DANZAS CORPORATION and G.R. No.

141462 On February 23, 1995, Seaboard, invoking its right of subrogation, filed a complaint
ALL TRANSPORT NETWORK, against Skylanders, petitioner and its authorized representative, petitioner All Transport
INC., Network, Inc. (ATN), praying for actual damages in the amount of P612,904.97 plus legal
Petitioners, Present: interest, attorneys fees and cost of suit. Petitioners impleaded Korean Airlines (KAL) as third-
PANGANIBAN, J., Chairman, party defendant.
SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA, While the case was pending, IFTIs treasurer, Mary Eileen Gozon accepted the
CARPIO-MORALES and proposal of KAL to settle consignees claim by paying the amount of US $522.20. On May 8,
GARCIA, JJ. 1996, Felipe Acebedo, IFTIs representative received a check from KAL and correspondingly
signed a release form.
HON. ZEUS C. ABROGAR,
Presiding Judge of Br. 150 of On July 2, 1996, petitioners filed a motion to dismiss the case on the ground that
Makati City, SEABOARD private respondent Seaboards demand had been paid or otherwise extinguished by KAL.
EASTERN INSURANCE CO.,
INC. and PHILIPPINE On December 9, 1996, the trial court issued an order denying the motion to
SKYLANDERS, INC., dismiss. Petitioners, private respondent Skylanders and KAL filed separate motions for
Respondents. Promulgated : reconsideration. Prior to the resolution of these motions, the trial court allowed private
respondent Skylanders to present evidence in a preliminary hearing on November 14, 1997,
December 15, 2005 after which the court set a date to hear the presentation of rebuttal evidence.

x------------------------------------------x On December 5, 1997, petitioners filed a manifestation and motion for

DECISION
CORONA, J.:
Petitioner Danzas Corporation, through its agent, petitioner All Transport Network brings to
us this petition for review on certiorari[1] questioning the decision[2] and resolution[3] of the
Court of Appeals which affirmed two orders issued by the Regional Trial Court, Makati City,
Branch 150.[4]
The facts of the case follow.[5]
On February 22, 1994, petitioner Danzas took a shipment of nine packages of ICS watches for
transport to Manila. The consignee, International Freeport Traders, Inc. (IFTI) secured Marine
Risk Note No. 0000342 from private respondent Seaboard.
On March 2, 1994, the Korean Airlines plane carrying the goods arrived in Manila
and discharged the goods to the custody of private respondent Philippine Skylanders, Inc. for
safekeeping. On withdrawal of the shipment from private respondent Skylanders warehouse,
IFTI noted that one package containing 475 watches was shortlanded while the remaining
eight were found to have sustained tears on sides and the retape of flaps. On further
examination and inventory of the cartons, it was discovered that 176 Guess watches were
missing. Private respondent Seaboard, as insurer, paid the losses to IFTI.
reconsideration of the order of the trial court dated November 14, 1997, questioning the
propriety of the preliminary hearing.
On February 18, 1998, the trial court issued an order denying: (1) the motion for
reconsideration of the December 9, 1996 order filed by petitioners, private respondent
Skylanders and KAL; (2) the motion to dismiss filed by Skylanders and (3) petitioners motion
for reconsideration of the November 14, 1997 order.
On April 6, 1998, petitioners filed in the Court of Appeals a special civil action for
certiorari under Rule 65 of the Rules of Court. On March 5, 1999, the CA dismissed the
petition.[6] Petitioners filed[7] a motion for reconsideration but this was denied.[8]
Hence, this petition.
Petitioners principal contention is that private respondents right of subrogation
was extinguished when IFTI received payment from KAL in settlement of its obligation. They
also claim that public respondent committed grave abuse of discretion by refusing to dismiss
the case on that ground. Finally, they claim that, by granting private respondent Skylanders a
preliminary hearing on an affirmative defense other than one of the grounds stated in
Section 1, Rule 16 of the 1997 Rules of Civil Procedure, public respondent committed another
grave abuse of discretion.
For its part, private respondent Seaboard argues that the payment made by the
tortfeasor did not relieve it of liability because at the time of payment, its (Seaboards) suit

1|Insurance Cases Set 1

against petitioners was already ongoing. It also insists that because the assailed order was
interlocutory, it was not a proper subject for certiorari.[9]
Private respondent Skylanders likewise contends that the order denying dismissal
cannot be the subject of certiorari in the absence of grave abuse of discretion. It also defends
the trial courts order granting a preliminary hearing, saying that, assuming the trial court had
erroneously granted such a hearing, such error was merely one of judgment and not of
jurisdiction as to merit certiorari.[10]
The petition has no merit.
It is true that the doctrine in Manila Mahogany Manufacturing Corporation v. Court
of Appeals[11] remains the controlling doctrine on the issue of whether the tortfeasor, by
settling with the insured, defeats the right to subrogation of the insurer. According to Manila
Mahogany:
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.
This is buttressed by a later decision, Pan Malayan Insurance Corporation v. Court
of Appeals,[12] in which we cited a number of exceptions to the rule laid down in Article 2207
of the Civil Code.[13] Under the first of these exceptions, if the assured by his own act releases
the wrongdoer or third party liable for the loss or damage from liability, the insurers right of
subrogation is defeated.
However, certain factual differences pointed out by private respondent Seaboard
render this doctrine inapplicable. In Manila Mahogany, the tortfeasor San Miguel
Corporation paid the insured without knowing that the insurer had already made such
payment. KAL was not similarly situated, being fully aware of the prior payment made by the
insurer to the consignee. Private respondent Seaboard asserts that, being in bad faith, KAL
should bear the consequences of its actions. [14]
While Manila Mahogany is silent on whether the existence of good faith or bad
faith on the tortfeasors part affects the insurers right of subrogation, there exists a wealth of
U.S. jurisprudence holding that whenever the wrongdoer settles with the insured without the
consent of the insurer and with knowledge of the insurers payment and right of subrogation,
such right is not defeated by the settlement.[15] Because this doctrine is actually consistent
with the facts of Mahogany and helps fill a slight gap left by our ruling in that case, we adopt
it now. The trial court correctly refused to dismiss the case. In that respect, therefore, the
trial court did not commit grave abuse of discretion which would justify certiorari.
We likewise find that no grave abuse of discretion was committed by public
respondent when it granted private respondent Skylanders motion for a preliminary hearing.
In California and Hawaiian Sugar Company v. Pioneer Insurance and Surety
Corporation,[16] we held that a preliminary hearing was not mandatory but was rather subject
to the discretion of the trial court. We found in that instance that the trial court had
committed grave abuse of discretion in refusing the partys motion for a preliminary hearing
on the ground that the case was premature, not having been submitted for arbitration. A
preliminary hearing could have settled the entire case, thereby helping decongest the
dockets. It was therefore the refusal to allow the most efficient and expeditious process
which we condemned.
In the instant case, we are not convinced that public respondents act of allowing a
preliminary hearing constituted grave abuse of discretion.
In Land Bank of the Philippines v. the Court of Appeals[17] we discussed the meaning
of grave abuse of discretion:
Grave abuse of discretion implies such capricious and whimsical exercise
of judgment as is equivalent to lack of jurisdiction or, in other words,
where the power is exercised in an arbitrary manner by reason of
passion, prejudice, or personal hostility, and it must be so patent or gross
as to amount to an evasion of a positive duty or to a virtual refusal to
perform the duty enjoined or to act at all in contemplation of law.
The special civil action for certiorari is a remedy designed for
the correction of errors of jurisdiction and not errors of
judgment. The raison detre for the rule is when a court exercises its
jurisdiction, an error committed while so engaged does not deprive it of
the jurisdiction being exercised when the error is committed. If it did,
every error committed by a court would deprive it of its jurisdiction and
every erroneous judgment would be a void judgment. In such a scenario,
the administration of justice would not survive. Hence, where the issue
or question involved affects the wisdom or legal soundness of the
decisionnot the jurisdiction of the court to render said decisionthe same
is beyond the province of a special civil action for certiorari. (emphasis
supplied)
Public respondents order granting the preliminary hearing does not at all fit the
description above. At worst, it was an error in judgment which is beyond the domain of
certiorari.
WHEREFORE, in view of the foregoing, the petition is hereby DENIED. The decision
and resolution of the Court of Appeals are AFFIRMED.
Costs against petitioners.
SO ORDERED.
2|Insurance Cases Set 1
G.R. No. L-52732 August 29, 1988 1. Ordering the defendant to pay to the plaintiffs the amount of
P80,000.00 for damages suffered by said plaintiffs for the loss of their
F.F. CRUZ and CO., INC., petitioner, house, with interest of 6% from the date of the filing of the Complaint on
vs. January 23, 1975, until fully paid;
THE COURT OF APPEALS, GREGORIO MABLE as substituted by his wife LUZ ALMONTE
MABLE and children DOMING, LEONIDAS, LIGAYA, ELENA, GREGORIO, JR., SALOME, 2. Ordering the defendant to pay to the plaintiffs the sum of P50,000.00
ANTONIO, and BERNARDO all surnamed MABLE, respondents. for the loss of plaintiffs' furnitures, religious images, silverwares,
chinawares, jewelries, books, kitchen utensils, clothing and other
Luis S. Topacio for petitioner. valuables, with interest of 6% from date of the filing of the Complaint on
January 23, 1975, until fully paid;
Mauricio M. Monta for respondents.
3. Ordering the defendant to pay to the plaintiffs the sum of P5,000.00 as
moral damages, P2,000.00 as exemplary damages, and P5,000.00 as and
by way of attorney's fees;

CORTES, J.:
4. With costs against the defendant;

This petition to review the decision of the Court of Appeals puts in issue the application of
5. Counterclaim is ordered dismissed, for lack of merit. [CA Decision, pp.
the common law doctrine of res ipsa loquitur.
1-2; Rollo, pp. 29-30.]

The essential facts of the case are not disputed.

On appeal, the Court of Appeals, in a decision promulgated on November 19, 1979, affirmed
the decision of the trial court but reduced the award of damages:
The furniture manufacturing shop of petitioner in Caloocan City was situated adjacent to the
residence of private respondents. Sometime in August 1971, private respondent Gregorio
WHEREFORE, the decision declaring the defendants liable is affirmed. The
Mable first approached Eric Cruz, petitioner's plant manager, to request that a firewall be
damages to be awarded to plaintiff should be reduced to P70,000.00 for
constructed between the shop and private respondents' residence. The request was
the house and P50,000.00 for the furniture and other fixtures with legal
repeated several times but they fell on deaf ears. In the early morning of September 6, 1974,
interest from the date of the filing of the complaint until full payment
fire broke out in petitioner's shop. Petitioner's employees, who slept in the shop premises,
thereof. [CA Decision, p. 7; Rollo, p. 35.]
tried to put out the fire, but their efforts proved futile. The fire spread to private
respondents' house. Both the shop and the house were razed to the ground. The cause of the
conflagration was never discovered. The National Bureau of Investigation found specimens A motion for reconsideration was filed on December 3, 1979 but was denied in a resolution
from the burned structures negative for the presence of inflammable substances. dated February 18, 1980. Hence, petitioner filed the instant petition for review on February
22, 1980. After the comment and reply were filed, the Court resolved to deny the petition for
lack of merit on June 11, 1980.
Subsequently, private respondents collected P35,000.00 on the insurance on their house and
the contents thereof.
However, petitioner filed a motion for reconsideration, which was granted, and the petition
was given due course on September 12, 1980. After the parties filed their memoranda, the
On January 23, 1975, private respondents filed an action for damages against petitioner,
case was submitted for decision on January 21, 1981.
praying for a judgment in their favor awarding P150,000.00 as actual damages, P50,000.00 as
moral damages, P25,000.00 as exemplary damages, P20,000.00 as attorney's fees and costs.
The Court of First Instance held for private respondents: Petitioner contends that the Court of Appeals erred:

WHEREFORE, the Court hereby renders judgment, in favor of plaintiffs, 1. In not deducting the sum of P35,000.00, which private respondents recovered on the
and against the defendant: insurance on their house, from the award of damages.

3|Insurance Cases Set 1

2. In awarding excessive and/or unproved damages.
3. In applying the doctrine of res ipsa loquitur to the facts of the instant case.
The pivotal issue in this case is the applicability of the common law doctrine of res ipsa
loquitur, the issue of damages being merely consequential. In view thereof, the errors
assigned by petitioner shall be discussed in the reverse order.
1. The doctrine of res ipsa loquitur, whose application to the instant case petitioner objects
to, may be stated as follows:
Where the thing which caused the injury complained of is shown to be
under the management of the defendant or his servants and the accident
is such as in the ordinary course of things does not happen if those who
have its management or control use proper care, it affords reasonable
evidence, in the absence of explanation by the defendant, that the
accident arose from want of care. [Africa v. Caltex (Phil.), Inc., G.R. No. L-
12986, March 31, 1966, 16 SCRA 448.]
Thus, in Africa, supra, where fire broke out in a Caltex service station while gasoline from a
tank truck was being unloaded into an underground storage tank through a hose and the fire
spread to and burned neighboring houses, this Court, applying the doctrine of res ipsa
loquitur, adjudged Caltex liable for the loss.
The facts of the case likewise call for the application of the doctrine, considering that in the
normal course of operations of a furniture manufacturing shop, combustible material such as
wood chips, sawdust, paint, varnish and fuel and lubricants for machinery may be found
thereon.
It must also be noted that negligence or want of care on the part of petitioner or its
employees was not merely presumed. The Court of Appeals found that petitioner failed to
construct a firewall between its shop and the residence of private respondents as required by
a city ordinance; that the fire could have been caused by a heated motor or a lit cigarette;
that gasoline and alcohol were used and stored in the shop; and that workers sometimes
smoked inside the shop [CA Decision, p. 5; Rollo, p. 33.]
Even without applying the doctrine of res ipsa loquitur, petitioner's failure to construct a
firewall in accordance with city ordinances would suffice to support a finding of negligence.
Even then the fire possibly would not have spread to the neighboring
houses were it not for another negligent omission on the part of
defendants, namely, their failure to provide a concrete wall high enough
to prevent the flames from leaping over it. As it was the concrete wall
was only 2-1/2 meters high, and beyond that height it consisted merely
of galvanized iron sheets, which would predictably crumble and melt
when subjected to intense heat. Defendant's negligence, therefore, was
not only with respect to the cause of the fire but also with respect to the
spread thereof to the neighboring houses. [Africa v. Caltex (Phil.), Inc.,
supra; Emphasis supplied.]
In the instant case, with more reason should petitioner be found guilty of negligence since it
had failed to construct a firewall between its property and private respondents' residence
which sufficiently complies with the pertinent city ordinances. The failure to comply with an
ordinance providing for safety regulations had been ruled by the Court as an act of
negligence [Teague v. Fernandez, G.R. No. L-29745, June 4, 1973, 51 SCRA 181.]
The Court of Appeals, therefore, had more than adequate basis to find petitioner liable for
the loss sustained by private respondents.
2. Since the amount of the loss sustained by private respondents constitutes a finding of fact,
such finding by the Court of Appeals should not be disturbed by this Court [M.D. Transit &
Taxi Co., Inc. v. Court of Appeals, G.R. No. L-23882, February 17, 1968, 22 SCRA 559], more so
when there is no showing of arbitrariness.
In the instant case, both the CFI and the Court of Appeals were in agreement as to the value
of private respondents' furniture and fixtures and personal effects lost in the fire (i.e.
P50,000.00). With regard to the house, the Court of Appeals reduced the award to
P70,000.00 from P80,000.00. Such cannot be categorized as arbitrary considering that the
evidence shows that the house was built in 1951 for P40,000.00 and, according to private
respondents, its reconstruction would cost P246,000.00. Considering the appreciation in
value of real estate and the diminution of the real value of the peso, the valuation of the
house at P70,000.00 at the time it was razed cannot be said to be excessive.
3. While this Court finds that petitioner is liable for damages to private respondents as found
by the Court of Appeals, the fact that private respondents have been indemnified by their
insurer in the amount of P35,000.00 for the damage caused to their house and its contents
has not escaped the attention of the Court. Hence, the Court holds that in accordance with
Article 2207 of the Civil Code the amount of P35,000.00 should be deducted from the
amount awarded as damages. Said article provides:
Art. 2207. If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out
of the wrong or breach of contract complained of, the insurance
company is subrogated to the rights of the insured against the wrongdoer
or the person who 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. (Emphasis supplied.]
4|Insurance Cases Set 1
The law is clear and needs no interpretation. Having been indemnified by their insurer,
private respondents are only entitled to recover the deficiency from petitioner.
On the other hand, the insurer, if it is so minded, may seek reimbursement of the amount it
indemnified private respondents from petitioner. This is the essence of its right to be
subrogated to the rights of the insured, as expressly provided in Article 2207. Upon payment
of the loss incurred by the insured, the insurer is entitled to be subrogated pro tanto to any
right of action which the insured may have against the third person whose negligence or
wrongful act caused the loss [Fireman's Fund Insurance Co. v. Jamila & Co., Inc., G.R. No. L-
27427, April 7, 1976, 70 SCRA 323.]
Under Article 2207, the real party in interest with regard to the indemnity received by the
insured is the insurer [Phil. Air Lines, Inc. v. Heald Lumber Co., 101 Phil. 1031, (1957).]
Whether or not the insurer should exercise the rights of the insured to which it had been
subrogated lies solely within the former's sound discretion. Since the insurer is not a party to
the case, its identity is not of record and no claim is made on its behalf, the private
respondent's insurer has to claim his right to reimbursement of the P35,000.00 paid to the
insured.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby
AFFIRMED with the following modifications as to the damages awarded for the loss of private
respondents' house, considering their receipt of P35,000.00 from their insurer: (1) the
damages awarded for the loss of the house is reduced to P35,000.00; and (2) the right of the
insurer to subrogation and thus seek reimbursement from petitioner for the P35,000.00 it
had paid private respondents is recognized.
SO ORDERED.
G.R. No. L-52756 October 12, 1987
MANILA MAHOGANY MANUFACTURING CORPORATION, petitioner,
vs.
COURT OF APPEALS AND ZENITH INSURANCE CORPORATION, respondents.
PADILLA, J:
Petition to review the decision * of the Court of Appeals, in CA-G.R. No. SP-08642, dated 21
March 1979, ordering petitioner Manila Mahogany Manufacturing Corporation to pay private
respondent Zenith Insurance Corporation the sum of Five Thousand Pesos (P5,000.00) with
6% annual interest from 18 January 1973, attorney's fees in the sum of five hundred pesos
(P500.00), and costs of suit, and the resolution of the same Court, dated 8 February 1980,
denying petitioner's motion for reconsideration of it's decision.
From 6 March 1970 to 6 March 1971, petitioner insured its Mercedes Benz 4-door sedan with
respondent insurance company. On 4 May 1970 the insured vehicle was bumped and
damaged by a truck owned by San Miguel Corporation. For the damage caused, respondent
company paid petitioner five thousand pesos (P5,000.00) in amicable settlement. Petitioner's
general manager executed a Release of Claim, subrogating respondent company to all its
right to action against San Miguel Corporation.
On 11 December 1972, respondent company wrote Insurance Adjusters, Inc. to demand
reimbursement from San Miguel Corporation of the amount it had paid petitioner. Insurance
Adjusters, Inc. refused reimbursement, alleging that San Miguel Corporation had already paid
petitioner P4,500.00 for the damages to petitioner's motor vehicle, as evidenced by a cash
voucher and a Release of Claim executed by the General Manager of petitioner discharging
San Miguel Corporation from "all actions, claims, demands the rights of action that now exist
or hereafter [sic] develop arising out of or as a consequence of the accident."
Respondent insurance company thus demanded from petitioner reimbursement of the sum
of P4,500.00 paid by San Miguel Corporation. Petitioner refused; hence, respondent
company filed suit in the City Court of Manila for the recovery of P4,500.00. The City Court
ordered petitioner to pay respondent P4,500.00. On appeal the Court of First Instance of
Manila affirmed the City Court's decision in toto, which CFI decision was affirmed by the
Court of Appeals, with the modification that petitioner was to pay respondent the total
amount of P5,000.00 that it had earlier received from the respondent insurance company.
Petitioner now contends it is not bound to pay P4,500.00, and much more, P5,000.00 to
respondent company as the subrogation in the Release of Claim it executed in favor of
respondent was conditioned on recovery of the total amount of damages petitioner had
sustained. Since total damages were valued by petitioner at P9,486.43 and only P5,000.00
was received by petitioner from respondent, petitioner argues that it was entitled to go after
San Miguel Corporation to claim the additional P4,500.00 eventually paid to it by the latter,
without having to turn over said amount to respondent. Respondent of course disputes this
allegation and states that there was no qualification to its right of subrogation under the
Release of Claim executed by petitioner, the contents of said deed having expressed all the
intents and purposes of the parties.
To support its alleged right not to return the P4,500.00 paid by San Miguel Corporation,
petitioner cites Art. 2207 of the Civil Code, which 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.
5|Insurance Cases Set 1
Petitioner also invokes Art. 1304 of the Civil Code, stating.
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.
We find petitioners arguments to be untenable and without merit. In the absence of any
other evidence to support its allegation that a gentlemen's agreement existed between it
and respondent, not embodied in the Release of Claim, such ease of Claim must be taken as
the best evidence of the intent and purpose of the parties. Thus, the Court of Appeals rightly
stated:
Petitioner argues that the release claim it executed subrogating Private
respondent to any right of action it had against San Miguel Corporation
did not preclude Manila Mahogany from filing a deficiency claim against
the wrongdoer. Citing Article 2207, New Civil Code, to the effect that if
the amount paid by an insurance company does not fully cover the loss,
the aggrieved party shall be entitled to recover the deficiency from the
person causing the loss, petitioner claims a preferred right to retain the
amount coming from San Miguel Corporation, despite the subrogation in
favor of Private respondent.
Although petitioners 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 a consequence of the accident" after the insurer had
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 (Metropolitan
Casualty Insurance Company of New York vs. Badler, 229 N.Y.S. 61, 132
Misc. 132 cited in Insurance Code and Insolvency Law with comments
and annotations, H.B. Perez 1976, p. 151). Since petitioner by its own acts
released San Miguel Corporation, thereby defeating private respondents,
the right of subrogation, the right of action of petitioner against the
insurer was also nullified. (Sy Keng & Co. vs. Queensland Insurance Co.,
Ltd., 54 O.G. 391) Otherwise stated: private respondent may recover the
sum of P5,000.00 it had earlier paid to petitioner. 1
As held in Phil. Air Lines v. Heald Lumber Co., 2
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 3(Emphasis supplied)
The decision of the respondent court ordering petitioner to pay respondent company, not
the P4,500.00 as originally asked for, but P5,000.00, the amount respondent company paid
petitioner as insurance, is also in accord with law and jurisprudence. In disposing of this
issue, the Court of Appeals held:
... petitioner is entitled to keep the sum of P4,500.00 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
petitioner released San Miguel Corporation from any liability, petitioner's
right to retain the sum of P5,000.00 no longer existed, thereby entitling
private respondent to recover the same. (Emphasis supplied)
As has been observed:
... The right of subrogation can only exist after the insurer has paid the
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 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. 4 (Emphasis supplied.)
And even if the specific amount asked for in the complaint is P4,500.00 only and not
P5,000.00, still, the respondent Court acted well within its discretion in awarding P5,000.00,
the total amount paid by the insurer. The Court of Appeals rightly reasoned as follows:
It is to be noted that private respondent, in its companies, prays for the
recovery, not of P5,000.00 it had paid under the insurance policy but
6|Insurance Cases Set 1
 P4,500.00 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 P4,500.00 paid by San Miguel Corporation, instead of
P5,000.00 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, (Rule 6, Sec. 3, Revised Rules of Court; Rosales vs. Reyes
Ordoveza, 25 Phil. 495 ; Cabigao vs. Lim, 50 Phil. 844; Baguiro vs. Barrios
Tupas, 77 Phil 120).
WHEREFORE, premises considered, the petition is DENIED. The judgment appealed from is
hereby AFFIRMED with costs against petitioner.
SO ORDERED.
G.R. No. L-15895 November 29, 1920
RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma. Herrer, plaintiff-
appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.
Jose A. Espiritu for appellant.
Cohn, Fisher and DeWitt for appellee.
MALCOLM, J.:
This is an action brought by the 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.
Plaintiff appeals.
The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application to
the Sun Life Assurance Company of Canada through its office in Manila for a life annuity. Two
days later he paid the sum of P6,000 to the manager of the company's Manila office and was
given a receipt reading as follows:
MANILA, I. F., 26 de septiembre, 1917.
PROVISIONAL RECEIPT Pesos 6,000
Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como prima dela Renta
Vitalicia solicitada por dicho Don Joaquin Herrer hoy, sujeta al examen medico y aprobacion
de la Oficina Central de la Compañia.
The application was immediately forwarded to the head office of the company at Montreal,
Canada. On November 26, 1917, the head office gave notice of acceptance by cable to
Manila. (Whether on the same day the cable was received notice was sent by the Manila
office of Herrer that the application had been accepted, is a disputed point, which will be
discussed later.) On December 4, 1917, the policy was issued at Montreal. On December 18,
1917, attorney Aurelio A. Torres wrote to the Manila office of the company stating that
Herrer desired to withdraw his application. The following day the local office replied to Mr.
Torres, stating that the policy had been issued, and called attention to the notification of
November 26, 1917. This letter was received by Mr. Torres on the morning of December 21,
1917. Mr. Herrer died on December 20, 1917.
As above suggested, the issue of fact raised by the evidence is whether Herrer received
notice of acceptance of his application. To resolve this question, we propose to go directly to
the evidence of record.
The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time
of the trial testified that he prepared the letter introduced in evidence as Exhibit 3, of date
November 26, 1917, and handed it to the local manager, Mr. E. E. White, for signature. The
witness admitted on cross-examination that after preparing the letter and giving it to he
manager, he new nothing of what became of it. The local manager, Mr. White, testified to
having received the cablegram accepting the application of Mr. Herrer from the home office
on November 26, 1917. He said that on the same day he signed a letter notifying Mr. Herrer
of this acceptance. The witness further said that letters, after being signed, were sent to the
chief clerk and placed on the mailing desk for transmission. The witness could not tell if the
letter had every actually been placed in the mails. Mr. Tuason, who was the chief clerk, on
November 26, 1917, was not called as a witness. For the defense, attorney Manuel Torres
testified to having prepared the will of Joaquin Ma. Herrer, that on this occasion, Mr. Herrer
mentioned his application for a life annuity, and that he said that the only document relating
to the transaction in his possession was the provisional receipt. Rafael Enriquez, the
administrator of the estate, testified that he had gone through the effects of the deceased
and had found no letter of notification from the insurance company to Mr. Herrer.
Our deduction from the evidence on this issue must be that the letter of November 26, 1917,
notifying Mr. Herrer that his application had been accepted, was prepared and signed in the
local office of the insurance company, was placed in the ordinary channels for transmission,
but as far as we know, was never actually mailed and thus was never received by the
applicant.
Not forgetting our conclusion of fact, it next becomes necessary to determine the law which
should be applied to the facts. In order to reach our legal goal, the obvious signposts along
the way must be noticed.
7|Insurance Cases Set 1
Until quite recently, all of the provisions concerning life insurance in the Philippines were
found in the Code of Commerce and the Civil Code. In the Code of the Commerce, there
formerly existed Title VIII of Book III and Section III of Title III of Book III, which dealt with
insurance contracts. In the Civil Code there formerly existed and presumably still exist,
Chapters II and IV, entitled insurance contracts and life annuities, respectively, of Title XII of
Book IV. On the after July 1, 1915, there was, however, in force the Insurance Act. No. 2427.
Chapter IV of this Act concerns life and health insurance. The Act expressly repealed Title VIII
of Book II and Section III of Title III of Book III of the code of Commerce. The law of insurance
is consequently now found in the Insurance Act and the Civil Code.
While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the
methods to be followed in order that there may be a contract of insurance. On the other
hand, the Civil Code, in article 1802, not only describes a contact of life annuity markedly
similar to the one we are considering, but in two other articles, gives strong clues as to the
proper disposition of the case. For instance, article 16 of the Civil Code provides that "In
matters which are governed by special laws, any deficiency of the latter shall be supplied by
the provisions of this Code." On the supposition, therefore, which is incontestable, that the
special law on the subject of insurance is deficient in enunciating the principles governing
acceptance, the subject-matter of the Civil code, if there be any, would be controlling. In the
Civil Code is found article 1262 providing that "Consent is shown by the concurrence of offer
and acceptance with respect to the thing and the consideration which are to constitute the
contract. An acceptance made by letter shall not bind the person making the offer except
from the time it came to his knowledge. The contract, in such case, is presumed to have been
entered into at the place where the offer was made." This latter article is in opposition to the
provisions of article 54 of the Code of Commerce.
If no mistake has been made in announcing the successive steps by which we reach a
conclusion, then the only duty remaining is for the court to apply the law as it is found. The
legislature in its wisdom having enacted a new law on insurance, and expressly repealed the
provisions in the Code of Commerce on the same subject, and having thus left a void in the
commercial law, it would seem logical to make use of the only pertinent provision of law
found in the Civil code, closely related to the chapter concerning life annuities.
The Civil Code rule, that an acceptance made by letter shall bind the person making the offer
only from the date it came to his knowledge, may not be the best expression of modern
commercial usage. Still it must be admitted that its enforcement avoids uncertainty and
tends to security. Not only this, but in order that the principle may not be taken too lightly,
let it be noticed that it is identical with the principles announced by a considerable number
of respectable courts in the United States. The courts who take this view have expressly held
that an acceptance of an offer of insurance not actually or constructively communicated to
the proposer does not make a contract. Only the mailing of acceptance, it has been said,
completes the contract of insurance, as the locus poenitentiae is ended when the acceptance
has passed beyond the control of the party. (I Joyce, The Law of Insurance, pp. 235, 244.)
In resume, therefore, the law applicable to the case is found to be the second paragraph of
article 1262 of the Civil Code providing that an acceptance made by letter shall not bind the
person making the offer except from the time it came to his knowledge. The pertinent fact is,
that according to the provisional receipt, three 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; (2) there had to be approval of the application by the head office of the
company; and (3) this approval had in some way to be communicated by the company to the
applicant. The further admitted facts are that the head office in Montreal did accept the
application, did cable the Manila office to that effect, did actually issue the policy and did,
through its agent in Manila, actually write the letter of notification and place it in the usual
channels for transmission to the addressee. The fact as to the letter of notification thus fails
to concur with the essential elements of the general rule pertaining to the mailing and
delivery of mail matter as announced by the American courts, namely, when a letter or other
mail matter is addressed and mailed with postage prepaid there is a rebuttable presumption
of fact that it was received by the addressee as soon as it could have been transmitted to him
in the ordinary course of the mails. But if any one of these elemental facts fails to appear, it is
fatal to the presumption. For instance, a letter will not be presumed to have been received
by the addressee unless it is shown that it was deposited in the post-office, properly
addressed and stamped. (See 22 C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)
We hold that the contract for a life annuity in the case at bar was not perfected because it
has not been proved satisfactorily that the acceptance of the application ever came to the
knowledge of the applicant.lawph!l.net
Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of
P6,000 with legal interest from November 20, 1918, until paid, without special finding as to
costs in either instance. So ordered.
G.R. No. L-8151 December 16, 1955
VIRGINIA CALANOC, petitioner,
vs.
COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE CO., respondents.
Lucio Javillonar for petitioner.
J. A. Wolfson, Manuel Y. Mecias, Emilio Abello and Anselmo A. Reyes for respondents.
BAUTISTA ANGELO, J.:
This suit involves the collection of P2,000 representing the value of a supplemental policy
covering accidental death which was secured by one Melencio Basilio from the Philippine
American Life Insurance Company. The case originated in the Municipal Court of Manila and
8|Insurance Cases Set 1
judgment being favorable to the plaintiff it was appealed to the court of first instance. The
latter court affirmed the judgment but on appeal to the Court of Appeals the judgment was
reversed and the case is now before us on a petition for review.
Melencio Basilio was a watchman of the Manila Auto Supply located at the corner of Avenida
Rizal and Zurbaran. He secured a life insurance policy from the Philippine American Life
Insurance Company in the amount of P2,000 to which was attached a supplementary
contract covering death by accident. On January 25, 1951, he died of a gunshot wound on
the occasion of a robbery committed in the house of Atty. Ojeda at the corner of Oroquieta
and Zurbaan streets. Virginia Calanoc, the widow, was paid the sum of P2,000, face value of
the policy, but when she demanded the payment of the additional sum of P2,000
representing the value of the supplemental policy, the company refused alleging, as main
defense, that the deceased died because he was murdered by a person who took part in the
commission of the robbery and while making an arrest as an officer of the law which
contingencies were expressly excluded in the contract and have the effect of exempting the
company from liability.
The pertinent facts which need to be considered for the determination of the questions
raised are those reproduced in the decision of the Court of Appeals as follows:
The circumstances surrounding the death of Melencio Basilio show that when he
was killed at about seven o'clock in the night of January 25, 1951, he was on duty
as watchman of the Manila Auto Supply at the corner of Avenida Rizal and
Zurbaran; that it turned out that Atty. Antonio Ojeda who had his residence at the
corner of Zurbaran and Oroquieta, a block away from Basilio's station, had come
home that night and found that his house was well-lighted, but with the windows
closed; that getting suspicious that there were culprits in his house, Atty. Ojeda
retreated to look for a policeman and finding Basilio in khaki uniform, asked him to
accompany him to the house with the latter refusing on the ground that he was not
a policeman, but suggesting that Atty. Ojeda should ask the traffic policeman on
duty at the corner of Rizal Avenue and Zurbaran; that Atty. Ojeda went to the
traffic policeman at said corner and reported the matter, asking the policeman to
come along with him, to which the policeman agreed; that on the way to the Ojeda
residence, the policeman and Atty. Ojeda passed by Basilio and somehow or other
invited the latter to come along; that as the tree approached the Ojeda residence
and stood in front of the main gate which was covered with galvanized iron, the
fence itself being partly concrete and partly adobe stone, a shot was fired; that
immediately after the shot, Atty. Ojeda and the policeman sought cover; that the
policeman, at the request of Atty. Ojeda, left the premises to look for
reinforcement; that it turned out afterwards that the special watchman Melencio
Basilio was hit in the abdomen, the wound causing his instantaneous death; that
the shot must have come from inside the yard of Atty. Ojeda, the bullet passing
through a hole waist-high in the galvanized iron gate; that upon inquiry Atty. Ojeda
found out that the savings of his children in the amount of P30 in coins kept in his
aparador contained in stockings were taken away, the aparador having been
ransacked; that a month thereafter the corresponding investigation conducted by
the police authorities led to the arrest and prosecution of four persons in Criminal
Case No. 15104 of the Court of First Instance of Manila for 'Robbery in an Inhabited
House and in Band with Murder'.
It is contended in behalf of the company that Basilio was killed which "making an arrest as an
officer of the law" or as a result of an "assault or murder" committed in the place and
therefore his death was caused by one of the risks excluded by the supplementary contract
which exempts the company from liability. This contention was upheld by the Court of
Appeals and, in reaching this conclusion, made the following comment:
From the foregoing testimonies, we find that the deceased was a watchman of the
Manila Auto Supply, and, as such, he was not boud to leave his place and go with
Atty. Ojeda and Policeman Magsanoc to see the trouble, or robbery, that occurred
in the house of Atty. Ojeda. In fact, according to the finding of the lower court,
Atty. Ojeda finding Basilio in uniform asked him to accompany him to his house,
but the latter refused on the ground that he was not a policeman and suggested to
Atty. Ojeda to ask help from the traffic policeman on duty at the corner of Rizal
Avenue and Zurbaran, but after Atty. Ojeda secured the help of the traffic
policeman, the deceased went with Ojeda and said traffic policeman to the
residence of Ojeda, and while the deceased was standing in front of the main gate
of said residence, he was shot and thus died. The death, therefore, of Basilio,
although unexpected, was not caused by an accident, being a voluntary and
intentional act on the part of the one wh robbed, or one of those who robbed, the
house of Atty. Ojeda. Hence, it is out considered opinion that the death of Basilio,
though unexpected, cannot be considered accidental, for his death occurred
because he left his post and joined policeman Magsanoc and Atty. Ojeda to repair
to the latter's residence to see what happened thereat. Certainly, when Basilio
joined Patrolman Magsanoc and Atty. Ojeda, he should have realized the danger to
which he was exposing himself, yet, instead of remaining in his place, he went with
Atty. Ojeda and Patrolman Magsanoc to see what was the trouble in Atty. Ojeda's
house and thus he was fatally shot.
We dissent from the above findings of the Court of Appeals. For one thing, Basilio was a
watchman of the Manila Auto Supply which was a block away from the house of Atty. Ojeda
where something suspicious was happening which caused the latter to ask for help. While at
first he declied the invitation of Atty. Ojeda to go with him to his residence to inquire into
what was going on because he was not a regular policeman, he later agreed to come along
when prompted by the traffic policeman, and upon approaching the gate of the residence he
was shot and died. The circumstance that he was a mere watchman and had no duty to heed
the call of Atty. Ojeda should not be taken as a capricious desire on his part to expose his life
to danger considering the fact that the place he was in duty-bound to guard was only a block
away. In volunteering to extend help under the situation, he might have thought, rightly or
wrongly, that to know the truth was in the interest of his employer it being a matter that
affects the security of the neighborhood. No doubt there was some risk coming to him in
9|Insurance Cases Set 1
pursuing that errand, but that risk always existed it being inherent in the position he was
holding. He cannot therefore be blamed solely for doing what he believed was in keeping
with his duty as a watchman and as a citizen. And he cannot be considered as making an
arrest as an officer of the law, as contended, simply because he went with the traffic
policeman, for certainly he did not go there for that purpose nor was he asked to do so by
the policeman.
Much less can it be pretended that Basilio died in the course of an assault or murder
considering the very nature of these crimes. In the first place, there is no proof that the
death of Basilio is the result of either crime for the record is barren of any circumstance
showing how the fatal shot was fired. Perhaps this may be clarified in the criminal case now
pending in court as regards the incident but before that is done anything that might be said
on the point would be a mere conjecture. Nor can it be said that the killing was intentional
for there is the possibility that the malefactor had fired the shot merely to scare away the
people around for his own protection and not necessarily to kill or hit the victim. In any
event, while the act may not excempt the triggerman from liability for the damage done, the
fact remains that the happening was a pure accident on the part of the victim. The victim
could have been either the policeman or Atty. Ojeda for it cannot be pretended that the
malefactor aimed at the deceased precisely because he wanted to take his life.
We take note that these defenses are included among the risks exluded in the
supplementary contract which enumerates the cases which may exempt the company from
liability. While as a general rule "the parties may limit the coverage of the policy to certain
particular accidents and risks or causes of loss, and may expressly except other risks or
causes of loss therefrom" (45 C. J. S. 781-782), however, it is to be desired that the terms and
phraseology of the exception clause be clearly expressed so as to be within the easy grasp
and understanding of the insured, for if the terms are doubtful or obscure the same must of
necessity be interpreted or resolved aganst the one who has caused the obscurity. (Article
1377, new Civil Code) And so it has bene generally held that the "terms in an insurance
policy, which are ambiguous, equivacal, 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, especially where a forfeiture is involved" (29
Am. Jur., 181), and the reason for this rule is that he "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." (44 C. J. S., p. 1174.)
Insurance is, in its nature, complex and difficult for the layman to understand.
Policies are prepared by experts who know and can anticipate the bearings and
possible complications of every contingency. So long as insurance companies insist
upon the use of ambiguous, intricate and technical provisions, which conceal rather
than frankly disclose, their own intentions, the courts must, in fairness to those
who purchase insurance, construe every ambiguity in favor of the insured. (Algoe
vs. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)lawphi1.net
An insurer should not be allowed, by the use of obscure phrases and exceptions, to
defeat the very purpose for which the policy was procured. (Moore vs. Aetna Life
Insurance Co., LRA 1915D, 264.)
We are therefore persuaded to conclude that the circumstances unfolded in the present case
do not warrant the finding that the death of the unfortunate victim comes within the
purview of the exception clause of the supplementary policy and, hence, do not exempt the
company from liability.
Wherefore, reversing the decision appealed from, we hereby order the company to pay
petitioner-appellant the amount of P2,000, with legal interest from January 26, 1951 until
fully paid, with costs.
[G.R. No. 112360. July 18, 2000]
RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS and
TRANSWORLD KNITTING MILLS, INC., respondents.
DECISION
PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeking to annul and set aside the July 15, 1993 Decision[1] and October 22, 1993
Resolution[2] of the Court of Appeals[3] in CA-G.R. CV NO. 28779, which modified the
Ruling[4] of the Regional Trial Court of Pasig, Branch 161, in Civil Case No. 46106.
The antecedent facts that matter are as follows:
On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued Fire
Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc. (Transworld),
initially for One Million (P1,000,000.00) Pesos and eventually increased to One
Million Five Hundred Thousand (P1,500,000.00) Pesos, covering the period from
August 14, 1980 to March 13, 1981.
Pertinent portions of subject policy on the buildings insured, and location thereof,
read:
"On stocks of finished and/or unfinished products, raw materials and
supplies of every kind and description, the properties of the Insureds
and/or held by them in trust, on commission or on joint account with
others and/or for which they (sic) responsible in case of loss whilst
contained and/or stored during the currency of this Policy in the premises
10 | I n s u r a n c e C a s e s S e t 1
 occupied by them forming part of the buildings situate (sic) within own "ACCORDINGLY, judgment is hereby rendered as follows:
Compound at MAGDALO STREET, BARRIO UGONG, PASIG, METRO
MANILA, PHILIPPINES, BLOCK NO. 601. (1)Dismissing the case as against The New India Assurance Co., Ltd.;

xxx...............xxx...............xxx
Said building of four-span lofty one storey in height with mezzanine
portions is constructed of reinforced concrete and hollow blocks and/or
concrete under galvanized iron roof and occupied as hosiery mills,
garment and lingerie factory, transistor-stereo assembly plant, offices,
warehouse and caretaker's quarters.
(2) Ordering defendant Rizal Surety And Insurance Company to pay
Transwrold (sic) Knitting Mills, Inc. the amount of P826, 500.00
representing the actual value of the losses suffered by it; and
(3) Cost against defendant Rizal Surety and Insurance Company.
SO ORDERED."[8]

'Bounds in front partly by one-storey concrete building under galvanized

Both the petitioner, Rizal Insurance Company, and private respondent, Transworld
iron roof occupied as canteen and guardhouse, partly by building of two
Knitting Mills, Inc., went to the Court of Appeals, which came out with its decision
and partly one storey constructed of concrete below, timber above
of July 15, 1993 under attack, the decretal portion of which reads:
undergalvanized iron roof occupied as garage and quarters and partly by
open space and/or tracking/ packing, beyond which is the
aforementioned Magdalo Street; on its right and left by driveway, thence "WHEREFORE, and upon all the foregoing, the decision of the court below
open spaces, and at the rear by open spaces.'"[5] is MODIFIED in that defendant New India Assurance Company has and is
hereby required to pay plaintiff-appellant the amount of P1,818,604.19
while the other Rizal Surety has to pay the plaintiff-appellant
The same pieces of property insured with the petitioner were also insured with
P470,328.67, based on the actual losses sustained by plaintiff Transworld
New India Assurance Company, Ltd., (New India).
in the fire, totalling P2,790,376.00 as against the amounts of fire
insurance coverages respectively extended by New India in the amount of
On January 12, 1981, fire broke out in the compound of Transworld, razing the P5,800,000.00 and Rizal Surety and Insurance Company in the amount of
middle portion of its four-span building and partly gutting the left and right P1,500,000.00.
sections thereof. A two-storey building (behind said four-span building) where fun
and amusement machines and spare parts were stored, was also destroyed by the
No costs.
fire.

SO ORDERED."[9]
Transworld filed its insurance claims with Rizal Surety & Insurance Company and
New India Assurance Company but to no avail.
On August 20, 1993, from the aforesaid judgment of the Court of Appeals New
India appealed to this Court theorizing inter alia that the private respondent could
On May 26, 1982, private respondent brought against the said insurance
not be compensated for the loss of the fun and amusement machines and spare
companies an action for collection of sum of money and damages, docketed as Civil
parts stored at the two-storey building because it (Transworld) had no insurable
Case No. 46106 before Branch 161 of the then Court of First Instance of Rizal;
interest in said goods or items.
praying for judgment ordering Rizal Insurance and New India to pay the amount
of P2,747, 867.00 plus legal interest,P400,000.00 as attorney's fees, exemplary
damages, expenses of litigation of P50,000.00 and costs of suit.[6] On February 2, 1994, the Court denied the appeal with finality in G.R. No. L-111118
(New India Assurance Company Ltd. vs. Court of Appeals).
Petitioner Rizal Insurance countered that its fire insurance policy sued upon
covered only the contents of the four-span building, which was partly burned, and Petitioner Rizal Insurance and private respondent Transworld, interposed a Motion
not the damage caused by the fire on the two-storey annex building.[7] for Reconsideration before the Court of Appeals, and on October 22, 1993, the
Court of Appeals reconsidered its decision of July 15, 1993, as regards the
imposition of interest, ruling thus:
On January 4, 1990, the trial court rendered its decision; disposing as follows:
11 | I n s u r a n c e C a s e s S e t 1
 "WHEREFORE, the Decision of July 15, 1993 is amended but only insofar
as the imposition of legal interest is concerned, that, on the assessment
against New India Assurance Company on the amount of P1,818,604.19
and that against Rizal Surety & Insurance Company on the amount of
P470,328.67, from May 26, 1982 when the complaint was filed until
payment is made. The rest of the said decision is retained in all other
respects.
SO ORDERED."[10]
Undaunted, petitioner Rizal Surety & Insurance Company found its way to this
Court via the present Petition, contending that:
I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT THE ANNEX
BUILDING WHERE THE BULK OF THE BURNED PROPERTIES WERE STORED,
WAS INCLUDED IN THE COVERAGE OF THE INSURANCE POLICY ISSUED BY
RIZAL SURETY TO TRANSWORLD.
II.....SAID DECISION AND RESOLUTION (ANNEXES A AND B) ERRED IN NOT
CONSIDERING THE PICTURES (EXHS. 3 TO 7-C-RIZAL SURETY), TAKEN
IMMEDIATELY AFTER THE FIRE, WHICH CLEARLY SHOW THAT THE
PREMISES OCCUPIED BY TRANSWORLD, WHERE THE INSURED
PROPERTIES WERE LOCATED, SUSTAINED PARTIAL DAMAGE ONLY.
III. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING THAT
TRANSWORLD HAD ACTED IN PALPABLE BAD FAITH AND WITH MALICE IN
FILING ITS CLEARLY UNFOUNDED CIVIL ACTION, AND IN NOT ORDERING
TRANSWORLD TO PAY TO RIZAL SURETY MORAL AND PUNITIVE
DAMAGES (ART. 2205, CIVIL CODE), PLUS ATTORNEY'S FEES AND
EXPENSES OF LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL CODE).[11]
The Petition is not impressed with merit.
It is petitioner's submission that the fire insurance policy litigated upon protected
only the contents of the main building (four-span),[12] and did not include those
stored in the two-storey annex building. On the other hand, the private respondent
theorized that the so called "annex" was not an annex but was actually an integral
part of the four-span building[13]and therefore, the goods and items stored therein
were covered by the same fire insurance policy.
Resolution of the issues posited here hinges on the proper interpretation of the
stipulation in subject fire insurance policy regarding its coverage, which reads:
"xxx contained and/or stored during the currency of this Policy in the
premises occupied by them forming part of the buildings situate (sic)
within own Compound xxx"
Therefrom, it can be gleaned unerringly that the fire insurance policy in question
did not limit its coverage to what were stored in the four-span building. As opined
by the trial court of origin, two requirements must concur in order that the said fun
and amusement machines and spare parts would be deemed protected by the fire
insurance policy under scrutiny, to wit:
"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"[14]
'Said building of four-span lofty one storey in height
with mezzanine portions is constructed of reinforced
concrete and hollow blocks and/or concrete under
galvanized iron roof and occupied as hosiery mills,
garment and lingerie factory, transistor-stereo
assembly plant, offices, ware house and caretaker's
quarter.'
The Court is mindful of the well-entrenched doctrine that factual findings by the
Court of Appeals are conclusive on the parties and not reviewable by this Court,
and the same carry even more weight when the Court of Appeals has affirmed the
findings of fact arrived at by the lower court.[15]
In the case under consideration, both the trial court and the Court of Appeals
found that the so called "annex " was 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. The letter-report of the Manila Adjusters and Surveyor's Company, which
petitioner itself cited and invoked, describes the "annex" building as follows:
"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."[16]
Verily, the two-storey building involved, a permanent structure which adjoins and
intercommunicates with the "first right span of the lofty storey building",[17] formed
part thereof, and meets the requisites for compensability under the fire insurance
policy sued upon.
12 | I n s u r a n c e C a s e s S e t 1
So also, considering that the two-storey building aforementioned was already
existing when subject fire insurance policy contract was entered into on January
12, 1981, having been constructed sometime in 1978,[18] 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 respondent 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.
After a careful study, the Court does not find any basis for disturbing what the
lower courts found and arrived at.
Indeed, the stipulation as to the coverage of the fire insurance policy under
controversy has created a doubt regarding the portions of the building insured
thereby. Article 1377 of the New Civil Code provides:
"Art.1377. The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity"
Conformably, it stands to reason that the doubt should be resolved against the
petitioner, Rizal Surety Insurance Company, whose lawyer or managers drafted the
fire insurance policy contract under scrutiny. Citing the aforecited provision of law
in point, the Court in Landicho vs. Government Service Insurance System,[19] ruled:
"This is particularly true as regards insurance policies, in respect of which
it is settled 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' (29 Am. Jur., 181), 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.' (44
C.J.S., p. 1174).""[20]
Equally relevant is the following disquisition of the Court in Fieldmen's Insurance
Company, Inc. vs. Vda. De Songco,[21] to wit:
"'This rigid application of the rule on ambiguities has become necessary in
view of current business practices. The courts cannot ignore that
nowadays monopolies, cartels and concentration of capital, endowed
with overwhelming economic power, manage to impose upon parties
dealing with them cunningly prepared 'agreements' that the weaker party
may not change one whit, his participation in the 'agreement' being
reduced to the alternative to 'take it or leave it' labelled since Raymond
Saleilles 'contracts by adherence' (contrats [sic] d'adhesion), in contrast to
these entered into by parties bargaining on an equal footing, such
contracts (of which policies of insurance and international bills of lading
are prime example) obviously call for greater strictness and vigilance on
the part of courts of justice with a view to protecting the weaker party
from abuses and imposition, and prevent their becoming traps for the
unwary (New Civil Code, Article 24; Sent. of Supreme Court of Spain, 13
Dec. 1934, 27 February 1942.)'"[22]
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 G.R. No. L-111118, entitled New India Assurance
Company, Ltd., vs. Court of Appeals, where the appeal of New India from the
decision of the Court of Appeals under review, was denied with finality by this
Court on February 2, 1994.
The rule on conclusiveness of judgment, which obtains under the premises,
precludes the relitigation of a particular fact or issue in another action between the
same parties based on a different claim or cause of action. "xxx the judgment in the
prior action operates as estoppel only as to those matters in issue or points
controverted, upon the determination of which the finding or judgment was
rendered. In fine, the previous judgment is conclusive in the second case, only as
those matters actually and directly controverted and determined and not as to
matters merely involved therein."[23]
Applying the abovecited pronouncement, the Court, in Smith Bell and Company
(Phils.), Inc. vs. Court of Appeals,[24] held that the issue of negligence of the shipping
line, which issue had already been passed upon in a case filed by one of the
insurers, is conclusive and can no longer be relitigated in a similar case filed by
another insurer against the same shipping line on the basis of the same factual
circumstances. Ratiocinating further, the Court opined:
"In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai Maru')
had been negligent, or so negligent as to have proximately caused the
collision between them, was an issue that was actually, directly and
expressly raised, controverted and litigated in C.A.-G.R. No. 61320-R.
Reyes, L.B., J., resolved that issue in his Decision and held the 'Don Carlos'
to have been negligent rather than the 'Yotai Maru' and, as already
noted, that Decision was affirmed by this Court in G.R. No. L-48839 in a
Resolution dated 6 December 1987. The Reyes Decision thus became final
and executory approximately two (2) years before the Sison Decision,
13 | I n s u r a n c e C a s e s S e t 1
 which is assailed in the case at bar, was promulgated. Applying the rule of
conclusiveness of judgment, the question of which vessel had been
negligent in the collision between the two (2) vessels, had long been
settled by this Court and could no longer be relitigated in C.A.-G.R. No.
61206-R. Private respondent Go Thong was certainly bound by the ruling
or judgment of Reyes, L.B., J. and that of this Court. The Court of Appeals
fell into clear and reversible error when it disregarded the Decision of this
Court affirming the Reyes Decision."[25]
PAREDES, J.:
On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued
Personal Accident Policy No. 7136 on the life of Francisco del Rosario, alias Paquito Bolero,
son of herein plaintiff-appellee, binding itself to pay the sum of P1,000.00 to P3,000.00, as
indemnity for the death of the insured. The pertinent provisions of the Policy, recite:
Part I. Indemnity For Death

The controversy at bar is on all fours with the aforecited case. Considering that
private respondent's insurable interest in, and compensability for the loss of
subject fun and amusement machines and spare parts, had been adjudicated,
settled and sustained by the Court of Appeals in CA-G.R. CV NO. 28779, and by this
Court in G.R. No. L-111118, in a Resolution, dated February 2, 1994, the same can
no longer be relitigated and passed upon in the present case. Ineluctably, the
petitioner, Rizal Surety Insurance Company, is bound by the ruling of the Court of
Appeals and of this Court that the private respondent has an insurable interest in
the aforesaid fun and amusement machines and spare parts; and should be
indemnified for the loss of the same.
So also, the Court of Appeals correctly adjudged petitioner liable for the amount of
P470,328.67, it being the total loss and damage suffered by Transworld for which
petitioner Rizal Insurance is liable.[26]
All things studiedly considered and viewed in proper perspective, the Court is of
the irresistible conclusion, and so finds, that the Court of Appeals erred not in
holding the petitioner, Rizal Surety Insurance Company, liable for the destruction
and loss of the insured buildings and articles of the private respondent.
If the insured sustains any bodily injury which is effected solely through violent,
external, visible and accidental means, and which shall result, independently of all
other causes and within sixty (60) days from the occurrence thereof, in the Death
of the Insured, the Company shall pay the amount set opposite such injury:
Section 1. Injury sustained other than those specified below unless excepted
hereinafter. . . . . . . . P1,000.00
Section 2. Injury sustained by the wrecking or disablement of a railroad
passenger car or street railway car in or on which the Insured is travelling as
a farepaying passenger. . . . . . . . P1,500.00
Section 3. Injury sustained by the burning of a church, theatre, public library
or municipal administration building while the Insured is therein at the
commencement of the fire. . . . . . . . P2,000.00
Section 4. Injury sustained by the wrecking or disablement of a regular
passenger elevator car in which the Insured is being conveyed as a
passenger (Elevator in mines excluded) P2,500.00

WHEREFORE, the Decision, dated July 15, 1993, and the Resolution, dated October Section 5. Injury sustained by a stroke of lightning or by a cyclone. . . . . . . . P3,000.00
22, 1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are AFFIRMED in toto.
No pronouncement as to costs.
xxx xxx xxx

SO ORDERED.
Part VI. Exceptions

G.R. No. L-16215 June 29, 1963

This policy shall not cover disappearance of the Insured nor shall it cover Death,
Disability, Hospital fees, or Loss of Time, caused to the insured:
SIMEON DEL ROSARIO, plaintiff-appellee,
vs.
. . . (h) By drowning except as a consequence of the wrecking or disablement in the
THE EQUITABLE INSURANCE AND CASUALTY CO., INC., defendant-appellant.
Philippine waters of a passenger steam or motor vessel in which the Insured is
travelling as a farepaying passenger; . . . .
Vicente J. Francisco and Jose R. Francisco for plaintiff-appellee.
K. V. Faylona for defendant-appellant.
A rider to the Policy contained the following:

14 | I n s u r a n c e C a s e s S e t 1
IV. DROWNING
It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the
policy is hereby waived by the company, and to form a part of the provision covered by the
policy.
On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while on board
the motor launch "ISLAMA" together with 33 others, including his beneficiary in the Policy,
Remedios Jayme, were forced to jump off said launch on account of fire which broke out on
said vessel, resulting in the death of drowning, of the insured and beneficiary in the waters of
Jolo. 1äwphï1.ñët
On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, filed a claim
for payment with defendant company, and on September 13, 1957, defendant company paid
to him (plaintiff) the sum of P1,000.00, pursuant to Section 1 of Part I of the policy. The
receipt signed by plaintiff reads —
RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC., the sum
of PESOS — ONE THOUSAND (P1,000.00) Philippine Currency, being
settlement in full for all claims and demands against said Company as a
result of an accident which occurred on February 26, 1957, insured under
out ACCIDENT Policy No. 7136, causing the death of the Assured.
In view of the foregoing, this policy is hereby surrendered and
CANCELLED.
LOSS COMPUTATION
Amount of Insurance P1,000.00
__________
vvvvv
On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote defendant
company acknowledging receipt by his client (plaintiff herein), of the P1,000.00, but
informing said company that said amount was not the correct one. Atty. Francisco claimed —
The amount payable under the policy, I believe should be P1,500.00 under the
provision of Section 2, part 1 of the policy, based on the rule of pari materia as the
death of the insured occurred under the circumstances similar to that provided
under the aforecited section.
Defendant company, upon receipt of the letter, referred the matter to the Insurance
Commissioner, who rendered an opinion that the liability of the company was only
P1,000.00, pursuant to Section 1, Part I of the Provisions of the policy (Exh. F, or 3). Because
of the above opinion, defendant insurance company refused to pay more than P1,000.00. In
the meantime, Atty. Vicente Francisco, in a subsequent letter to the insurance company,
asked for P3,000.00 which the Company refused, to pay. Hence, a complaint for the recovery
of the balance of P2,000.00 more was instituted with the Court of First Instance of Rizal
(Pasay City, Branch VII), praying for it further sum of P10,000.00 as attorney's fees, expenses
of litigation and costs.
Defendant Insurance Company presented a Motion to Dismiss, alleging that the demand or
claim is set forth in the complaint had already been released, plaintiff having received the full
amount due as appearing in policy and as per opinion of the Insurance Commissioner. An
opposition to the motion to dismiss, was presented by plaintiff, and other pleadings were
subsequently file by the parties. On December 28, 1957, the trial court deferred action on
the motion to dismiss until termination of the trial of the case, it appearing that the ground
thereof was not indubitable. In the Answer to the complaint, defendant company practically
admitted all the allegations therein, denying only those which stated that under the policy its
liability was P3,000.00.
On September 1, 1958, the trial court promulgated an Amended Decision, the pertinent
portions of which read —
xxx xxx xxx
Since the contemporaneous and subsequent acts of the parties show that it was
not their intention that the payment of P1,000.00 to the plaintiff and the signing of
the loss receipt exhibit "1" would be considered as releasing the defendant
completely from its liability on the policy in question, said intention of the parties
should prevail over the contents of the loss receipt "1" (Articles 1370 and 1371,
New Civil Code).
". . . . Under the terms of this policy, defendant company agreed to pay P1,000.00
to P3,000.00 as indemnity for the death of the insured. The insured died of
drowning. Death by drowning is covered by the policy the pertinent provisions of
which reads as follows:
xxx xxx xxx
"Part I of the policy fixes specific amounts as indemnities in case of death
resulting from "bodily injury which is effected solely thru violence,
external, visible and accidental means" but, Part I of the Policy is not
applicable in case of death by drowning because death by drowning is not
one resulting from "bodily injury which is affected solely thru violent,
external, visible and accidental means" as "Bodily Injury" means a cut, a
15 | I n s u r a n c e C a s e s S e t 1
 bruise, or a wound and drowning is death due to suffocation and not to
any cut, bruise or wound."
xxx xxx xxx
Besides, on the face of the policy Exhibit "A" itself, death by drowning is a ground
for recovery apart from the bodily injury because death by bodily injury is covered
by Part I of the policy while death by drowning is covered by Part VI thereof. But
while the policy mentions specific amounts that may be recovered for death for
bodily injury, yet, there is not specific amount mentioned in the policy for death
thru drowning although the latter is, under Part VI of the policy, a ground for
recovery thereunder. Since the defendant has bound itself to pay P1000.00 to
P3,000.00 as indemnity for the death of the insured but the policy does not
positively state any definite amount that may be recovered in case of death by
drowning, there is an ambiguity in this respect in the policy, which ambiguity must
be interpreted in favor of the insured and strictly against the insurer so as to allow
greater indemnity.
xxx xxx xxx
. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already
paid the amount of P1,000.00 to the plaintiff so that there still remains a balance of
P2,000.00 of the amount to which plaintiff is entitled to recover under the policy
Exhibit "A".
The plaintiff asks for an award of P10,000.00 as attorney's fees and expenses of
litigation. However, since it is evident that the defendant had not acted in bad faith
in refusing to pay plaintiff's claim, the Court cannot award plaintiff's claim for
attorney's fees and expenses of litigation.
IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside its
decision dated July 21, 1958 and hereby renders judgment, ordering the defendant
to pay plaintiff the sum of Two Thousand (P2,000.00) Pesos and to pay the costs.
The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in
a Resolution dated September 29, 1959, elevated the case to this Court, stating that the
genuine issue is purely legal in nature.
All the parties agree that indemnity has to be paid. The conflict centers on how much should
the indemnity be. We believe that under the proven facts and circumstances, the findings
and conclusions of the trial court, are well taken, for they are supported by the generally
accepted principles or rulings on insurance, which enunciate that where there is an
ambiguity with respect to the terms and conditions of the policy, the same will be resolved
against the one responsible thereof. It should be recalled in this connection, that generally,
the insured, has little, if any, participation in the preparation of the policy, together with the
drafting of its terms and Conditions. The interpretation of obscure stipulations in a contract
should not favor the party who cause the obscurity (Art. 1377, N.C.C.), which, in the case at
bar, is the insurance company.
. . . . And so it has been generally held that the "terms in an insurance policy, which
are ambiguous, equivocal or uncertain . . . are to be construed strictly 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 a forfeiture is involved," (29
Am. Jur. 181) and the reason for this rule 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 expert and legal advisers
employed by, and acting exclusively in the interest of, the insurance company" (44
C.J.S. 1174). Calanoc v. Court of Appeals, et al., G.R. No. L-8151, Dec. 16, 1955.
. . . . Where two interpretations, equally fair, of languages used in an insurance
policy may be made, that which allows the greater indemnity will prevail. (L'Engel
v. Scotish Union & Nat. F. Ins. Co., 48 Fla. 82, 37 So. 462, 67 LRA 581 111 Am. St.
Rep. 70, 5 Ann. Cas. 749).
At any event, the policy under consideration, covers death or disability by accidental means,
and the appellant insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for
death of the insured.
In view of the conclusions reached, it would seem unnecessary to discuss the other issues
raised in the appeal.
The judgment appealed from is hereby affirmed. Without costs.
G.R. No. L-23491 July 31, 1968
TAURUS TAXI CO., INC., FELICITAS V. MONJE, ET AL., plaintiffs-appellees,
vs.
THE CAPITAL INSURANCE & SURETY CO., INC., defendant-appellant.
Vergara and Dayot for plaintiffs-appellees.
Achacoso, Nera and Ocampo for defendant-appellant.
FERNANDO, J.:
The principal legal question in this appeal from a lower court decision, ordering defendant-
appellant The Capital Insurance & Surety Co., Inc. to pay the plaintiff-appellee Taurus Taxi
Co., Inc. as well as plaintiffs-appellees, widow and children of the deceased Alfredo Monje,
16 | I n s u r a n c e C a s e s S e t 1
who, in his lifetime, was employed as a taxi driver of such plaintiff-appellee, "the sum of
P5,000.00 with interest thereon at the legal rate from the filing of the complaint until fully
paid," with P500.00 as attorney's fees and the costs of the suit, is whether or not a provision
in the insurance contract that defendant-appellant will indemnify any authorized driver
provided that [he] is not entitled to any indemnity under any other policy, it being shown
that the deceased was paid his workman's compensation from another insurance policy,
should defeat such a right to recover under the insurance contract subject of this suit. The
lower court answered in the negative. Its holding cannot be successfully impugned.
The appealed decision stated at the outset that the motion for judgment on the pleadings
filed by the plaintiffs was granted, the defendant having no objection and the issue
presented being capable of resolution without the need of presenting any evidence. Then the
decision continues: "Alfredo Monje, according to the complaint, was employed as taxi driver
by the plaintiff Taurus Taxi Co., Inc. On December 6, 1962, the taxi he was driving collided
with a Transport Taxicab at the intersection of Old Sta. Mesa and V. Mapa Streets, Manila,
resulting in his death. At the time of the accident, there was subsisting and in force
Commercial Vehicle Comprehensive Policy No. 101, 737 ... issued by the defendant to the
Taurus Taxi Co., Inc. The amount for which each passenger, including the driver, is insured is
P5,000.00. After the issuance of policy No. 101, 737, the defendant issued the Taurus Taxi
Co., Inc. Indorsement No. 1 which forms part of the policy ... " 1 Reference was then made to
plaintiff-appellee Felicitas Monje being the widow of the taxi driver, the other plaintiffs-
appellees with the exception of the Taurus Taxi Co., Inc., being the children of the couple.
After which it was noted that plaintiff Taurus Taxi Co., Inc. made representations "for the
payment of the insurance benefit corresponding to her and her children since it was issued in
its name, benefit corresponding to her and her children, ... but despite demands ... the
defendant refused and still refuses to pay them." 2
On the above facts, the liability apparently clear, the defenses interposed by defendant
insurance company being in the opinion of the lower court without merit, the aforesaid
judgment was rendered. This being a direct appeal, to us on questions of law, the facts as
found by the lower court cannot be controverted.
Defendant-appellant Capital Insurance & Surety Co. Inc. alleged as the first error of the lower
court its failure to hold "that in view of the fact that the deceased Alfredo Monje was entitled
to indemnity under another insurance policy issued by Ed. A. Keller Co., Ltd., the heirs of the
said deceased are not entitled to indemnity under the insurance policy issued by appellant
for the reason that the latter policy contains a stipulation that "the company will indemnify
any authorized driver provided that such authorized driver is not entitled to indemnity under
any other policy." " 3 In the discussion of the above error, defendant-appellant stated the
following: "The facts show that at the time of his death, the deceased Alfredo Monje, as
authorized driver and employee of plaintiff Taurus Taxi Co., Inc., was entitled to indemnity
under another insurance policy, then subsisting, which was Policy No. 50PH-1605 issued by
Ed. A. Keller Co., Ltd. to plaintiff Taurus Taxi Co., Inc. As a matter of fact, the indemnity to
which the deceased Alfredo Monje was entitled under the said Policy No. 50PH-1605 was
paid by Ed. A. Keller Co., Ltd. to the heirs of Alfredo Monje on December 28, 1962, as
evidenced by the records of W.C.C. Case No. A88637 entitled "Felicitas V. Monje, et al. vs.
Taurus Taxi Co., Inc.", Regional Office No. 4, Department of Labor, Manila ... " 4
The above defense, based on a fact which was not disputed, was raised and rightfully
rejected by the lower court. From its own version, defendant-appellant would seek to escape
liability on the plea that the workman's compensation to which the deceased driver was
rightfully entitled was settled by the employer through a policy issued by another insurance
firm. What was paid therefore was not indemnity but compensation.
Since what is prohibited by the insurance policy in question is that any "authorized driver of
plaintiff Taurus Taxi Co., Inc." should not be "entitled to any indemnity under any policy", it
would appear indisputable that the obligation of defendant-appellant under the policy had
not in any wise been extinguished. It is too well-settled to need the citation of authorities
that what the law requires enters into and forms part of every contract. The Workmen's
Compensation Act, explicitly requires that an employee suffering any injury or death arising
out of or in the course of employment be compensated. The fulfillment of such statutory
obligation cannot be the basis for evading the clear, explicit and mandatory terms of a policy.
In the same way as was held in Benguet Consolidated, Inc. v. Social Security System 5 that
sickness benefits under the Social Security Act may be recovered simultaneously with
disability benefits under the Workmen's Compensation Act, the previous payment made of
the compensation under such legislation is no obstacle by virtue of a clause like that invoked
by defendant-appellant to the payment of indemnity under the insurance policy.
Assuming however that there is a doubt concerning the liability of defendant-appellant
insurance firm, nonetheless, it should be resolved against its pretense and in favor of the
insured. It was the holding in Eagle Star Insurance, Ltd. v. Chia Yu 6 that courts are to regard
"with extreme jealousy" limitations of liability found in insurance policies and to construe
them in such a way as to preclude the insurer from non-compliance with his obligation. In
other words, to quote a noted authority on the subject, "a contract of insurance couched in
language chosen by the insurer is, if open to the construction contended for by the insured,
to be construed most strongly, or strictly, against the insurer and liberally in favor of the
contention of the insured, which means in accordance with the rule contra
proferentem." 7 Enough has been said therefore to dispose of the first assigned error.
The point is made in the second alleged error that the lower court ought to have held "that
by joining the heirs of Alfredo Monje as a party plaintiff, plaintiff Taurus Taxi Co., Inc.
committed a breach of policy condition and thus forfeited whatever benefits, if any, to which
it might be entitled under appellant's policy." 8 The basis for such an allegation is one of the
conditions set forth in the policy. Thus: " "5. No admission, offer, promise or payment shall
be made by or on behalf of the insured without the written consent of the Company which
shall be entitled if it so desires to take over and conduct in his name the defense or
settlement of any claim or to prosecute in his name for its own benefit any claim for
indemnity or damages or otherwise and shall have full discretion in the conduct of any
17 | I n s u r a n c e C a s e s S e t 1
proceedings and in the settlement of any claim and the Insured shall give all such information
and assistance as the Company may require ... " 9
Such a plea is even less persuasive. It is understandable then why the lower court refused to
be swayed by it. The plaintiff Taurus Taxi Co., inc. had to join the suit on behalf of the real
beneficiaries, the heirs of the deceased driver, who are the other plaintiffs as it was a party
to the policy.
Moreover, as noted in the decision appealed from: "The institution of the action cannot
possibly be construed as an admission, offer, promise, or payment by the company, for it
merely seeks to enforce, by court action, the only legal remedy available to it, its rights under
the contract of insurance to which it is a party. To consider, furthermore, the
commencement of an action by the insured, alone or with others, as a breach of the policy,
resulting in forfeiture of the benefits thereunder, to place in the hands of the insurer the
power to nullify at will the whole contract of insurance by the simple expedient of refusing to
make payment and compelling the insured to bring a suit to enforce the policy." 10
To so construe the policy to yield a contrary result is to put a premium on technicality. If such
a defense is not frowned upon and rejected, the time will come when the confidence on the
part of the public in the good faith of insurance firms would be minimized, if not altogether
lost. Such a deplorable consequence ought to be avoided and a construction of any
stipulation that would be fraught with such a risk repudiated. What the lower court did then
cannot be characterized as error.
The third error assigned, namely, that the lower court should have considered the filing of
the complaint against defendant-appellant as unjust and unwarranted, is, in the light of the
above, clearly without merit.
WHEREFORE, the appealed decision of the lower court ordering defendant-appellant "to pay
the plaintiffs the sum of P5,000.00 with interest thereon at the legal rate from the filing of
the complaint until fully paid, P500.00 as attorney's fees," 11 with costs is affirmed. Costs
against defendant-appellant.
G.R. No. L-54171 October 28, 1980
JEWEL VILLACORTA, assisted by her husband, GUERRERO VILLACORTA, petitioner,
vs.
THE INSURANCE COMMISSION and EMPIRE INSURANCE COMPANY, respondents.
TEEHANKEE, Acting C.J.:
The Court sets aside respondent Insurance Commission's dismissal of petitioner's complaint
and holds that where the insured's car is wrongfully taken without the insured's consent
from the car service and repair shop to whom it had been entrusted for check-up and repairs
(assuming that such taking was for a joy ride, in the course of which it was totally smashed in
an accident), respondent insurer is liable and must pay insured for the total loss of the
insured vehicle under the theft clause of the policy.
The undisputed facts of the case as found in the appealed decision of April 14, 1980 of
respondent insurance commission are as follows:
Complainant [petitioner] was the owner of a Colt Lancer, Model 1976,
insured with respondent company under Private Car Policy No. MBI/PC-
0704 for P35,000.00 — Own Damage; P30,000.00 — Theft; and
P30,000.00 — Third Party Liability, effective May 16, 1977 to May 16,
1978. On May 9, 1978, the vehicle was brought to the Sunday Machine
Works, Inc., for general check-up and repairs. On May 11, 1978, while it
was in the custody of the Sunday Machine Works, the car was allegedly
taken by six (6) persons and driven out to Montalban, Rizal. While
travelling along Mabini St., Sitio Palyasan, Barrio Burgos, going North at
Montalban, Rizal, the car figured in an accident, hitting and bumping a
gravel and sand truck parked at the right side of the road going south. As
a consequence, the gravel and sand truck veered to the right side of the
pavement going south and the car veered to the right side of the
pavement going north. The driver, Benito Mabasa, and one of the
passengers died and the other four sustained physical injuries. The car, as
well, suffered extensive damage. Complainant, thereafter, filed a claim
for total loss with the respondent company but claim was denied. Hence,
complainant, was compelled to institute the present action.
The comprehensive motor car insurance policy for P35,000.00 issued by respondent Empire
Insurance Company admittedly undertook to indemnify the petitioner-insured against loss or
damage to the car (a) by accidental collision or overturning, or collision or overturning
consequent upon mechanical breakdown or consequent upon wear and tear; (b) by fire,
external explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by
malicious act.
Respondent insurance commission, however, dismissed petitioner's complaint for recovery
of the total loss of the vehicle against private respondent, sustaining respondent insurer's
contention that the accident did not fall within the provisions of the policy either for the Own
Damage or Theft coverage, invoking the policy provision on "Authorized Driver" clause. 1
Respondent commission upheld private respondent's contention on the "Authorized Driver"
clause in this wise: "It must be observed that under the above-quoted provisions, the policy
limits the use of the insured vehicle to two (2) persons only, namely: the insured himself or
18 | I n s u r a n c e C a s e s S e t 1
any person on his (insured's) permission. Under the second category, it is to be noted that
the words "any person' is qualified by the phrase
... on the insured's order or with his permission.' It is therefore clear that
if the person driving is other than the insured, he must have been duly
authorized by the insured, to drive the vehicle to make the insurance
company liable for the driver's negligence. Complainant admitted that
she did not know the person who drove her vehicle at the time of the
accident, much less consented to the use of the same (par. 5 of the
complaint). Her husband likewise admitted that he neither knew this
driver Benito Mabasa (Exhibit '4'). With these declarations of
complainant and her husband, we hold that the person who drove the
vehicle, in the person of Benito Mabasa, is not an authorized driver of the
complainant. Apparently, this is a violation of the 'Authorized Driver'
clause of the policy.
Respondent commission likewise upheld private respondent's assertion that the car was not
stolen and therefore not covered by the Theft clause, ruling that "The element of 'taking' in
Article 308 of the Revised Penal Code means that the act of depriving another of the
possession and dominion of a movable thing is coupled ... with the intention. at the time of
the 'taking', of withholding it with the character of permanency (People vs. Galang, 7 Appt.
Ct. Rep. 13). In other words, there must have been shown a felonious intent upon the part of
the taker of the car, and the intent must be an intent permanently to deprive the insured of
his car," and that "Such was not the case in this instance. The fact that the car was taken by
one of the residents of the Sunday Machine Works, and the withholding of the same, for a
joy ride should not be construed to mean 'taking' under Art. 308 of the Revised Penal Code. If
at all there was a 'taking', the same was merely temporary in nature. A temporary taking is
held not a taking insured against (48 A LR 2d., page 15)."
The Court finds respondent commission's dismissal of the complaint to be contrary to the
evidence and the law.
First, respondent commission's ruling that the person who drove the vehicle in the person of
Benito Mabasa, who, according to its finding, was one of the residents of the Sunday
Machine Works, Inc. to whom the car had been entrusted for general check-up and repairs
was not an "authorized driver" of petitioner-complainant is too restrictive and contrary to
the established principle that insurance contracts, being contracts of adhesion where the
only participation of the other party is the signing of his signature or his "adhesion" thereto,
"obviously call for greater strictness and vigilance on the part of courts of justice with a view
of protecting the weaker party from abuse and imposition, and prevent their becoming traps
for the unwary. 2
The main purpose of the "authorized driver" clause, as may be seen from its text, supra, is
that a person other than the insured owner, who drives the car on the insured's order, such
as his regular driver, or with his permission, such as a friend or member of the family or the
employees of a car service or repair shop must be duly licensed drivers and have no
disqualification to drive a motor vehicle.
A car owner who entrusts his car to an established car service and repair shop necessarily
entrusts his car key to the shop owner and employees who are presumed to have the
insured's permission to drive the car for legitimate purposes of checking or road-testing the
car. The mere happenstance that the employee(s) of the shop owner diverts the use of the
car to his own illicit or unauthorized purpose in violation of the trust reposed in the shop by
the insured car owner does not mean that the "authorized driver" clause has been violated
such as to bar recovery, provided that such employee is duly qualified to drive under a valid
driver's license.
The situation is no different from the regular or family driver, who instead of carrying out the
owner's order to fetch the children from school takes out his girl friend instead for a joy ride
and instead wrecks the car. There is no question of his being an "authorized driver" which
allows recovery of the loss although his trip was for a personal or illicit purpose without the
owner's authorization.
Secondly, and independently of the foregoing (since when a car is unlawfully taken, it is the
theft clause, not the "authorized driver" clause, that applies), where a car is admittedly as in
this case unlawfully and wrongfully taken by some people, be they employees of the car shop
or not to whom it had been entrusted, and taken on a long trip to Montalban without the
owner's consent or knowledge, such taking constitutes or partakes of the nature of theft as
defined in Article 308 of the Revised Penal Code, viz. "Who are liable for theft. — Theft is
committed by any person who, with intent to gain but without violence against or
intimidation of persons nor force upon things, shall take personal property of another
without the latter's consent," for purposes of recovering the loss under the policy in
question.
The Court rejects respondent commission's premise that there must be an intent on the part
of the taker of the car "permanently to deprive the insured of his car" and that since the
taking here was for a "joy ride" and "merely temporary in nature," a "temporary taking is
held not a taking insured against."
The evidence does not warrant respondent commission's findings that it was a mere "joy
ride". From the very investigator's report cited in its comment, 3 the police found from the
waist of the car driver Benito Mabasa Bartolome who smashed the car and was found dead
right after the incident "one cal. 45 Colt. and one apple type grenade," hardly the materials
one would bring along on a "joy ride". Then, again, it is equally evident that the taking proved
to be quite permanent rather than temporary, for the car was totally smashed in the fatal
accident and was never returned in serviceable and useful condition to petitioner-owner.
Assuming, despite the totally inadequate evidence, that the taking was "temporary" and for a
"joy ride", the Court sustains as the better view that which holds that when a person, either
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with the object of going to a certain place, or learning how to drive, or enjoying a free ride,
takes possession of a vehicle belonging to another, without the consent of its owner, he is
guilty of theft because by taking possession of the personal property belonging to another
and using it, his intent to gain is evident since he derives therefrom utility, satisfaction,
enjoyment and pleasure. Justice Ramon C. Aquino cites in his work Groizard who holds that
the use of a thing constitutes gain and Cuello Calon who calls it "hurt de uso. " 4
The insurer must therefore indemnify the petitioner-owner for the total loss of the insured
car in the sum of P35,000.00 under the theft clause of the policy, subject to the filing of such
claim for reimbursement or payment as it may have as subrogee against the Sunday Machine
Works, Inc.
ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered
sentencing private respondent to pay petitioner the sum of P35,000.00 with legal interest
from the filing of the complaint until full payment is made and to pay the costs of suit.
SO ORDERED.
G.R. No. L-28866 March 17, 1972
FE DE JOYA LANDICHO, in her own behalf and as judicial guardian of her minor children,
RAFAEL J. LANDICHO and MA. LOURDES EUGENIA LANDICHO,plaintiffs-appellees,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM,defendant-appellant. .
Vedasto J. Hernandez for plaintiffs-appellees.Government Corporate Counsel Leopoldo M.
Abellera and Trial Attorney Arsenio J. Magpale defendant-appellant.
CONCEPCION, C.J.:p
Appeal of the Government Service Insurance System — hereinafter referred to as GSIS, for
the sake of brevity — from a decision of the Court of First Instance of Manila directing said
defendant to pay to the plaintiffs-appellees, Fe de Joya Landicho and her minor children,
Rafael J. and Maria Lourdes Eugenia, both surnamed Landicho, the sum of P15,800, with
interest thereon, at the legal rate, from September 26, 1967, until fully paid, in addition to
the sum of P1,000, as and for attorney's fees, and the costs.
The facts are not in dispute. On June 1, 1964, the GSIS issued in favor of Flaviano Landicho, a
civil engineer of the Bureau of Public Works, stationed at Mamburao, Mindoro Occidental,
optional additional life insurance policy No. OG-136107 in the sum of P7,900. The policy
states on its face:
This insurance is granted subject to the terms and conditions hereinafter
set forth and in consideration of the "Information" therefor and of the
payment on the day this Policy takes effect of the monthly premiums
stated above, due from and payable by the Insured, and the like
payments on the last day of every month during the lifetime of the
Insured until maturity of this Policy or until prior death of the Insured.
On page 2 of said policy, condition No. 1 provides, in part: .
1. PAYMENT OF PREMIUMS: — .
... . Premiums are due and payable at the Office of the System in Manila
or at any of its branches. When any premium or installment thereof
remains unpaid after its due date, such due date is the date of default in
payment of premiums. The mere possession of this Policy does not imply
that it is in force unless the premiums due thereon are paid on time or
the policy has sufficient cash value to keep it in force.
Condition No. 18, on page 8 of the policy, is of the following tenor: .
18. ENTIRE CONTRACT IN THIS POLICY: — .
This Policy together with the "Information" sheet signed by the Insured, a
copy of which is attached hereto, is issued under the provisions of
Commonwealth Act No. 186, as amended, and constitutes the entire
contract.
All statements made by the Insured shall, in the absence of fraud, be
deemed representations and no warranties, and no statement shall void
the Policy or be used as a defense to claim hereunder unless it be
contained in written information and a copy of such information be
endorsed upon or attached to the Policy when issued.
Before the issuance of said policy, the insured had filed an application, by filing and signing a
printed form of the GSIS on the basis of which the policy was issued. Paragraph 7 of said
application States:
7. I hereby declare that all the above statements and answers as well as
those I may make to the System's Medical Examiner in continuation of
this application, to be true and co direct to the best of my knowledge and
belief, and I hereby agree as follows: .
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 a. That this declaration, with the answers to be given by me to the
Medical Officer, shall be made the basis the policy and form part of the
same; .
b. That acceptance of my policy issued on this application will constitute
a ratification by me of any correction or addition to this application made
by the System; .
c. That this application serves as a letter of authority to the Collecting
Officer of our Office thru the GSIS to deduct from my salary the monthly
premium in the amount of P33.36, beginning the month of May, 1964,
and every month thereafter until notice of its discontinuance shall have
beenreceived from the System; .
d. That the failure to deduct from my salary the month premiums shall
not make the policy lapse, however, the premium account shall be
considered as indebtedness which, I bind myself to pay the System; .
e. That my policy shall be made effective on the first day of the month
next following the month the first premium is paid; provided, that it is
not more ninety (90) days before or after the date of the medical
examination,was conducted if required." .
While still under the employment of the Bureau of Public Works, Mr. Landicho met his death,
on June 29, 1966, in an airplane crash in Mindoro. Thereupon, Mrs. Landicho, in her own
behalf and that of her co-plaintiffs and minor children, Rafael J. and Maria Lourdes Eugenia,
filed with the GSIS a claim for P15,800, as the double indemnity due under policy No. OG-
136107, because of the untimely death of the insured owing to said accident. The GSIS
denied the claim, upon the ground that the policy had never been in force because, pursuant
to subdivision (e) of the above-quoted paragraph 7 of the application, the policy "shall be ...
effective on the first day of the month next following the month the first premium is paid,"
and no premium had ever been paid on said policy. Upon refusal of the GSIS to reconsider its
stand, this action was filed, September 22, 1967, in the Court of First Instance of Manila, in
which the GSIS reiterated its aforementioned defense. Thereafter submitted by both parties
for judgment on the pleadings, upon the ground thatthe case involve purely questions of law,
said court rendered, in due course, its abovementioned decision, from which the GSIS has
taken the present appeal.
The main issue therein is whether or not the insurance policy in question has ever been in
force, not a single premium having been paid thereon. In support of the affirmative, plaintiffs
invoke the stipulation in the policy to the effect that the information contained in the
application filed by the insured shall form part of the contract between him and the GSIS,
and, especially, subdivisions (c) and (d) of paragraph 7 of said application stating that the
same shall serve "as a letter of authority to the Collecting Officer of our Office" — the Bureau
of Public Works — "thru the GSIS to deduct from my salary the monthly premium in the
amount of P33.36 beginning the month of May, 1964, and every month thereafter," and that
"failure to deduct from my salary the monthly premiums shallnot make the policy lapse,
however, the premium account shall be considered as indebtedness which, I" — the insured
— "bind myself to pay the System." 1 The GSIS maintains, however, the negative, relying
upon subdivision (e) of the same paragraph No. 7, which provides that the "policy shall be
made effective on the first day of the month next following the month the first premium is
paid." Under this theory, subdivisions (c) and (d) of said paragraph 7 would not apply unless
and until the first premium shall have been actually paid, pursuant to subdivision (e) of the
same paragraph.
Although it may not be entirely farfetched, this view is not likely to be in accord with the
understanding of many, if not most, government employees who obtain an optional
additional life insurance policy. As a consequence, the actual receipt by them of their full pay
— without any deduction for premiums on their optional additional life insurance policies —
may not impart to them the warning — which, otherwise, it would necessarily convey — that
said policy is not, as yet, in force, for they are liable to believe "that failure to deduct" —
from the salary of the insured — "the monthly premiums shall not" — in the language of
subdivision (d) — "make the policy lapse" and that "the premiums account shall be
considered as indebtedness," to be paid or deducted later, because, after all, the so called
"payment" of premiums is nothing but a "paper" or "accounting" process, whereby funds are
merely transferred, not physically, but constructively, from one office of the government to
another. In other words, the language, of subdivisions (c), (d) and (e) is such as to create an
ambiguity that should be resolved against the party responsible therefor — defendant GSIS,
as the party who prepared and furnished the application form — and in favor of the party
misled thereby, the insured employee.
Indeed, our Civil Code provides:
The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity. 2
This is particularly true as regards insurance policies, in respect of which it is settled that 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,
especially where a forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule is 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."
(44 C.J.S., p. 1174.) 3.
The equitable and ethical considerations justifying the foregoing view are bolstered up by
two (2) factors, namely:
21 | I n s u r a n c e C a s e s S e t 1
(a) The aforementioned subdivision (c) states "that this application serves as a letter of
authority to the Collecting Officer of our Office" — the Bureau of Public Works —
"thru the GSIS to deduct from my salary the monthly premium in the amount of P33.36." No
such deduction was made — and, consequently, not even the first premium "paid" —
because the collecting officer of the Bureau of Public Works was not advised by the GSIS to
make it (the deduction) pursuant to said authority. Surely, this omission of the GSIS should
not inure to its benefit. .

(b) The GSIS had impliedly induced the insured to believe that Policy No. OG-136107 was in
force, he having been paid by the GSIS the dividends corresponding to said policy. Had the
insured had the slightest inkling that the latter was not, as yet, effective for non-payment of
the first premium, he would have, in all probability, caused the same to be forthwith
satisfied.

WHEREFORE, the decision appealed from should be, it is hereby affirmed, with costs against
the defendant-appellant, Government Service Insurance System. It is so ordered. .

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