EFFECTS OF DOUBLE INSURANCE
CA reversed the decision of the Insurance Commission
GEAGONIA VS CA
Facts:
Geagonia, owner of a store, obtained from Country Bankers fire insurance
policy for P100,000.00. The 1 year policy and covered thestock trading of
dry goods. The policy noted the requirement that "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 notice be given and the particulars of such
insurance or insurances be stated therein or endorsed in 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
the loss or damage is not more than P200,000.00." The petitioners’ stocks
were destroyed by fire. He then filed a claim which was subsequently
denied because the petitioner’s stocks were covered by two other fire
insurance policies for Php 200,000 issued by PFIC. The basis of the private
respondent's denial was the petitioner's alleged violation of Condition 3 of
the policy. Geagonia then filed a complaint against the private respondent
in the Insurance Commission for the recovery of P100,000.00 under fire
insurance policy and damages. He claimed that he knew the existence of the
other two policies. But, he said that he had no knowledge of the provision in
the private respondent's policy requiring him to inform it of the prior
policies and this requirement was not mentioned to him by the private
respondent's agent. The Insurance Commission found that the petitioner
did not violate Condition 3 as he had no knowledge of the existence of the
two fire insurance policies obtained from the PFIC; that it was Cebu Tesing
Textiles w/c procured the PFIC policies w/o informing him or securing his
consent; and that Cebu Tesing Textile, as his creditor, had insurable interest
on the stocks. The Insurance Commission then ordered the respondent
company to pay complainant the sum of P100,000.00 with interest and
attorney’s fees.
because it found that the petitioner knew of the existence of the two other
policies issued by the PFIC.
Issues:
1. WON the petitioner had not disclosed the two insurance policies when he
obtained the fire insurance and thereby violated Condition 3 of the policy.
2. WON he is prohibited from recovering
Ruling:
Yes. No. Petition Granted
Ratio:
1. The court agreed with the CA that the petitioner knew of the prior
policies issued by the PFIC. His letter of 18 January 1991 to the private
respondent conclusively proves this knowledge. His testimony to the
contrary before the Insurance Commissioner and which the latter relied
upon cannot prevail over a written admission made ante litem motam. It
was, indeed, incredible that he did not know about the prior policies since
these policies were not new or original.
2. Stated differently, provisions, conditions or exceptions in policies which
tend to work a forfeiture of insurance policies should be construed most
strictly against those for whose benefits they are inserted, and most
favorably toward those against whom they are intended to operate. With
these principles in mind, Condition 3 of the subject policy is not totally free
from ambiguity and must be meticulously analyzed. Such analysis leads us
to conclude that (a) the prohibition applies only to double insurance, and (b)
the nullity of the policy shall only be to the extent exceeding P200,000.00 of
the total policies obtained. Furthermore, by stating within Condition 3 itself
that such condition shall not apply if the total insurance in force at the time
of loss does not exceed P200,000.00, the private respondent was amenable
to assume a co-insurer's liability up to a loss not exceeding P200,000.00.
What it had in mind was to discourage over-insurance. Indeed, the rationale
behind the incorporation of "other insurance" clause in fire policies is to
prevent over-insurance and thus avert the perpetration of fraud. When a
property owner obtains insurance policies from two or more insurers in a
total amount that exceeds the property's value, the insured may have an
inducement to destroy the property for the purpose of collecting the
insurance. The public as well as the insurer is interested in preventing a
situation in which a fire would be profitable to the insured.
WHEN IS INSURER LIABLE TO PAY AND DAMAGES UNDER SEC 243-244
TIO KHE CHIONG VS CA
Facts:
Tio Khe Chio imported 1,000 bags of fishmeal valued at $36,000.30
fromU.S.A. The goods were insured with Eastern Assurance and Surety
Corporation(EASCO) and shipped on board the M/V Peskov. When the
goods reached Manila,they were found to have been damaged by sea water
which rendered the fishmealuseless. Tio filed a claim with EASCO and Far
Eastern Shipping. Both refused to pay. Whereupon, Tio sued them before
the then CFI of Cebu for damages. The trialcourt rendered judgment
ordering EASCO and Far Eastern Shipping to pay Tiosolidarily the sum of
P105,986.68 less the amount of P18,387.86 for unpaid premiums with
interest at the legal rate from the filing of the complaint. The judgment
became final as to EASCO. The trial court, upon motion by Tio, issued awrit
of execution against EASCO. The sheriff enforcing the writ reportedly
fixedthe legal rate of interest at 12%. EASCO moved to quash the writ
alleging that thelegal interest to be computed should be 6% per annum in
accordance with Article2209 of the Civil Code and not 12% as insisted upon
by Tio's counsel.
Issue:
Whether Sections 243 and 244, as to interest, apply in the present case.
Ruling:
In the case at bar, the Court of Appeals made no finding that there was an
unjustified refusal or withholding of payment on petitioner’s claim.
In fact,respondent court had this to say on EASCO’s refusal to settle
the claim of petitioner: ". . . EASCO’s refusal to settle the claim to Tio
Khe Chio was based on
some ground which, while not sufficient to free it from liability under
its policy,nevertheless is sufficient to negate any assertion that in refusing to
pay, it actedunjustifiably.In the case of Philippine Rabbit Bus Lines, Inc. v.
Cruz, G.R. No. 71017, July 28,1986, 143 SCRA 158, the Court declared that
the legal rate of interest is six (6%) per cent per annum, and not twelve
(12%) per cent, where a judgment award is based on an action for damages
for personal injury, not use or forbearance ofmoney, goods or credit. In the
same vein, the Court held in GSIS v. Court ofAppeals, G.R. No. 52478,
October 30, 1986, 145 SCRA 311, that the rates underthe Usury Law
(amended by P.D. 116) are applicable only to interest by way of
compensation for the use or forbearance of money, interest by way of
damages isgoverned by Article 2209 of the Civil Code.
WHEN THERE IS NO RIGHT OF SUBROGATION
PAN MALAYAN INSURANCE CO. VS CA
Facts:
1.Canlubang Automotive Resources Corp. obtained from PanMalay a motor
vehicle insurancepolicy for its Mitsubishi Colt Lancer.
2.While the policy was still in effect, the insured car was allegedly hit by a
pick-up owned byErlinda Fabie but driven by another person. The
car suffered damages in the amount of P42K.
3.PanMalay defrayed the cost of repair of the insured car. It then demanded
reimbursement fromFabie and her driver of said amount, but to no avail.
4.PanMalay filed a complaint for damages with the RTC of Makati against
Fabie and the driver. Itaverred that the damages caused to the insured car
was settled under the“owndamage” coverage of the insurance policy.
5.Private respondents filed a motion to dismiss alleging that PanMalay had
no cause of actionsince the
“won damage” clause of the policy precluded subrogation under Art. 2207 of
the Civil Code. They contended that indemnification under said article is on
the assumption that therewas no wrongdoer or no 3rdp a r t y a t f a u l t .
6.The RTC dismissed
PanMalay’s complaint and ruled that payment under the “own damage”
clause was an admission by the insurer that the damage was caused by the
assured and/or itsrepresentatives.
7.CA affirmed but on different ground. Applying the ejusdem generis rule, There are three exceptions to this rule:1.
CA held that Section III-Iof the policy, which was the basis for the settlement
of the claim against insurance, did notcover damage arising from collision or where the assured by his own act releases the wrongdoer or third party
overturning due to the negligence of 3rd parties as one of the insurable risks. liable for the loss ordamage2.

Issue: where the insurer pays the assured the value of the lost goods without
Was PanMalay subrogated to the rights of Canlubang against the driver and notifying the carrier whohas in good faith settled the assured's claim
his employer? for loss3.

Ruling: where the insurer pays the assured for a loss which is not a risk covered by
Yes. the policy, therebyeffecting "voluntary payment"None of these exceptions
Decision: are present in this case.
The Supreme Court As to the trial court’s ruling:
remanded When PanMalay utilized the phrase "own damage"
the case back to the trial court. —
Ruling: a phrase which is not found in the insurancepolicy
Right of Subrogation of the Insurer —
to define the basis for its settlement of Canlubang's claim under the policy,
it simply meantthat it had assumed to reimburse the costs for repairing the
Article 2207 of the Civil Code is founded on the well-settled principle of damage to the insured vehicle. It is in thissense that the so-called "own
subrogation. damage" coverage under Section III of the insurance policy isdifferentiated
If the insured property is destroyed or damaged through the fault or from Sections I and IV-1 which refer to "Third Party Liability" coverage
negligence of a party other than the assured, then the insurer, upon payment to the (liabilities arisingfrom the death of, or bodily injuries suffered by, third
assured, will be subrogated to the rights of the assured to recover from the wrongdoer to parties) and from Section IV-2 which refer to"Property Damage" coverage
the extent that the insurer has been obligated to pay. (liabilities arising from damage caused by the insured vehicle to
theproperties of third parties).
As to the Court of Appeals’ ruling:
The Court of Appeals' ruling on the coverage of insured risks stems from an
Payment by the insurer to the assured operates as an equitable assignment erroneous interpretation of the provisions
to the former of allremedies which the latter may have against the third of the policy. It violates a fundamental rule on the interpretation of
party whose negligence or wrongful actcaused the loss. property insurancecontracts where interpretation should be liberally in
favor of the assured and strictly against the insurerin cases of disagreement
between the parties. The meaning advanced by PanMalay regarding
The right of subrogation is not dependent thecoverage of the policy is undeniable more beneficial to Canlubang than
upon, nor does it grow out of, any privity of contractor upon written that insisted upon by the CA. Inany case, the very parties to the policy were
assignment of claim. It accrues simply upon payment of the insurance claim not shown to be in disagreement regarding the meaningand coverage of
bythe insurer. Section III-I. Hence, it was improper for CA to assert its own interpretation
of thecontract that is contrary to the clear understanding and intention of
the parties to it.
*
Even assuming for the sake of argument that the insurance policy does not
cover damage to theinsured vehicle caused by negligent acts of third
parties, and that PanMalay's settlement of Canlubang'sclaim for damages
allegedly arising from a collision due to private respondents' negligence
wouldamount to unwarranted or "voluntary payment",
insurer may still recover from the third partyresponsible for the damage to
the insured property under Article 1236 of the Civil Code.