G.R. No.
L-54171 October 28, 1980 upon wear and tear; (b) by fire, external explosion, self-ignition or lightning or
JEWEL VILLACORTA, assisted by her husband, GUERRERO
VILLACORTA, petitioner, vs. THE INSURANCE COMMISSION and EMPIRE
INSURANCE COMPANY, respondents.
TEEHANKEE, Acting C.J.:
The Court sets aside respondent Insurance Commission's dismissal of petitioner's
complaint and holds that where the insured's car is wrongfully taken without the
insured's consent from the car service and repair shop to whom it had been
entrusted for check-up and repairs (assuming that such taking was for a joy ride, in
the course of which it was totally smashed in an accident), respondent insurer is
liable and must pay insured for the total loss of the insured vehicle under the theft
clause of the policy.
The undisputed facts of the case as found in the appealed decision of April 14, 1980
of respondent insurance commission are as follows:
Complainant [petitioner] was the owner of a Colt Lancer, Model 1976, insured with
respondent company under Private Car Policy No. MBI/PC-0704 for P35,000.00
Own Damage; P30,000.00 Theft; and P30,000.00 Third Party Liability, effective
May 16, 1977 to May 16, 1978. On May 9, 1978, the vehicle was brought to the
Sunday Machine Works, Inc., for general check-up and repairs. On May 11, 1978,
while it was in the custody of the Sunday Machine Works, the car was allegedly
taken by six (6) persons and driven out to Montalban, Rizal. While travelling along
Mabini St., Sitio Palyasan, Barrio Burgos, going North at Montalban, Rizal, the car
figured in an accident, hitting and bumping a gravel and sand truck parked at the
right side of the road going south. As a consequence, the gravel and sand truck
veered to the right side of the pavement going south and the car veered to the right
side of the pavement going north. The driver, Benito Mabasa, and one of the
passengers died and the other four sustained physical injuries. The car, as well,
suffered extensive damage. Complainant, thereafter, filed a claim for total loss with
the respondent company but claim was denied. Hence, complainant, was
compelled to institute the present action.
The comprehensive motor car insurance policy for P35,000.00 issued by respondent
Empire Insurance Company admittedly undertook to indemnify the petitioner-
insured against loss or damage to the car (a) by accidental collision or overturning,
or collision or overturning consequent upon mechanical breakdown or consequent
burglary, housebreaking or theft; and (c) by malicious act.
Respondent insurance commission, however, dismissed petitioner's complaint for
recovery of the total loss of the vehicle against private respondent, sustaining
respondent insurer's contention that the accident did not fall within the provisions
of the policy either for the Own Damage or Theft coverage, invoking the policy
provision on "Authorized Driver" clause.1
Respondent commission upheld private respondent's contention on the
"Authorized Driver" clause in this wise: "It must be observed that under the above-
quoted provisions, the policy limits the use of the insured vehicle to two (2) persons
only, namely: the insured himself or any person on his (insured's) permission. Under
the second category, it is to be noted that the words "any person' is qualified by the
phrase
... on the insured's order or with his permission.' It is therefore clear that if the
person driving is other than the insured, he must have been duly authorized by the
insured, to drive the vehicle to make the insurance company liable for the driver's
negligence. Complainant admitted that she did not know the person who drove her
vehicle at the time of the accident, much less consented to the use of the same
(par. 5 of the complaint). Her husband likewise admitted that he neither knew this
driver Benito Mabasa (Exhibit '4'). With these declarations of complainant and her
husband, we hold that the person who drove the vehicle, in the person of Benito
Mabasa, is not an authorized driver of the complainant. Apparently, this is a
violation of the 'Authorized Driver' clause of the policy.
Respondent commission likewise upheld private respondent's assertion that the car
was not stolen and therefore not covered by the Theft clause, ruling that "The
element of 'taking' in Article 308 of the Revised Penal Code means that the act of
depriving another of the possession and dominion of a movable thing is coupled ...
with the intention. at the time of the 'taking', of withholding it with the character of
permanency (People vs. Galang, 7 Appt. Ct. Rep. 13). In other words, there must
have been shown a felonious intent upon the part of the taker of the car, and the
intent must be an intent permanently to deprive the insured of his car," and that
"Such was not the case in this instance. The fact that the car was taken by one of
the residents of the Sunday Machine Works, and the withholding of the same, for a
joy ride should not be construed to mean 'taking' under Art. 308 of the Revised
Penal Code. If at all there was a 'taking', the same was merely temporary in nature.
A temporary taking is held not a taking insured against (48 A LR 2d., page 15)." The
Court finds respondent commission's dismissal of the complaint to be contrary to
the evidence and the law.
First, respondent commission's ruling that the person who drove the vehicle in the
person of Benito Mabasa, who, according to its finding, was one of the residents of
the Sunday Machine Works, Inc. to whom the car had been entrusted for general
check-up and repairs was not an "authorized driver" of petitioner-complainant is
too restrictive and contrary to the established principle that insurance contracts,
being contracts of adhesion where the only participation of the other party is the
signing of his signature or his "adhesion" thereto, "obviously call for greater
strictness and vigilance on the part of courts of justice with a view of protecting the
weaker party from abuse and imposition, and prevent their becoming traps for the
unwary.2 The main purpose of the "authorized driver" clause, as may be seen from
its text, supra, is that a person other than the insured owner, who drives the car on
the insured's order, such as his regular driver, or with his permission, such as a
friend or member of the family or the employees of a car service or repair shop
must be duly licensed drivers and have no disqualification to drive a motor vehicle.
A car owner who entrusts his car to an established car service and repair shop
necessarily entrusts his car key to the shop owner and employees who are
presumed to have the insured's permission to drive the car for legitimate purposes
of checking or road-testing the car. The mere happenstance that the employee(s) of
the shop owner diverts the use of the car to his own illicit or unauthorized purpose
in violation of the trust reposed in the shop by the insured car owner does not
mean that the "authorized driver" clause has been violated such as to bar recovery,
provided that such employee is duly qualified to drive under a valid driver's license.
The situation is no different from the regular or family driver, who instead of
carrying out the owner's order to fetch the children from school takes out his girl
friend instead for a joy ride and instead wrecks the car. There is no question of his
being an "authorized driver" which allows recovery of the loss although his trip was
for a personal or illicit purpose without the owner's authorization.
Secondly, and independently of the foregoing (since when a car is unlawfully taken,
it is the theft clause, not the "authorized driver" clause, that applies), where a car is
admittedly as in this case unlawfully and wrongfully taken by some people, be they
employees of the car shop or not to whom it had been entrusted, and taken on a
long trip to Montalban without the owner's consent or knowledge, such taking
constitutes or partakes of the nature of theft as defined in Article 308 of the
Revised Penal Code, viz. "Who are liable for theft. Theft is committed by any
person who, with intent to gain but without violence against or intimidation of
persons nor force upon things, shall take personal property of another without the
latter's consent," for purposes of recovering the loss under the policy in question.
The Court rejects respondent commission's premise that there must be an intent on
the part of the taker of the car "permanently to deprive the insured of his car" and
that since the taking here was for a "joy ride" and "merely temporary in nature," a
"temporary taking is held not a taking insured against."
The evidence does not warrant respondent commission's findings that it was a
mere "joy ride". From the very investigator's report cited in its comment, 3 the
police found from the waist of the car driver Benito Mabasa Bartolome who
smashed the car and was found dead right after the incident "one cal. 45 Colt. and
one apple type grenade," hardly the materials one would bring along on a "joy
ride". Then, again, it is equally evident that the taking proved to be quite
permanent rather than temporary, for the car was totally smashed in the fatal
accident and was never returned in serviceable and useful condition to petitioner-
owner.
Assuming, despite the totally inadequate evidence, that the taking was "temporary"
and for a "joy ride", the Court sustains as the better view that which holds that
when a person, either with the object of going to a certain place, or learning how to
drive, or enjoying a free ride, takes possession of a vehicle belonging to another,
without the consent of its owner, he is guilty of theft because by taking possession
of the personal property belonging to another and using it, his intent to gain is
evident since he derives therefrom utility, satisfaction, enjoyment and pleasure.
Justice Ramon C. Aquino cites in his work Groizard who holds that the use of a thing
constitutes gain and Cuello Calon who calls it "hurt de uso. " 4
The insurer must therefore indemnify the petitioner-owner for the total loss of the
insured car in the sum of P35,000.00 under the theft clause of the policy, subject to
the filing of such claim for reimbursement or payment as it may have as subrogee
against the Sunday Machine Works, Inc.
ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered
sentencing private respondent to pay petitioner the sum of P35,000.00 with legal
interest from the filing of the complaint until full payment is made and to pay the
costs of suit. SO ORDERED.
G.R. No. L-34200 September 30, 1982
REGINA L. EDILLON, as assisted by her husband, MARCIAL EDILLON, petitioners-
appellants, vs. MANILA BANKERS LIFE INSURANCE CORPORATION and the COURT
OF FIRST INSTANCE OF RIZAL, BRANCH V, QUEZON CITY, respondents-appellees.
VASQUEZ, J.:
The question of law raised in this case that justified a direct appeal from a decision
of the Court of First Instance Rizal, Branch V, Quezon City, to be taken directly to
the Supreme Court is whether or not the acceptance by the private respondent
insurance corporation of the premium and the issuance of the corresponding
certificate of insurance should be deemed a waiver of the exclusionary condition of
overage stated in the said certificate of insurance.
The material facts are not in dispute. Sometime in April 1969, Carmen O, Lapuz
applied with respondent insurance corporation for insurance coverage against
accident and injuries. She filled up the blank application form given to her and filed
the same with the respondent insurance corporation. In the said application form
which was dated April 15, 1969, she gave the date of her birth as July 11, 1904. On
the same date, she paid the sum of P20.00 representing the premium for which she
was issued the corresponding receipt signed by an authorized agent of the
respondent insurance corporation. (Rollo, p. 27.) Upon the filing of said application
and the payment of the premium on the policy applied for, the respondent
insurance corporation issued to Carmen O. Lapuz its Certificate of Insurance No.
128866. (Rollo, p. 28.) The policy was to be effective for a period of 90 days.
On May 31, 1969 or during the effectivity of Certificate of Insurance No. 12886,
Carmen O. Lapuz died in a vehicular accident in the North Diversion Road.
On June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and who was
the named beneficiary in the policy, filed her claim for the proceeds of the
insurance, submitting all the necessary papers and other requisites with the private
respondent. Her claim having been denied, Regina L. Edillon instituted this action in
the Court of First Instance of Rizal on August 27, 1969.
In resisting the claim of the petitioner, the respondent insurance corporation relies
on a provision contained in the Certificate of Insurance, excluding its liability to pay
claims under the policy in behalf of "persons who are under the age of sixteen (16)
years of age or over the age of sixty (60) years ..." It is pointed out that the insured
being over sixty (60) years of age when she applied for the insurance coverage, the
policy was null and void, and no risk on the part of the respondent insurance
corporation had arisen therefrom.
The trial court sustained the contention of the private respondent and dismissed
the complaint; ordered the petitioner to pay attorney's fees in the sum of ONE
THOUSAND (P1,000.00) PESOS in favor of the private respondent; and ordered the
private respondent to return the sum of TWENTY (P20.00) PESOS received by way
of premium on the insurancy policy. It was reasoned out that a policy of insurance
being a contract of adhesion, it was the duty of the insured to know the terms of
the contract he or she is entering into; the insured in this case, upon learning from
its terms that she could not have been qualified under the conditions stated in said
contract, what she should have done is simply to ask for a refund of the premium
that she paid. It was further argued by the trial court that the ruling calling for a
liberal interpretation of an insurance contract in favor of the insured and strictly
against the insurer may not be applied in the present case in view of the peculiar
facts and circumstances obtaining therein.
We REVERSE the judgment of the trial court. The age of the insured Carmen 0.
Lapuz was not concealed to the insurance company. Her application for insurance
coverage which was on a printed form furnished by private respondent and which
contained very few items of information clearly indicated her age of the time of
filing the same to be almost 65 years of age. Despite such information which could
hardly be overlooked in the application form, considering its prominence thereon
and its materiality to the coverage applied for, the respondent insurance
corporation received her payment of premium and issued the corresponding
certificate of insurance without question. The accident which resulted in the death
of the insured, a risk covered by the policy, occurred on May 31, 1969 or FORTY-
FIVE (45) DAYS after the insurance coverage was applied for. There was sufficient
time for the private respondent to process the application and to notice that the
applicant was over 60 years of age and thereby cancel the policy on that ground if it
was minded to do so. If the private respondent failed to act, it is either because it
was willing to waive such disqualification; or, through the negligence or
incompetence of its employees for which it has only itself to blame, it simply
overlooked such fact. Under the circumstances, the insurance corporation is already
deemed in estoppel. It inaction to revoke the policy despite a departure from the
exclusionary condition contained in the said policy constituted a waiver of such
condition, as was held in the case of "Que Chee Gan vs. Law Union Insurance Co.,
Ltd.,", 98 Phil. 85. This case involved a claim on an insurance policy which contained
a provision as to the installation of fire hydrants the number of which depended on
the height of the external wan perimeter of the bodega that was insured. When it
was determined that the bodega should have eleven (11) fire hydrants in the
compound as required by the terms of the policy, instead of only two (2) that it had,
the claim under the policy was resisted on that ground. In ruling that the said
deviation from the terms of the policy did not prevent the claim under the same,
this Court stated the following:
We are in agreement with the trial Court that the appellant is barred by waiver (or
rather estoppel) to claim violation of the so-called fire hydrants warranty, for the
reason that knowing fully an that the number of hydrants demanded therein never
existed from the very beginning, the appellant nevertheless issued the policies in
question subject to such warranty, and received the corresponding premiums. It
would be perilously close to conniving at fraud upon the insured to allow appellant
to claim now as void ab initio the policies that it had issued to the plaintiff without
warning of their fatal defect, of which it was informed, and after it had misled the
defendant into believing that the policies were effective.
The insurance company was aware, even before the policies were issued, that in
the premises insured there were only two fire hydrants installed by Que Chee Gan
and two others nearby, owned by the municipality of Tabaco, contrary to the
requirements of the warranty in question. Such fact appears from positive
testimony for the insured that appellant's agents inspected the premises; and the
simple denials of appellant's representative (Jamiczon) can not overcome that
proof. That such inspection was made it moreover rendered probable by its being a
prerequisite for the fixing of the discount on the premium to which the insured was
entitled, since the discount depended on the number of hydrants, and the fire
fighting equipment available (See"'Scale of Allowances" to which the policies were
expressly made subject). The law, supported by a long line of cases, is expressed by
American Jurisprudence (Vol. 29, pp. 611-612) to be as follows:
It is usually held that where the insurer, at the time of the issuance of a policy of
insurance, has knowledge of existing facts which, if insisted on, would invalidate the
contract from its very inception, such knowledge constitutes a waiver of conditions
in the contract inconsistent with the known facts, and the insurer is stopped
thereafter from asserting the breach of such conditions. The law is charitable
enough to assume, in the absence of any showing to the contrary, that an insurance
company intends to execute a valid contract in return for the premium received;
and when the policy contains a condition which renders it voidable at its inception,
and this result is known to the insurer, it will be presumed to have intended to
waive the conditions and to execute a binding contract, rather than to have
deceived the insured into thinking he is insured when in fact he is not, and to have
taken is money without consideration.' (29 Am. Jur., Insurance, section 807, at pp.
611-612.)
The reason for the rule is not difficult to find.
The plain, human justice of this doctrine is perfectly apparent. To allow a company
to accept one's money for a policy of insurance which it then knows to be void and
of no effect, though it knows as it must, that the assured believes it to be valid and
binding, is so contrary to the dictates of honesty and fair dealing, and so closely
related to positive fraud, as to be abhorent to fairminded men. It would be to allow
the company to treat the policy as valid long enough to get the premium on it, and
leave it at liberty to repudiate it the next moment. This cannot be deemed to be the
real intention of the parties. To hold that a literal construction of the policy
expressed the true intention of the company would be to indict it, for fraudulent
purposes and designs which we cannot believe it to be guilty of (Wilson vs.
Commercial Union Assurance Co., 96 Atl. 540, 543544).
A similar view was upheld in the case of Capital Insurance & Surety Co., Inc. vs.
Plastic Era Co., Inc., 65 SCRA 134, which involved a violation of the provision of the
policy requiring the payment of premiums before the insurance shall become
effective. The company issued the policy upon the execution of a promissory note
for the payment of the premium. A check given subsequent by the insured as partial
payment of the premium was dishonored for lack of funds. Despite such deviation
from the terms of the policy, the insurer was held liable.
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 impliedly agreed to modify the tenor of the
insurance policy and in effect, waived the provision therein that it 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. This rendered the policy immediately operative on the date it was
delivered. The view taken in most cases in the United States:
... is 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...

WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE. In
lieu thereof, the private respondent insurance corporation is hereby ordered to pay
to the petitioner the sum of TEN THOUSAND (P10,000.00) PESOS as proceeds of
Insurance Certificate No. 128866 with interest at the legal rate from May 31, 1969
until fully paid, the further sum of TWO THOUSAND (P2,000.00) PESOS as and for
attorney's fees, and the costs of suit.

SO ORDERED.
G.R. No. L-36480 May 31, 1988
ANDREW PALERMO, plaintiff-appellee, vs. PYRAMID INSURANCE CO.,
INC., defendant- appellant.
GRIO-AQUINO, J:
The Court of Appeals certified this case to Us for proper disposition as the only
question involved is the interpretation of the provision of the insurance contract
regarding the "authorized driver" of the insured motor vehicle.
On March 7, 1969, the insured, appellee Andrew Palermo, filed a complaint in the
Court of First Instance of Negros Occidental against Pyramid Insurance Co., Inc., for
payment of his claim under a Private Car Comprehensive Policy MV-1251 issued by
the defendant (Exh. A).
In its answer, the appellant Pyramid Insurance Co., Inc., alleged that it disallowed
the claim because at the time of the accident, the insured was driving his car with
an expired driver's license.
After the trial, the court a quo rendered judgment on October 29, 1969 ordering
the defendant "to pay the plaintiff the sum of P20,000.00, value of the insurance of
the motor vehicle in question and to pay the costs."
On November 26, 1969, the plaintiff filed a "Motion for Immediate Execution
Pending Appeal." It was opposed by the defendant, but was granted by the trial
court on December 15, 1969.
The trial court found the following facts to be undisputed:
On October 12,1968, after having purchased a brand new Nissan Cedric de Luxe
Sedan car bearing Motor No. 087797 from the Ng Sam Bok Motors Co. in Bacolod
City, plaintiff insured the same with the defendant insurance company against any
loss or damage for P 20,000.00 and against third party liability for P 10,000.00.
Plaintiff paid the defendant P 361.34 premium for one year, March 12, 1968 to
March 12, 1969, for which defendant issued Private Car Comprehensive Policy No.
MV-1251, marked Exhibit "A."
The automobile was, however, mortgaged by the plaintiff with the vendor, Ng Sam
Bok Motors Co., to secure the payment of the balance of the purchase price, which
explains why the registration certificate in the name of the plaintiff remains in the
hands of the mortgagee, Ng Sam Bok Motors Co.
On April 17, 1968, while driving the automobile in question, the plaintiff met a
violent accident. The La Carlota City fire engine crashed head on, and as a
consequence, the plaintiff sustained physical injuries, his father, Cesar Palermo,
who was with am in the car at the time was likewise seriously injured and died
shortly thereafter, and the car in question was totally wrecked.
The defendant was immediately notified of the occurrence, and upon its orders, the
damaged car was towed from the scene of the accident to the compound of Ng Sam
Bok Motors in Bacolod City where it remains deposited up to the present time.
The insurance policy, Exhibit "A," grants an option unto the defendant, in case of
accident either to indemnify the plaintiff for loss or damage to the car in cash or to
replace the damaged car. The defendant, however, refused to take either of the
above-mentioned alternatives for the reason as alleged, that the insured himself
had violated the terms of the policy when he drove the car in question with an
expired driver's license. (Decision, Oct. 29, 1969, p. 68, Record on Appeal.)
Appellant alleges that the trial court erred in interpreting the following provision of
the Private Car Comprehensive Policy MV-1251:
AUTHORIZED DRIVER:
Any of the following:
(a) The Insured.
(b) Any person driving on the Insured's order or with his permission. Provided that
the person driving is permitted in accordance with the licensing or other laws or
regulations to drive the Motor Vehicle and is not disqualified from driving such
motor vehicle by order of a Court of law or by reason of any enactment or
regulation in that behalf. (Exh. "A.")
There is no merit in the appellant's allegation that the plaintiff was not authorized
to drive the insured motor vehicle because his driver's license had expired. The
driver of the insured motor vehicle at the time of the accident was, the insured
himself, hence an "authorized driver" under the policy.
While the Motor Vehicle Law prohibits a person from operating a motor vehicle on
the highway without a license or with an expired license, an infraction of the Motor
Vehicle Law on the part of the insured, is not a bar to recovery under the insurance
contract. It however renders him subject to the penal sanctions of the Motor
Vehicle Law.

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

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

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

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

... Operating an automobile on a public highway without a license, which act is a

statutory crime is not precluded by public policy from enforcing a policy
indemnifying her against liability for bodily injuries The inflicted by use of the
automobile." (Drew C. Drewfield McMahon vs. Hannah Pearlman, et al., 242 Mass.
367, 136 N.E. 154, 23 A.L.R. 1467.)

WHEREFORE, the appealed decision is affirmed with costs against the defendant-
appellant.

SO ORDERED.
G.R. No. 85296 May 14, 1990
ZENITH INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS and
LAWRENCE FERNANDEZ, respondents.
MEDIALDEA, J.:
Assailed in this petition is the decision of the Court of Appeals in CA-G.R. C.V. No.
13498 entitled, "Lawrence L. Fernandez, plaintiff-appellee v. Zenith Insurance Corp.,
defendant-appellant" which affirmed in toto the decision of the Regional Trial Court
of Cebu, Branch XX in Civil Case No. CEB-1215 and the denial of petitioner's Motion
for Reconsideration.
The antecedent facts are as follows:
On January 25, 1983, private respondent Lawrence Fernandez insured his car for
"own damage" under private car Policy No. 50459 with petitioner Zenith Insurance
Corporation. On July 6, 1983, the car figured in an accident and suffered actual
damages in the amount of P3,640.00. After allegedly being given a run around by
Zenith for two (2) months, Fernandez filed a complaint with the Regional Trial Court
of Cebu for sum of money and damages resulting from the refusal of Zenith to pay
the amount claimed. The complaint was docketed as Civil Case No. CEB-1215. Aside
from actual damages and interests, Fernandez also prayed for moral damages in the
amount of P10,000.00, exemplary damages of P5,000.00, attorney's fees of
P3,000.00 and litigation expenses of P3,000.00.
On September 28, 1983, Zenith filed an answer alleging that it offered to pay the
claim of Fernandez pursuant to the terms and conditions of the contract which, the
private respondent rejected. After the issues had been joined, the pre-trial was
scheduled on October 17, 1983 but the same was moved to November 4, 1983
upon petitioner's motion, allegedly to explore ways to settle the case although at
an amount lower than private respondent's claim. On November 14, 1983, the trial
court terminated the pre-trial. Subsequently, Fernandez presented his evidence.
Petitioner Zenith, however, failed to present its evidence in view of its failure to
appear in court, without justifiable reason, on the day scheduled for the purpose.
The trial court issued an order on August 23, 1984 submitting the case for decision
without Zenith's evidence (pp. 10-11, Rollo). Petitioner filed a petition
for certiorari with the Court of Appeals assailing the order of the trial court
submitting the case for decision without petitioner's evidence. The petition was
docketed as C.A.-G.R. No. 04644. However, the petition was denied due course on
April 29, 1986 (p. 56, Rollo).
On June 4, 1986, a decision was rendered by the trial court in favor of private
respondent Fernandez. The dispositive portion of the trial court's decision provides:
WHEREFORE, defendant is hereby ordered to pay to the plaintiff:
1. The amount of P3,640.00 representing the damage incurred plus interest at the
rate of twice the prevailing interest rates;
2. The amount of P20,000.00 by way of moral damages;
3. The amount of P20,000.00 by way of exemplary damages;
4. The amount of P5,000.00 as attorney's fees;
5. The amount of P3,000.00 as litigation expenses; and
6. Costs. (p. 9, Rollo)
Upon motion of Fernandez and before the expiration of the period to appeal, the
trial court, on June 20, 1986, ordered the execution of the decision pending appeal.
The order was assailed by petitioner in a petition for certiorariwith the Court of
Appeals on October 23, 1986 in C.A. G.R. No. 10420 but which petition was also
dismissed on December 24, 1986 (p. 69, Rollo).
On June 10, 1986, petitioner filed a notice of appeal before the trial court. The
notice of appeal was granted in the same order granting private respondent's
motion for execution pending appeal. The appeal to respondent court assigned the
following errors:
I. The lower court erred in denying defendant appellant to adduce evidence in its
behalf.
II. The lower court erred in ordering Zenith Insurance Corporation to pay the
amount of P3,640.00 in its decision.
III. The lower court erred in awarding moral damages, attorneys fees and exemplary
damages, the worst is that, the court awarded damages more than what are prayed
for in the complaint. (p. 12, Rollo)
On August 17, 1988, the Court of Appeals rendered its decision affirming in toto the
decision of the trial court. It also ruled that the matter of the trial court's denial of
Fernandez's right to adduce evidence is a closed matter in view of its (CA) ruling in
AC-G.R. 04644 wherein Zenith's petition questioning the trial court's order
submitting the case for decision without Zenith's evidence, was dismissed.
The Motion for Reconsideration of the decision of the Court of Appeals dated
August 17, 1988 was denied on September 29, 1988, for lack of merit. Hence, the
instant petition was filed by Zenith on October 18, 1988 on the allegation that
respondent Court of Appeals' decision and resolution ran counter to applicable
decisions of this Court and that they were rendered without or in excess of
jurisdiction. The issues raised by petitioners in this petition are:
a) The legal basis of respondent Court of Appeals in awarding moral damages,
exemplary damages and attomey's fees in an amount more than that prayed for in
the complaint.
b) The award of actual damages of P3,460.00 instead of only P1,927.50 which was
arrived at after deducting P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts as agreed upon in the contract of insurance.
Petitioner contends that while the complaint of private respondent prayed for
P10,000.00 moral damages, the lower court awarded twice the amount, or
P20,000.00 without factual or legal basis; while private respondent prayed for
P5,000.00 exemplary damages, the trial court awarded P20,000.00; and while
private respondent prayed for P3,000.00 attorney's fees, the trial court awarded
P5,000.00.
The propriety of the award of moral damages, exemplary damages and attorney's
fees is the main issue raised herein by petitioner.
The award of damages in case of unreasonable delay in the payment of insurance
claims is governed by the Philippine Insurance Code, which provides:
Sec. 244. In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may
be, to make a finding as to whether the payment of the claim of the insured has
been unreasonably denied or withheld; and in the affirmative case, the insurance
company shall be adjudged to pay damages which shall consist of attomey's fees
and other expenses incurred by the insured person by reason of such unreasonable
denial or withholding of payment plus interest of twice the ceiling prescribed by the
Monetary Board of the amount of the claim due the insured, from the date
following the time prescribed in section two hundred forty-two or in section two
hundred forty-three, as the case may be, until the claim is fully satisfied; Provided,
That the failure to pay any such claim within the time prescribed in said sections
shall be considered prima facie evidence of unreasonable delay in payment.
It is clear that under the Insurance Code, in case of unreasonable delay in the
payment of the proceeds of an insurance policy, the damages that may be awarded
are: 1) attorney's fees; 2) other expenses incurred by the insured person by reason
of such unreasonable denial or withholding of payment; 3) interest at twice the
ceiling prescribed by the Monetary Board of the amount of the claim due the
injured; and 4) the amount of the claim.
As regards the award of moral and exemplary damages, the rules under the Civil
Code of the Philippines shall govern.
"The purpose of moral damages is essentially indemnity or reparation, not
punishment or correction. Moral damages are emphatically not intended to enrich
a complainant at the expense of a defendant, they are awarded only to enable the
injured party to obtain means, diversions or amusements that will serve to alleviate
the moral suffering he has undergone by reason of the defendant's culpable
action." (J. Cezar S. Sangco, Philippine Law on Torts and Damages, Revised Edition,
p. 539) (See also R and B Surety & Insurance Co., Inc. v. IAC, G.R. No. 64515, June
22, 1984; 129 SCRA 745). While it is true that no proof of pecuniary loss is necessary
in order that moral damages may be adjudicated, the assessment of which is left to
the discretion of the court according to the circumstances of each case (Art. 2216,
New Civil Code), it is equally true that in awarding moral damages in case of breach
of contract, there must be a showing that the breach was wanton and deliberately
injurious or the one responsible acted fraudently or in bad faith (Perez v. Court of
Appeals, G.R. No. L-20238, January 30,1965; 13 SCRA 137; Solis v. Salvador, G.R. No.
L-17022, August 14, 1965; 14 SCRA 887). In the instant case, there was a finding
that private respondent was given a "run-around" for two months, which is the
basis for the award of the damages granted under the Insurance Code for
unreasonable delay in the payment of the claim. However, the act of petitioner of
delaying payment for two months cannot be considered as so wanton or
malevolent to justify an award of P20,000.00 as moral damages, taking into
consideration also the fact that the actual damage on the car was only P3,460. In
the pre-trial of the case, it was shown that there was no total disclaimer by
respondent. The reason for petitioner's failure to indemnify private respondent 4) P3,000.00 as litigation expenses; and
within the two-month period was that the parties could not come to an agreement
as regards the amount of the actual damage on the car. The amount of P10,000.00 5) Costs.
prayed for by private respondent as moral damages is equitable.
ACCORDINGLY, the appealed decision is MODIFIED as above stated.
On the other hand, exemplary or corrective damages are imposed by way of
SO ORDERED.
example or correction for the public good (Art. 2229, New Civil Code of the
Philippines). In the case of Noda v. Cruz-Arnaldo, G.R. No. 57322, June 22,1987; 151
SCRA 227, exemplary damages were not awarded as the insurance company had
not acted in wanton, oppressive or malevolent manner. The same is true in the case
at bar.

The amount of P5,000.00 awarded as attomey's fees is justified under the

circumstances of this case considering that there were other petitions filed and
defended by private respondent in connection with this case.

As regards the actual damages incurred by private respondent, the amount of

P3,640.00 had been established before the trial court and affirmed by the appellate
court. Respondent appellate court correctly ruled that the deductions of P250.00
and P274.00 as deductible franchise and 20% depreciation on parts, respectively
claimed by petitioners as agreed upon in the contract, had no basis. Respondent
court ruled:

Under its second assigned error, defendant-appellant puts forward two arguments,
both of which are entirely without merit. It is contented that the amount
recoverable under the insurance policy defendant-appellant issued over the car of
plaintiff-appellee is subject to deductible franchise, and . . . .

The policy (Exhibit G, pp. 4-9, Record), does not mntion any deductible franchise, . . .
(p. 13, Rollo)

Therefore, the award of moral damages is reduced to P10,000.00 and the award of
exemplary damages is hereby deleted. The awards due to private respondent
Fernandez are as follows:

1) P3,640.00 as actual claim plus interest of twice the ceiling prescribed by the
Monetary Board computed from the time of submission of proof of loss;

2) P10,000.00 as moral damages;

3) P5,000.00 as attorney's fees;

G.R. No. 96452 May 7, 1992
PERLA COMPANIA DE SEGUROS, INC. petitioner, vs. THE COURT OF APPEALS,
HERMINIO LIM and EVELYN LIM, respondents.
G.R. No. 96493 May 7, 1992
FCP CREDIT CORPORATION, petitioner, vs. THE COURT OF APPEALS, Special Third
Division, HERMINIO LIM and EVELYN
NOCON, J.:
These are two petitions for review on certiorari, one filed by Perla Compania de
Seguros, Inc. in G.R. No. 96452, and the other by FCP Credit Corporation in G.R. No.
96493, both seeking to annul and set aside the decision dated July 30, 1990 1 of the
Court of Appeals in CA-G.R. No. 13037, which reversed the decision of the Regional
Trial Court of Manila, Branch VIII in Civil Case No. 83-19098 for replevin and
damages. The dispositive portion of the decision of the Court of Appeals reads, as
follows:
WHEREFORE, the decision appealed from is reversed; and appellee Perla Compania
de Seguros, Inc. is ordered to indemnify appellants Herminio and Evelyn Lim for the
loss of their insured vehicle; while said appellants are ordered to pay appellee FCP
Credit Corporation all the unpaid installments that were due and payable before
the date said vehicle was carnapped; and appellee Perla Compania de Seguros, Inc.
is also ordered to pay appellants moral damages of P12,000.00 for the latter's
mental sufferings, exemplary damages of P20,000.00 for appellee Perla Compania
de Seguros, Inc.'s unreasonable refusal on sham grounds to honor the just
insurance claim of appellants by way of example and correction for public good, and
attorney's fees of P10,000.00 as a just and equitable reimbursement for the
expenses incurred therefor by appellants, and the costs of suit both in the lower
court and in this appeal. 2
The facts as found by the trial court are as follows:
On December 24, 1981, private respondents spouses Herminio and Evelyn Lim
executed a promissory note in favor Supercars, Inc. in the sum of P77,940.00,
payable in monthly installments according to the schedule of payment indicated in
said note, 3 and secured by a chattel mortgage over a brand new red Ford Laser
1300 5DR Hatchback 1981 model with motor and serial No. SUPJYK-03780, which is
registered under the name of private respondent Herminio Lim 4 and insured with
the petitioner Perla Compania de Seguros, Inc. (Perla for brevity) for comprehensive
coverage under Policy No. PC/41PP-QCB-43383. 5
On the same date, Supercars, Inc., with notice to private respondents spouses,
assigned to petitioner FCP Credit Corporation (FCP for brevity) its rights, title and
interest on said promissory note and chattel mortgage as shown by the Deed of
Assignment. 6
At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped while parked
at the back of Broadway Centrum along N. Domingo Street, Quezon City. Private
respondent Evelyn Lim, who was driving said car before it was carnapped,
immediately called up the Anti-Carnapping Unit of the Philippine Constabulary to
report said incident and thereafter, went to the nearest police substation at
Araneta, Cubao to make a police report regarding said incident, as shown by the
certification issued by the Quezon City police. 7
On November 10, 1982, private respondent Evelyn Lim reported said incident to the
Land Transportation Commission in Quezon City, as shown by the letter of her
counsel to said office, 8 in compliance with the insurance requirement. She also
filed a complaint with the Headquarters, Constabulary Highway Patrol Group. 9
On November 11, 1982, private respondent filed a claim for loss with the petitioner
Perla but said claim was denied on November 18, 1982 10 on the ground that Evelyn
Lim, who was using the vehicle before it was carnapped, was in possession of an
expired driver's license at the time of the loss of said vehicle which is in violation of
the authorized driver clause of the insurance policy, which states, to wit:
AUTHORIZED DRIVER:
Any of the following: (a) The Insured (b) Any person driving on the Insured's order,
or with his permission. Provided that the person driving is permitted, in accordance
with the licensing or other laws or regulations, to drive the Scheduled Vehicle, or
has been permitted and is not disqualified by order of a Court of Law or by reason
of any enactment or regulation in that behalf. 11
On November 17, 1982, private respondents requests from petitioner FCP for a
suspension of payment on the monthly amortization agreed upon due to the loss of
the vehicle and, since the carnapped vehicle insured with petitioner Perla, said
insurance company should be made to pay the remaining balance of the promissory
note and the chattel mortgage contract.
Perla, however, denied private respondents' claim. Consequently, petitioner FCP
demanded that private respondents pay the whole balance of the promissory note
or to return the vehicle 12 but the latter refused.
On July 25, 1983, petitioner FCP filed a complaint against private respondents, who
in turn filed an amended third party complaint against petitioner Perla on
December 8, 1983. After trial on the merits, the trial court rendered a decision, the
dispositive portion which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:
1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly and severally,
plaintiff the sum of P55,055.93 plus interest thereon at the rate of 24% per
annum from July 2, 1983 until fully paid;
2. Ordering defendants to pay plaintiff P50,000.00 as and for attorney's fees; and
the costs of suit.
Upon the other hand, likewise, ordering the DISMISSAL of the Third-Party
Complaint filed against Third-Party Defendant. 13 Not satisfied with said decision,
private respondents appealed the same to the Court of Appeals, which reversed
said decision.
After petitioners' separate motions for reconsideration were denied by the Court of
Appeals in its resolution of December 10, 1990, petitioners filed these separate
petitions for review on certiorari. Petitioner Perla alleged that there was grave
abuse of discretion on the part of the appellate court in holding that private
respondents did not violate the insurance contract because the authorized driver
clause is not applicable to the "Theft" clause of said Contract.
For its part, petitioner FCP raised the issue of whether or not the loss of the
collateral exempted the debtor from his admitted obligations under the promissory
note particularly the payment of interest, litigation expenses and attorney's fees.
We find no merit in Perla's petition.
The comprehensive motor car insurance policy issued by petitioner Perla undertook
to indemnify the private respondents against loss or damage to the car (a) by
accidental collision or overturning, or collision or overturning consequent upon
mechanical breakdown or consequent upon wear and tear; (b) by fire, external
explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by
malicious act.14
Where a car is admittedly, as in this case, unlawfully and wrongfully taken without
the owner's consent or knowledge, such taking constitutes theft, and, therefore, it
is the "THEFT"' clause, and not the "AUTHORIZED DRIVER" clause that should apply.
As correctly stated by the respondent court in its decision:
. . . Theft is an entirely different legal concept from that of accident. Theft is
committed by a person with the intent to gain or, to put it in another way, with the
concurrence of the doer's will. On the other hand, accident, although it may
proceed or result from negligence, is the happening of an event without the
concurrence of the will of the person by whose agency it was caused. (Bouvier's
Law Dictionary, Vol. I, 1914 ed., p. 101).
Clearly, the risk against accident is distinct from the risk against theft. The
"authorized driver clause" in a typical insurance policy is in contemplation or
anticipation of accident in the legal sense in which it should be understood, and not
in contemplation or anticipation of an event such as theft. The distinction often
seized upon by insurance companies in resisting claims from their assureds
between death occurring as a result of accident and death occurring as a result of
intent may, by analogy, apply to the case at bar. Thus, if the insured vehicle had
figured in an accident at the time she drove it with an expired license, then,
appellee Perla Compania could properly resist appellants' claim for indemnification
for the loss or destruction of the vehicle resulting from the accident. But in the
present case. The loss of the insured vehicle did not result from an accident where
intent was involved; the loss in the present case was caused by theft, the
commission of which was attended by intent. 15 It is worthy to note that there is no
causal connection between the possession of a valid driver's license and the loss of
a vehicle. To rule otherwise would render car insurance practically a sham since an
insurance company can easily escape liability by citing restrictions which are not
applicable or germane to the claim, thereby reducing indemnity to a shadow.
We however find the petition of FCP meritorious.
This Court agrees with petitioner FCP that private respondents are not relieved of
their obligation to pay the former the installments due on the promissory note on
account of the loss of the automobile. The chattel mortgage constituted over the
automobile is merely an accessory contract to the promissory note. Being the
principal contract, the promissory note is unaffected by whatever befalls the
subject matter of the accessory contract. Therefore, the unpaid balance on the
promissory note should be paid, and not just the installments due and payable
before the automobile was carnapped, as erronously held by the Court of Appeals.
However, this does not mean that private respondents are bound to pay the
interest, litigation expenses and attorney's fees stipulated in the promissory note.
Because of the peculiar relationship between the three contracts in this case, i.e.,
the promissory note, the chattel mortgage contract and the insurance policy, this
Court is compelled to construe all three contracts as intimately interrelated to each
other, despite the fact that at first glance there is no relationship whatsoever
between the parties thereto.
Under the promissory note, private respondents are obliged to pay Supercars, Inc.
the amount stated therein in accordance with the schedule provided for. To secure
said promissory note, private respondents constituted a chattel mortgage in favor
of Supercars, Inc. over the automobile the former purchased from the latter. The
chattel mortgage, in turn, required private respondents to insure the automobile
and to make the proceeds thereof payable to Supercars, Inc. The promissory note
and chattel mortgage were assigned by Supercars, Inc. to petitioner FCP, with the
knowledge of private respondents. Private respondents were able to secure an
insurance policy from petitioner Perla, and the same was made specifically payable
to petitioner FCP. 16 The insurance policy was therefore meant to be an additional
security to the principal contract, that is, to insure that the promissory note will still
be paid in case the automobile is lost through accident or theft. The Chattel
Mortgage Contract provided that:
THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL CAUSE THE
PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED AGAINST LOSS OR
DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A PERIOD OF ONE YEAR FROM DATE
HEREOF 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/IT WILL MAKE ALL LOSS, IF ANY, UNDER SUCH
POLICY OR POLICIES, PAYABLE TO THE MORTGAGE OR ITS ASSIGNS AS ITS INTERESTS
MAY APPEAR AND FORTHWITH DELIVER SUCH POLICY OR POLICIES TO THE
MORTGAGEE, . . . . 17
It is clear from the abovementioned provision that upon the loss of the insured
vehicle, the insurance company Perla undertakes to pay directly to the mortgagor
or to their assignee, FCP, the outstanding balance of the mortgage at the time of
said loss under the mortgage contract. If the claim on the insurance policy had been
approved by petitioner Perla, it would have paid the proceeds thereof directly to
petitioner FCP, and this would have had the effect of extinguishing private
respondents' obligation to petitioner FCP. Therefore, private respondents were
justified in asking petitioner FCP to demand the unpaid installments from petitioner
Perla.
Because petitioner Perla had unreasonably denied their valid claim, private
respondents should not be made to pay the interest, liquidated damages and
attorney's fees as stipulated in the promissory note. As mentioned above, the
contract of indemnity was procured to insure the return of the money loaned from
petitioner FCP, and the unjustified refusal of petitioner Perla to recognize the valid
claim of the private respondents should not in any way prejudice the latter. Private
respondents can not be said to have unduly enriched themselves at the expense of
petitioner FCP since they will be required to pay the latter the unpaid balance of its
obligation under the promissory note. In view of the foregoing discussion, We hold
that the Court of Appeals did not err in requiring petitioner Perla to indemnify
private respondents for the loss of their insured vehicle. However, the latter should
be ordered to pay petitioner FCP the amount of P55,055.93, representing the
unpaid installments from December 30, 1982 up to July 1, 1983, as shown in the
statement of account prepared by petitioner FCP, 18 plus legal interest from July 2,
1983 until fully paid.
As to the award of moral damages, exemplary damages and attorney's fees, private
respondents are legally entitled to the same since petitioner Perla had acted in bad
faith by unreasonably refusing to honor the insurance claim of the private
respondents. Besides, awards for moral and exemplary damages, as well as
attorney's fees are left to the sound discretion of the Court. Such discretion, if well
exercised, will not be disturbed on appeal. 19
WHEREFORE, the assailed decision of the Court of Appeals is hereby MODIFIED to
require private respondents to pay petitioner FCP the amount of P55,055.93, with
legal interest from July 2, 1983 until fully paid. The decision appealed from is hereby
affirmed as to all other respects. No pronouncement as to costs.
SO ORDERED.
G.R. No. 89741 March 13, 1991
SUN INSURANCE OFFICE, LTD., petitioner, vs. COURT OF APPEALS and EMILIO
TAN, respondents.
PARAS, J.:
This is a petition for review on certiorari of the June 20, 1989 decision 1 of the Court
of Appeals in CA-G.R. SP. Case No. 13848 affirming the November 3, 1987 and
January 14, 1988 orders of the Regional Trial Court2 of Iloilo, Branch 27, in Civil Case
No. 16817, denying the motion to dismiss and the subsequent motion for
reconsideration; and the August 22, 1989 resolution of the same court denying the
motion for reconsideration.
On August 15, 1983, herein private respondent Emilio Tan took from herein
petitioner 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, Tan
filed Civil Case No. 16817 with the Regional Trial Court of Iloilo, Branch 27 but
petitioner filed a motion to dismiss on the alleged ground that the action had
already prescribed. Said motion was denied in an order dated November 3, 1987;
and petitioner's motion for reconsideration was also denied in an order dated
January 14, 1988.
Petitioner went to the Court of Appeals and sought the nullification of the said Nov.
3, 1987 and January 14, 1988 orders, but the Court of Appeals, in its June 20, 1989
decision denied the petition and held that the court a quo may continue until its
final termination.
A motion for reconsideration was filed, but the same was denied by the Court of
Appeals in its resolution of August 22, 1989 (Rollo, pp. 42-43).
Hence, the instant petition.
The Second Division of this Court, in its resolution of December 18, 1989 resolved to
give due course to the petition and to require the parties to submit simultaneous
memoranda (Ibid., p. 56).
Petitioner raised two (2) issues which may be stated in substance, as follows:
I
WHETHER OR NOT THE FILING OF A MOTION FOR RECONSIDERATION INTERRUPTS
THE TWELVE (12) MONTHS PRESCRIPTIVE PERIOD TO CONTEST THE DENIAL OF THE
INSURANCE CLAIM; and
II
WHETHER OR NOT THE REJECTION OF THE CLAIM SHALL BE DEEMED FINAL ONLY IF
IT CONTAINS WORDS TO THE EFFECT THAT THE DENIAL IS FINAL.
The answer to the first issue is in the negative.
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 (Pacific Banking Corp. v. Court of Appeals,
168 SCRA 1 [1988]).
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.
As the terms are very clear and free from any doubt or ambiguity whatsoever, it
must be taken and understood in its plain, ordinary and popular sense pursuant to
the above-cited principle laid down by this Court.
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.
While the question of whether or not the insured was definitely advised of the
rejection of his claim through the letter (Rollo, pp. 48-49) of petitioner dated
February 29, 1984, may arise, the certainty of the denial of Tan's claim was clearly
manifested in said letter, the pertinent portion of which reads:
We refer to your claim for fire loss of 20th August, 1983 at Huervana St., La Paz,
Iloilo City.
We now have the report of our adjusters and after a thorough and careful review of
the same and the accompanying documents at hand, we are rejecting, much to our
regrets, liability for the claim under our policies for one or more of the following
reasons:
1. xxx xxx xxx
2. xxx xxx xxx
For your information, we have referred all these matters to our lawyers for their
opinion as to the compensability of your claim, particularly referring to the above
violations. It is their opinion and in fact their strong recomendation to us to deny
your claim. By this letter, we do not intend to waive or relinquish any of our rights
or defenses under our policies of insurance.
It is also important to note the principle laid down by this Court in the case of Ang v.
Fulton Fire Insurance Co., (2 SCRA 945 [1961]), to wit:
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.
In enunciating the above-cited principle, this Court had definitely settled the
rationale for the necessity of bringing suits against the Insurer within one year from
the rejection of the claim. The contention of the respondents that the one-year
prescriptive period does not start to run until the petition for reconsideration had
been resolved by the insurer, runs counter to the declared purpose for requiting
that an action or suit be filed in the Insurance Commission or in a court of
competent jurisdiction from the denial of the claim. To uphold respondents'
contention would contradict and defeat the very principle which this Court had laid
down. Moreover, it can easily be used by insured persons as a scheme or device to
waste time until any evidence which may be considered against them is destroyed.
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 crucial issue in this case is: When does the cause of action accrue?
In support of private respondent's view, two rulings of this Court have been cited,
namely, the case of Eagle Star Insurance Co. vs. Chia Yu (96 Phil. 696 (1955]), where
the Court held:
The right of the insured to the payment of his loss accrues from the happening of
the loss. However, the cause of action in an insurance contract does not accrue
until the insured's claim is finally rejected by the insurer. This is because before
such final rejection there is no real necessity for bringing suit.
and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151 [1968],
holding that:
Since "cause of action" requires as essential elements not only a legal right of the
plaintiff and a correlated obligation of the defendant in violation of the said legal
right, the cause of action does not accrue until the party obligated (surety) refuses,
expressly or impliedly, to comply with its duty (in this case to pay the amount of the
bond).
Indisputably, the above-cited pronouncements of this Court may be taken to mean
that 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.

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, such
as:

a) whether the mere filing of a plea for reconsideration of a denial is sufficient or

must it be supported by arguments/affidavits/material evidence;

b) how many petitions for reconsideration should be permitted?

While in the Eagle Star case (96 Phil. 701), 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.

PREMISES CONSIDERED, the questioned decision of the Court of Appeals is

REVERSED and SET ASIDE, and Civil Case No. 16817 filed with the Regional Trial
Court is hereby DISMISSED.

SO ORDERED.
G.R. No. 60506 August 6, 1992
FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR,
LEONILA M. MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and
ELVIRA, all surnamed MAGLANA, herein represented by their mother,
FIGURACION VDA. DE MAGLANA, petitioners,
vs.
HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch
II, and AFISCO INSURANCE CORPORATION, respondents.
ROMERO, J.:
The nature of the liability of an insurer sued together with the insured/operator-
owner of a common carrier which figured in an accident causing the death of a third
person is sought to be defined in this petition for certiorari.
The facts as found by the trial court are as follows:
. . . Lope Maglana was an employee of the Bureau of Customs whose work station
was at Lasa, here in Davao City. On December 20, 1978, early morning, Lope
Maglana was on his way to his work station, driving a motorcycle owned by the
Bureau of Customs. At Km. 7, Lanang, he met an accident that resulted in his death.
He died on the spot. The PUJ jeep that bumped the deceased was driven by Pepito
Into, operated and owned by defendant Destrajo. From the investigation conducted
by the traffic investigator, the PUJ jeep was overtaking another passenger jeep that
was going towards the city poblacion. While overtaking, the PUJ jeep of defendant
Destrajo running abreast with the overtaken jeep, bumped the motorcycle driven
by the deceased who was going towards the direction of Lasa, Davao City. The point
of impact was on the lane of the motorcycle and the deceased was thrown from the
road and met his untimely death. 1
Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for
damages and attorney's fees against operator Patricio Destrajo and the Afisco
Insurance Corporation (AFISCO for brevity) before the then Court of First Instance
of Davao, Branch II. An information for homicide thru reckless imprudence was also
filed against Pepito Into.
During the pendency of the civil case, Into was sentenced to suffer an
indeterminate penalty of one (1) year, eight (8) months and one (1) day of prision
correccional, as minimum, to four (4) years, nine (9) months and eleven (11) days
of prision correccional, as maximum, with all the accessory penalties provided by
law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of twelve
thousand pesos (P12,000.00) with subsidiary imprisonment in case of insolvency,
plus five thousand pesos (P5,000.00) in the concept of moral and exemplary
damages with costs. No appeal was interposed by accused who later applied for
probation. 2
On December 14, 1981, the lower court rendered a decision finding that Destrajo
had not exercised sufficient diligence as the operator of the jeepney. The
dispositive portion of the decision reads:
WHEREFORE, the Court finds judgment in favor of the plaintiffs against defendant
Destrajo, ordering him to pay plaintiffs the sum of P28,000.00 for loss of income; to
pay plaintiffs the sum of P12,000.00 which amount shall be deducted in the event
judgment in Criminal Case No. 3527-D against the driver, accused Into, shall have
been enforced; to pay plaintiffs the sum of P5,901.70 representing funeral and
burial expenses of the deceased; to pay plaintiffs the sum of P5,000.00 as moral
damages which shall be deducted in the event judgment (sic) in Criminal Case No.
3527-D against the driver, accused Into; to pay plaintiffs the sum of P3,000.00 as
attorney's fees and to pay the costs of suit.
The defendant insurance company is ordered to reimburse defendant Destrajo
whatever amounts the latter shall have paid only up to the extent of its insurance
coverage.
SO ORDERED. 3
Petitioners filed a motion for the reconsideration of the second paragraph of the
dispositive portion of the decision contending that AFISCO should not merely be
held secondarily liable because the Insurance Code provides that the insurer's
liability is "direct and primary and/or jointly and severally with the operator of the
vehicle, although only up to the extent of the insurance coverage." 4 Hence, they
argued that the P20,000.00 coverage of the insurance policy issued by AFISCO,
should have been awarded in their favor.
In its comment on the motion for reconsideration, AFISCO argued that since the
Insurance Code does not expressly provide for a solidary obligation, the
presumption is that the obligation is joint.
In its Order of February 9, 1982, the lower court denied the motion for
reconsideration ruling that since the insurance contract "is in the nature of
suretyship, then the liability of the insurer is secondary only up to the extent of the
insurance coverage." 5
Petitioners filed a second motion for reconsideration reiterating that the liability of
the insurer is direct, primary and solidary with the jeepney operator because the
petitioners became direct beneficiaries under the provision of the policy which, in
effect, is a stipulation pour autrui. 6 This motion was likewise denied for lack of
merit.
Hence, petitioners filed the instant petition for certiorari which, although it does
not seek the reversal of the lower court's decision in its entirety, prays for the
setting aside or modification of the second paragraph of the dispositive portion of
said decision. Petitioners reassert their position that the insurance company is
directly and solidarily liable with the negligent operator up to the extent of its
insurance coverage.
We grant the petition.
The particular provision of the insurance policy on which petitioners base their
claim is as follows:
Sec. 1 LIABILITY TO THE PUBLIC
1. The Company will, subject to the Limits of Liability, pay all sums necessary to
discharge liability of the insured in respect of
(a) death of or bodily injury to any THIRD PARTY
(b) . . . .
2. . . . .
3. In the event of the death of any person entitled to indemnity under this Policy,
the Company will, in respect of the liability incurred to such person indemnify his
personal representatives in terms of, and subject to the terms and conditions
hereof. 7
The above-quoted provision leads to no other conclusion but that AFISCO can be
held directly liable by petitioners. As this Court ruled in Shafer vs. Judge, RTC of
Olongapo City, Br. 75, "[w]here an insurance policy insures directly against liability,
the insurer's liability accrues immediately upon the occurrence of the injury or even
upon which the liability depends, and does not depend on the recovery of judgment
by the injured party against the insured." 8 The underlying reason behind the third
party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is "to
protect injured persons against the insolvency of the insured who causes such
injury, and to give such injured person a certain beneficial interest in the proceeds
of the policy . . ." 9 Since petitioners had received from AFISCO the sum of P5,000.00
under the no-fault clause, AFISCO's liability is now limited to P15,000.00.
However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo.
In Malayan Insurance Co., Inc. v. Court of Appeals, 10 this Court had the opportunity
to resolve the issue as to the nature of the liability of the insurer and the
insured vis-a-vis the third party injured in an accident. We categorically ruled thus:
While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer,
however, the direct liability of the insurer under indemnity contracts against third
party liability does not mean that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault. The liability of the insurer is based
on contract; that of the insured is based on tort.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos
(the injured third party), but it cannot, as incorrectly held by the trial court, be
made "solidarily" liable with the two principal tortfeasors, namely respondents Sio
Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with
said, two (2) respondents by reason of the indemnity contract against third party
liability under which an insurer can be directly sued by a third party this will
result in a violation of the principles underlying solidary obligation and insurance
contracts. (emphasis supplied)
The Court then proceeded to distinguish the extent of the liability and manner of
enforcing the same in ordinary contracts from that of insurance contracts. While in
solidary obligations, the creditor may enforce the entire obligation against one of
the solidary debtors, in an insurance contract, the insurer undertakes for a
consideration to indemnify the insured against loss, damage or liability arising from
an unknown or contingent event. 11 Thus, petitioner therein, which, under the
insurance contract is liable only up to P20,000.00, can not be made solidarily liable
with the insured for the entire obligation of P29,013.00 otherwise there would
result "an evident breach of the concept of solidary obligation."

Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under
the insurance policy is also P20,000.00, can be held solidarily liable with Destrajo for
the total amount of P53,901.70 in accordance with the decision of the lower court.
Since under both the law and the insurance policy, AFISCO's liability is only up to
P20,000.00, the second paragraph of the dispositive portion of the decision in
question may have unwittingly sown confusion among the petitioners and their
counsel. What should have been clearly stressed as to leave no room for doubt was
the liability of AFISCO under the explicit terms of the insurance contract.

In fine, we conclude that the liability of AFISCO based on the insurance contract is
direct, but not solidary with that of Destrajo which is based on Article 2180 of the
Civil Code. 12 As such, petitioners have the option either to claim the P15,000 from
AFISCO and the balance from Destrajo or enforce the entire judgment from
Destrajo subject to reimbursement from AFISCO to the extent of the insurance
coverage.

While the petition seeks a definitive ruling only on the nature of AFISCO's liability,
we noticed that the lower court erred in the computation of the probable loss of
income. Using the formula: 2/3 of (80-56) x P12,000.00, it awarded
P28,800.00. 13 Upon recomputation, the correct amount is P192,000.00. Being a
"plain error," we opt to correct the same. 14 Furthermore, in accordance with
prevailing jurisprudence, the death indemnity is hereby increased to P50,000.00. 15

WHEREFORE, premises considered, the present petition is hereby GRANTED. The

award of P28,800.00 representing loss of income is INCREASED to P192,000.00 and
the death indemnity of P12,000.00 to P50,000.00.

SO ORDERED.
G.R. No. 100970 September 2, 1992
FINMAN GENERAL ASSURANCE CORPORATION, petitioner, vs. THE HONORABLE
COURT OF APPEALS and JULIA SURPOSA, respondents.
NOCON, J.:
This is a petition for certiorari with a prayer for the issuance of a restraining order
and preliminary mandatory injunction to annul and set aside the decision of the
Court of Appeals dated July 11, 1991, 1 affirming the decision dated March 20, 1990
of the Insurance Commission 2 in ordering petitioner Finman General Assurance
Corporation to pay private respondent Julia Surposa the proceeds of the personal
accident Insurance policy with interest.
It appears on record that on October 22, 1986, deceased, Carlie Surposa was
insured with petitioner Finman General Assurance Corporation under Finman
General Teachers Protection Plan Master Policy No. 2005 and Individual Policy No.
08924 with his parents, spouses Julia and Carlos Surposa, and brothers Christopher,
Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries. 3
While said insurance policy was in full force and effect, the insured, Carlie Surposa,
died on October 18, 1988 as a result of a stab wound inflicted by one of the three
(3) unidentified men without provocation and warning on the part of the former as
he and his cousin, Winston Surposa, were waiting for a ride on their way home
along Rizal-Locsin Streets, Bacolod City after attending the celebration of the
"Maskarra Annual Festival."
Thereafter, private respondent and the other beneficiaries of said insurance policy
filed a written notice of claim with the petitioner insurance company which denied
said claim contending that murder and assault are not within the scope of the
coverage of the insurance policy.
On February 24, 1989, private respondent filed a complaint with the Insurance
Commission which subsequently rendered a decision, the pertinent portion of
which reads:
In the light of the foregoing. we find respondent liable to pay complainant the sum
of P15,000.00 representing the proceeds of the policy with interest. As no evidence
was submitted to prove the claim for mortuary aid in the sum of P1,000.00, the
same cannot be entertained.
WHEREFORE, judgment is hereby rendered ordering respondent to pay complainant
the sum of P15,000.00 with legal interest from the date of the filing of the
complaint until fully satisfied. With costs. 4
On July 11, 1991, the appellate court affirmed said decision.
Hence, petitioner filed this petition alleging grove abuse of discretion on the part of
the appellate court in applying the principle of "expresso unius exclusio alterius" in a
personal accident insurance policy since death resulting from murder and/or assault
are impliedly excluded in said insurance policy considering that the cause of death
of the insured was not accidental but rather a deliberate and intentional act of the
assailant in killing the former as indicated by the location of the lone stab wound on
the insured. Therefore, said death was committed with deliberate intent which, by
the very nature of a personal accident insurance policy, cannot be indemnified.
We do not agree.
The terms "accident" and "accidental" as used in insurance contracts have not
acquired any technical meaning, and are construed by the courts in their ordinary
and common acceptation. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event that takes place
without one's foresight or expectation an event that proceeds from an unknown
cause, or is an unusual effect of a known cause and, therefore, not expected.
. . . 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. 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. In other words, where
the death or injury is not the natural or probable result of the insured's voluntary
act, or if something unforeseen occurs in the doing of the act which produces the
injury, the resulting death is within the protection of the policies insuring against
death or injury from accident. 5
As correctly pointed out by the respondent appellate court in its decision:
In the case at bar, it cannot be pretended that Carlie Surposa died in the course of
an assault or murder as a result of his voluntary act considering the very nature of
these crimes. In the first place, the insured and his companion were on their way SO ORDERED.
home from attending a festival. They were confronted by unidentified persons. The
record is barren of any circumstance showing how the stab wound was inflicted.
Nor can it be pretended that the malefactor aimed at the insured precisely because
the killer wanted to take his life. In any event, while the act may not exempt the
unknown perpetrator from criminal liability, the fact remains that the happening
was a pure accident on the part of the victim. The insured died from an event that
took place without his foresight or expectation, an event that proceeded from an
unusual effect of a known cause and, therefore, not expected. Neither can it be said
that where was a capricious desire on the part of the accused to expose his life to
danger considering that he was just going home after attending a festival. 6

Furthermore, the personal accident insurance policy involved herein specifically

enumerated only ten (10) circumstances wherein no liability attaches to petitioner
insurance company for any injury, disability or loss suffered by the insured as a
result of any of the stimulated causes. The principle of " expresso unius exclusio
alterius" the mention of one thing implies the exclusion of another thing is
therefore applicable in the instant case since murder and assault, not having been
expressly included in the enumeration of the circumstances that would negate
liability in said insurance policy cannot be considered by implication to discharge
the petitioner insurance company from liability for, any injury, disability or loss
suffered by the insured. Thus, the failure of the petitioner insurance company to
include death resulting from murder or assault among the prohibited risks leads
inevitably to the conclusion that it did not intend to limit or exempt itself from
liability for such death.

Article 1377 of the Civil Code of the Philippines provides that:

The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.

Moreover,

it is well settled that contracts of insurance are to be construed liberally in favor of

the insured and strictly against the insurer. Thus ambiguity in the words of an
insurance contract should be interpreted in favor of its beneficiary. 7

WHEREFORE, finding no irreversible error in the decision of the respondent Court of

Appeals, the petition for certiorari with restraining order and preliminary injunction
is hereby DENIED for lack of merit.
G.R. No. 98414 February 8, 1993
FIRST QUEZON CITY INSURANCE COMPANY, INC., petitioner, vs. THE HON. COURT
OF APPEALS and DE DIOS MARIKINA TRANSPORTATION CO., respondents.
GRIO-AQUINO, J.:
Before the Court is a petition filed by the First Quezon City Insurance Company, Inc.,
seeking to limit to P12,000.00, the amount specified in the insurance contract, its
liability to indemnify the respondent, De Dios Marikina Transportation Company
(DMTC, for short), for the damages suffered by a passenger, Jose V. del Rosario,
who accidentally fell off the bus.
The undisputed facts are:
On June 10, 1984, at about 3:00 p.m., after sending off certain seamen at the
departure area of then known as Manila International Airport (MIA), Plaintiff Jose V.
del Rosario proceeded to the loading and unloading zone for public utility bus stop,
which was located in front of the MIA, to wait for a passenger bus bound for
Quezon City. While at the bus stop, the plaintiff saw a DMTC bus bearing body No.
236 and plate No. NVU-798 and which, per its signboard, was plying the Pasay to
Quezon City (passing Espaa) route. As it approach the bus stop, the bus slowed
down with all its doors wide open: while moving at a crawling pace, i.e., as slow as
an "ordinary walk," it was taking several passengers, about five or seven of them
including the plaintiff, all of whom managed to board the bus while it was already at
the bus stop; plaintiff was the last one to board the bus.
While the plaintiff was still on the bus' running board with his hand on the bus
door's handle bar, the slowly moving bus sped forward at a high speed, as a result
of which, the plaintiff lost his balance and fell from the bus. As plaintiff clung
instinctively to the handle bar, he was dragged by the bus along the asphalted road
for about two (2) seconds. Plaintiff screamed of pain and anguished even as the
other passengers shouted and the bus' driver, Gil Agpalo, an employee of
defendant and third-party plaintiff DMTC, abruptly stopped the bus. Then, Gil
forthwith fled from the scene, leaving the bus and the injured plaintiff behind.
Thereafter, the plaintiff was brought to the Manila Sanitarium and Hospital where
he was given immediate medical treatment at the emergency ward. The doctors
performed a major surgical operation on plaintiff's right leg. This leg was extensively
lacerated: its skin and tissues were exposed and detached from the muscles.
Treatment was done under special anesthesia and consisted of debridement or
cleaning repair and suturing of the injured tissue. While at the hospital, plaintiff was
febrile or feverish for about forty (40) days. On July 12, 1984, a second major
surgical operation, i.e., a skin grafting operation, was performed on plaintiff's right
leg.
Plaintiff was confined at the hospital for a total period of forty (40) days, from June
10, 1984 to August 26, 1984. During his stay at the hospital, plaintiff incurred
medical expenses in the total amount of P69,444.41. Plaintiff's medical expenses
were advanced by his employer Maglines but he was required to reimburse
Maglines on a staggered basis by way of salary deductions. Plaintiff was released
from the hospital on August 29, 1984. After his release, he returned to the hospital
from time to time for further treatment and checkup. The injuries had left plaintiff
with a huge, ugly scar running almost the entire length of his right leg. Also, the
plaintiff incurred lost earning by way of unearned salaries amounting to P7,500.00
due to said physical injuries and the consequent hospital confinement.
Plaintiff filed on June 26, 1985 the aforesaid complaint against DMTC and its driver,
Gil Agpalo. Agpalo was later dropped as a party defendant because he could not be
served with summons. Upon filing its answer on August 20, 1985, defendant DMTC
filed a third-party complaint against First Quezon City Insurance Co. Inc. Sometime
on September 17, 1985 this third-party defendant filed its answer to the third-party
complaint.
After the trial, the court a quo rendered the appealed decision, the decretal portion
of which ordains:
WHEREFORE, the judgment is hereby rendered dismissing defendant De Dios
Marikina Transportation Co. Inc.'s counterclaim for lack of merit and ordering said
defendant to pay plaintiff Jose V. del Rosario: (a) the sum of P76,944.41, as the
actual and compensatory damages; (b) the sum of P15,000.00, as moral and
exemplary damages; and (c) the sum of P33,641.50 as attorney's fees, as well as to
pay the cost of suit; and as regards the third-party complaint herein ordering third-
party defendant First Quezon City Insurance Co., Inc. to indemnify third-party
plaintiff De Dios Marikina Transportation Co., Inc. in the sum of P12,000.00 with
interest thereon at the legal rate from date of filing of the third-party complaint on
August 20, 1985, until full payment thereof. Further, there being no satisfactory
warrant therefor, the court hereby dismisses the rest of the claims in the complaint
and third-party complaint herein. (pp. 11-13, Rollo.)
The bus company appealed to the Court of Appeals on February 11, 1991. The Court No. 24938, ordering the third-party defendant, First Quezon City Insurance Co., to
of Appeals modified the dispositive part of the decision of the trial court as follows: indemnify the private respondent, De Dios Marikina Transportation Co. Inc. (DMTC),
the sum of P50,000.00 for the damages of the passenger Jose V. Del Rosario, is
WHEREFORE, with the following modifications, first in appellee's complaint: that hereby modified by reducing the award to P12,000.00 only. Costs against the
the award of attorney's fees be reduced to P5,000.00 and that the cost of suit be private respondent, De Dios Marikina Transportation Co., Inc.
deleted; and second, as regards the third-party complaint, that the third-party
defendant First Quezon City Insurance Co., Inc., be ordered to indemnify third-party SO ORDERED.
plaintiff DMTC, herein appellant the sum of P50,090.00 with legal interest thereon
from date of filing of the third-party complaint on August 20, 1985 until its full
payment, the decision appealed from is AFFIRMED in all other respects. No costs.
(p. 19, Rollo.)

The insurance company (now the petitioner) filed a motion for reconsideration
which was denied in a resolution dated April 22, 1991.

Hence, this petition for review, assailing the appellate courts' interpretation of the
provision of the insurance contract on the limit of the insurer's liability.

We find merit in the petition.

The insurance company clearly passed the maximum limit of the petitioner's liability
for damages arising from death or bodily injury at P12,000.00 per passenger and its
maximum liability per accident at P50,000.00. Since only one passenger was injured
in the accident, the insurer's liability for the damages suffered by said passenger is
pegged to the amount of P12,000.00 only. What does the limit of P50,000.00 per
accident mean? It means that the insurer's liability for any single accident will not
exceed P50,000.00 regardless of the number of passengers killed or injured therein.
For example, if ten (10) passengers had been injured by the operation of the
insured bus, the insurer's liability for the accident would not be P120,000.00 (at the
rate of P12,000.00 per passenger) but would be limited to only P50,000.00 for the
entire accident, as provided in the insurance contract.

The bus company may not recover from the insurance company (herein petitioner)
more than P 12,000.00 per passenger killed or injured, or fifty thousand
(P50,000.00) pesos per accident even if under the judgment of the court, the erring
bus operator will have to pay more than P12,000.00 to each injured passenger. The
trial court's interpretation of the insurance contract was the correct interpretation.

WHEREFORE, the petition for review is GRANTED. The decision promulgated on

February 11, 1991 by the Court of Appeals in CA-G.R.
G.R. No. 94071 March 31, 1992
NEW LIFE ENTERPRISES and JULIAN SY, petitioners, vs. HON. COURT OF APPEALS,
EQUITABLE INSURANCE CORPORATION, RELIANCE SURETY AND INSURANCE CO.,
INC. and WESTERN GUARANTY CORPORATION, respondents.
REGALADO, J.:
This appeal by certiorari seeks the nullification of the decision 1 of respondent
Court of Appeals in CA-G.R. CV No. 13866 which reversed the decision of the
Regional Trial Court, Branch LVII at Lucena City, jointly deciding Civil Cases Nos. 6-
84, 7-84 and 8-84 thereof and consequently ordered the dismissal of the aforesaid
actions filed by herein petitioners.
The undisputed background of this case as found by the court a quo and adopted by
respondent court, being sustained by the evidence on record, we hereby reproduce
the same with approval. 2
The antecedents of this case show that Julian Sy and Jose Sy Bang have formed a
business partnership in the City of Lucena. Under the business name of New Life
Enterprises, the partnership engaged in the sale of construction materials at its
place of business, a two storey building situated at Iyam, Lucena City. The facts
show that Julian Sy insured the stocks in trade of New Life Enterprises with Western
Guaranty Corporation, Reliance Surety and Insurance. Co., Inc., and Equitable
Insurance Corporation.
On May 15, 1981, Western Guaranty Corporation issued Fire Insurance Policy No.
37201 in the amount of P350,000.00. This policy was renewed on May, 13, 1982.
On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire Insurance Policy
No. 69135 in the amount of P300,000.00 (Renewed under Renewal Certificate No.
41997) An additional insurance was issued by the same company on November 12,
1981 under Fire Insurance Policy No. 71547 in the amount of P700,000.00.
On February 8, 1982, Equitable Insurance Corporation issued Fire Insurance Policy
No. 39328 in the amount of P200,000.00.
Thus when the building occupied by the New Life Enterprises was gutted by fire at
about 2:00 o'clock in the morning of October 19, 1982, the stocks in the trade inside
said building were insured against fire in the total amount of P1,550,000.00.
According to the certification issued by the Headquarters, Philippine Constabulary
/Integrated National Police, Camp Crame, the cause of fire was electrical in nature.
According to the plaintiffs, the building and the stocks inside were burned. After the
fire, Julian Sy went to the agent of Reliance Insurance whom he asked to
accompany him to the office of the company so that he can file his claim. He
averred that in support of his claim, he submitted the fire clearance, the insurance
policies and 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. The
same treatment was given him by the other insurance companies. Ultimately, the
three insurance companies denied plaintiffs' claim for payment.
In its letter of denial dated March 9, 1983, (Exhibit "C" No. 8-84) Western Guaranty
Corporation through Claims Manager Bernard S. Razon told the plaintiff that his
claim "is denied for breach of policy conditions." Reliance Insurance purveyed the
same message in its letter dated November 23, 1982 and signed by Executive Vice-
President Mary Dee Co (Exhibit "C" No. 7-84) which said that "plaintiff's claim is
denied for breach of policy conditions." The letter of denial received by the plaintiff
from Equitable Insurance Corporation (Exhibit "C" No. 6-84) was of the same tenor,
as said letter dated February 22, 1983, and signed by Vice-President Elma R.
Bondad, said "we find that certain policy conditions were violated, therefore, we
regret, we have to deny your claim, as it is hereby denied in its entirety."
In relation to the case against Reliance Surety and Insurance Company, a certain
Atty. Serafin D. Dator, acting in behalf of the plaintiff, sent a letter dated February
13, 1983 (Exhibit "G-l" No 7-84) to Executive Vice-President Mary Dee Co asking
that he be informed as to the specific policy conditions allegedly violated by the
plaintiff. In her reply-letter dated March 30, 1983, Executive Vice-President Mary
Dee Co informed Atty. Dator that Julian Sy violated Policy Condition No. "3" which
requires the insured to give notice of any insurance or insurances already effected
covering the stocks in trade. 3
Because of the denial of their claims for payment by the three (3) insurance
companies, petitioner filed separate civil actions against the former before the
Regional Trial Court of Lucena City, which cases were consolidated for trial, and
thereafter the court below rendered its decision on December 19, l986 with the
following disposition:
WHEREFORE, judgment in the above-entitled cases is rendered in the following
manner, viz:
1. In Civil Case No. 6-84, judgment is rendered for the plaintiff New Life
Enterprises and against the defendant Equitable Insurance Corporation ordering the
latter to pay the former the sum of Two Hundred Thousand (P200,000.00) Pesos
and considering that payment of the claim of the insured has been unreasonably
denied, pursuant to Sec. 244 of the Insurance Code, defendant is further ordered to
pay the plaintiff attorney's fees in the amount of Twenty Thousand (P20,000.00)
Pesos. All sums of money to be paid by virtue hereof shall bear interest at 12% per
annum (pursuant to Sec. 244 of the Insurance Code) from February 14, 1983, (91st
day from November 16, 1982, when Sworn Statement of Fire Claim was received
from the insured) until they are fully paid;
2. In Civil Case No. 7-84, judgment is rendered for the plaintiff Julian Sy and
against the defendant Reliance Surety and Insurance Co., Inc., ordering the latter to
pay the former the sum of P1,000,000.00 (P300,000.00 under Policy No. 69135 and
P700,000.00 under Policy No. 71547) and considering that payment of the claim of
the insured has been unreasonably denied, pursuant to Sec. 244 of the Insurance
Code, defendant is further ordered to pay the plaintiff the amount of P100,000.00
as attorney's fees.
All sums of money to be paid by virtue hereof shall bear interest at 12% per annum
(pursuant to Sec. 244 of the Insurance Code) from February 14, 1983, (91st day
from November 16, 1982 when Sworn Statement of Fire Claim was received from
the insured) until they are fully paid;
3. In Civil Case No. 8-84, judgment is rendered for the plaintiff New Life
Enterprises and against the defendant Western Guaranty Corporation ordering the
latter to pay the sum of P350,000.00 to the Consolidated Bank and Trust
Corporation, Lucena Branch, Lucena City, as stipulated on the face of Policy No.
37201, and considering that payment of the aforementioned sum of money has
been unreasonably denied, pursuant to Sec. 244 of the Insurance Code, defendant
is further ordered to pay the plaintiff attorney's fees in the amount of P35,000.00.
All sums of money to be paid by virtue hereof shall bear interest at 12% per annum
(pursuant to Sec. 244 of the Insurance Code) from February 5, 1982, (91st day from
1st week of November 1983 when insured filed formal claim for full indemnity
according to adjuster Vetremar Dela Merced) until they are fully paid. 4
As aforestated, respondent Court of Appeals reversed said judgment of the trial
court, hence this petition the crux wherein is whether or not Conditions Nos. 3 and
27 of the insurance contracts were violated by petitioners thereby resulting in their
forfeiture of all the benefits thereunder.
Condition No. 3 of said insurance policies, otherwise known as the "Other Insurance
Clause," is uniformly contained in all the aforestated insurance contracts of herein
petitioners, as follows:
3. The insured shall give notice to the Company of any insurance or
insurances already effected, or which may subsequently be effected, covering any
of the property or properties consisting of stocks in trade, goods in process and/or
inventories only hereby insured, and unless such notice be given and the particulars
of such insurance or insurances be stated therein or endorsed on this policy
pursuant to Section 50 of the Insurance Code, by or on behalf of the Company
before the occurrence of any loss or damage, all benefits under this policy shall be
deemed forfeited, provided however, that this condition shall not apply when the
total insurance or insurances in force at the time of loss or damage not more than
P200,000.00. 5
Petitioners admit that the respective insurance policies issued by private
respondents did not state or endorse thereon the other insurance coverage
obtained or subsequently effected on the same stocks in trade for the loss of which
compensation is claimed by petitioners. 6 The policy issued by respondent Western
Guaranty Corporation (Western) did not declare respondent Reliance Surety and
Insurance Co., Inc. (Reliance) and respondent Equitable Insurance Corporation
(Equitable) as co-insurers on the same stocks, while Reliance's Policies covering the
same stocks did not likewise declare Western and Equitable as such co-insurers. It is
further admitted by petitioners that Equitable's policy stated "nil" in the space
thereon requiring indication of any co-insurance although there were three (3)
policies subsisting on the same stocks in trade at the time of the loss, namely, that
of Western in the amount of P350,000.00 and two (2) policies of Reliance in the
total amount of P1,000,000.00. 7
In other words, the coverage by other insurance or co-insurance effected or
subsequently arranged by petitioners were neither stated nor endorsed in the
policies of the three (3) private respondents, warranting forfeiture of all benefits
thereunder if we are to follow the express stipulation in the aforequoted Policy
Condition No. 3.
Petitioners contend that they are not to be blamed for the omissions, alleging that
insurance agent Leon Alvarez (for Western) and Yap Kam Chuan (for Reliance and
Equitable) knew about the existence of the additional insurance coverage and that
they were not informed about the requirement that such other or additional
insurance should be stated in the policy, as they have not even read policies.8
These contentions cannot pass judicial muster.
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 which he
may have effected on the same subject matter. The knowledge of such insurance by
the insurer's agents, even assuming the acquisition thereof by the former, is not the
"notice" that would estop the insurers from denying the claim. Besides, the so-
called theory of imputed knowledge, that is, knowledge of the agent is knowledge
of the principal, aside from being of dubious applicability here has likewise been
roundly refuted by respondent court whose factual findings we find acceptable.
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; that Yap Dam Chuan could not likewise have obtained such knowledge for
the same reason, aside from the fact that the insurance with Western was obtained
before those of Reliance and Equitable; and that the conclusion of the trial court
that Reliance and Equitable are "sister companies" is an unfounded conjecture
drawn from the mere fact that Yap Kam Chuan was an agent for both companies
which also had the same insurance claims adjuster. Availment of the services of the
same agents and adjusters by different companies is a common practice in the
insurance business and such facts do not warrant the speculative conclusion of the
trial court.
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.9 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. 10 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. 11
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. 12 Moreover, obligations arising from
contracts have the force of law between the contracting parties and should be
complied with in good faith. 13
Petitioners should be aware of the fact that a party is not relieved of the duty to
exercise the ordinary care and prudence that would be exacted in relation to other
contracts. The conformity of the insured to the terms of the policy is implied from
his failure to express any disagreement with what is provided for.14 It may be true
that the majority rule, as cited by petitioners, is that injured persons may accept
policies without reading them, and that this is not negligence per se. 15 But, this is
not without any exception. It is and was incumbent upon petitioner Sy to read the
insurance contracts, and this can be reasonably expected of him considering that he
has been a businessman since 196516 and the contract concerns indemnity in case
of loss in his money-making trade of which important consideration he could not
have been unaware as it was pre-in case of loss in his money-making trade of which
important consideration he could not have been unaware as it was precisely the
reason for his procuring the same.
We reiterate our pronouncement in Pioneer Insurance and Surety Corporation vs.
Yap: 17
. . . And considering the terms of the policy which required the insured to declare
other insurances, the statement in question must be deemed to be a statement
(warranty) binding on both insurer and insured, that there were no other insurance
on the property. . . .
The annotation then, must be deemed to be a warranty that the property was not
insured by any other policy. Violation thereof entitled the insurer to rescind (Sec.
69, Insurance Act). Such misrepresentation is fatal in the light of our views in Santa
Ana vs. Commercial Union Assurance Company, Ltd., 55 Phil. 329. The materiality of
non-disclosure of other insurance policies is not open to doubt.
xxx xxx xxx
The obvious purpose of the aforesaid requirement in the policy is to prevent over-
insurance and thus avert the perpetration of fraud. The public, as well as the
insurer, is interested in preventing the situation in which a fire would be profitable
to the insured. According to Justice Story: "The insured has no right to complain, for
he assents to comply with all the stipulations on his side, in order to entitle himself
to the benefit of the contract, which, upon reason or principle, he has no right to
ask the court to dispense with the performance of his own part of the agreement,
and yet to bind the other party to obligations, which, but for those stipulations,
would not have been entered into."
Subsequently, in the case of Pacific Banking Corporation vs. Court of Appeals, et al.,
18 we held:
It is not disputed that the insured failed to reveal before the loss three other
insurances. As found by the Court of Appeals, by reason of said unrevealed
insurances, the insured had been guilty of a false declaration; a clear
misrepresentation and a vital one because where the insured had been asked to
reveal but did not, that was deception. Otherwise stated, had the insurer known
that there were many co-insurances, it could have hesitated or plainly desisted
from entering into such contract. Hence, the insured was guilty of clear fraud (Rollo,
p. 25).
Petitioner's contention that the allegation of fraud is but a mere inference or
suspicion is untenable. In fact, concrete evidence of fraud or false declaration by
the insured was furnished by the petitioner itself when the facts alleged in the
policy under clauses "Co-Insurances Declared" and "Other Insurance Clause" are
materially different from the actual number of co-insurances taken over the subject
property. Consequently, "the whole foundation of the contract fails, the risk does
not attach and the policy never becomes a contract between the parties."
Representations of facts are the foundation of the contract and if the foundation
does not exist, the superstructure does not arise. Falsehood in such representations
is not shown to vary or add to the contract, or to terminate a contract which has
once been made, but to show that no contract has ever existed (Tolentino,
Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.,) A void or inexistent
contract is one which has no force and effect from the very beginning, as if it had
never been entered into, and which cannot be validated either by time or by
ratification (Tongoy vs. C.A., 123 SCRA 99 (1983); Avila v. C.A., 145 SCRA, 1986).
As the insurance policy against fire expressly required that notice should be given
by the insured of other insurance upon the same property, the total absence of
such notice nullifies the policy.
To further warrant and justify the forfeiture of the benefits under the insurance
contracts involved, we need merely to turn to Policy Condition No. 15 thereof,
which reads in part:
15. . . . if any false declaration be made or used in support thereof, . . . all
benefits under this Policy shall be forfeited . . . . 19
Additionally, insofar as the liability of respondent Reliance is concerned, it is not
denied that the complaint for recovery was filed in court by petitioners only on
January 31, 1984, or after more than one (1) year had elapsed from petitioners'
receipt of the insurers' letter of denial on November 29, 1982. Policy Condition No.
27 of their insurance contract with Reliance provides:
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 any court of
competent jurisdiction 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. 20
On this point, the trial court ruled:
. . . However, because of the peculiar circumstances of this case, we hesitate in
concluding that plaintiff's right to ventilate his claim in court has been barred by
reason of the time constraint provided in the insurance contract. It is evident that
after the plaintiff had received the letter of denial, he still found it necessary to be
informed of the specific causes or reasons for the denial of his claim, reason for
which his lawyer, Atty. Dator deemed it wise to send a letter of inquiry to the
defendant which was answered by defendant's Executive Vice-President in a letter
dated March 30, 1983, . . . . Assuming, gratuitously, that the letter of Executive
Vice-President Mary Dee Co dated March 30, 1983, was received by plaintiff on the
same date, the period of limitation should start to run only from said date in the
spirit of fair play and equity. . . . 21
We have perforce to reject this theory of the court below for being contrary to circumstances" sufficient to relax the enforcement of the one-year prescriptive
what we have heretofore declared: period and we, therefore, hold that petitioners' claim was definitely filed out of
time.
It is important to note the principle laid down by this Court in the case of Ang vs.
Fulton Fire Insurance Co. (2 SCRA 945 [1961]) to wit: WHEREFORE, finding no cogent reason to disturb the judgment of respondent Court
of Appeals, the same is hereby AFFIRMED.
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 SO ORDERED.
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.

In enunciating the above-cited principle, this Court had definitely settled the
rationale for the necessity of bringing suits against the Insurer within one year from
the rejection of the claim. The contention of the respondents that the one-year
prescriptive period does not start to run until the petition for reconsideration had
been resolved by the insurer, runs counter to the declared purpose for requiring
that an action or suit be filed in the Insurance Commission or in a court of
competent jurisdiction from the denial of the claim. To uphold respondents'
contention would contradict and defeat the very principle which this Court had laid
down. Moreover, it can easily be used by insured persons as a scheme or device to
waste time until any evidence which may be considered against them is destroyed.

xxx xxx xxx

While in the Eagle Star case (96 Phil. 701), 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. 22

Furthermore, assuming arguendo that petitioners felt the legitimate need to be

clarified as to the policy condition violated, there was a considerable lapse of time
from their receipt of the insurer's clarificatory letter dated March 30, 1983, up to
the time the complaint was filed in court on January 31, 1984. The one-year
prescriptive period was yet to expire on November 29, 1983, or about eight (8)
months from the receipt of the clarificatory letter, but petitioners let the period
lapse without bringing their action in court. We accordingly find no "peculiar