G.R. No.

92383 July 17, 1992

SUN INSURANCE OFFICE, LTD., petitioner,
vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

CRUZ, J.:

FACTS

The petitioner issued a Personal Accident Policy to Felix Lim, Jr. w/ a face value of
P200,000.00. 2 months later, he was dead with a bullet wound in his head. As beneficiary,
his wife Nerissa Lim sought payment on the policy but her claim was rejected. The
petitioner agrees that there was no suicide, but it argued however that there was no
accident either.

Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. He narrated that the
accident happened on October 6, 1982, at about 10 o'clock in the evening, after his
mother's birthday party. Lim was in a happy mood and was playing with his handgun,
from which he had previously removed the magazine. As she watched television, he stood
in front of her and pointed the gun at her. She pushed it aside and said it might he loaded.
He assured her it was not and then pointed it to his temple. The next moment there was
an explosion and Lim slumped to the floor. He was dead before he fell.

The widow sued the petitioner in the Regional Trial Court of Zamboanga City and the
latter was sentenced to pay her P200,000.00, representing the face value of the policy,
with interest at the legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary
damages; P5,000.00 as actual and compensatory damages; and P5,000.00 as attorney's
fees, plus the costs of the suit.

This decision was affirmed on appeal, and the motion for reconsideration was denied.

ISSUE
WON THE PETITIONER IS LIABLE TO PAY INDEMNITY

RULING

YES.

An accident is an event which happens without any human agency or, if happening
through human agency, an event which, under the circumstances, is unusual to and not
expected by the person to whom it happens. It has also been defined as an injury which
happens by reason of some violence or casualty to the injured without his design,
consent, or voluntary co-operation.
In light of the definition, the Court is convinced that the incident that resulted in Lim's
death was indeed an accident.

To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner
contends that the insured willfully exposed himself to needless peril and thus removed
himself from the coverage of the insurance policy.

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

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

Lim was unquestionably negligent and that negligence cost him his own life. But it should
not prevent his widow from recovering from the insurance policy he obtained precisely
against accident. There is nothing in the policy that relieves the insurer of the
responsibility to pay the indemnity agreed upon if the insured is shown to have contributed
to his own accident. Indeed, most accidents are caused by negligence.

It bears noting that insurance contracts are as a rule supposed to be interpreted liberally
in favor of the assured.

There is no reason to deviate from this rule, especially in view of the circumstances of
this case as above analyzed.

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

as it holds the petitioner liable to the private respondent in the sum of P200,000.00
representing the face value of the insurance contract, with interest at the legal rate from
the date of the filing of the complaint until the full amount is paid, but MODIFIED with the
deletion of all awards for damages, including attorney's fees, except the costs of the suit.
SO ORDERED.
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.
K.V. Faylona for petitioners-appellants.
L. L. Reyes for respondents-appellees.

VASQUEZ, J.:

FACTS

Sometime in April 1969, Carmen O, Lapuz applied with respondent insurance corporation
for insurance coverage against accident and injuries. 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 and subsequently, the
insurance policy was issued, effective for a period of 90 days.

On May 31, 1969, 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. 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 dismissed the complaint and was appealed directly to the SC.

ISSUE
WON 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.

RULING

YES.
The age of the insured 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, 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.

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).

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-15895 November 29, 1920
RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma. Herrer,
plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.
Jose A. Espiritu for appellant.
Cohn, Fisher and DeWitt for appellee.

MALCOLM, J.:

FACTS

On September 24, 1917, Joaquin Herrer made application to the Sun Life Assurance
Company of Canada through its office in Manila for a life annuity. Two days later he paid
the sum of P6,000 to the manager of the company's Manila office and was given a receipt.

The application was immediately forwarded to the head office of the company at Montreal,
Canada. On November 26, 1917, the head office gave notice of acceptance by cable to
Manila. On December 4, 1917, the policy was issued at Montreal. On December 18, 1917,
attorney Aurelio A. Torres wrote to the Manila office of the company stating that Herrer
desired to withdraw his application.

The following day the local office replied to Mr. Torres, stating that the policy had been
issued, and called attention to the notification of November 26, 1917. This letter was
received by Mr. Torres on the morning of December 21, 1917. Mr. Herrer died on
December 20, 1917.

ISSUE

WON Herrer received notice of acceptance of his application.

RULING
NO.

We hold that the contract for a life annuity in the case at bar was not perfected because
it has not been proved satisfactorily that the acceptance of the application ever came to
the knowledge of the applicant. Our deduction must be that the letter of November 26,
1917, notifying Mr. Herrer that his application had been accepted, was prepared and
signed in the local office of the insurance company, was placed in the ordinary channels
for transmission, but as far as we know, was never actually mailed and thus was never
received by the applicant.

In the Civil Code is found article 1262 providing that "Consent is shown by the
concurrence of offer and acceptance with respect to the thing and the consideration which
are to constitute the contract. An acceptance made by letter shall not bind the person
making the offer except from the time it came to his knowledge. The contract, in such
case, is presumed to have been entered into at the place where the offer was made."
The Civil Code rule, that an acceptance made by letter shall bind the person making the
offer only from the date it came to his knowledge, may not be the best expression of
modern commercial usage. Still it must be admitted that its enforcement avoids
uncertainty and tends to security. Not only this, but in order that the principle may not be
taken too lightly, let it be noticed that it is identical with the principles announced by a
considerable number of respectable courts in the United States. The courts who take this
view have expressly held that an acceptance of an offer of insurance not actually or
constructively communicated to the proposer does not make a contract. Only the mailing
of acceptance, it has been said, completes the contract of insurance, as the locus
poenitentiae is ended when the acceptance has passed beyond the control of the party.

The fact as to the letter of notification thus fails to concur with the essential elements of
the general rule pertaining to the mailing and delivery of mail matter as announced by the
American courts, namely, when a letter or other mail matter is addressed and mailed with
postage prepaid, there is a rebuttable presumption of fact that it was received by the
addressee as soon as it could have been transmitted to him in the ordinary course of the
mails. But if any one of these elemental facts fails to appear, it is fatal to the presumption.
For instance, a letter will not be presumed to have been received by the addressee unless
it is shown that it was deposited in the post-office, properly addressed and stamped.

Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum
of P6,000 with legal interest from November 20, 1918, until paid, without special finding
as to costs in either instance. So ordered.
CEBU SHIPYARD AND ENGINEERING WORKS, INC., petitioner, vs. WILLIAM
LINES, INC. and PRUDENTIAL GUARANTEE and ASSURANCE COMPANY, INC.,
respondents.
DECISION
PURISIMA, J.:

FACTS

Cebu Shipyard and Engineering Works, Inc. (CSEW) is a domestic corporation engaged
in the business of dry-docking and repairing of marine vessels while the private
respondent, Prudential Guarantee and Assurance, Inc. (Prudential), also a domestic
corporation is in the non-life insurance business.

William Lines, Inc. (plaintiff below) is in the shipping business. It was the owner of M/V
Manila City, a luxury passenger-cargo vessel, which caught fire and sank on February
16, 1991. At the time of the unfortunate occurrence sued upon, subject vessel was insured
with Prudential for P45,000,000.00 pesos for hull and machinery.
The Hull Policy included an Additional Perils (INCHMAREE) Clause covering loss of or
damage to the vessel through the negligence of, among others, ship repairmen.

Petitioner CSEW was also insured by Prudential for third party liability under a
Shiprepairers Legal Liability Insurance Policy. The policy was for P10 million only, under
the limited liability clause.

On February 5, 1991, William Lines, Inc. brought its vessel, M/V Manila City, to the Cebu
Shipyard in Lapulapu City for annual dry-docking and repair.
On February 6, 1991, an arrival conference was held between representatives of William
Lines, Inc. and CSEW to discuss the work to be undertaken on the M/V Manila City.

While the M/V Manila City was undergoing dry-docking and repairs within the premises
of CSEW, the master, officers and crew of M/V Manila City stayed in the vessel, using
their cabins as living quarters. Other employees hired by William Lines to do repairs and
maintenance work on the vessel were also present during the dry-docking.

On February 16, 1991, after subject vessel was transferred to the docking quay, it caught
fire and sank, resulting to its eventual total loss.

On February 21, 1991, William Lines, Inc. filed a complaint for damages against CSEW,
alleging that the fire which broke out in M/V Manila City was caused by CSEWs
negligence and lack of care.

On June 10, 1994, the trial court a quo came out with a judgment against CSEW.
CSEW appealed the aforesaid decision to the Court of Appeals. During the pendency of
the appeal, CSEW and William Lines presented a Joint Motion for Partial Dismissal with
prejudice, on the basis of the amicable settlement inked between Cebu Shipyard and
William Lines only.
On September 3, 1997, the Court of Appeals affirmed the appealed decision of the trial
court.
Thus, the petitioner, now in SC contends, among others, that Prudential is not entitled to
be subrogated to the rights of William Lines, Inc., theorizing that (1) the fire which gutted
M/V Manila City was an excluded risk and (2) it is a co-assured under the Marine Hull
Insurance Policy. They argue that the loss of M/V Manila City or damage thereto is
expressly excluded from the coverage of the insurance because the same resulted from
want of due diligence by the Assured, Owners or Managers which is not included in the
risks insured against.

ISSUES

1. WON THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING

THAT PRUDENTIAL HAS THE RIGHT OF SUBROGATION AGAINST ITS OWN
INSURED.

AND;

2. WON THAT THE CONTRACTUAL PROVISIONS LIMITING CSEWS LIABILITY FOR

NEGLIGENCE TO A MAXIMUM OF P1 MILLION IS NOT VALID, CONTRARY TO THE
APPLICABLE RULINGS OF THIS HONORABLE COURT.

RULING

NO.
The petition is unmeritorious.

Here, the CA and the Cebu RTC of origin are agreed that the fire which caused the total
loss of subject M/V Manila City was due to the negligence of the employees and workers
of CSEW. We agree with both courts which found that the M/V Manila City was under
the custody and control of petitioner CSEW, when the ill-fated vessel caught fire.

On the issue of subrogation, the theory of petitioner is bereft of any factual or legal basis.
It proceeds from a wrong premise that the fire which gutted subject vessel was caused
by the negligence of the employees of William Lines, Inc. To repeat, the issue of who
between the parties was negligent has already been resolved against Cebu Shipyard and
Engineering Works, Inc. Upon proof of payment by Prudential to William Lines, Inc., the
former was subrogated to the right of the latter to indemnification from CSEW.

As aptly ruled by the Court of Appeals, the law on the matter is succinct and clear, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or loss, the aggrieved party shall
be entitled to recover the deficiency from the person causing the loss or injury.

Thus, when Prudential, after due verification of the merit and validity of the insurance
claim of William Lines, Inc., paid the latter the total amount covered by its insurance policy,
it was subrogated to the right of the latter to recover the insured loss from the liable party,
CSEW.

Petitioner theorizes further that there can be no right of subrogation as it is deemed a co-
assured under the subject insurance policy. To buttress its stance that it is a co-assured,
petitioner placed reliance on Clause 20 of of the Work Order which states:

20. The insurance on the vessel should be maintained by the customer and/or owner of
the vessel during the period the contract is in effect.

However, Clause 20 of the Work Order in question is clear in the sense that it requires
William Lines to maintain insurance on the vessel during the period of dry-docking or
repair. Concededly, such a stipulation works to the benefit of CSEW as the shiprepairer.
However, the fact that CSEW benefits from the said stipulation does not automatically
make it as a co-assured of William Lines. The intention of the parties to make each other
a co-assured under an insurance policy is to be gleaned principally from the insurance
contract or policy itself and not from any other contract or agreement because the
insurance policy denominates the assured and the beneficiaries of the insurance.

The hull and machinery insurance procured by William Lines, Inc. from Prudential named
only William Lines, Inc. as the assured. There was no manifestation of any intention of
William Lines, Inc. to constitute CSEW as a co-assured under subject policy. It is
axiomatic that when the terms of a contract are clear its stipulations control. Thus, when
the insurance policy involved named only William Lines, Inc. as the assured thereunder,
the claim of CSEW that it is a co-assured is unfounded.

As correctly pointed out by respondent Prudential, if CSEW were deemed a co-assured

under the policy, it would nullify any claim of William Lines, Inc. from Prudential for any
loss or damage caused by the negligence of CSEW. Certainly, no shipowner would agree
to make a shiprepairer a co-assured under such insurance policy; otherwise, any claim
for loss or damage under the policy would be invalidated. Such result could not have been
intended by William Lines, Inc.

Finally, CSEW argues that even assuming that it was negligent and therefore liable to
William Lines, Inc., by stipulation in the Contract or Work Order its liability is limited to
One Million (P1,000,000.00) Pesos only, and Prudential a mere subrogee of William
Lines, Inc., should only be entitled to collect the sum stipulated in the said contract.

Although in this jurisdiction, contracts of adhesion have been consistently upheld as valid
per se; as binding as an ordinary contract, the Court recognizes instances when reliance
on such contracts cannot be favored especially where the facts and circumstances
warrant that subject stipulations be disregarded.

Thus, in ruling on the validity and applicability of the stipulation limiting the liability of
CSEW for negligence to P1,000,000.00 only, the facts and circumstances vis-a-vis the
nature of the provision sought to be enforced should be considered, bearing in mind the
principles of equity and fair play.

It is worthy to note that M/V Manila City was insured with Prudential for P45,000,000.00.
Upon thorough investigation by its hull surveyor, M/V Manila City was found to be beyond
economical salvage and repair. The evaluation of the average adjuster also reported a
constructive total loss. The said claim of William Lines, Inc., was then found to be valid
and compensable such that Prudential paid the latter the total value of its insurance claim.

Considering the aforestated circumstances, let alone the fact that negligence on the part
of petitioner has been sufficiently proven, it would indeed be unfair and inequitable to limit
the liability of petitioner to One Million Pesos only. As aptly held by the trial court, it is
rather unconscionable if not overstrained. To allow CSEW to limit its liability to One Million
Pesos notwithstanding the fact that the total loss suffered by the assured and paid for by
Prudential amounted to P45,000,000.00 would sanction the exercise of a degree of
diligence short of what is ordinarily required because, then, it would not be difficult for
petitioner to escape liability by the simple expedient of paying an amount very much lower
than the actual damage or loss suffered by William Lines, Inc.

WHEREFORE, for want of merit, the petition is hereby DENIED and the decision, dated
September 3, 1997, and Resolution, dated February 13, 1998, of the Court of Appeals
AFFIRMED. No pronouncement as to costs.
SO ORDERED.