G.R. No.
154514, July 28, 2005 SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE
WHITE GOLD MARINE SERVICES, INC., PETITIONER, VS. PIONEER
INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP
MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD.,
RESPONDENTS.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision[1] dated July 30, 2002 of
the Court of Appeals in CA-G.R. SP No. 60144, affirming
the Decision[2] dated May 3, 2000 of the Insurance Commission in
I.C. Adm. Case No. RD-277. Both decisions held that there was no
violation of the Insurance Code and the respondents do not need
license as insurer and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection
and indemnity coverage for its vessels from The Steamship Mutual
Underwriting Association (Bermuda) Limited (Steamship Mutual)
through Pioneer Insurance and Surety Corporation
(Pioneer). Subsequently, White Gold was issued a Certificate of
Entry and Acceptance.[3] Pioneer also issued receipts evidencing
payments for the coverage. When White Gold failed to fully pay its
accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for
collection of sum of money to recover the latter's unpaid
balance. White Gold on the other hand, filed a complaint before the
Insurance Commission claiming that Steamship Mutual violated
Sections 186[4] and 187[5] of the Insurance Code, while
Pioneer violated Sections 299,[6] 300[7] and 301[8] in relation to
Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that
there was no need for Steamship Mutual to secure a license because
it was not engaged in the insurance business. It explained that
Steamship Mutual was a Protection and Indemnity Club (P & I
Club). Likewise, Pioneer need not obtain another license as
insurance agent and/or a broker for Steamship Mutual because
Steamship Mutual was not engaged in the insurance
business. Moreover, Pioneer was already licensed, hence, a
separate license solely as agent/broker of Steamship Mutual was
already superfluous.
The Court of Appeals affirmed the decision of the Insurance
Commissioner. In its decision, the appellate court distinguished
between P & I Clubs vis-à-vis conventional insurance. The appellate
court also held that Pioneer merely acted as a collection agent of
Steamship Mutual.
In this petition, petitioner assigns the following errors allegedly
committed by the appellate court,
FIRST ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT
STEAMSHIP IS NOT DOING BUSINESS IN THE PHILIPPINES ON THE
GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS
AGENT AND/OR BROKER HENCE AS AN INSURER IT NEED NOT
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS
BEREFT OF ANY EVIDENCE THAT RESPONDENT STEAMSHIP IS
ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT
PIONEER NEED NOT SECURE A LICENSE WHEN CONDUCTING ITS
AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF
RESPONDENT PIONEER AND [IN NOT REMOVING] THE OFFICERS
AND DIRECTORS OF RESPONDENT PIONEER.[9]
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I
Club, engaged in the insurance business in the Philippines? (2) Does
Pioneer need a license as an insurance agent/broker for Steamship
Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship
Mutual admits it does not have a license to do business in the
Philippines although Pioneer is its resident agent. This relationship is
reflected in the certifications issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in
the insurance business. To buttress its assertion, it cites the
definition of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of
Appeals[10] as "an association composed of shipowners in general
who band together for the specific purpose of providing insurance
cover on a mutual basis against liabilities incidental to shipowning
that the members incur in favor of third parties." It stresses that as
a P & I Club, Steamship Mutual's primary purpose is to solicit and
provide protection and indemnity coverage and for this purpose, it
has engaged the services of Pioneer to act as its agent.
Respondents contend that although Steamship Mutual is a P & I
Club, it is not engaged in the insurance business in the Philippines. It
is merely an association of vessel owners who have come together
to provide mutual protection against liabilities incidental to
shipowning.[11] Respondents aver Hyopsung is inapplicable in this
case because the issue in Hyopsung was the jurisdiction of the court
over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes
"doing an insurance business" or "transacting an insurance
business". These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to any
other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance
business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to
any of the foregoing in a manner designed to evade the
provisions of this Code.
. . .
The same provision also provides, the fact that no profit is derived
from the making of insurance contracts, agreements or transactions,
or that no separate or direct consideration is received therefor, shall
not preclude the existence of an insurance business. [12]
The test to determine if a contract is an insurance contract or not,
depends on the nature of the promise, the act required to be
performed, and the exact nature of the agreement in the light of the
occurrence, contingency, or circumstances under which the
performance becomes requisite. It is not by what it is called.[13]
Basically, an insurance contract is a contract of indemnity. In it, one
undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.[14]
In particular, a marine insurance undertakes to indemnify the
assured against marine losses, such as the losses incident to a
marine adventure.[15] Section 99[16] of the Insurance Code
enumerates the coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise
where the members are both the insurer and insured. In it, the
members all contribute, by a system of premiums or assessments, to
the creation of a fund from which all losses and liabilities are paid,
and where the profits are divided among themselves, in proportion
to their interest.[17] Additionally, mutual insurance associations, or
clubs, provide three types of coverage, namely, protection and
indemnity, war risks, and defense costs.[18]
A P & I Club is "a form of insurance against third party liability,
where the third party is anyone other than the P & I Club and the
members."[19] By definition then, Steamship Mutual as a P & I Club is
a mutual insurance association engaged in the marine insurance
business.
The records reveal Steamship Mutual is doing business in the
country albeit without the requisite certificate of authority
mandated by Section 187[20] of the Insurance Code. It maintains a
resident agent in the Philippines to solicit insurance and to collect
payments in its behalf. We note that Steamship Mutual even
renewed its P & I Club cover until it was cancelled due to non-
payment of the calls. Thus, to continue doing business here,
Steamship Mutual or through its agent Pioneer, must secure a
license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by
the State is necessary. Thus, no insurer or insurance company is
allowed to engage in the insurance business without a license or a
certificate of authority from the Insurance Commission.[21]
Does Pioneer, as agent/broker of Steamship Mutual, need a special
license?
Pioneer is the resident agent of Steamship Mutual as evidenced by
the certificate of registration[22] issued by the Insurance
Commission. It has been licensed to do or transact insurance
business by virtue of the certificate of authority[23] issued by the
same agency. However, a Certification from the Commission states
that Pioneer does not have a separate license to be an agent/broker
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
of Steamship Mutual.[24]
Although Pioneer is already licensed as an insurance company, it
needs a separate license to act as insurance agent for Steamship
Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker
in the solicitation or procurement of applications for insurance, or
receive for services in obtaining insurance, any commission or other
compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so
to act from the Commissioner, which must be renewed annually on
the first day of January, or within six months thereafter. . .
Finally, White Gold seeks revocation of Pioneer's certificate of
authority and removal of its directors and officers. Regrettably, we
are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision
dated July 30, 2002 of the Court of Appeals affirming the Decision
dated May 3, 2000 of the Insurance Commission is
hereby REVERSED AND SET ASIDE. The Steamship Mutual
Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and
Surety Corporation are ORDERED to obtain licenses and to secure
proper authorizations to do business as insurer and insurance agent,
respectively. The petitioner's prayer for the revocation of Pioneer's
Certificate of Authority and removal of its directors and officers,
is DENIED. Costs against respondents.
SO ORDERED.
RAFAEL (REX) VERENDIA, petitioner, vs. COURT OF AP-PEALS and
FIDELITY & SURETY CO. OF THE PHILIP-PINES, respondents.
Insurance Law; As it is also a contract of adhesion, an insurance
contract should be liberally construed in favor of the insured and
strictly against the insurer company.—Basically a contract of
indemnity, an insurance contract is the law between the parties
(Pacific Banking Corporation vs. Court of Appeals, 168 SCRA 1
[1988]). Its terms and conditions constitute the measure of the
insurer’s liability and compliance therewith is a condition precedent
to the insured’s right to recovery from the insurer (Oriental
Assurance Corporation vs. Court of Appeals, 200 SCRA 459 [1991],
citing Perla Compania de Seguros, Inc. vs. Court of Appeals, 185 SCRA
741 [1991]). As it is also a contract of adhesion, an insurance
contract should be liberally construed in favor of the insured and
strictly against the insurer company which usually prepares it.
MELO, J.:
The two consolidated cases involved herein stemmed from the
issuance by Fidelity and Surety Insurance Company of the Philippines
(Fidelity for short) of its Fire Insurance Policy No. F-18876 effective
between June 23, 1980 and June 23, 1981 covering Rafael (Rex)
Verendia's residential building located at Tulip Drive, Beverly Hills,
Antipolo, Rizal in the amount of P385,000.00. Designated as
beneficiary was the Monte de Piedad & Savings Bank. Verendia also
insured the same building with two other companies, namely, The
Country Bankers Insurance for P56,000.00 under Policy No. PDB-80-
1913 expiring on May 12, 1981, and The Development Insurance for
P400,000.00 under Policy No. F-48867 expiring on June 30, 1981.
While the three fire insurance policies were in force, the insured
property was completely destroyed by fire on the early morning of
December 28, 1980. Fidelity was accordingly informed of the loss
and despite demands, refused payment under its policy, thus
prompting Verendia to file a complaint with the then Court of First
Instance of Quezon City, praying for payment of P385,000.00, legal
interest thereon, plus attorney's fees and litigation expenses. The
complaint was later amended to include Monte de Piedad as an
"unwilling defendant" (p. 16, Record).
Answering the complaint, Fidelity, among other things, averred that
the policy was avoided by reason of over-insurance; that Verendia
maliciously represented that the building at the time of the fire was
leased under a contract executed on June 25, 1980 to a certain
Roberto Garcia, when actually it was Marcelo Garcia who was the
lessee.
On May 24, 1983, the trial court rendered a decision, per Judge
Rodolfo A. Ortiz, ruling in favor of Fidelity. In sustaining the defenses
set up by Fidelity, the trial court ruled that Paragraph 3 of the policy
was also violated by Verendia in that the insured failed to inform
Fidelity of his other insurance coverages with Country Bankers
Insurance and Development Insurance.
Verendia appealed to the then Intermediate Appellate Court and in
a decision promulgated on March 31, 1986, (CA-G.R. No. CV No.
02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate
court reversed for the following reasons: (a) there was no
misrepresentation concerning the lease for the contract was signed
by Marcelo Garcia in the name of Roberto Garcia; and (b) Paragraph
3 of the policy contract requiring Verendia to give notice to Fidelity
of other contracts of insurance was waived by Fidelity as shown by
its conduct in attempting to settle the claim of Verendia (pp. 32-33,
Rollo of G.R. No. 76399).
Fidelity received a copy of the appellate court's decision on April 4,
1986, but instead of directly filing a motion for reconsideration
within 15 days therefrom, Fidelity filed on April 21, 1986, a motion
for extension of 3 days within which to file a motion for
reconsideration. The motion for extension was not filed on April 19,
1986 which was the 15th day after receipt of the decision because
said 15th day was a Saturday and of course, the following day was a
Sunday (p. 14, Rollo of G.R. No. 75605). The motion for extension
was granted by the appellate court on April 30, 1986 (p. 15, ibid.),
but Fidelity had in the meantime filed its motion for reconsideration
on April 24, 1986 (p. 16, ibid.).
Verendia filed a motion to expunge from the record Fidelity's motion
for reconsideration on the ground that the motion for extension was
filed out of time because the 15th day from receipt of the decision
which fell on a Saturday was ignored by Fidelity, for indeed, so
Verendia contended, the Intermediate Appellate Court has
personnel receiving pleadings even on Saturdays.
The motion to expunge was denied on June 17, 1986 (p. 27, ibid.)
and after a motion for reconsideration was similarly brushed aside
on July 22, 1986 (p. 30, ibid.), the petition herein docketed as G.R.
No. 75605 was initiated. Subsequently, or more specifically on
October 21, 1986, the appellate court denied Fidelity's motion for
reconsideration and account thereof. Fidelity filed on March 31,
1986, the petition for review on certiorari now docketed as G.R. No.
76399. The two petitions, inter-related as they are, were
consolidated (p. 54, Rollo of G.R. No. 76399) and thereafter given
due course.
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
Before we can even begin to look into the merits of the main case
which is the petition for review on certiorari, we must first
determine whether the decision of the appellate court may still be
reviewed, or whether the same is beyond further judicial scrutiny.
Stated otherwise, before anything else, inquiry must be made into
the issue of whether Fidelity could have legally asked for an
extension of the 15-day reglementary period for appealing or for
moving for reconsideration.
As early as 1944, this Court through Justice Ozaeta already
pronounced the doctrine that the pendency of a motion for
extension of time to perfect an appeal does not suspend the running
of the period sought to be extended (Garcia vs. Buenaventura 74
Phil. 611 [1944]). To the same effect were the rulings in Gibbs vs. CFI
of Manila (80 Phil. 160 [1948]), Bello vs. Fernando (4 SCRA 138
[1962]), and Joe vs. King (20 SCRA 1120 [1967]).
The above cases notwithstanding and because the Rules of Court do
not expressly prohibit the filing of a motion for extension of time to
file a motion for reconsideration in regard to a final order or
judgment, magistrates, including those in the Court of Appeals, held
sharply divided opinions on whether the period for appealing which
also includes the period for moving to reconsider may be extended.
The matter was not definitely settled until this Court issued its
Resolution in Habaluyas Enterprises, Inc. vs. Japson (142 SCRA 208
[1986]), declaring that beginning one month from the promulgation
of the resolution on May 30, 1986 -
“. . . the rule shall be strictly enforced that no motion for extension
of time to file a motion for new trial or reconsideration shall be filed
. . .” (at p. 212.)
In the instant case, the motion for extension was filed and granted
before June 30, 1986, although, of course, Verendia's motion to
expunge the motion for reconsideration was not finally disposed
until July 22, 1986, or after the dictum in Habaluyas had taken
effect. Seemingly, therefore, the filing of the motion for extension
came before its formal proscription under Habaluyas, for which
reason we now turn our attention to G.R. No. 76399.
Reduced to bare essentials, the issues Fidelity raises therein are: (a)
whether or not the contract of lease submitted by Verendia to
support his claim on the fire insurance policy constitutes a false
declaration which would forfeit his benefits under Section 13 of the
policy and (b) whether or not, in submitting the subrogation receipt
in evidence, Fidelity had in effect agreed to settle Verendia's claim in
the amount stated in said receipt.[1]
YES. Verendia misrepresented some facts.
Verging on the factual, the issue of the veracity or falsity of the lease
contract could have been better resolved by the appellate court for,
in a petition for review on certiorari under Rule 45, the jurisdiction
of this Court is limited to the review of errors of law. The appellate
court's findings of fact are, therefore, conclusive upon this Court
except in the following cases: (1) when the conclusion is a finding
grounded entirely on speculation, surmises, or conjectures; (2) when
the inference made is manifestly absurd, mistaken, or impossible; (3)
when there is grave abuse of discretion in the appreciation of facts;
(4) when the judgment is premised on a misapprehension of facts;
(5) when the findings of fact are conflicting; and (6) when the Court
of Appeals in making its findings went beyond the issues of the case
and the same are contrary to the admissions of both appellant and
appellee (Ronquillo v. Court of Appeals,195 SCRA 433 [1991]). In
view of the conflicting findings of the trial court and the appellate
court on important issues in these consolidated cases and it
appearing that the appellate court judgment is based on a
misapprehension of facts, this Court shall review the evidence on
record.
The contract of lease upon which Verendia relies to support his
claim for insurance benefits, was entered into between him and one
Robert Garcia, married to Helen Cawinian, on June 25, 1980 (Exh.
"1"), a couple of days after the effectivity of the insurance policy.
When the rented residential building was razed to the ground on
December 28, 1980, it appears that Robert Garcia (or Roberto
Garcia) was still within the premises. However, according to the
investigation report prepared by Pat. Eleuterio M. Buenviaje of the
Antipolo police, the building appeared to have "no occupant" and
that Mr. Roberto Garcia was "renting on the otherside (sic) portion of
said compound"(Exh. "E"). These pieces of evidence belie Verendia's
uncorroborated testimony that Marcelo Garcia, whom he
considered as the real lessee, was occupying the building when it
was burned (TSN, July 27, 1982, p. 10).
Robert Garcia disappeared after the fire. It was only on October 9,
1981 that an adjuster was able to locate him. Robert Garcia then
executed an affidavit before the National Intelligence and Security
Authority (NISA) to the effect that he was not the lessee of
Verendia's house and that his signature on the contract of lease was
a complete forgery. Thus, on the strength of these facts, the adjuster
submitted a report dated December 4, 1981 recommending the
denial of Verendia's claim (Exh. "2").
Ironically, during the trial, Verendia admitted that it was not Robert
Garcia who signed the lease contract. According to Verendia, it was
signed by Marcelo Garcia, cousin of Robert, who had been paying
the rentals all the while. Verendia, however, failed to explain why
Marcelo had to sign his cousin's name when he in fact was paying for
the rent and why he (Verendia) himself, the lessor, allowed such a
ruse. Fidelity's conclusions on these proven facts appear, therefore,
to have sufficient bases: Verendia concocted the lease contract to
deflect responsibility for the fire towards an alleged "lessee",
inflated the value of the property by the alleged monthly rental of
P6,500 when in fact, the Provincial Assessor of Rizal had assessed
the property's fair market value to be only P40,300.00, insured the
same property with two other insurance companies for a total
coverage of around P900,000, and created a dead-end for the
adjuster by the disappearance of Robert Garcia.
Basically a contract of indemnity, an insurance contract is the law
between the parties (Pacific Banking Corporation vs. Court of
Appeals 168 SCRA 1 [1988]). Its terms and conditions constitute the
measure of the insurer's liability and compliance therewith is a
condition precedent to the insured's right to recovery from the
insurer (Oriental Assurance Corporation vs. Court of Appeals, 200
SCRA 459 [1991], citing Perla Compania de Seguros, Inc. vs. Court of
Appeals, 185 SCRA 741 [1991]). As it is also a contract of adhesion,
an insurance contract should be liberally construed in favor of the
insured and strictly against the insurer company which usually
prepares it (Western Guaranty Corporation vs. Court of Appeals, 187
SCRA 652 [1980]).
Considering, however, the foregoing discussion pointing to the fact
that Verendia used a false lease contract to support his claim under
Fire Insurance Policy No. F-18876, the terms of the policy should be
strictly construed against the insured. Verendia failed to live by the
terms of the policy, specifically Section 13 thereof which is
expressed in terms that are clear and unambiguous, that all benefits
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
under the policy shall be forfeited "if the claim be in any respect
fraudulent, or if any false declaration be made or used in support
thereof, or if any fraudulent means or devises are used by the
Insured or anyone acting in his behalf to obtain any benefit under
the policy". Verendia, having presented a false declaration to
support his claim for benefits in the form of a fraudulent lease
contract, he forfeited all benefits therein by virtue of Section 13 of
the policy in the absence of proof that Fidelity waived such provision
(Pacific Banking Corporation vs. Court of Appeals, supra). 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 (Velasco vs.
Apostol, 173 SCRA 228 [1989]).
There is also no reason to conclude that by submitting the
subrogation receipt as evidence in court, Fidelity bound itself to a
"mutual agreement" to settle Verendia's claims in consideration of
the amount of P142,685.77. While the said receipt appears to have
been a filled-up form of Fidelity, no representative of Fidelity had
signed it. It is even incomplete as the blank spaces for a witness and
his address are not filled up. More significantly, the same receipt
states that Verendia had received the aforesaid amount. However,
that Verendia had not received the amount stated therein, is proven
by the fact that Verendia himself filed the complaint for the full
amount of P385,000,00 stated in the policy. It might be that there
had been efforts to settle Verendia's claims, but surely, the
subrogation receipt by itself does not prove that a settlement had
been arrived at and enforced. Thus, to interpret Fidelity's
presentation of the subrogation receipt in evidence as indicative of
its accession to its "terms" is not only wanting in rational basis but
would be substituting the will of the Court for that of the parties.
WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The
petition in G.R. No. 76399 is GRANTED and the decision of the then
Intermediate Appellate Court under review is REVERSED and SET
ASIDE and that of the trial court is hereby REINSTATED and UPHELD.
SO ORDERED.
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 occupied by them forming part of the buildings
situate (sic) within own Compound at MAGDALO STREET, BARRIO
UGONG, PASIG, METRO MANILA, PHILIPPINES, BLOCK NO. 601.'
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.
'Bounds in front partly by one-storey concrete building under
galvanized iron roof occupied as canteen and guardhouse, partly by
building of two and partly one storey constructed of concrete below,
timber above 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 open spaces, and at the rear by open spaces.'"[5]
The same pieces of property insured with the petitioner were also
insured with New India Assurance Company, Ltd., (New India).
On January 12, 1981, fire broke out in the compound of Transworld,
razing the middle portion of its four-span building and partly gutting
the left and right sections thereof. A two-storey building (behind
said four-span building) where fun and amusement machines and
spare parts were stored, was also destroyed by the fire.
Transworld filed its insurance claims with Rizal Surety & Insurance
Company and New India Assurance Company but to no avail.
On May 26, 1982, private respondent brought against the said
insurance companies an action for collection of sum of money and
damages, docketed as Civil Case No. 46106 before Branch 161 of the
then Court of First Instance of Rizal; 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]
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 not the damage caused by the fire on the
two-storey annex building.[7]
On January 4, 1990, the trial court rendered its decision; disposing as
follows:
"ACCORDINGLY, judgment is hereby rendered as follows:
(1)Dismissing the case as against The New India Assurance Co., Ltd.;
(2) Ordering defendant Rizal Surety And Insurance Company to pay
Transwrold (sic) Knitting Mills, Inc. the amount of P826, 500.00
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
representing the actual value of the losses suffered by it; and
(3) Cost against defendant Rizal Surety and Insurance Company.
SO ORDERED."[8]
Both the petitioner, Rizal Insurance Company, and private
respondent, Transworld Knitting Mills, Inc., went to the Court of
Appeals, which came out with its decision of July 15, 1993 under
attack, the decretal portion of which reads:
"WHEREFORE, and upon all the foregoing, the decision of the court
below 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 P470,328.67, based on the actual losses sustained by
plaintiff Transworld 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 P5,800,000.00 and Rizal Surety and Insurance
Company in the amount of P1,500,000.00.
No costs.
SO ORDERED."[9]
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 not be compensated for the loss of the
fun and amusement machines and spare parts stored at the two-
storey building because it (Transworld) had no insurable interest in
said goods or items.
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 and private respondent Transworld,
interposed a Motion 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:
"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.
Note: the contract is ambiguous.
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
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
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.
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, 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]
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,
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
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.
WHEREFORE, the Decision, dated July 15, 1993, and the Resolution,
dated October 22, 1993, of the Court of Appeals in CA-G.R. CV NO.
28779 are AFFIRMED in toto. No pronouncement as to costs.
::: the insurance company shall pay. 
SO ORDERED.
G.R. No. 125678, March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC., PETITIONER, VS. COURT OF
APPEALS AND JULITA TRINOS, RESPONDENTS.
DECISION
YNARES-SANTIAGO, J.:
W/N THE HEALTH CARE INSURANCE IS AN INSURANCE CONTRACT?
Ernani Trinos, deceased husband of respondent Julita Trinos, applied
for a health care coverage with petitioner Philamcare Health
Systems, Inc. In the standard application form, he answered no to
the following question:
Have you or any of your family members ever consulted or been
treated for high blood pressure, heart trouble, diabetes, cancer, liver
disease, asthma or peptic ulcer? (If Yes, give details).[1]
The application was approved for a period of one year from March
1, 1988 to March 1, 1989. Accordingly, he was issued Health Care
Agreement No. P010194. Under the agreement, respondent’s
husband was entitled to avail of hospitalization benefits, whether
ordinary or emergency, listed therein. He was also entitled to avail
of “out-patient benefits” such as annual physical examinations,
preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for
another year from March 1, 1989 to March 1, 1990, then from
March 1, 1990 to June 1, 1990. The amount of coverage was
increased to a maximum sum of P75,000.00 per disability.[2]
During the period of his coverage, Ernani suffered a heart attack and
was confined at the Manila Medical Center (MMC) for one month
beginning March 9, 1990. While her husband was in the hospital,
respondent tried to claim the benefits under the health care
agreement. However, petitioner denied her claim saying that the
Health Care Agreement was void. According to petitioner, there was
a concealment regarding Ernani’s medical history. Doctors at the
MMC allegedly discovered at the time of Ernani’s confinement that
he was hypertensive, diabetic and asthmatic, contrary to his answer
in the application form. Thus, respondent paid the hospitalization
expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended
by a physical therapist at home. Later, he was admitted at the
Chinese General Hospital. Due to financial difficulties, however,
respondent brought her husband home again. In the morning of
April 13, 1990, Ernani had fever and was feeling very
weak. Respondent was constrained to bring him back to the Chinese
General Hospital where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court
of Manila, Branch 44, an action for damages against petitioner and
its president, Dr. Benito Reverente, which was docketed as Civil Case
No. 90-53795. She asked for reimbursement of her expenses plus
moral damages and attorney’s fees. After trial, the lower court ruled
against petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in
favor of the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical
and hospital coverage of the late Ernani Trinos in
the amount of P76,000.00 plus interest, until the
amount is fully paid to plaintiff who paid the
same;
2. Defendants to pay the reduced amount of moral
damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of
P10,000.00 as exemplary damages to plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00,
plus costs of suit.
SO ORDERED.[3]
On appeal, the Court of Appeals affirmed the decision of the trial
court but deleted all awards for damages and absolved petitioner
Reverente.[4] Petitioner’s motion for reconsideration was
denied.[5] Hence, petitioner brought the instant petition for review,
raising the primary argument that a health care agreement is not an
insurance contract; hence the “incontestability clause” under the
Insurance Code[6] does not apply.
Petitioner argues that the agreement grants “living benefits,” such
as medical check-ups and hospitalization which a member may
immediately enjoy so long as he is alive upon effectivity of the
agreement until its expiration one-year thereafter. Petitioner also
points out that only medical and hospitalization benefits are given
under the agreement without any indemnification, unlike in an
insurance contract where the insured is indemnified for his
loss. Moreover, since Health Care Agreements are only for a period
of one year, as compared to insurance contracts which last
longer,[7] petitioner argues that the incontestability clause does not
apply, as the same requires an effectivity period of at least two
years. Petitioner further argues that it is not an insurance company,
which is governed by the Insurance Commission, but a Health
Maintenance Organization under the authority of the Department of
Health.
Section 2 (1) of the Insurance Code defines a contract of insurance
as an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where
the following elements concur:
1. The insured has an insurable interest;
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
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.[8]
Section 3 of the Insurance Code states that any contingent or
unknown event, whether past or future, which may damnify a
person having an insurable interest against him, may be insured
against. Every person has an insurable interest in the life
and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment
of money, respecting property or service, of which death or
illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in
him depends.
In the case at bar, the insurable interest of respondent’s husband in
obtaining the health care agreement was his own health. The health
care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity.[9] Once the member incurs
hospital, medical or any other expense arising from sickness, injury
or other stipulated contingent, the health care provider must pay for
the same to the extent agreed upon under the contract.
Petitioner argues that respondent’s husband concealed a material
fact in his application. It appears that in the application for health
coverage, petitioners required respondent’s husband to sign an
express authorization for any person, organization or entity that has
any record or knowledge of his health to furnish any and all
information relative to any hospitalization, consultation, treatment
or any other medical advice or examination.[10] Specifically, the
Health Care Agreement signed by respondent’s husband states:
We hereby declare and agree that all statement and answers
contained herein and in any addendum annexed to this application
are full, complete and true and bind all parties in interest under the
Agreement herein applied for, that there shall be no contract of
health care coverage unless and until an Agreement is issued on this
application and the full Membership Fee according to the mode of
payment applied for is actually paid during the lifetime and good
health of proposed Members; that no information acquired by any
Representative of PhilamCare shall be binding upon PhilamCare
unless set out in writing in the application; that any physician is, by
these presents, expressly authorized to disclose or give testimony at
anytime relative to any information acquired by him in his
professional capacity upon any question affecting the eligibility for
health care coverage of the Proposed Members and that the
acceptance of any Agreement issued on this application shall be a
ratification of any correction in or addition to this application as
stated in the space for Home Office Endorsement.[11](Underscoring
ours)
In addition to the above condition, petitioner additionally required
the applicant for authorization to inquire about the applicant’s
medical history, thus:
I hereby authorize any person, organization, or entity that has any
record or knowledge of my health and/or that of __________ to give
to the PhilamCare Health Systems, Inc. any and all information
relative to any hospitalization, consultation, treatment or any other
medical advice or examination. This authorization is in connection
with the application for health care coverage only. A photographic
copy of this authorization shall be as valid as the
original.[12] (Underscoring ours)
Petitioner cannot rely on the stipulation regarding “Invalidation of
agreement” which reads:
Failure to disclose or misrepresentation of any material information
by the member in the application or medical examination, whether
intentional or unintentional, shall automatically invalidate the
Agreement from the very beginning and liability of Philamcare shall
be limited to return of all Membership Fees paid. An undisclosed or
misrepresented information is deemed material if its revelation
would have resulted in the declination of the applicant by
Philamcare or the assessment of a higher Membership Fee for the
benefit or benefits applied for.[13]
The answer assailed by petitioner was in response to the question
relating to the medical history of the applicant. This largely depends
on opinion rather than fact, especially coming from respondent’s
husband who was not a medical doctor. Where matters of opinion
or judgment are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are
untrue.[14] Thus,
(A)lthough false, a representation of the expectation, intention,
belief, opinion, or judgment of the insured will not avoid the policy if
there is no actual fraud in inducing the acceptance of the risk, or its
acceptance at a lower rate of premium, and this is likewise the rule
although the statement is material to the risk, if the statement is
obviously of the foregoing character, since in such case the insurer is
not justified in relying upon such statement, but is obligated to make
further inquiry. There is a clear distinction between such a case and
one in which the insured is fraudulently and intentionally states to
be true, as a matter of expectation or belief, that which he then
knows, to be actually untrue, or the impossibility of which is shown
by the facts within his knowledge, since in such case the intent to
deceive the insurer is obvious and amounts to actual
fraud.[15](Underscoring ours)
The fraudulent intent on the part of the insured must be established
to warrant rescission of the insurance contract.[16] Concealment as a
defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or
insurer. In any case, with or without the authority to investigate,
petitioner is liable for claims made under the contract. Having
assumed a responsibility under the agreement, petitioner is bound
to answer the same to the extent agreed upon. In the end, the
liability of the health care provider attaches once the member is
hospitalized for the disease or injury covered by the agreement or
whenever he avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, “a concealment entitles the
injured party to rescind a contract of insurance.” The right to
rescind should be exercised previous to the commencement of an
action on the contract.[17] In this case, no rescission was
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
made. Besides, the cancellation of health care agreements as in
insurance policies require the concurrence of the following
conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective
date of the policy of one or more of the grounds
mentioned;
3. Must be in writing, mailed or delivered to the insured at
the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64
of the Insurance Code and upon request of insured, to
furnish facts on which cancellation is based.[18]
None of the above pre-conditions was fulfilled in this case. When
the terms of insurance contract contain limitations on liability,
courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation.[19] Being a contract of
adhesion, the terms of an insurance contract are to be construed
strictly against the party which prepared the contract – the
insurer.[20]By reason of the exclusive control of the insurance
company over the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture.[21] This
is equally applicable to Health Care Agreements. The phraseology
used in medical or hospital service contracts, such as the one at bar,
must be liberally construed in favor of the subscriber, and if doubtful
or reasonably susceptible of two interpretations the construction
conferring coverage is to be adopted, and exclusionary clauses of
doubtful import should be strictly construed against the provider. [22]
Anent the incontestability of the membership of respondent’s
husband, we quote with approval the following findings of the trial
court:
(U)nder the title Claim procedures of expenses, the defendant
Philamcare Health Systems Inc. had twelve months from the date of
issuance of the Agreement within which to contest the membership
of the patient if he had previous ailment of asthma, and six months
from the issuance of the agreement if the patient was sick of
diabetes or hypertension. The periods having expired, the defense of
concealment or misrepresentation no longer lie.[23]
Finally, petitioner alleges that respondent was not the legal wife of
the deceased member considering that at the time of their
marriage, the deceased was previously married to another woman
who was still alive. The health care agreement is in the nature of a
contract of indemnity. Hence, payment should be made to the party
who incurred the expenses. It is not controverted that respondent
paid all the hospital and medical expenses. She is therefore entitled
to reimbursement. The records adequately prove the expenses
incurred by respondent for the deceased’s hospitalization,
medication and the professional fees of the attending physicians.[24]
WHEREFORE, in view of the foregoing, the petition is DENIED. The
assailed decision of the Court of Appeals dated December 14, 1995
is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.

G. R. No. 115278, May 23, 1995
FORTUNE INSURANCE AND SURETY CO., INC., PETITIONER, VS.
COURT OF APPEALS AND PRODUCERS BANK OF THE PHILIPPINES,
RESPONDENTS.
DECISION
DAVIDE, JR., J.:
The fundamental legal issue raised in this petition for review
on certiorari is whether the petitioner is liable under the Money,
Security, and Payroll Robbery policy it issued to the private
respondent or whether recovery thereunder is precluded under the
general exceptions clause thereof. Both the trial court and the Court
of Appeals held that there should be recovery. The petitioner
contends otherwise.
This case began with the filing with the Regional Trial Court (RTC) of
Makati, Metro Manila, by private respondent Producers Bank of the
Philippines (hereinafter Producers) against petitioner Fortune
Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint
for recovery of the sum of P725,000.00 under the policy issued by
Fortune. The sum was allegedly lost during a robbery of Producer's
armored vehicle while it was in transit to transfer the money from its
Pasay City Branch to its head office in Makati. The case was
docketed as Civil Case No. 1817 and assigned to Branch 146 thereof.
After joinder of issues, the parties asked the trial court to render
judgment based on the following stipulation of facts:
1. The plaintiff was insured by the defendants and an
insurance policy was issued, the duplicate original of which
is hereto attached as Exhibit "A";
2. An armored car of the plaintiff, while in the process of
transferring cash in the sum of P725,000.00 under the
custody of its teller, Maribeth Alampay, from its Pasay
Branch to its Head Office at 8737 Paseo de Roxas, Makati,
Metro Manila on June 29, 1987, was robbed of the said
cash. The robbery took place while the armored car was
traveling along Taft Avenue in Pasay City;
3. The said armored car was driven by Benjamin Magalong Y
de Vera, escorted by Security Guard Saturnino Atiga Y
Rosete. Driver Magalong was assigned by PRC
Management Systems with the plaintiff by virtue of an
Agreement executed on August 7, 1983, a duplicate
original copy of which is hereto attached as Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn Security
Services, Inc. with the plaintiff by virtue of a contract of
Security Service executed on October 25, 1982, a duplicate
original copy of which is hereto attached as Exhibit "C";
5. After an investigation conducted by the Pasay police
authorities, the driver Magalong and guard Atiga were
charged, together with Edelmer Bantigue Y Eulalio,
Reynaldo Aquino and John Doe, with violation of P.D. 532
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
(Anti-Highway Robbery Law) before the Fiscal of Pasay
City. A copy of the complaint is hereto attached as Exhibit
"D";
6. The Fiscal of Pasay City then filed an information charging
the aforesaid persons with the said crime before Branch
112 of the Regional Trial Court of Pasay City. A copy of the
said information is hereto attached as Exhibit "E." The case
is still being tried as of this date;
7. Demands were made by the plaintiff upon the defendant
to pay the amount of the loss of P725,000.00, but the
latter refused to pay as the loss is excluded from the
coverage of the insurance policy, attached hereto as
Exhibit "A," specifically under page 1 thereof, "General
Exceptions" Section (b), which is marked as Exhibit "A-1,"
and which reads as follows:
"GENERAL EXCEPTIONS
The company shall not be liable under this policy
in respect of
x x x
(b) any loss caused by any dishonest, fraudulent
or criminal act of the insured or any officer,
employee, partner, director, trustee or
authorized representative of the Insured
whether acting alone or in conjunction with
others. x x x"
8. The plaintiff opposes the contention of the defendant and
contends that Atiga and Magalong are not its "officer,
employee, x x x trustee or authorized representative x x x
at the time of the robbery.[1]
On 26 April 1990, the trial court rendered its decision in favor of
Producers. The dispositive portion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and
against defendant, and
(a) orders defendant to pay plaintiff the net amount of
P540,000.00 as liability under Policy No. 0207 (as mitigated by
the P40,000.00 special clause deduction and by the recovered
sum of P145,000.00), with interest thereon at the legal rate,
until fully paid;
(b) orders defendant to pay plaintiff the sum of P30,000.00 as
and for attorney's fees; and
(c) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed
forthwith.

SO ORDERED.[2]
The trial court ruled that Magalong and Atiga were not employees or
representatives of Producers. It said:
The Court is satisfied that plaintiff may not be said to have selected
and engaged Magalong and Atiga, their services as armored car
driver and as security guard having been merely offered by PRC
Management and by Unicorn Security and which latter firms
assigned them to plaintiff. The wages and salaries of both Magalong
and Atiga are presumably paid by their respective firms, which alone
wields the power to dismiss them. Magalong and Atiga are assigned
to plaintiff in fulfillment of agreements to provide driving services
and property protection as such — in a context which does not
impress the Court as translating into plaintiff's power to control the
conduct of any assigned driver or security guard, beyond perhaps
entitling plaintiff to request a replacement for such driver or
guard. The finding is accordingly compelled that neither Magalong
nor Atiga were plaintiff's "employees" in avoidance of defendant's
liability under the policy, particularly the general exceptions therein
embodied.
Neither is the Court prepared to accept the proposition that driver
Magalong and guard Atiga were the "authorized representatives" of
plaintiff. They were merely an assigned armored car driver and
security guard, respectively, for the June 29, 1987 money transfer
from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly
— it was teller Maribeth Alampay who had "custody" of the
P725,000.00 cash being transferred along a specified money route,
and hence plaintiff's then designated "messenger" adverted to in the
policy.[3]
Fortune appealed this decision to the Court of Appeals which
docketed the case as CA-G.R. CV No. 32946. In its
decision[4]promulgated on 3 May 1994, it affirmed in toto the
appealed decision.
The Court of Appeals agreed with the conclusion of the trial court
that Magalong and Atiga were neither employees nor authorized
representatives of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor
of the insured and strictly against the insurance company (New
Life Enterprises vs. Court of Appeals, 207 SCRA 669; Sun Insurance
Office, Ltd. vs. Court of Appeals, 211 SCRA 554). Contracts of
insurance, like other contracts, are to be construed according to the
sense and meaning of the terms which the parties themselves have
used. If such terms are clear and unambiguous, they must be taken
and understood in their plain, ordinary and popular sense (New Life
Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court
of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted
stipulation is plain, ordinary and simple. No other interpretation is
necessary. The word "employee" should be taken to mean in the
ordinary sense.
The Labor Code is a special law specifically dealing with/and
specifically designed to protect labor and therefore its definition as
to employer-employee relationships insofar as the
application/enforcement of said Code is concerned must necessarily
be inapplicable to an insurance contract which defendant-appellant
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
itself had formulated. Had it intended to apply the Labor Code in
defining what the word "employee" refers to, it must/should have so
stated expressly in the insurance policy.
Said driver and security guard cannot be considered as employees of
plaintiff-appellee bank because it has no power to hire or to dismiss
said driver and security guard under the contracts (Exhs. 8 and C)
except only to ask for their replacements from the contractors.[5]
On 20 June 1994, Fortune filed this petition for review
on certiorari. It alleges that the trial court and the Court of Appeals
erred in holding it liable under the insurance policy because the loss
falls within the general exceptions clause considering that driver
Magalong and security guard Atiga were Producers' authorized
representatives or employees in the transfer of the money and
payroll from its branch office in Pasay City to its head office in
Makati.
According to Fortune, when Producers commissioned a guard and a
driver to transfer its funds from one branch to another, they
effectively and necessarily became its authorized representatives in
the care and custody of the money. Assuming that they could not
be considered authorized representatives, they were, nevertheless,
employees of Producers. It asserts that the existence of an
employer-employee relationship "is determined by law and being
such, it cannot be the subject of agreement." Thus, if there was in
reality an employer-employee relationship between Producers, on
the one hand, and Magalong and Atiga, on the other, the provisions
in the contracts of Producers with PRC Management System for
Magalong and with Unicorn Security Services for Atiga which state
that Producers is not their employer and that it is absolved from any
liability as an employer, would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends
upon four standards: (1) the manner of selection and engagement
of the putative employee; (2) the mode of payment of wages; (3) the
presence or absence of a power to dismiss; and (4) the presence and
absence of a power to control the putative employee's conduct. Of
the four, the right-of-control test has been held to be the decisive
factor.[6] It asserts that the power of control over Magalong and
Atiga was vested in and exercised by Producers. Fortune further
insists that PRC Management System and Unicorn Security Services
are but "labor-only" contractors under Article 106 of the Labor Code
which provides:
ART. 106. Contractor or subcontractor. — There is "labor-only"
contracting where the person supplying workers to an employer
does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the
workers recruited and placed by such persons are performing
activities which are directly related to the principal business of such
employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the
latter were directly employed by him.
Fortune thus contends that Magalong and Atiga were employees of
Producers, following the ruling in International Timber Corp.
vs. NLRC[7] that a finding that a contractor is a "labor-only"
contractor is equivalent to a finding that there is an employer-
employee relationship between the owner of the project and the
employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga
were not its employees since it had nothing to do with their
selection and engagement, the payment of their wages, their
dismissal, and the control of their conduct. Producers argued that
the rule in International Timber Corp. is not applicable to all cases
but only when it becomes necessary to prevent any violation or
circumvention of the Labor Code, a social legislation whose
provisions may set aside contracts entered into by parties in order to
give protection to the working man.
Producers further asseverates that what should be applied is the
rule in American President Lines vs. Clave,[8] to wit:
In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the
selection and engagement of the employee; (2) the payment of
wages; (3) the power of dismissal; and (4) the power to control the
employee's conduct.
Since under Producers' contract with PRC Management Systems it is
the latter which assigned Magalong as the driver of Producers'
armored car and was responsible for his faithful discharge of his
duties and responsibilities, and since Producers paid the monthly
compensation of P1,400.00 per driver to PRC Management Systems
and not to Magalong, it is clear that Magalong was not Producers'
employee. As to Atiga, Producers relies on the provision of its
contract with Unicorn Security Services which provides that the
guards of the latter "are in no sense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the
parties is a theft or robbery insurance policy which is a form of
casualty insurance. Section 174 of the Insurance Code provides:
SEC. 174. Casualty insurance is insurance covering loss or liability
arising from accident or mishap, excluding certain types of loss
which by law or custom are considered as falling exclusively within
the scope of insurance such as fire or marine. It includes, but is not
limited to, employer's liability insurance, public liability insurance,
motor vehicle liability insurance, plate glass insurance, burglary and
theft insurance, personal accident and health insurance as written
by non-life insurance companies, and other substantially similar
kinds of insurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability insurance,
the Insurance Code contains no other provisions applicable to
casualty insurance or to robbery insurance in particular. These
contracts are, therefore, governed by the general provisions
applicable to all types of insurance. Outside of these, the rights and
obligations of the parties must be determined by the terms of their
contract, taking into consideration its purpose and always in
accordance with the general principles of insurance law.[9]
It has been aptly observed that in burglary, robbery, and theft
insurance, "the opportunity to defraud the insurer -- the moral
hazard -- is so great that insurers have found it necessary to fill up
their policies with countless restrictions, many designed to reduce
this hazard. Seldom does the insurer assume the risk of all losses
due to the hazards insured against."[10] Persons frequently excluded
under such provisions are those in the insured's service and
employment.[11] The purpose of the exception is to guard against
liability should the theft be committed by one having unrestricted
access to the property.[12] In such cases, the terms specifying the
excluded classes are to be given their meaning as understood in
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
common speech.[13] The terms "service" and "employment" are
generally associated with the idea of selection, control, and
compensation.[14]
A contract of insurance is a contract of adhesion, thus any ambiguity
therein should be resolved against the insurer,[15] or it should be
construed liberally in favor of the insured and strictly against the
insurer.[16] Limitations of liability should be regarded with extreme
jealousy and must be construed in such a way as to preclude the
insurer from non-compliance with its obligation.[17] It goes without
saying then that if the terms of the contract are clear and
unambiguous, there is no room for construction and such terms
cannot be enlarged or diminished by judicial construction.[18]
An insurance contract is a contract of indemnity upon the terms and
conditions specified therein.[19] It is settled that the terms of the
policy constitute the measure of the insurer's liability.[20] In the
absence of statutory prohibition to the contrary, insurance
companies have the same rights as individuals to limit their liability
and to impose whatever conditions they deem best upon their
obligations not inconsistent with public policy.
With the foregoing principles in mind, it may now be asked whether
Magalong and Atiga qualify as employees or authorized
representatives of Producers under paragraph (b) of the general
exceptions clause of the policy which, for easy reference, is again
quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
x x x
(b) any loss caused by any dishonest, fraudulent or criminal act
of the insured or any officer, employee, partner, director,
trustee or authorized representative of the Insured whether
acting alone or in conjunction with others. x x x (emphases
supplied)
There is marked disagreement between the parties on the correct
meaning of the terms "employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its
intention to exclude and exempt from protection and coverage
losses arising from dishonest, fraudulent, or criminal acts of persons
granted or having unrestricted access to Producers' money or
payroll. When it used then the term "employee," it must have had
in mind any person who qualifies as such as generally and universally
understood, or jurisprudentially established in the light of the four
standards in the determination of the employer-employee
relationship,[21] or as statutorily declared even in a limited sense as
in the case of Article 106 of the Labor Code which considers the
employees under a "labor-only" contract as employees of the party
employing them and not of the party who supplied them to the
employer.[22]
Fortune claims that Producers' contracts with PRC Management
Systems and Unicorn Security Services are "labor-only"
contracts. Producers; however, insists that by the express terms
thereof, it is not the employer of Magalong. Notwithstanding such
express assumption of PRC Management Systems and Unicorn
Security Services that the drivers and the security guards each shall
supply to Producers are not the latter's employees, it may, in fact, be
that it is because the contracts are, indeed, "labor-only" contracts.
Whether they are is, in the light of the criteria provided for in Article
106 of the Labor Code, a question of fact. Since the parties opted to
submit the case for judgment on the basis of their stipulation of
facts which are strictly limited to the insurance policy, the contracts
with PRC Management Systems and Unicorn Security Services, the
complaint for violation of P.D. No. 532, and the information therefor
filed by the City Fiscal of Pasay City, there is a paucity of evidence as
to whether the contracts between Producers and PRC Management
Systems and Unicorn Security Services are "labor-only" contracts.
But even granting for the sake of argument that these contracts
were not "labor-only" contracts, and PRC Management Systems and
Unicorn Security Services were truly independent contractors, we
are satisfied that Magalong and Atiga were, in respect of the transfer
of Producer's money from its Pasay City branch to its head office in
Makati, its "authorized representatives" who served as such with its
teller Maribeth Alampay. Howsoever viewed, Producers entrusted
the three with the specific duty to safely transfer the money to its
head office, with Alampay to be responsible for its custody in transit;
Magalong to drive the armored vehicle which would carry the
money; and Atiga to provide the needed security for the money, the
vehicle, and his two other companions. In short, for these particular
tasks, the three acted as agents of Producers. A "representative" is
defined as one who represents or stands in the place of another;
one who represents others or another in a special capacity, as an
agent, and is interchangeable with "agent."[23]
In view of the foregoing, Fortune is exempt from liability under the
general exceptions clause of the insurance policy.
WHEREFORE, the instant petition is hereby GRANTED. The decision
of the Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994
as well as that of Branch 146 of the Regional Trial Court of Makati in
Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint in
Civil Case No. 1817 is DISMISSED.
The facts as established by the court a quo, and affirmed by the
appellate court are as follows:
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union
and had its properties in said resort insured originally with the
American Home Assurance Company (AHAC-AIU). In the first four
insurance policies issued by AHAC-AIU from 1984-85; 1985-86; 1986-
1987; and 1987-88 (Exhs. “C”, “D”, “E” and “F”; also Exhs. “1”, “2”,
“3” and “4” respectively), the risk of loss from earthquake shock was
extended only to plaintiff’s two swimming pools, thus, “earthquake
shock endt.” (Item 5 only) (Exhs. “C-1”; “D-1,” and “E” and two (2)
swimming pools only (Exhs. “C-1”; ‘D-1”, “E” and “F-1”). “Item 5” in
those policies referred to the two (2) swimming pools only (Exhs. “1-
B”, “2-B”, “3-B” and “F-2”); that subsequently AHAC(AIU) issued in
plaintiff’s favor Policy No. 206-4182383-0 covering the period March
14, 1988 to March 14, 1989 (Exhs. “G” also “G-1”) and in said policy
the earthquake endorsement clause as indicated in Exhibits “C-1”,
“D-1”, Exhibits “E” and “F-1” was deleted and the entry under
Endorsements/Warranties at the time of issue read that plaintiff
renewed its policy with AHAC (AIU) for the period of March 14, 1989
to March 14, 1990 under Policy No. 206-4568061-9 (Exh. “H”) which
carried the entry under “Endorsement/Warranties at Time of Issue”,
which read “Endorsement to Include Earthquake Shock (Exh. “6-B-
1”) in the amount of P10,700.00 and paid P42,658.14 (Exhs. “6-A”
and “6-B”) as premium thereof, computed as follows:
Item -P7,691,000.00 - on the Clubhouse only
@ .392%;
1,500,000.00 - on the furniture, etc.
contained in the
building above-
mentioned@ .490%;
393,000.00- on the two swimming
pools, only (against
the peril of
earthquake shock
only) @ 0.100%
116,600.00- other buildings include
as follows:

G.R. No. 156167, May 16, 2005

a) Tilter House- P19,800.00- 0.551%
b) Power House- P41,000.00-0.551%
GULF RESORTS, INC., PETITIONER, VS. PHILIPPINE CHARTER c) House Shed- P55,000.00 -0.540%
INSURANCE CORPORATION, RESPONDENT. P100,000.00 for furniture, fixtures,
lines air-con and
DECISION operating equipment

PUNO, J.:
Before the Court is the petition for certiorari under Rule 45 of the
Revised Rules of Court by petitioner GULF RESORTS, INC., against
respondent PHILIPPINE CHARTER INSURANCE CORPORATION.
Petitioner assails the appellate court decision[1] which dismissed its
two appeals and affirmed the judgment of the trial court.
For review are the warring interpretations of petitioner and
respondent on the scope of the insurance company’s liability for
earthquake damage to petitioner’s properties. Petitioner avers that,
pursuant to its earthquake shock endorsement rider, Insurance
Policy No. 31944 covers all damages to the properties within its
resort caused by earthquake. Respondent contends that the rider
limits its liability for loss to the two swimming pools of petitioner.
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
that plaintiff agreed to insure with defendant the properties covered
by AHAC (AIU) Policy No. 206-4568061-9 (Exh. “H”) provided that
the policy wording and rates in said policy be copied in the policy to
be issued by defendant; that defendant issued Policy No. 31944 to
plaintiff covering the period of March 14, 1990 to March 14, 1991
for P10,700,600.00 for a total premium of P45,159.92 (Exh. “I”); that
in the computation of the premium, defendant’s Policy No. 31944
(Exh. “I”), which is the policy in question, contained on the right-
hand upper portion of page 7 thereof, the following:
Rate-Various
Premium - P37,420.60 F/L
2,061.52 – Typhoon
1,030.76 – EC
 393.00 – ES Respondent filed its Answer with Special and Affirmative Defenses
Doc. Stamps 3,068.10 with Compulsory Counterclaims.[12]
F.S.T.; 776.89
Prem. Tax 409.05 On February 21, 1994, the lower court after trial ruled in favor of the
respondent, viz:
TOTAL 45,159.92;
The above schedule clearly shows that plaintiff paid only a premium
of P393.00 against the peril of earthquake shock, the same premium
that the above break-down of premiums shows that plaintiff paid
it paid against earthquake shock only on the two swimming pools in
only P393.00 as premium against earthquake shock (ES); that in all
all the policies issued by AHAC(AIU) (Exhibits “C”, “D”, “E”, “F” and
the six insurance policies (Exhs. “C”, “D”, “E”, “F”, “G” and “H”), the
“G”). From this fact the Court must consequently agree with the
premium against the peril of earthquake shock is the same, that is
position of defendant that the endorsement rider (Exhibit “7-C”)
P393.00 (Exhs. “C” and “1-B”; “2-B” and “3-B-1” and “3-B-2”; “F-02”
means that only the two swimming pools were insured against
and “4-A-1”; “G-2” and “5-C-1”; “6-C-1”; issued by AHAC (Exhs. “C”,
earthquake shock.
“D”, “E”, “F”, “G” and “H”) and in Policy No. 31944 issued by
defendant, the shock endorsement provide(sic):
Plaintiff correctly points out that a policy of insurance is a contract of
adhesion hence, where the language used in an insurance contract
In consideration of the payment by the insured to the company of
or application is such as to create ambiguity the same should be
the sum included additional premium the Company agrees,
resolved against the party responsible therefor, i.e., the insurance
notwithstanding what is stated in the printed conditions of this
company which prepared the contract. To the mind of [the] Court,
policy due to the contrary, that this insurance covers loss or damage
the language used in the policy in litigation is clear and unambiguous
to shock to any of the property insured by this Policy occasioned by
hence there is no need for interpretation or construction but only
or through or in consequence of earthquake (Exhs. “1-D”, “2-D”, “3-
application of the provisions therein.
A”, “4-B”, “5-A”, “6-D” and “7-C”);
From the above observations the Court finds that only the two (2)
that in Exhibit “7-C” the word “included” above the underlined
swimming pools had earthquake shock coverage and were heavily
portion was deleted; that on July 16, 1990 an earthquake struck
damaged by the earthquake which struck on July 16, 1990.
Central Luzon and Northern Luzon and plaintiff’s properties covered
Defendant having admitted that the damage to the swimming pools
by Policy No. 31944 issued by defendant, including the two
was appraised by defendant’s adjuster at P386,000.00, defendant
swimming pools in its Agoo Playa Resort were damaged.[2]
must, by virtue of the contract of insurance, pay plaintiff said
After the earthquake, petitioner advised respondent that it would be
amount.
making a claim under its Insurance Policy No. 31944 for damages on
its properties. Respondent instructed petitioner to file a formal
Because it is the finding of the Court as stated in the immediately
claim, then assigned the investigation of the claim to an
preceding paragraph that defendant is liable only for the damage
independent claims adjuster, Bayne Adjusters and Surveyors,
caused to the two (2) swimming pools and that defendant has made
Inc.[3] On July 30, 1990, respondent, through its adjuster, requested
known to plaintiff its willingness and readiness to settle said liability,
petitioner to submit various documents in support of its claim. On
there is no basis for the grant of the other damages prayed for by
August 7, 1990, Bayne Adjusters and Surveyors, Inc., through its
plaintiff. As to the counterclaims of defendant, the Court does not
Vice-President A.R. de Leon,[4] rendered a preliminary
agree that the action filed by plaintiff is baseless and highly
report[5] finding extensive damage caused by the earthquake to the
speculative since such action is a lawful exercise of the plaintiff’s
clubhouse and to the two swimming pools. Mr. de Leon stated that
right to come to Court in the honest belief that their Complaint is
“except for the swimming pools, all affected items have no coverage
meritorious. The prayer, therefore, of defendant for damages is
for earthquake shocks.”[6] On August 11, 1990, petitioner filed its
likewise denied.
formal demand[7] for settlement of the damage to all its properties
in the Agoo Playa Resort. On August 23, 1990, respondent denied
WHEREFORE, premises considered, defendant is ordered to pay
petitioner’s claim on the ground that its insurance policy only
plaintiffs the sum of THREE HUNDRED EIGHTY SIX THOUSAND PESOS
afforded earthquake shock coverage to the two swimming pools of
(P386,000.00) representing damage to the two (2) swimming pools,
the resort.[8] Petitioner and respondent failed to arrive at a
with interest at 6% per annum from the date of the filing of the
settlement.[9]Thus, on January 24, 1991, petitioner filed a
Complaint until defendant’s obligation to plaintiff is fully paid.
complaint[10] with the regional trial court of Pasig praying for the
payment of the following:
No pronouncement as to costs.[13]
1.) The sum of P5,427,779.00, representing losses sustained by
Petitioner’s Motion for Reconsideration was denied. Thus, petitioner
the insured properties, with interest thereon, as computed
filed an appeal with the Court of Appeals based on the following
under par. 29 of the policy (Annex “B”) until fully paid;
assigned errors:[14]
2.) The sum of P428,842.00 per month, representing continuing
losses sustained by plaintiff on account of defendant’s refusal A. THE TRIAL COURT ERRED IN FINDING THAT
to pay the claims; PLAINTIFF-APPELLANT CAN ONLY RECOVER FOR
THE DAMAGE TO ITS TWO SWIMMING POOLS
3.) The sum of P500,000.00, by way of exemplary damages; UNDER ITS FIRE POLICY NO. 31944,
CONSIDERING ITS PROVISIONS, THE
4.) The sum of P500,000.00 by way of attorney’s fees and CIRCUMSTANCES SURROUNDING THE ISSUANCE
expenses of litigation; OF SAID POLICY AND THE ACTUATIONS OF THE
PARTIES SUBSEQUENT TO THE EARTHQUAKE OF
5.) Costs.[11] JULY 16, 1990.

INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA

 B. THE TRIAL COURT ERRED IN DETERMINING
PLAINTIFF-APPELLANT’S RIGHT TO RECOVER
UNDER DEFENDANT-APPELLEE’S POLICY (NO.
31944; EXH “I”) BY LIMITING ITSELF TO A
CONSIDERATION OF THE SAID
POLICY ISOLATED FROM THE CIRCUMSTANCES
SURROUNDING ITS ISSUANCE AND THE
ACTUATIONS OF THE PARTIES AFTER THE
EARTHQUAKE OF JULY 16, 1990.
C. THE TRIAL COURT ERRED IN NOT HOLDING THAT
PLAINTIFF-APPELLANT IS ENTITLED TO THE
DAMAGES CLAIMED, WITH INTEREST COMPUTED
AT 24% PER ANNUM ON CLAIMS ON PROCEEDS
OF POLICY.
On the other hand, respondent filed a partial appeal, assailing the
lower court’s failure to award it attorney’s fees and damages on its
compulsory counterclaim.
After review, the appellate court affirmed the decision of the trial
court and ruled, thus:
However, after carefully perusing the documentary evidence of both
parties, We are not convinced that the last two (2) insurance
contracts (Exhs. “G” and “H”), which the plaintiff-appellant had with
AHAC (AIU) and upon which the subject insurance contract with
Philippine Charter Insurance Corporation is said to have been based
and copied (Exh. “I”), covered an extended earthquake shock
insurance on all the insured properties.
xxx
We also find that the Court a quo was correct in not granting the
plaintiff-appellant’s prayer for the imposition of interest – 24% on
the insurance claim and 6% on loss of income allegedly amounting to
P4,280,000.00. Since the defendant-appellant has expressed its
willingness to pay the damage caused on the two (2) swimming
pools, as the Court a quo and this Court correctly found it to be
liable only, it then cannot be said that it was in default and therefore
liable for interest.
Coming to the defendant-appellant’s prayer for an attorney’s fees,
long-standing is the rule that the award thereof is subject to the
sound discretion of the court. Thus, if such discretion is well-
exercised, it will not be disturbed on appeal (Castro et al. v. CA, et
al., G.R. No. 115838, July 18, 2002). Moreover, being the award
thereof an exception rather than a rule, it is necessary for the court
to make findings of facts and law that would bring the case within
the exception and justify the grant of such award (Country Bankers
Insurance Corp. v. Lianga Bay and Community Multi-Purpose Coop.,
Inc., G.R. No. 136914, January 25, 2002). Therefore, holding that the
plaintiff-appellant’s action is not baseless and highly speculative, We
find that the Court a quo did not err in granting the same.
WHEREFORE, in view of all the foregoing, both appeals are hereby
DISMISSED and judgment of the Trial Court hereby AFFIRMED in
toto. No costs.[15]
Petitioner filed the present petition raising the following issues: [16]
A. WHETHER THE COURT OF APPEALS CORRECTLY
HELD THAT UNDER RESPONDENT’S INSURANCE
POLICY NO. 31944, ONLY THE TWO (2)
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
SWIMMING POOLS, RATHER THAN ALL THE
PROPERTIES COVERED THEREUNDER, ARE
INSURED AGAINST THE RISK OF EARTHQUAKE
SHOCK.
B. WHETHER THE COURT OF APPEALS CORRECTLY
DENIED PETITIONER’S PRAYER FOR DAMAGES
WITH INTEREST THEREON AT THE RATE
CLAIMED, ATTORNEY’S FEES AND EXPENSES OF
LITIGATION.
Petitioner contends:
First, that the policy’s earthquake shock endorsement clearly covers
all of the properties insured and not only the swimming pools. It
used the words “any property insured by this policy,” and it should
be interpreted as all inclusive.
Second, the unqualified and unrestricted nature of the earthquake
shock endorsement is confirmed in the body of the insurance policy
itself, which states that it is “[s]ubject to: Other Insurance Clause,
Typhoon Endorsement, Earthquake Shock Endt., Extended Coverage
Endt., FEA Warranty & Annual Payment Agreement On Long Term
Policies.”[17]
Third, that the qualification referring to the two swimming pools had
already been deleted in the earthquake shock endorsement.
Fourth, it is unbelievable for respondent to claim that it only made
an inadvertent omission when it deleted the said qualification.
Fifth, that the earthquake shock endorsement rider should be given
precedence over the wording of the insurance policy, because the
rider is the more deliberate expression of the agreement of the
contracting parties.
Sixth, that in their previous insurance policies, limits were placed on
the endorsements/warranties enumerated at the time of issue.
Seventh, any ambiguity in the earthquake shock endorsement
should be resolved in favor of petitioner and against respondent. It
was respondent which caused the ambiguity when it made the
policy in issue.
Eighth, the qualification of the endorsement limiting the earthquake
shock endorsement should be interpreted as a caveat on the
standard fire insurance policy, such as to remove the two swimming
pools from the coverage for the risk of fire. It should not be used to
limit the respondent’s liability for earthquake shock to the two
swimming pools only.
Ninth, there is no basis for the appellate court to hold that the
additional premium was not paid under the extended coverage. The
premium for the earthquake shock coverage was already included in
the premium paid for the policy.
Tenth, the parties’ contemporaneous and subsequent acts show
that they intended to extend earthquake shock coverage to all
insured properties. When it secured an insurance policy from
respondent, petitioner told respondent that it wanted an exact
replica of its latest insurance policy from American Home Assurance
Company (AHAC-AIU), which covered all the resort’s properties for
earthquake shock damage and respondent agreed. After the July 16,
1990 earthquake, respondent assured petitioner that it was covered
for earthquake shock. Respondent’s insurance adjuster, Bayne
Adjusters and Surveyors, Inc., likewise requested petitioner to
submit the necessary documents for its building claims and other
repair costs. Thus, under the doctrine of equitable estoppel, it
cannot deny that the insurance policy it issued to petitioner covered
all of the properties within the resort.
Eleventh, that it is proper for it to avail of a petition for review by
certiorari under Rule 45 of the Revised Rules of Court as its remedy,
and there is no need for calibration of the evidence in order to
establish the facts upon which this petition is based.
On the other hand, respondent made the following counter
arguments:[18]
First, none of the previous policies issued by AHAC-AIU from 1983 to
1990 explicitly extended coverage against earthquake shock to
petitioner’s insured properties other than on the two swimming
pools. Petitioner admitted that from 1984 to 1988, only the two
swimming pools were insured against earthquake shock. From 1988
until 1990, the provisions in its policy were practically identical to its
earlier policies, and there was no increase in the premium paid.
AHAC-AIU, in a letter[19] by its representative Manuel C. Quijano,
categorically stated that its previous policy, from which respondent’s
policy was copied, covered only earthquake shock for the two
swimming pools.
Second, petitioner’s payment of additional premium in the amount
of P393.00 shows that the policy only covered earthquake shock
damage on the two swimming pools. The amount was the same
amount paid by petitioner for earthquake shock coverage on the
two swimming pools from 1990-1991. No additional premium was
paid to warrant coverage of the other properties in the resort.
Third, the deletion of the phrase pertaining to the limitation of the
earthquake shock endorsement to the two swimming pools in the
policy schedule did not expand the earthquake shock coverage to all
of petitioner’s properties. As per its agreement with petitioner,
respondent copied its policy from the AHAC-AIU policy provided by
petitioner. Although the first five policies contained the said
qualification in their rider’s title, in the last two policies, this
qualification in the title was deleted. AHAC-AIU, through Mr. J.
Baranda III, stated that such deletion was a mere inadvertence. This
inadvertence did not make the policy incomplete, nor did it broaden
the scope of the endorsement whose descriptive title was merely
enumerated. Any ambiguity in the policy can be easily resolved by
looking at the other provisions, specially the enumeration of the
items insured, where only the two swimming pools were noted as
covered for earthquake shock damage.
Fourth, in its Complaint, petitioner alleged that in its policies from
1984 through 1988, the phrase “Item 5 – P393,000.00 – on the two
swimming pools only (against the peril of earthquake shock only)”
meant that only the swimming pools were insured for earthquake
damage. The same phrase is used in toto in the policies from 1989 to
1990, the only difference being the designation of the two
swimming pools as “Item 3.”
Fifth, in order for the earthquake shock endorsement to be
effective, premiums must be paid for all the properties covered. In
all of its seven insurance policies, petitioner only paid P393.00 as
premium for coverage of the swimming pools against earthquake
shock. No other premium was paid for earthquake shock coverage
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
on the other properties. In addition, the use of the qualifier “ANY”
instead of “ALL” to describe the property covered was done
deliberately to enable the parties to specify the properties included
for earthquake coverage.
Sixth, petitioner did not inform respondent of its requirement that
all of its properties must be included in the earthquake shock
coverage. Petitioner’s own evidence shows that it only required
respondent to follow the exact provisions of its previous policy from
AHAC-AIU. Respondent complied with this requirement.
Respondent’s only deviation from the agreement was when it
modified the provisions regarding the replacement cost
endorsement. With regard to the issue under litigation, the riders of
the old policy and the policy in issue are identical.
Seventh, respondent did not do any act or give any assurance to
petitioner as would estop it from maintaining that only the two
swimming pools were covered for earthquake shock. The adjuster’s
letter notifying petitioner to present certain documents for its
building claims and repair costs was given to petitioner before the
adjuster knew the full coverage of its policy.
Petitioner anchors its claims on AHAC-AIU’s inadvertent deletion of
the phrase “Item 5 Only” after the descriptive name or title of the
Earthquake Shock Endorsement. However, the words of the policy
reflect the parties’ clear intention to limit earthquake shock
coverage to the two swimming pools.
Before petitioner accepted the policy, it had the opportunity to read
its conditions. It did not object to any deficiency nor did it institute
any action to reform the policy. The policy binds the petitioner.
Eighth, there is no basis for petitioner to claim damages, attorney’s
fees and litigation expenses. Since respondent was willing and able
to pay for the damage caused on the two swimming pools, it cannot
be considered to be in default, and therefore, it is not liable for
interest.
We hold that the petition is devoid of merit.
In Insurance Policy No. 31944, four key items are important in the
resolution of the case at bar.
First, in the designation of location of risk, only the two swimming
pools were specified as included, viz:
ITEM 3 – 393,000.00 – On the two (2) swimming pools only (against
the peril of earthquake shock only)[20]
Second, under the breakdown for premium payments,[21] it was
stated that:
PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM
xxx
3 393,000.00 0.100%-E/S 393.00[22]
Third, Policy Condition No. 6 stated:
6. This insurance does not cover any loss or damage occasioned by
or through or in consequence, directly or indirectly of any of the
following occurrences, namely:--
(a) Earthquake, volcanic eruption or other convulsion of nature. [23]
Fourth, the rider attached to the policy, titled “Extended Coverage
Endorsement (To Include the Perils of Explosion, Aircraft, Vehicle
and Smoke),” stated, viz:
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES
THE INSURED UNDER THIS POLICY HAVING ESTABLISHED
AGGREGATE SUMS INSURED IN EXCESS OF FIVE MILLION PESOS, IN
CONSIDERATION OF A DISCOUNT OF 5% OR 7 ½ % OF THE NET
PREMIUM x x x POLICY HEREBY UNDERTAKES TO CONTINUE THE
INSURANCE UNDER THE ABOVE NAMED x x x AND TO PAY THE
PREMIUM.
Earthquake Endorsement
In consideration of the payment by the Insured to the Company of
the sum of P. . . . . . . . . . . . . . . . . additional premium the Company
agrees, notwithstanding what is stated in the printed conditions of
this Policy to the contrary, that this insurance covers loss or damage
(including loss or damage by fire) to any of the property insured by
this Policy occasioned by or through or in consequence of
Earthquake.
Provided always that all the conditions of this Policy shall apply
(except in so far as they may be hereby expressly varied) and that
any reference therein to loss or damage by fire should be deemed to
apply also to loss or damage occasioned by or through or in
consequence of Earthquake.[24]
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;
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
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
petitioner’s previous insurance policies from AHAC-AIU. As borne
out by petitioner’s witnesses:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November
25, 1991
pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that insofar
as your insurance policy during the period from March 4,
1984 to March 4, 1985 the coverage on earthquake shock
was limited to the two swimming pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically
shown in the warranty, there is a provision here that it was
only for item 5.
Q. More specifically Item 5 states the amount of P393,000.00
corresponding to the two swimming pools only?
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November
25, 1991
pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989,
did you personally arrange for the procurement of this
policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your
company?
A. No, sir. They are our insurance agency.
Q. And they are independent of your company insofar as
operations are concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is
concerned they are of course subject to your instruction, is
that not correct?
A. Yes, sir. The final action is still with us although they can
recommend what insurance to take.
Q. In the procurement of the insurance police (sic) from March
14, 1988 to March 14, 1989, did you give written instruction
to Forte Insurance Agency advising it that the earthquake
shock coverage must extend to all properties of Agoo Playa
Resort in La Union?
A. No, sir. We did not make any written instruction, although we
made an oral instruction to that effect of extending the
coverage on (sic) the other properties of the company.
Q. And that instruction, according to you, was very important
because in April 1987 there was an earthquake tremor in La
Union?
A. Yes, sir.
Q. And you wanted to protect all your properties against similar
tremors in the [future], is that correct?
A. Yes, sir.
Q. Now, after this policy was delivered to you did you bother to
check the provisions with respect to your instructions that all
properties must be covered again by earthquake shock
endorsement?
A. Are you referring to the insurance policy issued by American
Home Assurance Company marked Exhibit "G"?
Atty. Mejia: Yes.
Witness:
A. I examined the policy and seeing that the warranty on the
earthquake shock endorsement has no more limitation
referring to the two swimming pools only, I was contented
already that the previous limitation pertaining to the two
swimming pools was already removed.
Petitioner also cited and relies on the attachment of the phrase
“Subject to: Other Insurance Clause, Typhoon Endorsement,
Earthquake Shock Endorsement, Extended Coverage Endorsement,
FEA Warranty & Annual Payment Agreement on Long Term
Policies”[29] to the insurance policy as proof of the intent of the
parties to extend the coverage for earthquake shock. However, this
phrase is merely an enumeration of the descriptive titles of the
riders, clauses, warranties or endorsements to which the policy is
subject, as required under Section 50, paragraph 2 of the Insurance
Code.
We also hold that no significance can be placed on the deletion of
the qualification limiting the coverage to the two swimming pools.
The earthquake shock endorsement cannot stand alone. As
explained by the testimony of Juan Baranda III, underwriter for
AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III[30]
TSN, August 11, 1992
pp. 9-12
Atty. Mejia:
We respectfully manifest that the same exhibits C to H
inclusive have been previously marked by counsel for
defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to
review of ( sic ) these six (6) policies issued by your company
[in favor] of Agoo Playa Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one
point of time, sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence as
Exhibits C to H respectively carries an earthquake shock
endorsement[?] My question to you is, on the basis on (sic)
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
the wordings indicated in Exhibits C to H respectively what
was the extent of the coverage [against] the peril of
earthquake shock as provided for in each of the six (6)
policies?
xxx
WITNESS:
The extent of the coverage is only up to the two (2) swimming
pools, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E,
F, G and H?
A. Yes, sir.
ATTY. MEJIA:
What is your basis for stating that the coverage against
earthquake shock as provided for in each of the six (6)
policies extend to the two (2) swimming pools only?
WITNESS:
Because it says here in the policies, in the enumeration
"Earthquake Shock Endorsement, in the Clauses and
Warranties: Item 5 only (Earthquake Shock Endorsement),"
sir.
ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor.
WITNESS:
We do not normally cover earthquake shock endorsement on
stand alone basis. For swimming pools we do cover
earthquake shock. For building we covered it for full
earthquake coverage which includes earthquake shock?
COURT:
As far as earthquake shock endorsement you do not have a
specific coverage for other things other than swimming pool?
You are covering building? They are covered by a general
insurance?
WITNESS:
Earthquake shock coverage could not stand alone. If we are
covering building or another we can issue earthquake shock
solely but that the moment I see this, the thing that comes to
my mind is either insuring a swimming pool, foundations,
they are normally affected by earthquake but not by fire, sir.
DIRECT EXAMINATION OF JUAN BARANDA III
TSN, August 11, 1992
pp. 23-25
Q. Plaintiff's witness, Mr. Mantohac testified and he alleged that
only Exhibits C, D, E and F inclusive [remained] its coverage
against earthquake shock to two (2) swimming pools only but
that Exhibits G and H respectively entend the coverage
against earthquake shock to all the properties indicated in the
respective schedules attached to said policies, what can you
say about that testimony of plaintiff's witness?
WITNESS:
As I have mentioned earlier, earthquake shock cannot stand
alone without the other half of it. I assure you that this one
covers the two swimming pools with respect to earthquake
shock endorsement. Based on it, if we are going to look at the
premium there has been no change with respect to the rates.
 Everytime (sic) there is a renewal if the intention of the
insurer was to include the earthquake shock, I think there is a
substantial increase in the premium. We are not only going to
consider the two (2) swimming pools of the other as stated in
the policy. As I see, there is no increase in the amount of the
premium. I must say that the coverage was not broaden (sic)
to include the other items.
COURT:
They are the same, the premium rates?
WITNESS:
They are the same in the sence ( sic ), in the amount of the
coverage. If you are going to do some computation based on
the rates you will arrive at the same premiums, your Honor.
CROSS-EXAMINATION OF JUAN BARANDA III
TSN, September 7, 1992
pp. 4-6
ATTY. ANDRES:
Would you as a matter of practice [insure] swimming pools
for fire insurance?
WITNESS:
No, we don't, sir.
Q. That is why the phrase "earthquake shock to the two (2)
swimming pools only" was placed, is it not?
A. Yes, sir.
ATTY. ANDRES:
Will you not also agree with me that these exhibits, Exhibits G
and H which you have pointed to during your direct-
examination, the phrase "Item no. 5 only" meaning to (sic)
the two (2) swimming pools was deleted from the policies
issued by AIU, is it not?
xxx
ATTY. ANDRES:
As an insurance executive will you not attach any significance
to the deletion of the qualifying phrase for the policies?
WITNESS:
My answer to that would be, the deletion of that particular
phrase is inadvertent. Being a company underwriter, we do
not cover. . it was inadvertent because of the previous
policies that we have issued with no specific attachments,
premium rates and so on. It was inadvertent, sir.
The Court also rejects petitioner's contention that respondent's
contemporaneous and subsequent acts to the issuance policy falsely
gave the petitioner assurance that the coverage of the earthquake
shock endorsement included all its properties in the resort.
Respondent only insured the properties as intended by the
petitioner. Petitoner's own witness testified to this agreement. viz:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 4-5
Q. Just to be clear about this particular answer of yours Mr.
Witness, what exactly did you tell Atty. Omlas (sic) to copy
from Exhibit "H" for purposes of procuring the policy from
Philippine Charter Insurance Corporation?
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
A. I told him that the insurance that they will have to get will
have the same provisions as this American Home Insurance
Policy No. 206-4568061-9.
Q. You are referring to Exhibit "H" of course?
A. Yes, sir, to Exhibit "H".
Q. So, all the provisions here will be the same except that of the
premium rates?
A. Yes, sir. He assured me that with regards to the insurance
premium rates that they will be charging will be limited to
this one. I (sic) can even be lesser.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 12-14
Atty. Mejia:
Q. Will it be correct to state[,] Mr. Witness, that you made a
comparison of the provisions and scope of coverage of
Exhibits “I” and “H” sometime in the third week of March,
1990 or thereabout?
A. Yes, sir, about that time.
Q. And at that time did you notice any discrepancy or difference
between the policy wordings as well as scope of coverage of
Exhibits “I” and “H” respectively?
A. No, sir, I did not discover any difference inasmuch (sic) as I
was assured already that the policy wordings and rates were
copied from the insurance policy I sent them but it was only
when this case erupted that we discovered some
discrepancies.
Q. With respect to the items declared for insurance coverage did
you notice any discrepancy at any time between those
indicated in Exhibit “I” and those indicated in Exhibit “H”
respectively?
A. With regard to the wordings I did not notice any difference
because it was exactly the same P393,000.00 on the two (2)
swimming pools only against the peril of earthquake shock
which I understood before that this provision will have to be
placed here because this particular provision under the peril
of earthquake shock only is requested because this is an
insurance policy and therefore cannot be insured against fire,
so this has to be placed.
The verbal assurances allegedly given by respondent’s
representative Atty. Umlas were not proved. Atty. Umlas
categorically denied having given such assurances.
Finally, petitioner puts much stress on the letter of respondent’s
independent claims adjuster, Bayne Adjusters and Surveyors, Inc.
But as testified to by the representative of Bayne Adjusters and
Surveyors, Inc., respondent never meant to lead petitioner to
believe that the endorsement for earthquake shock covered
properties other than the two swimming pools, viz:
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne
Adjusters and Surveyors, Inc.)
TSN, January 26, 1993
pp. 22-26
Q. Do you recall the circumstances that led to your discussion
regarding the extent of coverage of the policy issued by
Philippine Charter Insurance Corporation?
A. I remember that when I returned to the office after the
inspection, I got a photocopy of the insurance coverage policy
 and it was indicated under Item 3 specifically that the
coverage is only for earthquake shock. Then, I remember I
had a talk with Atty. Umlas (sic), and I relayed to him what I
had found out in the policy and he confirmed to me indeed
only Item 3 which were the two swimming pools have
coverage for earthquake shock.
xxx
Q. Now, may we know from you Engr. de Leon your basis, if any,
for stating that except for the swimming pools all affected
items have no coverage for earthquake shock?
xxx
A. I based my statement on my findings, because upon my
examination of the policy I found out that under Item 3 it was
specific on the wordings that on the two swimming pools
only, then enclosed in parenthesis (against the peril[s] of
earthquake shock only), and secondly, when I examined the
summary of premium payment only Item 3 which refers to
the swimming pools have a computation for premium
payment for earthquake shock and all the other items have
no computation for payment of premiums.
In sum, there is no ambiguity in the terms of the contract and its
riders. Petitioner cannot rely on the general rule that insurance
contracts are contracts of adhesion which should be liberally
construed in favor of the insured and strictly against the insurer
company which usually prepares it.[31] A contract of adhesion is one
wherein a party, usually a corporation, prepares the stipulations in
the contract, while the other party merely affixes his signature or his
"adhesion" thereto. Through the years, the courts have held that in
these type of contracts, the parties do not bargain on equal footing,
the weaker party's participation being reduced to the alternative to
take it or leave it. Thus, these contracts are viewed as traps for the
weaker party whom the courts of justice must
protect.[32]Consequently, any ambiguity therein is resolved against
the insurer, or construed liberally in favor of the insured.[33]
The case law will show that this Court will only rule out blind
adherence to terms where facts and circumstances will show that
they are basically one-sided.[34] Thus, we have called on lower courts
to remain careful in scrutinizing the factual circumstances behind
each case to determine the efficacy of the claims of contending
parties. In Development Bank of the Philippines v. National
Merchandising Corporation, et al.,[35] the parties, who were acute
businessmen of experience, were presumed to have assented to the
assailed documents with full knowledge.
We cannot apply the general rule on contracts of adhesion to the
case at bar. Petitioner cannot claim it did not know the provisions of
the policy. From the inception of the policy, petitioner had required
the respondent to copy verbatim the provisions and terms of its
latest insurance policy from AHAC-AIU. The testimony of Mr.
Leopoldo Mantohac, a direct participant in securing the insurance
policy of petitioner, is reflective of petitioner’s knowledge, viz:
DIRECT EXAMINATION OF LEOPOLDO MANTOHAC[36]
TSN, September 23, 1991
pp. 20-21
Q. Did you indicate to Atty. Omlas (sic) what kind of policy you
would want for those facilities in Agoo Playa?
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
A. Yes, sir. I told him that I will agree to that renewal of this
policy under Philippine Charter Insurance Corporation as long
as it will follow the same or exact provisions of the previous
insurance policy we had with American Home Assurance
Corporation.
Q. Did you take any step Mr. Witness to ensure that the
provisions which you wanted in the American Home
Insurance policy are to be incorporated in the PCIC policy?
A. Yes, sir.
Q. What steps did you take?
A. When I examined the policy of the Philippine Charter
Insurance Corporation I specifically told him that the policy
and wordings shall be copied from the AIU Policy No. 206-
4568061-9.
Respondent, in compliance with the condition set by the petitioner,
copied AIU Policy No. 206-4568061-9 in drafting its Insurance Policy
No. 31944. It is true that there was variance in some terms,
specifically in the replacement cost endorsement, but the principal
provisions of the policy remained essentially similar to AHAC-AIU’s
policy. Consequently, we cannot apply the "fine print" or "contract
of adhesion" rule in this case as the parties’ intent to limit the
coverage of the policy to the two swimming pools only is not
ambiguous.[37]
IN VIEW WHEREOF, the judgment of the Court of Appeals is
affirmed. The petition for certiorari is dismissed. No costs.
SO ORDERED.
Insurance; It is basic that all the provisions of the insurance
policy should be examined and interpreted in consonance with each
other.—It is basic that all the provisions of the insurance policy should
be examined and interpreted in consonance with each other. All its
parts are reflective of the true intent of the parties. The policy cannot
be construed piecemeal. Certain stipulations cannot be segregated
and then made to control; neither do particular words or phrases
necessarily determine its character. Petitioner cannot focus on the
earthquake shock endorsement to the exclusion of the other
provisions. All the provisions and riders, taken and interpreted
together, indubitably show the intention of the parties to extend
earthquake shock coverage to the two swimming pools only.
Same; Elements; Words and Phrases; A contract of insurance is
an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an
unknown or contingent event.—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.
Same; Same; Same; Premium; An insurance premium is the
consideration paid an insurer for undertaking to indemnify the insured
against a specified peril.—An insurance premium is the consideration
paid an insurer for undertaking to indemnify the insured against a
specified peril. In fire, casualty, and marine insurance, the premium
payable becomes a debt as soon as the risk attaches. In the subject
policy, no premium payments were made with regard to earthquake
shock coverage, except on the two swimming pools. There is no
mention of any premium payable for the other resort properties with
regard to earthquake shock. This is consistent with the history of
petitioner’s previous insurance policies from AHAC-AIU.
Same; Contracts of Adhesion; Words and Phrases; A contract of
adhesion is one wherein a party, usually a corporation, prepares the
stipulations in the contract, while the other party merely affixes his
signature or his “adhesion” thereto; The Supreme Court will only rule
out blind adherence to terms where facts and circumstances will show
that they are basically one-sided.—In sum, there is no ambiguity in
the terms of the contract and its riders. Petitioner cannot rely on the
general rule that insurance contracts are contracts of adhesion which
should be liberally construed in favor of the insured and strictly
against the insurer company which usually prepares it. A contract of
adhesion is one wherein a party, usually a corporation, prepares the
stipulations in the contract, while the other party merely affixes his
signature or his “adhesion” thereto. Through the years, the courts
have held that in these type of contracts, the parties do not bargain
on equal footing, the weaker party’s participation being reduced to
the alternative to take it or leave it. Thus, these contracts are viewed
as traps for the weaker party whom the courts of justice must protect.
Consequently, any ambiguity therein is resolved against the insurer,
or construed liberally in favor of the insured. The case law will show
that this Court will only rule out blind adherence to terms where facts
and circumstances will show that they are basically one-sided. Thus,
we have called on lower courts to remain careful in scrutinizing the
factual circumstances behind each case to determine the efficacy of
the claims of contending parties. In Development Bank of the
Philippines v. National Merchandising Corporation, et al., the parties,
who were acute businessmen of experience, were presumed to have
assented to the assailed documents with full knowledge.
THERE IS NO AMBIGUITY IN THIS CASE.
READ THE CONTRACT AS A WHOLE.
G.R. No. 52756, October 12, 1987
MANILA MAHOGANY MANUFACTURING CORPORATION,
PETITIONER, VS. COURT OF APPEALS AND ZENITH INSURANCE
CORPORATION, RESPONDENTS.
DECISION
PADILLA, J.:
Vehicular Accident // issue: whether or not the insurance company
is subrogated to the rights of MMMC? Yes , but only to the
extent of the claim of MMMC
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 its decision.
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
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 of 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 and 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."
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 petitioner's 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 Release 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 collected
from San Miguel Corporation, despite the subrogation in favor of
private respondent.
"Although petitioner's right to file a deficiency claim against San
Miguel Corporation is with legal basis, without prejudice to the
insurer's right of subrogation, nevertheless when Manila Mahogany
executed another release claim (Exhibit K) discharging San Miguel
Corporation from "all actions, claims, demands and rights of action
that now exist or hereafter arising out of or as 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 v. 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
respondent's right of subrogation, the right of action of petitioner
against the insurer was also nullified. (Sy Keng & Co. v. 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. xxx 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:
"xxx 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
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
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:
"x x x.
"The right of subrogation can only exist after the insurer has paid the
insured, otherwise the insured will be deprived of his right to full
indemnity. If the insurance proceeds are not sufficient to cover the
damages suffered by the insured, then he may sue the party
responsible for the damage for the remainder. To the extent of the
amount he has already received from the insurer, the
insurer enjoy's [sic] the right of subrogation.
"Since the insurer can be subrogated to only such rights as the
insured may have, should the insured, after receiving payment from
the insurer, release the wrongdoer who caused the loss, the insurer
loses his rights against the latter. But in such a case, the insurer will
be entitled to recover from the insured whatever it has paid to the
latter, unless the release was made with the consent of the
insurer[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 complaint, prays for
the recovery, not of P5,000.00 it had paid under the insurance policy
but 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 v. Reyes Ordoveza, 25 Phil.
495; Cabigao v. Lim, 50 Phil. 844; Baguioro v. Barrios and 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. 150094, August 18, 2004
FEDERAL EXPRESS CORPORATION, PETITIONER, VS. AMERICAN
HOME ASSURANCE COMPANY AND PHILAM INSURANCE
COMPANY, INC., RESPONDENTS.
DECISION
PANGANIBAN, J.:
Basic is the requirement that before suing to recover loss of or
damage to transported goods, the plaintiff must give the carrier
notice of the loss or damage, within the period prescribed by the
Warsaw Convention and/or the airway bill.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of
Court, challenging the June 4, 2001 Decision[2] and the September
21, 2001 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No.
58208. The assailed Decision disposed as follows:
“WHEREFORE, premises considered, the present appeal is hereby
DISMISSED for lack of merit. The appealed Decision of Branch 149 of
the Regional Trial Court of Makati City in Civil Case No. 95-1219,
entitled ‘American Home Assurance Co. and PHILAM Insurance Co.,
Inc. v. FEDERAL EXPRESS CORPORATION and/or CARGOHAUS, INC.
(formerly U-WAREHOUSE, INC.),’ is
hereby AFFIRMED and REITERATED.
“Costs against the [petitioner and Cargohaus, Inc.].”[4]
The assailed Resolution denied petitioner’s Motion for
Reconsideration.
The Facts
The antecedent facts are summarized by the appellate court as
follows:
“On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for
brevity) of Nebraska, USA delivered to Burlington Air Express
(BURLINGTON), an agent of [Petitioner] Federal Express Corporation,
a shipment of 109 cartons of veterinary biologicals for delivery to
consignee SMITHKLINE and French Overseas Company in Makati
City, Metro Manila. The shipment was covered by Burlington Airway
Bill No. 11263825 with the words, ‘REFRIGERATE WHEN NOT IN
TRANSIT’ and ‘PERISHABLE’ stamp marked on its face. That same
day, Burlington insured the cargoes in the amount of $39,339.00
with American Home Assurance Company (AHAC). The following
day, Burlington turned over the custody of said cargoes to Federal
Express which transported the same to Manila. The first shipment,
consisting of 92 cartons arrived in Manila on January 29, 1994 in
Flight No. 0071-28NRT and was immediately stored at [Cargohaus
Inc.’s] warehouse. While the second, consisting of 17 cartons, came
in two (2) days later, or on January 31, 1994, in Flight No. 0071-
30NRT which was likewise immediately stored at Cargohaus’
warehouse. Prior to the arrival of the cargoes, Federal Express
informed GETC Cargo International Corporation, the customs broker
hired by the consignee to facilitate the release of its cargoes from
the Bureau of Customs, of the impending arrival of its client’s
cargoes.
“On February 10, 1994, DARIO C. DIONEDA (‘DIONEDA’), twelve (12)
days after the cargoes arrived in Manila, a non-licensed custom’s
broker who was assigned by GETC to facilitate the release of the
subject cargoes, found out, while he was about to cause the release
of the said cargoes, that the same [were] stored only in a room with
two (2) air conditioners running, to cool the place instead of a
refrigerator. When he asked an employee of Cargohaus why the
cargoes were stored in the ‘cool room’ only, the latter told him that
the cartons where the vaccines were contained specifically indicated
therein that it should not be subjected to hot or cold temperature.
Thereafter, DIONEDA, upon instructions from GETC, did not proceed
with the withdrawal of the vaccines and instead, samples of the
same were taken and brought to the Bureau of Animal Industry of
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
the Department of Agriculture in the Philippines by SMITHKLINE for
examination wherein it was discovered that the ‘ELISA reading of
vaccinates sera are below the positive reference serum.’ (useless
already)
“As a consequence of the foregoing result of the veterinary biologics
test, SMITHKLINE abandoned the shipment and, declaring ‘total loss’
for the unusable shipment, filed a claim with AHAC through its
representative in the Philippines, the Philam Insurance Co., Inc.
(‘PHILAM’) which recompensed SMITHKLINE for the whole insured
amount of THIRTY NINE THOUSAND THREE HUNDRED THIRTY NINE
DOLLARS ($39,339.00). Thereafter, [respondents] filed an action for
damages against the [petitioner] imputing negligence on either or
both of them in the handling of the cargo.
“Trial ensued and ultimately concluded on March 18, 1997 with the
[petitioner] being held solidarily liable for the loss as follows:
‘WHEREFORE, judgment is hereby rendered in favor of
[respondents] and [petitioner and its Co-Defendant Cargohaus] are
directed to pay [respondents], jointly and severally, the following:
1. Actual damages in the amount of the
peso equivalent of US$39,339.00 with
interest from the time of the filing of
the complaint to the time the same is
fully paid.
2. Attorney’s fees in the amount of
P50,000.00 and
3. Costs of suit.
‘SO ORDERED.’
“Aggrieved, [petitioner] appealed to [the CA].”[5]
Ruling of the Court of Appeals
The Test Report issued by the United States Department of
Agriculture (Animal and Plant Health Inspection Service) was found
by the CA to be inadmissible in evidence. Despite this ruling, the
appellate court held that the shipping Receipts were a prima facie
proof that the goods had indeed been delivered to the carrier in
good condition. We quote from the ruling as follows:
“Where the plaintiff introduces evidence which shows prima
facie that the goods were delivered to the carrier in good condition
[i.e., the shipping receipts], and that the carrier delivered the goods
in a damaged condition, a presumption is raised that the damage
occurred through the fault or negligence of the carrier, and this casts
upon the carrier the burden of showing that the goods were not in
good condition when delivered to the carrier, or that the damage
was occasioned by some cause excepting the carrier from absolute
liability. This the [petitioner] failed to discharge. x x x.”[6]
Found devoid of merit was petitioner’s claim that respondents had
no personality to sue. This argument was supposedly not raised in
the Answer or during trial.
Hence, this Petition.[7]
The Issues
In its Memorandum, petitioner raises the following issues for our
consideration:
“I.
Are the decision and resolution of the Honorable Court of Appeals
proper subject for review by the Honorable Court under Rule 45 of
the 1997 Rules of Civil Procedure?
“II.
Is the conclusion of the Honorable Court of Appeals – petitioner’s
claim that respondents have no personality to sue because the
payment was made by the respondents to Smithkline when the
insured under the policy is Burlington Air Express is devoid of merit –
correct or not?
“III.
Is the conclusion of the Honorable Court of Appeals that the goods
were received in good condition, correct or not?
“IV.
Are Exhibits ‘F’ and ‘G’ hearsay evidence, and therefore, not
admissible?
“V.
Is the Honorable Court of Appeals correct in ignoring and
disregarding respondents’ own admission that petitioner is not
liable? and
“VI.
Is the Honorable Court of Appeals correct in ignoring the Warsaw
Convention?”[8]
Simply stated, the issues are as follows: (1) Is the Petition proper for
review by the Supreme Court? (2) Is Federal Express liable for
damage to or loss of the insured goods?
This Court’s Ruling
The Petition has merit.
Preliminary Issue:
Propriety of Review
The correctness of legal conclusions drawn by the Court of Appeals
from undisputed facts is a question of law cognizable by the
Supreme Court.[9]
In the present case, the facts are undisputed. As will be shown
shortly, petitioner is questioning the conclusions drawn from such
facts. Hence, this case is a proper subject for review by this Court.
Main Issue:
Liability for Damages
Petitioner contends that respondents have no personality to sue --
thus, no cause of action against it -- because the payment made to
Smithkline was erroneous.
Pertinent to this issue is the Certificate of Insurance[10] (“Certificate”)
that both opposing parties cite in support of their respective
positions. They differ only in their interpretation of what their rights
are under its terms. The determination of those rights involves a
question of law, not a question of fact. “As distinguished from a
question of law which exists ‘when the doubt or difference arises as
to what the law is on a certain state of facts’ -- ‘there is a question of
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
fact when the doubt or difference arises as to the truth or the
falsehood of alleged facts’; or when the ‘query necessarily invites
calibration of the whole evidence considering mainly the credibility
of witnesses, existence and relevancy of specific surrounding
circumstance, their relation to each other and to the whole and the
probabilities of the situation.’”[11]
Proper Payee
The Certificate specifies that loss of or damage to the insured cargo
is “payable to order x x x upon surrender of this Certificate.” Such
wording conveys the right of collecting on any such damage or loss,
as fully as if the property were covered by a special policy in the
name of the holder itself. At the back of the Certificate appears the
signature of the representative of Burlington. This document has
thus been duly indorsed in blank and is deemed a bearer instrument.
Since the Certificate was in the possession of Smithkline, the latter
had the right of collecting or of being indemnified for loss of or
damage to the insured shipment, as fully as if the property were
covered by a special policy in the name of the holder. Hence, being
the holder of the Certificate and having an insurable interest in the
goods, Smithkline was the proper payee of the insurance proceeds.
Subrogation
Upon receipt of the insurance proceeds, the consignee (Smithkline)
executed a subrogation Receipt[12] in favor of respondents. The
latter were thus authorized “to file claims and begin suit against any
such carrier, vessel, person, corporation or government.”
Undeniably, the consignee had a legal right to receive the goods in
the same condition it was delivered for transport to petitioner. If
that right was violated, the consignee would have a cause of action
against the person responsible therefor.
Upon payment to the consignee of an indemnity for the loss of or
damage to the insured goods, the insurer’s entitlement to
subrogation pro tanto -- being of the highest equity -- equips it with
a cause of action in case of a contractual breach or
negligence.[13]“Further, the insurer’s subrogatory right to sue for
recovery under the bill of lading in case of loss of or damage to the
cargo is jurisprudentially upheld.”[14]
In the exercise of its subrogatory right, an insurer may proceed
against an erring carrier. To all intents and purposes, it stands in the
place and in substitution of the consignee. A fortiori, both the
insurer and the consignee are bound by the contractual stipulations
under the bill of lading.[15]
Prescription of Claim
From the initial proceedings in the trial court up to the present,
petitioner has tirelessly pointed out that respondents’ claim and
right of action are already barred. The latter, and even the
consignee, never filed with the carrier any written notice or
complaint regarding its claim for damage of or loss to the subject
cargo within the period required by the Warsaw Convention and/or
in the airway bill. Indeed, this fact has never been denied by
respondents and is plainly evident from the records.
Airway Bill No. 11263825, issued by Burlington as agent of
petitioner, states:
“6. No action shall be maintained in the case of damage to or partial
loss of the shipment unless a written notice, sufficiently describing
the goods concerned, the approximate date of the damage or loss,
and the details of the claim, is presented by shipper or consignee to
an office of Burlington within (14) days from the date the goods are
placed at the disposal of the person entitled to delivery, or in the
case of total loss (including non-delivery) unless presented within
(120) days from the date of issue of the [Airway Bill].”[16]
Relevantly, petitioner’s airway bill states:
“12./12.1 The person entitled to delivery must make a complaint to
the carrier in writing in the case:
12.1.1 of visible damage to the goods, immediately after discovery
of the damage and at the latest within fourteen (14) days from
receipt of the goods;
12.1.2 of other damage to the goods, within fourteen (14) days from
the date of receipt of the goods;
12.1.3 delay, within twenty-one (21) days of the date the goods are
placed at his disposal; and
12.1.4 of non-delivery of the goods, within one hundred and twenty
(120) days from the date of the issue of the air waybill.
12.2 For the purpose of 12.1 complaint in writing may be made to
the carrier whose air waybill was used, or to the first carrier or to the
last carrier or to the carrier who performed the transportation
during which the loss, damage or delay took place.”[17]
Article 26 of the Warsaw Convention, on the other hand, provides:
“ART. 26. (1) Receipt by the person entitled to the delivery of
baggage or goods without complaint shall be prima facie evidence
that the same have been delivered in good condition and in
accordance with the document of transportation.
(2) In case of damage, the person entitled to delivery must complain
to the carrier forthwith after the discovery of the damage, and, at
the latest, within 3 days from the date of receipt in the case of
baggage and 7 days from the date of receipt in the case of goods. In
case of delay the complaint must be made at the latest within 14
days from the date on which the baggage or goods have been placed
at his disposal.
(3) Every complaint must be made in writing upon the document of
transportation or by separate notice in writing dispatched within the
times aforesaid.
(4) Failing complaint within the times aforesaid, no action shall lie
against the carrier, save in the case of fraud on his part.”[18]
Condition Precedent
In this jurisdiction, the filing of a claim with the carrier within the
time limitation therefor actually constitutes a condition precedent to
the accrual of a right of action against a carrier for loss of or damage
to the goods.[19] The shipper or consignee must allege and prove the
fulfillment of the condition. If it fails to do so, no right of action
against the carrier can accrue in favor of the former. The
aforementioned requirement is a reasonable condition precedent; it
does not constitute a limitation of action.[20]
The requirement of giving notice of loss of or injury to the goods is
not an empty formalism. The fundamental reasons for such a
stipulation are (1) to inform the carrier that the cargo has been
damaged, and that it is being charged with liability therefor; and (2)
to give it an opportunity to examine the nature and extent of the
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
injury. “This protects the carrier by affording it an opportunity to
make an investigation of a claim while the matter is fresh and easily
investigated so as to safeguard itself from false and fraudulent
claims.”[21]
When an airway bill -- or any contract of carriage for that matter --
has a stipulation that requires a notice of claim for loss of or damage
to goods shipped and the stipulation is not complied with, its
enforcement can be prevented and the liability cannot be imposed
on the carrier. To stress, notice is a condition precedent, and the
carrier is not liable if notice is not given in accordance with the
stipulation.[22] Failure to comply with such a stipulation bars
recovery for the loss or damage suffered.[23]
Being a condition precedent, the notice must precede a suit for
enforcement.[24] In the present case, there is neither an allegation
nor a showing of respondents’ compliance with this requirement
within the prescribed period. While respondents may have had a
cause of action then, they cannot now enforce it for their failure to
comply with the aforesaid condition precedent.
In view of the foregoing, we find no more necessity to pass upon the
other issues raised by petitioner.
We note that respondents are not without recourse. Cargohaus, Inc.
-- petitioner’s co-defendant in respondents’ Complaint below -- has
been adjudged by the trial court as liable for, inter alia, “actual
damages in the amount of the peso equivalent of US
$39,339.”[25] This judgment was affirmed by the Court of Appeals
and is already final and executory.[26]
WHEREFORE, the Petition is GRANTED, and the assailed
Decision REVERSED insofar as it pertains to Petitioner Federal
Express Corporation. No pronouncement as to costs.
G.R. No. 166245, April 09, 2008
ETERNAL GARDENS MEMORIAL PARK CORPORATION, PETITIONER,
VS. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY,
RESPONDENT.
DECISION
VELASCO JR., J.:
The Case
Central to this Petition for Review on Certiorari under Rule 45 which
seeks to reverse and set aside the November 26, 2004 Decision[1]of
the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May
the inaction of the insurer on the insurance application be
considered as approval of the application?
The Facts
On December 10, 1980, respondent Philippine American Life
Insurance Company (Philamlife) entered into an agreement
denominated as Creditor Group Life Policy No. P-1920[2] with
petitioner Eternal Gardens Memorial Park Corporation (Eternal).
Under the policy, the clients of Eternal who purchased burial lots
from it on installment basis would be insured by Philamlife. The
amount of insurance coverage depended upon the existing balance
of the purchased burial lots. The policy was to be effective for a
period of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more
than 65 years of age, is indebted to the Assured for the unpaid
balance of his loan with the Assured, and is accepted for Life
Insurance coverage by the Company on its effective date is eligible
for insurance under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance
up to P50,000.00. However, a declaration of good health shall be
required for all Lot Purchasers as part of the application. The
Company reserves the right to require further evidence of
insurability satisfactory to the Company in respect of the following:
1. Any amount of insurance in excess of
P50,000.00.
2. Any lot purchaser who is more than 55 years of
age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time shall be
the amount of the unpaid balance of his loan (including arrears up to
but not exceeding 2 months) as reported by the Assured to the
Company or the sum of P100,000.00, whichever is smaller. Such
benefit shall be paid to the Assured if the Lot Purchaser dies while
insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the
date he contracts a loan with the Assured. However, there shall be
no insurance if the application of the Lot Purchaser is not approved
by the Company.[3]
Eternal was required under the policy to submit to Philamlife a list of
all new lot purchasers, together with a copy of the application of
each purchaser, and the amounts of the respective unpaid balances
of all insured lot purchasers. In relation to the instant petition,
Eternal complied by submitting a letter dated December 29,
1982,[4] containing a list of insurable balances of its lot buyers for
October 1982. One of those included in the list as "new business"
was a certain John Chuang. His balance of payments was PhP
100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 1984[5] to Philamlife, which
served as an insurance claim for Chuang's death. Attached to the
claim were the following documents: (1) Chuang's Certificate of
Death; (2) Identification Certificate stating that Chuang is a
naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate
of Attending Physician; and (5) Assured's Certificate.
In reply, Philamlife wrote Eternal a letter on November 12,
1984,[6] requiring Eternal to submit the following documents relative
to its insurance claim for Chuang's death: (1) Certificate of Claimant
(with form attached); (2) Assured's Certificate (with form attached);
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
(3) Application for Insurance accomplished and signed by the
insured, Chuang, while still living; and (4) Statement of Account
showing the unpaid balance of Chuang before his death.
Eternal transmitted the required documents through a letter dated
November 14, 1984,[7] which was received by Philamlife on
November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with
any reply to the latter's insurance claim. This prompted Eternal to
demand from Philamlife the payment of the claim for PhP 100,000
on April 25, 1986.[8]
In response to Eternal's demand, Philamlife denied Eternal's
insurance claim in a letter dated May 20, 1986,[9] a portion of which
reads:
The deceased was 59 years old when he entered into Contract
#9558 and 9529 with Eternal Gardens Memorial Park in October
1982 for the total maximum insurable amount of P100,000.00 each.
No application for Group Insurance was submitted in our office prior
to his death on August 2, 1984.
In accordance with our Creditor's Group Life Policy No. P-1920,
under Evidence of Insurability provision, "a declaration of good
health shall be required for all Lot Purchasers as party of the
application." We cite further the provision on Effective Date of
Coverage under the policy which states that "there shall be no
insurance if the application is not approved by the Company." Since
no application had been submitted by the Insured/Assured, prior to
his death, for our approval but was submitted instead on November
15, 1984, after his death, Mr. John Uy Chuang was not covered
under the Policy. We wish to point out that Eternal Gardens being
the Assured was a party to the Contract and was therefore aware of
these pertinent provisions.
With regard to our acceptance of premiums, these do not connote
our approval per se of the insurance coverage but are held by us in
trust for the payor until the prerequisites for insurance coverage
shall have been met. We will however, return all the premiums
which have been paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional
Trial Court (RTC) for a sum of money against Philamlife, docketed as
Civil Case No. 14736. The trial court decided in favor of Eternal, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of Plaintiff ETERNAL, against Defendant PHILAMLIFE, ordering
the Defendant PHILAMLIFE, to pay the sum of P100,000.00,
representing the proceeds of the Policy of John Uy Chuang, plus
legal rate of interest, until fully paid; and, to pay the sum of
P10,000.00 as attorney's fees.
SO ORDERED.
The RTC found that Eternal submitted Chuang's application for
insurance which he accomplished before his death, as testified to by
Eternal's witness and evidenced by the letter dated December 29,
1982, stating, among others: "Encl: Phil-Am Life Insurance
Application Forms & Cert."[10] It further ruled that due to Philamlife's
inaction from the submission of the requirements of the group
insurance on December 29, 1982 to Chuang's death on August 2,
1984, as well as Philamlife's acceptance of the premiums during the
same period, Philamlife was deemed to have approved Chuang's
application. The RTC said that since the contract is a group life
insurance, once proof of death is submitted, payment must follow.

Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in
Civil Case No. 57810 is REVERSED and SET ASIDE, and the complaint
is DISMISSED. No costs.
SO ORDERED.[11]
The CA based its Decision on the factual finding that Chuang's
application was not enclosed in Eternal's letter dated December 29,
1982. It further ruled that the non-accomplishment of the submitted
application form violated Section 26 of the Insurance Code. Thus,
the CA concluded, there being no application form, Chuang was not
covered by Philamlife's insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of
substance, not therefore determined by this Honorable Court, or has
decided it in a way not in accord with law or with the applicable
jurisprudence, in holding that:
I. The application for insurance was not duly
submitted to respondent PhilamLife before the
death of John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the
Regional Trial Court dated May 29, 1996.
The Court's Ruling
As a general rule, this Court is not a trier of facts and will not re-
examine factual issues raised before the CA and first level courts,
considering their findings of facts are conclusive and binding on this
Court. However, such rule is subject to exceptions, as enunciated
in Sampayan v. Court of Appeals:
(1) when the findings are grounded entirely on speculation, surmises
or conjectures; (2) when the inference made is manifestly mistaken,
absurd or impossible; (3) when there is grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; (5) when
the findings of facts are conflicting; (6) when in making its findings
the [CA] went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the
appellee; (7) when the findings [of the CA] are contrary to the trial
court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set
forth in the petition as well as in the petitioner's main and reply
briefs are not disputed by the respondent; (10) when the findings of
fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by
the parties, which, if properly considered, would justify a different
conclusion.[12] (Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by
the CA; thus, this Court may review them.
Eternal claims that the evidence that it presented before the trial
court supports its contention that it submitted a copy of the
insurance application of Chuang before his death. In Eternal's letter
dated December 29, 1982, a list of insurable interests of buyers for
October 1982 was attached, including Chuang in the list of new
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
businesses. Eternal added it was noted at the bottom of said letter
that the corresponding "Phil-Am Life Insurance Application Forms &
Cert." were enclosed in the letter that was apparently received by
Philamlife on January 15, 1983. Finally, Eternal alleged that it
provided a copy of the insurance application which was signed by
Chuang himself and executed before his death.
On the other hand, Philamlife claims that the evidence presented by
Eternal is insufficient, arguing that Eternal must present evidence
showing that Philamlife received a copy of Chuang's insurance
application.
The evidence on record supports Eternal's position.
The fact of the matter is, the letter dated December 29, 1982, which
Philamlife stamped as received, states that the insurance forms for
the attached list of burial lot buyers were attached to the letter.
Such stamp of receipt has the effect of acknowledging receipt of the
letter together with the attachments. Such receipt is an admission
by Philamlife against its own interest.[13] The burden of evidence has
shifted to Philamlife, which must prove that the letter did not
contain Chuang's insurance application. However, Philamlife failed
to do so; thus, Philamlife is deemed to have received Chuang's
insurance application.
To reiterate, it was Philamlife's bounden duty to make sure that
before a transmittal letter is stamped as received, the contents of
the letter are correct and accounted for.
Philamlife's allegation that Eternal's witnesses ran out of credibility
and reliability due to inconsistencies is groundless. The trial court is
in the best position to determine the reliability and credibility of the
witnesses, because it has the opportunity to observe firsthand the
witnesses' demeanor, conduct, and attitude. Findings of the trial
court on such matters are binding and conclusive on the appellate
court, unless some facts or circumstances of weight and substance
have been overlooked, misapprehended, or misinterpreted,[14] that,
if considered, might affect the result of the case.[15]
An examination of the testimonies of the witnesses mentioned by
Philamlife, however, reveals no overlooked facts of substance and
value.
Philamlife primarily claims that Eternal did not even know where the
original insurance application of Chuang was, as shown by the
testimony of Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is
required in case of new coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to
fill up two copies of this form and the original of this is
submitted to Philamlife together with the monthly
remittances and the second copy is remained or retained
with the marketing department of Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as
counsel is merely asking for the location and does not [ask]
for the number of copy.

Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but
when I submitted with that payment together with the new
clients all the originals I see to it before I sign the transmittal
letter the originals are attached therein.[16]
In other words, the witness admitted not knowing where the original
insurance application was, but believed that the application was
transmitted to Philamlife as an attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel
Cortez on whether one or two insurance application forms were
accomplished and the testimony of Mendoza on who actually filled
out the application form, these are minor inconsistencies that do not
affect the credibility of the witnesses. Thus, we ruled in People v.
Paredes that minor inconsistencies are too trivial to affect the
credibility of witnesses, and these may even serve to strengthen
their credibility as these negate any suspicion that the testimonies
have been rehearsed.[17]
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential
integrity of the prosecution's evidence as a whole or reflect on the
witnesses' honesty. The test is whether the testimonies agree on
essential facts and whether the respective versions corroborate and
substantially coincide with each other so as to make a consistent and
coherent whole.[18]
In the present case, the number of copies of the insurance
application that Chuang executed is not at issue, neither is whether
the insurance application presented by Eternal has been falsified.
Thus, the inconsistencies pointed out by Philamlife are minor and do
not affect the credibility of Eternal's witnesses.
However, the question arises as to whether Philamlife assumed the
risk of loss without approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement
denominated as Creditor Group Life Policy No. P-1920 dated
December 10, 1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the
date he contracts a loan with the Assured. However, there shall be
no insurance if the application of the Lot Purchaser is not approved
by the Company.
An examination of the above provision would show ambiguity
between its two sentences. The first sentence appears to state that
the insurance coverage of the clients of Eternal already became
effective upon contracting a loan with Eternal while the second
sentence appears to require Philamlife to approve the insurance
contract before the same can become effective.
It must be remembered that an insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured
and strictly against the insurer in order to safeguard the latter's
interest. Thus, in Malayan Insurance Corporation v. Court of Appeals,
this Court held that:
INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA
Indemnity and liability insurance policies are construed in
accordance with the general rule of resolving any ambiguity therein
in favor of the insured, where the contract or policy is prepared by
the insurer. A contract of insurance, being a contract of
adhesion, par excellence, any ambiguity therein should be resolved
against the insurer; in other words, it should be construed liberally
in favor of the insured and strictly against the insurer. Limitations of
liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from
noncompliance with its obligations.[19] (Emphasis supplied.)
In the more recent case of Philamcare Health Systems, Inc. v. Court
of Appeals, we reiterated the above ruling, stating that:
When the terms of insurance contract contain limitations on liability,
courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation. Being a contract of
adhesion, the terms of an insurance contract are to be construed
strictly against the party which prepared the contract, the insurer.
By reason of the exclusive control of the insurance company over
the terms and phraseology of the insurance contract, ambiguity
must be strictly interpreted against the insurer and liberally in favor
of the insured, especially to avoid forfeiture.[20]
Clearly, the vague contractual provision, in Creditor Group Life Policy
No. P-1920 dated December 10, 1980, must be construed in favor of
the insured and in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be
harmonized to mean that upon a party's purchase of a memorial lot
on installment from Eternal, an insurance contract covering the lot
purchaser is created and the same is effective, valid, and binding
until terminated by Philamlife by disapproving the insurance
application. The second sentence of Creditor Group Life Policy No. P-
1920 on the Effective Date of Benefit is in the nature of a resolutory
condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the
insurance application must not work to prejudice the insured; it
cannot be interpreted as a termination of the insurance contract.
The termination of the insurance contract by the insurer must be
explicit and unambiguous.
As a final note, to characterize the insurer and the insured as
contracting parties on equal footing is inaccurate at best. Insurance
contracts are wholly prepared by the insurer with vast amounts of
experience in the industry purposefully used to its advantage. More
often than not, insurance contracts are contracts of adhesion
containing technical terms and conditions of the industry, confusing
if at all understandable to laypersons, that are imposed on those
who wish to avail of insurance. As such, insurance contracts are
imbued with public interest that must be considered whenever the
rights and obligations of the insurer and the insured are to be
delineated. Hence, in order to protect the interest of insurance
applicants, insurance companies must be obligated to act with haste
upon insurance applications, to either deny or approve the same, or
otherwise be bound to honor the application as a valid, binding, and
effective insurance contract.[21]
WHEREFORE, we GRANT the petition. The November 26, 2004 CA
Decision in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The
May 29, 1996 Decision of the Makati City RTC, Branch 138
is MODIFIED. Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the
proceeds of the Life Insurance Policy of Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per
annum of PhP 100,000 from the time of extra-judicial demand by
Eternal until Philamlife's receipt of the May 29, 1996 RTC Decision
on June 17, 1996;

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

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

No costs.

Inaction of PhilAm life – the insurance contract is already perfected

INSURANCE LAW – RIGHTS OF SUBROGATION – 2019- JUDGE PARONDA