the contract is not avoided.
And it is determined that even
Musngi v. West Coast Life Assurance Co.
FACTS:
Arsenio Garcia was insured by West Coast twice in
1931. In both policies, he was asked to answer the
question: “what physician or practitioners have you
consulted or been treated by, and for what illness or
ailment?
In both policies, he answered in the negative. It turned
out that from 1929 to 1939, he went to see several
physicians for a number of ailments. So when he died in
1942, the company refused to pay the proceeds of the
insurance.
ISSUE:
Whether or not the answer given by Arsenio in the
policies justifies the company’s refusal to pay?
HELD: YES.
Aresenio knew that he was suffering from a number of
ailments, yet, he concealed this. Such concealment and
his false statements constituted fraud, because the
insurance company by reasons of such statement
accepted the risk which it would otherwise have rejected.
DOCTRINE: Article 1261 of the Civil Code provides that
there is no contract unless there should be, in addition to
consent and a definite object, a consideration for the
obligation established. And article 1276 provides that the
statement of a false consideration shall render the
contract void. The two answers being one of the
considerations of the policies, and it appearing that they
are false and fraudulent, it is evident that the insurance
contracts were null and void and did not give rise to any
right to recover their value or amount. A similar case was
already decided by this court in Argente vs. West Coast
Life Insurance Co. (51 Phil., 725). In that case the insured
concealed from the physician who examined her that she
had consulted and had been treated by another physician
for cerebral congestion and Bell's Palsy, and that she was
addicted to alcohol, so much so that on one occasion she
was confined in the San Lazaro Hospital suffering from
"alcoholism"; this court held that such concealments and
false and fraudulent statements rendered the policy null
and void.
"Concealment exists where the assured has knowledge of
a fact material to the risk, and honesty, good faith and fair
dealing requires that he should communicate it to the
assured, but he designedly and intentionally withholds the
same.
"Another rule is that if the assured undertakes to state all
the circumstances affecting the risk, a full and fair
statement of all is required.
"It is also held that the concealment must, in the absence
of inquiries, be not only material, but fraudulent, or the
fact must have been intentionally withheld; so it is held
under English law that if no inquiries are made and no
fraud or design to conceal enters into the concealment
though silence may constitute misrepresentation or
concealment it is not of itself necessarily so as it is a
question of fact.
Gulf Resorts Inc. vs. Philippine Charter Insurance
Corporation [G.R. No. 156167 May 16, 2005]
FACTS: Gulf Resorts is the owner of the Plaza Resort
situated at Agoo, La Union and had its properties in said
resort insured originally with the American Home
Assurance Company (AHAC). In the first 4 policies
issued, the risks of loss from earthquake shock was
extended only to petitioner’s two swimming pools. Gulf
Resorts agreed to insure with Phil Charter the properties
covered by the AHAC policy provided that the policy
wording and rates in said policy be copied in the policy to
be issued by Phil Charter. Phil Charter issued Policy No.
31944 to Gulf Resorts covering the period of March 14,
1990 to March 14, 1991 for P10,700,600.00 for a total
premium of P45,159.92. the break-down of premiums
shows that Gulf Resorts paid only P393.00 as premium
against earthquake shock (ES). In Policy No. 31944
issued by defendant, the shock endorsement provided
that “In consideration of the payment by the insured to the
company of the sum included additional premium the
Company agrees, notwithstanding what is stated in the
printed conditions of this policy due to the contrary, that
this insurance covers loss or damage to shock to any of
the property insured by this Policy occasioned by or
through or in consequence of earthquake (Exhs. "1-D",
"2-D", "3-A", "4-B", "5-A", "6-D" and "7-C"). In Exhibit "7-
C" the word "included" above the underlined portion was
deleted. On July 16, 1990 an earthquake struck Central
Luzon and Northern Luzon and plaintiff’s properties
covered by Policy No. 31944 issued by defendant,
including the two swimming pools in its Agoo Playa
Resort were damaged.
Petitioner advised respondent that it would be making a
claim under its Insurance Policy 31944 for damages on its
properties. Respondent denied petitioner’s claim on the
ground that its insurance policy only afforded earthquake
shock coverage to the two swimming pools of the resort.
The trial court ruled in favor of respondent. In its ruling,
the schedule clearly shows that petitioner paid only a
premium of P393.00 against the peril of earthquake
shock, the same premium it had paid against earthquake
shock only on the two swimming pools in all the policies
issued by AHAC.
ISSUE: Whether or not the policy covers only the two
swimming pools owned by Gulf Resorts and does not
extend to all properties damaged therein
HELD: YES. All the provisions and riders taken and
interpreted together, indubitably show the intention of the
parties to extend earthquake shock coverage to the two
swimming pools only. An insurance premium is the
consideration paid an insurer for undertaking to indemnify
the insured against a specified peril. In fire, casualty and
marine insurance, the premium becomes a debt as soon
as the risk attaches. In the subject policy, no premium
payments were made with regard to earthquake shock
coverage except on the two swimming pools. There is no
mention of any premium payable for the other resort
properties with regard to earthquake shock. This is
consistent with the history of petitioner’s insurance
policies with AHAC.
Petitioner contends that pursuant to this rider, no
qualifications were placed on the scope of the earthquake
shock coverage. Thus, the policy extended earthquake
shock coverage to all of the insured properties.
It is basic that all the provisions of the insurance
policy should be examined and interpreted in consonance
with each other.[25] All its parts are reflective of the true
intent of the parties. The policy cannot be construed
piecemeal. Certain stipulations cannot be segregated and
then made to control; neither do particular words or
phrases necessarily determine its character. Petitioner
cannot focus on the earthquake shock endorsement to
the exclusion of the other provisions. All the provisions
and riders, taken and interpreted together, indubitably
show the intention of the parties to extend earthquake
shock coverage to the two swimming pools only.
A careful examination of the premium recapitulation
will show that it is the clear intent of the parties to extend
earthquake shock coverage only to the two swimming
pools. Section 2(1) of the Insurance Code defines a
contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown
or contingent event. Thus, an insurance contract exists
where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the
happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general
scheme to distribute actual losses among a
large group of persons bearing a similar
risk; and
5. In consideration of the insurer's promise,
the insured pays a
premium.[26] (Emphasis ours)
An insurance premium is the consideration paid an
insurer for undertaking to indemnify the insured against a
specified peril.[27] In fire, casualty, and marine insurance,
the premium payable becomes a debt as soon as the risk
attaches.[28] In the subject policy, no premium payments
were made with regard to earthquake shock coverage,
except on the two swimming pools. There is no mention
of any premium payable for the other resort properties
with regard to earthquake shock. This is consistent with
the history of petitioners previous insurance policies from
AHAC-AIU. As borne out by petitioners witnesses:
Insular v Ebrado G.R. No. L-44059 October 28, 1977
FACTS:
Cristor Ebrado was issued by The Life Assurance Co.,
Ltd., a policy for P5,882.00 with a rider for Accidental
Death. He designated Carponia T. Ebrado as the
revocable beneficiary in his policy. He referred to her as
his wife.
Cristor was killed when he was hit by a failing branch of a
tree. Insular Life was made liable to pay the coverage in
the total amount of P11,745.73, representing the face
value of the policy in the amount of P5,882.00 plus the
additional benefits for accidental death.
Carponia T. Ebrado filed with the insurer a claim for the
proceeds as the designated beneficiary therein, although
she admited that she and the insured were merely living
as husband and wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the
widow of the deceased insured. She asserts that she is
the one entitled to the insurance proceeds.
Insular commenced an action for Interpleader before the
trial court as to who should be given the proceeds. The
court declared Carponia as disqualified.
ISSUE: WON a common-law wife named
as beneficiary in the life insurance policy of a legally
married man can claim the proceeds in case of death of
the latter?
HELD: No. Petition
Ratio:
Section 50 of the Insurance Act which provides that "the
insurance shall be applied exclusively to the proper
interest of the person in whose name it is made"
The word "interest" highly suggests that the provision
refers only to the "insured" and not to the beneficiary,
since a contract of insurance is personal in character.
Otherwise, the prohibitory laws against illicit relationships
especially on property and descent will be rendered
nugatory, as the same could easily be circumvented by
modes of insurance.
When not otherwise specifically provided for by the
Insurance Law, the contract of life insurance is governed
by the general rules of the civil law regulating contracts.
And under Article 2012 of the same Code, any person
who is forbidden from receiving any donation under
Article 739 cannot be named beneficiary of a fife
insurance policy by the person who cannot make a
donation to him. Common-law spouses are barred from
receiving donations from each other.
Article 739 provides that void donations are those made
between persons who were guilty of adultery or
concubinage at the time of donation.
There is every reason to hold that the bar in donations
between legitimate spouses and those between
illegitimate ones should be enforced in life insurance
policies since the same are based on similar
consideration. So long as marriage remains the threshold
of family laws, reason and morality dictate that the
impediments imposed upon married couple should
likewise be imposed upon extra-marital relationship.
A conviction for adultery or concubinage isn’t required
exacted before the disabilities mentioned in Article 739
may effectuate. The article says that in the case referred
to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the
guilty of the donee may be proved by preponderance of
evidence in the same action.
The underscored clause neatly conveys that no criminal
conviction for the offense is a condition precedent. The
law plainly states that the guilt of the party may be proved
“in the same acting for declaration of nullity of donation.”
And, it would be sufficient if evidence preponderates.
The insured was married to Pascuala Ebrado with whom
she has six legitimate children. He was also living in with
his common-law wife with whom he has two children.
In essence, a life insurance policy is no different from a
civil donation insofar as the beneficiary is concerned.
Both are founded upon the same consideration: liberality.
A beneficiary is like a donee, because from the premiums
of the policy which the insured pays out of liberality, the
beneficiary will receive the proceeds or profits of said
insurance. As a consequence, the proscription in Article
739 of the new Civil Code should equally operate in life
insurance contracts. The mandate of Article 2012 cannot
be laid aside: any person who cannot receive a donation
cannot be named as beneficiary in the life insurance
policy of the person who cannot make the
donation. 5 Under American law, a policy of life insurance
is considered as a testament and in construing it, the
courts will, so far as possible treat it as a will and
determine the effect of a clause designating the
beneficiary by rules under which wins are interpreted. 6
SUBROGATION
Art. 2027. No annuity shall be claimed without first
proving the existence of the person upon whose life the
annuity is constituted. (1808)
FIREMAN'S FUND INSURANCE COMPANY and
FIRESTONE TIRE AND RUBBER COMPANY OF THE
PHILIPPINES, plaintiffs-appellants,
vs.
JAMILA & COMPANY, INC. and FIRST QUEZON CITY
INSURANCE CO., INC.,
The issue is whether the complaint of Firestone and
Fireman's Fund states a cause of action against Jamila.
We hold that Firestone is really a nominal, party in this
case. It had already been indemnified for the loss which it
had sustained. Obviously, it joined as a party-plaintiff in
order to help Fireman's Fund to recover the amount of the
loss from Jamila and First Quezon City Insurance Co.,
Inc. Firestone had tacitly assigned to Fireman's Fund its
cause of action against Jamila for breach of contract.
Sufficient ultimate facts are alleged in the complaint to
sustain that cause of action.
On the other hand, Fireman's Fund's action against
Jamila is squarely sanctioned by article 2207. As the
insurer, Fireman's Fund is entitled to go after the person
or entity that violated its contractual commitment to
answer for the loss insured against (Cf. Philippine Air
Lines, Inc. vs. Heald Lumber Co., 101 Phil. 1032; Rizal
Surety & Insurance Co. vs. Manila Railroad Company, L-
24043, April 25, 1968, 23 SCRA 205).
The trial court erred in applying to this case the rules on
novation. The plaintiffs in alleging in their complaint that
Fireman's Fund "became a party in interest in this case
by virtue of a subrogation right given in its favor by"
Firestone, were not relying on the novation by change of
creditors as contemplated in articles 1291 and 1300 to
1303 of the Civil Code but rather on article 2207.
Article 2207 is a restatement of a settled principle of
American jurisprudence. Subrogation has been referred
to as the doctrine of substitution. It "is an arm of equity
that may guide or even force one to pay a debt for which
an obligation was incurred but which was in whole or in
part paid by another" (83 C.J.S. 576, 678, note 16, citing
Fireman's Fund Indemnity Co. vs. State Compensation
Insurance Fund, 209 Pac. 2d 55).
"Subrogation is founded on principles of justice and
equity, and its operation is governed by principles of
equity. It rests on the principle that substantial justice
should be attained regardless of form, that is, its basis is
the doing of complete, essential, and perfect justice
between all the parties without regard to form"(83 C.J.S.
579- 80)
Subrogation is a normal incident of indemnity insurance
(Aetna L. Ins. Co. vs Moses, 287 U.S. 530, 77 L. ed.
477). Upon payment of the loss, 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 (44 Am. Jur.
2nd 745, citing Standard Marine Ins. Co. vs. Scottish
Metropolitan Assurance Co., 283 U. S. 294, 75 L. ed.
1037).
The right of subrogation is of the highest equity. The loss
in the first instance is that of the insured but after
reimbursement or compensation, it becomes the loss of
the insurer (44 Am. Jur. 2d 746, note 16, citing Newcomb
vs. Cincinnati Ins. Co., 22 Ohio St. 382).
"Although many policies including policies in the standard
form, now provide for subrogation, and thus determine
the rights of the insurer in this respect, the equitable right
of subrogation as the legal effect of payment inures to the
insurer without any formal assignment or any express
stipulation to that effect in the policy" (44 Am. Jur. 2nd
746). Stated otherwise, when the insurance company
pays for the loss, such payment operates as an equitable
assignment to the insurer of the property and all remedies
which the insured may have for the recovery thereof. That
right is not dependent upon, nor does it grow out of, any
privity of contract, or upon written assignment of claim,
and payment to the insured makes the insurer an
assignee in equity (Shambley v. Jobe-Blackley Plumbing
and Heating Co., 264 N. C. 456,142 SE 2d 18).
RIZAL SURETY & INSURANCE COMPANY, plaintiff-
appellant,
vs.
MANILA RAILROAD COMPANY and MANILA PORT
SERVICE, defendants-appellees.
In this suit for the recovery of the amount paid by the
plaintiff, Rizal Surety and Insurance Company, to the
consignee based on the applicable Civil Code
provision,1 which speak to the effect that the Insurance
Company "shall be subrogated to the rights of the
insured," it is its contention that it is entitled to the amount
paid by it in full, by virtue of the insurance contract. The
lower court, however, relying on the limited liability clause
on a management contract with the defendants, could not
go along with such a theory. Hence, this appeal.
The facts were stipulated. The more pertinent follows:
That on or about November 29, 1960, the vessel, SS
Flying Trader, loaded on board at Genoa, Italy for
shipment to Manila, Philippines, among other cargoes, 6
cases OMH, Special Single Colour Offset Press Machine,
for which Bill of Lading No. 1 was issued, consigned to
Suter Inc.; that such vessel arrived at the Port of Manila,
Philippines on or about January 16, 1961 and
subsequently discharged complete and in good order the
aforementioned shipment into the custody of defendant
Manila Port Service as arrastre operator; that in the
course of the handling, one of the six cases identified as
Case No. 2143 containing the OMH, Special Single
Colour Offset Press, while the same was being lifted and
loaded by the crane of the Manila Port Service into the
consignee's truck, it was dropped by the crane and as a
consequence, the machine was heavily damaged for
which plaintiff as insurer paid to the consignee, Suter Inc.
the amount of P16,500.00, representing damages by way
of costs of replacement parts and repairs to put the
machine in working condition, plus the sum of P180.70
which plaintiff paid to the International Adjustment Bureau
as adjuster's fee for the survey conducted on the
damaged cargo or a total of P16,680.70 representing
plaintiff's liability under the insurance contract; and that
the arrastre charges in this particular shipment was paid
on the weight or measurement basis whichever is higher,
and not on the value thereof.2
Clause 15 of the management contract which as admitted
by the plaintiff, appeared "at the dorsal part of the
Delivery Permit" and was "used in taking delivery of the
subject shipment from the defendants' (Manila Port
Service and Manila Railroad Co.) custody and control,
issued in the name of consignee's broker," contained
what was referred to as "an important notice." Such
permit "is presented subject to all the terms and
conditions of the Management Contract between the
Bureau of Customs and Manila Port Service and
amendments thereto or alterations thereof, particularly
but not limited to paragraph 15 thereof limiting the
Company liability to P500.00 per package, unless the
value of the goods is otherwise, specified, declared or
manifested and the corresponding arrastre charges have
been paid. . . ."3
On the above facts and relying on Bernabe & Co. v.
Delgado Brothers, Inc.,4 the lower court rendered the
judgment "ordering defendants, jointly and severally, to
pay plaintiff the amount of Five Hundred Pesos
(P500.00), with legal interest thereon from January 13,
1962, the date of the filing of the complaint, with costs
against said defendants."5
As noted at the outset, in this appeal, the point is pressed
that under the applicable Civil Code provision, plaintiff-
appellant Insurance Company could recover in full. The
literal language of Article 2207, however, does not
warrant such an interpretation. It is there made clear that
in the event that the property has been insured and the
Insurance Company has paid the indemnity for the injury
or loss sustained, it "shall be subrogated to the rights of
the insured against the wrong-doer or the person who has
violated the contract."
Plaintiff-appellant Insurance Company, therefore, cannot
recover from defendants an amount greater than that to
which the consignee could lawfully lay claim. The
management contract is clear. The amount is limited to
Five Hundred Pesos (P500.00). Such a stipulation has
invariably received the approval of this Court from the
leading case of Bernabe & Co. v. Delgado Bros.,
Inc.6 Such a decision was quoted with approval in the
following subsequent cases: Atlantic Mutual Insurance
Co. v. Manila Port Service,7 Insurance Service Co. of
North America v. Manila Port Service,8 Insurance
Company of North America v. U.S. Lines,
Co.,9 and Insurance Company of North America v. Manila
Port Service.10
In one of them, Atlantic Mutual Insurance Company v.
Manila Port Service, this Court, through the then Justice,
now Chief Justice, Concepcion, restated the doctrine
thus: "Plaintiff maintains that, not being a party to the
management contract, the consignee — into whose
shoes plaintiff had stepped in consequence of said
payment — is not subject to the provisions of said
stipulation, and that the same is furthermore invalid. The
lower court correctly rejected this pretense because,
having taken delivery of the shipment aforementioned by
virtue of a delivery permit, incorporating thereto, by
reference, the provisions of said management contract,
particularly paragraph 15 thereof, the gist of which was
set forth in the permit, the consignee became bound by
said provisions, and because it could have avoided the
application of said maximum limit of P500.00 per package
by stating the true value thereof in its claim for delivery of
the goods in question, which, admittedly, the consignee
failed to do. . . ."11
Plaintiff-appellant Rizal Surety and Insurance Company,
having been subrogated merely to the rights of the
consignee, its recovery necessarily should be limited to
what was recoverable by the insured. The lower court
therefore did not err when in the decision appealed from,
it limited the amount which defendants were jointly and
severally to pay plaintiff-appellants to "Five Hundred
Pesos (P500.00) with legal interest thereon from January
31, 1962, the date of the filing of the complaint, . . . ."
WHEREFORE, the decision appealed from is affirmed.
With costs against Rizal Surety and Insurance Company.
Cebu Shipyard v William G.R. No. 132607. May 5, 1999
J. Purisima
FACTS:
Cebu Shipyard and Engineering Works, Inc. repaired
marine vessels while the Prudential is in the non-life
insurance business. William Lines, Inc., the owner of M/V
Manila City, a luxury passenger-cargo vessel, which
caught fire and sank. At the time of the incident, subject
vessel was insured with Prudential for P45M for hull and
machinery. CSEW was insured for only Php 10 million for
the shiprepairer’s liability policy. They entered into a
contract where negligence was the only factor that could
make CSEW liable for damages. Moreover, liability of
CSEW was limited to only Php 1million for damages. The
Hull Policy included an “Additional Perils (INCHMAREE)”
Clause covering loss of or damage to the vessel through
the negligence of, among others, ship repairmen.
William brought Manila City to the dry dock of CSEW for
repairs. The officers and cabin crew stayed at the ship
while it was being repaired. After the vessel was
transferred to the docking quay, it caught fire and sank,
resulting to its total loss.
William brought suit against CSEW alleging that it was
through the latter’s negligence that the ship caught fire
and sank. Prudential was impleaded as co-plaintiff after it
had paid the value of insured items. It was subrogated to
45 million, or the value it claimed to indemnify.
The trial court brought judgment against CSEW 45 million
for the ship indemnity, 65 million for loss of income, and
more than 13 million in other damages. The CA affirmed
the TC decision.
CSEW contended that the cause of the fire was due to
William’s hotworks on the said portion of the ship which
they didn’t ask CSEW permission for.
Prudential, on the other hand, blamed the negligence of
the CSEW workers in the instance when they didn’t mind
rubber insulation wire coming out of the air-conditioning
unit that was already burning.
Hence this MFR.
ISSUE: WON Prudential has the right of subrogation
against its own insured
HELD:
Petitioner contends that Prudential is not entitled to be
subrogated to the rights of William Lines, Inc., theorizing
that (1) the fire which gutted M/V Manila City was an
excluded risk and (2) it is a co-assured under the Marine
Hull Insurance Policy. This was wrong. The one who
caused the fire has already been adjudicated by the
courts as CSEW.
Upon proof of payment by Prudential to William Lines,
Inc., the former was subrogated to the right of the latter to
indemnification from CSEW. As aptly ruled by the Court
of Appeals, the law says:
Art. 2207. If the plaintiff’s property has been insured, and
he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be
subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. 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.
When Prudential paid the latter the total amount covered
by its insurance policy, it was subrogated to the right of
the latter to recover the insured loss from the liable party,
CSEW.
Petitioner theorizes further that there can be no right of
subrogation as it is deemed a co-assured under the
subject insurance policy with reliance on Clause 20 of the
Work Order which states:
20. The insurance on the vessel should be maintained by
the customer and/or owner of the vessel during the period
the contract is in effect.
Clause 20 of the Work Order in question is clear in the
sense that it requires William Lines to maintain insurance
on the vessel during the period of dry-docking or
repair. However, the fact that CSEW benefits from the
said stipulation does not automatically make it as a co-
assured of William Lines. The intention of the parties to
make each other a co-assured under an insurance policy
is to be read from the insurance contract or policy itself
and not from any other contract or agreement because
the insurance policy denominates the beneficiaries of the
insurance. The hull and machinery insurance procured
by William Lines, Inc. from Prudential named only
“William Lines, Inc.” as the assured. There was no
manifestation of any intention of William Lines, Inc. to
constitute CSEW as a co-assured under subject
policy. The claim of CSEW that it is a co-assured is
unfounded.
Then too, in the Additional Perils Clause of the same
Marine Insurance Policy, it is provided that this insurance
also covers loss of or damage to vessel directly caused
by the negligence of charterers and repairers who are
not assured.
As correctly pointed out by respondent Prudential, if
CSEW were deemed a co-assured under the policy, it
would nullify any claim of William Lines, Inc. from
Prudential for any loss or damage caused by the
negligence of CSEW. Certainly, no shipowner would
agree to make a shiprepairer a co-assured under such
insurance policy; otherwise, any claim for loss or damage
under the policy would be invalidated.
FF Cruz and co vs CA
FACTS: A fire broke up from the furniture shop of the
petitioner in Caloocan city early September 6, 1974. Prior
to that, neighbor of the said shop requested that the
petitioner should build a firewall but failed to do so. The
cause of the fire was never discovered. Private
respondent got P35k from the insurance on their house
and contents thereof.
ISSUE: Whether or not the 35k be deducted from the
damages thereof
Ruling: Since P35k had already been claimed by the
respondents, the court held that such amount should be
deducted from the award of damages in accordance with
Art 2207 NCC
Art. 2207. If the plaintiff's property has been insured, and
he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be
subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. 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.
Having been indemnified by their insurer, private
respondents are entitled only to recover the deficiency
from the petitioner.
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.
MANILA MAHOGANY MANUFACTURING
CORPORATION, petitioner,
vs.
COURT OF APPEALS AND ZENITH INSURANCE
CORPORATION, respondents.
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.)
Del Rosario v Equitable
G.R. No. L-16215 June 29, 1963 J. Paredes
FACTS:
Equitable’s insurance policy covered indemnities for
bodily injuries and deaths, however, it never specificed an
amount to be given in case of a person’s death by
drowning. It specified amounts from 1,000 to 3,000 for
other causes of death, however.
Francisico del Rosario died from drowning after jumping
from a sinking ship. The insurer, Equitable, agreed to pay
Php 1,000 as the claim for an accident. His attorney,
howvever, contended that he amount should be greater
under section 2, Php 1500. The issue was resolved in the
Insurance Commison, where it was held that Section 1,
under the provisions applied. (Php 1,000 as indemnity)
The lawyer still didin’t agree and instituted a suit. The trail
court held that the company had the discretion to pay
from Php 1,000 to 3,000 for death by drowning since
there was no fixed amount for this type of death. The
amended decision ordered the company to pay Php
2,000
ISSUE: What should the amount be?
HELD: Judgment affirmed. Still 2,000.
Ratio:
The interpretation of obscure stipulations in a contract
should not favor the party who cause the obscurity.
“Ambigious terms in a policy are to be construed strictly
against, the insurer, and liberally in favor of the insured
for the payment of indemnity where forfeiture is involved.
The company takes great care in the wording and has
legal advisers who create the contracts to the benefit of
the company.
Trial court ruling are well considered because they are
supported by doctrines on insurance
resolving cases against the party who caused
the ambiguity in the wording of the contract’s terms. This
was also due to the fact that the insured didn’t have much
of a say in formulating the contract.
Verendia V CA
G.R. No. 75605 January 22, 1993
Lessons Applicable: Exception to Ambiguous Provisions
Interpreted Against Insurer (Insurance)
FACTS:
 Rafael (Rex) Verendia's residential building was
insured with Fidelity and Surety Insurance
Company, Country Bankers Insurance and
Development Insurance with Monte de Piedad &
Savings Bank as beneficiary
 December 28, 1980 early morning: the building was
completely destroyed by fire
 Fidelity refused the claim stating that there was
a misrepresentation since the lessee was
not Roberto Garcia but Marcelo Garcia
 trial court: favored Fidelity
 CA: reversed
ISSUE: W/N there was false declaration which would
forfeit his benefits under Section 13 of the policy
HELD: YES.
 Section 13 thereof which is expressed in terms that
are clear and unambiguous, that all benefits under
the policy shall be forfeited "If the claim be in any
respect fraudulent, or if any false declaration be
made or used in support thereof, or if any fraudulent
means or devises are used by the Insured or anyone
acting in his behalf to obtain any benefit under the
policy"
 Robert Garcia then executed an affidavit before the
National Intelligence and Security Authority (NISA) to
the effect that he was not the lessee of Verendia's
house and that his signature on the contract of lease
was a complete forgery.
 Worse yet, by presenting a false lease contract,
Verendia, reprehensibly disregarded the principle
that insurance contracts are uberrimae fidae and
demand the most abundant good faith
Philam v Arnaldo G.R. No. 76452 July 26, 1994
J. Quiason
FACTS: One Ramon Paterno complained about the
unfair practices committed by the company against its
agents, employees and consumers. The Commissioner
called for a hearing where Paterno was required to
specify which acts were illegal. Paterno then specified
that the fees and charges stated in the Contract of
Agency between Philam and its agents be declared void.
Philam, on the other hand, averred that there Paterno
must submit a verified formal complaint and that his letter
didn’t contain information Philam was seeking from him.
Philam then questioned the Insurance Commission’s
jurisdiction over the matter and submitted a motion to
quash. The commissioner denied this. Hence this petition.
ISSUE: Whether or not the resolution of the legality of the
Contract of Agency falls within the jurisdiction of the
Insurance Commissioner.
HELD: No. Petition granted.
According to the Insurance code, the Insurance
Commissioner was authorized to suspend, directors,
officers, and agents of insurance companies. In general,
he was tasked to regulate the insurance business, which
includes:
(2) The term "doing an insurance business" or Steamship Mutual. Steamship Mutual does not have
"transacting an insurance business," within the meaning authority from the Insurance Commission to conduct
of this Code, shall include insurance business in the Philippines but its collection
(a) making or proposing to make, as insurer, any agent here (Pioneer Insurance) has been licensed to
insurance contract; conduct insurance business.
(b) making, or proposing to make, as surety, any contract
Later, Steamship Mutual filed a case for collection of sum
of suretyship as a vocation and not as merely incidental
of money against White Gold due to the latter’s failure to
to any other legitimate business or activity of the surety;
pay its balance with the former. White Gold averred that
(c) doing any kind of business, including a reinsurance
Steamship Mutual has no license [hence it cannot
business, specifically recognized as constituting the doing
collect]. Nor can it collect through Pioneer Insurance
of an insurance business within the meaning of this Code;
because, though Pioneer Insurance is licensed as an
(d) doing or proposing to do any business in substance
insurance company, it is not licensed to be an insurance
equivalent to any of the foregoing in a manner designed
broker/agent. Steamship Mutual insisted it is not
to evade the provisions of this Code. (Insurance Code,
conducting insurance business here and is merely a
Sec. 2[2])
protection and indemnity club. The Insurance
The contract of agency between Philamlife and its agents
Commission as well as the Court of Appeals ruled against
wasn’t included with the Commissoner’s power to
White Gold.
regulate the business. Hence, the Insurance
commissioner wasn’t vested with jurisidiction under the ISSUE: Whether or not Steamship Mutual needs a
rule “expresio unius est exclusionalterius”. license to operate in the Philippines.
The respondent contended that the commissioner had the
quasi-judicial power to adjudicate under Section 416 of HELD: Yes. The test to determine if a contract is an
the Code. It stated: insurance contract or not, depends on the nature of the
The Commissioner shall have the power to adjudicate promise, the act required to be performed, and the exact
claims and complaints involving any loss, damage or nature of the agreement in the light of the occurrence,
liability for which an insurer may be answerable contingency, or circumstances under which the
under any kind of policy or contract of insurance, or for performance becomes requisite. It is not by what it is
which such insurer may be liable under a contract of called. If it is a contract of indemnity, it must be a contract
suretyship, or for which a reinsurer may be used under of insurance. In fact, a protection and indemnity club is a
any contract or reinsurance it may have entered into, or form of insurance where the members are both the
for which a mutual benefit association may be held liable insurers and the insured. It is a mutual insurance
under the membership certificates it has issued to its company. The club indemnifies the member for whatever
members, where the amount of any such loss, damage or risks it may incur against a third party where the third
liability, excluding interest, costs and attorney's fees, party is other than the club and the members. Hence,
being claimed or sued upon any kind of insurance, bond, Steamship Mutual needs to procure a license from the
reinsurance contract, or membership certificate does not Insurance Commission in order to continue operating
exceed in any single claim one hundred thousand pesos. here.
This was, however, regarding complaints filed by the Pioneer Insurance also needs to secure another license
insured against the Insurance company. as an insurance broker/agent of Steamship Mutual
Also, the insurance code only discusses the pursuant to Section 299 of the Insurance Code.
licensing requirements for agents and brokers. The
Insurance Code does not have provisions governing the
relations between insurance companies and their agents.
Investment Planning Corporation of the Philippines v.
Social Security Commission- “that an insurance company
may have two classes of agents who sell its insurance
policies: (1) salaried employees who keep definite hours
and work under the control and supervision of the
company; and (2) registered representatives, who work
on commission basis.”
The agents under the 2nd sentence are governed by the
Civil Code laws on agency. This means that the
regular courtshave jurisdiction over this category.

White Gold Marine Services, Inc. vs Pioneer

Insurance and Surety Corporation

FACTS: White Gold Marine Services, Inc. owns several

shipping vessels. Steamship Mutual Underwriting
Association, Ltd. (based in Bermuda) is a protection and
indemnity club which is an association composed of
shipowners in general who band together for the specific
purpose of providing insurance cover on a mutual basis
against liabilities incidental to shipowning that the
members incur in favor of third parties. White Gold,
through Pioneer Insurance (agent of Steamship Mutual
here), procured a protection and indemnity coverage from