White Gold v Pioneer G.R. No. 154514.

July 28, 2005

J. Quisimbing

Facts:
White Gold procured a protection and indemnity coverage for its vessels from The Steamship Mutual
through Pioneer Insurance and Surety Corporation. White Gold was issued a Certificate of Entry and
Acceptance. Pioneer also issued receipts. When White Gold failed to fully pay its accounts,
Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover
the unpaid balance. White Gold on the other hand, filed a complaint before the Insurance
Commission claiming that Steamship Mutual and Pioneer violated provisions of the Insurance Code.
The Insurance Commission dismissed the complaint. It said that there was no need for Steamship
Mutual to secure a license because it was not engaged in the insurance business and that it was a P
& I club. Pioneer was not required to obtain another license as insurance agent because Steamship
Mutual was not engaged in the insurance business.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the
appellate court distinguished between P & I Clubs vis-à-vis conventional insurance. The appellate
court also held that Pioneer merely acted as a collection agent of Steamship Mutual.
Hence this petition by White Gold.

Issues:
1. Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines?
2. Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?

Held: Yes. Petition granted.

Ratio:
White Gold insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To
buttress its assertion, it cites the definition as “an association composed of shipowners in general who
band together for the specific purpose of providing insurance cover on a mutual basis against
liabilities incidental to shipowning that the members incur in favor of third parties.”
They argued that Steamship Mutual’s primary purpose is to solicit and provide protection and
indemnity coverage and for this purpose, it has engaged the services of Pioneer to act as its agent.
Respondents contended that although Steamship Mutual is a P & I Club, it is not engaged in the
insurance business in the Philippines. It is merely an association of vessel owners who have come
together to provide mutual protection against liabilities incidental to shipowning.
Is Steamship Mutual engaged in the insurance business?
A P & I Club is “a form of insurance against third party liability, where the third party is anyone other
than the P & I Club and the members.” By definition then, Steamship Mutual as a P & I Club is a
mutual insurance association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite
certificate of authority mandated by Section 187 of the Insurance Code. It maintains a resident agent
in the Philippines to solicit insurance and to collect payments in its behalf. Steamship Mutual even
renewed its P & I Club cover until it was cancelled due to non-payment of the calls. Thus, to continue
doing business here, Steamship Mutual or through its agent Pioneer, must secure a license from the
Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no
insurer or insurance company is allowed to engage in the insurance business without a license or a
certificate of authority from the Insurance Commission.
2. Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration
issued by the Insurance Commission. It has been licensed to do or transact insurance business by
virtue of the certificate of authority issued by the same agency. However, a Certification from the
Commission states that Pioneer does not have a separate license to be an agent/broker of Steamship
Mutual.
Although Pioneer is already licensed as an insurance company, it needs a separate license to act as
insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the Philippines or
any agent thereof, without first procuring a license so to act from the Commissioner…
White Gold Marine Services, Inc. vs Pioneer Insurance and Surety Corporation
White Gold Marine Services, Inc. owns several shipping vessels. Steamship Mutual Underwriting
Association, Ltd. (based in Bermuda) is a protection and indemnity club which is an association
composed of shipowners in general who band together for the specific purpose of providing insurance
cover on a mutual basis against liabilities incidental to shipowning that the members incur in favor of
third parties. White Gold, through Pioneer Insurance (agent of Steamship Mutual here), procured a
protection and indemnity coverage from Steamship Mutual. Steamship Mutual does not have authority
from the Insurance Commission to conduct insurance business in the Philippines but its collection agent
here (Pioneer Insurance) has been licensed to conduct insurance business.
Later, Steamship Mutual filed a case for collection of sum of money against White Gold due to the
latter’s failure to pay its balance with the former. White Gold averred that Steamship Mutual has no
license [hence it cannot collect]. Nor can it collect through Pioneer Insurance because, though Pioneer
Insurance is licensed as an insurance company, it is not licensed to be an insurance broker/agent.
Steamship Mutual insisted it is not conducting insurance business here and is merely a protection and
indemnity club. The Insurance Commission as well as the Court of Appeals ruled against White Gold.
ISSUE: Whether or not Steamship Mutual needs a license to operate in the Philippines.
HELD: Yes. The test to determine if a contract is an insurance contract or not, depends on the nature
of the promise, the act required to be performed, and the exact nature of the agreement in the light of
the occurrence, contingency, or circumstances under which the performance becomes requisite. It is
not by what it is called. If it is a contract of indemnity, it must be a contract of insurance. In fact, a
protection and indemnity club is a form of insurance where the members are both the insurers and the
insured. It is a mutual insurance company. The club indemnifies the member for whatever risks it may
incur against a third party where the third party is other than the club and the members. Hence,
Steamship Mutual needs to procure a license from the Insurance Commission in order to continue
operating here.
Pioneer Insurance also needs to secure another license as an insurance broker/agent of Steamship
Mutual pursuant to Section 299 of the Insurance Code.

Verendia V CA G.R. No. 75605 January 22, 1993 G.R. No. 75605 January 22, 1993
Lessons Applicable: Exception to Ambiguous Provisions Interpreted Against Insurer (Insurance)

FACTS:
Rafael (Rex) Verendia's residential building was insured with Fidelity and Surety Insurance Company,
Country Bankers Insurance and Development Insurance with Monte de Piedad & Savings Bank as beneficiary
December 28, 1980 early morning: the building was completely destroyed by fire
Fidelity refused the claim stating that there was a misrepresentation since the lessee was not Roberto Garcia
but Marcelo Garcia
trial court: favored Fidelity
CA: reversed
ISSUE: W/N there was false declaration which would forfeit his benefits under Section 13 of the policy

HELD: YES.
Section 13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under the
policy shall be forfeited "If the claim be in any respect fraudulent, or if any false declaration be made or used in
support thereof, or if any fraudulent means or devises are used by the Insured or anyone acting in his behalf to
obtain any benefit under the policy"
Robert Garcia then executed an affidavit before the National Intelligence and Security Authority (NISA) to the
effect that he was not the lessee of Verendia's house and that his signature on the contract of lease was a
complete forgery.
Worse yet, by presenting a false lease contract, Verendia, reprehensibly disregarded the principle that
insurance contracts are uberrimae fidae and demand the most abundant good faith

Facts:
> Fidelity and Surety Insurance Company (Fidelity) issued Fire Insurance Policy No. F-18876
effective between June 23, 1980 and June 23, 1981 covering Rafael (Rex) Verendia's residential in
the amount of P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings Bank.
> Verendia also insured the same building with two other companies, namely, The Country Bankers
Insurance for P56,000.00 and The Development Insurance for P400,000.00.
> While the three fire insurance policies were in force, the insured property was completely destroyed
by fire.
> Fidelity appraised the damage amounting to 385,000 when it was accordingly informed of the loss.
Despite demands, Fidelity refused payment under its policy, thus prompting Verendia to file a
complaint for the recovery of 385,000
> Fidelity, averred that the policy was avoided by reason of over-insurance, that Verendia maliciously
represented that the building at the time of the fire was leased under a contract executed on June 25,
1980 to a certain Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee.

Issue:
Whether or not Verendia can claim on the insurance despite the misrepresentation as to the lessee
and the overinsurance.

Held: NOPE.
The contract of lease upon which Verendia relies to support his claim for insurance benefits, was
entered into between him and one Robert Garcia, a couple of days after the effectivity of the
insurance policy. When the rented residential building was razed to the ground, it appears that Robert
Garcia was still within the premises. However, according to the investigation by the police, the
building appeared to have "no occupants" and that Mr. Roberto Garcia was "renting on the otherside
of said compound" These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo
Garcia whom he considered as the real lessee, was occupying the building when it was burned.
Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease
contract but it was Marcelo Garcia cousin of Robert, who had also been paying the rentals all the
while. Verendia, however, failed to explain why Marcelo had to sign his cousin's name when he in fact
he was paying for the rent and why he (Verendia) himself, the lessor, allowed such a ruse. Fidelity's
conclusions on these proven facts appear, therefore, to have sufficient bases: Verendia concocted
the lease contract to deflect responsibility for the fire towards an alleged "lessee", inflated the value of
the property by the alleged monthly rental of P6,500) when in fact, the Provincial Assessor of Rizal
had assessed the property's fair market value to be only P40,300.00, insured the same property with
two other insurance companies for a total coverage of around P900,000, and created a dead-end for
the adjuster by the disappearance of Robert Garcia.
Basically a contract of indemnity, an insurance contract is the law between the parties. Its terms and
conditions constitute the measure of the insurer's liability and compliance therewith is a condition
precedent to the insured's right to recovery from the. As it is also a contract of adhesion, an insurance
contract should be liberally construed in favor of the insured and strictly against the insurer company
which usually prepares it
.Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease
contract to support his claim under Fire Insurance Policy, the terms of the policy should be strictly
construed against the insured. Verendia failed to live by the terms of the policy, specifically Section
13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under the
policy shall be forfeited "if the claim be in any respect fraudulent, or if any false declaration be made
or used in support thereof, or if any fraudulent means or devises are used by the Insured or anyone
acting in his behalf to obtain any benefit under the policy". Verendia, having presented a false
declaration to support his claim for benefits in the form of a fraudulent lease contract, he forfeited all
benefits therein by virtue of Section 13 of the policy in the absence of proof that Fidelity waived such
provision
There is also no reason to conclude that by submitting the subrogation receipt as evidence in court,
Fidelity bound itself to a "mutual agreement" to settle Verendia's claims in consideration of the
amount of P142,685.77. While the said receipt appears to have been a filled-up form of Fidelity, no
representative of Fidelity had signed it. It is even incomplete as the blank spaces for a witness and
his address are not filled up. More significantly, the same receipt states that Verendia had received
the aforesaid amount. However, that Verendia had not received the amount stated therein, is proven
by the fact that Verendia himself filed the complaint for the full amount of P385,000.00 stated in the
policy. It might be that there had been efforts to settle Verendia's claims, but surely, the subrogation
receipt by itself does not prove that a settlement had been arrived at and enforced. Thus, to interpret
Fidelity's presentation of the subrogation receipt in evidence as indicative of its accession to its
"terms" is not only wanting in rational basis but would be substituting the will of the Court for that of
the parties

Rizal Surety v CA G.R. No. 112360. July 18, 2000

Facts:
Rizal Surety issued a 1 million peso fire insurance policy with Transworld. This was increased to 1.5
million. A four span building was part of the policy. A fire broke out and gutted the building, together
with a two storey building behind it were gaming machines were stored. The company filed its claims
but to no avail. Hence, it brought a suit in court. It aimed to make Rizal pay for almost 3 million
including legal interest and damages. Rizal claimed that the policy only covered damage on the four
span building and not the two storey building. The trial court ruled in Transworld’s favor and ordered
Rizal to pay actual damages only. The court of appeals increased the damages. The insurance
company filed a MFR. The CA answered by modifying the imposition of interest. Not satisfied, the
insurance company petitioned to the Supreme Court.

Issue:
WON Rizal Surety is liable for loss of the two-storey building considering that the fire insurance policy
sued upon covered only the contents of the four-span building.

Held: Yes. Petition dismissed.

Ratio:
The policy had clauses on the building coverage that read:
"contained and/or stored during the currency of this Policy in the premises occupied by them forming
part of the buildingssituated within own Compound"
"First, said properties must be contained and/or stored in the areas occupied by Transworld and
second, said areas must form part of the building described in the policy xxx"
This generally means that the policy didn’t limit its coverage to what was stored in the four-span
building.
As to questions of fact, both the trial court and the Court of Appeals found that the so called "annex "
was not an annex building but an integral part of the four-span building described in the policy
and consequently, the machines and spare parts stored were covered by the fire insurance.
A report said: "Two-storey building constructed of partly timber and partly concrete
hollow blocks under g.i. roof which is adjoining and intercommunicating with the repair of the first
right span of the lofty storey building and thence by property fence wall."
"Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity"
Landicho v GSIS- the 'terms in an insurance policy, which are ambiguous, equivocal, or uncertain are
to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so
as to effect the dominant purpose of indemnity or payment to the insured’
The issue of whether or not Transworld has an insurable interest in the fun and amusement machines
and spare parts, which entitles it to be indemnified for the loss thereof, had been settled in another
SC case.

336 SCRA 12 (2000)

INSURANCE LAW: Interpretation of Insurance Contracts

FACTS:

Rizal Surety & Insurance Company issued a fire insurance policy in favor of Transworld Knitting Mills,
Inc. The subject policy stated that Rizal Surety is “responsible in case of loss whilst contained and/or
stored during the currency of this Policy in the premises occupied by them forming part of the
buildings situated within own Compound xxx.” The policy also described therein the four-span
building covered by the same.

On Jan. 12, 1981, fire broke out in the compound, razing the middle portion of its four-span building
and partly gutting the left and right sections thereof. A two-storey building (behind said four-span
building) was also destroyed by the fire.

ISSUE:

Whether or not Rizal Surety is liable for loss of the two-storey building considering that the fire
insurance policy sued upon covered only the contents of the four-span building

HELD:

Both the trial court and the CA found that the so-called “annex” as not an annex building but an
integral and inseparable part of the four-span building described in the policy and consequently, the
machines and spare parts stored therein were covered by the fire insurance in dispute.

So also, considering that the two-storey building aforementioned was already existing when subject
fire insurance policy contract was entered into on Jan. 12, 1981, having been constructed some time
in 1978, petitioner should have specifically excluded the said two-storey building from the coverage of
the fire insurance if minded to exclude the same but if did not, and instead, went on to provide that
such fire insurance policy covers the products, raw materials and supplies stored within the premises
of Transworld which was an integral part of the four-span building occupied by Transworld, knowing
fully well the existence of such building adjoining and intercommunicating with the right section of the
four-span building.

Also, in case of doubt in the stipulation as to the coverage of the fire insurance policy, under Art. 1377
of the New Civil Code, the doubt should be resolved against the Rizal Surety, whose layer or
managers drafted the fire insurance policy contract under scrutiny.

In Landicho vs. Government Service Insurance System, the Court ruled that “the terms in an
insurance policy, which are ambiguous, equivocal or uncertain x x x are to be construed strictly and
most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant
purpose of indemnity or payment to the insured, especially where forfeiture is involved, and the
reason for this is that the insured usually has no voice in the selection or arrangement of the words
employed and that the language of the contract is selected with great care and deliberation by
experts and legal advisers employed by, and acting exclusively in the interest of, the insurance
company.”

Philamcare v CA G.R. No. 125678. March 18, 2002

Facts:
Ernani Trinos applied for a health care coverage with Philam. He answered no to a question asking if
he or his family members were treated to heart trouble, asthma, diabetes, etc.
The application was approved for 1 year. He was also given hospitalization benefits and out-patient
benefits. After the period expired, he was given an expanded coverage for Php 75,000. During the
period, he suffered from heart attack and was confined at MMC. The wife tried to claim the benefits
but the petitioner denied it saying that he concealed his medical history by answering no to the
aforementioned question. She had to pay for the hospital bills amounting to 76,000. Her husband
subsequently passed away. She filed a case in the trial court for the collection of the amount plus
damages. She was awarded 76,000 for the bills and 40,000 for damages. The CA affirmed but
deleted awards for damages. Hence, this appeal.
Issue: WON a health care agreement is not an insurance contract; hence the “incontestability clause”
under the Insurance Code does not apply.

Held: No. Petition dismissed.

Ratio:
 Petitioner claimed that it granted benefits only when the insured is alive during the one-year duration.
It contended that there was no indemnification unlike in insurance contracts. It supported this claim by
saying that it is a health maintenance organization covered by the DOH and not the Insurance
Commission. Lastly, it claimed that the Incontestability clause didn’t apply because two-year and not
one-year effectivity periods were required.
Section 2 (1) of the Insurance Code defines a contract of insurance as “an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event.”
Section 3 states: every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children.
In this case, the husband’s health was the insurable interest. The health care agreement was in the
nature of non-life insurance, which is primarily a contract of indemnity. The provider must pay for the
medical expenses resulting from sickness or injury.
While petitioner contended that the husband concealed materialfact of his sickness, the contract
stated that:
“that any physician is, by these presents, expressly authorized to disclose or give testimony at
anytime relative to any information acquired by him in his professional capacity upon any question
affecting the eligibility for health care coverage of the Proposed Members.”
This meant that the petitioners required him to sign authorization to furnish reports about his medical
condition. The contract also authorized Philam to inquire directly to his medical history.
Hence, the contention of concealment isn’t valid.
They can’t also invoke the “Invalidation of agreement” clause where failure of the insured to disclose
information was a grounds for revocation simply because the answer assailed by the company was
the heart condition question based on the insured’s opinion. He wasn’t a medical doctor, so he can’t
accurately gauge his condition.
Henrick v Fire- “in such case the insurer is not justified in relying upon such statement, but is
obligated to make further inquiry.”
Fraudulent intent must be proven to rescind the contract. This was incumbent upon the provider.
“Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the
extent agreed upon. In the end, the liability of the health care provider attaches once the member is
hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered
benefits which he has prepaid.”
Section 27 of the Insurance Code- “a concealment entitles the injured party to rescind a contract of
insurance.”
As to cancellation procedure- Cancellation requires certain conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more of the
grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation is based
None were fulfilled by the provider.
As to incontestability- The trial court said that “under the title Claim procedures of expenses, the
defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the
Agreement within which to contest the membership of the patient if he had previous ailment of
asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or
hypertension. The periods having expired, the defense of concealment or misrepresentation no
longer lie.”

In 1988, Ernani Trinos applied for a health care insurance under the Philamcare Health Systems, Inc.
He was asked if he was ever treated for high blood, heart trouble, diabetes, cancer, liver disease,
asthma, or peptic ulcer; he answered no. His application was approved and it was effective for one
year. His coverage was subsequently renewed twice for one year each. While the coverage was still in
force in 1990, Ernani suffered a heart attack for which he was hospitalized. The cost of the
hospitalization amounted to P76,000.00. Julita Trinos, wife of Ernani, filed a claim before Philamcare
for the latter to pay the hospitalization cost. Philamcare refused to pay as it alleged that Ernani failed
to disclose the fact that he was diabetic, hypertensive, and asthmatic. Julita ended up paying the
hospital expenses. Ernani eventually died. In July 1990, Julita sued Philamcare for damages.
Philamcare alleged that the health coverage is not an insurance contract; that the concealment made
by Ernani voided the agreement.
ISSUE: Whether or not Philamcare can avoid the health coverage agreement.
HELD: No. The health coverage agreement (health care agreement) entered upon by Ernani with
Philamcare is a non-life insurance contract and is covered by the Insurance Law. It is primarily a
contract of indemnity. Once the member incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract. There is no concealment on the part of Ernani. He answered
the question with good faith. He was not a medical doctor hence his statement in answering the
question asked of him when he was applying is an opinion rather than a fact. Answers made in good
faith will not void the policy.
Further, Philamcare, in believing there was concealment, should have taken the necessary steps to
void the health coverage agreement prior to the filing of the suit by Julita. Philamcare never gave notice
to Julita of the fact that they are voiding the agreement. Therefore, Philamcare should pay the expenses
paid by Julita.

PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF APPEALS

G.R. No. 125678, March 18, 2002 (YNARES-SANTIAGO, J.)

FACTS:

Ernani Trinos applied for a health care coverage with Philamcare Health Systems, Inc. To the
question ‘Have you or any of your family members ever consulted or been treated for high
blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer?’,
Ernani answered ‘No’. Under the agreement, Ernani is entitled to avail of hospitalization
benefits and out-patient benefits. The coverage was approved for a period of one year from
March 1, 1988 to March 1, 1989. The agreement was however extended yearly until June 1,
1990 which increased the amount of coverage to a maximum sum of P75,000 per disability.

During the period of said coverage, Ernani suffered a heart attack and was confined at the
Manila Medical Center (MMC) for one month. While in the hospital, his wife Julita tried to
claim the benefits under the health care agreement. However, the Philamcare denied her
claim alleging that the agreement was void because Ernani concealed his medical history.
Doctors at the MMC allegedly discovered at the time of Ernani’s confinement that he was
hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus,
Julita paid for all the hospitalization expenses.

After Ernani was discharged from the MMC, he was attended by a physical therapist at
home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties,
however, respondent brought her husband home again. In the morning of April 13, 1990,
Ernani had fever and was feeling very weak. Respondent was constrained to bring him back
to the Chinese General Hospital where he died on the same day.

Julita filed an action for damages and reimbursement of her expenses plus moral damages
attorney’s fees against Philamcare and its president, Dr. Benito Reverente. The Regional
Trial court or Manila rendered judgment in favor of Julita. On appeal, the decision of the
trial court was affirmed but deleted all awards for damages and absolved petitioner
Reverente. Hence, this petition for review raising the primary argument that a health care
agreement is not an insurance contract; hence the “incontestability clause” under the
Insurance Code does not apply.
ISSUES:

(1) Whether or not the health care agreement is not an insurance contract

(2) Whether or not there is concealment of material fact made by Ernani

HELD:

(1)YES. Section2 (1)of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage, or
liability arising from an unknown or contingent event.

Section 3 of the Insurance Code states that any contingent or unknown event, whether past
or future, which my damnify a person having an insurable against him, may be insured
against. Every person has an insurable interest in the life and health of himself.

Section 10 provides that every person has an insurable interest in the life and health (1) of
himself, of his spouse and of his children.

The insurable interest of respondent’s husband in obtaining the health care agreement was
his own health. The health care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity. Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed upon under the contract.

(2) NO. The answer assailed by petitioner was in response to the question relating to the
medical history of the applicant. This largely depends on opinion rather than fact, especially
coming from respondent’s husband who was not a medical doctor. Where matters of
opinion or judgment are called for answers made I good faith and without intent to deceive
will not avoid a policy even though they are untrue.

The fraudulent intent on the part of the insured must be established to warrant rescission of
the insurance contract. Concealment as a defense for the health care provider or insurer to
avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or
without the authority to investigate, petitioner is liable for claims made under the contract.
Having assumed a responsibility under the agreement, petitioner is bound to answer to the
extent agreed upon. In the end, the liability of the health care provider attaches once the
member is hospitalized for the disease or injury covered by the agreement or wherever he
avails of the covered benefits which he has prepaid.

Being a contract of adhesion, the terms of an insurance contract are to be construed strictly
against the party which prepared the contract – the insurer. By reason of the exclusive
control of the insurance company over the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer and liberally in favor of the
insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements.

Fortune v CA G.R. No. 115278 May 23, 1995

Facts:
Producers Bank’s money was stolen while it was being transported from Pasay to Makati. The people
guarding the money were charged with the theft. The bank filed a claim for the amount of Php
725,000, and such was refused by the insurance corporation due to the stipulation:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer,
employee, partner, director, trustee or authorized representative of the Insured whether acting alone
or in conjunction with others. . . .
In the trial court, the bank claimed that the suspects were not any of the above mentioned. They won
the case. The appellate court affirmed on the basis that the bank had no power to hire or dismiss the
guard and could only ask for replacements from the security agency.

Issue: Did the guards fall under the general exceptions clause of the insurance policy and thus
absolved the insurance company from liability?

Held: Yes to both. Petition granted.

Ratio:
The insurance agency contended that the guards automatically became the authorized
representatives of the bank when they cited International Timber Corp. vs. NLRC where a contractor
is a "labor-only" contractor in the sense that there is an employer-employee relationship between the
owner of the project and the employees of the "labor-only" contractor.
They cited Art. 106. Of the Labor Code which said:
Contractor or subcontractor. — There is "labor-only" contracting where the person supplying workers
to an employer does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and placed by such persons
are performing activities which are directly related to the principal business of such employer. In such
cases, the person or intermediary shall be considered merely as an agent of the employer who shall
be responsible to the workers in the same manner and extent as if the latter were directly employed
by him.
The bank asserted that the guards were not its employees since it had nothing to do with their
selection and engagement, the payment of their wages, their dismissal, and the control of their
conduct.
They cited a case where an employee-employer relationship was governed by (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the
power to control the employee's conduct.
The case was governed by Article 174 of the Insurance Code where it stated that casualty insurance
awarded an amount to loss cause by accident or mishap.
“The term "employee," should be read as a person who qualifies as such as generally and universally
understood, or jurisprudentially established in the light of the four standards in the determination of
the employer-employee relationship, or as statutorily declared even in a limited sense as in the case
of Article 106 of the Labor Code which considers the employees under a "labor-only" contract as
employees of the party employing them and not of the party who supplied them to the employer.”
But even if the contracts were not labor-only, the bank entrusted the suspects with the duty to safely
transfer the money to its head office, thus, they were representatives. According to the court, “a
‘representative’ is defined as one who represents or stands in the place of another; one who
represents others or another in a special capacity, as an agent, and is interchangeable with ‘agent.’”

Gulf Resorts Inc. V. Philippine Charter Insurance Corp. (2005)

G.R. No. 156167 May 16, 2005
Lessons Applicable: Stipulations Cannot Be Segregated (Insurance)

FACTS:
Gulf Resorts, Inc at Agoo, La Union was insured with American Home Assurance Company which
includes loss or damage to shock to any of the property insured by this Policy occasioned by or through or in
consequence of earthquake
July 16, 1990: an earthquake struck Central Luzon and Northern Luzon so the properties and 2
swimming pools in its Agoo Playa Resort were damaged
August 23, 1990: Gulf's claim was denied on the ground that its insurance policy only afforded
earthquake shock coverage to the two swimming pools of the resort
Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the
earthquake shock coverage. Thus, the policy extended earthquake shock coverage to all of the insured
properties.
RTC: Favored American Home - endorsement rider means that only the two swimming pools were
insured against earthquake shock
CA: affirmed RTC
ISSUE: W/N Gulf can claim for its properties aside from the 2 swimming pools

HELD: YES. Affirmed.

It is basic that all the provisions of the insurance policy should be examined and interpreted in
consonance with each other.
All its parts are reflective of the true intent of the parties.

Insurance Code
Section 2(1)
contract of insurance as an agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event

An insurance premium is the consideration paid an insurer for undertaking to indemnify the
insured against a specified peril.
In the subject policy, no premium payments were made with regard to earthquake shock
coverage, except on the two swimming pools.

5. GULF RESORTS INC vs PHILIPPINE CHARTER INSURANCE CORPORATION (2005)

FACTS: Gulf Resorts, Inc at Agoo, La Union was insured with American Home Assurance Company
which includes loss or damage to shock to any of the property insured by this Policy occasioned by or
through or in consequence of earthquake

July 16, 1990: an earthquake struck Central Luzon and Northern Luzon so the properties and
2 swimming pools in its Agoo Playa Resort were damaged

August 23, 1990: Gulf's claim was denied on the ground that its insurance policy only afforded
earthquake shock coverage to the two swimming pools of the resort

Petitioner insists that the parties have intended to extend the coverage through the
attachment of the phrase "Subject to: Other Insurance Clause, Typhoon Endorsement,
Earthquake Shock Endorsement, Extended Coverage Endorsement, FEA Warranty &
Annual Payment Agreement on Long Term Policies"to the insurance policy.
ISSUE: Whether or not the insurance policy earthquake shock coverage extends to other property
aside from the two swimming pools.

HELD: NO. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other
provisions. All the provisions and riders, taken and interpreted together, indubitably show the intention
of the parties to extend earthquake shock coverage to the two swimming pools only.

A careful examination of the premium recapitulation will show that it is the clear intent of the parties
to extend earthquake shock coverage only to the two swimming pools.

In the subject policy, no premium payments were made with regard to earthquake shock
coverage, except on the two swimming pools. There is no mention of any premium payable for
the other resort properties with regard to earthquake shock. This is consistent with the history of
petitioner’s previous insurance policies from AHAC-AIU.

In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely
on the general rule that insurance contracts are contracts of adhesion which should be liberally
construed in favor of the insured and strictly against the insurer company which usually prepares it.A
contract of adhesion is xxx

We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner
cannot claim it did not know the provisions of the policy. From the inception of the policy, petitioner
had required the respondent to copy verbatim the provisions and terms of its latest insurance policy
from AHAC-AIU.

DOCTRINE:
It is basic that all the provisions of the insurance policy should be examined and interpreted in
consonance with each other.All its parts are reflective of the true intent of the parties. The policy
cannot be construed piecemeal. Certain stipulations cannot be segregated and then made to control;
neither do particular words or phrases necessarily determine its character.

Section 2(1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. Thus, an insurance contract exists where the following elements concur:
1. The insured has aninsurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group
of persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a premium.
An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured
against a specified peril.In fire, casualty, and marine insurance, the premium payable becomes a debt
as soon as the risk attaches.

A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the
contract, while the other party merely affixes his signature or his "adhesion" thereto. Consequently,
any ambiguity therein is resolved against the insurer, or construed liberally in favor of the insured.

MANILA MAHOGANY MANUFACTURING CORPORATION VS. CA

154 SCRA 650 (G.R. NO. 52756) OCTOBER 12 1987
FACTS:
Petitioner insured its Mercedes Benz 4-door sedan with respondent insurance company . The insured
vehicle was bumped and damaged by a truck owned by San Miguel Corporation. For the damage caused,
respondent company paid petitioner ₱ 5,000.00 in amicable settlement.
 Petitioner’s general manager executed a Release of Claim, subrogating respondent company to all its
right to action against San Miguel Corp.. Respondent company wrote the Insurer Adjusters, Inc. to demand
reimbursements from San Miguel Corporation of the amount it had paid petitioner. Insurer Adjusters, Inc.
refuse reimbursement alleging that San Miguel Corporation had already paid petitioner ₱ 4,500.00 for the
damages to petitioner’s motor vehicle, as evidenced by a cash voucher and Release of Claim executed by the
General Manager of petitioner discharging San Miguel Corporation from “ all actions, claims, demands the
right of action that now exist or hereafter develop arising out of or as a consequence of the accident.

Respondent insurance company thus demanded from petitioner reimbursement of the sum of ₱ 4,500.00 paid
by San Miguel Corporation. Petitioner refused.
ISSUE:
Whether or not the insurer is entitled to recover from the insured the amount of insurance money
paid.
HELD:
“Although petitioner s right to file a deficiency claim against San Miguel Corporation is with legal basis,
without prejudice to the insurer’s right of subrogation, nevertheless when Manila Mahogany executed another
release claim (Exhibit K) discharging San Miguel Corporation from “all actions, claims, demands and rights of
action that now exist or hereafter arising out of or as aconsequence of the accident” after the insurer bad paid
the proceeds of the policy—the compromise agreement of P5,000.00 being based on the insurance policy—the
insurer is entitled to recover from the insured the amount of insurance money paid, Since petitioner by its own
acts released San Miguel Corporation, thereby defeating private respondent’s right of subrogation, the right of
action of petitioner against the insurer was also nullified. Otherwise stated: private respondent may recover
the sum of P5,000.00 it had earlier paid to petitioner.
As held in Phil Air Lines v. Heald Lumber Co,; If a property is insured and the owner receives the
indemnity from the insurer, it is provided in [Article 2207 of the New Civil Code] that the insurer is deemed
subrogated to the rights of the insured against the wrongdoer and if the amountpaid by the insurer does not
fully cover the loss, then the aggrieved party is the one entitled to recover the deficiency. x x x Under this legal
provision, the real party in interest with regard to the portion of the indemnity paid is the insurer and not the
insured.
—”The right of subrogation can only exist after the insurer has paid the insured, otherwise the insured will be
deprived of his right to full indemnity. If the insurance proceeds are not sufficient to cover the damages
suffered by the insured, then he may sue the party responsible for the damage for the the [sic] remainder, To
the extent of the amount he has already received from the insurer, the insurer enjoy’s [sic] the right of
subrogation. Since the insurer can be subrogated to only such rights as the insured may have, should the
insured, after receiving payment from the insurer. release the wrongdoer who caused the loss, the insurer loses
his rights against the latter. But in such a case, the insurer will be entitled to recover from the insured whatever
it has paid to the latter, unless the release was made with the consent of the insurer.”

FEDEX vs. AHAC and PHILAM INSURANCE COMPANY, INC

G.R. No. 150094
August 18, 2004
FACTS: Shipper SMITHKLINE USA delivered to carrier Burlington Air Express
(BURLINGTON), an agent of [Petitioner] Federal Express Corporation, a shipment of 109
cartons of veterinary biologicals for delivery to consignee SMITHKLINE and French Overseas
Company in Makati City. The shipment was covered by Burlington Airway Bill No.
11263825 with the words, ‘REFRIGERATE WHEN NOT IN TRANSIT’ and ‘PERISHABLE’
stamp marked on its face. That same day, Burlington insured the cargoes with American
Home Assurance Company (AHAC). The following day, Burlington turned over the
custody of said cargoes to FEDEX which transported the same to Manila.
The shipments arrived in Manila and was immediately stored at [Cargohaus Inc.’s]
warehouse. Prior to the arrival of the cargoes, FEDEX informed GETC Cargo
International Corporation, the customs broker hired by the consignee to facilitate the
release of its cargoes from the Bureau of Customs, of the impending arrival of its client’s
cargoes.
12 days after the cargoes arrived in Manila, DIONEDA, a non-licensed custom’s broker
who was assigned by GETC, found out, while he was about to cause the release of the said
cargoes, that the same [were] stored only in a room with 2 air conditioners running, to
cool the place instead of a refrigerator. DIONEDA, upon instructions from GETC, did not
proceed with the withdrawal of the vaccines and instead, samples of the same were taken
and brought to the Bureau of Animal Industry of the Department of Agriculture in the
Philippines by SMITHKLINE for examination wherein it was discovered that the ‘ELISA
reading of vaccinates sera are below the positive reference serum.’

As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE

abandoned the shipment and, declaring ‘total loss’ for the unusable shipment, filed a claim
with AHAC through its representative in the Philippines, the Philam Insurance Co., Inc.
(PHILAM) which recompensed SMITHKLINE for the whole insured amount. Thereafter,
PHILAM filed an action for damages against the FEDEX imputing negligence on either or
both of them in the handling of the cargo.

Trial ensued and ultimately concluded with the FEDEX being held solidarily liable for the
loss. Aggrieved, petitioner appealed to the CA. The appellate court ruled in favor of
PHILAM and held that the shipping Receipts were a prima facie proof that the goods had
indeed been delivered to the carrier in good condition.

ISSUE: Is FEDEX liable for damage to or loss of the insured goods

HELD: petition granted. Assailed decision reversed insofar as it pertains to FEDEX
Prescription of Claim
From the initial proceedings in the trial court up to the present, petitioner has tirelessly
pointed out that respondents’ claim and right of action are already barred. Indeed, this
fact has never been denied by respondents and is plainly evident from the records.

Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states:

“6. No action shall be maintained in the case of damage to or partial loss of the shipment
unless a written notice, sufficiently describing the goods concerned, the approximate date of
the damage or loss, and the details of the claim, is presented by shipper or consignee to an
office of Burlington within (14) days from the date the goods are placed at the disposal of
the person entitled to delivery, or in the case of total loss (including non-delivery) unless
presented within (120) days from the date of issue of the [Airway Bill]. xxx
Relevantly, petitioner’s airway bill states:

“12./12.1 The person entitled to delivery must make a complaint to the carrier in writing in
the case:
12.1.1 of visible damage to the goods, immediately after discovery of the damage and at the
latest within fourteen (14) days from receipt of the goods; xxx

Article 26 of the Warsaw Convention, on the other hand, provides:

Xxx (2) In case of damage, the person entitled to delivery must complain to the carrier
forthwith after the discovery of the damage, and, at the latest, within 3 days from the date
of receipt in the case of baggage and 7 days from the date of receipt in the case of
goods. xx
(3) Every complaint must be made in writing upon the document of transportation or by
separate notice in writing dispatched within the times aforesaid.

(4) Failing complaint within the times aforesaid, no action shall lie against the carrier,
save in the case of fraud on his part.” xxx

Condition Precedent
In this jurisdiction, the filing of a claim with the carrier within the time limitation therefor
actually constitutes a condition precedent to the accrual of a right of action against a
carrier for loss of or damage to the goods. The shipper or consignee must allege and prove
the fulfillment of the condition. If it fails to do so, no right of action against the carrier can
accrue in favor of the former. The aforementioned requirement is a reasonable condition
precedent; it does not constitute a limitation of action.

The requirement of giving notice of loss of or injury to the goods is not an empty
formalism. The fundamental reasons for such a stipulation are (1) to inform the carrier
that the cargo has been damaged, and that it is being charged with liability therefor; and
(2) to give it an opportunity to examine the nature and extent of the injury. “This protects
the carrier by affording it an opportunity to make an investigation of a claim while the
matter is fresh and easily investigated so as to safeguard itself from false and fraudulent
claims.

NOTES: as to proper payee:

The Certificate specifies that loss of or damage to the insured cargo is “payable to order x x
x upon surrender of this Certificate.” Such wording conveys the right of collecting on any
such damage or loss, as fully as if the property were covered by a special policy in the name
of the holder itself. At the back of the Certificate appears the signature of the
representative of Burlington. This document has thus been duly indorsed in blank and is
deemed a bearer instrument.

Since the Certificate was in the possession of Smithkline, the latter had the right of
collecting or of being indemnified for loss of or damage to the insured shipment, as fully as
if the property were covered by a special policy in the name of the holder. Hence, being
the holder of the Certificate and having an insurable interest in the goods, Smithkline was
the proper payee of the insurance proceeds.

Subrogation
Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a
subrogation Receipt in favor of respondents. The latter were thus authorized “to file
claims and begin suit against any such carrier, vessel, person, corporation or government.”
Undeniably, the consignee had a legal right to receive the goods in the same condition it
was delivered for transport to petitioner. If that right was violated, the consignee would
have a cause of action against the person responsible therefor.

FEDERAL EXPRESS CORPORATION, petitioner, vs. AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE
COMPANY, INC.,respondents. [G.R. No. 150094. August 18, 2004]

Facts:

On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE) delivered to Burlington Air Express (BURLINGTON), an agent of FedEx, a
shipment of 109 cartons of veterinary biologicals for delivery to consignee SMITHKLINE and French Overseas Company in Makati
City, Metro Manila. The shipment was with the words, REFRIGERATE WHEN NOT IN TRANSIT and PERISHABLE stamp marked on its
face. Burlington insured the cargoes in the amount of $39,339.00 with AHAC. The following day, Burlington turned over the custody
of said cargoes to Federal Express which transported the same to Manila. The first shipment, consisting of 92 cartons arrived in
Manila on January 29, 1994 , the second, consisting of 17 cartons, came in two (2) days later, or on January 31, 1994 which was
immediately stored at Cargohaus warehouse.

On February 10, 1994, DARIO C. DIONEDA (DIONEDA), found out, while he was about to cause the release of the said cargoes, that
the same were stored only in a room. Thereafter, DIONEDA, upon instructions from GETC, did not proceed with the withdrawal of
the vaccines and instead, samples of the same were taken and brought to the Bureau of Animal Industry of the Department of
Agriculture in the Philippines by SMITHKLINE for examination.

As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE abandoned the shipment and, declaring total
loss for the unusable shipment, filed a claim with AHAC through its representative in the Philippines, the Philam Insurance Co., Inc.
(PHILAM) which recompensed SMITHKLINE for the whole insured amount $39,339.00. Thereafter, respondents filed an action for
damages against the petitioner imputing negligence on either or both of them in the handling of the cargo.

Issue:

WON FedEx is liable for Damage or loss of the insured goods

Held:
Yes. The Certificate specifies that loss of or damage to the insured cargo is payable to order upon surrender of this Certificate.Since
the Certificate was in the possession of Smithkline, the latter had the right of collecting or of being indemnified for loss of or damage
to the insured shipment, as fully as if the property were covered by a special policy in the name of the holder. Hence, being the holder
of the Certificate and having an insurable interest in the goods, Smithkline was the proper payee of the insurance proceeds. The
consignee (Smithkline) had a legal right to receive the goods in the same condition it was delivered for transport to petitioner. If that
right was violated, the consignee would have a cause of action against the person responsible therefor.

ETERNAL GARDENS MEMORIAL PARK CORPORATION vs. THE PHILIPPINE AMERICAN LIFE
INSURANCE COMPANY G.R. No. 166245 09 April 2008

Facts:
Respondent Philamlife entered into an agreement denominated as Creditor Group Life Policy with petitioner.
Under the policy, the clients of Eternal who purchased burial lots from it on installment basis would be
insured by Philamlife. Among those insured was John Chuang who died with a balance of payments pf
PhP100,000.00. More than a year after complying with the required documents, Philamlife had not furnished
Eternal with any reply to the latter’s insurance claim. This prompted Eternal to demand from Philamlife the
payment of the claim for PhP 100,000 on April 25, 1986. Only then did Philamlife respond that the deceased
was not covered by the Policy.

The RTC said that since the contract is a group life insurance, once proof of death is submitted, payment must
follow. The CA ruled that the non-accomplishment of the submitted application form violated Section 26 of the
Insurance Code. Thus, the CA concluded, there being no application form, Chuang was not covered by
Philamlifes insurance.

Issue: May the inaction of the insurer on the insurance application be considered approval of the application?

Ruling:
Yes. As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life
Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured.
However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company.

An examination of the above provision would show ambiguity between its two sentences. A contract of
insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the
insurer. Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the
insured; it cannot be interpreted as a termination of the insurance contract. The termination of the insurance
contract by the insurer must be explicit and unambiguous.

ETERNAL VS. PHILAMLIFE

G.R. No. 166245 April 09, 2008

FACTS: Respondent Philamlife entered into an agreement denominated as Creditor Group Life Policy with
petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who
purchased burial lots from it on installment basis would be insured by Philamlife. The amount of insurance
coverage depended upon the existing balance of the purchased burial lots.

The relevant provisions of the policy are:

ELIGIBILITY.
xx
EVIDENCE OF INSURABILITY.
xx
LIFE INSURANCE BENEFIT.
xx
EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured.
However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company.
xx
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a
copy of the application of each purchaser, and the amounts of the respective unpaid balances of all insured lot
purchasers. Eternal complied by submitting a letter dated December 29, 1982, containing a list of insurable
balances of its lot buyers for October 1982. One of those included in the list as “new business” was a certain
John Chuang. His balance of payments was 100K. on August 2, 1984, Chuang died.
Eternal sent a letter dated to Philamlife, which served as an insurance claim for Chuang’s death. Attached to
the claim were certain documents. In reply, Philamlife wrote Eternal a letter requiring Eternal to submit the
additional documents relative to its insurance claim for Chuang’s death. Eternal transmitted the required
documents through a letter which was received by Philamlife.

After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s insurance claim.
This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000.
In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter a portion of which
reads:

The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens Memorial
Park in October 1982 for the total maximum insurable amount of P100,000.00 each. No application for Group
Insurance was submitted in our office prior to his death on August 2, 1984

Eternal filed a case with the RTC for a sum of money against Philamlife, which decided in favor of Eternal,
ordering Philamlife to pay the former 100K representing the proceeds of the policy.

CA reversed. Hence this petition.

ISSUE: WON Philamlife should pay the 100K insurance proceeds

HELD: petition granted.

YES

An examination of the provision of the POLICY under effective date of benefit, would show ambiguity
between its two sentences. The first sentence appears to state that the insurance coverage of the clients of
Eternal already became effective upon contracting a loan with Eternal while the second sentence appears to
require Philamlife to approve the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally
in favor of the insured and strictly against the insurer in order to safeguard the latter’s interest

On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a party’s
purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is
created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the
insurance application. The second sentence of the Creditor Group Life Policy on the Effective Date of Benefit is
in the nature of a resolutory condition which would lead to the cessation of the insurance contract. Moreover,
the mere inaction of the insurer on the insurance application must not work to prejudice the insured; it cannot
be interpreted as a termination of the insurance contract. The termination of the insurance contract by the
insurer must be explicit and unambiguous.

Enriquez V. Sun Life Assurance Co. Of Canada (1920)

G.R. No. L-15895 November 29, 1920
Lessons Applicable: Perfection (Insurance)

FACTS:
September 24, 1917: Joaquin Herrer made application to the Sun Life Assurance Company of Canada
through its office in Manila for a life annuity
2 days later: he paid P6,000 to the manager of the company's Manila office and was given a receipt
according to the provisional receipt, 3 things had to be accomplished by the insurance company
before there was a contract:
(1) There had to be a medical examination of the applicant; -check
(2) there had to be approval of the application by the head office of the company; and - check
(3) this approval had in some way to be communicated by the company to the applicant - ?
November 26, 1917: The head office at Montreal, Canada gave notice of acceptance by cable to Manila
but this was not mailed
December 4, 1917: policy was issued at Montreal
December 18, 1917: attorney Aurelio A. Torres wrote to the Manila office of the company stating that
Herrer desired to withdraw his application
December 19, 1917: local office replied to Mr. Torres, stating that the policy had been issued, and
called attention to the notification of November 26, 1917
December 21, 1917 morning: received by Mr. Torres
December 20, 1917: Mr. Herrer died
Rafael Enriquez, as administrator of the estate of the late Joaquin Ma. Herrer filed to recover from
Sun Life Assurance Company of Canada through its office in Manila for a life annuity
RTC: favored Sun Life Insurance
ISSUE: W/N Mr. Herrera received notice of acceptance of his application thereby perfecting his life
annuity

HELD: NO. Judgment is reversed, and the Enriquez shall have and recover from the Sun Life 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.

Civil Code
Art. 1319 (formerly Art.1262)
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance absolute.
A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to have been entered into in the place where the
offer was made.
not perfected because it has not been proved satisfactorily that the acceptance of the application ever
came to the knowledge of the applicant
RAFAEL ENRIQUEZ vs. SUN LIFE ASSURANCE COMPANY OF CANADA G.R. No. L-15895
November 29, 1920
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 provisional receipt.

The application was forwarded to the head office of the company at Montreal, Canada and on
November 26, 1917 a notice of acceptance was sent by cable to Manila. (There is no evidence
however, whether on the same day the cable was received notice was sent by the Manila office of
Herrer that the application had been accepted)

On December 4, 1917, the policy was issued. On December 18, 1917, Herrer communicated his desire
to withdraw his application through his lawyer.

The local office replied to Mr. Torres, stating that the policy had been issued, and called attention to
the notification of November 26, 1917. The reply was received by Herrer's council a day after the
latter died.

Plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer to recover from the defendant
life insurance company the sum of pesos 6,000 paid by the deceased for a life annuity. The trial court
gave judgment for the defendant.

ISSUE:
Whether or not the insurance contract between Sun Life and Herrer has been perfected

RULING:
No, 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.

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.

An acceptance made by letter shall not bind the person making the offer except from the time it came
to his knowledge (Civil Code Art. 1262). 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. 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.

Great Pacific v CA G.R. No. L-31845 April 30, 1979

Facts:
Ngo Hing filed an application with the Great Pacific for a twenty-year endowment policy in the amount of P50,000.00
on the life of his one-year old daughter Helen. He supplied the essential data which petitioner Mondragon, the Branch
Manager, wrote on the form. The latter paid the annual premium the sum of P1,077.75 going over to the Company,
but he retained the amount of P1,317.00 as his commission for being a duly authorized agent of Pacific Life.
Upon the payment of the insurance premium, the binding deposit receipt was issued Ngo Hing. Likewise, petitioner
Mondragon handwrote at the bottom of the back page of the application form his strong recommendation for the
approval of the insurance application. Then Mondragon received a letter from Pacific Life disapproving the insurance
application. The letter stated that the said life insurance application for 20-year endowment plan is not available for
minors below seven years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and
advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner Mondragon
to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific Life again strongly
recommending the approval of the 20-year endowment insurance plan to children, pointing out that since the
customers were asking for such coverage.
Helen Go died of influenza. Ngo Hing sought the payment of the proceeds of the insurance, but having failed in his
effort, he filed the action for the recovery before the Court of First Instance of Cebu, which ruled against him.

Issues:
1. Whether the binding deposit receipt constituted a temporary contract of the life insurance in question
2. Whether Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered void the policy

Held: No. Yes. Petition dismissed.

Ratio:
The receipt was intended to be merely a provisional insurance contract. Its perfection was subject to compliance of
the following conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2)
that if the company does not accept the application and offers to issue a policy for a different plan, the insurance
contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be refunded;
and (3) that if the company disapproves the application, the insurance applied for shall not be in force at any time,
and the premium paid shall be returned to the applicant.
The receipt is merely an acknowledgment that the latter's branch office had received from the applicant the insurance
premium and had accepted the application subject for processing by the insurance company. There was still approval
or rejection the same on the basis of whether or not the applicant is "insurable on standard rates." Since Pacific Life
disapproved the insurance application of respondent Ngo Hing, the binding deposit receipt in question had never
become in force at any time. The binding deposit receipt is conditional and does not insure outright. This was held in
Lim v Sun.
The deposit paid by private respondent shall have to be refunded by Pacific Life.
2. Ngo Hing had deliberately concealed the state of health of his daughter Helen Go. When he supplied data, he was
fully aware that his one-year old daughter is typically a mongoloid child. He withheld the fact material to the risk
insured.
“The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute and perfect candor
or openness and honesty; the absence of any concealment or demotion, however slight.”
The concealment entitles the insurer to rescind the contract of insurance.

Great Pacific v CA G.R. No. 113899. October 13, 1999

Facts:
A contract of group life insurance was executed between petitioner Great Pacific and Development Bank Grepalife
agreed to insure the lives of eligible housing loan mortgagors of DBP.
Wilfredo Leuterio, a physician and a housing debtor of DBP, applied for membership in the group life insurance
plan. In an application form, Dr. Leuterio answered questions concerning his health condition as follows:
“7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes, lung,
kidney or stomach disorder or any other physical impairment?
8. Are you now, to the best of your knowledge, in good health?”
Grepalife issued a coverage to the value of P86,200.00 pesos.
Dr. Leuterio died due to “massive cerebral hemorrhage.” DBP submitted a death claim to Grepalife. Grepalife
denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance
coverage. Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from hypertension, which
caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim.
The widow, respondent Medarda V. Leuterio, filed against Grepalife.
The trial court rendered a decision in favor of respondent widow and against Grepalife. The Court of Appeals
sustained the trial court’s decision.

Issues:
1. Whether the Court of Appeals erred in holding petitioner liable to DBP as beneficiary in a group life insurance
contract from a complaint filed by the widow of the decedent/mortgagor?
2. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he had hypertension, which
would vitiate the insurance contract?
3. Whether the Court of Appeals erred in holding Grepalife liable in the amount of eighty six thousand, two hundred
(P86,200.00) pesos without proof of the actual outstanding mortgage payable by the mortgagor to DBP.

Held: No to all three. Petition dismissed.

Ratio:
1. Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest,
hence the trial court acquired no jurisdiction over the case. It argues that when the Court of Appeals affirmed the
trial court’s judgment, Grepalife was held liable to pay the proceeds of insurance contract in favor of DBP, the
indispensable party who was not joined in the suit.
The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy
stating that: “In the event of the debtor’s death before his indebtedness with the Creditor [DBP] shall have been fully
paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum
assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor.” When DBP’s claim was
denied, it collected the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of
private respondent.
Gonzales vs. Yek Tong Lin- Insured, being the person with whom the contract was made, is primarily the proper
person to bring suit thereon. Insured may thus sue, although the policy is taken wholly or in part for the benefit of
another person named or unnamed, and although it is expressly made payable to another as his interest may
appear or otherwise. Although a policy issued to a mortgagor is taken out for the benefit of the mortgagee and is
made payable to him, yet the mortgagor may sue thereon in his own name, especially where the mortgagee’s
interest is less than the full amount recoverable under the policy. Insured may be regarded as the real party in
interest, although he has assigned the policy for the purpose of collection, or has assigned as collateral security any
judgment he may obtain.
And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether
he has an insurable interest or not, and such person may recover it whatever the insured might have recovered,[14]
the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.
2. The medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body of the
decedent. The medical certificate stated that hypertension was “the possible cause of death.” Hence, the statement
of the physician was properly considered by the trial court as hearsay.
Contrary to appellant’s allegations, there was no sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the insured’s widow who was not even sure if the medicines taken by Dr.
Leuterio were for hypertension, the appellant had not proven nor produced any witness who could attest to Dr.
Leuterio’s medical history.
Appellant insurance company had failed to establish that there was concealment made by the insured, hence, it
cannot refuse payment of the claim.”
The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract.
Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish
such defense by satisfactory and convincing evidence rests upon the insurer.
3. A life insurance policy is a valued policy. Unless the interest of a person insured is susceptible of exact pecuniary
measurement, the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy.
The mortgagor paid the premium according to the coverage of his insurance.
In the event of the debtor’s death before his indebtedness with the creditor shall have been fully paid, an amount to
pay the outstanding indebtedness shall first be paid to the creditor.
DBP foreclosed one of the deceased person’s lots to satisfy the mortgage. Hence, the insurance proceeds shall
inure to the benefit of the heirs of the deceased person or his beneficiaries.

RCBC v. CA - Insurance Proceeds

289 SCRA 292 (1998)

Facts:
> GOYU applied for credit facilities and accommodations with RCBC. After due evaluation, a credit facility in
the amount of P30 million was initially granted. Upon GOYU's application increased GOYU's credit facility to
P50 million, then to P90 million, and finally to P117 million
> As security for its credit facilities with RCBC, GOYU executed two REM and two CM in favor of RCBC,
which were registered with the Registry of Deeds at. Under each of these four mortgage contracts, GOYU
committed itself to insure the mortgaged property with an insurance company approved by RCBC, and
subsequently, to endorse and deliver the insurance policies to RCBC.
> GOYU obtained in its name a total of 10 insurance policies from MICO. In February 1992, Alchester
Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan insurance policies, issued nine
endorsements in favor of RCBC seemingly upon instructions of GOYU
> On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire. Consequently, GOYU
submitted its claim for indemnity.
> MICO denied the claim on the ground that the insurance policies were either attached pursuant to writs of
attachments/garnishments issued by various courts or that the insurance proceeds were also claimed by other
creditors of GOYU alleging better rights to the proceeds than the insured.
> GOYU filed a complaint for specific performance and damages. RCBC, one of GOYU's creditors, also filed
with MICO its formal claim over the proceeds of the insurance policies, but said claims were also denied for the
same reasons that AGCO denied GOYU's claims.
> However, because the endorsements do not bear the signature of any officer of GOYU, the trial court, as well
as the Court of Appeals, concluded that the endorsements are defective and held that RCBC has no right over
the insurance proceeds.

Issue: Whether or not RCBC has a right over the insurance proceeds.

Held: RCBC has a right over the insurance proceeds.

It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same
mortgaged property, such that each one of them may insure the same property for his own sole benefit. There is
no question that GOYU could insure the mortgaged property for its own exclusive benefit. In the present case,
although it appears that GOYU obtained the subject insurance policies naming itself as the sole payee, the
intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order to
better serve the interest of justice and equity.
It is to be noted that 9 endorsement documents were prepared by Alchester in favor of RCBC. The Court is in a
quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in favor of any
particular beneficiary or payee other than the insured had not such named payee or beneficiary been specifically
disclosed by the insured itself. It is also significant that GOYU voluntarily and purposely took the insurance
policies from MICO, a sister company of RCBC, and not just from any other insurance company. Alchester
would not have found out that the subject pieces of property were mortgaged to RCBC had not such information
been voluntarily disclosed by GOYU itself. Had it not been for GOYU, Alchester would not have known of
GOYU's intention of obtaining insurance coverage in compliance with its undertaking in the mortgage contracts
with RCBC, and verify, Alchester would not have endorsed the policies to RCBC had it not been so directed by
GOYU.
On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of
mortgagor RCBC. RCBC, in good faith, relied upon the endorsement documents sent to it as this was only
pursuant to the stipulation in the mortgage contracts. We find such reliance to be justified under the
circumstances of the case. GOYU failed to seasonably repudiate the authority of the person or persons who
prepared such endorsements. Over and above this, GOYU continued, in the meantime, to enjoy the benefits of
the credit facilities extended to it by RCBC. After the occurrence of the loss insured against, it was too late for
GOYU to disown the endorsements for any imagined or contrived lack of authority of Alchester to prepare and
issue said endorsements. If there had not been actually an implied ratification of said endorsements by virtue of
GOYU's inaction in this case, GOYU is at the very least estopped from assailing their operative effects.
To permit GOYU to capitalize on its non-confirmation of these endorsements while it continued to enjoy the
benefits of the credit facilities of RCBC which believed in good faith that there was due endorsement pursuant
to their mortgage contracts, is to countenance grave contravention of public policy, fair dealing, good faith, and
justice. Such an unjust situation, the Court cannot sanction. Under the peculiar circumstances obtaining in this
case, the Court is bound to recognize RCBC's right to the proceeds of the insurance policies if not for the actual
endorsement of the policies, at least on the basis of the equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of insurance
shall exclusively apply to the interest of the person in whose name or for whose benefit it is made. The
peculiarity of the circumstances obtaining in the instant case presents a justification to take exception to the
strict application of said provision, it having been sufficiently established that it was the intention of the parties
to designate RCBC as the party for whose benefit the insurance policies were taken out. Consider thus the
following:
1. It is undisputed that the insured pieces of property were the subject of mortgage contracts entered into
between RCBC and GOYU in consideration of and for securing GOYU's credit facilities from RCBC. The
mortgage contracts contained common provisions whereby GOYU, as mortgagor, undertook to have the
mortgaged property properly covered against any loss by an insurance company acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no less than
a sister company of RCBC and definitely an acceptable insurance company to RCBC.
3. Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and
copies thereof were sent to GOYU, MICO and RCBC. GOYU did not assail, until of late, the validity of said
endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended by
RCBC which was conditioned upon the endorsement of the insurance policies to be taken by GOYU to cover
the mortgaged properties.
This Court can not over stress the fact that upon receiving its copies of the endorsement documents prepared by
Alchester, GOYU, despite the absence written conformity thereto, obviously considered said endorsement to be
sufficient compliance with its obligation under the mortgage contracts since RCBC accordingly continued to
extend the benefits of its credit facilities and GOYU continued to benefit therefrom. Just as plain too is the
intention of the parties to constitute RCBC as the beneficiary of the various insurance policies obtained by
GOYU. The intention of the parties will have to be given full force and effect in this particular case. The
insurance proceeds may, therefore, be exclusively applied to RCBC, which under the factual circumstances of
the case, is truly the person or entity for whose benefit the policies were clearly intended.

Rizal Commercial Banking Corporation V. CA (1998) G.R.Nos. 128833 April 20, 1998
Lessons Applicable: Assignee (Insurance)

FACTS:
RCBC Binondo Branch initially granted a credit facility of P30M to Goyu & Sons, Inc. GOYU’s
applied again and through Binondo Branch key officer's Uy’s and Lao’s recommendation, RCBC’s
executive committee increased its credit facility to P50M to P90M and finally to P117M. As security,
GOYU executed 2 real estate mortgages and 2 chattel mortgages in favor of RCBC.
GOYU obtained in its name 10 insurance policy on the mortgaged properties from Malayan
Insurance Company, Inc. (MICO). In February 1992, he was issued 8 insurance policies in favor of
RCBC.
April 27, 1992: One of GOYU’s factory buildings was burned so he claimed against MICO for
the loss who denied contending that the insurance policies were either attached pursuant to writs of
attachments/garnishments or that creditors are claiming to have a better right. GOYU filed a
complaint for specific performance and damages at the RTC
RCBC, one of GOYU’s creditors, also filed with MICO its formal claim over the proceeds of the
insurance policies, but said claims were also denied for the same reasons that MICO denied GOYU’s
claims
RTC: Confirmed GOYU’s other creditors (Urban Bank, Alfredo Sebastian, and Philippine Trust
Company) obtained their writs of attachment covering an aggregate amount of P14,938,080.23 and
ordered that 10 insurance policies be deposited with the court minus the said amount so MICO
deposited P50,505,594.60.

Another Garnishment of P8,696,838.75 was handed down

RTC: favored GOYU against MICO for the claim, RCBC for damages and to pay RCBC its loan
CA: Modified by increasing the damages in favor of GOYU
In G.R. No. 128834, RCBC seeks right to intervene in the action between Alfredo C. Sebastian (the
creditor) and GOYU (the debtor), where the subject insurance policies were attached in favor of
Sebastian
RTC and CA: endorsements do not bear the signature of any officer of GOYU concluded that the
endorsements favoring RCBC as defective.

ISSUE: W/N RCBC as mortgagee, has any right over the insurance policies taken by GOYU, the
mortgagor, in case of the occurrence of loss

HELD: YES.
 mortgagor and a mortgagee have separate and distinct insurable interests in the same
mortgaged property, such that each one of them may insure the same property for his own sole
benefit
although it appears that GOYU obtained the subject insurance policies naming itself as the sole
payee, the intentions of the parties as shown by their contemporaneous acts, must be given due
consideration in order to better serve the interest of justice and equity
8 endorsement documents were prepared by Alchester in favor of RCBC
MICO, a sister company of RCBC
GOYU continued to enjoy the benefits of the credit facilities extended to it by RCBC.
GOYU is at the very least estopped from assailing their operative effects.
The two courts below erred in failing to see that the promissory notes which they ruled should
be excluded for bearing dates which are after that of the fire, are mere renewals of previous ones
RCBC has the right to claim the insurance proceeds, in substitution of the property lost in the
fire. Having assigned its rights, GOYU lost its standing as the beneficiary of the said insurance
policies
insurance company to be held liable for unreasonably delaying and withholding payment of
insurance proceeds, the delay must be wanton, oppressive, or malevolent - not shown
Sebastian’s right as attaching creditor must yield to the preferential rights of RCBC over the
Malayan insurance policies as first mortgagee.

Gaisano v Insurance G.R. No. 147839 June 8, 2006

J. Martinez

Facts:
IMC and Levi Strauss (Phils.) Inc. (LSPI) separately obtained from respondent fire insurance policies with book debt
endorsements. The insurance policies provide for coverage on "book debts in connection with ready-made clothing
materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines."
The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days
after the time of the loss covered under this Policy." The policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and
delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the
date of the covering invoice or actual delivery of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar
month all amount shown in their books of accounts as unpaid and thus become receivable item from their customers
and dealers.
Gaisano is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore
Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or
destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.
Insurance of America filed a complaint for damages against Gaisano. It alleges that IMC and LSPI were paid for
their claims and that the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with
IMC was P2,119,205.00 while with LSPI it was P535,613.00.
The RTC rendered its decision dismissing Insurance's complaint. It held that the fire was purely accidental; that the
cause of the fire was not attributable to the negligence of the petitioner. Also, it said that IMC and LSPI retained
ownership of the delivered goods and must bear the loss.
The CA rendered its decision and set aside the decision of the RTC. It ordered Gaisano to pay Insurance the P 2
million and the P 500,000 the latter paid to IMC and Levi Strauss.
Hence this petition.

Issues:
1. WON the CA erred in construing a fire insurance policy on book debts as one covering the unpaid accounts of
IMC and LSPI since such insurance applies to loss of the ready-made clothing materials sold and delivered to
petitioner
2. WON IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in the sales
invoices that "[i]t is further agreed that merely for purpose of securing the payment of the purchase price the above
described merchandise remains the property of the vendor until the purchase price thereof is fully paid."
3. WON petitioner is liable for the unpaid accounts
4. WON it has been established that petitioner has outstanding accounts with IMC and LSPI.

Held: No. Yes. Yes. Yes but account with LSPI unsubstantiated. Petition partly granted.
Ratio:
1. Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the goods sold and
delivered to the customers and dealers of the insured.
Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days
after the loss through fire, and not the loss or destruction of the goods delivered.
2. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred
to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether
actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer
of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the
buyer. Petitioner bears the risk of loss of the goods delivered.
IMC and LSPI had an insurable interest until full payment of the value of the delivered goods. Unlike the civil law
concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property
insurance, one's interest is not determined by concept of title, but whether insured has substantial economic interest
in the property.
Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal,
or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify
the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in:
(a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an
existing interest in that out of which the expectancy arises.
Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its
destruction. Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has any
interest therein, in other words, so long as he would suffer by its destruction, as where he has a vendor's lien. In this
case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45
days after the time of the loss covered by the policies.
3. Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 117432 of the Civil
Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's
accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the
payment of money. As correctly stated by the CA, where the obligation consists in the payment of money, the failure
of the debtor to make the payment even by reason of a fortuitous event shall not relieve him of his liability. The
rationale for this is that the rule that an obligor should be held exempt from liability when the loss occurs thru a
fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and there is no
stipulation holding him liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in
nature.
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything
of the same kind does not extinguish the obligation." This rule is based on the principle that the genus of a thing can
never perish. An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific
property of the debtor.
4. With respect to IMC, the respondent has adequately established its claim. The P 3 m claim has been proven. The
subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and IMC as
the insured, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon
payment by the insurance company of the insurance claim Respondent's action against petitioner is squarely
sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's 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.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. There was no evidence that
respondent has been subrogated to any right which LSPI may have against petitioner. Failure to substantiate the
claim of subrogation is fatal to petitioner's case for recovery of P535,613.00.

Gaisano Cagayan, Inc. V. Insurance Company Of North America (2006)

G.R. No. 147839 June 8, 2006

Lessons Applicable: Existing Interest (Insurance)

Laws Applicable: Article 1504,Article 1263, Article 2207 of the Civil Code, Section 13 of
Insurance Code
FACTS:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. while Levi
Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi
Strauss & Co
IMC and LSPI separately obtained from Insurance Company of North America fire insurance
policies for their book debt endorsements related to their ready-made clothing materials which have
been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines
which are unpaid 45 days after the time of the loss
February 25, 1991: Gaisano Superstore Complex in Cagayan de Oro City, owned by Gaisano
Cagayan, Inc., containing the ready-made clothing materials sold and delivered by IMC and LSPI
was consumed by fire.
February 4, 1992: Insurance Company of North America filed a complaint for damages against
Gaisano Cagayan, Inc. alleges that IMC and LSPI filed their claims under their respective fire
insurance policies which it paid thus it was subrogated to their rights
Gaisano Cagayan, Inc: not be held liable because it was destroyed due to fortuities event or
force majeure
RTC: IMC and LSPI retained ownership of the delivered goods until fully paid, it must bear
the loss (res perit domino)
CA: Reversed - sales invoices is an exception under Article 1504 (1) of the Civil Code to res
perit domino

ISSUE: W/N Insurance Company of North America can claim against Gaisano Cagayan for the debt
that was insured

HELD: YES. petition is partly GRANTED. order to pay P535,613 is DELETED

insurance policy is clear that the subject of the insurance is the book debts and NOT goods
sold and delivered to the customers and dealers of the insured
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership
therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the
goods are at the buyer's risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been retained by the seller merely to
secure performance by the buyer of his obligations under the contract, the goods are at the buyer's
risk from the time of such delivery;
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest
until full payment of the value of the delivered goods. Unlike the civil law concept of res perit
domino, where ownership is the basis for consideration of who bears the risk of loss, in property
insurance, one's interest is not determined by concept of title, but whether insured has substantial
economic interest in the property
Section 13 of our Insurance Code defines insurable interest as "every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same
Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest
founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of
which the expectancy arises.
Anyone has an insurable interest in property who derives a benefit from its existence or would
suffer loss from its destruction.
it is sufficient that the insured is so situated with reference to the property that he would be
liable to loss should it be injured or destroyed by the peril against which it is insured
an insurable interest in property does not necessarily imply a property interest in, or a lien
upon, or possession of, the subject
matter of the insurance, and neither the title nor a beneficial interest is requisite to the
existence of such an interest
 insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and
LSPI that remained unpaid 45 days after the fire - obligation is pecuniary in nature
obligor should be held exempt from liability when the loss occurs thru a fortuitous event only
holds true when the obligation consists in the delivery of a determinate thing and there is no
stipulation holding him liable even in case of fortuitous event
Article 1263 of the Civil Code in an obligation to deliver a generic thing, the loss or destruction
of anything of the same kind does not extinguish the obligation (Genus nunquan perit)
The subrogation receipt, by itself, is sufficient to establish not only the relationship of
respondent as insurer and IMC as the insured, but also the amount paid to settle the insurance claim
Art. 2207. If the plaintiff's 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.
As to LSPI, no subrogation receipt was offered in evidence.
Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the
amount of P535,613