1

FIRST DIVISION loading operations in the Diapitan Bay. The logs

were to be loaded on the 'SS Woodlock' which
G.R. No. L-38613 February 25, 1982 docked about 500 meters from the shoreline of the
Diapitan Bay. The logs were taken from the log pond
PACIFIC TIMBER EXPORT CORPORATION, petitioner, of the plaintiff and from which they were towed in
vs. rafts to the vessel. At about 10:00 o'clock a. m. on
THE HONORABLE COURT OF APPEALS and WORKMEN'S March 29, 1963, while the logs were alongside the
INSURANCE COMPANY, INC., respondents. vessel, bad weather developed resulting in 75 pieces
of logs which were rafted together co break loose
from each other. 45 pieces of logs were salvaged,
DE CASTRO, ** J.:
but 30 pieces were verified to have been lost or
washed away as a result of the accident.
This petition seeks the review of the decision of the Court of
Appeals reversing the decision of the Court of First Instance
In a letter dated April 4, 1963, the plaintiff informed the
of Manila in favor of petitioner and against private
defendant about the loss of 'appropriately 32 pieces of log's
respondent which ordered the latter to pay the sum of
during loading of the 'SS Woodlock'. The said letter (Exhibit F)
Pll,042.04 with interest at the rate of 12% interest from
reads as follows:
receipt of notice of loss on April 15, 1963 up to the complete
payment, the sum of P3,000.00 as attorney's fees and the
costs 1 thereby dismissing petitioner s complaint with costs. 2 April 4, 1963

The findings of the of fact of the Court of Appeals, which are Workmen's Insurance Company, Inc. Manila, Philippines
generally binding upon this Court, Except as shall be indicated
in the discussion of the opinion of this Court the substantial Gentlemen:
correctness of still particular finding having been disputed,
thereby raising a question of law reviewable by this This has reference to Insurance Cover Note No. 1010 for
Court 3 are as follows: shipment of 1,250,000 bd. ft. Philippine Lauan and Apitong
Logs. We would like to inform you that we have received
March 19, l963, the plaintiff secured temporary advance preliminary report from our Office in Diapitan,
insurance from the defendant for its exportation of Quezon that we have lost approximately 32 pieces of logs
1,250,000 board feet of Philippine Lauan and during loading of the SS Woodlock.
Apitong logs to be shipped from the Diapitan. Bay,
Quezon Province to Okinawa and Tokyo, Japan. The We will send you an accurate report all the details including
defendant issued on said date Cover Note No. 1010, values as soon as same will be reported to us.
insuring the said cargo of the plaintiff "Subject to the
Terms and Conditions of the WORKMEN'S Thank you for your attention, we wish to remain.
INSURANCE COMPANY, INC. printed Marine Policy
form as filed with and approved by the Office of the Very respectfully yours,
Insurance Commissioner (Exhibit A).
PACIFIC TIMBER EXPORT CORPORATION
The regular marine cargo policies were issued by the
defendant in favor of the plaintiff on April 2, 1963.
(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.
The two marine policies bore the numbers 53 HO
1032 and 53 HO 1033 (Exhibits B and C,
Although dated April 4, 1963, the letter was received in the
respectively). Policy No. 53 H0 1033 (Exhibit B) was
office of the defendant only on April 15, 1963, as shown by
for 542 pieces of logs equivalent to 499,950 board
the stamp impression appearing on the left bottom corner of
feet. Policy No. 53 H0 1033 was for 853 pieces of
said letter. The plaintiff subsequently submitted a 'Claim
logs equivalent to 695,548 board feet (Exhibit C). The
total cargo insured under the two marine policies Statement demanding payment of the loss under Policies
Nos. 53 HO 1032 and 53 HO 1033, in the total amount of
accordingly consisted of 1,395 logs, or the equivalent
P19,286.79 (Exhibit G).
of 1,195.498 bd. ft.

On July 17, 1963, the defendant requested the First Philippine

After the issuance of Cover Note No. 1010 (Exhibit
Adjustment Corporation to inspect the loss and assess the
A), but before the issuance of the two marine
damage. The adjustment company submitted its 'Report on
policies Nos. 53 HO 1032 and 53 HO 1033, some of
the logs intended to be exported were lost during August 23, 1963 (Exhibit H). In said report, the adjuster found
that 'the loss of 30 pieces of logs is not covered by Policies
 2

Nos. 53 HO 1032 and 1033 inasmuch as said policies covered CONSEQUENTLY, OBJECTIONS ON THAT GROUND ARE
the actual number of logs loaded on board the 'SS Woodlock' WAIVED UNDER SECTION 84 OF THE INSURANCE ACT. 5
However, the loss of 30 pieces of logs is within the 1,250,000
bd. ft. covered by Cover Note 1010 insured for $70,000.00. 1. Petitioner contends that the Cover Note was issued with a
consideration when, by express stipulation, the cover note is
On September 14, 1963, the adjustment company submitted made subject to the terms and conditions of the marine
a computation of the defendant's probable liability on the policies, and the payment of premiums is one of the terms of
loss sustained by the shipment, in the total amount of the policies. From this undisputed fact, We uphold
Pl1,042.04 (Exhibit 4). petitioner's submission that the Cover Note was not without
consideration for which the respondent court held the Cover
On January 13, 1964, the defendant wrote the plaintiff Note as null and void, and denied recovery therefrom. The
denying the latter's claim, on the ground they defendant's fact that no separate premium was paid on the Cover Note
investigation revealed that the entire shipment of logs before the loss insured against occurred, does not militate
covered by the two marines policies No. 53 110 1032 and 713 against the validity of petitioner's contention, for no such
HO 1033 were received in good order at their point of premium could have been paid, since by the nature of the
destination. It was further stated that the said loss may be Cover Note, it did not contain, as all Cover Notes do not
considered as covered under Cover Note No. 1010 because contain particulars of the shipment that would serve as basis
the said Note had become 'null and void by virtue of the for the computation of the premiums. As a logical
issuance of Marine Policy Nos. 53 HO 1032 and 1033'(Exhibit consequence, no separate premiums are intended or
J-1). The denial of the claim by the defendant was brought by required to be paid on a Cover Note. This is a fact admitted
the plaintiff to the attention of the Insurance Commissioner by an official of respondent company, Juan Jose Camacho, in
by means of a letter dated March 21, 1964 (Exhibit K). In a charge of issuing cover notes of the respondent company (p.
reply letter dated March 30, 1964, Insurance Commissioner 33, tsn, September 24, 1965).
Francisco Y. Mandanas observed that 'it is only fair and
equitable to indemnify the insured under Cover Note No. At any rate, it is not disputed that petitioner paid in full all the
1010', and advised early settlement of the said marine loss premiums as called for by the statement issued by private
and salvage claim (Exhibit L). respondent after the issuance of the two regular marine
insurance policies, thereby leaving no account unpaid by
On June 26, 1964, the defendant informed the Insurance petitioner due on the insurance coverage, which must be
Commissioner that, on advice of their attorneys, the claim of deemed to include the Cover Note. If the Note is to be
the plaintiff is being denied on the ground that the cover note treated as a separate policy instead of integrating it to the
is null and void for lack of valuable consideration (Exhibit regular policies subsequently issued, the purpose and
M). 4 function of the Cover Note would be set at naught or
rendered meaningless, for it is in a real sense a contract, not
Petitioner assigned as errors of the Court of Appeals, the a mere application for insurance which is a mere offer. 6
following:
It may be true that the marine insurance policies issued were
THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER for logs no longer including those which had been lost during
NOTE WAS NULL AND VOID FOR LACK OF VALUABLE loading operations. This had to be so because the risk insured
CONSIDERATION BECAUSE THE COURT DISREGARDED THE against is not for loss during operations anymore, but for loss
PROVEN FACTS THAT PREMIUMS FOR THE COMPREHENSIVE during transit, the logs having already been safely placed
INSURANCE COVERAGE THAT INCLUDED THE COVER NOTE aboard. This would make no difference, however, insofar as
WAS PAID BY PETITIONER AND THAT INCLUDED THE COVER the liability on the cover note is concerned, for the number or
NOTE WAS PAID BY PETITIONER AND THAT NO SEPARATE volume of logs lost can be determined independently as in
PREMIUMS ARE COLLECTED BY PRIVATE RESPONDENT ON ALL fact it had been so ascertained at the instance of private
ITS COVER NOTES. respondent itself when it sent its own adjuster to investigate
and assess the loss, after the issuance of the marine
insurance policies.
THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE
RESPONDENT WAS RELEASED FROM LIABILITY UNDER THE
COVER NOTE DUE TO UNREASONABLE DELAY IN GIVING The adjuster went as far as submitting his report to
NOTICE OF LOSS BECAUSE THE COURT DISREGARDED THE respondent, as well as its computation of respondent's
PROVEN FACT THAT PRIVATE RESPONDENT DID NOT liability on the insurance coverage. This coverage could not
PROMPTLY AND SPECIFICALLY OBJECT TO THE CLAIM ON THE have been no other than what was stipulated in the Cover
GROUND OF DELAY IN GIVING NOTICE OF LOSS AND, Note, for no loss or damage had to be assessed on the
coverage arising from the marine insurance policies. For
obvious reasons, it was not necessary to ask petitioner to pay
 3

premium on the Cover Note, for the loss insured against From what has been said, We find duly substantiated
having already occurred, the more practical procedure is petitioner's assignments of error.
simply to deduct the premium from the amount due the
petitioner on the Cover Note. The non-payment of premium ACCORDINGLY, the appealed decision is set aside and the
on the Cover Note is, therefore, no cause for the petitioner to decision of the Court of First Instance is reinstated in toto
lose what is due it as if there had been payment of premium, with the affirmance of this Court. No special pronouncement
for non-payment by it was not chargeable against its fault. as to costs.
Had all the logs been lost during the loading operations, but
after the issuance of the Cover Note, liability on the note SO ORDERED.
would have already arisen even before payment of premium.
This is how the cover note as a "binder" should legally
Facts:
operate otherwise, it would serve no practical purpose in the
realm of commerce, and is supported by the doctrine that > On March 13, 1963, Pacific secured temporary insurance
where a policy is delivered without requiring payment of the from the Workemen’s Insurance Co. for its exportation of logs
premium, the presumption is that a credit was intended and to Japan. Workmen issued on said date Cover Note 1010
policy is valid. 7 insuring said cargo.
> The regular marine policies were issued by the company in
2. The defense of delay as raised by private respondent in
favor of Pacific on Apr 2, 1963. The 2 marine policies bore
resisting the claim cannot be sustained. The law requires this
the number 53H01032 and 53H01033.
ground of delay to be promptly and specifically asserted
when a claim on the insurance agreement is made. The > After the issuance of the cover note but BEFORE the
undisputed facts show that instead of invoking the ground of issuance of the 2 policies, some of the logs intended to be
delay in objecting to petitioner's claim of recovery on the exported were lost due to a typhoon.
cover note, it took steps clearly indicative that this particular
ground for objection to the claim was never in its mind. The > Pacific filed its claim with the company, but the latter
nature of this specific ground for resisting a claim places the refused, contending that said loss may not be considered as
insurer on duty to inquire when the loss took place, so that it covered under the cover note because such became null and
could determine whether delay would be a valid ground upon void by virtue of the issuance of the marine policies.
which to object to a claim against it.
Issue:
As already stated earlier, private respondent's reaction upon Whether or not the cover not was without consideration,
receipt of the notice of loss, which was on April 15, 1963, was thus null and void.
to set in motion from July 1963 what would be necessary to
determine the cause and extent of the loss, with a view to the Held:
payment thereof on the insurance agreement. Thus it sent its
adjuster to investigate and assess the loss in July, 1963. The It was with consideration.
adjuster submitted his report on August 23, 1963 and its SC upheld Pacific’s contention that said cover not was with
computation of respondent's liability on September 14, 1963. consideration. The fact that no separate premium was paid
From April 1963 to July, 1963, enough time was available for on the cover note before the loss was insured against
private respondent to determine if petitioner was guilty of occurred does not militate against the validity of Pacific’s
delay in communicating the loss to respondent company. In contention, for no such premium could have been paid, since
the proceedings that took place later in the Office of the by the nature of the cover note, it did not contain, as all cover
Insurance Commissioner, private respondent should then notes do not contain, particulars of the shipment that would
have raised this ground of delay to avoid liability. It did not do serve as basis for the computation of the premiums. As a
so. It must be because it did not find any delay, as this Court logical consequence, no separate premiums are required to
fails to find a real and substantial sign thereof. But even on
be paid on a cover note.
the assumption that there was delay, this Court is satisfied
and convinced that as expressly provided by law, waiver can
successfully be raised against private respondent. Thus
If the note is to be treated as a separate policy instead of
Section 84 of the Insurance Act provides:
integrating it to the regular policies subsequently issued, its
purpose would be meaningless for it is in a real sense a
Section 84.—Delay in the presentation to an insurer
contract, not a mere application.
of notice or proof of loss is waived if caused by any
act of his or if he omits to take objection promptly
and specifically upon that ground.
Facts:
 4

WON the Insurance company was absolved from

The plaintiff secured temporary insurance from the responsibility due to unreasonable delay in giving notice of
defendant for its exportation of 1,250,000 board feet of loss.
Philippine Lauan and Apitong logs to be shipped from Quezon
Province to Okinawa and Tokyo, Japan. Held: No. No. Judgment reversed.
Workmen’s Insurance issued a cover note insuring the cargo
of the plaintiff subject to its terms and conditions. Ratio:
The two marine policies bore the numbers 53 HO 1032 and 1. The fact that no separate premium was paid on the Cover
53 HO 1033. Policy No. 53 H0 1033 was for 542 pieces of logs Note before the loss occurred does not militate against the
equivalent to 499,950 board feet. Policy No. 53 H0 1033 was validity of the contention even if no such premium was paid.
for 853 pieces of logs equivalent to 695,548 board feet. The All Cover Notes do not contain particulars of the shipment
total cargo insured under the two marine policies consisted of that would serve as basis for the computation of the
1,395 logs, or the equivalent of 1,195.498 bd. ft. premiums. Also, no separate premiums are required to be
After the issuance of the cover note, but before paid on a Cover Note.
the issuance of the two marine policies Nos. 53 HO 1032 and The petitioner paid in full all the premiums, hence there was
53 HO 1033, some of the logs intended to be exported were no account unpaid on the insurance coverage and the cover
lost during loading operations in the Diapitan Bay. note. If the note is to be treated as a separate policy instead
While the logs were alongside the vessel, bad of integrating it to the regular policies, the purpose of the
weather developed resulting in 75 pieces of logs which were note would be meaningless. It is a contract, not a
rafted together co break loose from each other. 45 pieces of mere application for insurance.
logs were salvaged, but 30 pieces were verified to have been It may be true that the marine insurance policies issued were
lost or washed away as a result of the accident. for logs no longer including those which had been lost during
Pacific Timber informed Workmen’s about the loss of 32 loading operations. This had to be so because the risk insured
pieces of logs during loading of SS woodlock. against is for loss during transit, because the logs were safely
Although dated April 4, 1963, the letter was received in the placed aboard.
office of the defendant only on April 15, 1963. The plaintiff The non-payment of premium on the Cover Note is,
claimed for insurance to the value of P19,286.79. therefore, no cause for the petitioner to lose what is due it as
Woodmen’s requested an adjustment company to assess the if there had been payment of premium, for non-payment by
damage. It submitted its report, where it found that the loss it was not chargeable against its fault. Had all the logs been
of 30 pieces of logs is not covered by Policies Nos. 53 HO lost during the loading operations, but after the issuance of
1032 and 1033 but within the 1,250,000 bd. ft. covered by the Cover Note, liability on the note would have already
Cover Note 1010 insured for $70,000.00. arisen even before payment of premium. Otherwise, the note
The adjustment company submitted a computation of the would serve no practical purpose in the realm of commerce,
defendant's probable liability on the loss sustained by the and is supported by the doctrine that where a policy is
shipment, in the total amount of P11,042.04. delivered without requiring payment of the premium, the
Woodmen’s wrote the plaintiff denying the latter's claim on presumption is that a credit was intended and policy is valid.
the ground they defendant's investigation revealed that the 2. The defense of delay can’t be sustained. The facts show
entire shipment of logs covered by the two marine policies that instead of invoking the ground of delay in objecting to
were received in good order at their point of destination. It petitioner's claim of recovery on the cover note,
was further stated that the said loss may be considered as the insurer never had this in its mind. It has a duty to inquire
covered under Cover Note No. 1010 because the said Note when the loss took place, so that it could determine whether
had become null and void by virtue of the issuance of Marine delay would be a valid ground of objection.
Policy Nos. 53 HO 1032 and 1033. There was enough time for insurer to determine if petitioner
The denial of the claim by the defendant was brought by the was guilty of delay in communicating the loss to respondent
plaintiff to the attention of the Insurance Commissioner. The company. It never did in the Insurance Commission. Waiver
Insurance Commissioner ruled in favor of indemnifying Pacific can be raised against it under Section 84 of the Insurance Act.
Timber. The company added that the cover note is null and
void for lack of valuable consideration. The trial court ruled in
petitioner’s favor while the CA dismissed the case. Hence this
appeal.

Issues:
WON the cover note was null and void for lack of valuable
Lessons Applicable: Rules on cover notes (if premium
consideration
CANNOT yet be computed) (Insurance)
 5

Laws Applicable: Section 84 of the Insurance Code Nature:

FACTS: Petition to review the decision of the Court of Appeals
 March 19, l963: Pacific Timber secured temporary Facts:
 March 19, 1963 –
insurance from Workmen's Insurance Company, Inc. for
Pacific Timber Export Corp secured temp
its exportation of 1,250,000 board feet of Philippine
o r a r y insurance from Workmen’s Insurance
Lauan and Apitong logs to be shipped from the Diapitan Company for its exportation of 1 , 2 5 0 , 0 0 0
Bay, Quezon Province to Tokyo, Japan. board feet of
 Workmen's issued Cover Note insuring the Philippine lauan and Apitong logs to be
cargo "Subject to the Terms and Conditions of shipped from Diapitan Bay, Quezon Province to
the Workmen's Insurance Company, Inc." Okinawa and Tokyo, Japan
 April 2, 1963: regular marine cargo policies were issued  Cover Note No. 1010 was issued ins
u r i n g t h e s a i d c a r g o subject to the
for a total of 1,195.498 bd. ft. Due to the bad weather
terms and conditions of the 2 marine
some of the logs were lost during loading operations. 45
c a r g o policies issued on April 2, 1963
pieces of logs were salvaged, but 30 pieces were lost.  March 29, 1963 – after the issuance of the cover
Pacific informed Workmen's who refused stating that the note but before the issuance of the two marine
logs covered in the 2 marine policies were received in policies, some of the logs intended to be exported
good order at the point of destination and that the cover were lost during loading operations in the Diapitan Bay.
note was null and void upon the issuance of the Marine  April 4, 1963 Pacific Timber in a letter i
Policies n f o r m e d t h e i n s u r a n c e company about the
 CFI: cover note is valid loss of approximately 32 pieces of logs during
loading, which letter the insurance company
 CA: reversed
received on April 15;and subsequently submitted a
ISSUE: W/N the cover note is valid despite the absence of claim amounting to P19,286.79
premium payment upon it  July 17, 1963 Workmen’s Insurance requested the Fi
HELD: YES. CA set aside. CFI reinstated rst PhilippineAdjustment Corp to inspect the
 it was not necessary to ask for payment of the premium loss and assess the damage. The adjustment
on the Cover Note , for the loss insured against having company submitted its Report on August 23, 1963
already occurred, the more practical procedure is simply and found that the loss of 30 pieces of logs is not
to deduct the premium from the amount due on the covered by the policies. However, the loss of 30 pieces of
logs is within the 1,250,000 board feet
Cover Note
covered by the Cover Note. It submitted
 Had all the logs been lost during the loading operations,
a computation of thep r o b a b l e l i a b i l i t y
but after the issuance of the Cover Note, liability on the of the insurance company in the am
note would have already arisen even before payment of o u n t o f P11,042.04.
premium  January 13, 1964 the claim was denied on the groun
 cover note as a "binder" d that the investigation revealed that the entire
 supported by the doctrine that where a policy is delivered shipment logs covered by two
without requiring payment of the premium, the marine policies were received in go
o d o r d e r a t t h e i r p o i n t o f destination. It
presumption is that a credit was intended and policy is
further stated that the said loss may not be considered as
valid
covered under the Cover Note because the said Note had
 it sent its adjuster to investigate and assess the loss to become null and void by virtue of the issuance of the Marine
determine if petitioner was guilty of delay in policies.
communicating the loss but there was none  The denial of the claim
 Section 84 Delay in the presentation to an insurer of was brought to the Insurance Commissioner and the
notice or proof of loss is waived if caused by any act of his Commissioner observed that it is only fair and
or if he omits to take objection promptly and specifically equitable to
upon that ground indemnify the insured under the Cover N
o t e a n d a d v i s e d e a r l y settlement of the said marine
Doctrine: loss and salvage claim.
A cover note issued in advance of the issuance of a marine policyis  June 26, 1964 the insurance company informed the I
binding as an insurance contract although no separate premium was nsuranceCommissioner that it is denying the
paid. claim on the ground that the cover note is null and
void for lack of valuable consideration.
 6

Issue:  Waiver can successfully be raised against private respondent.

Was the Insurance Company correct in denying the claim
based on the Cover Note issued without consideration? No.

Ruling:
 The Cover Note was not without consideration.
The Cover Note was issued with a consideration when, by
express stipulation, the cover note is made
s u b j e c t t o t h e terms and conditions of the marine
policies, and the payment of premiums is one of the terms of
the policies.
 The fact that no separate premium was paid on
the Cover Note before the loss
insured against occurred, does
not militatea g a i n s t t h e v a l i d i t y o f p e t i t i o
n e r ’ s c o n t e n t i o n , f o r n o s u c h premium
could have been paid, since by the nature of
the C o v e r N o t e , i t d i d n o t c o n t a i n , a s a l l
C o v e r N o t e s d o n o t contain particulars of the
shipment that would serve as basis for the computation
of the premiums.
 No separate premiums are intended or required to
be paid on a Cover Note.
 The petitioner paid in full all the premiums after the
issuance of the two regular marine insurance
policies, thereby leaving no account unpaid due on the
insurance coverage, which must be deemed to include the
Cover Note.
 The adjuster
went as far as submitting his report to respondent,
as well as its computation of the liability on the insurance
coverage.
 The nonpayment of premium on the Cover Note is,
therefore, no cause for the petitioner to lose
what is due it as if there had been payment
of premium, for non-payment by it was
not chargeable against its fault.
 The liability on the note would have been already
arisen even before payment of premium. This is how the
cover note as a “binder” should legally operate, otherwise, it
would serve no practical purpose.
 It is supported by the doctrine that where a policy
is delivered without requiring payment of the premium, the
presumption is that a credit was intended and policy is valid.
 The defense of delay cannot be sustained.
 The law requires this ground of delay to be promptly
and specifically asserted when a claim on the insurance
agreement is made.
 In this case, instead of invoking the ground of
delay, it took steps clearly indicative that this particular
ground for objection to the claim was never in its mind.
 Sec 84 of the Insurance Act provides:
 Sec. 84 – Delay in the presentation to an insurer of
notice or proof of loss is waived if caused by any act of his or
if he omits to take objection promptly and specifically upon
that ground.
 7

SECOND DIVISION At the time of the insurance on April 19, 1962 of Policy No.
4219 in favor of respondent Yap, an insurance policy for
G.R. No. L-36232 December 19, 1974 P20,000.00 issued by the Great American Insurance Company
covering the same properties was noted on said policy as co-
PIONEER INSURANCE AND SURETY insurance (Annex "1-E"). Later, on August 29, 1962, the
CORPORATION, petitioner-appellant, parties executed Exhibit "1-K", as an endorsement on Policy
vs. No. 4219, stating:
OLIVA YAP, represented by her attorney-in-fact, CHUA
SOON POON respondent-appellee. It is hereby declared and agreed that the co-
insurance existing at present under this policy is as
FERNANDEZ, J.:p follows: P20,000.00 — Northwest Ins., and not as
originally stated. (emphasis supplied)
This is an appeal by certiorari from the decision of the Court
of Appeals dated December 16, 1972, in CA-G.R. No. 36669-R, Except as varied by this endorsement, all other
affirming the judgment of the Court of First Instance of terms and conditions remain unchanged.
Manila (Branch VI) in Civil Case No. 54508, which latter court
declared plaintiff Oliva Yap, herein respondent, entitled to Still later, or on September 26, 1962, respondent Oliva Yap
recover from defendant Pioneer Insurance & Surety took out another fire insurance policy for P20,000.00
Corporation, herein petitioner, the full amount of the damage covering the same properties, this time from the Federal
inquired in Policy No. 4219, which is P25,000.00, plus 12% of Insurance Company, Inc., which new policy was, however,
said sum from the date of filing of the complaint until full procured without notice to and the written consent of
payment, in addition to the sum of P6,000.00 for attorney's petitioner Pioneer Insurance & Surety Corporation and,
fees, and costs. therefore, was not noted as a co-insurance in Policy No. 4219.

Respondent Oliva Yap was the owner of a store in a two- At dawn on December 19, 1962, a fire broke out in the
storey building located at No. 856 Juan Luna Street, Manila, building housing respondent Yap's above-mentioned store,
where in 1962 she sold shopping bags and footwear, such as and the said store was burned. Respondent Yap filed an
shoes, sandals and step-ins. Chua Soon Poon Oliva Yap's son- insurance claim, but the same was denied in petitioner's
in-law, was in charge of the store. letter of May 17, 1963 (Exhibit "G"), on the ground of "breach
and/or violation of any and/or all terms and conditions" of
On April 19, 1962, respondent Yap took out Fire Insurance Policy No. 4219.
Policy No. 4216 from petitioner Pioneer Insurance & Surety
Corporation with a face value of P25,000.00 covering her On July 17, 1963, Oliva Yap filed with the Court of First
stocks, office furniture, fixtures and fittings of every kind and Instance of Manila the present complaint, asking, among
description. Among the conditions in the policy executed by others, for payment of the face value of her fire insurance
the parties are the following: policy. In its answer, petitioner alleged that no property
belonging to plaintiff Yap and covered by the insurance policy
The Insured shall give notice to the Company of any was destroyed by the fire; that Yap's claim was filed out of
insurance or insurances already effected, or which time; and that Yap took out an insurance policy from another
may subsequently be effected, covering any of the insurance company without petitioner's knowledge and/or
property hereby insured, and unless such notice be endorsement, in violation of the express stipulations in Policy
given and the particulars of such insurance or No. 4219, hence, all benefits accruing from the policy were
insurances be stated in, or endorsed on this Policy by deemed forfeited.
or on behalf of the Company before the occurrence
of any loss or damage, all benefits under this Policy As already stated at the beginning of this opinion, the trial
shall be forfeited. (emphasis supplied) court decided for plaintiff Oliva Yap; and its judgment was
affirmed in full by the Court of Appeals.
It is understood that, except as may be stated on the
face of this policy there is no other insurance on the The vital issue in this appeal is whether or not petitioner
property hereby covered and no other insurance is should be absolved from liability on Fire Insurance Policy No.
allowed except by the consent of the Company 4219 on account of any violation by respondent Yap of the
endorsed hereon. Any false declaration or breach or co-insurance clause therein. In resolving this problem, the
this condition will render this policy null and void. Court of Appeals stated in its decision:
 8

5. The plaintiff-appellee has not violated the other was a mere case of substitution, there was no necessity for its
insurance clause (Exhibit 1-F) of the insurance Policy endorsement on Policy No. 4219. This finding, as well as
No. 4219 that would justify the defendant-appellant, reasoning, suffers from several flaws. There is no evidence to
as insurer, to avoid its liability thereunder. It appears establish and prove such a substitution. If anything was
on the face of said policy that a co-insurance in the substituted for the Great American Insurance policy, it could
amount of P20,000.00 was secured from the Great only be the Northwest Insurance policy for the same amount
American Insurance and was declared by the of P20,000.00. The endorsement (Exhibit "1-K") quoted above
plaintiff-appellee and recognized by the defendant- shows the clear intention of the parties to recognize on the
appellant. This was later on substituted for the same date the endorsement was made (August 29, 1962), the
amount and secured by the Federal Insurance existence of only one co-insurance, and that is the Northwest
Company. Chua Soon Poon on being cross-examined Insurance policy, which according to the stipulation of the
by counsel for the defendant-appellant, declared parties during the hearing, was issued on August 20, 1962
that the Great American Insurance policy was (t.s.n., January 12, 1965, pp. 3-4) and endorsed only on
cancelled because of the difference in the premium August 20, 1962. The finding of the Court of Appeals that the
and the same was changed for that of the Federal Great American Insurance policy was substituted by the
(t.s.n., hearing of December 1, 1964, pp. 35-36). Federal Insurance policy is unsubstantiated by the evidence
Contrary to the assertion of the defendant- of record and indeed contrary to said stipulation and
appellant, the Great American Insurance policy was admission of respondent, and is grounded entirely on
not substituted by the Northwest Insurance policy. speculation, surmises or conjectures, hence, not binding on
As admitted by the defendant-appellant in its brief the Supreme Court. 1
(p. 48), the fire insurance policy issued by the Great
American Insurance Company for P20,000.00 The Court of Appeals would consider petitioner to have
(Exhibit 1-E) was cancelled on August 29, 1962. On waived the formal requirement of endorsing the policy of co-
the other hand, the fire insurance policy issued by insurance "since there was absolutely no showing that it was
the Northwest Insurance & Surety Company for not aware of said substitution and preferred to continue the
P20,000.00 (Exhibit 1-K) was taken out on July 23, policy." The fallacy of this argument is that, contrary to
1962. How then can the Northwest Insurance policy Section 1, Rule 131 of the Revised Rules of Court, which
issued on July 23, 1962, be considered as having requires each party to prove his own allegations, it would
substituted the Great American policy which was shift to petitioner, respondent's burden of proving her
cancelled only on August 29, 1962? The defendant- proposition that petitioner was aware of the alleged
appellant can be considered to have waived the substitution, and with such knowledge preferred to continue
formal requirement of indorsing the policy of co- the policy. Respondent Yap cites Gonzales La O vs. Yek Tong
insurance since there was absolutely no showing Lin Fire and Marine Insurance Co., Ltd.2 to justify the
that it was not aware of said substitution and assumption but in that case, unlike here, there was
preferred to continue the policy (Gonzales La O vs. knowledge by the insurer of violations of the contract, to wit:
Yek Tong Lin Fire and Marine Insurance Co., 55 Phil. "If, with the knowledge of the existence of other insurances
386). Even assuming that the defendant-appellant which the defendant deemed violations of the contract, it has
did not indorse the Federal Insurance policy, there is preferred to continue the policy, its action amounts to a
no question that the same was only a substitution waiver of the annulment of the contract ..." A waiver must be
and did not in any way increase the amount of the express. If it is to be implied from conduct mainly, said
declared co-insurance. In other words, there was no conduct must be clearly indicative of a clear intent to waive
increase in the risk assumed by the defendant- such right. Especially in the case at bar where petitioner is
appellant. assumed to have waived a valuable right, nothing less than a
clear, positive waiver, made with full knowledge of the
We do not agree with the conclusion of the Court of Appeals. circumstances, must be required.

There was a violation by respondent Oliva Yap of the co- By the plain terms of the policy, other insurance without the
insurance clause contained in Policy No. 4219 that resulted in consent of petitioner would ipso facto avoid the contract. It
the avoidance of petitioner's liability. The insurance policy for required no affirmative act of election on the part of the
P20,000.00 issued by the Great American Insurance Company company to make operative the clause avoiding the contract,
covering the same properties of respondent Yap and duly wherever the specified conditions should occur. Its
noted on Policy No. 4219 as c-insurance, ceased, by obligations ceased, unless, being informed of the fact, it
agreement of the parties (Exhibit "1-L"), to be recognized by consented to the additional insurance.
them as a co-insurance policy. The Court of Appeals says that
the Great American Insurance policy was substituted by the The validity of a clause in a fire insurance policy to the effect
Federal Insurance policy for the same amount, and because it that the procurement of additional insurance without the
 9

consent of the insurer renders ipso facto the policy void is The annotation then, must be deemed to be a
well-settled: warranty that the property was not insured by any
other policy. Violation thereof entitled the insurer to
In Milwaukee Mechanids' Lumber Co., vs. Gibson, rescind. (Sec. 69, Insurance Act.) Such
199 Ark. 542, 134 S. W. 2d 521, 522, a substantially misrepresentation is fatal in the light of our views in
identical clause was sustained and enforced, the Santa Ana vs. Commercial Union Assurance
court saying: "The rule in this state and practically all Company, Ltd., 55 Phil. 329. The materiality of non-
of the states is to the effect that a clause in a policy disclosure of other insurance policies is not open to
to the effect that the procurement of additional doubt.
insurance without the consent of the insurer renders
the policy void is a valid provision. The earlier cases Furthermore, even if the annotations were
of Planters Mutual Insurance Co., vs. Green, 72 Ark. overlooked the defendant insurer would still be free
305, 80 S.W. 92, are to the same effect." And see from liability because there is no question that the
Vance, Insurance, 2nd Ed., 725. (Reach vs. Arkansas policy issued by General Indemnity has not been
Farmers Mut. Fire Ins. Co., [Ark. Nov. 14, 1949] 224 stated in nor endorsed on Policy No. 471 of
S. W. 2d 48, 49.) defendant. And as stipulated in the above-quoted
provisions of such policy "all benefit under this policy
2. Where a policy contains a clause providing that shall be forfeited. (Emphasis supplied)
the policy shall be void if insured has or shall procure
any other insurance on the property, the The obvious purpose of the aforesaid requirement in the
procurement of additional insurance without the policy is to prevent over-insurance and thus avert the
consent of the insurer avoids the policy." (Planters' perpetration of fraud. The public, as well as the insurer, is
Mut. Ins. Ass'n vs. Green [Supreme Court of interested in preventing the situation in which a fire would be
Arkansas, March 19, 1904] 80 S.W. 151.) profitable to the insured. According to Justice Story: "The
insured has no right to complain, for he assents to comply
3. The policy provided that it should be void in case with all the stipulation on his side, in order to entitle himself
of other insurance "without notice and consent of to the benefit of the contract, which, upon reason or
this company. ..." It also authorized the company to principle, he has no right to ask the court to dispense with the
terminate the contract at any time, at its option, by performance of his own part of the agreement, and yet to
giving notice and refunding a ratable proportion of bind the other party to obligations, which, but for those
the premium. Held, that additional insurance, unless stipulation would not have been entered into." 5
consented to, or unless a waiver was shown, ipso
facto avoided the contract, and the fact that the In view of the above conclusion, We deem it unnecessary to
company had not, after notice of such insurance, consider the other defenses interposed by petitioner.
cancelled the policy, did not justify the legal
conclusion that it had elected to allow it to continue WHEREFORE, the appealed judgment of the Court of Appeals
in force." (Johnson vs. American Fire Ins., Co., is reversed and set aside, and the petitioner absolved from all
[Supreme Court of Minnesota, Aug. 12, 1889] 43 liability under the policy. Costs against private respondent.
N.W., 59)
SO ORDERED.
The aforecited principles have been applied in this jurisdiction
in General Insurance & Surety Corporation vs. Ng Hua 3. Facts:
There, the policy issued by the General Insurance & Surety
Corporation in favor of respondent Ng Hua contained a Respondent Oliva Yap was the owner of a store in a two-
provision identical with the provisions in Policy No. 4219 storey building where she sold shopping bags and footwear.
quoted above. 4 This Court, speaking thru Justice Cesar P. Chua Soon Poon, her son-in-law, was in charge of the store.
Bengson, in reversing the judgment of the Court of Appeals Yap took out a Fire Insurance Policy No. 4216 from Pioneer
and absolving the insurer from liability under the policy, held: Insurance with a value of P25,000.00 covering her stocks,
office furniture, fixtures and fittings.
... And considering the terms of the policy which
required the insured to declare other insurances, the Among the conditions in the policy executed by the parties
statement in question must be deemed to be a are the following:
statement (warranty) binding on both insurer and
insured, that there were no other insurance on the Unless such notice be given and the particulars of such
property. ... insurance or insurances be stated in, or endorsed on this
 10

Policy by or on behalf of the Company before the occurrence Furthermore, even if the annotations were overlooked the
of any loss or damage, all benefits under this Policy shall be defendant insurer would still be free from liability because
forfeited… Any false declaration or breach or this condition there is no question that the policy issued by General
will render this policy null and void. Indemnity has not been stated in nor endorsed on Policy No.
Another insurance policy for P20,000.00 issued by Great 471 of defendant. The obvious purpose of the
American covering the same properties. The endorsement aforesaid requirement in the policy is to prevent over-
recognized co-insurance by Northwest for the same value. insurance and thus avert the perpetration of fraud where a
Oliva Yap took out another fire insurance policy for fire would be profitable to the insured.“
P20,000.00 covering the same properties from the Federal
Insurance Company, Inc., which was procured without notice
to and the written consent of Pioneer.
A fire broke out in the building, and the store was burned.
Yap filed an insurance claim, but the same was denied for a
breach.
Oliva Yap filed a case for payment of the face value of her fire
insurance policy. The insurance company refused to pay
because she never informed Pioneer of another insurer. The
trial court decided in favor of Yap. The CA affirmed.

Issue:
Whether or not petitioner should be absolved from liability
on the Pioneeer policy on account of any violation of the co-
insurance clause

Held: No. Petition dismissed.

Ratio:

There was a violation. The insurance policy for P20,000.00

issued by the Great American, ceased to be recognized by
them as a co-insurance policy.
The endorsement shows the clear intention of the parties to
recognize on the date the endorsement was made, the
existence of only one co-insurance, the Northwest one. The
finding of the Court of Appeals that the Great American
Insurance policy was substituted by the Federal Insurance
policy is indeed contrary to said stipulation.
Other insurance without the consent of Pioneer would avoid
the contract. It required no affirmative act of election on the
part of the company to make operative the clause avoiding
the contract, wherever the specified conditions should occur.
Its obligations ceased, unless, being informed of the fact, it
consented to the additional insurance.
The validity of a clause in a fire insurance policy to the effect
that the procurement of additional insurance without the
consent of the insurer renders the policy void is in American
jurisprudence.
Milwaukee Mechanids' Lumber Co., vs. Gibson- "The rule in
this state and practically all of the states is to the effect that a
clause in a policy to the effect that the procurement of
additional insurance without the consent of the insurer
renders the policy void is a valid provision.”
In this jurisdiction, General Insurance & Surety Corporation
vs. Ng Hua- “The annotation then, must be deemed to be a
warranty that the property was not insured by any other
policy. Violation thereof entitled the insurer to rescind.