate the same since
EH 403 2010-2011 2011-2012
Page 38
it was not accompanied by the surrender of the policy
for cancellation,
Issue:
Whether the policy as effectively cancelled or not.
Held:
This case hinges on the interpretation of paragraph 10
of the policy, reading:
This insurance may be terminated anytime at the
request of the Insured, in which case the Company will
retain the customary period rate for the time the
policy has been enforced. This insurance may also at
any time be terminated at the option of the Company,
on notice to that effect being given to the insured, in
which case the Company shall be liable to repay on
demand a ratable proportion of the premium for the
expired term from the date of cancellment
Pursuant to this stipulation,the contract in question
could be terminated at any time upon the unilateral
act of either party. Whichever party exercised the
option did not need the approval. Consent nor
concurrence of the other thereto, That consent was
given at the making of the contract. Moreover,
pursuant to her letter, plaintiff considered the contract
terminated upon receipt of said letter by the defendant
(deade el recibo de la presente0,
Decision of the lower court dismissing the4 action to
recover the amount pf fire insurance policy is affirmed.
(note: this ruling is deemed modigfied by Sec. 65}
Saura Import & Export Co. vs. Phil. Inter-
National Surety Co., Inc. and Philippine National
Bank
[G.R. No. L-15184, May 31, 1963]
Facts:
Saura Import & Export Co Inc., mortgaged to the
Phil. National Bank Davao, a parcel of land to
secure the payment of promissory note of P27,000.00
with a condition from PNB that Saura shall insure the
mortgaged property at all times against fire and
earthquake for an amount satisfactory to PNB,
indorsing to the latter policies of such insurance.
Pursuant to the requirement, Saura insured the
building together with its contents with the Philippine
International Surety, an insurance firm acceptable
to PNB for P29,000.00, against fire for the period of 1
year from October 2, 1954 and as further required the
insurance policy was endorsed to PNB.
13 days after the issuance of the fire insurance policy,
insurer cancelled it, effective as of the date of issue.
Notice of cancellation was given to PNB in writing, sent
via Registered Mail, personally addressed to Fortunato
 INSURANCE LAW CASE DIGESTS
Domingo, PNB Branch Manager. The latter received it
on Nov. 8, 1954.
On April 6, 1955, the building and its contents worth
P40,685.69 were burned. Saura filed a claim and upon
presentation of notice of loss with PNB, Saura learned
for the 1st time that the policy had previously been
cancelled. Insurer refused to pay Saura.
Issue:
Whether or not the notice of cancellation of the policy
to the mortgagee (PNB) was already a substantial
compliance of the insurers duty to notify the insured
of the policy cancellation?
Ruling:
Fire insurance policies and other contracts of insurance
upon property, in addition to the common provision for
cancellation of the policy upon request of the insured,
generally provide for cancellation by the insurer by
notice to the insured for a prescribed period, which is
usually 5 days, and the return of the unearned portion
of the premium paid by the insured, such provision for
cancellation upon notice being authorized by statutes
in some jurisdiction, either specifically or as a provision
of an adopted standard form of policy.
The purpose of provisions or stipulations for notice to
the insured, is to prevent the cancellation of the policy,
without allowing the insured ample opportunity to
negotiate for other insurance in its stead. The form
and sufficiency of a notice of cancellation is determined
by policy provisions.
In order to form the basis for the cancellation of a
policy, notice to the insured need not be in any
particular form, in the absence of a statute or policy
provision prescribing such form, and it is sufficient, so
long as it positively and unequivocally indicates to the
insured, that it is the intention of the company that the
policy shall cease to be binding. Where the policy
contains no provisions that a certain number of days
notice shall be given, a reasonable notice and
opportunity to obtain other insurance must be given.
Actual personal notice to the insured is essential to a
cancellation under a provision for cancellation by
notice. The actual receipt by the insured of a notice of
cancellation is universally recognized as a condition
precedent to a cancellation of the policy by the insurer,
and consequently a letter containing notice of
cancellation which is mailed by the insurer but not
received by the insured, is ineffective as cancellation.
The notice should be personal to the insured and not to
and/or through any unauthorized person by the policy.
In the case at bar, the defendant insurance company,
must have realized the paramount importance of
sending a notice of cancellation, when it sent the
notice of cancellation of the policy to the bank (as
mortgagee), but not to the insured with which it
(insurance company) had direct dealing. It was the
EH 403 2010-2011 2011-2012
Page 39
primary duty of the insurance company to notify the
insured, but it did not.
Thus, liability attached principally to the insurance
company, for its failure to give notice of the
cancellation of the policy to Saura.
Malayan Insurance vs. Cruz
Facts:
Coronacion Pinca has been sustained by the Insurance
Commission in her claim for compensation for her
burned house. The petitioner now disputes the decision
on the ground that there was no valid insurance
contract at the time of the loss because they have
already cancelled the policy for non-payment of
premium.
Issue:
WON Section 77 of the insurance Code is applicable in
this case.
Ruling:
Section 77 is not applicable because payment of
premium was in fact eventually made. There was a
premium invoice which was issued to Pinca given by
the agent of the petitioner who received the payment
in behalf of Malayan Insurance.
According to Section 65 of the Insurance Code a valid
cancellation of policy requires the concurrence of the
following conditions 1) Prior notice of cancellation to
insured; 2) Notice must be based on the occurrence
after effective date of policy of one of more of the
grounds mentioned; 3) Must be in writing, mailed or
delivered to the insured at the address shown on the
policy; 4) Must state the grounds relied upon provided
in Section 64 of the Insurance Code and upon request
of the insured, to furnish facts on which cancellation is
based.
However, there was no proof of notice, assuming it
complied with the other requisites mentioned above,
was actually mailed to and received by Pinca. All
Malayan Insurance offers to show that the cancellation
was communicated to the insured is its employees
testimony that the said cancellation was sent by mail
through our mailing section without more.
xi. Renewal of Policy (Section 66)
G. Warranties (Sections 67-76)
i. Definition, kinds and form of warranty
(Section 67-69)
ii. Express warranty (Sections 70-71)
iii. Promissory warranty (Sections 72-73)
iv. Violation of material warranty, effect
(Section 74)
 INSURANCE LAW CASE DIGESTS
Digested by Margaret Frances Aparte
E. M. BACHRACH, vs. BRITISH AMERICAN
ASSURANCE COMPANY,
[G.R. No. L-5715 December 20, 1910]
FACTS:
Bachrach insured his building against fire with the
British-American Assurance Company. After the
effectivity of the policy, the insured stored gasoline,
paints and varnishes within the premises insured. The
building was burned and the insurer refused to pay the
loss on the ground that the risk of fire was increased
by the storage of gasoline, paints and varnishes. The
insurer also claimed that the plaintiff transferred his
interest in and to the property covered by the policy to
H. W. Peabody & Co. to secure certain indebtedness
due and owing to said company, and also that the
plaintiff had transferred his interest in certain of the
goods covered by the said policy to one Macke, to
secure certain obligations assumed by the said Macke
for and on behalf of the insured. Such execution of a
chattel mortgage on the insured property without
consent to the insurer violated what is known as the
"alienation clause,".
ISSUE:
I. Whether the use of the building as a paint and
varnish shop annulled the policy insurance.
II. Whether the execution of the chattel mortgages
without the knowledge and consent of the insurance
company annulled the policy insurance.
HELD:
The court ruled in negative for both issues.
I.
The property insured consisted mainly of household
furniture kept for the purpose of sale. The preservation
of the furniture in a salable condition by retouching or
otherwise was incidental to the business.
The evidence offered by the plaintiff is to the effect
that alcohol was used in preparing varnish for the
purpose of retouching, though he also says that the
alcohol was kept in store and not in the bodega where
the furniture was.
It is well settled that the keeping of inflammable oils
on the premises, though prohibited by the policy, does
not void it if such keeping is incidental to the business.
Thus, where a furniture factory keeps benzine for the
purposes of operation (Davis vs. Pioneer Furniture
Company, 78 N. W. Rep., 596; Faust vs. American Fire
Insurance Company, 91 Wis., 158), or where it is used
for the cleaning machinery (Mears vs. Humboldt
Insurance Company, 92 Pa. St., 15; 37 Am. Rep.,
647), the insurer can not on that ground avoid
payment of loss, though the keeping of the benzine on
the premises is expressly prohibited
EH 403 2010-2011 2011-2012
Page 40
It may be added that there was no provision in the
policy prohibiting the keeping of paints and varnishes
upon the premises where the insured property was
stored. If the company intended to rely upon a
condition of that character, it ought to have been
plainly expressed in the policy.
II.
Upon reading the policy of insurance issued by the
defendant to the plaintiff, it will be noted that there is
no provision in said policy prohibiting the plaintiff from
placing a mortgage upon the property insured, but,
admitting that such a provision was intended, we think
the lower court has completely answered this
contention of the defendant. He said, in passing upon
this question as it was presented:
It is claimed that the execution of a chattel
mortgage on the insured property violated what is
known as the "alienation clause," which is now
found in most policies, and which is expressed in
the policies involved in cases 6496 and 6497 by a
purchase imposing forfeiture if the interest in the
property pass from the insured. (Cases 6496 and
6497, in which are involved other action against
other insurance companies for the same loss as in
the present action.)
This clause has been the subject of a vast number of
judicial decisions (13 Am. & Eng. Encyc. of Law, 2d
ed., pp. 239 et seq.), and it is held by the great weight
of authority that the interest in property insured does
not pass by the mere execution of a chattel mortgage
and that while a chattel mortgage is a conditional sale,
there is no alienation within the meaning of the
insurance law until the mortgage acquires a right to
take possession by default under the terms of the
mortgage. No such right is claimed to have accrued in
the case at bar, and the alienation clause is therefore
inapplicable
Digested by: Kwin Asunto
Young vs. Midland Textile insurance company
[G.R. No. 9370. March 31, 1915.]
Facts:
The purpose of the present action is to recover the
sum of P3,000 upon an insurance policy. The lower
court rendered a judgment in favor of the plaintiff and
against the defendant for the sum of P2,708.78, and
costs. From that judgment the defendant appealed to
this court.
The undisputed facts upon which said action is based
are as follows:
The plaintiff occupied a building at '321 Calle Claveria,
as a residence and bodega (storehouse). On the 29th
of May, 1912, the defendant, in consideration of the
payment of a premium of P60, entered into a contract
of insurance with the plaintiff promising to pay to the
 INSURANCE LAW CASE DIGESTS
plaintiff the sum of P3,000, in case said residence and
bodega and contents should be destroyed by fire. One
of the conditions of said contract was that no
hazardous goods be stored or kept in the building.
On the 4th or 5th of February, 1913, the plaintiff
placed in said residence and bodega three boxes which
belonged to him and which were filled with fireworks
for the celebration of the Chinese new year.
On the 18th day of March, 1913, said residence and
bodega and the contents thereof were partially
destroyed. Fireworks were found in a part of the
building not destroyed by the fire; that they in no way
contributed to the fire, or to the loss occasioned
thereby.
Issue:
Whether or not the placing of said fireworks in the
building insured, under the conditions above
enumerated, they being "hazardous goods," is a
violation of the terms of the contract of insurance.
Held:
Yes.
The word "stored" has been defined to be a deposit in
a store or warehouse for preservation or safe keeping;
to put away for future use, especially for future
consumption; to place in a warehouse or other place of
deposit for safe keeping. Said definition does not
include a deposit in a store, in small quantities, for
daily use. "Daily use" precludes the idea of deposit for
preservation or safe keeping, as well as a deposit for
future consumption or safe keeping.
A violation of the terms of a contract of insurance, by
either party, will constitute the basis for a termination
of the contractual relations, at the election of the
other. The right to terminate the contractual relations
exists even though the violation was not the direct
cause of the loss. In the present case, the deposit of
the "hazardous goods," in the building insured, was a
violation of the terms of the contract. Although the
hazardous goods did not contribute to the loss, the
insurer, at his election, was relieved from liability Said
deposit created a new risk, not included in the terms of
the contract. The insurer had neither been paid, nor
had he entered into a contract, to cover the increased
risk.
Contracts of insurance are contracts of indemnity,
upon the terms and conditions specified therein.
Parties have a right to impose such reasonable
conditions at the time of the making of the contract as
they deem wise and necessary. The rate of premium is
measured by the character of the risk assumed. The
insurer, for a comparatively small consideration,
undertakes to guarantee the insured against loss or
damage, upon the terms and conditions agreed upon,
and upon no other. When the insurer is called upon to
pay, in case of loss, he may justly insist upon a
EH 403 2010-2011 2011-2012
Page 41
fulfillment of the terms of the contract. If the insured
cannot bring himself within the terms and conditions of
the contract, he is not entitled to recover for any loss
suffered. The terms of the contract constitute the
measure of the insurer's liability. If the contract has
been terminated, by a violation of its terms on the part
of the insured, there can be no recovery. Compliance
with the terms of the contract is a condition precedent
to the right of recovery. Courts cannot make contracts
for the parties. While contracts of insurance are
construed most favorably to the insured yet they must
be construed according to the sense and meaning of
the terms which the parties themselves have used.
Astute and subtle distinctions should not be permitted,
when the language of the contract is plain and
unambiguous. Such distinctions tend to bring the law
itself into disrepute.
The judgment of the lower court is revoked and the
defendant is relieved from any responsibility under
said complaint, and, without any finding as to costs.
Digested by: Rachel R. Aying
UNION MANUFACTURING CO., INC. and the
REPUBLIC BANK vs. PHILIPPINE GUARANTY CO.,
INC
Facts:
(1) Union Manufacturing Co., Inc. obtained certain
loans, overdrafts and other credit accommodations
from the Republic Bank for P415,000.00 with interest
at 9% per annum from said date and to secure the
payment, Union Manufacturing executed a real and
chattel mortgages on certain properties.
(2) As additional condition of the mortgage contract,
Union Manufacturing undertook to secure insurance
coverage over the mortgaged properties for the same
amount of P415,000.00.
(3) As Union Manufacturing failed to secure insurance
coverage on the mortgaged properties, Republic Bank
procured from the Philippine Guaranty Co., Inc. an
insurance coverage on loss against fire for
P500,000.00 over the properties of the Union
Manufacturing with the annotation that loss or
damage, if any, under is payable to Republic Bank as
its interest may appear, subject however to the printed
conditions of the Fire Insurance Policy Form;
(4) Fire Insurance Policy No. 43170 was issued for the
sum of P500,000.00 in favor of the assured, Union
Manufacturing for which the corresponding premium of
was paid by the Republic Bank to Philippine Guaranty
(5) Upon the expiration of said fire policy, the same
was renewed by the Republic Bank upon payment of
the corresponding premium,
(7) A fire occurred in the premises of the Union
Manufacturing,
 INSURANCE LAW CASE DIGESTS
(8) Union Manufacturing filed its fire claim with
Philippine Guaranty but was denied on the following
grounds: (a.)When Philippine Guaranty issued Fire
Insurance Policy No. 43170 ... in the sum of
P500,000.00 to cover the properties of the Union
Manufacturing the same properties were already
covered by Fire Policy of the Sincere Insurance
Company and by insurance policies of the Oceanic
Insurance Agency and (b) when Fire Insurance Policy
No. 43170 was already in full force and effect, Union
Manufacturing without the consent of Philippine
Guaranty Co., Inc., obtained other insurance policies
totalling P305,000.00 over the same properties prior to
the fire.
Issue:
whether or not Republic Bank can recover its interest
(as mortgagee) from the Fire Insurance Policy with
Philippine Guaranty.
Ruling:
In as much as the Union Manufacturing has violated
the condition of the policy to the effect that it did not
reveal the existence of other insurance policies over
the same properties, as required by the warranty
appearing on the face of the policy and that said Union
Manufacturing Co., Inc. represented that there were no
other insurance policies at the time of the issuance of
said defendant's policy, and it appearing furthermore
that while the policy of the defendant was in full force
and effect the Union Manufacturing Co., Inc. secured
other fire insurance policies without the written
consent of the defendant endorsed on the policy, the
conclusion is inevitable that both the Republic Bank
and Union Manufacturing Co., Inc. cannot recover
from the same policy of the defendant because
the same is null and void.
It is to Santa Ana v. Commercial Union Assurance Co.,
that one turns to for the first explicit formulation as to
the controlling principle. As was made clear in the
opinion of this Court, penned by Justice Villa-Real:
"Without deciding whether notice of other insurance
upon the same property must be given in writing, or
whether a verbal notice is sufficient to render an
insurance valid which requires such notice, whether
oral or written, we hold that in the absolute absence of
such notice when it is one of the conditions specified in
the fire insurance policy, the policy is null and void."
The next year, in Ang Giok Chip v. Springfield Fire &
Marine Ins. Co., the conformity of the insured to the
terms of the policy, implied from the failure to express
any disagreement with what is provided for, was
stressed in these words of the ponente, Justice
Malcolm: "It is admitted that the policy before us was
accepted by the plaintiff. The receipt of this policy by
the insured without objection binds both the acceptor
and the insured to the terms thereof. The insured may
not thereafter be heard to say that he did not read the
policy or know its terms, since it is his duty to read his
policy and it will be assumed that he did so." As far
back as 1915, in Young v. Midland Textile Insurance
EH 403 2010-2011 2011-2012
Page 42
Company, it was categorically set forth that as a
condition precedent to the right of recovery, there
must be compliance on the part of the insured with the
terms of the policy. As stated in the opinion of the
Court through Justice Johnson: "If the insured has
violated or failed to perform the conditions of the
contract, and such a violation or want of performance
has not been waived by the insurer, then the insured
cannot recover. Courts are not permitted to make
contracts for the parties. The function and duty of the
courts consist simply in enforcing and carrying out the
contracts actually made. While it is true, as a general
rule, that contracts of insurance are construed most
favorably to the insured, yet contracts of insurance,
like other contracts, are to be construed according to
the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and
unambiguous they must be taken and understood in
their plain, ordinary and popular sense." More
specifically, there was a reiteration of this Santa Ana
ruling in a decision by the then Justice, later Chief
Justice, Bengzon, in General Insurance & Surety Corp.
v. Ng Hua. Thus: "The annotation then, must be
deemed to be a warranty that the property was not
insured by any other policy. Violation thereof entitles
the insurer to rescind. (Sec. 69, Insurance Act) Such
misrepresentation is fatal in the light of our views in
Santa Ana v. Commercial Union Assurance Company,
Ltd. ... . The materiality of non-disclosure of other
insurance policies is not open to doubt." As a matter
of fact, in a 1966 decision, Misamis Lumber Corp. v.
Capital Ins. & Surety Co., Inc., Justice J.B.L. Reyes,
for this Court, made manifest anew its adherence to
such a principle in the face of an assertion that thereby
a highly unfavorable provision for the insured would be
accorded recognition. This is the language used: "The
insurance contract may be rather onerous ('one sided',
as the lower court put it), but that in itself does not
justify the abrogation of its express terms, terms
which the insured accepted or adhered to and which is
the law between the contracting parties."
H. Premium (Sections 77-82)
i. Definition, when insured entitled to it
(Section 77)
Philippine Phoenix and Insurance Company vs.
Woodworks Inc.
[G.R. No. L-25317 August 6, 1979]
Facts:
Philippine Phoenix and Insurance Company ( Phil.
Phoenix for short) issued a fire insurance policy in
favor of Woodworks, Inc. upon application of the latter
insuring Woodworks building and equipments against
loss by fire for a one year term from from July 21,
1960 to July 21, 1961. After issuance of the policy,
Woodworks did not pay the premium as stipulated. On
April 19, 1961, Phil. Phoenix notified Woodworks of the
cancellation of the policy at the same time claiming
earned premiums still unpaid by Woodworks from July
21, 1960 to April 19, 1961 worth P7,483.11 for 271
 INSURANCE LAW CASE DIGESTS
days). In said letter, Phil. Phoenix credited the
remaining balance ( or from April 19, 1961 to July 21,
1961 equivalent to 3,110.25 for 94 days) to
Woodworks account. Woodworks naturally refused to
pay Phil. Phoenix s alleged earned premiums
averring that failure to pay the premium after the
issuance of the policy rendered the insurance policy
unenforceable thereby prompting Phil. Phoenix legal
action for recovery of premiums before the lower court
( CFI) of which Phoenix won. Now on appeal before
the SC on pure questions of law.
Issue:
1. WON non-payment or failure as the case may be of
premiums after issuance of the fire insurance policy
rendered such policy invalid or of no effect
2. Even if the premium is unpaid after issuance of the
policy by Phil. Phoenix, granting aguendo that indeed
Phil. Phoenix gave Woodworks credit extensions for
purposes of giving effect of the policy, was there
acceptance of such credit extended in this case?
Ruling:
1. Insurance policy became ineffective by non-
payment of premiums after issuance of policy. Section
77 of the Insurance Code (Presidential Decree No. 612,
promulgated on December 18, 1974), provides that no
contract of insurance issued by an insurance company
is valid and binding unless and until the premium
thereof has been paid, notwithstanding any agreement
to the contrary.
The insurance policy provides:
THE COMPANY HEREBY AGREES with the
Insured ... that if the Property above described, or
any part thereof, shall be destroyed or damaged
by Fire or Lightning after payment of Premium, at
any time between 4:00 o'clock in the afternoon of
the TWENTY FIRST day of JULY One Thousand Nine
Hundred and SIXTY and 4:00 o'clock in the
afternoon of the TWENTY FIRST day of JULY One
Thousand Nine Hundred and SIXTY ONE. ...
(Emphasis supplied)
Insurance is "a contract whereby one undertakes for a
consideration to indemnify another against loss,
damage or liability arising from an unknown or
contingent event." The consideration is the
"premium". "The premium must be paid at the time
and in the way and manner specified in the policy and,
if not so paid, the policy will lapse and be forfeited by
its own terms."
Since the premium had not been paid, the policy must
be deemed to have lapsed.
The non-payment of premiums does not merely
suspend but put, an end to an insurance contract,
since the time of the payment is peculiarly of the
essence of the contract.
... the rule is that under policy provisions that
upon the failure to make a payment of a premium
EH 403 2010-2011 2011-2012
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or assessment at the time provided for, the policy
shall become void or forfeited, or the obligation of
the insurer shall cease, or words to like effect,
because the contract so prescribes and because
such a stipulation is a material and essential part
of the contract. This is true, for instance, in the
case of life, health and accident, fire and hail
insurance policies.
In fact, if the peril insured against had occurred,
plaintiff, as insurer, would have had a valid defense
against recovery under the Policy it had issued. Explicit
in the Policy itself is plaintiff's agreement to indemnify
defendant for loss by fire only "after payment of
premium," supra. Compliance by the insured with the
terms of the contract is a condition precedent to the
right of recovery.
The burden is on an insured to keep a policy in
force by the payment of premiums, rather than on
the insurer to exert every effort to prevent the
insured from allowing a policy to elapse through a
failure to make premium payments. The
continuance of the insurer's obligation is
conditional upon the payment of premiums, so that
no recovery can be had upon a lapsed policy, the
contractual relation between the parties having
ceased.
Moreover, "an insurer cannot treat a contract as valid
for the purpose of collecting premiums and invalid for
the purpose of indemnity."
2. No express acceptance of credit extensions, if any,
by Woodworks. The Policy provides for pre-payment of
premium. Accordingly; "when the policy is tendered
the insured must pay the premium unless credit is
given or there is a waiver, or some agreement
obviating the necessity for prepayment." To constitute
an extension of credit there must be a clear and
express agreement therefor."
An acceptance of an offer to allow credit, if one
was made, is as essential to make a valid
agreement for credit, to change a conditional
delivery of an insurance policy to an unconditional
delivery, as it is to make any other contract. Such
an acceptance could not be merely a mental act or
state of mind, but would require a promise to pay
made known in some manner to defendant.
 INSURANCE LAW CASE DIGESTS
Digested by: Emmanuel
Servicewide Specialists Inc. vs. CA
[1996 May 8]
Facts:
Respondent spouses Ricardo and Elisa Trinidad
purchased a 1983 Isuzu Gemini car from Autoworld
Sales Corporation. The price was P98,156.00 payable
in 24 equal monthly installments of P4,089.00 each
month. To secure payment thereof, the Trinidads
executed on the same date a promissory note and a
deed of chattel mortgage on the subject car in favor of
Autoworld. Autoworld assigned its interests on the
promissory note and chattel mortgage to Filinvest.
These assignments were made with due notice to
private respondents who delivered 17 checks to
Filinvest in full payment of the car.
On November 8, 1985, Filinvest assigned all its rights
and interests on the promissory note and chattel
mortgage in favor of Servicewide.
On November 18, 1985, Ricardo Trinidad received a
demand letter from Servicewide stating that an
assignment of credit had been made by Filinvest in its
favor and that the Trinidads had not paid two
successive installments on the car which had matured
on July 15 and August 15, 1985. No mention was
made in the letter that Filinvest had paid insurance
premiums to Perla Compania de Seguros to insure the
car against loss and damage corresponding to two
years. Trinidads were also never informed by Filinvest
that their installment payments on the car were
converted to premium payments on the insurance.
After informing private respondents that they failed to
pay the last two consecutive monthly installments,
petitioner demanded that either they pay the whole
remaining balance of P6,977.67, including accrued
interest, or return possession of the car to petitioner.
When the Trinidads refused to pay the amount
demanded or to return the car, petitioner filed an
action for replevin and damages.
Issue:
WON petitioner should have applied the installment
payments made by private respondents for the
payment of the car to the payment of the insurance
premiums without prior notice to private respondents.
Ruling:
The petition is unmeritorious.
The provision in the Chattel Mortgage subject of the
controversy states:
"The said MORTGAGOR covenants and agrees that
he will cause the property/ies herein above
mortgaged to be insured against loss or damage
EH 403 2010-2011 2011-2012
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by accident, theft and fire for a period of one year
from date thereof and every year thereafter until
the mortgage obligation is fully paid with an
insurance company, or companies acceptable to
the MORTGAGEE in an amount not less than the
outstanding balance of the mortgage obligation;
that he will make all loss, if any, under such policy
or policies, payable to the MORTGAGEE or its
assigns as its interest may appear and forewith
deliver such policy or policies to the MORTGAGEE,
the said MORTGAGOR further covenants and
agrees that in default of his affecting or renewing
such insurance and delivering the policies so
endorsed to the MORTGAGEE within five (5) days
after the execution of this mortgage or the expiry
date of the insurance the MORTGAGEE, may, at his
option, but without any obligation to do so effect
such insurance or obtain such renewal for the
account of the MORTGAGOR and that any money
so disbursed by the MORTGAGEE shall be added to
the principal indebtedness hereby secured and
shall become due and payable at the time for the
payment of the immediately coming or following
installment to be due under the note aforesaid
after the date of such insurance renewal and shall
bear interest at the same rate as the principal
indebtedness.
Petitioner contends that the matter about the notice is
deemed waived by private respondents because the
car should be fully covered at all times. Petitioner
claims that if, as stated in the Chattel Mortgage,
private respondents failed to renew the insurance,
petitioner is entitled to renew the same for the account
of private respondents without any notice to them.
The petition is unmeritorious.
While it is true that the Chattel Mortgage does not say
that notice to the mortgagor of the renewal of the
insurance premium by the mortgagee is necessary, at
the same time, there is no provision that authorizes
petitioner to apply the payments made to it for the
payment of the chattel to the payment of the said
premiums. From the records of the case, it is clear
that private respondents had fully paid for the car.
This fact was never rebutted by petitioner; it was the
insurance premiums pertaining to the two-year period
from July 29, 1984 to July 29, 1986 that petitioner
claims were not paid.
Both the Regional Trial Court and the Court of Appeals
found that before the mortgagee (petitioner) may
effect the renewal of insurance, two conditions must be
met: (1) Default by the mortgagor (private
respondents) in effecting renewal of the insurance and
(2) failure to deliver the policy with endorsement to
petitioner.
The Court notes an additional element of the
provisions regarding the renewal of the insurance;
specifically, that petitioner was under no obligation to
effect the same. In other words, petitioner as
mortgagee was not duty-bound to renew the insurance
 INSURANCE LAW CASE DIGESTS
in the event that private respondents failed to do so; it
was merely optional on its part.
The question now arises whether private respondents
were in default for failing to have the car covered by
insurance for the period in question. Private
respondents claim that the car was duly covered and
the Court finds no evidence on record showing this
assertion to be false. Petitioner has averred, however,
that the insurance taken by private respondents was
only for third-party liability and not the comprehensive
insurance required.
If petitioner was aware that the insurance coverage
was inadequate, why did it not inform private
respondent about it? After all, since petitioner was
under no obligation to effect renewal thereof, it is but
logical that it should relay to private respondents any
defect of the insurance coverage before itself assuming
the same.
Furthermore, even if the car were not covered with the
proper insurance, there is nothing in the provisions of
the Chattel Mortgage that authorizes petitioner to
apply previous payments for the car to the insurance.
What is stated is: "x x x that any money so disbursed
by the mortgagee shall be added to the principal
indebtedness hereby secured x x x" talics supplied).
Clear is it that petitioner is not obligated to convert
any of the installments made by private respondents
for the car to the payment for the renewal of the
insurance. Should it decide to do so, it has to send
notice to private respondents who had already paid in
full the principal indebtedness in question.
When petitioner wrote private respondents the
November 8, 1985 demand letter regarding non-
payment of the installments, no mention was made of
unpaid insurance premiums. Thus, private
respondents were quite justified in ignoring the same
since, to the best of their knowledge, they had already
paid for the car in full.
ii. Effects of non-payment/partial payment
Digested by: Birondo
ACME Shoe Rubber & Plastic Corp. vs. CA
Facts:
Petitioner ACME had been insuring its properties yearly
against fire with Domestic Insurance Company
(INSURER). It continued the insurance for the period of
May 15, 1962 up to May 15, 1963 for the amount of
P200,000. On January 8, 1964, ACME only paid
P3,331.26, which the INSURER applied as renewal
premium for the period May 15, 1963 to May 15, 1964
and the issued renewal receipt having a stamp thereon
that it is subject to Receipt of Payment Clause and
Credit Agreement both attached as riders. The
former clause declared that the insurance will be
deemed valid and binding upon the company only
when the premium and documentary stamps have
EH 403 2010-2011 2011-2012
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actually been paid; the latter provided that the
premium corresponding to the first 90 days of the
policys term or any renewal is considered paid for the
purpose of only making said policy valid and binding
during said portion of the term and it shall
automatically become void and ineffective (without
prejudice to the obligation of the insured to pay the
corresponding short premium for the said 90 days)
unless prior to the expiration of said period the
INSURED shall have actually paid to the Company the
total premium and the documentary stamps. Then,
ACME, through its President, signed a promissory note
on May 26, 1964 promising to pay the INSURER within
90 days from the effective date of the Policy (May 15,
1964) the premium and documentary stamps
(P3,331.26) and failure to pay when due, it is agreed
that said policy should stand automatically cancelled.
A fire completely destroyed ACMEs properties on
October13, 1964 prompting it to file a claim against
the INSURER which however disclaimed liability on the
ground that as of the date of loss, the properties
burned were no covered by insurance. ACME has
obtained a favorable decision in the trial court when it
sued for collection of insurance proceeds and damages
however the same was reversed by the CA affirming
the INSURERs contention and thus it could not be held
liable for any indemnity.
Issue:
Whether or not there was an insurance contract at the
moment of the loss.
Ruling:
CA is sustained. ACME, through its President, was fully
aware that the policy would automatically be cancelled
if it will not pay the premium before August 13, 1964
(90th day from May 14, 1964). In fact, reminders for
payment being sent were unheeded. Not having paid
the 1964-1965 premium within the extension granted,
and pursuant to RA No. 3450, the policy was
automatically cancelled and there was no insurance
coverage to speak of as of the date of the fire.
It was also ACMEs contention that the INSURER
which accepted the one-year premium on January 8,
1964, has no right to apply it to the payment of a
period of coverage prior thereto for the policy was void
under RA 3450 (Sec. 72. xxx. No policy issued by an
insurance company is valid and binding unless and
until the premium thereof has been paid). However,
since said Act was approved only on June 20, 1963
and was put into effect only on October 1, 1963, it
could not retroactively affect the renewal of the
insurance policy on May 15, 1963. So, ACMEs
premium payment of January 8, 1964 was properly
applied to the 1963-1964 premium.
Lastly, ACMEs claim that the INSURER would unjustly
enrich itself if it were to be allowed to apply the one-
year premium it received to a past period when the
policy was void and the INSURER had incurred no risk
 INSURANCE LAW CASE DIGESTS
is flawed for the reason already stated that the
renewal receipts were issued before RA 3450 was
approved and implemented. It is axiomatic that laws
have no retroactive effect unless the contrary is
provided. What became automatically cancelled by RA
3450 was the 1964-1965 policy for ACMEs failure to
pay the premium within the 90-day extension granted
and in accordance with the express terms of the
promissory note it had signed.
Judgment affirmed.
Digested by: CANTILLAS, IRISH
ARCE vs. THE CAPITAL INSURANCE & SURETY
CO., INC.,
FACTS:
In Civil Case No. 66466 of the Court of First Instance
of Manila, the Capital Insurance and Surety Co., Inc.,
(COMPANY) was ordered to pay Pedro Arce (INSURED)
the proceeds of a fire insurance policy. Not satisfied
with the decision, the company appealed to this Court
on questions of law.
The INSURED(Pedro ARce) was the owner of a
residential house in Tondo, Manila, which had been
insured with the COMPANY(Capital insurance) since
1961 under Fire Policy No. 24204. On November 27,
1965, the COMPANY sent to the INSURED Renewal
Certificate No. 47302 to cover the period December 5,
1965 to December 5, 1966. The COMPANY also
requested payment of the corresponding premium in
the amount of P 38.10.
Anticipating that the premium could not be paid on
time, the INSURED, thru his wife, promised to pay it
on January 4, 1966. The COMPANY accepted the
promise but the premium was not paid on January 4,
1966. On January 8, 1966, the house of the INSURED
was totally destroyed by fire.
On January 10, 1966, INSURED's wife presented a
claim for indemnity to the COMPANY. She was told that
no indemnity was due because the premium on the
policy was not paid. Nonetheless the COMPANY
tendered a check for P300.00 as financial aid which
was received by the INSURED's daughter, Evelina R.
Arce. The COMPANY reiterated that the check was
given "not as an obligation, but as a concession"
because the renewal premium had not been paid, The
INSURED cashed the check but then sued the
COMPANY on the policy.
ISSUE:
Whether the petitioners are entitled to claim from their
policy despite non-payment of their premium.
RULING:
SEC. 72. An insurer is entitled to payment of premium
as soon as the thing insured is exposed to the perils
insured against, unless there is clear agreement to
EH 403 2010-2011 2011-2012
Page 46
grant credit extension for the premium due. No policy
issued by an insurance company is valid and binding
unless and until the premium thereof has been paid "
(Italics supplied.) (p. 11, Appellant's Brief.)
Morever, the parties in this case had stipulated:
IT IS HEREBY DECLARED AND AGREED that not.
withstanding anything to the contrary contained in the
within policy, this insurance will be deemed valid and
binding upon the Company only when the premium
and documentary stamps therefor have actually been
paid in full and duly acknowledged in an official receipt
signed by an authorized official/representative of the
Company, " (pp. 45-46, Record on Appeal.)
It is obvious from both the Insurance Act, as amended,
and the stipulation of the parties that time is of the
essence in respect of the payment of the insurance
premium so that if it is not paid the contract does not
take effect unless there is still another stipulation to
the contrary. In the instant case, the INSURED was
given a grace period to pay the premium but the
period having expired with no payment made, he
cannot insist that the COMPANY is nonetheless
obligated to him.
THE CAPITAL INSURANCE & SURETY CO., INC vs.
PLASTIC ERA CO., INC., AND COURT OF APPEALS
Digested by: marccarillo
Facts:
On Dec. 7, 1960, Capital Insurance & Surety Co., Inc
(Capital Insurance) delivered to Plastic Era
Manufacturing Co., Inc (Plastic Era) its Open Fire Policy
No.22760 wherein the former undertook to insure the
latters building, equipments, raw materials, products
and accessories located at Sheridan Street,
Mandaluyong, Rizal. The policy expressly provides that
if the property insured would be destroyed or damaged
by fire after the payment of the premiums, at anytime
between the Dec. 15 1960 and one o'clock in the
afternoon of the Dec. 15, 1961, the insurance
company shall make good all such loss or damage in
an amount not exceeding P100k. Plastic Era failed to
pay its premium and instead executed an
acknowledgment receipt promising to pay 30 days
after date.
On Jan.8,1961, Plastic Era delivered a check as partial
payment of the insurance premium worth 1k.
However, it was dishonored by the Bank of America for
lack of funds on Feb.20, 1961. Records revealed that
Plastic Era had a balance of P1,193.41 as early as
Jan.19, 1961. (Note: premium due date was on
Jan.16,1961)
Not unexpectedly, the property insured by Plastic Era
was destroyed by fire on Jan.18, 1961 (thats 2 days
after the premium became due). Plastic Era filed a
claim for indemnity. Capital Insurance wanted to
become part of Philippine Jurisprudence so it denied
 INSURANCE LAW CASE DIGESTS
the claim on the ground that the premium was not
paid.
Pissed, Plastic Era then filed a case in the lower court
which renderred judgment in its favor. The appelate
court affirmed it and so the issue is brought before the
SC.
Issue:
W/N a contract of insurance has been duly perfected
between the petitioner, Capital Insurance, and
respondent Plastic Era.
Ruling:
Yup, it has been perfected.
The Insurnace Policy states that: THE COMPANY
HEREBY AGREES with the Insured but subject to the
terms and conditions endorsed or otherwise expressed
hereon, which are to be taken as part of this Policy),
that if the Property described, or any part thereof,
shall be destroyed or damaged by Fire or
Lightning after payment of the Premiums, at anytime
between...xxx
In clear and unequivocal terms the insurance policy
provides that it is only upon payment of the premiums
by Plastic Era that Capital Insurance agrees to insure
the properties of the former against loss or damage in
an amount not exceeding P100,000.00. It appears on
record that on the day the insurance policy was
delivered, Plastic Era did not pay the Capital
Insurance, but instead executed an acknowledgment
receipt.
Q:Could not this have been considered a valid
payment of the insurance premium?
Article 1249 NCC:
The delivery of promissory notes payable to order, or
bills of exchange or other mercantile documents shall
produce the effect of payment only when they have
been cashed, or when through the fault of the creditor
they have been impaired.
Under this provision the mere delivery of a bill of
exchange in payment of a debt does not immediately
effect payment. It simply suspends the action arising
from the original obligation in satisfaction of which it
was delivered, until payment is accomplished either
actually or presumptively. But wait...
Acceptance by Capital Insurance considered as
waiver
Significantly, in the case before Us the Capital
Insurance accepted the promise of Plastic Era to pay
the insurance premium within thirty (30) days from
the effective date of policy. By so doing, it has
implicitly agreed to modify the tenor of the insurance
policy and in effect, waived the provision therein that it
EH 403 2010-2011 2011-2012
Page 47
would only pay for the loss or damage in case the
same occurs after the payment of the premium.
Considering that the insurance policy is silent as to the
mode of payment, Capital Insurance is deemed to
have accepted the promissory note in payment of the
premium.
Citing a US Case, our Supreme Court sad that that
although one of conditions of an insurance policy is
that "it shall not be valid or binding until the first
premium is paid", if it is silent as to the mode of
payment, promissory notes received by the company
must be deemed to have been accepted in payment of
the premium. In other words, a requirement for the
payment of the first or initial premium in advance or
actual cash may be waived by acceptance of a
promissory note ...
The fact that the check issued by Plastic Era in partial
payment of the promissory note was later on
dishonored did not in any way operate as a forfeiture
of its rights under the policy, there being no express
stipulation therein to that effect.
This is how the story ends. :D
Digested by: Brian O. Dalanon
Velasco vs. Apostol
Facts:
That on November 27, 1973, at about 2:30 p.m.
plaintiffs were riding in their Mercury car driven by
their driver Restitute Guarra, along Quezon Boulevard
when an N/S taxicab driven by defendant Dominador
Santos registered in the name of defendants Alice
Artuz, c/o Norberto Santos, crossed the center island
towards their direction, and finally collided with their
car at the left front part. The said taxicab tried to
return to its original lane, but was unable to climb the
island, and instead, backtracked, hitting again
plaintiffs' car in the left near portion, causing the
latter's back portion to turn toward the center hitting a
jeepney on its right.
Originally sued as defendants were Dominador Santos,
Alice Artuz, and Norberto Santos.
After an answer was filed by said defendants, private
respondent Maharlika Insurance Co., Inc. was
impleaded as a defendant in an amended complaint
filed by the petitioner with an allegation that the N/S
taxicab was insured against third party liability for
P20,000 with private respondent at the time of the
accident.
In its answer to the amended complaint, respondent
Maharlika Insurance Co., Inc. claimed that there was
no cause of action against it because at the time of the
accident, the alleged insurance policy was not in force
due to non-payment of the premium. It further averred
that even if the taxicab had been insured, the
complaint would still be premature since the policy
provides that the insurer would be liable only when the
insured becomes legally liable.
 INSURANCE LAW CASE DIGESTS
The trial court rendered judgment in favor of the
plaintiff finding that the evidence on the negligence of
defendant Dominador Santos was uncontroverted and
the proximate cause of the accident was his
negligence. 5 Defendants Dominador Santos, Alice
Artuz, and Norberto Santos were adjudged jointly and
severally liable to petitioners.
However, Maharlika Insurance Co. was exonerated on
the ground that the policy was not in force for failure
of the therein defendants to pay the initial premium
and for their concealment of a material fact.
Petitioners fault the respondent-judge for considering
private respondent's defense of late payment of
premium when, according to them, "the same was
waived at the pre-trial.
Petiotioners theorize that what was stipulated in the
pre-trail order does not include the issue on whether
defendant Maharlika Insurance Co., Inc. is liable under
the insurance policy, even as the premium was paid
after the accident in question.
The accident for which respondent insurance company
is sought to be held liable occurred on November 27,
1973 while the initial premium was paid only on
December 11, 1973.
Petitioners maintain that in spite of this late payment,
the policy is nevertheless binding because there was
an implied agreement to grant a credit extension so as
to make the policy effective. To them, the subsequent
acceptance of the premium and delivery of the policy
estops the respondent company from asserting that
the policy is ineffective.
Issue:
Whether defendant Maharlika Insurance Co. Inc. is
liable under the insurance policy on account of the
negligence of defendant Dominador Santos.
Ruling:
Petitioners' position is bereft of merit
Although there is no express statement as to the fact
of late payment, this is necessarily deemed included in
or ineluctably inferred from the issue of whether the
company is liable under the insurance policy it had
allegedly issued for the vehicle involved and on which
petitioners seek to recover.
Issues that are impliedly included therein or may be
inferable therefrom by necessary implication are as
much integral parts of the pre-trial order as those that
are expressly stipulated.
In fact, it would be absurd and inexplicable for the
respondent company to knowingly disregard or
deliberately abandon the issue of non-payment of the
premium on the policy considering that it is the very
core of its defense.
EH 403 2010-2011 2011-2012
Page 48
The delivery of the policy made on March 28, 1974 and
only because the premium was had been paid, in fact,
more than three months before such delivery.
The said payment was accepted by the insurer without
any knowledge that the risk insured against had
already occurred since such fact was concealed by the
insured and was not revealed to the insurer.
The fact withheld could not in any event have
influenced the respondent company in entering into
the supposed contract or in estimating the character of
the risk or in fixing the rate premium, for the simple
reason that no such contract existed between the
defendants and the company at the time of the
accident.
What should be apparent from such actuations of
therein defendants, however, is the presence of bad
faith on their part, a reprehensible disregard of the
principle that insurance contracts are uberrimae fidae
and demand the most abundant good faith.
Digested by: Grace Jayne Dingal
VALENZUELA v. COURT OF APPEALS, ARAGON et
al.
Facts:
Arturo Valenzuela is a General Agent of Philippine
American General Insurance (Philamgen) since 1965.
He was authorized to solicit and sell in behalf of
Philamgen all kinds of non-life insurance, and in
consideration of services rendered was entitled to
receive the full agent's commission of 32.5% from
Philamgen under the scheduled commission rates.
From 1973 to 1975, Valenzuela solicited marine
insurance from one of his clients, the Delta Motors in
the amount of P4.4 Million from which he was entitled
to a commission of 32%. However, Valenzuela did not
receive his full commission which amounted to P1.6
Million from the P4.4 Million insurance coverage of the
Delta Motors. In 1977, Philamgen started to become
interested in and expressed its intent to share in the
commission due Valenzuela on a fifty-fifty basis.
Because of the refusal of Valenzuela, Philamgen
terminated the General Agency Agreement of
Valenzuela.
Issue:
Whether or not Philamgen could continue to hold
Valenzuela jointly and severally liable with the insured
for unpaid premiums
Held: NO.
The principal cause of the termination of Valenzuela as
General Agent of Philamgen arose from his refusal to
share his Delta commission. The apparent bad faith of
the private respondents in terminating the General
Agency Agreement of petitioners. The agency involving
petitioner and private respondent is one "coupled with
 INSURANCE LAW CASE DIGESTS
an interest," and, therefore, should not be freely
revocable at the unilateral will of the latter. With the
termination of the General Agency Agreement,
Valenzuela would no longer be entitled to commission
on the renewal of insurance policies of clients sourced
from his agency.
Despite the termination of the agency, Philamgen
continued to hold Valenzuela jointly and severally
liable with the insured for unpaid premiums.
Valenzuela had an interest in the continuation of the
agency when it was unceremoniously terminated not
only because of the commissions he should continue to
receive from the insurance business he has solicited
and procured but also for the fact that by the very acts
of the respondents, he was made liable to Philamgen in
the event the insured fail to pay the premiums due.
They are estopped by their own positive averments
and claims for damages. Therefore, the respondents
cannot state that the agency relationship between
Valenzuela and Philamgen is not coupled with interest.
There is an exception to the principle that an agency is
revocable at will and that is when the agency has been
given not only for the interest of the principal but for
the interest of third persons or for the mutual interest
of the principal and the agent. In these cases, it is
evident that the agency ceases to be freely revocable
by the sole will of the principal.
The factor rendering Philamgen and the private
respondents liable in damages is that the termination
by them of the General Agency Agreement was tainted
with bad faith. If a principal acts in bad faith and with
abuse of right in terminating the agency, then he is
liable in damages.
Valenzuela is not liable to Philamgen for the unpaid
and uncollected premiums. Under Section 77 of the
Insurance Code, the remedy for the non-payment of
premiums is to put an end to and render the insurance
policy not binding
Sec. 77 ... [N]otwithstanding any agreement to the
contrary, no policy or contract of insurance is valid
and binding unless and until the premiums thereof
have been paid except in the case of a life or
industrial life policy whenever the grace period
provision applies
In Philippine Phoenix Surety v. Woodworks, we held
that the non-payment of premium does not merely
suspend but puts an end to an insurance contract since
the time of the payment is peculiarly of the essence of
the contract. And in Arce v. The Capital Insurance and
Surety Co. Inc. (117 SCRA 63, [1982]), we reiterated
the rule that unless premium is paid, an insurance
contract does not take effect. Thus:
It is to be noted that Delgado (Capital Insurance &
Surety Co., Inc. v. Delgado, 9 SCRA 177 [1963]
was decided in the light of the Insurance Act
before Sec. 72 was amended by the underscored
portion. Supra. Prior to the Amendment, an
insurance contract was effective even if the
premium had not been paid so that an insurer was
obligated to pay indemnity in case of loss and
EH 403 2010-2011 2011-2012
Page 49
correlatively he had also the right to sue for
payment of the premium. But the amendment to
Sec. 72 has radically changed the legal regime in
that unless the premium is paid there is no
insurance.
In Philippine Phoenix Surety case, we held:
Moreover, an insurer cannot treat a contract as
valid for the purpose of collecting premiums and
invalid for the purpose of indemnity.
No contract of Insurance by an insurance company
is valid and binding unless and until the premium
thereof has been paid, notwithstanding any
agreement to the contrary
Since admittedly the premiums have not been paid,
the policies issued have lapsed. The insurance
coverage did not go into effect or did not continue and
the obligation of Philamgen as insurer ceased. Hence,
for Philamgen which had no more liability under the
lapsed and inexistent policies to demand, much less
sue Valenzuela for the unpaid premiums would be the
height of injustice and unfair dealing. In this instance,
with the lapsing of the policies through the
nonpayment of premiums by the insured there were no
more insurance contracts to speak of. As this Court
held in the Philippine Phoenix Surety case, supra "the
non-payment of premiums does not merely suspend
but puts an end to an insurance contract since the time
of the payment is peculiarly of the essence of the
contract."
The circumstances of the case, however, require that
the contractual relationship between the parties shall
be terminated upon the satisfaction of the judgment.
No more claims arising from or as a result of the
agency shall be entertained by the courts after that
date.
ACCORDINGLY, the petition is GRANTED.
UCPB General Insurance vs. Masagana Telamart
Inc. ,
[GR 137172]
Facts:
On 15 April 1991, UCPB General Insurance Co. Inc.
(UCPBGen) issued 5 insurance policies covering
Masagana Telamart, Inc.'s various property described
therein against fire, for the period from 22 May 1991
to 22 May 1992. In March 1992, UCPBGen evaluated
the policies and decided not to renew them upon
expiration of their terms on 22 May 1992. UCPBGen
advised Masagana's broker, Zuellig Insurance Brokers,
Inc. of its intention not to renew the policies. On 6
April 1992, UCPBGen gave written notice to Masagana
of the non-renewal of the policies at the address stated
in the policies. On 13 June 1992, fire razed Masagana's
property covered by three of the insurance policies
UCPBGen issued. On 13 July 1992, Masagana
presented to UCPBGen's cashier at its head office 5
manager's checks in the total amount of P225,753.95,
representing premium for the renewal of the policies
from 22 May 1992 to 22 May 1993. No notice of loss
 INSURANCE LAW CASE DIGESTS
was filed by Masagana under the policies prior to 14
July 1992. On 14 July 1992, Masagana filed with
UCPBGen its formal claim for indemnification of the
insured property razed by fire. On the same day, 14
July 1992, UCPBGen returned to Masagana the 5
manager's checks that it tendered, and at the same
time rejected Masagana's claim for the reasons (a)
that the policies had expired and were not renewed,
and (b) that the fire occurred on 13 June 1992, before
Masagana's tender of premium payment. On 21 July
1992, Masagana filed with the Regional Trial Court,
Branch 58, Makati City, a civil complaint against
UCPBGen for recovery of P18,645,000.00, representing
the face value of the policies covering Masagana's
insured property razed by fire, and for attorney's fees.
On 23 October 1992, after its motion to dismiss had
been denied, UCPBGen filed an answer to the
complaint. It alleged that the complaint "fails to state a
cause of action"; that UCPBGen was not liable to
Masagana for insurance proceeds under the policies
because at the time of the loss of Masagana's property
due to fire, the policies had long expired and were not
renewed. After due trial, on 10 March 1993, the
Regional Trial Court, Branch 58, Makati, rendered
decision, (1) authorizing and allowing Masagana to
consign/deposit with this Court the sum of
P225,753.95 (refused by UCPBGen) as full payment of
the corresponding premiums for the replacement-
renewal policies; (2) declaring Masagana to have fully
complied with its obligation to pay the premium
thereby rendering the replacement-renewal policy
effective and binding for the duration 22 May 1992
until 22 May 1993; and, ordering UCPBGen to deliver
forthwith to Masagana the said replacement-renewal
policies; (3) declaring two of the policies in force from
22 August 1991 up to 23 August 1992 and 9 August
1991 to 9 August 1992, respectively; and (4) ordering
UCPBGen to pay Masagana the sums of: (a)
P18,645,000.00 representing the latter's claim for
indemnity under three policies and/or its replacement-
renewal policies; (b) 25% of the total amount due as
and for attorney's fees; (c) P25,000.00 as necessary
litigation expenses; and, (d) the costs of suit. In due
time, UCPBGen appealed to the Court of Appeals. On 7
September 1998, the Court of Appeals promulgated its
decision affirming that of the Regional Trial Court with
the modification that item 3 of the dispositive portion
was deleted, and the award of attorney's fees was
reduced to 10% of the total amount due. The Court of
Appeals held that following previous practise,
Masagana was allowed a 60 to 90 day credit term for
the renewal of its policies, and that the acceptance of
the late premium payment suggested an
understanding that payment could be made later.
UCPBGen appealed.
Issue:
Whether the fire insurance policies issued by UCPBGen
to the Masagana covering the period 22 May 1991 to
22 May 1992, had expired on the latter date or had
been extended or renewed by an implied credit
arrangement though actual payment of premium was
EH 403 2010-2011 2011-2012
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tendered on a latter date after the occurrence of the
risk (fire) insured against.
Held:
The answer is easily found in the Insurance Code. No,
an insurance policy, other than life, issued originally or
on renewal, is not valid and binding until actual
payment of the premium. Any agreement to the
contrary is void. The parties may not agree expressly
or impliedly on the extension of credit or time to pay
the premium and consider the policy binding before
actual payment. The case of Malayan Insurance Co.,
Inc. vs. Cruz-Arnaldo is not applicable. In that case,
payment of the premium was in fact actually made on
24 December 1981, and the fire occurred on 18
January 1982. Here, the payment of the premium for
renewal of the policies was tendered on 13 July 1992,
a month after the fire occurred on 13 June 1992. The
assured did not even give the insurer a notice of loss
within a reasonable time after occurrence of the fire.
Hence, the Supreme Court reversed and set aside the
decision of the Court of Appeals in CA-GR CV 42321. In
lieu thereof, the Court rendered judgment dismissing
Masagana's complaint and UCPBGen's counterclaims
thereto filed with the Regional Trial Court, Branch 58,
Makati City, in Civil Case 92-2023, without costs.
PHILIPPINE PHOENIX SURETY & INSURANCE,
INC. vs.WOODWORKS, INC.
[G.R. No. L-22684 August 31, 1967]
FACTS:
That on April 1, 1960, plaintiff issued to defendant Fire
Policy No. 9652 for the amount of P300,000.00. The
premiums of said policy amounted to P6, 051.95. The
defendant paid P3,000.00 on September 22, 1960 and
the plaintiff made several demands on defendant to
pay the amount of P3,522.09.
Appellee Philippine Phoenix Surety & Insurance Co.,
Inc. commenced this action in the Municipal Court of
Manila to recover from appellant Woodworks, Inc. the
sum of P3,522.09, representing the unpaid balance of
the premiums on a fire insurance policy issued by
appellee in favor of appellant for a term of one year
from April 1, 1960 to April 1, 1961. From an adverse
decision of said court, Woodworks, Inc. appealed to
the Court of First Instance of Manila.
Appeal upon a question of law taken by Woodworks,
Inc. from the judgment of the Court of First Instance
of Manila "ordering the defendant, Woodworks, Inc. to
pay to the plaintiff, Philippine Phoenix Surety &
Insurance, Inc., the sum of P3,522.09 with interest
thereon at the legal rate of 6% per annum from the
date of the filing of the complaint until fully paid, and
costs of the suit." Hence, this petition.
Issue:
 INSURANCE LAW CASE DIGESTS
Whether or not the non-payment of premium does not
cancel the policy in a perfected contract of insurance
Whether or not a partial payment of the premium
made the policy effective during the whole period of
the policy
Ruling:
The petition is lack of merit.
There is, consequently, no doubt at all that, as
between the insurer and the insured, there was not
only a perfected contract of insurance but a partially
performed one as far as the payment of the agreed
premium was concerned. Thereafter the obligation of
the insurer to pay the insured the amount for which
the policy was issued in case the conditions therefor
had been complied with, arose and became binding
upon it, while the obligation of the insured to pay the
remainder of the total amount of the premium due
became demandable.
The court did not agree with appellant's theory that
non-payment by it of the premium due, produced the
cancellation of the contract of insurance. Such theory
would place exclusively in the hands of one of the
contracting parties the right to decide whether the
contract should stand or not. Rather the correct view
would seem to be this: as the contract had become
perfected, the parties could demand from each other
the performance of whatever obligations they had
assumed. In the case of the insurer, it is obvious that
it had the right to demand from the insured the
completion of the payment of the premium due or sue
for the rescission of the contract. As it chose to
demand specific performance of the insured's
obligation to pay the balance of the premium, the
latter's duty to pay is indeed indubitable.
The appealed decision being in accordance with law
and the evidence, the same is affirmed.
Digested by: Gestopa, Gevina
Makati Tuscany Condominium Corp. vs. Court of
Appeals
Facts:
Sometime in early 1982, private respondent American
Home Assurance Co. (AHAC), represented by American
International Underwriters (Phils.), Inc., issued in favor
of petitioner Makati Tuscany Condominium Corporation
(TUSCANY) Insurance Policy on the latter's building
and premises, for a period beginning March 1982 and
ending March 1983, with a total premium of
P466,103.05. The premium was paid on installments,
all of which were accepted by private respondent.
In February 1983, private respondent issued to
petitioner another Insurance Policy, which replaced
and renewed the previous policy, for a term covering 1
March 1983 to 1 March 1984. The premium in the
amount of P466,103.05 was again paid on
EH 403 2010-2011 2011-2012
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installments. All payments were likewise accepted by
private respondent.
In January 1984, the policy was again renewed and
private respondent issued to petitioner Insurance
Policy for the period March 1984 to March 1985. On
this renewed policy, petitioner made two installment
payments, both accepted by private respondent.
Thereafter, petitioner refused to pay the balance of the
premium.
Consequently, AHAC filed an action to recover the
unpaid balance of P314,103.05 for Insurance policy. In
its answer with counterclaim, Tuscany admitted the
issuance of Insurance Policy. It explained that it
discontinued the payment of premiums because the
policy did not contain a credit clause in its favor and
the receipts for the installment payments covering the
policy for 1984-85, as well as the two (2) previous
policies, stated the following reservations: (2)
Acceptance of this payment shall not waive any of the
company rights to deny liability on any claim under the
policy arising before such payments or after the
expiration of the credit clause of the policy; and (3)
Subject to no loss prior to premium payment. If there
be any loss such is not covered. Tuscany further
claimed that the policy was never binding and valid,
and no risk attached to the policy. It then pleaded a
counterclaim for P152,000.00 for the premiums
already paid for 1984-85, and in its answer with
amended counterclaim, sought the refund of
P924,206.10 representing the premium payments for
1982-85.
Issue:
Whether payment by installment of the premiums due
on an insurance policy invalidates the contract of
insurance.
Ruling:
No. The subject policies are valid even if the premiums
were paid on installments. The records clearly show
that Tuscany and AHAC intended subject insurance
policies to be binding and effective notwithstanding the
staggered payment of the premiums. The initial
insurance contract entered into in 1982 was renewed
in 1983, then in 1984. In those 3 years, the insurer
accepted all the installment payments. Such
acceptance of payments speaks loudly of the insurer's
intention to honor the policies it issued to Tuscany.
Certainly, basic principles of equity and fairness would
not allow the insurer to continue collecting and
accepting the premiums, although paid on
installments, and later deny liability on the lame
excuse that the premiums were not prepaid in full.
Thus, while the import of Section 77 is that
prepayment of premiums is strictly required as a
condition to the validity of the contract, the Court was
not prepared to rule that the request to make
installment payments duly approved by the insurer,
would prevent the entire contract of insurance from
going into effect despite payment and acceptance of
 INSURANCE LAW CASE DIGESTS
the initial premium or first installment. Section 78 of
the Insurance Code in effect allows waiver by the
insurer of the condition of prepayment by making an
acknowledgment in the insurance policy of receipt of
premium as conclusive evidence of payment so far as
to make the policy binding despite the fact that
premium is actually unpaid. Section 77 merely
precludes the parties from stipulating that the policy is
valid even if premiums are not paid, but does not
expressly prohibit an agreement granting credit
extension, and such an agreement is not contrary to
morals, good customs, public order or public policy. So
is an understanding to allow insured to pay premiums
in installments not so proscribed. At the very least,
both parties should be deemed in estoppel to question
the arrangement they have voluntarily accepted. It
appearing from the peculiar circumstances that the
parties actually intended to make the three (3)
insurance contracts valid, effective and binding,
Tuscany may not be allowed to renege on its obligation
to pay the balance of the premium after the expiration
of the whole term of the third policy (AH-CPP-
9210651) in March 1985. Moreover, where the risk is
entire and the contract is indivisible, the insured is not
entitled to a refund of the premiums paid if the insurer
was exposed to the risk insured for any period,
however brief or momentary.
Digested by: Roxanne A. Huyo
Tibay v. CA
Facts:
On 22 January 1987 private respondent Fortune Life
and General Insurance Co., Inc. (FORTUNE) issued Fire
Insurance Policy No. 136171 in favor of Violeta R.
Tibay and/or Nicolas Roraldo on their two-storey
residential building located at 5855 Zobel Street,
Makati City, together with all their personal effects
therein. The insurance was for P600,000.00 covering
the period from 23 January 1987 to 23 January 1988.
On 23 January 1987, of the total premium of
P2,983.50, petitioner Violeta Tibay only paid P600.00
thus leaving a considerable balance unpaid.
On 8 March 1987 the insured building was completely
destroyed by fire. On 10 March 1987 Violeta Tibay paid
the balance of the premium. On the same day, she
filed with FORTUNE a claim on the fire insurance
policy. Her claim was accordingly referred to its
adjuster, Goodwill Adjustment Services, Inc. (GASI).
Petitioner forthwith complied and signed a non-waiver
agreement. In a letter dated 11 June 1987, FORTUNE
denied the claim of Violeta for violation of Policy
Condition No. 2 and of Sec. 77 of the Insurance Code.
Efforts to settle the case before the Insurance
Commission proved futile.
On 19 July 1990 the trial court ruled for petitioners
and adjudged FORTUNE liable. On 24 March 1995 the
Court of Appeals reversed the court a quo by declaring
FORTUNE not to be liable to plaintiff-appellees therein
but ordering defendant-appellant to return to the
EH 403 2010-2011 2011-2012
Page 52
former the premium of P2,983.50 plus 12% interest
from 10 March 1987 until full payment. Hence this
petition for review
Issue:
WON a fire insurance policy is valid, binding and
enforceable upon mere partial payment of premium
Ruling:
The SC finds no merit in the petition; hence, it affirms
the Court of Appeals.
Insurance is a contract whereby one undertakes for a
consideration to indemnify another against loss,
damage or liability arising from an unknown or
contingent event. The consideration is the premium,
which must be paid at the time and in the way and
manner specified in the policy, and if not so paid, the
policy will lapse and be forfeited by its own terms.
The pertinent provisions in the Policy on premium read
THIS POLICY OF INSURANCE WITNESSETH, THAT only
after payment to the Company in accordance with
Policy Condition No. 2 of the total premiums by the
insured as stipulated above for the period
aforementioned for insuring against Loss or Damage
by Fire or Lightning as herein appears, the Property
herein described x x x
2. This policy including any renewal
thereof and/or any endorsement thereon is not
in force until the premium has been fully paid to
and duly receipted by the Company in the
manner provided herein.
Any supplementary agreement seeking to
amend this condition prepared by agent, broker or
Company official, shall be deemed invalid and of no
effect.
xxx xxx
xxx
Except only in those specific cases where
corresponding rules and regulations which are or may
hereafter be in force provide for the payment of the
stipulated premiums in periodic installments at fixed
percentage, it is hereby declared, agreed and
warranted that this policy shall be deemed
effective, valid and binding upon the Company
only when the premiums therefor have actually
been paid in full and duly acknowledged in a
receipt signed by any authorized official or
representative/agent of the Company in such
manner as provided herein.
Clearly the Policy provides for payment of premium in
full. Accordingly, where the premium has only been
partially paid and the balance paid only after the peril
insured against has occurred, the insurance contract
did not take effect and the insured cannot collect at all
on the policy. This is fully supported by Sec. 77 of the
Insurance Code which provides
 INSURANCE LAW CASE DIGESTS
SEC. 77. An insurer is entitled to payment of the
premium as soon as the thing insured is exposed
to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid
and binding unless and until the premium thereof
has been paid, except in the case of a life or an
industrial life policy whenever the grace period
provision applies.
Apparently the crux of the controversy lies in the
phrase unless and until the premium thereof has been
paid. In Escosura v. San Miguel Brewery, Inc., the
Court through Mr. Justice Jesus G. Barrera,
interpreting the phrase with pay used in connection
with leaves of absence with pay granted to employees,
ruled - x x x the legislative practice seems to be that
when the intention is to distinguish between full and
partial payment, the modifying term is used x x x.
Furthermore, the two (2) cases, Phoenix and Tuscany,
adequately demonstrate the waiver, either express or
implied, of prepayment in full by the insurer: impliedly,
by suing for the balance of the premium as in Phoenix,
and expressly, by agreeing to make premiums payable
in installments as in Tuscany. But contrary to the
stance taken by petitioners, there is no waiver express
or implied in the case at bench.
Conformably with the aforesaid stipulations explicitly
worded and taken in conjunction with Sec. 77 of the
Insurance Code the payment of partial premium by the
assured in this particular instance should not be
considered the payment required by the law and the
stipulation of the parties. Rather, it must be taken in
the concept of a deposit to be held in trust by the
insurer until such time that the full amount has been
tendered and duly receipted for. In other words, as
expressly agreed upon in the contract, full payment
must be made before the risk occurs for the policy to
be considered effective and in force.
Thus, no vinculum juris whereby the insurer bound
itself to indemnify the assured according to law ever
resulted from the fractional payment of premium. The
insurance contract itself expressly provided that the
policy would be effective only when the premium was
paid in full. It would have been altogether different
were it not so stipulated. Ergo, petitioners had
absolute freedom of choice whether or not to be
insured by FORTUNE under the terms of its policy and
they freely opted to adhere thereto.
Applying further the rules of statutory construction, the
case of South Sea Surety and Insurance Company,
Inc. v. Court of Appeals, speaks only of two (2)
statutory exceptions to the requirement of payment of
the entire premium as a prerequisite to the validity of
the insurance contract. These exceptions are: (a) in
case the insurance coverage relates to life or industrial
life (health) insurance when a grace period applies,
and (b) when the insurer makes a written
acknowledgment of the receipt of premium, this
acknowledgment being declared by law to, be then
EH 403 2010-2011 2011-2012
Page 53
conclusive evidence of the premium payment. The
express mention of exceptions operates to exclude
other exceptions; conversely, those which are not
within the enumerated exceptions are deemed included
in the general rule. Thus, under Sec. 77, as well as
Sec. 78, until the premium is paid, and the law has not
expressly excepted partial payments, there is no valid
and binding contract. Hence, in the absence of clear
waiver of prepayment in full by the insurer, the insured
cannot collect on the proceeds of the policy.
iii. Non-Default Options in Life Insurance
iv. Reinstatement of a Lapsed Policy of Life
Insurance
v. Acknowledgement in policy of receipt of
premium is conclusive (Section 78)
Digested by: Patricia Ko
American Home Assurance vs. Chua
[G.R. No. 130421. June 28, 1999]
FACTS:
Petitioner, American Home, is a domestic corporation
engaged in the insurance business. Sometime in
1990, respondent Chua obtained from petitioner a fire
insurance covering the stock-in-trade of his business,
Moonlight Enterprises, located at Valencia,
Bukidnon. The insurance was due to expire on 25
March 1990.
On 5 April 1990 respondent issued PCIBank Check No.
352123 in the amount of P2,983.50 to petitioners
agent, James Uy, as payment for the renewal of the
policy. In turn, the latter delivered Renewal Certificate
No. 00099047 to respondent. The check was drawn
against a Manila bank and deposited in petitioners
bank account in Cagayan de Oro City. The
corresponding official receipt was issued on 10
April. Subsequently, a new insurance policy, Policy No.
206-4234498-7, was issued, whereby petitioner
undertook to indemnify respondent for any damage or
loss arising from fire up toP200,000 for the period 25
March 1990 to 25 March 1991.
On 6 April 1990 Moonlight Enterprises was completely
razed by fire. Total loss was estimated
between P4,000,000 and P5,000,000. Respondent
filed an insurance claim with petitioner and four other
co-insurers, namely, Pioneer Insurance and Surety
Corporation, Prudential Guarantee and Assurance, Inc.,
Filipino Merchants Insurance Co. and Domestic
Insurance Company of the Philippines. Petitioner
refused to honor the claim notwithstanding several
demands by respondent, thus, the latter filed an action
against petitioner before the trial court.
In its defense, petitioner claimed there was no existing
insurance contract when the fire occurred since
respondent did not pay the premium. It also alleged
that even assuming there was a contract, respondent
violated several conditions of the policy,
 INSURANCE LAW CASE DIGESTS
particularly: (1) his submission of fraudulent income
tax return and financial statements; (2) his failure to
establish the actual loss, which petitioner assessed
at P70,000; and (3) his failure to notify to petitioner of
any insurance already effected to cover the insured
goods. These violations, petitioner insisted, justified
the denial of the claim.
Petitioner emphasizes that when the fire occurred on 6
April 1990 the insurance contract was not yet
subsisting pursuant to Article 1249 [3] of the Civil Code,
which recognizes that a check can only effect payment
once it has been cashed. Although respondent
testified that he gave the check on 5 April to a certain
James Uy, the check, drawn against a Manila bank and
deposited in a Cagayan de Oro City bank, could not
have been cleared by 6 April, the date of the fire. In
fact, the official receipt issued for respondents check
payment was dated 10 April 1990, four days after the
fire occurred.
Citing jurisprudence,[4] petitioner also contends that
respondents non-disclosure of the other insurance
contracts rendered the policy void.
Respondent refutes the reason for petitioners denial of
his claim. To bolster his argument, respondent cites
Section 66 of the Insurance Code,[5] which requires the
insurer to give a notice to the insured of its intention
to terminate the policy forty-five days before the policy
period ends. In the instant case, petitioner opted not
to terminate the policy. Instead, it renewed the policy
by sending its agent to respondent, who was issued a
renewal certificate upon delivery of his check payment
for the renewal of premium. At this precise moment
the contract of insurance was executed and already in
effect. Respondent also claims that it is standard
operating procedure in the provinces to pay insurance
premiums by check when collected by insurance
agents.
ISSUES:
1. whether there was a valid payment of premium,
considering that respondents check was cashed
after the occurrence of the fire;
2. whether respondent violated the policy by his
submission of fraudulent documents and non-
disclosure of the other existing insurance
contracts;
RULING:
On the payment of premium through check (Relevant
provision: Sec. 78)
The general rule in insurance laws is that unless the
premium is paid the insurance policy is not valid and
binding. The only exceptions are life and industrial life
insurance.[6] Whether payment was indeed made is a
question of fact which is best determined by the trial
court. The trial court found, as affirmed by the Court
of Appeals, that there was a valid check payment by
respondent to petitioner. Well-settled is the rule that
the factual findings and conclusions of the trial court
EH 403 2010-2011 2011-2012
Page 54
and the Court of Appeals are entitled to great weight
and respect, and will not be disturbed on appeal in the
absence of any clear showing that the trial court
overlooked certain facts or circumstances which would
substantially affect the disposition of the case. [7] We
see no reason to depart from this ruling.
According to the trial court the renewal certificate
issued to respondent contained the acknowledgment
that premium had been paid. It is not disputed that
the check drawn by respondent in favor of petitioner
and delivered to its agent was honored when
presented and petitioner forthwith issued its official
receipt to respondent on 10 April 1990. Section 306 of
the Insurance Code provides that any insurance
company which delivers a policy or contract of
insurance to an insurance agent or insurance broker
shall be deemed to have authorized such agent or
broker to receive on its behalf payment of any
premium which is due on such policy or contract of
insurance at the time of its issuance or delivery or
which becomes due thereon. [8] In the instant case, the
best evidence of such authority is the fact that
petitioner accepted the check and issued the official
receipt for the payment. It is, as well, bound by its
agents acknowledgment of receipt of payment.
Section 78 of the Insurance Code explicitly provides:
An acknowledgment in a policy or contract of insurance
of the receipt of premium is conclusive evidence of its
payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not
be binding until the premium is actually paid.
This Section establishes a legal fiction of payment and
should be interpreted as an exception to Section 77.
On whether there were violations of the policy
conditions stipulated
Is respondent guilty of the policy violations imputed
against him? We are not convinced by petitioners
arguments. Ordinarily, where the insurance policy
specifies as a condition the disclosure of existing co-
insurers, non-disclosure thereof is a violation that
entitles the insurer to avoid the policy. This condition
is common in fire insurance policies and is known as
the other insurance clause. The purpose for the
inclusion of this clause is to prevent an increase in the
moral hazard. We have ruled on its validity and the
case of Geagonia v. Court of Appeals[10] clearly
illustrates such principle. However, we see an
exception in the instant case.
Citing Section 29[11] of the Insurance Code, the trial
court reasoned that respondents failure to disclose
was not intentional and fraudulent. The application of
Section 29 is misplaced. Section 29 concerns
concealment which is intentional. The relevant
provision is Section 75, which provides that:
A policy may declare that a violation of specified
provisions thereof shall avoid it, otherwise the breach
of an immaterial provision does not avoid the policy.
 INSURANCE LAW CASE DIGESTS
To constitute a violation the other existing insurance
contracts must be upon the same subject matter and
with the same interest and risk.[12] Indeed, respondent
acquired several co-insurers and he failed to disclose
this information to petitioner. Nonetheless, petitioner
is estopped from invoking this argument. The trial
court cited the testimony of petitioners loss adjuster
who admitted previous knowledge of the co-insurers.
Indubitably, it cannot be said that petitioner was
deceived by respondent by the latters non-disclosure
of the other insurance contracts when petitioner
actually had prior knowledge thereof. Petitioners loss
adjuster had known all along of the other existing
insurance contracts, yet, he did not use that as basis
for his recommendation of denial. The loss adjuster,
being an employee of petitioner, is deemed a
representative of the latter whose awareness of the
other insurance contracts binds petitioner. We,
therefore, hold that there was no violation of the
other insurance clause by respondent.
vi. Return of premium (Sections 79-82)
GREAT PACIFIC LIFE ASSURANCE CORP. vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO
FACTS
This is a petition for review under Rule 45 of the Rules
of Court, assailing the decision and resolution of the
Court of Appeals dated May 17, 1994 and January 4,
1994, respectively, in CA G.R. CV No. 18341. The
appellate court affirmed in toto the judgment of the
Regional Trial Court of Misamis Oriental in an insurance
claim filed by private respondent against Great Pacific
Life Assurance Co.
The Supreme Court found the petition not meritorious.
Contrary to petitioner's allegations, there was no
sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the
insured's widow who was not even sure if the
medicines taken by Dr. Leuterio were for hypertension,
the petitioner had not proven nor produced any
witness who could attest to Dr. Leuterio's medical
history. Clearly, it had failed to establish that there
was concealment made by the insured, hence it cannot
refuse payment of the claim.
ISSUES
1. Whether the Court of Appeals erred in holding
petitioner liable to DBP as beneficiary in a group
life insurance contract from a complaint filed by
the widow of the decedent/mortgagor? NO
2. Whether Dr. Leuterio concealed that he had
hypertension, which would vitiate the insurance
contract? NO
HELD
EH 403 2010-2011 2011-2012
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1. The rationale of a group insurance policy of
mortgagors, otherwise known as the "mortgage
redemption insurance," is a device for the protection of
both the mortgagee and the mortgagor. On the part of
the mortgagee, it has to enter into such form of
contract so that in the event of the unexpected demise
of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance
will be applied to the payment of the mortgage debt,
thereby relieving the heirs of the mortgagor from
paying the obligation. In a similar vein, ample
protection is given to the mortgagor under such a
concept so that in the event of death; the mortgage
obligation will be extinguished by the application of the
insurance proceeds to the mortgage indebtedness.
Consequently, where the mortgagor pays the
insurance premium under the group insurance policy,
making the loss payable to the mortgagee, the
insurance is on the mortgagor's interest, and the
mortgagor continues to be a party to the contract. In
this type of policy insurance, the mortgagee is simply
an appointee of the insurance fund, such loss-payable
clause does not make the mortgagee a party to the
contract.
The insured private respondent did not cede to the
mortgagee all his rights or interests in the insurance,
the policy stating that: "In the event of the debtor's
death before his indebtedness with the Creditor [DBP]
shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the
creditor and the balance of sum assured, if there is
any, shall then be paid to the beneficiary/ies
designated by the debtor." When DBP submitted the
insurance claim against petitioner, the latter denied
payment thereof, interposing the defense of
concealment committed by the insured. Thereafter,
DBP collected the debt from the mortgagor and took
the necessary action of foreclosure on the residential
lot of private respondent. In Gonzales La O vs. Yek
Tong Lin Fire & Marine Ins. Co. we held: "Insured,
being the person with whom the contract was made, is
primarily the proper person to bring suit thereon. . . .
Subject to some exceptions, insured may thus sue,
although the policy is taken wholly or in part for the
benefit of another person named or unnamed, and
although it is expressly made payable to another as his
interest may appear or otherwise. . . . Although a
policy issued to a mortgagor is taken out for the
benefit of the mortgagee and is made payable to him,
yet the mortgagor may sue thereon in his own name,
especially where the mortgagee's interest is less than
the full amount recoverable under the policy, . . . 'And
in volume 33, page 82, of the same work, we read the
following: `Insured may be regarded as the real party
in interest, although he has assigned the policy for the
purpose of collection, or has assigned as collateral
security any judgment he may obtain." And since a
policy of insurance upon life or health may pass by
transfer, will or succession to any person, whether he
has an insurable interest or not, and such person may
recover it whatever the insured might have recovered,
the widow of the decedent Dr. Leuterio may file the
suit against the insurer, Grepalife.
 INSURANCE LAW CASE DIGESTS
2. The question of whether there was
concealment was aptly answered by the appellate
court, thus: "The insured, Dr. Leuterio, had answered
in his insurance application that he was in good health
and that he had not consulted a doctor for any of the
enumerated ailments, including hypertension; when he
died the attending physician had certified in the death
certificate that the former died of cerebral
hemorrhage, probably secondary to hypertension.
From this report, the appellant insurance company
refused to pay the insurance claim. Appellant alleged
that the insured had concealed the fact that he had
hypertension. Contrary to appellant's allegations, there
was no sufficient proof that the insured had suffered
from hypertension. Aside from the statement of the
insured's widow who was not even sure if the
medicines taken by Dr. Leuterio were for hypertension,
the appellant had not proven nor produced any witness
who could attest to Dr. Leuterio's medical history . . .
Appellant insurance company had failed to establish
that there was concealment made by the insured,
hence, it cannot refuse payment of the claim." The
fraudulent intent on the part of the insured must be
established to entitle the insurer to rescind the
contract. Misrepresentation as a defense of the insurer
to avoid liability is an affirmative defense and the duty
to establish such defense by satisfactory and
convincing evidence rests upon the insurer. In the case
at bar, the petitioner failed to clearly and satisfactorily
establish its defense, and is therefore liable to pay the
proceeds of the insurance.
I. Loss (Sections 83-87)
Digested by: dlanor
Paris-Manila Perfume Co. vs. Phoenix Assurance
Co.
Facts:
On May 22, 1924, defendant (Phoenix Assurance Co.)
issued to plaintiff (Paris-Manila Perfume Co.) its fire
insurance policy No. 841163 in the sum of P13,000
upon the property of the plaintiff at No. 1 Calle
Cisneros, Cavite, insuring plaintiff's property against
fire for that amount.
That on July 4, 1924, the property covered by the
insurance was completely destroyed by fire for the
total loss to the plaintiff of P38.025.56; that under its
policy with the defendant, it promptly presented its
claim but the defendant wrongfully and unjustly
refused to pay it.
Defendant contended among others that the policy of
insurance did not cover any loss or damage occasioned
by explosion, and the loss was occasioned by an
explosion, and was not covered by the policy.
The lower court rendered judgment in favor of the
plaintiff.
EH 403 2010-2011 2011-2012
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Issues:
W/N Whether or not the loss of the property was
caused mainly by explosion and thus not covered by
the insurance policy.
Ruling:
The real cause of the fire is more or less a matter of
conjecture, upon which there is little, if any, evidence.
But the fact remains that there was a fire, and that the
plaintiffs property was destroyed. It is true that it may
be that the explosion was the primary cause of the
fire, but that is only a matter of conjecture, and upon
that point, the burden of proof was upon the
defendant.
Defendant relies upon section 6 of the policy, as
follows:
6. Unless otherwise expressly stated in the policy
the insurance does not cover
(h) Loss or damage occasioned by the
explosion; but loss or damage by explosion of gas
for illuminating or domestic purposes in a building
in which gas is not generated and which does not
form a part of any gas works, will be deemed to be
loss by fire within the meaning of this policy.
In answer to that, plaintiff relies upon section 5, which
is as follows:
5. The insurance does not cover
(d) Loss or damage occasioned directly or indirectly,
approximately or remotely by or through or in
consequence of:
(1) Earthquake, hurricane, volcanic eruption or other
convulsion of nature, and the company shall not be
liable for loss or damage arising during or within a
reasonable time after any of the said
occurrences, unless it be proved by the insured to
the satisfaction of the company that such loss or
damage was not in any way occasioned by or through
or in consequence of any of the said occurrences
Examination of the above provisions would reveal that
section 5 excludes not only the damages which may
immediately result from an earthquake, but also any
damage which may follow the earthquake, and that
section 6 excludes only the damages which are
the direct result of the explosion itself, and that
it does not except damages which occurred from
the fire occuring after the explosion, even though
the explosion may have been the primary cause
of the fire.
Moreover, there was no competent evidence as to
whether the explosion caused the fire or the fire
caused the explosion.
-sagabal-
Digested by: Ichelle S. Malabuyoc
 INSURANCE LAW CASE DIGESTS
THE EAST FURNITURE INC vs. THE GLOBE &
RUTGERS FIRE INSURANCE CO. OF NEW YORK
[G.R. No. L-35848 November 22, 1932]
Facts:
Plaintiff is a duly registered partnership engaged in the
sale of furniture; that the defendant is a company
engaged in the insurance business. Plaintiff insured
against fire the articles existing in its establishment.
On March 2, 1929, a fire broke out in plaintiff's
establishment, as a result of which the insured articles
therein found were destroyed by the fire.
Defendants defenses are:(1) that the fire in question
was of intentional origin; (2) that the claims of loss
presented by the plaintiff were false and fraudulent;
(3) that the furniture in question had been mortgaged
by the plaintiff to the Manila Finance and Discount
Corporation, so that at the time of the fire the plaintiff
was not the only party interested therein, contrary to
the representations made in its claims of loss; and (4)
that the plaintiff violated one of the conditions of the
policies by refusing to furnish the defendants with a
physical inventory of the contents of its store at the
time of the fire.
By agreement of the parties the three cases were tried
jointly who after the trial found that the claims
presented by the plaintiff were notoriously fraudulent,
and, accordingly, sustained defendant's second special
defense and dismissed the complaint in each of the
three cases. Hence, this petition.
Issue:
W/N fire was of intentional origin
W/N the claim of loss were fraudulent
Ruling:
Fire of Intentional Origin
We are thus led to the conclusion that defendants' first
special defense is well founded that the fire in
question was of intentional origin and was caused with
the connivance of the plaintiff. Neither the interest of
the justice nor public policy would be promoted by an
omission of the courts to expose and condemn
incendiarism once the same is established by
competent evidence. It would tend to encourage rather
than suppress that great public menace if the courts
do not expose the crime to public condemnation when
the evidence in a case like the present shows that it
has really been committed.
Fraudulent claim of loss
We may also consider the damage caused by the fire in
relation with defendant's second special defense that
plaintiff's claims of loss were false and fraudulent.
To each of the proofs of loss which the plaintiff
presented to the respective insurance companies four
days after the fire was attached an inventory of the
furniture claimed to have been in the building at the
EH 403 2010-2011 2011-2012
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time of the fire. This inventory contains 506 pieces of
furniture and 3,700 board feet of lumber of the alleged
total value of P52,061.99. This amount was the total
loss claimed to have been suffered by the plaintiff,
although we note that in its complaints in these cases
amended it is conceded that some furniture of the
value of about P5,000 was saved.
Regardless of any difference of opinion as to the value
of the insured furniture and the extent of the damage
caused thereto by the fire in question, the fact that
the insured only had approximately 202 pieces of
furniture in the building at the time of the fire and
sought to compel the insurance companies to pay for
506 pieces conclusively shows that its claim was not
honestly conceived. The trial court's conclusion that
said claim is notoriously fraudulent, is correct.
Condition 12 of each of the insurance policies sued
upon provides that "if the claim be in any respect
fraudulent, or if any false declaration be made or used
in support thereof, or if any fraudulent means or
devices are used by the Insured or anyone acting on
his behalf to obtain any benefit under this policy; or, if
the loss or damage be occasioned by the wilful act, or
with the connivance of the Insured, all benefit under
this policy shall be forfeited."
J. Notice and Proof of Loss (Sections 88-92)
Sharruf & Co. vs Baloise Fire Ins. Co.,
[GR No. 44119, March 30, 1937]
Facts:
Salomon Sharruf and Eskenazi were doing business
under the firm name of Sharuff & Co. They applied for
insurance the merchandise they had in stock. The
insurance companies (Baloise Fire Ins. Co., Sun
Insurance Office, Springfield Insurance Co.) sent their
representative to asses and examine the goods. As a
result, the insurance companies issued insurance
policies with the total amount of 40,000.00. They then
entered into a partnership, substituting the name
Sharruf & Co. with the Sharruf & Eskanzi. About 12.41
oclock on the morning of September 22, 1933, a fire
broke out, burning and damaging the merchandise
insured by Sharruf and Eskanzi.
Issue:
Whether or not the claim of loss filed by the plaintiffs is
fraudulent.
Ruling:
With respect to the question whether or not the claim
of loss filed by the plaintiffs is fraudulent, it is alleged
by them that the total value of the textiles contained in
cases deposited inside the building when the
partnership Sharruf & Eskenazi was formed was
P12,000; that of the fancy jewelry with imitation
stones from P15,000 to P17,000, and that of the
 INSURANCE LAW CASE DIGESTS
kitchen utensils and tableware made of aluminum,
bronze and glass P10,676. If, as said plaintiffs claim,
they had already sold articles, mostly textiles, valued
at P8,000, a small quantity of cloth must have been
left at the time the fire occured. In their claim,
however, the textiles allegedly consumed by fire and
damaged by water are assessed by them at P12,000.
The claim of P12,000 is certainly not attributable to a
mere mistake in estimate and counting because if they
had textiles worth only P12,000 before the fire and
they sold goods, mostly textiles, worth P8,000, surely
textiles in the same amount of P12,000 could not have
been burned and damaged after the fire. Of the
kitchen utensils and tableware made of aluminum,
bronze and glass, of which, according to the evidence
for the plaintiffs, they had a stock valued at P10,676,
there were found after the fire articles worth only
P1,248.80. Therefore, utensils valued at P9,427.20
were lacking. A considerable amount of kitchen
utensils made of noninflammable and fire-proof
material could not, by the very nature of things have
been totally consumed by the fire. At most, said
articles would have been damaged, as the rest, and
would have left traces of their existence. The same
may be said of the fancy jewels with imitation stones,
and others of which the fancy jewels with imitation
stones, and others of which the plaintiffs claim to have
had a stock worth from P15,000 to P17,000 at the time
of the fire, of which only a few valued at P3,471.16,
were left after the fire. According to said plaintiffs, all
the articles, for the alleged loss of which indemnity is
sought, were contained in about 40 showcases and
wardrobes. According to the testimony of the fire
station chiefs, corrobarated by the photographs of
record, the flames caused more damage in the upper
part of the rooms than in the lower part thereof; since,
of the ten or eleven cases found inside the building
after the fire, only a few were partially burned and
others scorched judging from their appearance, the
goods were damaged more by water than by fire.
According to the inventory made by White & Page,
adjusters of the insurance companies, in the presence
of the plaintiffs themselves and according to data
supplied by the latter, the total value thereof, aside,
from the articles not included in the inventories
Exhibits B, C, and C-1, assessed at P744.50, amounts
to only P8,077.35. If the plaintiffs' claim that at time of
the fire there were about 40 cases inside the burnt
building were true, a ten or eleven of them were found
after the fire, traces of the thirty or twenty-nine cases
allegedly burnt would be found, since experience has
shown that during the burning of a building all the
cases deposited therein are not so reduced to ashes
that the least vestige thereof cannot be found. In the
case of Go Lu vs. Yorkshire Insurance Co. (43 Phil.,
633), this court laid down the following doctrine:
This court will legally presume that in an ordinary
fire fifty bales or boxes of bolt goods of cloth
cannot be wholly consumed or totally destroyed,
and that in the very nature of things some trace or
evidence will be left remaining of their loss or
destruction.
EH 403 2010-2011 2011-2012
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The plaintiffs, upon whom devolve the legal obligation
to prove the existence, at the time of the fire, of the
articles and merchandise for the destruction of which
they claim indemnity from the defendant companies,
have not complied with their duty because they have
failed to prove by a preponderance of evidence that
when the fire took place there where in the burnt
building articles and merchandise in the total amount
of the insurance policies or that the textiles and other
damaged and undamaged goods found in the building
after the fire were worth P40,000. On the contrary,
their own witness, Robles, testified that up to the
month of September, 1933, there were about 39 or 40
cases belonging to the plaintiffs in his garage on
Mabini Street, indicating thereby that the cases of
merchandise examined by the agent of the insurance
companies on July 25 and August 15, 1933, and for
which the insurance policies were issued, were taken
from the burned building where they were found. So
great is the difference between the amount of articles
insured, which the plaintiffs claim to have been in the
building before the fire, and the amount thereof shown
by the vestige of the fire to have been therein, that the
most liberal human judgment can not attribute such
difference to a mere innocent error in estimate or
counting but to a deliberate intent to demand of the
insurance companies payment of an indemnity for
goods not existing at the time of the fire, thereby
constituting the so-called "fraudulent claim" which, by
express agreement between the insurers and the
insured, is a ground for exemption of the insurers from
civil liability.
Therefore, as the herein plaintiffs-appellees have acted
in bad faith in presenting a fraudulent claim, they are
not entitled to the indemnity claimed by them by virtue
of the insurance policies issued by the defendant-
appellant companies in their favor.
Author: Aldrin Montesco
Malayan Ins. Co. Vs. Cruz Arnaldo
[154 SCRA 672]
FACTS:
On June 7, 1981, the petitioner (hereinafter called
(MICO) issued to the private respondent, Coronacion
Pinca, Fire Insurance Policy No. F-001-17212 on her
property for the amount of P14,000.00 effective July
22, 1981, until July 22, 1982
On October 15,1981, MICO allegedly cancelled the
policy for non-payment, of the premium and sent the
corresponding notice to Pinca.
On December 24, 1981, payment of the premium for
Pinca was received by Domingo Adora, agent of MICO.
On January 15, 1982, Adora remitted this payment to
MICO,together with other payments.
On January 18, 1982, Pinca's property was completely
burned.
 INSURANCE LAW CASE DIGESTS
On February 5, 1982, Pinca's payment was returned by
MICO to Adora on the ground that her policy had been
cancelled earlier. But Adora refused to accept it.
In due time, Pinca made the requisite demands for
payment, which MICO rejected. She then went to the
Insurance Commission. It is because she was
ultimately sustained by the public respondent that the
petitioner has come to us for relief.
ISSUE:
Whether or not the cancellation of the policy by the
insurance company was valid
RULING:
The Supreme Court ruled in favor of the insured.
The above provision (Sec. 77 as invoked by the
insurance company) is not applicable because payment
of the premium was in fact eventually made in this
case. Notably, the premium invoice issued to Pinca at
the time of the delivery of the policy on June 7, 1981
was stamped "Payment Received" of the amount of
P930.60 on "12-24-81" by Domingo Adora. This is
important because it suggests an understanding
between MICO and the insured that such payment
could be made later, as agent Adora had assured
Pinca. In any event, it is not denied that this payment
was actually made by Pinca to Adora, who remitted the
same to MICO.
It is not disputed that the premium was actually paid
by Pinca to Adora on December 24, 1981, who
received it on behalf of MICO, to which it was remitted
on January 15, 1982. What is questioned is the validity
of Pinca's payment and of Adora's authority to receive
it.
MICO's acknowledgment of Adora as its agent defeats
its contention that he was not authorized to receive
the premium payment on its behalf. It is clearly
provided in Section 306 of the Insurance Code. And it
is a well-known principle under the law of agency that:
Payment to an agent having authority to receive or
collect payment is equivalent to payment to the
principal himself; such payment is complete when the
money delivered is into the agent's hands and is a
discharge of the indebtedness owing to the principal.
The policy could be cancelled on any of the
supervening grounds enumerated in Article 64
(except "non-payment of premium") provided
the cancellation was made in accordance
therewith and with Article 65.
Section 64 reads as follows:
SEC. 64. No policy of insurance other than life shall be
cancelled by the insurer except upon prior notice
thereof to the insured, and no notice of cancellation
shall be effective unless it is based on the occurrence,
EH 403 2010-2011 2011-2012
Page 59
after the effective date of the policy, of one or more of
the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing
the hazard insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful, or reckless acts or commissions
increasing the hazard insured against;
(e) physical changes in the property insured which
result in the property becoming uninsurable; or
(f) a determination by the Commissioner that the
continuation of the policy would violate or would place
the insurer in violation of this Code.
As for the method of cancellation, Section 65
provides as follows:
SEC. 65. All notices of cancellation mentioned in the
preceding section shall be in writing, mailed or
delivered to the named insured at the address shown
in the policy, and shall state (a) which of the grounds
set forth in section sixty-four is relied upon and (b)
that, upon written request of the named insured, the
insurer will furnish the facts on which the cancellation
is based. A valid cancellation must, therefore, require
concurrence of the following conditions:
(1) There must be prior notice of cancellation to the
insured;
(2) The notice must be based on the occurrence, after
the effective date of the policy, of one or more of the
grounds mentioned;
(3) The notice must be (a) in writing, (b) mailed, or
delivered to the named insured, (c) at the address
shown in the policy;
(4) It must state (a) which of the grounds mentioned
in Section 64 is relied upon and (b) that upon written
request of the insured, the insurer will furnish the facts
on which the cancellation is based.
Thus, it behooved MICO's to make sure that the
cancellation was actually sent to and received by the
insured. No such proof in support thereto was
presented by the insurance company.
As it has not been shown that there was a valid
cancellation of the policy, there was consequently no
need to renew it but to pay the premium thereon.
Payment was thus legally made on
the original transaction and it could be, and was,
validly received on behalf of the insurer by its agent
Adora. Adora, incidentally, had not been informed of
the cancellation either and saw no reason not to accept
the said payment.
 INSURANCE LAW CASE DIGESTS
Lastly, Loss and its amount may be determined on the
basis of such proof as may be offered by the insured,
which need not be of such persuasiveness as is
required in judicial proceedings. 25 If, as in this case,
the insured files notice and preliminary proof of loss
and the insurer fails to specify to the former all the
defects thereof and without unnecessary delay, all
objections to notice and proof of loss are deemed
waived under Section 90 of the Insurance Code.
K. Guidelines on Claims Settlement
a. Unfair Claims Settlement; Sanctions
b. Prescription of Action
c. Subrogation
L. Double Insurance (Sections 93-94)
i. Double Insurance (Section 93)
ii. Over-Insurance (Section 94)
M. Reinsurance (Sections 95-98)
Digested by: Archie Necesario
Phil American Life Insurance vs Auditor General
Facts:
On January 1, 1950, Philippine American Life
Insurance Company (Philamlife), a domestic life
insurance corporation, and American International
Reinsurance Company (AIRCO) a corporation
organized under the laws of the Republic of Panama,
entered into a reinsurance treaty. On their agreement,
Philamlife agrees to reinsure with AIRCO the entire
first excess of such life insurance on the lives of
persons as may be written by the Philamlife under
direct application over and above its maximum limit of
retention for life insurance, and AIRCO binds itself to
accept such reinsurances on the same terms. It is also
stipulated that when new policies are applied for and
issued Philamlife can cede automatically any amount,
within the limits.
On July 16, 1959, the Philippine government enacted
the Margin Law which provides for the payment of
margin fee for all sales of foreign exchange. Pursuant
to the law, the Central Bank of the Philippines collected
the sum of P268,747.48 as foreign exchange margin
on Philamlife remittances to Airco.
Philamlife subsequently filed with the Central Bank a
claim for the refund of the above sum of P268,747.48.
The ground therefor was that the reinsurance
premiums so remitted were paid pursuant to the
reinsurance treaty, and, therefore, were pre-existing
obligations expressly exempt by the Margin Law from
the margin fee.
Auditor General ruled that "[r]emittance of premia on
insurance policies issued or renewed on or after July
16, 1959, or even if issued or renewed before the said
date, but their reinsurance was effected, only
thereafter, are not exempt from the margin fee, even
if the reinsurance treaty under which they are
reinsured was approved by the Central Bank before
July 16, 1959.
EH 403 2010-2011 2011-2012
Page 60
Issue:
Whether or not Philamlife is exempt from paying the
margin fee by virtue of the pre-existing obligation
made by the reinsurance treaty.
Ruling:
There should not be any misapprehension as to the
distinction between a reinsurance treaty, on the one
hand, and a reinsurance policy or a reinsurance
cession, on the other. The concept of one and the
other is well expressed thus:
. . . A reinsurance policy is thus a contract
of indemnity one insurer makes with another to
protect the first insurer from a risk it has already
assumed. . . . In contradistinction a reinsurance
treaty is merely an agreement between two
insurance companies whereby one agrees
to cede and the other to accept reinsurance
business pursuant to provisions specified in the
treaty. The practice of issuing policies by insurance
companies includes, among other things, the
issuance of reinsurance policies on standard risks
and also on substandard risks under special
arrangements. The lumping of the different
agreements under a contract has resulted in the
term known to the insurance world as "treaties."
Such a treaty is, in fact, an agreement between
insurance companies to cover the different
situations described. Reinsurance treaties and
reinsurance policies are not synonymous. Treaties
are contracts for insurance; reinsurance policies or
cessions . . . are contracts of insurance.
Nothing in that treaty, however, obligates Philamlife to
remit to AIRCO a fixed, certain, and obligatory sum by
way of reinsurance premiums. All that the reinsurance
treaty provides on this point is that Philamlife "agrees
to reinsure." The treaty speaks of a probability; not a
reality. For, without reinsurance, no premium is due.
Of course, the reinsurance treaty lays down the duty to
remit premiums if any reinsurance is effected upon
the covenants in that treaty written. So it is that the
reinsurance treaty per se cannot give rise to a
contractual obligation calling for the payment of
foreign exchange "issued, approved and outstanding
as of the date this Act [Republic Act 2609] takes
effect."
For an exemption to come into play, there must be a
reinsurance policy or, as in the reinsurance treaty
provided, a "reinsurance cession" which may be
automatic or facultative.
Philamlife's obligation to remit reinsurance premiums
becomes fixed and definite upon the execution of the
reinsurance cession. Because, for every life insurance
policy ceded to Airco, Philamlife agrees to pay
premium. 12It is only after a reinsurance cession is
made that payment of reinsurance premium may be
exacted, as it is only after Philamlife seeks to remit
 INSURANCE LAW CASE DIGESTS
that reinsurance premium that the obligation to pay
the margin fee arises.
Upon the premise that the margin fee of P268,747.48
was collected on remittances made on reinsurance
effected on or after the Margin Law took effect, refund
thereof does not come within the coverage of the
exemption circumscribed in Section 3 of the said law.
The petition for review is hereby denied, and the ruling
of the Auditor General denying refund is hereby
affirmed.
Digested by: Sharmine M. Odchigue
Fieldmens Ins. Co. v. Asian Surety and Ins. Co.
[34 SCRA 36]
Facts:
Between April 11, 1960 and January 9, 1961 the
Asian Surety & Insurance Company, Inc. (ceding
company) and the Fieldmen's insurance Company, Inc.
(reinsuring company) entered into seven (7)
reinsurance agreements or treaties 1 under the general
terms of which the former, undertook to cede to the
latter, a specified portion of the amount of insurance
underwritten by ASIAN upon payment to FIELDMEN'S
of a proportionate share of the gross rate of the
premium applicable with respect to each cession after
deducting a commission. Said agreements or treaties
were to, take effect from certain specific dates and
were to be in force until cancelled by either party
upon previous notice of at least three (3) months
by registered mail to the other party, the cancellation
to take effect as of the 31st of December of the year in
which the notice was given.
On September 19, 1961( 1 st letter) FIELDMEN'S, by
means of registered mail, served notice to ASIAN to be
relieved from all participation in its various treaties
with the latter effective December 31, 1961. This
communication, although admittedly received by
ASIAN on September 25, 1961, did not elicit any reply
from ASIAN.
On December 7, 1961 (2nd letter) FIELDMEN'S sent
another letter to ASIAN reiterated its position that it
would consider itself "no longer at risk for any
reinsurance and/or cession" given by ASIAN which
might be in force on December 31, 1961.
Not having received any formal reply from ASIAN,
FIELDMEN'S sent anew a letter on February 17, 1962
(3rd letter) reminding ASIAN of the December 7 letter
regarding the cancellation of all the reinsurance
treaties and cessions as of December 31, 1961. At the
same time FIELDMEN'S requested ASIAN to submit its
final accounting of all cessions made to the former for
the preceding months when the reinsurance
agreements were in force.
Meanwhile one of the risks reinsured with FIELDMENS
under Cession No. 61-87, Policy No. RI-1236, issued in
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favor of the Government Service Insurance System,
became a liability when the insured property was
burned on February 16, 1962. Since the policy was
issued on July 1, 1961, it was supposed to expire on
July 1, 1962. 2 The next day, February 17, ASIAN
immediately notified FIELDMEN'S of said fire loss. And
on February 26, 1962 ASIAN sent its reply stating,
among other things, as follows:
... we beg to reiterate that your letter of December
7, 1961, terminating said treaties by December 31,
1961, is not in accordance with the terms thereof,
since there was no prior three months' notice.
However, considering the attitude express (sic) in
your aforesaid letter of December 7, 1961, we are
willing to waive provision that said treaties may be
cancelled on December 31st of any year, and will
consider them cancelled at the end of three (3)
months from December 7, 1961, by which time we
shall be able to render the final accounting you
desire.
FIELDMEN'S, filed a petition for declaratory relief with
the Court of First Instance of Manila to seek a
declaration that all the reinsurance contracts entered
into between them had terminated as of December 31,
1961 and to obtain an order directing ASIAN to render
final accounting of the transactions between them with
respect to said reinsurance treaties as of the cut-off
date.
Trial Court declared six 3 of the seven 4 insurance
agreements in question cancelled as of December 31,
1961 and upheld ASIAN'S position that all cessions of
reinsurance made by it to FIELDMEN'S prior to the
cancellation of the reinsurance treaties continued in full
force and effect until expiry dates
Court of Appeals affirmed decision of RTC
Issue:
Whether or not said cancellation had the effect of
terminating also the liability of FIELDMEN'S as
reinsurer with respect to policies or cessions issued
prior to the termination of the principal reinsurance
contracts or treaties.
Ruling: NO.
Of the six reinsurance contracts under consideration
two contain provisions, which clearly and expressly
recognize the continuing effectivity of policies ceded
under them for reinsurance notwithstanding the
cancellation of the contracts themselves.
Insofar as the two reinsurance agreements with the
express stipulations aforequoted are concerned there
is clearly no merit in FIELDMEN'S claim that their
cancellation carried with it ipso facto the
termination of all reinsurance cessions
thereunder. Such cessions continued to be in force
until their respective dates of expiration. Since it was
under one of said agreements, namely, the Facultative
Obligatory Reinsurance Treaty-Fire, that the
 INSURANCE LAW CASE DIGESTS
reinsurance cession corresponding to the GSIS policy
had been made, FIELDMEN'S cannot avoid liability
which arose by reason of the burning of the insured
property.
With respect to the other four agreements, it would
seem that the petition for declaratory relief is moot,
and that no useful purpose would be served by
defining the respective rights and obligations of the
parties thereunder. The said agreements have been
cancelled, and it does not appear that any claim by or
liability in favor of the insured has actually arisen
under any of the reinsurance cessions made prior to
such cancellation.
WHEREFORE, the decision appealed from is affirmed
insofar as it refers to the Facultative-Obligatory,
Reinsurance Treaty and the Personal Accident
Reinsurance Treaty are concerned, and modified with
respect to the others by declaring the issues
concerning them as moot and academic
Digested by: Kristine Oja
Equitable Ins. & Casualty Co. v. Rural Insurance
Facts:
On November 11, 1957, plaintiff(Equitable) and
defendant (Rural Insurance) entered into a reciprocal
facultative reinsurance agreement. Pursuant to said
agreement, plaintiff reinsured for P2,000.00 with
defendant the stock covered by fire insurance Policy
No. 5880 and also for P2,000.00 the stock covered by
fire insurance Policy No. 6026.
Stocks covered by Insurance Policy Nos. 5880 and
6026 were subsequently burned and the share of the
loss assumed by defendant as per reinsurance
agreement was computed at P2,024.87 and P1,334.80
respectively.
Notwithstanding repeated demands, defendant refused
and failed to pay plaintiff, and that for defendant's
failure to pay its share of the losses assumed by it,
plaintiff has been compelled to institute an action in
court.
The defendant moved for the dismissal of the case
contending that the complaint states no cause of
action, the matter not having been referred to the
decision of two arbitrators or umpire, which, it is
claimed, is the condition precedent agreed upon in
Article VIII of the Reinsurance Agreement entered into
between the parties, to wit: .
ARTICLE VIII
In the event of any question arising as to the
meaning of, or any way connected with or relating
to this Agreement, whether before or after its
termination, the parties shall endeavor to arrive at
a satisfactory compromise by amicable settlement
rather than by court action. The dispute shall be
referred to the decision of two arbitrators, of whom
one shall be appointed in writing by each of the
EH 403 2010-2011 2011-2012
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parties within thirty (30) days after having been
required so to do by the other party in writing, and
in case of disagreement between the arbitrators, to
the decision of the umpire to be appointed by them
in writing before entering on the reference. Each
party shall submit its case with all particulars
within thirty days after their appointment. The seat
of arbitration shall be in Manila, Philippines, and
the expenses of arbitration shall be borne in equal
proportion by the parties. The decision of the
arbitrators or umpire, as the case may be, shall be
final and binding on both the Company and the
Reinsurer. The arbitrators and umpire shall not be
bound by the strict rules of evidence and by
judicial formalities in making the award.
The court rendered its decision in favor of plaintiff,
hence this appeal.
Issue:
1. WON the trial court erred in failing to rule that
plaintiff-appellee has no causes of action against it,
the matter not having been referred to the decision
of two arbitrators or umpire, which, it is claimed, is
the condition precedent agreed upon in Article VIII
of the Reinsurance Agreement
2. WON the trial court erred in failing to rule that in a
facultative obligation the right to choose an
alternative remedy lies only with the debtor, who
in this case is the herein defendant-appellant", and
in support thereof, cites Article 1206 of the new
Civil Code.
Held:
As to the first issue, the court finds no merit in this
contention. Under the abovequoted provision of the
Reinsurance Agreement, it would seem clear that the
requirement of submitting for decision to two
arbitrators or an umpire the matter of losses by fire or
the liability of the parties thereto arises only if and
when the same is disputed by one of the parties. It
does not appear in the instant case that appellant did
dispute appellee's claims. Consequently, appellant may
not invoke said provision in avoidance of its liability to
appellee.
It is true that paragraph (Article VIII) of said
Reciprocal Facultative Reinsurance Agreement required
that 'in the event of any question arising as to the
meaning of, or any way connected with or relating to
this Agreement, whether before or after its
termination, the parties shall endeavor to arrive at a
satisfactory compromise by amicable settlement rather
than by court action'; and that the dispute should be
referred to the decision of two arbitrators and umpire,
as provided, therein. However, in this particular case,
there is absolutely no dispute between the two parties,
because in the stipulation of facts, the defendant has
admitted that plaintiff has paid its liability to the
insured as per its fire insurance policies specified in the
two causes of action of the complaint. Defendant has,
likewise, admitted its liability as reinsurer under the
 INSURANCE LAW CASE DIGESTS
Reciprocal Facultative Reinsurance Agreement (Annex
"A" to the complaint) to pay to the plaintiff its
proportional shares, the amounts of which are not
disputed. Indeed, according to the complaint as
admitted by the defendant, statements of account as
to the amounts of its share as reinsurer and, for all
that appears, said defendant has never questioned the
correctness of said amounts. It is, likewise, admitted
by the defendant in the stipulation of facts, that
because of its failure to pay said amounts, the plaintiff,
on April 11, 1959, complained to the Assistant
Insurance Commissioner, for official intervention, but
said defendant has continued to ignore plaintiff's
demands for reimbursement under the reinsurance
policies.
As to the second issue, the court finds no connection
whatsoever between Article 1206 of the Civil Code and
the agreement subject of this action, except the word
"facultative" used in both. The term "facultative" is
used in reinsurance contracts, and it is so used in this
particular case, merely to define the right of the
reinsurer to accept or not to accept participation in the
risk insured. But once the share is accepted, as it was
in the case at bar, the obligation is absolute and the
liability assumed thereunder can be discharged by one
and only way payment of the share of the losses.
There is no alternative nor substitute prestation.
Judgment appealed from was affirmed, with costs
against the defendant-appellant.
Digested by: Gayle Opsima
IVOR ROBERT DAYTON GIBSON, petitioner, vs.
HON. PEDRO A. REVILLA, in his official capacity
as Presiding Judge of Branch XII, Court of First
Instance of Rizal, and LEPANTO CONSOLIDATED
MINING COMPANY, respondents
[G.R. No. L-41432 1979 Jul 30]
Facts:
Lepanto Consolidated Mining Company filed a
complaint against Malayan Insurance Company,
Inc.The civil suit thus instituted by Lepanto against
Malayan was founded on the fact that Malayan issued a
Marine Open Policy covering all shipments of copper,
gold and silver concentrates in bulk from Poro, San
Fernando, La Union to Tacoma, Washington or to other
places in the United States.
Thereafter, Malayan obtained reinsurance abroad
through Sedgwick, Collins & Co., Limited, a London
insurance brokerage. The Memorandum of Insurance
issued by Sedgwick to Malayan listed three groups of
underwriters or reinsurers Lloyds 62.808%,
Companies (I.L.U.) 34.705%, Other Companies
2.487%.
At the top of the list of underwriting members of
Lloyds is Syndicate No. 448, assuming 2.48% of the
risk assumed by the reinsurer, which syndicate number
EH 403 2010-2011 2011-2012
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petitioner Ivor Robert Dayton Gibson claims to be
himself.
Petitioner Ivor Robert Dayton Gibson filed a motion to
intervene as defendant, which motion was denied by
the lower court.
Issue:
whether the lower court committed, reversible error in
refusing the intervention of petitioner Ivor Robert
Dayton Gibson in the suit between Lepanto and
Malayan
Ruling:
We rule that the respondent Judge committed no error
of law in denying petitioner's Motion to Intervene. And
neither has he abused his discretion in his denial of
petitioner's Motion for Intervention.
We agree with the holding of the respondent Court
that since movant Ivor Robert Dayton Gibson appears
to be only one of several re-insurers of the risks and
liabilities assumed by Malayan Insurance Company,
Inc., it is highly probable that other re-insurers may
likewise intervene. If petitioner is allowed to intervene,
We hold that there is good and sufficient basis for the
Court a quo to declare that the trial between Lepanto
and Malayan would be definitely disrupted and would
certainly unduly delay the proceedings between the
parties especially at the stage where Lepanto had
already rested its case and that the issues would also
be compounded as more parties and more matters will
have to be litigated. In other words, the Court's
discretion is justified and reasonable.
We also hold that respondent Judge committed no
reversible error in further sustaining the fourth ground
of Lepanto's Opposition to the Motion to Intervene that
the rights, if any, of petitioner are not prejudiced by
the present suit and will be fully protected in a
separate action against him and his co-insurers by
Malayan.
Petitioner's contention that he has to pay once
Malayan is finally adjudged to pay Lepanto because of
the very nature of a contract of reinsurance and
considering that the re-insurer is obliged 'to pay as
may be paid thereon' (referring to the original
policies), although this is subject to other stipulations
and conditions of the reinsurance contract, is without
merit. The general rule in the law of reinsurance is that
the re-insurer is entitled to avail itself of every defense
which the re-insured (which is Malayan) might urge in
an action by the person originally insured (which is
Lepanto). Specifically, the rule is stated thus
"Sec. 1238. In an action on a contract of reinsurance,
as a general rule the reinsurer is entitled to avail itself
of every defense which the reinsured might urge in an
action by the person originally insured; . . ."
 INSURANCE LAW CASE DIGESTS
The same rule is stated otherwise in 44 Am. Jur. 2d,
Sec. 1862, p. 793, as follows:
"Moreover, where an action is brought against the
reinsurer by the reinsured, the former may assert any
defense that the latter might have made in an action
on the policy of original insurance." (Eagle Ins. Co. vs.
Lafayette Ins. Co., 91 Ind. 443)
As to the effect of the clause "to pay as may be paid
thereon" contained in petitioner's re-insurance
contract, Arnould, on the Law of Marine Insurance and
Average, 13th Ed., Vol. 1, Section 327, p. 315, states
the rule, thus:
"It has been decided that this clause does not preclude
the reinsurer from insisting upon proper proof that a
loss strictly within the terms of the original policy has
taken place."
"This clause does not enable the original underwriter to
recover from his re-insurer to an extent beyond the
subscription of the latter."
WHEREFORE, IN VIEW OF THE FOREGOING, the
petition is hereby dismissed. No costs.
Digested by: Jr Abul
Artex Development Co VS Wellington Insurance
FACTS:
- Wellington insurance insured for P24,346,509 the
building stocks and machinery of plaintiff Artex
against loss or damage by fire or lightning upon
august 2, 1963 with an additional sum of
P833,034.
- Another insurance against business interruption
(use and occupancy)for P5,200,000.
- On September 22, 1963 the building, and
machineries were burned and a notice of loss and
damage was given to Wellington.
- Insurance adjusters computed the loss for the fire
as P10,106,544.40 and Wellington paid only
6,481,870.07, leaving a balance of 3,624,683.43
- The computed business interruption loss was P3M
but Wellington paid only P1,864,134.08 leaving a
balance of P1,748,460 (computation based on
case)
- Artex through counsel Norberto Quisumbing made
a manifestation that only about P397,ooo is the
remaining balance and liability which was the
subject of reinsurance with Alexander and
Alexander Inc, of New York, Artex acknowledging
here the receipt of P3,600,000 as FINAL and FULL
SETTLEMENT of all claims against Welllington
- Artex further prays to the court to affirm the lower
courts decision of liquidation and prayed for
modification of the amount of liability to be fixed to
P397,813.00 plus 12% interest per annum thereof
for the late payment until april 10, 1969 and
attorneys fees of 15% of the recovery, expenses
of litigation, no writ of execution however to be
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made within 3years from july 10, 1969 per
collateral agreement of the parties.
- Wellington in its brief raises the issue that Artex
deemed to have agreed to look SOLELY to the
reinsurers for indemnity in case of loss since their
paid up capital stock is only P500,000 and that
they have to secure such reinsurance coverage the
over P24M fire insurance coverage of the policy
issued by Wellington to Artex.
Issue:
WON reinsurance contract of the parties makes the
insured to look SOLELY to the reinsurers for indemnity
in case of loss
Ruling:
NO, the insured who is not directly a party or privy to
the reinsurance contract between Wellington and
Alexander and Alexander Inc., cannot demand
enforcement of such insurance contracts.
The Contracts take effect only between the parties,
their assigns and heirs as provide by Art 1311 of our
civil code. Further it provides that a contract with
stipulations pour autrui or in favor of a third person not
a party to the contract, the parties must have CLEARLY
and DELIBERATELY conferred favor upon a third
person.
- The SC also stated that assuming that Artex
directly sue the reinsurers for payment this does
not in any way affect or cancel out Wellingtons
direct contractual liability to Artex.
The SC dispose the case by affirming the prayer of
Artex.
Digested by: Jr Abul
Avon Insurance vs CA
FACTS:
- It all started with Yupangco Cotton Mills engaged
to secure with Worldwide Security and Insurance
Co. Inc., several of its properties totaling P200
Million
- These contracts were covered by reinsurance
treaties between Worldwide Surety and Insurance,
and several foreign reinsurance companies
including the petitioners through CJ Boatrwright
acting as agent of Worldwide Surety and Insurance
- A Fire then razed the properties insured on
December 1969 and May 2, 1981
- A Deed of Assignment made by Worldwide Surety
and Insurance acknowledged a remaining balance
of P19,444,447.75 still due and assigned to
Yupangco all reinsurance proceeds still collectible
from all the foreign reinsurance companies.
- Yupangco then filed a collection suit on the above
petitioners
- The service of summons were made through the
office of the Insurance Commissioner but since the
 INSURANCE LAW CASE DIGESTS
international reinsurers question the jurisdiction
the trial court the case has not proceeded to trial
on the merits
- The reinsurer is questioning also the service of
summons through extraterritorial service under
Sect 17 Rule 14 of the Rules of Court nor through
the Insurance Commissioner under Sec 14
- Yupangco also contends that since the reinsurers
question the jurisdiction of the court they are
deemed to have submitted to the jurisdiction of the
court.
ISSUE:
- WON the international reinsurers are doing
business in the Philippines.
the jurisdiction of the courts, 19 otherwise, a
foreign corporation illegally doing business here
because of its refusal or neglect to obtain the
required license and authority to do business may
successfully though unfairly plead such neglect or
illegal act so as to avoid service and thereby
impugn the jurisdiction of the local courts.
- Voluntary appearance before the lower court to
question the jurisdiction is not equivalent to
submission to jurisdiction
The SC disposed the case in favor of the international
insurers (petitioners) declaring that the lower court
has not acquired and cannot acquire jurisdiction over
them and was ordered to desist from maintaining
further proceeding against them.

- WON the Philippine court has jurisdiction over

these international reinsurers who are not doing III. CLASSES OF INSURANCE
business in the Philippines A. Marine Insurance (Sections 99-166)
i. Definition (Section 99)
RULING: ii. Insurable Interest (Sections 100-106)
iii. Concealment (Sections 107-110)
NO, international reinsurers are not doing business in iv. Representations (Sections 111-112)
the Philippines and the Philippine court has not v. Implied Warranties (Sections 113-120)
acquired jurisdiction over them. vi. The Voyage and Deviation (Sections 121-
- The reinsurance treaties between the petitioners 126)
and Worldwide Surety and Insurance were made vii. Loss (Sections 127-137)
through an international insurance broker and NOT viii. Abandonment (Sections 138-155)
through any entity or means remotely connected ix. Measure of Indemnity (Sections 156-166)
with the Philippines B. Fire Insurance (Sections 167-173)
- Reinsurance company is not doing business in a C. Casualty Insurance (Section 174)
certain state even if the property or lives which are i. Compulsory Motor Vehicle Liability
insured by the original insurer company are Insurance
located in that state. D. Suretyship (Sections 175-178)
- Reinsurance Contract is generally separate and E. Life Insurance (Sections 179-183)
distinct arrangement from the original contract of
insurance.
- Doing business in the Philippines must be judged
in the light of its peculiar circumstances upon its
peculiar facts and upon the language of the statute
applicable.
o True test: whether the foreign corporation is
continuing the body or substance of the
business or enterprise for which it was
organized
- If there exist a domestic agent of the foreign
corporation it can be served with summons
through that agent without proving that such
corporation is doing business in the phils or not.
o NO allegation or demonstration of the
existence of petitioners domestic agent but
avers simply that they are doing business not
only abroad but in the Phils
o Petitioners had not performed any act which
would give the general public the impression
that it had been engaging or intends to engage
in its ordinary and usual business undertaking
in the country.
- The purpose of the law in requiring that foreign
corporations doing business in the country be
licensed to do so, is to subject the foreign
corporations doing business in the Philippines to

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