WHITE GOLD MARINE SERVICES, INC. vs.

PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP

MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD. [July 28, 2005]

White Gold procured a protection and indemnity coverage for its vessels from Steamship Mutual through Pioneer
Insurance. Subsequently, White Gold was issued a Certificate of Entry and Acceptance. Pioneer also issued receipts
evidencing payments for the coverage. 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 latter’s
unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission claiming that
Steamship Mutual violated Sections 186 and 187 of the Insurance Code, while Pioneer violated Sections 299,
300 and 301 in relation to Sections 302 and 303, thereof.

INSURANCE COMMISIONER: Dismissed the complaint. There was no need for Steamship Mutual to secure a license
because it was not engaged in the insurance business. Steamship Mutual was a Protection and Indemnity Club (P & I
Club). Likewise, Pioneer need not obtain another license as insurance agent and/or a broker for Steamship Mutual
because Steamship Mutual was not engaged in the insurance business. Moreover, Pioneer was already licensed,
hence, a separate license solely as agent/broker of Steamship Mutual was already superfluous.

CA: affirmed the decision of the Insurance Commissioner. Distinguished between P & I Clubs vis-à-vis conventional
insurance. Pioneer merely acted as a collection agent of Steamship Mutual.

Steamship Mutual is a P & I Club. Steamship Mutual admits it does not have a license to do business in the
Philippines although Pioneer is its resident agent. This relationship is reflected in the certifications issued by the
Insurance Commission.

WHITE GOLD: insists that Steamship Mutual is a P & I Club is engaged in the insurance business. P & I Club, as
defined in the case of Hyopsung Maritime v. CA 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." It stresses that as a P & I Club, 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.

RESPONDENT: contend 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 ship-owning. Hyopsung is inapplicable in this case because the issue in Hyopsung was
the jurisdiction of the court over Hyopsung.

ISSUES: (1) W/N Steamship Mutual is engaged in the insurance business in the Philippines; (2) W/N Pioneer needs
a license as an insurance agent/broker for Steamship Mutual.

HELD: YES, for both. Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business"
or "transacting an insurance business". These are:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to
any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an
insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to
evade the provisions of this Code.

The fact that no profit is derived from the making of insurance contracts, agreements or transactions, or that no
separate or direct consideration is received therefor, shall not preclude the existence of an insurance business.
TEST: 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.

Basically, an insurance contract is a CONTRACT OF INDEMNITY. In it, one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event. In particular, a
marine insurance undertakes to indemnify the assured against marine losses, such as the losses incident to a marine
adventure. Section 99 of the Insurance Code enumerates the coverage of marine insurance.

Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer and
insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a fund from
which all losses and liabilities are paid, and where the profits are divided among themselves, in proportion to their
interest.17 Additionally, mutual insurance associations, or clubs, provide three types of coverage, namely, protection
and indemnity, war risks, and defense costs. 18

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."19 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 18720 of the Insurance Code. It maintains a resident agent in the Philippines to solicit
insurance and to collect payments in its behalf. We note that 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.21

Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration 22 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:

“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, which must be renewed annually on the first day of January, or within six months
thereafter. . .”

Finally, White Gold seeks revocation of Pioneer’s certificate of authority and removal of its directors and officers.
Regrettably, we are not the forum for these issues.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court of Appeals affirming
the Decision dated May 3, 2000 of the Insurance Commission is hereby REVERSED AND SET ASIDE. The Steamship
Mutual Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to
obtain licenses and to secure proper authorizations to do business as insurer and insurance agent, respectively. The
petitioner’s prayer for the revocation of Pioneer’s Certificate of Authority and removal of its directors and officers, is
DENIED.
RAFAEL (REX) VERENDIA vs. CA and FIDELITY & SURETY CO. [January 22, 1993]

Fidelity and Surety Insurance Company of the Philippines issued a Fire Insurance Policy effective between June 23,
1980 and June 23, 1981 covering Rafael (Rex) Verendia's residential building in the amount of P385,000. 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, expiring on May 12, 1981, and The Development
Insurance for P400,000 expiring on June 30, 198l.

While the three fire insurance policies were in force, the insured property was completely destroyed by fire on
December 28, 1980. Fidelity was informed of the loss and despite demands, refused payment under its policy, thus
prompting Verendia to file a complaint with the then CFI-Quezon City.

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.

CFI: ruled in favor of Fidelity. In sustaining the defenses set up by Fidelity, the trial court ruled that Paragraph 3 of the
policy was also violated by Verendia in that the insured failed to inform Fidelity of his other insurance coverages with
Country Bankers Insurance and Development Insurance.

IAC: reversed for the following reasons: (a) there was no misrepresentation concerning the lease for the contract was
signed by Marcelo Garcia in the name of Roberto Garcia; and (b) Paragraph 3 of the policy contract requiring
Verendia to give notice to Fidelity of other contracts of insurance was waived by Fidelity as shown by its conduct in
attempting to settle the claim of Verendia.

ISSUE: W/N the contract of lease submitted by Verendia to support his claim on the fire insurance policy constitutes a
false declaration which would forfeit his benefits under Section 13 of the policy; and (b) W/N in submitting the
subrogation receipt in evidence, Fidelity had in effect agreed to settle Verendia's claim in the amount stated in said
receipt.

The aforesaid contract of lease was entered into between Verendia and one Robert Garcia on June 25, 1980, a
couple of days after the effectivity of the insurance policy. However, according to the investigation report of the
Antipolo police, the building appeared to have "no occupant" and that Roberto Garcia was "renting on the otherside
portion of said compound". Robert Garcia disappeared after the fire. Later, an adjuster 1 was able to locate him.
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.
Thus, the adjuster submitted a report recommending the denial of Verendia's claim.

During the trial, Verendia admitted that it was not Robert Garcia who signed the lease contract. According to
Verendia, it was signed by Marcelo Garcia, cousin of Robert, who had 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 was paying for the rent and why
he himself, the lessor, allowed such a ruse.

FIDELITY’S CONCLUSION: 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

1
INSURANCE ADJUSTER: determines the extent of the insurance company's liability when a claim is submitted.
right to recovery from the insurer. 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 that Verendia used a false lease contract to support his claim under the 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 which states 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. Worse yet, by presenting a false lease contract, Verendia, reprehensibly disregarded the principle that
insurance contracts are uberrimae fidae2 and demand the most abundant good faith.

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.

WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in G.R. No. 76399 is GRANTED and the
decision of the then Intermediate Appellate Court under review is REVERSED and SET ASIDE and that of the trial
court is hereby REINSTATED and UPHELD.

PHILAMCARE HEALTH SYSTEMS, INC. vs. CA and JULITA TRINOS [March 18, 2002]

2
UBERRIMAE FIDES: Class of agreements (such as insurance contracts) in which one party (the promisee, such as an applicant) is under a
fundamental duty to disclose all material facts and surrounding circumstances that could influence the decision of the other party (the
promisor, such as an insurance company) to enter the agreement. Non-disclosure or a partial-disclosure makes such agreements voidable. Latin
for, utmost good faith.
Ernani Trinos, deceased husband of Julita Trinos, applied for a health care coverage with Philamcare Health Systems,
Inc. In the standard application form, he answered no 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? (If Yes, give details).”

The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was
issued a Health Care Agreement, under which, Ernani was entitled to avail of hospitalization benefits, whether
ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical
examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the
same was extended until June 1, 1990. The amount of coverage was increased to P75,000 per disability.

During the period of his coverage, Ernani suffered a heart attack. Julita tried to claim the benefits under the health
care agreement, however, PHILAM denied her claim saying that the Health Care Agreement was void. According to
PHILAM, there was a concealment regarding Ernani’s 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 the hospitalization expenses herself, amounting to P76,000. On April 13, 1990,
Ernani died. Julita instituted with RTC-Manila an action for damages against PHILAM where she asked for
reimbursement of her expenses plus moral damages and attorney’s fees.

RTC: held in favor of Julita, ordering PHILAM to pay and reimburse the fees plus interest, moral and exemplary
damages, and attorney’s fees; CA: affirmed the decision of the RTC but deleted all awards for damages and absolved
petitioner Reverente.

PHILAM: argues that a health care agreement is not an insurance contract; hence the "incontestability clause 3" under
the Insurance Code does not apply.

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. An insurance
contract exists where the following elements concur:

1. The insured has an insurable 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.

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a
person having an insurable interest against him, may be insured against. 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;
(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness
might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him depends.

In the case at bar, 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.

PHILAM argues that respondent’s husband concealed a material fact in his application. Petitioner cannot rely on the
stipulation regarding "Invalidation of agreement" which states that “failure to disclose or misrepresentation of any
3
INCONTESTABILITY CLAUSE: provides that a life-insurance policy shall be incontestable after two years from the date of issuance, regardless of
any mistake, fraud, concealment or misrepresentation. Under Philippine laws, it may only be contested on the ground of nonpayment of
premiums.
material information by the member in the application or medical examination, whether intentional or unintentional,
shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to
return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its
revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher
Membership Fee for the benefit or benefits applied for.”

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 Ernani who was not a medical doctor.
Where matters of opinion or judgment are called for, answers made in 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 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.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of
insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. 17In
this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies
require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of 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 of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations
on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his
obligation. 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.
The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in
favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring
coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the
provider.

Anent the incontestability of the membership of respondent’s husband:

Under the title Claim procedures of expenses, the Philamcare 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.

Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the
time of their marriage, the deceased was previously married to another woman who was still alive. The health care
agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the
expenses. It is not controverted that respondent paid all the hospital and medical expenses. She is therefore entitled
to reimbursement. The records adequately prove the expenses incurred by respondent for the deceased’s
hospitalization, medication and the professional fees of the attending physicians. 24

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated
December 14, 1995 is AFFIRMED.

FORTUNE INSURANCE AND SURETY CO., INC. vs. CA and PRODUCERS BANK [May 23, 1995]
Producer’s Bank was insured by Fortune Insurance and an insurance policy was issued. Thereafter, an armored car
of PRODUCER’S BANK, while in the process of transferring cash in the sum of P725,000 under the custody of its teller,
Maribeth Alampay, from its Pasay Branch to its Head Office was robbed of the said cash. The robbery took place
while the armored car was traveling along Taft Avenue in Pasay City.

The armored car was driven by Benjamin Magalong, escorted by Security Guard Saturnino Atiga. Magalong was
assigned by PRC Management Systems while Atiga was assigned by Unicorn Security Services, Inc. with Producers
Bank. After an investigation by the Pasay police, Magalong and Atiga were among those charged with violation of
P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City.

Demands were made by the Producer’s Bank upon Fortune Insurance to pay the amount of the loss, but the latter
refused to pay as the loss is excluded from the coverage of the insurance policy, specifically under "General
Exceptions" which states that FORTUNE shall not be liable under the policy in report of “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. . . .”

FORTUNE: points out that an employer-employee relationship depends upon four standards: (1) the manner of
selection and engagement of the putative employee; (2) the mode of payment of wages; (3) the presence or absence
of a power to dismiss; and (4) the presence and absence of a power to control the putative employee's conduct. It
asserts that the power of control over Magalong and Atiga was vested in and exercised by Producers. Fortune further
insists that PRC Management System and Unicorn Security Services are but "labor-only" contractors under Article 106
of the Labor Code which provides:
Art. 106. 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.

Fortune thus contends that Magalong and Atiga were employees of Producers. A finding that a contractor is a
"labor-only" contractor is equivalent to a finding that there is an employer-employee relationship between the
owner of the project and the employees of the "labor-only" contractor.

PRODUCERS: contends that Atiga and Magalong are not its "officer, employee, . . . trustee or authorized
representative . . . at the time of the robbery. Producers then filed a complaint for recovery of the sum of P725,000
under the policy against Fortune Insurance with the RTC-Makati.

RTC: rendered its decision in favor of Producers. It held that Magalong and Atiga were not employees or
representatives of Producers. Said driver and security guard cannot be considered as employees of plaintiff-appellee
bank because it has no power to hire or to dismiss said driver and security guard under the contracts except only to
ask for their replacements from the contractors.; CA agreed with the RTC and held that the word "employee" must
be taken to mean in the ordinary sense. The Labor Code is a special law specifically dealing with/and specifically
designed to protect labor and therefore its definition as to employer-employee relationships insofar as the
application/enforcement of said Code is concerned must necessarily be inapplicable to an insurance contract which
defendant-appellant itself had formulated.

ISSUE: W/N FORTUNE is liable under the Money, Security, and Payroll Robbery policy it issued to PRODUCERS or
whether recovery thereunder is precluded under the general exceptions clause thereof.

HELD: NO, Fortune should NOT be liable. It should be noted that the insurance policy entered into by the parties is a
theft or robbery insurance policy which is a form of casualty insurance. Section 174 of the Insurance Code provides:

Sec. 174. CASUALTY INSURANCE is insurance covering loss or liability arising from accident or mishap, excluding certain
types of loss which by law or custom are considered as falling exclusively within the scope of insurance such as fire or
marine. It includes, but is not limited to, employer's liability insurance, public liability insurance, motor vehicle liability
insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life
insurance companies, and other substantially similar kinds of insurance .
Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions
applicable to casualty insurance or to robbery insurance in particular. These contracts are, therefore, governed by
the general provisions applicable to all types of insurance. Outside of these, the rights and obligations of the
parties must be determined by the terms of their contract, taking into consideration its purpose and always in
accordance with the general principles of insurance law.

It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the insurer —
the moral hazard — is so great that insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Persons frequently excluded under such provisions are those in the
insured's service and employment. The purpose of the exception is to guard against liability should the theft be
committed by one having unrestricted access to the property. In such cases, the terms specifying the excluded
classes are to be given their meaning as understood in common speech. The terms "service" and "employment" are
generally associated with the idea of selection, control, and compensation.

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the
insurer, or it should be construed liberally in favor of the insured and strictly against the insurer. 16 Limitations of
liability should be regarded with extreme jealousy and must be construed in such a way, as to preclude the insurer
from non-compliance with its obligation. It goes without saying then that if the terms of the contract are clear and
unambiguous, there is no room for construction and such terms cannot be enlarged or diminished by judicial
construction. 18

An insurance contract is a contract of indemnity upon the terms and conditions specified therein. It is settled that the
terms of the policy constitute the measure of the insurer's liability. In the absence of statutory prohibition to the
contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever
conditions they deem best upon their obligations not inconsistent with public policy.

There is marked disagreement between the parties on the correct meaning of the terms "employee" and
"authorized representatives."

When Fortune used the term "employee," it must have had in mind any 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.

Since the parties opted to submit the case for judgment on the basis of their stipulation of facts which are strictly
limited to the insurance policy, the contracts with PRC Management Systems and Unicorn Security Services, the
complaint for violation of P.D. No. 532, and the information therefor filed by the City Fiscal of Pasay City, there is a
paucity of evidence as to whether the contracts between Producers and PRC Management Systems and Unicorn
Security Services are "labor-only" contracts.

But even granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC
Management Systems and Unicorn Security Services were truly independent contractors, we are satisfied that
Magalong and Atiga were, in respect of the transfer of Producer's money from its Pasay City branch to its head
office in Makati, its "authorized representatives" who served as such with its teller Maribeth Alampay. Howsoever
viewed, Producers entrusted the three with the specific duty to safely transfer the money to its head office, with
Alampay to be responsible for its custody in transit. In short, for these particular tasks, the three acted as agents of
Producers. 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.”In view of the
foregoing, Fortune is exempt from liability under the general exceptions clause of the insurance policy.

WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 32946
dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court of Makati in Civil Case No. 1817 are
REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is DISMISSED.

GULF RESORTS, INC. vs. PHILIPPINE CHARTER INSURANCE CORPORATION [May 16, 2005]
Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said resort insured
originally with the American Home Assurance Company (AHAC-AIU). In the first four insurance policies issued by
AHAC from 1984-1988, the risk of loss from earthquake shock was extended only to Gulf Resorts’ two swimming
pools. Subsequently, AHAC issued in Gulf Resorts’ favor the Policy covering the period March 14, 1988 to March 14,
1989. In said policy, the earthquake endorsement 4 clause was deleted and the entry under Endorsements/Warranties
at the time of issue read that Gulf Resorts renewed its policy with AHAC (AIU) for the period of March 14, 1989 to
March 14, 1990, which read "Endorsement to Include Earthquake Shock in the amount of [P10,700] and
paid P42,658.14 as premium thereof.

Gulf Resorts agreed to insure with Philippine Charter Insurance the properties covered by AHAC (AIU) provided that
the policy wording and rates in said policy be copied in the policy to be issued by Philippine Charter. Philippine
Charter issued the policy covering the period of March 14, 1990 to March 14, 1991 for P10,700,600 for a total
premium of P45,159.92. In the computation of the premium, Philippine Charter’s Policy shows that Gulf Resorts paid
only P393 as premium against earthquake shock. In all the six insurance policies, the premium against the peril of
earthquake shock is the same, that is P393. In the policy issued by AHAC and in Policy No. 31944 issued by
defendant, the shock endorsement provide:

In consideration of the payment by the insured to the company of the sum included additional premium the Company
agrees, notwithstanding what is stated in the printed conditions of this policy due to the contrary, that this insurance covers
loss or damage to shock to any of the property insured by this Policy occasioned by or through or in consequence of
earthquake. In Exhibit "7-C" the word "included" above the underlined portion was deleted.

On July 16, 1990, an earthquake struck Central Luzon and Northern Luzon and Gulf Resorts’ properties covered by
the policy issued by Philippine Charter, including the two swimming pools in its Agoo Playa Resort were damaged.

After the earthquake, Gulf Resorts advised Philippine Charter that it would be making a claim under its Insurance
Policy for damages on its properties. Philippine Charter instructed Gulf Resorts to file a formal claim, then assigned
the investigation of the claim to an independent claims adjuster, Bayne Adjusters and Surveyors, Inc. On July 30,
1990, Philippine Charter, through its adjuster, requested Gulf Resorts to submit various documents in support of its
claim. Bayne Adjusters and Surveyors, Inc. rendered a preliminary report finding extensive damage caused by the
earthquake to the clubhouse and to the two swimming pools, and stated that "except for the swimming pools, all
affected items have no coverage for earthquake shocks."

Gulf Resorts filed its formal demand for settlement of the damage to all its properties in the Agoo Playa Resort.
Philippine Charter denied Gulf Resorts’ claim on the ground that its insurance policy only afforded earthquake shock
coverage to the two swimming pools of the resort. The two failed to arrive at a settlement, and Gulf Resorts filed a
complaint RTC-Pasig praying for the payment of all damages to the properties within its resort caused by earthquake.

RTC: ruled in favor of Philippine Charter Insurance and held Philippine Charter is liable only for the damage caused to
the two swimming pools. Gulf Resorts paid only a premium of P393 against the peril of earthquake shock, the same
premium it paid against earthquake shock only on the two swimming pools in all the policies issued by AHAC.
From this fact the Court must consequently agree with the position of Philippine Charter that the endorsement rider
means that only the two swimming pools were insured against earthquake shock.

CA: affirmed the ruling of the RTC. The CA was not convinced that the last two insurance contracts which Gulf Resorts
had with AHAC (AIU) and upon which the subject insurance contract with Philippine Charter Insurance Corporation is
said to have been based and copied, covered an extended earthquake shock insurance on all the insured properties.

ISSUE: W/N under Philippine Charter’s insurance, only the two swimming pools rather than all the properties of
Gulf Resorts are insured against the risk of earthquake shock.

GULF RESORTS: the policy’s earthquake shock endorsement clearly covers all of the properties insured and not only
the swimming pools. It used the words "any property insured by this policy," and it should be interpreted as all
inclusive.
4
ENDORSEMENT: an amendment or addition to an existing insurance contract which changes the terms or scope of the original policy.
Endorsements may also be referred to as riders. An insurance endorsement may be used to add, delete, exclude or otherwise alter coverage.
An insurance endorsement may be issued mid-term, at the time of purchase, or at renewal.
PHILIPPINE CHARTER: none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended
coverage against earthquake shock to petitioner’s insured properties other than on the two swimming pools.
Petitioner admitted that from 1984 to 1988, only the two swimming pools were insured against earthquake shock.
From 1988 until 1990, the provisions in its policy were practically identical to its earlier policies, and there was no
increase in the premium paid.

Petitioner anchors its claims on AHAC-AIU’s inadvertent deletion of the phrase "Item 5 Only" after the descriptive
name or title of the Earthquake Shock Endorsement. However, the words of the policy reflect the parties’ clear
intention to limit earthquake shock coverage to the two swimming pools. Before petitioner accepted the policy, it
had the opportunity to read its conditions. It did not object to any deficiency nor did it institute any action to reform
the policy. The policy binds the petitioner.

SC: 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.

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. 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. 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 an insurable 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.26

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. 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.

Petitioner also cited and relies on 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 as proof of the intent of the parties to extend the
coverage for earthquake shock. However, this phrase is merely an enumeration of the descriptive titles of the riders,
clauses, warranties or endorsements to which the policy is subject, as required under Section 50, paragraph 2 of the
Insurance Code.

We also hold that no significance can be placed on the deletion of the qualification limiting the coverage to the two
swimming pools. The earthquake shock endorsement cannot stand alone.

HELD: 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. 31 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. Through the years, the courts have held that in these type of contracts, the parties do not
bargain on equal footing, the weaker party's participation being reduced to the alternative to take it or leave it. Thus,
these contracts are viewed as traps for the weaker party whom the courts of justice must protect. 32 Consequently,
any ambiguity therein is resolved against the insurer, or construed liberally in favor of the insured. 33

The case law will show that this Court will only rule out blind adherence to terms where facts and circumstances will
show that they are basically one-sided.34 Thus, we have called on lower courts to remain careful in scrutinizing the
factual circumstances behind each case to determine the efficacy of the claims of contending parties.
In Development Bank of the Philippines v. National Merchandising Corporation, et al.,35 the parties, who were
acute businessmen of experience, were presumed to have assented to the assailed documents with full knowledge.

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.

Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-4568061-9 in drafting
its Insurance Policy No. 31944. It is true that there was variance in some terms, specifically in the replacement cost
endorsement, but the principal provisions of the policy remained essentially similar to AHAC-AIU’s policy.
Consequently, we cannot apply the "fine print" or "contract of adhesion" rule in this case as the parties’ intent to
limit the coverage of the policy to the two swimming pools only is not ambiguous.

MANILA MAHOGANY MANUFACTURING CORPORATION vs. COURT OF APPEALS AND ZENITH INSURANCE
CORPORATION [October 12, 1987]
From March 6, 1970 to March 6, 1971, Manila Mahogany insured its Mercedes Benz 4-door sedan with Zenith
Insurance. On May 4, 1970, the insured vehicle was bumped and damaged by a truck owned by San Miguel
Corporation. For the damage caused, Zenith paid Mahogany P5,000 in amicable settlement. Mahogany’s general
manager executed a Release of Claim, subrogating Zenith to all its right to action against San Miguel Corporation.

On December 11, 1972, Zenith wrote Insurance Adjusters, Inc. to demand reimbursement from San Miguel
Corporation of the amount it had paid Mahogany. Insurance Adjusters, Inc. refused reimbursement, alleging that
San Miguel Corporation had already paid petitioner P4,500 for the damages to Mahogany’s motor vehicle, as
evidenced by a cash voucher and a Release of Claim executed by the General Manager of Mahogany discharging San
Miguel Corporation from "all actions, claims, demands the rights of action that now exist or hereafter develop arising
out of or as a consequence of the accident."

Zenith thus demanded from Mahogany reimbursement of the sum of P4,500 paid by San Miguel Corporation.
Mahogany refused. Thus, Zenith filed suit in the City Court of Manila for the recovery of P4,500.

CITY COURT: ordered Mahogany to pay Zenith P4,500; CFI: affirmed the City Court’s decision; CA: affirmed CFI’s
decision, with modification that Mahogany was to pay Zenith back the P5,000.

MAHOGANY: contends it is not bound to pay Zenith as the subrogation in the Release of Claim it executed in favor of
Zenith was conditioned on recovery of the total amount of damages Mahogany had sustained. Since total damages
were valued at P9,486.43 and only P5,000 was received by petitioner from respondent, Mahogany argues that it was
entitled to go after(filing a deficiency claim against) San Miguel Corporation to claim the additional P4,500 eventually paid
to it by the latter, without having to turn over said amount to Zenith.

ZENITH: contends that there was no qualification to its right of subrogation under the Release of Claim executed by
Mahogany, the contents of said deed having expressed all the intents and purposes of the parties.

Art. 2207 of the Civil Code states:

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. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing the loss or injury.
Art. 1304 of the Civil Code states:
A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be preferred to the person who has
been subrogated in his place in virtue of the partial payment of the same credit.

ISSUE: W/N Manila Mahogany should pay Zenith Insurance Corporation the sum of P5,000.

HELD: Although Mahogany’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
discharging San Miguel Corporation from "all actions, claims, demands and rights of action that now exist or
hereafter arising out of or as a consequence of the accident" after the insurer had paid the proceeds of the policy,
the insurer is entitled to recover from the insured the amount of insurance money paid.

Since Mahogany by its own acts released San Miguel Corporation, thereby defeating Zenith’s right of subrogation, the
right of action of Mahogany against the insurer was also nullified. Otherwise stated: Zenith may recover the sum of
P5,000.00 it had earlier paid to Mahogany.

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
amount paid by the insurer does not fully cover the loss, then the aggrieved party is the one entitled to recover the
deficiency. ... 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.

MAHOGANY is entitled to keep the sum of P4,500 paid by San Miguel Corporation under its clear right to file a
deficiency claim for damages incurred against the wrongdoer, should the insurance company not fully pay for the
injury caused (Article 2207, New Civil Code). However, when Mahogany released San Miguel Corporation from any
liability, Mahogany’s right to retain the sum of P5,000 no longer existed, thereby entitling Zenith to recover the same .

The RIGHT OF SUBROGATION can only exist after the insurer has paid, 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 remainder. To the extent of the amount he has already
received from the insurer enjoys 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 .

It is to be noted that private respondent, in its companies, prays for the recovery, not of P5,000 it had paid under the
insurance policy but P4,500 San Miguel Corporation had paid to petitioner. On this score, We believe the City Court
and Court of First Instance erred in not awarding the proper relief. Although private respondent prays for the
reimbursement of P4,500 paid by San Miguel Corporation, instead of P5,000 paid under the insurance policy, the trial
court should have awarded the latter, although not prayed for, under the general prayer in the complaint "for such
further or other relief as may be deemed just or equitable.

FEDERAL EXPRESS CORP. vs. AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE COMPANY, INC.
[August 18, 2004]
On January 26, 1994, SMITHKLINE Beecham of Nebraska, USA delivered to Burlington Air Express, an agent of Federal
Express Corporation, a shipment of 109 cartons of veterinary biologicals for delivery to consignee 5SMITHKLINE and
French Overseas Company in Makati City, Metro Manila. The shipment was covered by Burlington Airway Bill with the
words, REFRIGERATE WHEN NOT IN TRANSIT and PERISHABLE stamp marked on its face. That same day, Burlington
insured the cargoes in the amount of $39,339 with American Home Assurance Company.

The following day, Burlington turned over the custody of said cargoes to FedEx which transported the same to
Manila. The first shipment, consisting of 92 cartons arrived in Manila on January 29, 1994 and was immediately
stored at [Cargohaus Inc’s] warehouse. While the second, consisting of 17 cartons, came in two days later. Prior to
the arrival of the cargoes, Federal Express 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.

Twelve days after the cargoes arrived in Manila, DARIO DIONEDA, a non-licensed customs broker who was assigned
by GETC to facilitate the release of the subject cargoes, found out, while he was about to cause the release of the
said cargoes, that the same were stored only in a room with two air conditioners running, to cool the place instead of
a refrigerator. When he asked an employee of Cargohaus why the cargoes were stored in the cool room only, the
latter told him that the cartons where the vaccines were contained specifically indicated therein that it should not be
subjected to hot or cold temperature. 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 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. which recompensed SMITHKLINE for the whole insured amount of $39,339. Thereafter,
Philam filed an action for damages against FedEx and Cargohaus, imputing negligence on either or both of them in
the handling of the cargo.

RTC: ordered FedEx and Cargohaus to pay PHILAM jointly and severally actual damages of in the amount of the peso
equivalent of US$39,339.

CA: affirmed the ruling of RTC. The Test Report issued by the US Department of Agriculture (Animal and Plant Health
Inspection Service) was found by the CA to be inadmissible in evidence. Despite this ruling, the appellate court held
that the shipping Receipts were a prima facie proof that the goods had indeed been delivered to the carrier in
good condition. Where the plaintiff introduces evidence which shows prima facie that the goods were delivered to
the carrier in good condition [i.e., the shipping receipts], and that the carrier delivered the goods in a damaged
condition, a presumption is raised that the damage occurred through the fault or negligence of the carrier, and this
casts upon the carrier the burden of showing that the goods were not in good condition when delivered to the
carrier, or that the damage was occasioned by some cause excepting the carrier from absolute liability.

ISSUE: W/N PHILAM has personality to sue despite the payment being made to Smithkline when the insured under
the policy is Burlington Air Express.

FEDEX: contends that PHILAM has no personality to sue -- thus, no cause of action against it -- because the payment
made to Smithkline was erroneous.

HELD: Pertinent to this issue is the Certificate of Insurance that both opposing parties cite in support of their
respective positions. 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
5
CONSIGNEE: In a contract of carriage, it is the entity who is financially responsible (the buyer) for the receipt of a shipment.
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.
Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods, the insurers
entitlement to subrogation pro tanto -- being of the highest equity -- equips it with a cause of action in case of a
contractual breach or negligence. [13] Further, the insurer’s subrogatory right to sue for recovery under the bill of
lading in case of loss of or damage to the cargo is jurisprudentially upheld.
In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To all intents and
purposes, it stands in the place and in substitution of the consignee. A fortiori, both the insurer and the consignee
are bound by the contractual stipulations under the bill of lading.

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. The latter, and even the consignee, never filed with the
carrier any written notice or complaint regarding its claim for damage of or loss to the subject cargo within the period
required by the Warsaw Convention and/or in the airway bill. 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]. [16]

Relevantly, petitioners 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;
12.1.2 of other damage to the goods, within fourteen (14) days from the date of receipt of the goods;
12.1.3 delay, within twenty-one (21) days of the date the goods are placed at his disposal; and
12.1.4 of non-delivery of the goods, within one hundred and twenty (120) days from the date of the issue
of the air waybill.
12.2 For the purpose of 12.1 complaint in writing may be made to the carrier whose air waybill was used, or to the
first carrier or to the last carrier or to the carrier who performed the transportation during which the loss, damage or
delay took place.[17]

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

ART. 26. (1) Receipt by the person entitled to the delivery of baggage or goods without complaint shall be prima facie
evidence that the same have been delivered in good condition and in accordance with the document of
transportation.

(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. In case of delay the complaint must be made at the latest within 14 days from the
date on which the baggage or goods have been placed at his disposal.

(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.[18]

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. [19] 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. [20]
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. [21]
When an airway bill -- or any contract of carriage for that matter -- has a stipulation that requires a notice of
claim for loss of or damage to goods shipped and the stipulation is not complied with, its enforcement can be
prevented and the liability cannot be imposed on the carrier. To stress, notice is a condition precedent, and the
carrier is not liable if notice is not given in accordance with the stipulation. [22] Failure to comply with such a stipulation bars
recovery for the loss or damage suffered.[23]
Being a condition precedent, the notice must precede a suit for enforcement. [24] In the present case, there is
neither an allegation nor a showing of respondent’s compliance with this requirement within the prescribed period.
While respondents may have had a cause of action then, they cannot now enforce it for their failure to comply
with the aforesaid condition precedent.
We note that respondents are not without recourse. Cargohaus, Inc. -- petitioners co-defendant in respondents
Complaint below -- has been adjudged by the trial court as liable for, inter alia, actual damages in the amount of the
peso equivalent of US $39,339. [25] This judgment was affirmed by the Court of Appeals and is already final and
executory.[26]
WHEREFORE, the Petition is GRANTED, and the assailed Decision REVERSED insofar as it pertains to Petitioner
Federal Express Corporation. No pronouncement as to costs.

ETERNAL GARDENS MEMORIAL PARK CORPORATION vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY
[April 9, 2008]
ISSUE: W/N the inaction of the insurer on the insurance application may be considered as approval of the
application.

On December 10, 1980, Philamlife entered into an agreement denominated as Creditor Group Life Policy with Eternal
Gardens Memorial Park Corporation. 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 policy was to be effective for a period of one year, renewable on a yearly
basis.

ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the Assured for the unpaid balance
of his loan with the Assured, and is accepted for Life Insurance coverage by the Company on its effective date is eligible for insurance
under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to P50,000.00. However, a declaration of good health shall be
required for all Lot Purchasers as part of the application. The Company reserves the right to require further evidence of insurability
satisfactory to the Company in respect of the following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance of his loan (including arrears up
to but not exceeding 2 months) as reported by the Assured to the Company or the sum of P100,000.00, whichever is smaller. Such
benefit shall be paid to the Assured if the Lot Purchaser dies while insured under the Policy.
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. 3

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. In
relation to the instant petition, Eternal complied by submitting a letter dated December 29, 1982, 4 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 PhP 100,000. On August 2, 1984, Chuang died.

Eternal sent a letter dated August 20, 1984 5 to Philamlife, which served as an insurance claim for Chuang’s death.
Attached to the claim were the following documents: (1) Chuang’s Certificate of Death; (2) Identification Certificate
stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician;
and (5) Assured’s Certificate.

In reply, Philamlife wrote Eternal a letter on November 12, 1984, 6 requiring Eternal to submit the following
documents relative to its insurance claim for Chuang’s death: (1) Certificate of Claimant (with form attached); (2)
Assured’s Certificate (with form attached); (3) Application for Insurance accomplished and signed by the insured,
Chuang, while still living; and (4) Statement of Account showing the unpaid balance of Chuang before his death.

Eternal transmitted the required documents through a letter dated November 14, 1984, 7 which was received by
Philamlife on November 15, 1984.

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 on April 25, 1986. 8

In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter dated May 20, 1986, 9 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.
 In accordance with our Creditor’s Group Life Policy No. P-1920, under Evidence of Insurability provision, "a
declaration of good health shall be required for all Lot Purchasers as party of the application." We cite further
the provision on Effective Date of Coverage under the policy which states that "there shall be no insurance if
the application is not approved by the Company." Since no application had been submitted by the
Insured/Assured, prior to his death, for our approval but was submitted instead on November 15, 1984, after
his death, Mr. John Uy Chuang was not covered under the Policy. We wish to point out that Eternal Gardens
being the Assured was a party to the Contract and was therefore aware of these pertinent provisions.

With regard to our acceptance of premiums, these do not connote our approval per se of the insurance
coverage but are held by us in trust for the payor until the prerequisites for insurance coverage shall have
been met. We will however, return all the premiums which have been paid in behalf of John Uy Chuang.

Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money against
Philamlife, docketed as Civil Case No. 14736. The trial court decided in favor of Eternal, the dispositive portion of
which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL, against
Defendant PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the sum of P100,000.00, representing
the proceeds of the Policy of John Uy Chuang, plus legal rate of interest, until fully paid; and, to pay the sum
of P10,000.00 as attorney’s fees.

SO ORDERED.

The RTC found that Eternal submitted Chuang’s application for insurance which he accomplished before his death, as
testified to by Eternal’s witness and evidenced by the letter dated December 29, 1982, stating, among others: "Encl:
Phil-Am Life Insurance Application Forms & Cert." 10 It further ruled that due to Philamlife’s inaction from the
submission of the requirements of the group insurance on December 29, 1982 to Chuang’s death on August 2, 1984,
as well as Philamlife’s acceptance of the premiums during the same period, Philamlife was deemed to have approved
Chuang’s application. The RTC said that since the contract is a group life insurance, once proof of death is submitted,
payment must follow.

Philamlife appealed to the CA, which ruled, thus:

WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is REVERSED and SET
ASIDE, and the complaint is DISMISSED. No costs.

SO ORDERED.11

The CA based its Decision on the factual finding that Chuang’s application was not enclosed in Eternal’s letter dated
December 29, 1982. It further 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
Philamlife’s insurance.

Hence, we have this petition with the following grounds:

The Honorable Court of Appeals has decided a question of substance, not therefore determined by this
Honorable Court, or has decided it in a way not in accord with law or with the applicable jurisprudence, in
holding that:

I. The application for insurance was not duly submitted to respondent PhilamLife before the death of
John Chuang;

II. There was no valid insurance coverage; and

III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996.
 The Court’s Ruling

As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the CA and first
level courts, considering their findings of facts are conclusive and binding on this Court. However, such rule is subject
to exceptions, as enunciated in Sampayan v. Court of Appeals:

(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference
made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in
making its findings the [CA] went beyond the issues of the case, or its findings are contrary to the admissions
of both the appellant and the appellee; (7) when the findings [of the CA] are contrary to the trial court; (8)
when the findings are conclusions without citation of specific evidence on which they are based; (9) when
the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain
relevant facts not disputed by the parties, which, if properly considered, would justify a different
conclusion.12(Emphasis supplied.)

In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review them.

Eternal claims that the evidence that it presented before the trial court supports its contention that it submitted a
copy of the insurance application of Chuang before his death. In Eternal’s letter dated December 29, 1982, a list of
insurable interests of buyers for October 1982 was attached, including Chuang in the list of new businesses. Eternal
added it was noted at the bottom of said letter that the corresponding "Phil-Am Life Insurance Application Forms &
Cert." were enclosed in the letter that was apparently received by Philamlife on January 15, 1983. Finally, Eternal
alleged that it provided a copy of the insurance application which was signed by Chuang himself and executed before
his death.

On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that Eternal must
present evidence showing that Philamlife received a copy of Chuang’s insurance application.

The evidence on record supports Eternal’s position.

The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that the
insurance forms for the attached list of burial lot buyers were attached to the letter. Such stamp of receipt has the
effect of acknowledging receipt of the letter together with the attachments. Such receipt is an admission by
Philamlife against its own interest. 13 The burden of evidence has shifted to Philamlife, which must prove that the
letter did not contain Chuang’s insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed
to have received Chuang’s insurance application.

To reiterate, it was Philamlife’s bounden duty to make sure that before a transmittal letter is stamped as received, the
contents of the letter are correct and accounted for.

Philamlife’s allegation that Eternal’s witnesses ran out of credibility and reliability due to inconsistencies is
groundless. The trial court is in the best position to determine the reliability and credibility of the witnesses, because
it has the opportunity to observe firsthand the witnesses’ demeanor, conduct, and attitude. Findings of the trial court
on such matters are binding and conclusive on the appellate court, unless some facts or circumstances of weight and
substance have been overlooked, misapprehended, or misinterpreted, 14 that, if considered, might affect the result of
the case.15

An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked facts of
substance and value.

Philamlife primarily claims that Eternal did not even know where the original insurance application of Chuang was, as
shown by the testimony of Edilberto Mendoza:
 Atty. Arevalo:

Q Where is the original of the application form which is required in case of new coverage?

[Mendoza:]

A It is [a] standard operating procedure for the new client to fill up two copies of this form and the original of
this is submitted to Philamlife together with the monthly remittances and the second copy is remained or
retained with the marketing department of Eternal Gardens.

Atty. Miranda:

We move to strike out the answer as it is not responsive as counsel is merely asking for the location and does
not [ask] for the number of copy.

Atty. Arevalo:

Q Where is the original?

[Mendoza:]

A As far as I remember I do not know where the original but when I submitted with that payment together
with the new clients all the originals I see to it before I sign the transmittal letter the originals are attached
therein.16

In other words, the witness admitted not knowing where the original insurance application was, but believed that
the application was transmitted to Philamlife as an attachment to a transmittal letter.

As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two insurance
application forms were accomplished and the testimony of Mendoza on who actually filled out the application form,
these are minor inconsistencies that do not affect the credibility of the witnesses. Thus, we ruled in People v. Paredes
that minor inconsistencies are too trivial to affect the credibility of witnesses, and these may even serve to
strengthen their credibility as these negate any suspicion that the testimonies have been rehearsed. 17

We reiterated the above ruling in Merencillo v. People:

Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecution’s evidence as a
whole or reflect on the witnesses’ honesty. The test is whether the testimonies agree on essential facts and
whether the respective versions corroborate and substantially coincide with each other so as to make a
consistent and coherent whole.18

In the present case, the number of copies of the insurance application that Chuang executed is not at issue, neither is
whether the insurance application presented by Eternal has been falsified. Thus, the inconsistencies pointed out by
Philamlife are minor and do not affect the credibility of Eternal’s witnesses.

However, the question arises as to whether Philamlife assumed the risk of loss without approving the application.

This question must be answered in the affirmative.

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. 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. Thus, in Malayan
Insurance Corporation v. Court of Appeals, this Court held that:

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any
ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract
of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved
against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against
the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a
way as to preclude the insurer from noncompliance with its obligations. 19 (Emphasis supplied.)

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating
that:

When the terms of insurance contract contain limitations on liability, courts should construe them in such a
way as to preclude the insurer from non-compliance with his obligation. 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.20

Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980, must be
construed in favor of the insured and in favor of the effectivity of the insurance contract.

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 Creditor Group Life Policy No. P-1920 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.

As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at
best. Insurance contracts are wholly prepared by the insurer with vast amounts of experience in the industry
purposefully used to its advantage. More often than not, insurance contracts are contracts of adhesion containing
technical terms and conditions of the industry, confusing if at all understandable to laypersons, that are imposed on
those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must be
considered whenever the rights and obligations of the insurer and the insured are to be delineated. Hence, in order
to protect the interest of insurance applicants, insurance companies must be obligated to act with haste upon
insurance applications, to either deny or approve the same, or otherwise be bound to honor the application as a
valid, binding, and effective insurance contract. 21

WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810
is REVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife
is hereby ORDERED:
 (1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of
Chuang;

(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time of
extra-judicial demand by Eternal until Philamlife’s receipt of the May 29, 1996 RTC Decision on June 17, 1996;

(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June 17,
1996 until full payment of this award; and

(4) To pay Eternal attorney’s fees in the amount of PhP 10,000.

No costs.

SO ORDERED.