ARIQUEZ, CEDDIE I.

1. SUBJECT MATTER: INTERPRETATION

CASE TITLE:
GAISANO CAGAYAN, INC. v. INSURANCE COMPANY OF NORTH
AMERICA
G.R. NO. 147839 June 08, 2006
AUSTRIA-MARTINEZ, J.

FACTS:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler
Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of
products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI
separately obtained from respondent fire insurance policies with book debt
endorsements. The insurance policies provide for coverage on “book debts
in connection with ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured anywhere in the
Philippines.” The policies defined book debts as the “unpaid account still
appearing in the Book of Account of the Insured 45 days after the time of
the loss covered under this Policy.” The policies also provide for the
following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in
respect of the merchandise sold and delivered by the Insured which are
outstanding at the date of loss for a period in excess of six (6) months from
the date of the covering invoice or actual delivery of the merchandise
whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve
(12) days after the close of every calendar month all amount shown in their
books of accounts as unpaid and thus become receivable item from their
customers and dealers.

On February 25, 1991, the Gaisano Superstore Complex in Cagayan

de Oro City, owned by petitioner, was consumed by fire. Included in the
items lost or destroyed in the fire were stocks of ready-made clothing
materials sold and delivered by IMC and LSPI. Insurance of America filed a
complaint for damages against Gaisano. It alleges that IMC and LSPI were
paid for their claims and that the unpaid accounts of petitioner on the sale
and delivery of ready-made clothing materials with IMC was P2,119,205.00
while with LSPI it was P535,613.00.
ARIQUEZ, CEDDIE I.

The RTC rendered its decision dismissing Insurance's complaint. It

held that the fire was purely accidental; that the cause of the fire was not
attributable to the negligence of the petitioner. Also, it said that IMC and
LSPI retained ownership of the delivered goods and must bear the loss.
The CA rendered its decision and set aside the decision of the RTC. It
ordered Gaisano to pay Insurance the P 2 million and the P 500,000 the
latter paid to IMC and Levi Strauss

ISSUES:
1. Whether or not the CA erred in construing a fire insurance policy
on book debts as one covering the unpaid accounts of IMC and LSPI since
such insurance applies to loss of the ready-made clothing materials sold
and delivered to petitioner

2. Whether or not IMC bears the risk of loss because it expressly

reserved ownership of the goods by stipulating in the sales invoices that
"[i]t is further agreed that merely for purpose of securing the payment of the
purchase price the above described merchandise remains the property of
the vendor until the purchase price thereof is fully paid."

3. Whether or not petitioner is liable for the unpaid accounts

4. Whether or not it has been established that petitioner has

outstanding accounts with IMC and LSPI.

HELD:
1. No, it is provided in the questioned insurance policies that the
subject of the insurance is the goods sold and delivered to the customers
and dealers of the insured. Thus, what were insured against were the
accounts of IMC and LSPI with petitioner which remained unpaid 45 days
after the loss through fire, and not the loss or destruction of the goods
delivered.

2. Yes, the present case clearly falls under paragraph (1), Article
1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk
until the ownership therein is transferred to the buyer, but when the
ownership therein is transferred to the buyer the goods are at the buyer's
risk whether actual delivery has been made or not, except that:
ARIQUEZ, CEDDIE I.

(1) Where delivery of the goods has been made to the buyer or to
a bailee for the buyer, in pursuance of the contract and the ownership in
the goods has been retained by the seller merely to secure performance by
the buyer of his obligations under the contract, the goods are at the buyer's
risk from the time of such delivery.

Thus, when the seller retains ownership only to insure that the buyer
will pay its debt, the risk of loss is borne by the buyer. Petitioner bears the
risk of loss of the goods delivered. IMC and LSPI had an insurable interest
until full payment of the value of the delivered goods. Unlike the civil law
concept of res perit domino, where ownership is the basis for consideration
of who bears the risk of loss, in property insurance, one's interest is not
determined by concept of title, but whether insured has substantial
economic interest in the property.

Section 13 of Insurance Code defines insurable interest as "every

interest in property, whether real or personal, or any relation thereto, or
liability in respect thereof, of such nature that a contemplated peril might
directly damnify the insured." Parenthetically, under Section 14 of the same
Code, an insurable interest in property may consist in: (a) an existing
interest; (b) an inchoate interest founded on existing interest; or (c) an
expectancy, coupled with an existing interest in that out of which the
expectancy arises.

Anyone has an insurable interest in property who derives a benefit

from its existence or would suffer loss from its destruction.  Indeed, a
vendor or seller retains an insurable interest in the property sold so long as
he has any interest therein, in other words, so long as he would suffer by its
destruction, as where he has a vendor's lien.

3. Yes, the Petitioner's argument that it is not liable because the fire

is a fortuitous event under Article 1174 of the Civil Code is misplaced. As
held earlier, petitioner bears the loss under Article 1504 (1) of
the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for
loss of goods by fire but for petitioner's accounts with IMC and LSPI that
remained unpaid 45 days after the fire. Accordingly, petitioner's obligation
is for the payment of money. As correctly stated by the CA, where the
obligation consists in the payment of money, the failure of the debtor to
ARIQUEZ, CEDDIE I.

make the payment even by reason of a fortuitous event shall not relieve
him of his liability. The rationale for this is that the rule that an obligor
should be held exempt from liability when the loss occurs thru a fortuitous
event only holds true when the obligation consists in the delivery of a
determinate thing and there is no stipulation holding him liable even in case
of fortuitous event. It does not apply when the obligation is pecuniary in
nature.

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a

generic thing, the loss or destruction of anything of the same kind does not
extinguish the obligation." This rule is based on the principle that the genus
of a thing can never perish. An obligation to pay money is generic;
therefore, it is not excused by fortuitous loss of any specific property of the
debtor.

4. Yes, with respect to IMC, the respondent has adequately

established its claim. The subrogation receipt, by itself, is sufficient to
establish not only the relationship of respondent as insurer and IMC as the
insured, but also the amount paid to settle the insurance claim. The right of
subrogation accrues simply upon payment by the insurance company of
the insurance claim Respondent's action against petitioner is squarely
sanctioned by Article 2207 of the Civil Code which provides “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.”

As to LSPI, respondent failed to present sufficient evidence to prove

its cause of action. There was no evidence that respondent has been
subrogated to any right which LSPI may have against petitioner. Failure to
substantiate the claim of subrogation is fatal to petitioner's case for
recovery of P535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed

Decision dated October 11, 2000 and Resolution dated April 11, 2001 of
the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with
the MODIFICATION that the order to pay the amount of P535,613.00 to
respondent is DELETED for lack of factual basis.
ARIQUEZ, CEDDIE I.

2. SUBJECT MATTER: INTERPRETATION

CASE TITLE: MALAYAN INSURANCE CORPORATION, Petitioner, v. THE

HON. COURT OF APPEALS and TKC MARKETING CORPORATION
G.R. No. 119599 March 20, 1997
ROMERO, J

FACTS:
TKC Marketing imported 3,000 metric tons of soya from Brazil to
Manila. It was insured by Malayan at the value of almost 20 million pesos.
The vessel, however, was stranded on South Africa because of a lawsuit
regarding the possession of the soya. TKC consulted Malayan on recovery
of the amount, but the latter claimed that it wasn’t covered by the policy.
The soya was sold in Africa for Php 10 million, but TKC wanted Malayan to
shoulder the remaining value of 10 million as well. Petitioner filed suit due
to Malayan’s reticence to pay. Malayan claimed that arrest by civil
authorities wasn’t covered by the policy. The trial court ruled in TKC’s favor
with damages to boot. The appellate court affirmed the decision under the
reason that clause 12 of the policy regarding an excepted risk due to arrest
by civil authorities was deleted by Section 1.1 of the Institute
War Clauses which covered ordinary arrests by civil authorities. Failure of
the cargo to arrive was also covered by the Theft, Pilferage, and Non-
delivery Clause of the contract. Hence this petition.

ISSUES:
1. Whether or not the arrest of the vessel was a risk covered under
the subject insurance policies.

2. Whether or not in giving undue reliance to the doctrine that the

insurance policies are strictly construed against the insurer.

HELD:
1. Yes, Section 12 or the "Free from Capture & Seizure Clause"
states:  "Warranted free of capture, seizure, arrest, restraint or detainment,
and the consequences thereof or of any attempt thereat…”
Should Clause 12 be deleted, the relevant current institute
war clauses shall be deemed to form part of this insurance.” This was really
replaced by the subsection 1.1 of section 1 of Institute
War Clauses (Cargo) which included “the risks excluded from the standard
form of English Marine Policy by the clause warranted free of capture,
ARIQUEZ, CEDDIE I.

seizure, arrest, restraint or detainment, and the consequences thereof of

hostilities or warlike operations, whether there be a declaration of war or
not.”

The petitioner’s claim that the Institute War Clauses can be operative

in case of hostilities or warlike operations on account of its heading
"Institute War Clauses" is not tenable. It reiterated the CA’s stand that “its
interpretation in recent years to include seizure or detention by civil
authorities seems consistent with the general purposes of the clause.” This
interpretation was regardless of the fact whether the arrest was in war or by
civil authorities. The petitioner was said to have confused the Institute
War clauses and the F.C.S. in English law.

“It stated that "the F.C. & S. Clause was "originally incorporated in

insurance policies to eliminate the risks of warlike operations". It also
averred that the F.C. & S. Clause applies even if there be no war or warlike
operations.  In the same vein, it contended that subsection 1.1 of Section 1
of the Institute War Clauses (Cargo) "pertained exclusively to warlike
operations" and yet it also stated that "the deletion of the F.C. &
S. Clause and the consequent incorporation of subsection 1.1 of Section 1
of the Institute War Clauses (Cargo) was to include "arrest, etc. even if it
were not a result of hostilities or warlike operations."

The court found that the insurance agency tried to

interpret executive and political acts as those not including
ordinary arrests in the exceptions of the FCS clause, and claims that the
War Clauses now included executive and political acts without including
ordinary arrests in the new stipulation. “A strained interpretation which is
unnatural and forced, as to lead to an absurd conclusion or to render the
policy nonsensical, should, by all means, be avoided.”

2. 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, means that any
ambiguity should be resolved against the insurer.
ARIQUEZ, CEDDIE I.

3. SUBJECT MATTER: INTERPRETATION

CASE TITLE: DIOSDADO C. TY VS. FILIPINAS COMPANIA DE

SEGUROS ET. AL.
G.R. NO. L-21821-22 MAY 31, 1966
BARRERA, J.

FACTS:
Ty was employed as a mechanic operator by Broadway Cotton
Factory at Grace Park, Caloocan. In 1953, he took personal accident
policies from 7 insurance companies (6 defendants), on different dates,
effective for 12 mos. On December 24, 1953, a fire broke out in the factory
were Ty was working.  A heavy object fell on his hand when he was trying
to put out the fire. From Dec. 1953 to Feb. 6, 1954 Ty received treatment at
the Nat’l Orthopedic Hospital for six listed injuries.  The attending surgeon
certified that these injuries would cause the temporary total disability of Ty’s
left hand.
Insurance companies refused to pay Ty’s claim for compensation
under the policies by reason of said disability of his left hand.  Ty filed a
complaint in the municipal court who decided in his favor. CFI reversed on
the ground that under the uniform terms of the policies, partial disability due
to loss of either hand of the insured, to be compensable must be the result
of amputation.

ISSUE:
Whether or not Ty should be indemnified under his accident policies.

HELD:
No. SC already ruled in the case of Ty v. FNSI that were the
insurance policies define partial disability as loss of either hand by
amputation through the bones of the wrist, the insured cannot recover
under said policies for temporary disability of his left hand caused by the
fractures of some fingers.  The provision is clear enough to inform the party
entering into that contract that the loss to be considered a disability entitled
to indemnity, must be severance or amputation of the affected member of
the body of the insured.
ARIQUEZ, CEDDIE I.

4. SUBJECT MATTER: INTERPRETATION

CASE TITLE: GULF RESORTS, INC., VS. PHILIPPINE CHARTER

INSURANCE CORP.
G.R. No. 156167 16 May 2005
PUNO, J.

FACTS:
Petitioner is the owner of Plaza Resort in Agoo, La Union. The
properties were originally insured by American Home Assurance Company
(AHAC), with four insurance policies issued from 1984-85; 1985-86; 1986-
87; and 1987-88, in favor of the Petitioner. In addition, there was an
insurance rider, which is an earthquake shock endorsement, covering only
the two swimming pools on the said properties. Subsequently, AHAC
issued another insurance policy in favor of the petitioner covering 1988-89.

As for its continuity, Respondent agreed to renew said insurance

policies covering from 14 March 1989 to 14 March 1990, as the same
terms and agreement with its former policies from AHAC. Policy No. 31944
covered the properties for P10,700,600.00 for a total premium of
P45,159.92, which upon checking on its breakdown of premium, the
premium paid for the earthquake shock is only amounting to P393.00.

An earthquake in 16 July 1990 caused great damage on the

swimming pools including other properties. The petitioner advised the
respondent that it would be making a claim under Insurance Policy No.
31944 issued by the respondent. Respondent clearly states thru its
independent insurance claims adjuster that, “except for the swimming
pools, all affected items have no coverage for earthquake shocks.”

Petitioner sought relief in its favor in the RTC of Pasig, but to no avail.
Appeal has been filed to the Court of Appeals, which the same ruling as
RTC is affirmed. Hence, Petition for Certiorari under Rule 45 was filed with
the Supreme Court.

ISSUE:
Whether the Court of Appeals correctly held that under respondent’s
insurance policy no. 31944, only the two (2) swimming pools, rather than all
the properties covered hereunder, are insured against the risk of
earthquake shock.
ARIQUEZ, CEDDIE I.

HELD:
The Supreme Court denied the petition. First, the designation of the
risk of loss were only limited to the two swimming pools, as stated in the
Earthquake Shock Endorsement. In addition, the premiums paid in
accordance with the insurance policy for this rider is limited only to the two
swimming pools amounting in P393.00. Thus, the insurance claim is only
limited to the two swimming pools.

The case is about the interpretation of insurance contract. The

petitioner contends that the contract of insurance with the insurer is a
contract of adhesion wherein the language used in an insurance contract or
application is such as to create ambiguity the same should be resolved
against the party responsible therefore, i.e., the insurance company which
prepared the contract. To the mind of [the] Court, the language used in the
policy in litigation is clear and unambiguous hence there is no need for
interpretation or construction but only application of the provisions therein.

The Supreme Court opposed the above statement, simply because 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 nor 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.
ARIQUEZ, CEDDIE I.

5. SUBJECT MATTER: INTERPRETATION

CASE TITLE: DE LA CRUZ, SIMON V. CAPITAL INS. & SURETY CO,

INC.
G.R. No. L-21574 June 30, 1966
BARRERA, J.

FACTS:
Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc
Mines, Inc. in Baguio, he was a holder of an accident insurance
policy "against death or disability caused by accidental means“. On January
1, 1957, for the celebration of the New Year, the Itogon-Suyoc Mines, Inc.
sponsored a boxing contest for general entertainment wherein Eduardo, a
non-professional boxer participated. In the course of his bout with
another non-professional boxer of the same height, weight, and size,
Eduardo slipped and was hit by his opponent on the left part of the back of
the head, causing Eduardo to fall, with his head hitting the rope of the ring.
He was brought to the Baguio General Hospital the following day.  He died
due to hemorrhage, intracranial.

Simon de la Cruz, the father of the insured and who was named
beneficiary under the policy, thereupon filed a claim with the insurance
company. The Capital Insurance and Surety Co., Inc. denied stating that
the death caused by his participation in a boxing contest was not
accidental. However, the Court favored Simon.

ISSUE:
Whether or Not the cause of death was accident and that Simon, the
named beneficiary of Eduardo is allowed to claim the insurance.

HELD:
Yes, Simon is entitled for the claim. Eduardo slipped, which was
unintentional. The terms "accident" and "accidental“ as used in insurance
contracts, have not acquired any technical meaning and are construed by
the courts in their ordinary and common acceptation. It happened by
chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. It takes place without one's foresight
or expectation, unknown cause, unusual effect of a known cause. Where
the death or injury is not the natural or probable result of the insured's
ARIQUEZ, CEDDIE I.

voluntary act, or if something unforeseen occurs in the doing of the act

which produces the injury, the death is within the protection of policies
insuring against death or injury from accident.

While the participation of the insured in boxing contest is voluntary,

the injury was sustained when he slid, giving occasion to the infliction by
his opponent of the blow that threw him to the ropes of the ring is not
voluntary but accidental. In boxing as in other equally physically rigorous
sports, such as basketball or baseball, death is not ordinarily anticipated to
result. If, therefore, it ever does, the injury or death can only be accidental
or produced by some unforeseen happening or event as what occurred in
this case. As mentioned in the case, he fought an opponent of similar
height, weight and size the more that death of Eduardo is accidental.

Furthermore, the policy involved herein specifically excluded from its

coverage as it states — (e) Death or disablement consequent upon the
Insured engaging in football, hunting, pigsticking, steeplechasing, polo-
playing, racing of any kind, mountaineering, or motorcycling. Death or
disablement resulting from engagement in boxing contests was not
declared outside of the protection of the insurance contract. The court
favored the claimant.
 
ARIQUEZ, CEDDIE I.

6. SUBJECT MATTER: INTERPRETATION

CASE TITLE: THE INSULAR LIFE ASS. CO., LTD. VS. PAZ Y. KHU,
FELIPE Y. KHU, JR., ET. AL.
G.R. NO. 195176 APRIL 18, 2016
DEL CASTILLO, J.

FACTS:
Felipe N. Khu Sr. applied for a life insurance policy with Insular Life.
Felipe did not declare any sickness or adverse medical condition. Insular
Life thereafter issued him a policy with a face value of P1,000,000 that took
effect on June 22, 1997. Felipe’s policy lapsed due to nonpayment of the
premium covering the period from June 22, 1999 up to June 23, 2000. On
September 7, 1999, Felipe applied for reinstatement of his policy and paid
P25,020 as premium. The new policy had identical information as to that
the original policy. Insular Life advised Felipe that his application for
reinstatement will only be approved if he agreed to certain conditions such
as payment of additional premium and cancellation of riders pertaining to
the premium waiver and accidental death benefits, wherein Felipe agreed.

The new policy took effect on June 22, 1999. Felipe paid the annual
premiums for the years 2000 to 2002. On September 22, 2001, Felipe died.
The respondents filed with Insular Life a claim for the benefits under the
reinstated policy but it was denied by the respondent and it rescinded the
policy because of concealment and misrepresentation by Felipe. The
respondents instituted an action for specific performance with damages.
The RTC ruled in favor of the insured and against the insurer. It also held
that the reinstated insurance policy had already become incontestable by
the time of Felipe’s death on September 22, 2001 since more than two
years had already lapsed from the date of the policy’s reinstatement on
June 22, 1999.

ISSUE:
Whether or not the reinstated insurance policy was already
considered as incontestable at the time of Felipe’s death

HELD:
ARIQUEZ, CEDDIE I.

Yes. The insurance policy is considered to have been reinstated on

June 22, 1999. The reinstatement of the insurance policy should be
reckoned from the date when the same was approved by the insurer. The
date of the last reinstatement mentioned in Section 48 of the Insurance
Code pertains to the date that the insured approved the application for
reinstatement. Therefore, the insurance contract was reinstated on June
22, 1999 and considered as incontestable at the time of Felipe’s death on
September 22, 2001.
ARIQUEZ, CEDDIE I.

7. SUBJECT MATTER: BENEFICIARIES

CASE TITLE: HEIRS OF LORETO C. MARAMAG VS. EVA VERNA DE

GUZMAN, ET.AL.
G.R. NO. 181132 JUNE 5, 2009
NACHURA, J.

FACTS:
A petition filed against respondents with the Regional Trial Court for
revocation and/or reduction of insurance proceeds for being void and/or
inofficious. Petitioners were the legitimate wife and children of Loreto
Maramag , while respondents were Loreto’s illegitimate family. Eva de
Guzman Maramag was a concubine of Loreto and a suspect in the killing of
the latter, thus, she is disqualified to receive any proceeds from his
insurance policies from Insular Life Assurance Company, Ltd. and Great
Pacific Life Assurance Corporation.

The petitioner alleged that the illegitimate children of Loreto—

Odessa, Karl Brian, and Trisha Angelie—were entitled only to one-half of
the legitime of the legitimate children, thus, the proceeds released to
Odessa and those to be released to Karl Brian and Trisha Angelie were
inofficious and should be reduced; and that they could not be deprived of
their legitimes, which should be satisfied first.

Insular admitted that Loreto misrepresented Eva as his legitimate wife

and Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and
that they filed their claims for the insurance proceeds of the insurance
policies; that when it ascertained that Eva was not the legal wife of Loreto,
it disqualified her as a beneficiary and divided the proceeds among
Odessa, Karl Brian, and Trisha Angelie, as the remaining designated
beneficiaries. Insular alleged that the complaint or petition failed to state a
cause of action insofar as it sought to declare as void the designation of
Eva as beneficiary, because Loreto revoked her designation as such in
Policy No. A001544070 and it disqualified her in Policy No. A001693029;
and insofar as it sought to declare as inofficious the shares of Odessa, Karl
Brian, and Trisha Angelie, considering that no settlement of Loreto’s estate
ARIQUEZ, CEDDIE I.

had been filed nor had the respective shares of the heirs been determined.
Insular further claimed that it was bound to honor the insurance policies
designating the children of Loreto with Eva as beneficiaries pursuant to
Section 53 of the Insurance Code.
Grepalife alleged that Eva was not designated as an insurance policy
beneficiary; that the claims filed by Odessa, Karl Brian, and Trisha Angelie
were denied because Loreto was ineligible for insurance due to a
misrepresentation in his application form that he was born on December
10, 1936 and, thus, not more than 65 years old when he signed it in
September 2001, that the case was premature, there being no claim filed
by the legitimate family of Loreto; and that the law on succession does not
apply where the designation of insurance beneficiaries is clear.

Petitioners alleged that the issue raised by Insular and Grepalife in

the designation of a beneficiary is an act of liberality or a donation and,
therefore, subject to the provisions of Articles 752 and 772 of the Civil
Code. In reply, both Insular and Grepalife countered that the insurance
proceeds belong exclusively to the designated beneficiaries in the policies,
not to the estate or to the heirs of the insured.

The Insurance Code, as amended, contains a provision regarding to

whom the insurance proceeds shall be paid. It is very clear under Sec. 53
thereof that the insurance proceeds shall be applied exclusively to the
proper interest of the person in whose name or for whose benefit it is
made, unless otherwise specified in the policy. Since the defendants are
the ones named as the primary beneficiary in the insurances taken by the
deceased Loreto C. Maramag and there is no showing that herein plaintiffs
were also included as beneficiary therein the insurance proceeds shall
exclusively be paid to them. This is because the beneficiary has a vested
right to the indemnity, unless the insured reserves the right to change the
beneficiary. (Grecio v. Sunlife Assurance Co. of Canada, 48 Phil.)

Neither could the plaintiffs invoked the law on donations or the rules
on testamentary succession in order to defeat the right of herein
defendants to collect the insurance indemnity. The beneficiary in a contract
of insurance is not the donee spoken in the law of donation. The rules on
testamentary succession cannot apply here, for the insurance indemnity
does not partake of a donation. As such, the insurance indemnity cannot be
considered as an advance of the inheritance which can be subject to
collation (Del Val v. Del Val, 29 Phil. 534). In the case of Southern Luzon
ARIQUEZ, CEDDIE I.

Employees’ Association v. Juanita Golpeo, et al., the Honorable Supreme

Court made the following pronouncements.

"With the finding of the trial court that the proceeds to the Life
Insurance Policy belongs exclusively to the defendant as his individual and
separate property, we agree that the proceeds of an insurance policy
belong exclusively to the beneficiary and not to the estate of the person
whose life was insured, and that such proceeds are the separate and
individual property of the beneficiary and not of the heirs of the person
whose life was insured, is the doctrine in America.

In light of the above pronouncements, it is very clear that the plaintiffs

has no sufficient cause of action against defendants Odessa, Karl Brian
and Trisha Angelie Maramag for the reduction and/or declaration of
inofficiousness of donation as primary beneficiary in the insurances of the
late Loreto C. Maramag.

However, herein plaintiffs are not totally bereft of any cause of action.
One of the named beneficiary in the insurances taken by the late Loreto
C. Maramag is his concubine Eva Verna De Guzman. Any person who is
forbidden from receiving any donation under Article 739 cannot be named
beneficiary of a life insurance policy of the person who cannot make any
donation to him, according to said article (Art. 2012, Civil Code).

If a concubine is made the beneficiary, it is believed that the

insurance contract will still remain valid, but the indemnity must go to the
legal heirs and not to the concubine, for evidently, what is prohibited under
Art. 2012 is the naming of the improper beneficiary. In such case, the
action for the declaration of nullity may be brought by the spouse of the
donor or donee, and the guilt of the donor and donee may be proved by
preponderance of evidence in the same action.

Since the designation of defendant Eva Verna de Guzman as one of

the primary beneficiary in the insurances taken by the late Loreto C.
Maramag is void under Art. 739 of the Civil Code, the insurance indemnity
that should be paid to her must go to the legal heirs of the deceased which
this court may properly take cognizance as the action for the declaration for
the nullity of a void donation falls within the general jurisdiction of this
Court. The trial court considered the allegations of Insular that Loreto
revoked the designation of Eva in one policy and that Insular disqualified
ARIQUEZ, CEDDIE I.

her as a beneficiary in the other policy such that the entire proceeds would
be paid to the illegitimate children of Loreto with Eva pursuant to Section 53
of the Insurance Code.
It ruled that it is only in cases where there are no beneficiaries
designated, or when the only designated beneficiary is disqualified, that the
proceeds should be paid to the estate of the insured. As to the claim that
the proceeds to be paid to Loreto’s illegitimate children should be reduced
based on the rules on legitime, the trial court held that the distribution of the
insurance proceeds is governed primarily by the Insurance Code, and the
provisions of the Civil Code are irrelevant and inapplicable.

With respect to the Grepalife policy, the trial court noted that Eva was
never designated as a beneficiary, but only Odessa, Karl Brian, and Trisha
Angelie; thus, it upheld the dismissal of the case as to the illegitimate
children. It further held that the matter of Loreto’s misrepresentation was
premature; the appropriate action may be filed only upon denial of the claim
of the named beneficiaries for the insurance proceeds by Grepalife.

In this case, it is clear from the petition filed before the trial court that,
although petitioners are the legitimate heirs of Loreto, they were not named
as beneficiaries in the insurance policies issued by Insular and Grepalife.

ISSUE:
Whether or not the members of the legitimate family entitled to the
proceeds of the insurance for the concubine?

HELD:
It is evident from the face of the complaint that petitioners are not
entitled to a favorable judgment in light of Article 2011 of the Civil Code
which expressly provides that insurance contracts shall be governed by
special laws, i.e., the Insurance Code. Section 53 of the Insurance Code
states that the insurance proceeds shall be applied exclusively to the
proper interest of the person in whose name or for whose benefit it is made
unless otherwise specified in the policy.

Pursuant thereto, it is obvious that the only persons entitled to claim

the insurance proceeds are either the insured, if still alive; or the
beneficiary, if the insured is already deceased, upon the maturation of the
policy.
ARIQUEZ, CEDDIE I.

The exception to this rule is a situation where the insurance contract

was intended to benefit third persons who are not parties to the same in the
form of favorable stipulations or indemnity. In such a case, third parties
may directly sue and claim from the insurer.

Petitioners are third parties to the insurance contracts with Insular

and Grepalife and, thus, are not entitled to the proceeds thereof.
Accordingly, respondents Insular and Grepalife have no legal obligation to
turn over the insurance proceeds to petitioners.

The revocation of Eva as a beneficiary in one policy and her

disqualification as such in another are of no moment considering that the
designation of the illegitimate children as beneficiaries in Loreto’s insurance
policies remains valid.

Because no legal proscription exists in naming as beneficiaries the

children of illicit relationships by the insured, the shares of Eva in the
insurance proceeds, whether forfeited by the court in view of the prohibition
on donations under Article 739 of the Civil Code or by the insurers
themselves for reasons based on the insurance contracts, must be
awarded to the said illegitimate children, the designated beneficiaries, to
the exclusion of petitioners.

It is only in cases where the insured has not designated any

beneficiary, or when the designated beneficiary is disqualified by law to
receive the proceeds, that the insurance policy proceeds shall redound to
the benefit of the estate of the insured.
ARIQUEZ, CEDDIE I.

8. SUBJECT MATTER: BENEFICIARIES

CASE TITLE: SOUTHERN LUZON EMPLOYEES’ ASS. V. GOLPEO, ET

AL., 96 PHIL. 83 October 30, 1954
PARAS, C.J.

FACTS:
Roman Concepcion was the husband of Juanita Golpeo and common
law husband of Aquilina Maloles and Elsie Hicban, the rest of the named in
this case are his children. He was one of the members of Southern Luzon
Employees' Association composed of laborers and employees of Laguna
Tayabas Bus Co, and Batangas Transportation Company, its purpose is
mutual aid of its members and their dependents in case of death.
In their resolution member may, put down his common-law wife as
his beneficiary and/or children had with her as the case may be; that in
case of a widower, he may put down his legitimate children with the first
marriage who are below 21 years of age, single, and may at the same time,
also name his common-law wife, if he has any, as dependents and/or
beneficiaries and that such person so named by the member will be sole
persons to be recognized by the Association regarding claims for
condolence contributions.
Roman listed as his beneficiaries his common law wife Aquillina and
his children. After his death, the association was able to collect voluntary
contributions amounting to P2, 505. There were three claimants of the said
contribution; Juanita and her children, Aquillina Maloles, and Elsie Hicban
and her child. Thus the association institutes in RTC Laguna the present
action for interpleading against the three claimants. RTC declared Aquilina
and her children as the sole beneficiary. Hence, this case.

ISSUE:
1. Whether or not the contract between Southern Luzon Employee's
Association and Roman Concepcion partook the nature of insurance and
thus, Insurance Law must be applied. If the contract is in the nature of
insurance; whether or not the amount in dispute belongs exclusively to the
beneficiaries.
ARIQUEZ, CEDDIE I.

2. Whether or not Aquillina Maloles, common law wife, cannot be

named as beneficiary for being contrary to law, moral or public policy.

HELD:
1. Yes. The Trial Court correctly ruled that while Southern Luzon
Employees' Association is not a regular insurance company; the death
benefit in question is analogous to insurance. Moreover, section 1628 of
the Revised Administrative Code defines a mutual benefit association as
one, among other, "providing for any method of accident or life insurance
among its members out of dues or assessments collected from the
membership."

The contract between the plaintiff and the deceased Roman A.

Concepcion partook of the nature of insurance and that, therefore, the
amount in question belonged exclusively to the beneficiaries. In case of Del
Val vs. Del Val, 29 Phil., 534: the proceeds of an insurance policy belong
exclusively to the beneficiary and not to the estate of the person whose life
was insured, and that such proceeds are the separate and individual
property of the beneficiary, and not of the heirs of the person whose life
was insured. This has been the doctrine in America but was adopted here
by virtue of Sec 428 of Code of Commerce which provides: "The amounts
which the underwriter must deliver to the person insured, in fulfillment of
the contract, shall be the property creditors of any kind whatsoever of the
person who effected the insurance in favor of the formers."

The contract of life insurance is a special contract and the destination

of the proceeds thereof is determined by special laws which deal
exclusively with that subject. The Civil Code has no provisions which relate
directly and specifically to life-insurance contract or to the destination of
life-insurance proceeds. That subject is regulate exclusively by the Code of
Commerce which provides for the terms of the contract, the relations of the
parties and the destination of the proceeds of the policy.
 
2. No. Juanita Golpeo, by her silence and actions, had acquiesced
in the illicit relations between her husband and appellee Aquilina Maloles,
appellant argument would certainly not apply to the children of Aquilina
likewise named beneficiaries by the deceased Roman A. Concepcion. As a
matter of a fact the new Civil Code recognized certain successional rights
of illegitimate children. (Article 287).
ARIQUEZ, CEDDIE I.

9. SUBJECT MATTER: BENEFICIARIES

CASE TITLE: BASILIA BERDIN VDA. DE CONSUEGRA, ET AL. VS.

GOVERNMENT SERVICE INSURANCE SYSTEM
G.R. NO. L-28093 JANUARY 30, 1971
ZALDIVAR, J.

FACTS:
The late Jose Consuegra, at the time of his death, was employed as
a shop foreman of the office of the District Engineer in the province of
Surigao del Norte. In his lifetime, Consuegra contracted two marriages, the
first with herein respondent Rosario Diaz, out of which marriage were born
two children; and the second, which was contracted in good faith while the
first marriage was subsisting, with herein petitioner Basilia Berdin in the
same parish and municipality, out of which marriage were born seven
children. It is the contention of appellants that the designated beneficiaries
in the life insurance of the late Jose Consuegra should also be the
exclusive beneficiaries in the retirement insurance of said deceased. In
other words, it is the submission of appellants that because the deceased
Jose Consuegra failed to designate the beneficiaries in his retirement
insurance, the appellants who were the beneficiaries named in the life
insurance should automatically be considered the beneficiaries to receive
the retirement insurance benefits.

ISSUE:
Whether or not the designated life insurance beneficiaries of the late
Jose Consuegra are also the exclusive beneficiaries in the retirement
insurance of the said deceased

RULING:
No, the beneficiary named in the life insurance does not automatically
become the beneficiary in the retirement insurance unless the same
beneficiary in the life insurance is so designated in the application for
retirement insurance. In the case of the proceeds of a life insurance, the
same are paid to whoever is named the beneficiary in the life insurance
policy. As in the case of a life insurance provided for in the Insurance Act
(Act 2427, as amended), the beneficiary in a life insurance under the GSIS
ARIQUEZ, CEDDIE I.

may not necessarily be a heir of the insured. The insured in a life insurance
may designate any person as beneficiary unless disqualified to be so under
the provisions of the Civil Code. And in the absence of any beneficiary
named in the life insurance policy, the proceeds of the insurance will go to
the estate of the insured. Retirement insurance is primarily intended for the
benefit of the employee — to provide for his old age, or incapacity, after
rendering service in the government for a required number of years. If the
employee reaches the age of retirement, he gets the retirement benefits
even to the exclusion of the beneficiary or beneficiaries named in his
application for retirement insurance. The beneficiary of the retirement
insurance can only claim the proceeds of the retirement insurance if the
employee dies before retirement. If the employee failed or overlooked to
state the beneficiary of his retirement insurance, the retirement benefits will
accrue to his estate and will be given to his legal heirs in accordance with
law, as in the case of a life insurance if no beneficiary is named in the
insurance policy.
ARIQUEZ, CEDDIE I.

10. SUBJECT MATTER: BENEFICIARIES

CASE TITLE: The Insular Life Ass. Co, Ltd. v. Ebrado

G.R. No. L-44059 80 SCRA 181 October 28, 1977
MARTIN, J.

FACTS:
Buenaventura was married to Pascuala with whom he had six. Later
on however, he started living with Carponia although he was still legally
married to Pascuala and had not legally separated from her. While living
with Carponia, Buenaventura obtained an insurance policy from Insular Life
Assurance Co. with a rider for accidental death benefit and designated
Carponia as the revocable beneficiary, referring her therein as his wife.
Barely more than a year after obtaining the policy, Buenaventura died when
he was hit by a falling branch of a tree.

Carponia filed a claim for the proceeds of the Policy as the

designated beneficiary therein, although she admits that she and the
insured Buenaventura were merely living as husband and wife without the
benefit of marriage.

Pascuala also filed her claim as the widow of the deceased insured.
She asserts that she is the one entitled to the insurance proceeds, not the
common-law wife, Carponia. In view of the conflicting claims, Insular Life
brought the matter to court interpleading both parties in the case. The trial
court ruled in favor of Pascuala.

ISSUE:
Whether or not a common-law wife named as beneficiary in the life
insurance policy of a legally married man can claim the proceeds in case of
death of the latter?

HELD:
No. The word "interest" highly suggests that the provision refers only
to the "insured" and not to the beneficiary, since a contract of insurance is
personal in character. Otherwise, the prohibitory laws against illicit
ARIQUEZ, CEDDIE I.

relationships especially on property and descent will be rendered nugatory,

as the same could easily be circumvented by modes of insurance.

When not otherwise specifically provided for by the Insurance Law,

the contract of life insurance is governed by the general rules of the civil
law regulating contracts. And under Article 2012 of the same Code, any
person who is forbidden from receiving any donation under Article 739
cannot be named beneficiary of a fife insurance policy by the person who
cannot make a donation to him. Common-law spouses are barred from
receiving donations from each other.

Article 739 provides that void donations are those made between
persons who were guilty of adultery or concubinage at the time of donation.
There is every reason to hold that the bar in donations between legitimate
spouses and those between illegitimate ones should be enforced in life
insurance policies since the same are based on similar consideration. So
long as marriage remains the threshold of family laws, reason and morality
dictate that the impediments imposed upon married couple should likewise
be imposed upon extra-marital relationship.

Article 739 may effectuate. The article says that in the case referred
to in No. 1, the action for declaration of nullity may be brought by the
spouse of the donor or donee; and the guilty of the donee may be proved
by preponderance of evidence in the same action. The underscored clause
neatly conveys that no criminal conviction for the offense is a condition
precedent. The law plainly states that the guilt of the party may be proved
“in the same acting for declaration of nullity of donation.” And, it would be
sufficient if evidence preponderates.

The insured was married to Pascuala Ebrado with whom she has six
legitimate children. He was also living in with his common-law wife with
whom he has two children.
ARIQUEZ, CEDDIE I.

11. SUBJECT MATTER: INSURABLE INTEREST

CASE TITLE: SPS. NILO CHA AND STELLA UY CHA, ET. AL. VS.
COURT OF APPEALS , ET. AL.
G.R. NO. 124520 August 18, 1997
PADILLA, J.

FACTS:
Petitioner-spouses Nilo Cha and Stella Uy-Cha, entered into a one-
year lease contract with private respondent CKS Dev’t Corp., on October 5,
1988. CKS impose a condition in the contract stated that: xxx. The
LESSEE shall not insure against fire the chattels, merchandise, textiles,
goods and effects placed at any stall or store or space in the leased
premises w/o first obtaining the written consent and approval of the
LESSOR. If the LESSEE obtain(s) the insurance thereof w/o the consent of
the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own benefit.

Notwithstanding the above stipulation in the lease contract, the Cha

spouses insured against loss by fire their merchandise inside the leased
premises for Five Hundred Thousand (P500,000.00) valued policy w/ the
United Insurance Co., Inc. w/o the written consent of private respondents
CKS.

On the day the leased contract was to expire, fire broke out inside the
leased premises destroying the goods of the spouses. When CKS learned
of the insurance earlier procured by the Cha spouses (without its consent),
it wrote the insurer (United) a demand letter asking that the proceeds of the
insurance contract (between the Cha spouses and United) be paid directly
to CKS, based on its lease contract with Cha spouses.

ISSUE:
Whether or not CKS recover from the insurer the proceeds of the
insurance procured by Cha spouses

HELD:
ARIQUEZ, CEDDIE I.

CKS cannot recover. Sec. 18 of RA 10607 provides that no contract

or policy of insurance on property shall be enforceable except for the
benefit of some person having an insurable interest in the property insured.
A non-life insurance policy such as the fire insurance policy taken by
the Cha spouses over their merchandise is a contract of indemnity.
Insurable interest in the property insured must exist at the time the
insurance takes effect and at the time the loss occurs (Sec. 19). Insurable
interest in property insured is based on sound public policy: to prevent a
person from taking out an insurable policy on property upon which he has
no insurable interest and collecting the proceeds of said property in case of
loss. In such a case the contract of insurance is a mere wager which is
void (Sec. 25).

It cannot be denied that CKS has no insurable interest in the goods

and merchandise inside the leased premises. Therefore CKS cannot be a
beneficiary of the fire insurance policy taken by Cha spouses. The
automatic assignment of the policy to CKS under the provision of the lease
contract is void for being contrary to law and/or public policy. The proceeds
of the fire insurance policy thus rightfully belong to the spouses Cha. The
insurer cannot be compelled to pay the proceeds of the policy to a person
(CKS) who has no insurable interest in the property insured.
ARIQUEZ, CEDDIE I.

12. SUBJECT MATTER: INSURABLE INTEREST

CASE TITLE: GAISANO CAGAYAN, INC. VS. INS. CO. OF NORTH

AMERICA
G.R. NO. 147839 JUNE 8, 2006
AUSTRIA-MARTINEZ, J.

FACTS:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler
Blue Jeans and Levi Strauss Phil. Inc. (LSPI)-is distributor of Levis in the
Phils. IMC and LSPI obtained fire insurance policies with book
endorsements from Insurance Company of North America (ICNA). The
insurance policies covered book debts in connection with ready-made
clothings delivered or sold to customers of the Insured anywhere in the
Philippines. Book debts are unpaid account still appearing in the Book of
Account of the Insured 45 days after the time of the loss covered according
to the Policy.
Gaisano Superstore Complex, owned by Gaisano Cagayan, is a
customer and dealer of IMC and LSPI products. Then in Feb 1991, it was
consumed by fire where goods sold by IMC and LSPI were lost or
destroyed.

In Feb. 04,1992, ICNA filed a complaint for damages against Gaisano

Cagayan. ICNA asserted that IMC and LSPI filed their respective claims
under their separate insurance policies. ICNA maintained that as of Feb.
25, 1991, Gaisano has unpaid accounts with IMC on the sale and delivery
of the clothing materials amounting to P 2,119,205.00 while LSPI has
P535,613.00.

That ICNA paid the claims of IMC and LSPI, and now has
subrogation rights when it paid IMC and LSPI. That ICNA demanded
payment from Gaisano but it was unheeded.

Meanwhile, Gaisano refused saying that property covered by the

insurance policies were destroyed due to fortuitous events/force majeure.
ARIQUEZ, CEDDIE I.

Gaisano’s right of subrogation has no basis as there was no breach of

contract committed by Gaisano since the loss was due to fire which it could
not prevent or foresee. IMC and LSPI never informed Gaisano that they
insured their properties that it never consented to paying the claim of the
insured.

RTC dismissed ICNA complaint saying that fire was purely incidental-
not attributable to the negligence of the petitioner that it was not
established that Gaisano is the debtor of IMC and LSPI. Base on the
wordings of the sales invoice, IMC and LSPI retained ownership of the
delivered goods and must bear the loss.

CA reversed RTC’s decision deciding that the sales invoices are

proofs of sale; that loss of the goods in the fire must be borne by petitioner
and the petitioner's obligation to IMC and LSPI is not the delivery of the lost
goods but the payment of its unpaid account.
ISSUE:
Whether IMC and LSPI have insurable interest over the goods

HELD:
In this case, the questioned insurance policies provide coverage on
book debts in connection with ready-made clothing materials which have
been sold or delivered to various customers and dealers of the Insured
anywhere in the Philippines. Nowhere is it provided in the questioned
insurance policies that the subject insurance is the goods sold and
delivered to the customers and dealers of the insured.
They have an insurable interest until full payment of the value of the
delivered goods. Unlike the civil law concept of res perit domino, where
ownership is the basis for consideration of who bears the risk of loss, in
property insurance, one's interest is not determined by concept of title, but
whether insured has substantial economic interest in the property.
Section 13 of our Insurance Code defines insurable interest as "every
interest in property, whether real or personal, or any relation thereto, or
liability in respect thereof, of such nature that a contemplated peril might
directly damnify the insured."
Section 14 of the same Code, an insurable interest in property may
consist in: (a) an existing interest; (b) an inchoate interest founded on
ARIQUEZ, CEDDIE I.

existing interest; or (c) an expectancy, coupled with an existing interest in

that out of which the expectancy arises. 

13. SUBJECT MATTER: INSURABLE INTEREST

CASE TITLE: VICENTE ONG LIM SING, JR. VS. FEB LEASING &
FINANCE CORP
G.R. NO. 168115 JUNE 8, 2007
NACHURA, J.

FACTS:
On March 9, 1995, FEB Leasing and Finance Corporation (FEB)
entered into a lease of equipment and motor vehicles with JVL Food
Products (JVL). On the same date, Vicente Ong Lim Sing, Jr. executed an
Individual Guaranty Agreement with FEB to guarantee the prompt and
faithful performance of the terms and conditions of the aforesaid lease
agreement. Under the contract, JVL was obliged to pay FEB an aggregate
gross monthly rental of P 170,494.00.

However, JVL defaulted in the payment of the monthly rentals,

thereafter, on August 23, 2000, FEB sent a letter to JVL demanding
payment of the said amount. JVL and Lim admitted the existence of the
lease agreement but asserted that it is in reality a sale of equipment on
instalment basis, with FEB acting as the financier. JVL and Lim claimed
that this intention was apparent from the fact that they were made to
believe that when full payment was effected, a Deed of Sale will be
executed by FEB as vendor in favor of JVL and Lim as vendees.

ISSUE:
Whether or not JVL as a lessee have an insurable interest over the
leased items

HELD:
Yes. It has been held that the test of insurable interest in property is
whether the assured has a right, title or interest therein that he will be
benefited by its preservation and continued existence or suffer a direct
pecuniary loss from its destruction or injury by the peril insured against.
Section 17 of the Insurance Code provides that the measure of an
insurable interest in property is the extent to which the insured might be
ARIQUEZ, CEDDIE I.

damnified by loss or injury thereof. Thus, in the instant case, JVL is the one
which will be directly damnified in case of loss, damage, or destruction of
any of the properties leased.
Moreover, the stipulation in Section 14 of the leased contract, that the
equipment shall be insured at the cost and expense of the lessee against
loss, damage, or destruction from fire, theft, accident, or other insurable
risk for the full term of the lease, is a binding and valid stipulation in such
contractual arrangement.
Therefore, the petitioner, as a lessee, has an insurable interest in the
equipment and motor vehicles leased.
ARIQUEZ, CEDDIE I.

14. SUBJECT MATTER: CONCEALMENT

CASE TITLE: GREAT PACIFIC LIFE ASS. CORP. VS. CA AND

MEDARDA V. LEUTERIO
G.R. NO. 113899 OCTOBER 13, 1999
QUISUMBING, J.

FACTS:
Grepalife and DBP executed a group life insurance for eligible
housing loan mortgagors of DBP. Dr. Wilfredo Leuterio applied and was
later awarded with an insurance coverage of P86,200.00.

Dr. Leuterio died in 1984 due to massive cerebral hemmorhage. DBP

filed an insurance claim which Grepalife denied asserting that Dr. Leuterio
was not physically health when he applied for insurance.

His Widow filed a complaint against Grepalife which was granted by

the Court since Grepalife cannot prove the alleged concealment. CA
sustained the RTC Decision.

ISSUES:
1. Whether the Court of Appeals erred in holding petitioner liable to
DBP as beneficiary in a group life insurance contract from a complaint filed
by the widow of the decedent/mortgagor?

2. Whether the Court of Appeals erred in not finding that Dr. Leuterio
concealed that he had hypertension, which would vitiate the insurance
contract?

3. Whether the Court of Appeals erred in holding Grepalife liable in

the amount of eighty six thousand, two hundred (P86,200.00) pesos
without proof of the actual outstanding mortgage payable by the mortgagor
to DBP.

HELD:
ARIQUEZ, CEDDIE I.

(1) The insured private respondent did not cede to the mortgagee all
his rights or interests in the insurance, the policy stating that: “In the event
of the debtor ’ s death before his indebtedness with the Creditor [DBP] shall
have been fully paid, an amount to pay the outstanding indebtedness shall
first be paid to the creditor and the balance of sum assured, if there is any,
shall then be paid to the beneficiary/ies designated by the debtor.” When
DBP’ s claim was denied, it collected the debt from the mortgagor and took
the necessary action of foreclosure on the residential lot of private
respondent.

(2) The medical findings were not conclusive because Dr. Mejia did
not conduct an autopsy on the body of the decedent. The medical
certificate stated that hypertension was “the possible cause of death.”
Hence, the statement of the physician was properly considered by the trial
court as hearsay.

(3) A life insurance policy is a valued policy. Unless the interest of a

person insured is susceptible of exact pecuniary measurement, the
measure of indemnity under a policy of insurance upon life or health is the
sum fixed in the policy. The mortgagor paid the premium according to the
coverage of his insurance. In the event of the debtor ’ s death before his
indebtedness with the creditor shall have been fully paid, an amount to pay
the outstanding indebtedness shall first be paid to the creditor. DBP
foreclosed one of the deceased person’s lots to satisfy the mortgage.
Hence, the insurance proceeds shall inure to the benefit of the heirs of the
deceased person or his beneficiaries.
ARIQUEZ, CEDDIE I.

15. SUBJECT MATTER: CONCEALMENT

CASE TITLE: NEW LIFE ENTERPRISES V. CA

G.R. NO. 94071 MARCH 31, 1992 207 SCRA 669
REGALADO, J.

FACTS:
Julian Sy and Jose Sy Bang have formed a business partnership in
Lucena City under the business name of New Life Enterprises, which is
engaged in the sale of construction materials at its place of business, a
two-storey building situated at Iyam, Lucena City. Julian Sy insured the
stocks in trade of New Life Enterprises with Western Guaranty Corporation,
Reliance Surety and Insurance. Co., Inc., and Equitable Insurance
Corporation.

On May 15, 1981, Western Guaranty Corporation issued Fire

Insurance Policy No. 37201 in the amount of P350,000.00. This policy was
renewed on May 13, 1982. On July 30,1981, Reliance Surety and
Insurance Co., Inc. issued Fire Insurance Policy No. 69135 in the amount
of P300,000.00. It was renewed under Renewal Certificate No. 41997. An
additional insurance was issued by the same company on November 12,
1981 under Fire Insurance Policy No. 71547 in the amount of P700,000.00.

On February 8, 1982, Equitable Insurance Corporation issued Fire

Insurance Policy No. 39328 in the amount of P200,000.00. The stocks in
the trade inside said building were insured against fire in the total amount
of P1,550,000.00. About 2:00 o'clock in the morning of October 19, 1982,
the building occupied by the New Life Enterprises was gutted by fire and
the building and the stocks inside were burned. After the fire, Julian Sy
went to the three (3) insurance companies to file his claim. He submitted
the fire clearance, the insurance policies and inventory of stocks.

However, the three (3) insurance companies denied Julian’s claim for
insurance. The letters of denial were of the same tenor saying that the
ARIQUEZ, CEDDIE I.

policy conditions were violated resulting to the denial of insurance claim.

Thus, petitioners filed separate civil actions against the three (3) insurance
companies before the RTC of Lucena City.

The cases were consolidated for trial and thereafter, the RTC
rendered its decision in favor of the petitioners, ordering the defendants to
insurance claims unreasonably denied by them including interests and
attorney’s fees. Aggrieved, private respondents appealed to the CA, which
reversed the judgment of the trial court. Hence the petition for certiorari
seeking the nullification of the decision of the respondent Court. Before the
SC, the petitioners contend that they are not to be blamed for the
omissions, alleging that insurance agent Leon Alvarez (for Western) and
Yap Kam Chuan (for Reliance and Equitable) knew about the existence of
the additional insurance coverage and that they were not informed about
the requirement that such other or additional insurance should be stated in
the policy, as they have not even read policies.

ISSUE:
Whether or not there is concealment on the part of petitioners thereby
resulting in the forfeiture of all the benefits

HELD:
The Court ruled in the affirmative. In resolving the issue, the Court
stated that there was condition as uniformly contained in the insurance
policies acquired by petitioners, which provides that: The insured shall give
notice to the Company of any insurance or insurance already, or which may
subsequently be effected, covering any of the property or properties
consisting of stocks in trade, goods in process and/or inventories only
hereby insured, and unless such notice be given and the particulars of such
insurance or insurances be stated therein or endorsed on this policy
pursuant to Section 50 of the Insurance Code, by or on behalf of the
Company before the occurrence of any loss or damage, all benefits under
this policy shall be deemed forfeited, provided however, that this condition
shall not apply when the total insurance or insurances in force at the time of
loss or damage is not more than P200,000.00.

In the present case, the petitioners admitted that the coverage by

other insurance or co-insurance effected or subsequently arranged by them
were neither stated nor endorsed in the policies of the three (3) private
respondents, warranting forfeiture of all benefits thereunder.
ARIQUEZ, CEDDIE I.

The Court further explained that the parties must abide by the terms
of the contract because such terms constitute the measure of the insurer’s
liability and compliance therewith is a condition precedent to the insured’s
right of recovery from the insurer. It was also added by the Court that
obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
The Court further justified that the insurance policies, in case of
failure to comply with the “Other Insurance Clause”, also provide if any
false declaration be made or used in support thereof, all benefits under this
Policy shall be forfeited. Thus, petitioners cannot claim from Western
Guaranty Corporation, Reliance Surety & Insurance, Co., Inc., and
Equitable Insurance Corporation.
ARIQUEZ, CEDDIE I.

16. SUBJECT MATTER: CONCEALMENT

CASE TITLE: MA. LOURDES S. FLORENDO vs. PHILAM PLANS, INC.,

PERLA ABCEDE, MA. CELESTE ABCEDE
G.R. No. 186983 February 22, 2012
J. Roberto A. Abad

FACTS:
Manuel Forendo filed an application for comprehensive pension plan
with respondent PhilamPlans, Inc. (Philam Plans). Manuel signed the
application and left to Perla (the soliciting agent) the task of supplying the
information needed in the application (Perla was the one who convinced
Manuel to get the plan).
Respondent Ma. Celeste Abcede, Perla’s daughter, signed the
application as sales counselor. (There were blanks especially in the
declaration of Manuel’s health condition that were not filled out. Philam
Plans issued Pension Plan Agreement to Manuel, with petitioner Ma.
Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his
quarterly premiums.
Eleven months later, Manuel died of blood poisoning. Subsequently,
Lourdes filed a claim with Philam Plans for the payment of the benefits
under her husband’s plan but Philam Plans declined her claim, prompting
her to file the present action against the pension plan company before the
Regional Trial Court (RTC) of Quezon City (it was found that Manuel was
on maintenance medicine for his heart condition and had an implanted
pacemaker).
Lourdes (petitioner) points out that the unfilled spaces in Manuel's
pension plan application relating to his medical history, Philam Plans
should have returned it to him for completion. Philam Plans never queried
Manuel directly regarding the state of his health. It made no difference if
Manuel failed to reveal the fact that he had a pacemaker implant in the
early 70s since this did not fall within the five-year timeframe that the
disclosure contemplated. The mere fact that Manuel signed the application
ARIQUEZ, CEDDIE I.

in blank and let Perla fill in the required details did not make her his agent
and bind him to her concealment of his true state of health.
The RTC ruled in favor of Ma. Lourdes. Court of Appeals reversed
the RTC decision holding that insurance policies are traditionally contracts
uberrimae fidae or contracts of utmost good faith. Hence, this appeal.

ISSUE:
Whether or not Ma. Lourdes could claim benefits as the beneficiary of
her husband under the insurance plan despite consideration that her
husband Manuel concealed the true condition of his health

HELD:
The Supreme Court answers this to the negative and AFFIRMED in
its entirety the decision of the Court of Appeals. Manuel signed the pension
plan application, he adopted as his own the written representations and
declarations embodied in it. It is clear from these representations that he
concealed his chronic heart ailment and diabetes from Philam Plans.
Manuel cannot sign the application and disown the responsibility for having
it filled up (by another person).
Manuel still had his pacemaker when he applied for a pension plan in
October 1997 is an admission that he remained under treatment for
irregular heartbeat within five years preceding that application. Manuel had
been taking medicine for his heart condition and diabetes when he
submitted his pension plan application. These clearly fell within the five-
year period.
Pursuant to Section 27 of the Insurance Code (A concealment,
whether intentional or unintentional entitles the injured party to rescind a
contract of insurance). Assuming that it was Perla who filled up the
application form, Manuel is still bound by what it contains since he certified
that he authorized her action. Philam Plans had every right to act on the
faith of that certification.
Moreover, the comprehensive pension plan that Philam Plans issued
contains a one-year incontestability period.
Since Manuel died on the eleventh month following the issuance of
his plan, the one year incontestability period has not yet set in.
Consequently, Philam Plans was not barred from questioning Lourdes’
entitlement to the benefits of her husband’s pension plan.
ARIQUEZ, CEDDIE I.

Ma. Lourdes was not able to claim benefits as the beneficiary of her
husband under the insurance plan.
17. SUBJECT MATTER: CONCEALMENT

CASE TITLE: GREAT PACIFIC LIFE ASS. CO. VS. CA AND NGO HING
G.R. NO. L-31845 APRIL 30, 1979
DE CASTRO, J.

FACTS:
Private respondent Ngo Hing filed an application with the Great
Pacific Life for a twenty-year endownment policy on the life of his one-year
old daughter Helen Go and received a binding deposit receipt with the
following conditions: (1) that the company shall be satisfied that the
applicant was insurable on standard rates; (2) that if the company does not
accept the application and offers to issue a policy for a different plan, the
insurance contract shall not be binding until the applicant accepts the policy
offered; otherwise, the deposit shall be refunded; and (3) that if the
applicant is not insurable according to the standard rates, and the company
disapproves the application, the insurance applied for shall not be in force
at any time, and the premium paid shall be returned to the applicant.
The application was disapproved. The non-acceptance of the
insurance plan by Pacific Life was allegedly not communicated by petitioner
Mondragon to private respondent Ngo Hing. Helen Go died. Thereupon,
private respondent sought the payment of the proceeds of the insurance,
but having failed in his effort, he filed the action for the recovery of the
same before the Court of First Instance of Cebu, which rendered the
adverse decision as earlier referred to against both petitioners.

ISSUE:
Whether or not the binding deposit receipt constituted a temporary
contract of life insurance.

HELD:
NO. Clearly implied from the aforesaid conditions is that the binding
deposit receipt in question is merely an acknowledgment, on behalf of the
company, that the latter's branch office had received from the applicant the
insurance premium and had accepted the application subject for
processing by the insurance company; and that the latter will either
ARIQUEZ, CEDDIE I.

approve or reject the same on the basis of whether or not the applicant is
"insurable on standard rates." Since petitioner Pacific Life disapproved the
insurance application of respondent Ngo Hing, the binding deposit receipt
in question had never become in force at any time.
ARIQUEZ, CEDDIE I.

18. SUBJECT MATTER: CONCEALMENT

CASE TITLE: IGNACIO SATURNINO, in his own behalf and as

JUDICIAL GURDIAN OF CARLOS SATURNINO, minor VS. THE
PHILIPPINE AMERICAN LIFE INSRURANCE COMPANY
7 SCRA 316, 319 February 28, 1963
MAKALINTAL, J.

FACTS:
She contracted a 20 year endowment non-medical life insurance with
the appellee. Then she was operated on for cancer, 2 months prior to the
insurance of the policy. She did not make a disclosure in her application for
insurance. She stated therein that she did not undergone any operation or
suffered any injury within the preceding 5 years. She also stated that she
had never been treated for, nor did she ever have any illness or disease
peculiar to her sex, particularly of the breast, ovaries, uterus and menstrual
disorders.
The application also recited that the declarations of Saturnino
constituted a further basis for the issuance of the policy. On September 19,
1958 Saturnino died of pneumonia, secondary to influenza.

ISSUE:
Whether or not the insured made such false representation of
material facts as to avoid the policy

HELD:
YES. There can be no dispute that the information given by her in the
application for insurance was false, namely, that she never had cancer or
tumors or consulted any physician or undergone any operation within the
preceding period of 5 years. 

The Insurance Law provides that “materiality is to be determined not

by the event, but solely by the probable and reasonable influence of the
facts upon the party to whom the communication is due, in forming his
estimate of the proposed contract, or making his inquiries. The contention
of appellant is that the facts subject of the representation were not material
in view of the non-medical nature of the insurance applied for, which does
ARIQUEZ, CEDDIE I.

away with the usual requirement of medical examination before the policy
is issued. The contention is without merit. 
19. SUBJECT MATTER: CONCEALMENT

CASE TITLE: MANILA BANKERS LIFE INSURANCE CORP. VS.

CRESENCIA P. ABAN
G.R. NO. 175666 JULY 29, 2013
DEL CASTILLO, J.

FACTS:
On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy
from Manila Bankers Life Insurance Corporation (Bankers Life), designating
respondent Cresencia P. Aban (Aban), her niece, as her beneficiary.
Petitioner issued Insurance Policy No. 747411 (the policy), with a face
value of P 100,000.00, in Sotero’s favor on August 30, 1993, after the
requisite medical examination and payment of the insurance premium. On
April 10, 1996, when the insurance policy had been in force for more than
two years and seven months, Sotero died. Respondent filed a claim for the
insurance proceeds on July 9, 1996. Petitioner conducted an investigation
into the claim, and came out with the following findings: 1. Sotero did not
personally apply for insurance coverage, as she was illiterate; 2. Sotero
was sickly since 1990; 3. Sotero did not have the financial capability to pay
the insurance premiums on Insurance Policy No. 747411; 4. Sotero did not
sign the July 3, 1993 application for insurance; and 5. Respondent was the
one who filed the insurance application, and x x x designated herself as the
beneficiary. For the above reasons, petitioner denied respondent’s claim on
April 16, 1997 and refunded the premiums paid on the policy.

ISSUE:
Whether or not Manila Bankers is barred from denying the insurance
claims based on fraud or concealment.

HELD:
Yes. The “incontestability clause” is a provision in law that after a
policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two (2) years
from the date of its issue or of its last reinstatement, the insurer cannot
prove that the policy is void ab initio or is rescindible by reason of
ARIQUEZ, CEDDIE I.

fraudulent concealment or misrepresentation of the insured or his agent.

The purpose of the law is to give protection to the insured or his beneficiary
by limiting the rescinding of the contract of insurance on the ground of
fraudulent concealment or misrepresentation to a period of only two (2)
years from the issuance of the policy or its last reinstatement.

The insurer is deemed to have the necessary facilities to discover

such fraudulent concealment or misrepresentation within a period of two (2)
years. It is not fair for the insurer to collect the premiums as long as the
insured is still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the
beneficiary to recover under the policy.

Section 48 serves a noble purpose, as it regulates the actions of both

the insurer and the insured. Under the provision, an insurer is given two
years – from the effectivity of a life insurance contract and while the insured
is alive – to discover or prove that the policy is void ab initio or is
rescindible by reason of the fraudulent concealment or misrepresentation of
the insured or his agent. After the two-year period lapses, or when the
insured dies within the period, the insurer must make good on the policy,
even though the policy was obtained by fraud, concealment, or
misrepresentation. This is not to say that insurance fraud must be
rewarded, but that insurers who recklessly and indiscriminately solicit and
obtain business must be penalized, for such recklessness and lack of
discrimination ultimately work to the detriment of bona fide takers of
insurance and the public in general.
ARIQUEZ, CEDDIE I.

20. SUBJECT MATTER: CONCEALMENT

CASE TITLE: SUN LIFE OF CANADA (PHILS), INC. VS. MA. DAISY'S.
SIBYA, ET. AL.
G.R. NO. 211212 JUNE 08, 2016
REYES, J.

FACTS:
On January 10, 2001, Atty. Jesus Sibya, Jr. applied for life insurance
with Sun Life. In his Application for Insurance, he indicated that he had
sought advice for kidney problems. On February 5, 2001, Sun Life
approved Atty. Jesus Jr.'s application and issued his Insurance Policy. On
May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San
Joaquin, Iloilo.

Sun Life denied the claim on the ground that the details on Atty.
Jesus Jr.'s medical history were not disclosed in his application.
Simultaneously, Sun Life tendered a check representing the refund of the
premiums paid by Atty. Jesus Jr. The respondents claimed that Atty. Jesus
Jr. did not commit misrepresentation in his application for insurance.

The Regional Trial Court held that Sun Life violated Sections 241,
paragraph 1(b), (d), and (e) and 242 of the Insurance Code when it refused
to pay the rightful claim of the respondents. The Court of Appeal affirmed
the RTC decision in ordering Sun Life to pay death benefits and damages
in favor of the respondents.

ISSUE:
Whether or not the CA erred when it affirmed the RTC decision
finding that there was no concealment or misrepresentation when Atty.
Jesus Jr. submitted his insurance application with Sun Life

HELD:
The petition has no merit. Section 48 of RA 10607, as it regulates the
actions of both the insurer and the insured. Under the provision, an insurer
is given two years - from the effectivity of a life insurance contract and while
ARIQUEZ, CEDDIE I.

the insured is alive - to discover or prove that the policy is void ab initio or is
rescindible by reason of the fraudulent concealment or misrepresentation of
the insured or his agent.
After the two-year period lapses, or when the insured dies within the
period, the insurer must make good on the policy, even though the policy
was obtained by fraud, concealment, or misrepresentation. 
In the present case, Sun Life issued Atty. Jesus Jr.'s policy on
February 5, 2001. Thus, it has two years from its issuance, to investigate
and verify whether the policy was obtained by fraud, concealment, or
misrepresentation.
Atty. Jesus Jr. admitted in his application his medical treatment for
kidney ailment. Moreover, he executed an authorization in favor of Sun Life
to conduct investigation in reference with his medical history.
Sun Life failed to clearly and satisfactorily establish its allegations,
and is therefore liable to pay the proceeds of the insurance.
ARIQUEZ, CEDDIE I.

21. SUBJECT MATTER: WARRANTIES

CASE TITLE: QUA CHEE GAN V. LAW UNION AND ROCK INSURANCE
CO., LTD., 98 PHIL. 85 (1955)
G.R. NO. L-4611 DECEMBER 17, 1955
REYES, JBL

FACTS:
Qua Chee Gan, a merchant of Albay, owned four bodegas which he
insured with Law Union & Rock Insurance Co., Ltd (Law Union) since
1937 and the lose made payable to the Philippine National Bank (PNB) as
mortgage of the hemp and crops, to the extent of its interest.

Fire of undetermined origin broke out in July 21, 1940, and lasted
almost one week, gutted and completely destroyed Bodegas Nos. 1, 2 and
4, with the merchandise stored therein. Plaintiff-appellee informed the
insurer by telegram on the same date; and on the next day, the fire
adjusters engaged by appellant insurance company and conducted an
extensive investigation.

The plaintiff having submitted the corresponding fire claims, with a

total of P398,562.81 (but reduced to the full amount of the insurance,
P370,000), the Insurance Company resisted payment, claiming violation of
warranties and conditions, filing of fraudulent claims, and that the fire had
been deliberately caused by the insured or by other persons in connivance
with him.

Que Chee Gan, with his brother, Qua Chee Pao, and some
employees of his, were indicted and tried in 1940 for the crime of arson, it
being claimed that they had set fire to the destroyed warehouses to collect
the insurance. They were, however, acquitted by the trial court in a final
decision dated July 9, 1941. Thereafter, the civil suit to collect the
insurance money proceeded to its trial which rendered a decision in favor
of the insured.

ISSUES:
ARIQUEZ, CEDDIE I.

(1) Whether or not the policies should be avoided for the reason that

there was a breach of warranty.

(2) Whether or not the insured violated the hemp warranty provision

against the storage of gasoline since insured admitted there were 36 cans
of gasoline in Bodega 2 which was a separate structure and not affected by
the fire.

HELD:
(1) Under the Memorandum of Warranty, there should be no less
than one hydrant for each 150 feet of external wall measurements of the
compound, and since bodegas insured had an external wall per meter of
1640 feet, the insured should have eleven hydrants in the compound, but
he only had two.
Even so, the insurer is barred by estoppel to claim violation of the fire
hydrants warranty, because knowing that the number of hydrants it
demanded never existed from the very beginning, the appellant
nevertheless issued the policies subject to such warranty and received the
corresponding premiums. The insurance company was aware, even before
the policies were issued, that in the premises there were only two hydrants
and two others were owned by the Municipality, contrary to the
requirements of the warranties in question.
It is usually held that where the insurer, at the time of the issuance of
a policy of insurance, has knowledge of existing facts which, if insisted on,
would invalidate the contract from its very inception, such knowledge
constitutes a waiver of conditions in the contract inconsistent with the facts,
and the insurer is stopped thereafter from asserting the breach of such
conditions.

xxx When an insurance company intends to executed a valid contract

in return for the premium received; and when the policy contains a
condition which renders it voidable at its inception, and this result is known
to the insurer, it will be presumed to have intended to waive the conditions
and to execute a binding contract xxx. (29 American Jurisprudence,
Insurance, section 807, at pp. 611-612.)

(2) It is worthy to find out that gasoline is not specifically mentioned

among the prohibited articles listed in the so-called hemp warranty.  The
clause relied upon by the insurer speaks of “oils”.  Ordinarily, oils mean
ARIQUEZ, CEDDIE I.

lubricants and not gasoline or kerosene.  Here again, by reason of the

exclusive control of the insurance company over the terms of the contract,
the ambiguity must be held strictly against the insurer and liberally in favor
of the insured, specially to avoid a forfeiture.
Furthermore, the gasoline kept was only incidental to the insured’s
business.  It is a well settled rule that keeping of inflammable oils in the
premises though prohibited by the policy does NOT void it if such keeping
is incidental to the business.  Also, the hemp warranty forbade the storage
only in the building to which the insurance applies, and/or in any building
communicating therewith; and it is undisputed that no gasoline was stored
in the burnt bodegas and that Bodega No. 2 which was where the gasoline
was found stood isolated from the other bodegas.
ARIQUEZ, CEDDIE I.

22. SUBJECT MATTER: DOUBLE INSURANCE

CASE TITLE: ARMANDO GEAGONIA vs. COURT OF APPEALS and

COUNTRY BANKERS INSURANCE CORPORATION
G.R. No. 114427 February 6, 1995
DAVIDE, JR., J.

FACTS:
The petitioner is the owner of Norman's Mart located in the public
market of San Francisco, Agusan del Sur. He obtained from the private
respondent, Country Bankers Insurance, a one- year fire insurance policy
No. F-146222 for P100,000.00 and covered the following: "Stock-in-trade
consisting principally of dry goods such as RTW's for men and women
wear and other usual to assured's business." The petitioner declared in the
policy under the subheading entitled CO-INSURANCE that Mercantile
Insurance Co., Inc. was the co-insurer for P50,000.00.
The policy required the insured to notify the insurer of any other
existing insurance. Otherwise, all benefits under said policy shall be
deemed forfeited, provided that the condition shall not apply when loss or
damage is not more than P200,000.00. Fire of accidental origin broke out
and the petitioner's insured stockin-trade were completely destroyed
prompting him to file with the private respondent a claim under the policy.
The private respondent denied the claim because it found that at the time
of the loss the petitioner's stocks-in-trade were likewise covered by other
fire insurance policies for P100,000.00 each, issued by the Cebu Branch of
the Philippines First Insurance Co., Inc. (PFIC). The basis of the private
respondent's denial was the petitioner's alleged violation of the policy
condition referring to “double insurance”. The petitioner then filed a
complaint against the private respondent with the Insurance Commission
(Case No. 3340) for the recovery of P100,000.00 under fire insurance
policy No. F-14622 and for attorney's fees and costs of litigation.
The Insurance Commission found that the petitioner did not violate
Condition 3 as he had no knowledge of the existence of the two fire
insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles
which procured the PFIC policies without informing him or securing his
consent; and that Cebu Tesing Textile, as his creditor, had insurable
interest on the stocks. Private respondent appealed to the Court of Appeals
ARIQUEZ, CEDDIE I.

where it reversed the decision of the Insurance Commission. Hence, this

petition.
ISSUE:
Whether or not there is a violation of “double insurance”

HELD:
No, the insurable interests of a mortgagor and a mortgagee on the
mortgaged property are distinct and separate. Since the two policies of the
PFIC do not cover the same interest as that covered by the policy of the
private respondent, hence, no double insurance exists. A double insurance
exists where the same person is insured by several insurers separately in
respect of the same subject and interest.

The conclusion is supported by the portion of the condition referring

to other insurance "covering any of the property or properties consisting of
stocks in trade, goods in process and/or inventories only hereby insured,"
and the portion regarding the insured's declaration on the subheading CO-
INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the
sum of P50,000.00, which in this case cannot be gainsaid to be double
insurance. The non-disclosure then of the former policies was not fatal to
the petitioner's right to recover on the private respondent's policy. 

Furthermore, by stating within Condition 3 itself that such condition

shall not apply if the total insurance in force at the time of loss does not
exceed P200,000.00, the private respondent was amenable to assume a
co-insurer's liability up to a loss not exceeding P200,000.00. What it had in
mind was to discourage over-insurance.

Indeed, the rationale behind the incorporation of "other insurance"

clause in fire policies is to prevent over-insurance and thus avert the
perpetration of fraud. When a property owner obtains insurance policies
from two or more insurers in a total amount that exceeds the property's
value, the insured may have an inducement to destroy the property for the
purpose of collecting the insurance. The public as well as the insurer is
interested in preventing a situation in which a fire would be profitable to the
insured.

WHEREFORE, the instant petition is hereby GRANTED.

ARIQUEZ, CEDDIE I.

23. SUBJECT MATTER: DOUBLE INSURANCE

CASE TITLE: MALAYAN INS. CO., INC. VS. PHILS. FIRST INS. CO., INC.
AND REPUTABLE FORWARDER SERVICES, INC.
G.R. NO. 184300 JULY 11, 2012
REYES, J.

FACTS:
Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent
Reputable Forwarder Services, Inc. (Reputable) had been annually
executing a contract of carriage, whereby the latter undertook to transport
and deliver the former’s products to its customers, dealers or salesmen. On
November 18, 1993, Wyeth procured Marine Policy No. MAR 13797
(Marine Policy) from respondent Philippines First Insurance Co., Inc.
(Philippines First) to secure its interest over its own products. Philippines
First thereby insured Wyeth’s nutritional, pharmaceutical and other
products usual or incidental to the insured’s business while the same were
being transported or shipped in the Philippines. The policy covers all risks
of direct physical loss or damage from any external cause, if by land, and
provides a limit of P6,000,000.00 per any one land vehicle.

On December 1, 1993, Wyeth executed its annual contract of

carriage with Reputable. It turned out, however, that the contract was not
signed by Wyeth’s representative/s. Nevertheless, it was admittedly signed
by Reputable’s representatives, the terms thereof faithfully observed by the
parties and, as previously stated, the same contract of carriage had been
annually executed by the parties every year since 1989. Under the
contract, Reputable undertook to answer for “all risks with respect to the
goods and shall be liable to the COMPANY (Wyeth), for the loss,
destruction, or damage of the goods/products due to any and all causes
whatsoever, including theft, robbery, flood, storm, earthquakes, lightning,
and other force majeure while the goods/products are in transit and until
actual delivery to the customers, salesmen, and dealers of the COMPANY”.
The contract also required Reputable to secure an insurance policy on
Wyeth’s goods. Thus, on February 11, 1994, Reputable signed a Special
Risk Insurance Policy (SR Policy) with petitioner Malayan for the amount of
ARIQUEZ, CEDDIE I.

P1,000,000.00. On October 6, 1994, during the effectivity of the Marine

Policy and SR Policy, Reputable received from Wyeth 1,000 boxes of
Promil infant formula worth P2,357,582.70 to be delivered by Reputable to
Mercury Drug Corporation in Libis, Quezon City.
Unfortunately, on the same date, the truck carrying Wyeth’s products
was hijacked by about 10 armed men. They threatened to kill the truck
driver and two of his helpers should they refuse to turn over the truck and
its contents to the said highway robbers. The hijacked truck was recovered
two weeks later without its cargo. Malayan questions its liability based on
sections 5 and 12 of the SR Policy.

ISSUE:
Whether or not there is double insurance in this case such that either
Section 5 or Section 12 of the SR Policy may be applied.

HELD:
No. By the express provision of Section 93 of the Insurance Code,
double insurance exists where the same person is insured by several
insurers separately in respect to the same subject and interest. The
requisites in order for double insurance to arise are as follows:
(1)The person insured is the same; 
(2)Two or more insurers insuring separately; 
(3)There is identity of subject matter; 
(4)There is identity of interest insured; and 
(5)There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR
Policy were both issued over the same subject matter, i.e. goods belonging
to Wyeth, and both covered the same peril insured against, it is, however,
beyond cavil that the said policies were issued to two different persons or
entities. It is undisputed that Wyeth is the recognized insured of Philippines
First under its Marine Policy, while Reputable is the recognized insured of
Malayan under the SR Policy. The fact that Reputable procured Malayan’s
SR Policy over the goods of Wyeth pursuant merely to the stipulated
requirement under its contract of carriage with the latter does not make
Reputable a mere agent of Wyeth in obtaining the said SR Policy.

The interest of Wyeth over the property subject matter of both

insurance contracts is also different and distinct from that of Reputable’s.
The policy issued by Philippines First was in consideration of the legal
ARIQUEZ, CEDDIE I.

and/or equitable interest of Wyeth over its own goods. On the other hand,
what was issued by Malayan to Reputable was over the latter’s insurable
interest over the safety of the goods, which may become the basis of the
latter’s liability in case of loss or damage to the property and falls within the
contemplation of Section 15 of the Insurance Code.

Therefore, even though the two concerned insurance policies were

issued over the same goods and cover the same risk, there arises no
double insurance since they were issued to two different persons/entities
having distinct insurable interests. Necessarily, over insurance by double
insurance cannot likewise exist. Hence, as correctly ruled by the RTC and
CA, neither Section 5 nor Section 12 of the SR Policy can be applied.
ARIQUEZ, CEDDIE I.

24. SUBJECT MATTER: NOTICE OF LOSS

CASE TITLE: PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC.

V. SWEET LINES, INC.
212 SCRA 194 AUGUST 5, 1992
REGALADO, J.

FACTS:
Vessel SS "VISHVA YASH" belonging to or operated by the foreign
common carrier, took on board cargoes for shipment to Manila and later for
transhipment to Davao consigned to the order of FEBTC of Manila, with
arrival notice to Tagum Plastics, Inc. (TPI), Davao. Cargoes were covered
by Bills of Lading issued by the foreign common carrier. The cargoes were
likewise insured by the TPI with Philippine American General Insurance
Co., Inc. (Philamgen). Said vessel arrived at Manila and discharged its
cargoes for transhipment to Davao. For this purpose, the foreign carrier
awaited and made use of the services of the vessel called M/V "Sweet
Love" owned and operated by Sweet Lines Inc. (SLI) interisland carrier.
The shipments were discharged from the interisland carrier into the custody
of the consignee. Some bags were shorthanded, missing, torn, spilled,
emptied or contaminated with foreign matters. In resisting the claim, SLI
raised prescription as its defense.

ISSUE:
Whether or not the notice requirement is a condition precedent for
their cause of action to arise.

HELD:
Yes. Paragraph 5 of the bills of lading which unequivocally prescribes
a time frame of 30 days for filing a claim with the carrier in case of loss of or
damage to the cargo and 60 days from accrual of the right of action for
instituting an action in court, both must concur. It has long been held that
Article 366 of the Code of Commerce applies not only to overland and river
transportation but also to maritime transportation. The filing of a claim with
the carrier within the time limitation therefor under Article 366 actually
constitutes a condition precedent to the accrual of a right of action against
a carrier for damages caused to the merchandise. The shipper or the
ARIQUEZ, CEDDIE I.

consignee must allege and prove the fulfillment of the condition and if he
omits such allegations and proof, no right of action against the carrier can
accrue in his favor. As the requirements are reasonable conditions
precedent, they are not limitations of action.

Being conditions precedent, their performance must precede a suit

for enforcement and the vesting of the right to file suit does not take place
until the happening of these conditions. Before an action can be
commenced all the essential elements of the cause of action must be
complete. All valid conditions precedent to the institution of the particular
action, whether prescribed by statute, fixed by agreement of the parties or
implied by law must be performed or complied with before commencing the
action, unless waived. There is neither any showing of compliance by TPI
with the requirement for the filing of a notice of claim within the prescribed
period. It may then be said that while they may possibly have a cause of
action, for failure to comply with the above condition precedent they lost
whatever right of action they may have in their favor or that remedial right
or right to relief had prescribed.

Provisions of the law on the matter would disclose that there is no

constitutional or statutory prohibition infirming par. 5 of subject Bill of
Lading. The stipulated period of 60 days is reasonable enough for them to
ascertain the facts and thereafter to sue, if need be, and the 60-day period
agreed upon by the parties which shortened the statutory period within
which to bring action for breach of contract is valid and binding. The
shortened period for filing suit is not unreasonable and has in fact been
generally recognized to be a valid business practice in the shipping
industry. Knowledge on the part of the carrier of the loss of or damage to
the goods deducible from the issuance of said report is not equivalent to
nor does it approximate the legal purpose served by the filing of the
requisite claim, that is, to promptly apprise the carrier about a consignee's
intention to file a claim and thus cause the prompt investigation of the
veracity and merit thereof for its protection.

It would be an unfair imposition to require the carrier, upon discovery

in the process of preparing the report on losses or damages of any and all
such loss or damage, to presume the existence of a claim against it when
at that time the carrier is expectedly concerned merely with accounting for
each and every shipment and assessing its condition. Unless and until a
notice of claim is therewith timely filed, the carrier cannot be expected to
ARIQUEZ, CEDDIE I.

presume that for every loss or damage tallied, a corresponding claim has
been filed or is already in existence as would alert it to the urgency for an
immediate investigation of the soundness of the claim. The report on losses
and damages is not the claim referred to and required by the bills of lading
for it does not fix responsibility for the loss or damage, but merely states
the condition of the goods shipped. The claim contemplated, in whatever
form, must be something more than a notice that the goods have been lost
or damaged; it must contain a claim for compensation or indicate an intent
to claim.
ARIQUEZ, CEDDIE I.

25. SUBJECT MATTER: PREMIUMS

CASE TITLE: JAIME T. GAISANO VS. DEVELOPMENT INSURANCE

AND SURETY CORP.
G.R. NO. 190702 FEB. 27, 2017
JARDELEZA, J.

FACTS:
Petitioner was the registered owner of a 1992 Mitsubishi Montero with
plate number GTJ-777 (vehicle), while respondent is a domestic
corporation engaged in the insurance business. On September 27, 1996,
respondent issued a comprehensive commercial vehicle policy to petitioner
in the amount of Pl,500,000.00 over the vehicle for a period of one year
commencing on September 27, 1996 up to September 27, 1997.
Respondent also issued two other commercial vehicle policies to petitioner
covering two other motor vehicles for the same period. To collect the
premiums and other charges on the policies, respondent's agent, Trans-
Pacific Underwriters Agency (Trans-Pacific), issued a statement of account
to petitioner's company, Noah's Ark Merchandising (Noah's Ark). Noah's
Ark immediately processed the payments and issued a Far East Bank
check dated September 27, 1996 payable to Trans-Pacific on the same
day. The check bearing the amount of Pl40,893.50 represents payment for
the three insurance policies, with P55,620.60 for the premium and other
charges over the vehicle. However, nobody from Trans-Pacific picked up
the check that day (September 27) because its president and general
manager, Rolando Herradura, was celebrating his birthday. Trans-Pacific
informed Noah's Ark that its messenger would get the check the next day,
September 28.

In the evening of September 27, 1996, while under the official

custody of Noah's Ark marketing manager Achilles Pacquing (Pacquing) as
a service company vehicle, the vehicle was stolen in the vicinity of SM
Megamall at Ortigas, Mandaluyong City. Pacquing reported the loss to the
Philippine National Police Traffic Management Command at Camp Crame
in Quezon City. Despite search and retrieval efforts, the vehicle was not
recovered. Oblivious of the incident, Trans-Pacific picked up the check the
next day, September 28. It issued an official receipt numbered 124713
dated September 28, 1996, acknowledging the receipt of P55,620.60 for
ARIQUEZ, CEDDIE I.

the premium and other charges over the vehicle. The check issued to
Trans Pacific for Pl40,893.50 was deposited with Metrobank for
encashment on October 1, 1996.

ISSUE:
Whether there is a binding insurance contract between petitioner and
respondent.

HELD:
The court denies the petition. Insurance is a contract whereby one
undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event. Just like any other
contract, it requires a cause or consideration. The consideration is the
premium, which must be paid at the time and in the way and manner
specified in the policy. If not so paid, the policy will lapse and be forfeited
by its own terms. The law, however, limits the parties' autonomy as to when
payment of premium may be made for the contract to take effect. The
general rule in insurance laws is that unless the premium is paid, the
insurance policy is not valid and binding.

Section 77 of the Insurance Code, applicable at the time of the

issuance of the policy, provides: Sec. 77. An insurer is entitled to payment
of the premium as soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid, except in the case of a
life or an industrial life policy whenever the grace period provision applies.
ARIQUEZ, CEDDIE I.

26. SUBJECT MATTER: PREMIUMS

CASE TITLE: ARCE V. CAPITAL INSURANCE & SURETY CO., INC.

117 SCRA 63 (1982)
ABAD-SANTOS, J.

FACTS:
The petitioner, the insured, was the owner of the residential house in
Tondo, Manila which had been insured with the Capital Insurance since
1961 under Fire Policy No. 24204. On November 27, 1965, the Company
sent to the petitioner the Renewal Certificate No. 47302 to cover the period
of December 5, 1965 to December 5, 1966. The respondent also requested
payment of the corresponding premium in the amount of P38.10.
Anticipating that the premium could not be paid on time, the petitioner,
through his wife, promised to pay it on January 4, 1966. The respondent
accepted the promise but the premium was not paid on January 4, 1966.

When the petitioner’s house was ravaged with fire, the petitioner’s
wife presented a claim for indemnity to the respondent. She was told that
no indemnity was due because the premium on the policy was not paid on
time. Nonetheless, the respondent tendered a check worth P300 as
financial aid which was received by the petitioner’s daughter. The
respondent reiterated that the check was given “not as an obligation, but as
a concession” because the renewal premium was not paid. The petitioner
cashed the check but then sued the respondent on the policy. The CFI
ruled Capital Insurance to pay Pedro Arce the proceeds of the fire
insurance policy.

ISSUE:
Whether or not the petitioners are entitled to claim for the policy
despite of non-payment of their premium

HELD:
No. It is obvious that time is of the essence in respect of the payment
of the insurance premium so that if it is not paid, the contract does not take
effect unless there is still another stipulation to the contrary. In the instant
case, the petitioner was given a grace period to pay the premium but failed
ARIQUEZ, CEDDIE I.

to do so. He cannot insist that the respondent is obligated to him to pay for
the insurance proceeds.

27. SUBJECT MATTER: PREMIUMS

CASE TITLE: SPS. ANTONIO A. TIBAY , ET.AL. VS. CA ,ET.AL.

G.R. NO. 119655.   MAY 24, 1996
BELLOSILLO, J.

FACTS:
Private respondent Fortune Life and General Insurance Co., Inc.
(FORTUNE) issued Fire Insurance Policy in favor of Violeta R. Tibay and/or
Nicolas Roraldo on their two-storey residential building located at Makati
City, together with all their personal effects therein, with provision that
“(t)his policy xxx is not in force until the premium has been fully paid and
duly receipted by the Company x x x”. Petitioner Violeta Tibay only paid
P600.00 leaving a considerable balance unpaid. The insured building was
completely destroyed by fire. Two days later Violeta Tibay paid the balance
of the premium. On the same day, she filed with FORTUNE a claim on the
fire insurance policy. FORTUNE denied the claim of Violeta for violation of
Policy Condition No. 2 and of Sec. 77 of the Insurance Code. Violeta and
the other petitioners sued FORTUNE for damages. The trial court ruled for
petitioners. The Court of Appeals reversed the court a quo by declaring
FORTUNE not to be liable to plaintiff-appellees therein but ordering
defendant-appellant to return to the former the premium plus interest until
full payment.

ISSUE:
Whether or not fire insurance policy is valid, binding and enforceable
upon mere partial payment of premium

HELD:
NO. The Policy provides for payment of premium in full. Premium is
the elixir vitae of the insurance business because by law the insurer must
maintain a legal reserve fund to meet its contingent obligations to the
public, hence, the imperative need for its prompt payment and full
satisfaction. Accordingly, where the premium has only been partially paid
and the balance paid only after the peril insured against has occurred, the
insurance contract did not take effect and the insured cannot collect at all
ARIQUEZ, CEDDIE I.

on the policy. This is fully supported by Sec. 77 of the Insurance Code.

Thus, no vinculum juris whereby the insurer bound itself to indemnify the
assured according to law ever resulted from the fractional payment of
premium. The insurance contract itself expressly provided that the policy
would be effective only when the premium was paid in full. It would have
been altogether different were it not so stipulated.

Ergo, petitioners had absolute freedom of choice whether or not to be

insured by FORTUNE under the terms of its policy and they freely opted to
adhere thereto. A maxim of recognized practicality is the rule that the
expressed exception or exemption excludes others. Exceptio firm at
regulim in casibus non exceptis. The express mention of exceptions
operates to exclude other exceptions; conversely, those which are not
within the enumerated exceptions are deemed included in the general rule.
Thus, under Sec. 77, as well as Sec. 78 (now Sec.79), until the premium is
paid, and the law has not expressly excepted partial payments, there is no
valid and binding contract. Hence, in the absence of clear waiver of
prepayment in full by the insurer, the insured cannot collect on the
proceeds of the policy.
ARIQUEZ, CEDDIE I.

28. SUBJECT MATTER: PREMIUMS

CASE TITLE: UCPB GEN. INSURANCE CO. INC. VS. MASAGANA

TELAMART, INC.
G.R. NO. 137172. APRIL 4, 2001
DAVIDE JR., C.J.

FACTS:
In the Supreme Court’s decision (between the same parties) of 15
June 1999, the main issue “whether the fire insurance policies issued by
petitioner to the respondent had been extended or renewed by an implied
credit arrangement though actual payment of premium was tendered on a
later date and after the occurrence of the (fire) risk insured against.” was
resolved in the negative in view of Section 77 of the Insurance Code. It
reversed and set aside the decision of the Court of Appeals. In the motion
filed, petitioner questions the ruling and posits that Sec.77 of Insurance
Code which states that “no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium
thereof has been paid...” admits of exceptions as in this case.

ISSUE:
Whether or not Sec. 77 of the Insurance Code admits of exceptions in
property insurance

HELD:
YES. The first exception is provided by Section 77 itself, and that is,
in case of a life or industrial life policy whenever the grace period provision
applies. The second is that covered by Section 78 of the Insurance Code,
which provides: “Any acknowledgment in a policy or contract of insurance
of the receipt of premium is conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any stipulation therein that it shall
not be binding until premium is actually paid.” A third exception was laid
down in Makati Tuscany Condominium Corporation vs. Court of Appeals,
wherein the Court ruled that Section 77 may not apply if the parties have
agreed to the payment in installments of the premium and partial payment
ARIQUEZ, CEDDIE I.

has been made at the time of loss; that the subject policies are valid even if
the premiums were paid on installments. Tuscany also provided a fourth
exception to Section 77, namely, that the insurer may grant credit extension
for the payment of the premium. This simply means that if the insurer has
granted the insured a credit term for the payment of the premium and loss
occurs before the expiration of the term, recovery on the policy should be
allowed even though the premium is paid after the loss but within the credit
term. Moreover, there is nothing in Section 77 which prohibits the parties in
an insurance contract to provide a credit term within which to pay the
premiums. That agreement is not against the law, morals, good customs,
public order or public policy. The agreement binds the parties.
ARIQUEZ, CEDDIE I.

29. SUBJECT MATTER: PREMIUMS

CASE TITLE: American Home Ass. Co. vs. Antonio Chua

G.R. No. 130421. June 28, 1999
DAVIDE JR., C.J.

FACTS:
Petitioner is a domestic corporation engaged in the insurance
business. Respondent obtained from petitioner a fire insurance covering
the stock-in-trade of his business, Moonlight Enterprises, located at
Valencia, Bukidnon. The insurance was due to expire on 25 March 1990.
On 5 April 1990 respondent issued PCI Bank Check to petitioner’s agent,
James Uy, as payment for the renewal of the policy. In turn, the latter
delivered Renewal Certificate to respondent. The check was drawn against
a Manila bank and deposited in petitioner’s bank account in Cagayan de
Oro City. The corresponding official receipt was issued on 10 April.
Subsequently, a new insurance policy was issued for the period 25 March
1990 to 25 March 1991. On 6 April 1990 Moonlight Enterprises was
completely razed by fire. Respondent filed an insurance claim with
petitioner and four other co-insurers. Petitioner refused to honor the claim
notwithstanding several demands by respondent, thus, the latter filed an
action against petitioner before the trial court. In its defense, petitioner
claimed there was no existing insurance contract when the fire occurred
since respondent did not pay the premium.

ISSUE:
Whether or not there was a valid payment of premium that would
result to a valid and binding contract of insurance, considering respondent’s
checks was cashed after the occurrence of fire.

HELD:
YES. Section 78 (now Section 79) of the Insurance Code explicitly
provides: “An acknowledgment in a policy or contract of insurance of the
receipt of premium is conclusive evidence of its payment, so far as to make
ARIQUEZ, CEDDIE I.

the policy binding, notwithstanding any stipulation therein that it shall not be
binding until the premium is actually paid.” This Section establishes a legal
fiction of payment and should be interpreted as an exception to Section 77.
Here, according to the trial court, the renewal certificate issued to
respondent contained the acknowledgment that premium had been paid. It
is not disputed that the check drawn by respondent in favor of petitioner
and delivered to its agent was honored when presented and petitioner
forthwith issued its official receipt. The best evidence of such authority is
the fact that petitioner accepted the check and issued the official receipt for
the payment. It is, as well, bound by its agent’s acknowledgment of receipt
of payment. Since there was a valid payment of premium, then there is a
valid and binding contract of insurance that would hold herein insurer liable.
ARIQUEZ, CEDDIE I.

30. SUBJECT MATTER: PREMIUMS

CASE TITLE: MAKATI TUSCANY CONDO. CORP. V. COURT OF

APPEALS
GR. NO. 95546 6 NOV. 1992
BELLOSILLO, J.

FACTS:
In 1982, American Home Assurance Co. (A H A C), represented by
American International Underwriters (Phils.), Inc., issued in favor of
petitioner Makati Tuscany Condominium Corporation (TUSCANY)
Insurance Policy (March 1 1982- March 1 1983) for the insurance of
building and premises worth P466,103.05.
The respondent filed an action to recover the unpaid balance of
Php 314,103.05 under Insurance Policy No. AH-CPP-9210651. It
discontinued the payment of premiums because the policy did not contain a
credit clause in its favor and the receipts for the installment payments
covering the policy for 1984-85.
The petitioner counter claims that acceptance of this payment shall
not waive any of the company rights to deny liability on any claim under the
policy arising before such payments or after the expiration of the credit
clause of the policy; and subject to no loss prior to premium payment. If
there be any loss such is not covered. These provisions in the last policy is
no longer present.
Petitioner further claimed that the policy was never binding and valid,
and no risk attached to the policy. It then pleaded a counterclaim for
P152,000.00 for the premiums already paid for 1984-85, and in its answer
with amended counterclaim, sought the refund of P924,206.10
representing the premium payments for 1982-85.
The RTC decided that "While it is true that the receipts issued to the
defendant contained the aforementioned reservations, it is equally true that
ARIQUEZ, CEDDIE I.

payment of the premiums of the three aforementioned policies (being

sought to be refunded) were made during the lifetime or term of said
policies, hence, it could not be said, inspite of the reservations, that no risk
attached under the policies. Consequently, defendant's counterclaim for
refund is not justified.
"As regards the unpaid premiums on Insurance Policy No. AH-CPP-
9210651, in view of the reservation in the receipts ordinarily issued by the
plaintiff on premium payments the only plausible conclusion is that plaintiff
has no right to demand their payment after the lapse of the term of said
policy on March 1, 1985. Therefore, the defendant was justified in refusing
to pay the same."
The CA modified the decision of the RTC. The trial court ordered
Makati Tuscany Condominium to pay the balance of the premium plus legal
interest. The CA ruled that the obligation to pay premiums when due is
ordinarily an indivisible obligation to pay the entire premium.

ISSUE:
Whether or not payment by installment of the premiums due on an
insurance policy invalidates the contract of insurance, in view of Sec. 77 of
P.D. 612, otherwise known as the Insurance Code, as amended

HELD:
The SC agreed with the CA’s decision and effectively denied the
petition of Makati Tuscany. The court do not agree with the request to
make installment payments duly approved by the insurer, would prevent
the entire contract of insurance from going into effect despite payment and
acceptance of the initial premium or first installment.

Section 77 merely precludes the parties from stipulating that the

policy is valid even if premiums are not paid, but does not expressly
prohibit an agreement granting credit extension, and such an agreement is
not contrary to morals, good customs, public order or public policy.

The parties actually intended to make the three (3) insurance

contracts valid, effective and binding, petitioner may not be allowed to
renege on its obligation to pay the balance of the premium after the
expiration of the whole term of the third policy.
ARIQUEZ, CEDDIE I.

31. SUBJECT MATTER: REINSTATEMENT

CASE TITLE: VIOLETA R. LALICAN VS. THE INSULAR LIFE

ASSURANCE CO. LTD
G.R. NO. 183526 AUGUST 25, 2009
CHICO-NAZARIO, J.

FACTS:
Through his lifetime, Eulogio Lalican applied for life insurance with
Insular Life Insurance Co., Ltd. (Insular Life).Through Josephine Malaluan
(agent in Gapan City), Policy No. 9011992 was issued containing a 20-year
endowment variable income package flexi plan (worth in total P1,500,000)
to be paid on quartrly basis. Violeta Lalican (Eulogio's wife) was the primary
beneficiary. Eulogio paid the first two premiums (24 July and 24 October
1997) but failed to pay subsequent one (24 January, even within the 31-day
grace period). Policy thus, in accordance with their agreement, lapsed and
became void. Eulogio's first try to reinstate said plan was not successful.

On 17 September 1998, however, he went to Malaluan's house and

filed his second application for reinstatement. Due to her absence,
Malaluan's husband accepted said application and issued a receipt for
payment of P17,500 (for Jan 24, plus interest, and for April 24 and July 24).
On said day, Eulogio died of cardio-respiratory arrest secondary to
electrocution. Not knowing of said death, Malaluan forwarded the
application to Insular Life, but the same did not act upon said application
upon knowledge of Eulogio's death.

Upon demand, Insular Life only refunded P25,417 (payments made

by Eulogio). For failure to re-evaluate said plan, Violeta filed before RTC
Gapan City a complaint for death claim. RTC dismissed said complaint on
ground that reinstatement "upon lifetime and good health" of insured was
not met, and subsequently ordered the finality thereof and denied Violeta's
notice of appeal. Hence, this appeal by certiorari.
ARIQUEZ, CEDDIE I.

ISSUE:
Whether Eulogio successfully reinstated the lapsed insurance policy
on his life before his death

HELD:
No. To reinstate a policy means to restore the same to premium-
paying status after it has been permitted to lapse. Both the Policy Contract
and the Application for Reinstatement provide for specific conditions for the
reinstatement of a lapsed policy:

"You may reinstate this policy at any time within three years after it
lapsed if the following conditions are met: (1) the policy has not been
surrendered for its cash value or the period of extension as a term
insurance has not expired; (2) evidence of insurability satisfactory to Insular
Life is furnished; (3) overdue premiums are paid with compound interest at
a rate not exceeding that which would have been applicable to said
premium and indebtedness in the policy years prior to reinstatement; and
(4) indebtedness which existed at the time of lapsation is paid or renewed;"
and, "I/We agree that said Policy shall not be considered reinstated until
this application is approved by the Company during my/our lifetime and
good health and until all other Company requirements for the reinstatement
of said Policy are fully satisfied and any payment made or to be made in
connection with this application shall be considered as deposit only and
shall not bind the Company until this application is finally approved by the
Company during my/our lifetime and good health."

In the instant case, Eulogio’s death rendered impossible full

compliance with the conditions for reinstatement of his policy. True,
Eulogio, before his death, managed to file his Application for Reinstatement
and deposit the amount for payment of his overdue premiums and interests
thereon with Malaluan; but Policy No. 9011992 could only be considered
reinstated after the Application for Reinstatement had been processed and
approved by Insular Life during Eulogio’s lifetime and good health.

In Andres v. The Crown Life Insurance Company, citing McGuire v.

The Manufacturer's Life Insurance Co., SC held that a stipulation for
reinstatement of an insurance policy does not give an absolute right of
reinstatement to the insured by mere filing of an application. Insurer still
has the right to deny said application if unsatisfied. "After the death of the
ARIQUEZ, CEDDIE I.

insured the insurance Company cannot be compelled to entertain an

application for reinstatement of the policy because the conditions precedent
to reinstatement can no longer be determined and satisfied." Petition is
denied.

32. SUBJECT MATTER: MARINE INSURANCE

CASE TITLE: ABOITIZ SHIPPING CORPORATION VS. COURT OF

APPEALS, ET. AL.
G.R. NO. 121833 OCT. 17, 2008
TINGA, J.

FACTS:
Respondent Malayan Insurance Company, Inc. (Malayan) filed five
separate actions against several defendants for the collection of the
amounts of the cargoes allegedly paid by Malayan under various marine
cargo policies issued to the insurance claimants. The five civil cases,
namely, Civil Cases No. 138761, No. 139083, No. 138762, No. R-81-526
and No. 138879, were consolidated and heard before the Regional Trial
Court (RTC) of Manila, Branch 54.

The defendants in Civil Case No. 138761 and in Civil Case No.
139083 were Malayan International Shipping Corporation, a foreign
corporation based in Malaysia, its local ship agent, Litonjua Merchant
Shipping Agency (Litonjua), and Aboitiz. The defendants in Civil Case No.
138762 were Compagnie Maritime des Chargeurs Reunis (CMCR), its local
ship agent, F.E. Zuellig (M), Inc. (Zuellig), and Aboitiz. Malayan also filed
Civil Case No. R-81-526 only against CMCR and Zuellig. Thus, defendants
CMCR and Zuellig filed a third-party complaint against Aboitiz. In the fifth
complaint docketed as Civil Case No. 138879, only Aboitiz was impleaded
as defendant.

The shipments were supported by their respective bills of lading and

insured separately by Malayan against the risk of loss or damage. In the
five consolidated cases, Malayan sought the recovery of amounts
totaling P639,862.02. Aboitiz raised the defenses of lack of jurisdiction, lack
of cause of action and prescription. It also claimed that M/V P. Aboitiz was
seaworthy, that it exercised extraordinary diligence and that the loss was
caused by a fortuitous event.
ARIQUEZ, CEDDIE I.

After trial on the merits, the RTC of Manila rendered a Decision dated
27 November 1989, adjudging Aboitiz liable on the money claims. Aboitiz,
CMCR and Zuellig appealed the RTC decision to the Court of Appeals. The
appeal was docketed as CA-G.R. SP No. 35975-CV. During the pendency
of the appeal, the Court promulgated the decision in the
1993 GAFLAC case.

On 31 March 1995, the Court of Appeals (Ninth Division) affirmed the

RTC decision. It disregarded Aboitiz's argument that the sinking of the
vessel was caused by a force majeure, in view of this Court's finding in a
related case, Aboitiz Shipping Corporation v. Court of Appeals, et al. (the
1990 GAFLAC case). In said case, this Court affirmed the Court of Appeals'
finding that the sinking of M/V P. Aboitiz was caused by the negligence of
its officers and crew. It is one of the numerous collection suits against
Aboitiz, which eventually reached this Court in connection with the sinking
of M/V P. Aboitiz.

As to the computation of Aboitiz's liability, the Court of Appeals again

based its ruling on the 1990 GAFLAC case that Aboitiz's liability should be
based on the declared value of the shipment in consonance with the
exceptional rule under Section 4(5) of the Carriage of Goods by Sea Act.
Aboitiz moved for reconsideration to no avail. Hence, it filed this Petition for
Review on Certiorari docketed as G.R. No. 121833. The instant petition is
based on the following grounds: (1) The Court of Appeals should have
limited the recoverable amount from ASC to that amount stipulated in the
bill of lading. (2) In the alternative, the Court of Appeals should have found
that the total liability of ASC is limited to the value of the vessel or the
insurance proceeds thereof.

On 4 December 1995, the Court issued a Resolution denying the

petition. Aboitiz moved for reconsideration, arguing that the limited liability
doctrine enunciated in the 1993 GAFLAC case should be applied in the
computation of its liability. In the Resolution dated 6 March 1996, the Court
granted the motion and ordered the reinstatement of the petition and the
filing of a comment.

ISSUE:
Whether or not the principal issue common to all three petitions is
whether Aboitiz can avail limited liability on the basis of the real and
ARIQUEZ, CEDDIE I.

hypothecary doctrine of maritime law. Corollary to this issue is the

determination of actual negligence on the part of Aboitiz.

HELD:
These consolidated petitions are just among the many others
elevated to this Court involving Aboitiz's liability to shippers and insurers as
a result of the sinking of its vessel, M/V P. Aboitiz, on 31 October 1980 in
the South China Sea. One of those petitions is the 1993 GAFLAC case,
docketed as G.R. No. 100446.

The 1993 GAFLAC case was an offshoot of an earlier final and

executory judgment in the 1990 GAFLAC case, where the General
Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), as judgment
obligee therein, sought the execution of the monetary award against
Aboitiz. The trial court granted GAFLAC's prayer for execution of the full
judgment award. The appellate court dismissed Aboitiz's petition to nullify
the order of execution, prompting Aboitiz to file a petition with this Court.

In the 1993 GAFLAC case, Aboitiz argued that the real and

hypothecary doctrine warranted the immediate stay of execution of
judgment to prevent the impairment of the other creditors' shares. Invoking
the rule on the law of the case, private respondent therein countered that
the 1990 GAFLAC case had already settled the extent of Aboitiz's liability.

Following the doctrine of limited liability, however, the Court declared

in the 1993 GAFLAC case that claims against Aboitiz arising from the
sinking of M/V P. Aboitiz should be limited only to the extent of the value of
the vessel. Thus, the Court held that the execution of judgments in cases
already resolved with finality must be stayed pending the resolution of all
the other similar claims arising from the sinking of M/V P. Aboitiz.
Considering that the claims against Aboitiz had reached more than 100, the
Court found it necessary to collate all these claims before their payment
from the insurance proceeds of the vessel and its pending freightage. As a
result, the Court exhorted the trial courts before whom similar cases
remained pending to proceed with trial and adjudicate these claims so that
the pro-rated share of each claim could be determined after all the cases
shall have been decided.
ARIQUEZ, CEDDIE I.

In the 1993 GAFLAC case, the Court applied the limited liability rule

in favor of Aboitiz based on the trial court's finding therein that Aboitiz was
not negligent. The Court explained, thus:
x x x In the few instances when the matter was considered by this Court,
we have been consistent in this jurisdiction in holding that the only time the
Limited Liability Rule does not apply is when there is an actual finding of
negligence on the part of the vessel owner or agent x x x. The pivotal
question, thus, is whether there is finding of such negligence on the part of
the owner in the instant case.

In this jurisdiction, the limited liability rule is embodied in Articles 587,

590 and 837 under Book III of the Code of Commerce, thus:
Art. 587. The ship agent shall also be civilly liable for the indemnities in
favor of third persons which may arise from the conduct of the captain in
the care of the goods which he loaded on the vessel; but he may exempt
himself therefrom by abandoning the vessel with all her equipment and the
freight it may have earned during the voyage.
Art. 590. The co-owners of the vessel shall be civilly liable in the proportion
of their interests in the common fund for the results of the acts of the
captain referred to in Art. 587. Each co-owner may exempt himself from
this liability by the abandonment, before a notary, of the part of the vessel
belonging to him.
Art. 837. The civil liability incurred by shipowners in the case prescribed in
this section, shall be understood as limited to the value of the vessel with
all its appurtenances and freightage served during the voyage.

These articles precisely intend to limit the liability of the shipowner or

agent to the value of the vessel, its appurtenances and freightage earned in
the voyage, provided that the owner or agent abandons the vessel. When
the vessel is totally lost in which case there is no vessel to abandon,
abandonment is not required. Because of such total loss the liability of the
shipowner or agent for damages is extinguished. However, despite the total
loss of the vessel, its insurance answers for the damages for which a
shipowner or agent may be held liable.

Nonetheless, there are exceptional circumstances wherein the ship

agent could still be held answerable despite the abandonment of the
vessel, as where the loss or injury was due to the fault of the shipowner
and the captain. The international rule is to the effect that the right of
abandonment of vessels, as a legal limitation of a shipowner's liability, does
ARIQUEZ, CEDDIE I.

not apply to cases where the injury or average was occasioned by the
shipowner's own fault. Likewise, the shipowner may be held liable for
injuries to passengers notwithstanding the exclusively real and hypothecary
nature of maritime law if fault can be attributed to the shipowner.

33. SUBJECT MATTER: MARINE INSURANCE

CASE TITLE: FGU INSURANCE CORP. VS. THE COURT OF APPEALS,

ET. AL.,
G.R. NO. 137775 MARCH 31, 2005
CHICO-NAZARIO, J.

FACTS:
Anco Enterprises Company owned the M/T ANCO tugboat and the
D/B Lucio barge which were operated as common carriers. San Miguel
Corporation entered into agreement with ANCO wherein the latter will
shipped its cargoes on board the D/B Lucio, for towage by M/T ANCO.
They further agreed that SMC will insure the cargoes in order to recover
indemnity in case of loss, hence the cargoes was insured with FGU
Insurance Corporation.

ANCO failed to deliver to SMC’s consignee the cargoes. As a

consequence of the incident, SMC filed a complaint for Breach of Contract
of Carriage and Damages against ANCO. Subsequently, ANCO, with leave
of court, filed a Third-Party Complaint against FGU on the ground that the
loss of said cargoes occurred as a result of risks insured against in the
insurance policy and during the existence and lifetime of said insurance
policy. ANCO went on to assert that in case the court will order ANCO to
pay SMC’s claim, FGU should be held liable to indemnify or reimburse
ANCO whatever amounts, or damages, it may be required to pay to SMC.

The trial court found ANCO liable to pay SMC and consequently FGU
is liable to bear the 53% of the amount of the lost cargoes because the risk
insured against was the cause of the loss. The appellate court affirmed in
toto the decision of the lower court. Hence, the petition.

ISSUE:
Whether or not FGU can be held liable under the insurance policy to
reimburse ANCO for the loss of the Cargoes?
ARIQUEZ, CEDDIE I.

HELD:
It is a basic rule in insurance that the carelessness and negligence of
the insured or his agents constitute no defense on the part of the insurer.
This rule however presupposes that the loss has occurred due to causes
which could not have been prevented by the insured, despite the exercise
of due diligence.

However, when evidence show that the insured’s negligence or

recklessness is so gross as to be sufficient to constitute a willful act, the
insurer must be exonerated. In the case at bar, ANCO’s representatives
had failed to exercise extraordinary diligence required of common carriers
in the shipment of SMC’s cargoes.

Such blatant negligence being the proximate cause of the loss of the
cargoes and is of such gross character that it amounts to a wrongful act
which must exonerate FGU from liability under the insurance contract.
ARIQUEZ, CEDDIE I.

34. SUBJECT MATTER: MARINE INSURANCE

CASE TITLE: PHIL. AMERICAN GENERAL INS. CO., INC. V. CA

G.R. NO. 116940 JUNE 11, 1997 273 SCRA 262
BELLOSILLO, J.

FACTS:
July 6, 1983 Coca-cola loaded on board MV Asilda, owned and
operated by Felman, 7,500 cases of 1-liter Coca-Cola soft drink bottles to
be transported to Zamboanga City to Cebu. The shipment was insured with
Philamgen. July 7, the vessel sank in Zamboanga del Norte. July 15,
cocacola filed a claim with respondent Felman for recovery of damages.
Felman denied thus prompted cocacola to file an insurance claim with
Philamgen. Philamgen later on claimed its right of subrogation against
Felman which disclaimed any liability for the loss.

Philamgen alleged that the sinking and loss were due to the vessel's
unseaworthiness, that the vessel was improperly manned and its officers
were grossly negligent. Felman filed a motion to dismiss saying that there
is no right of subrogation in favor of Philamgen was transmitted by the
shipper. RTC dismissed the complaint of Philamgen. CA set aside the
dismissal and remanded the case to the lower court for trial on the merits.
Felman filed a petition for certiorari but was denied.

RTC rendered judgment in favor of Felman. it ruled that the vessel

was seaworthy when it left the port of Zamboanga as evidenced by the
certificate issued by the Phil. Coast Guard and the ship owner’s surveyor.
Thus, the loss is due to a fortuitous event, in which, no liability should
attach unless there is stipulation or negligence.

On appeal, CA rendered judgment finding the vessel unseaworthy for

the cargo for being top-heavy and the cocacola bottles were also
improperly stored on deck. Nonetheless, the CA denied the claim of
Philamgen, saying that Philamgen was not properly subrogated to the
ARIQUEZ, CEDDIE I.

rights and interests of the shipper plus the filing of notice of abandonment
had absolved the ship owner from liability under the limited liability rule.

ISSUES:
(1) Whether the vessel was seaworthy;
(2) Whether limited liability rule should apply; and
(3) Whether Philamgen was properly subrogated to the rights against
Felman.

HELD:
(1) The vessel was unseaworthy. The proximate cause thru the
findings of the Elite Adjusters, Inc., is the vessel's being top-heavy.
Evidence shows that days after the sinking coca-cola bottles were found
near the vicinity of the sinking which would mean that the bottles were in
fact stowed on deck which the vessel was not designed to carry substantial
amount of cargo on deck. The inordinate loading of cargo deck resulted in
the decrease of the vessel's metacentric height thus making it unstable.

(2) Art. 587 of the Code of Commerce is not applicable, the agent is
liable for the negligent acts of the captain in the care of the goods. This
liability however can be limited through abandonment of the vessel, its
equipment and freightage. Nonetheless, there are exceptions wherein the
ship agent could still be held answerable despite the abandonment, as
where the loss or injury was due to the fault of the ship owner and the
captain. The international rule is that the right of abandonment of vessels,
as legal limitation of liability, does not apply to cases where the injury was
occasioned by the fault of the ship owner. Felman was negligent, it cannot
therefore escape liability.

(3) Generally, in marine insurance policy, the assured impliedly

warrants to the assurer that the vessel is seaworthy and such warranty is
as much a term of the contract as if expressly written on the face of the
policy. However, the implied warranty of seaworthiness can be excluded by
terms in writing in the policy of the clearest language. The marine policy
issued by Philamgen to cocacola has dispensed that the "seaworthiness of
the vessel as between the assured and the underwriters in hereby
admitted."

The result of the admission of seaworthiness by Philamgen may

mean two things: (1) the warranty of seaworthiness is fulfilled and (2) the
ARIQUEZ, CEDDIE I.

risk of unseaworthiness is assumed by the insurance company. This waiver

clause would mean that Philamgen has accepted the risk of
unseaworthiness, therefore Philamgen is liable.

On the matter of subrogation, it is provided that:

Art. 2207. If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If the amount paid
by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury.

Pan Malayan Insurance Corp. vs CA: The right of subrogation is not

dependent upon, nor does it grow out of any privity of contract or upon
payment by the insurance company of the insurance claim. It accrues
simply upon payment by the insurance company of the insurance claim.

Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers

Philippines, Inc., gave the former the right to bring an action as subrogee
against FELMAN. Having failed to rebut the presumption of fault, the
liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola soft
drink bottles is inevitable.
ARIQUEZ, CEDDIE I.

35. SUBJECT MATTER: ON PRESENTATION OF POLICIES

CASE TITLE: MALAYAN INSURANCE CO., INC. V. REGIS BROKERAGE

CORP.
G.R. NO. 172156 NOV. 23, 2007 538 SCRA 681
TINGA, J.

FACTS:
This Petition for Review under Rule 45 was filed by petitioner
Malayan Insurance Co., Inc. (Malayan), assailing the Decision dated 23
December 2005 of the Court of Appeals in C.A. G.R. SP No. 90505, as well
as its Resolution dated 5 April 2006 denying petitioner's motion for
reconsideration.

Around 1 February 1995, Fasco Motors Group loaded 120 pieces of

"motors" on board China Airlines Flight 621 bound for Manila from the
United States. The cargo was to be delivered to consignee ABB Koppel,
Inc. (ABB Koppel). When the cargo arrived at the Ninoy Aquino
International Airport, it was discharged without exception and forwarded to
People's Aircargo & Warehousing Corp.'s (Paircargo's) warehouse for
temporary storage pending release by the Bureau of Customs. Paircargo
remained in possession of the cargo until 7 March 1995, at which point
respondent Regis Brokerage Corp. (Regis) withdrew the cargo and
delivered the same to ABB Koppel at its warehouse. When the shipment
arrived at ABB Koppel's warehouse, it was discovered that only 65 of the
120 pieces of motors were actually delivered and that the remaining 55
motors, valued at US$2,374.35, could not be accounted for.

The shipment was purportedly insured with Malayan by ABB Koppel.

Demand was first made upon Regis and Paircargo for payment of the value
of the missing motors, but both refused to pay. Thus, Malayan paid ABB
Koppel the amount of P156,549.55 apparently pursuant to its insurance
agreement, and Malayan was on that basis subrogated to the rights of ABB
ARIQUEZ, CEDDIE I.

Koppel against Regis and Paircargo. On 24 June 1996, Malayan filed a

complaint for damages against Regis and Paircargo with the Metropolitan
Trial Court (MeTC) of Manila, Branch 9. In the course of trial, Malayan
presented Marine Risk Note No. RN-0001-19832 (Marine Risk Note) dated
21 March 1995 as proof that the cargo was insured by Malayan.

The MeTC rendered a Decision dated 25 May 2001 adjudging Regis

alone liable to Malayan in the amount of P156,549.00 as actual damages,
P15,000.00 as attorney's fees, and costs of suits. With the exception of the
award of attorney's fees, the MeTC decision was affirmed on appeal to the
Regional Trial Court (RTC) of Manila, through a Decision dated 28
February 2005. On 23 December 2005, the Court of Appeals promulgated
its decision vacating the RTC judgment and ordering the dismissal of
Malayan's complaint.

The central finding that formed the Court of Appeals decision was
that the Marine Risk Note presented as proof that the cargo was insured
was invalid.

ISSUE:
Whether or not an insurer, in an action for recoupment instituted in its
capacity as the subrogee of the insured, may be conferred favorable relief
even if it failed to introduce in evidence the insurance contract or policy, or
even allege the existence may recite the substance and attach a copy of
such document in the complaint.

HELD:
It is elementary that this Court is not a trier of facts. We generally
refer to the trial court and the Court of Appeals on matters relating to the
admission and evaluation of the evidence. In this case, while the trial courts
and the Court of Appeals arrived at differing conclusions, we essentially
agree with the Court of Appeals' analysis of Malayan's cause of action, and
its ordained result.

It appeared that at the very instance the Marine Risk Note was
offered in evidence, Regis already posed its objection to the admission of
said document on the ground that such was "immaterial, impertinent and
irrelevant to this case because the same was issued on March 21, 1995
which is after the occurrence of the loss on February 1, 1995." Because the
trial courts failed to duly consider whether the Marine Risk Note sufficiently
ARIQUEZ, CEDDIE I.

established a valid insurance covering the subject motors, the Court of

Appeals acted correctly in the exercise of its appellate jurisdiction in setting
aside the appealed decisions.

Indeed, since no insurance policy was presented at the trial by

Malayan, or even before the Court of Appeals, there certainly is no basis
for this Court to admit or consider the same, notwithstanding Malayan's
attempt to submit such document to us along with its present petition. Since
the Marine Insurance Policy was never presented in evidence before the
trial court or the Court of Appeals even, there is no legal basis to consider
such document in the resolution of this case, reflective as that document
may have been of the pre-existence of an insurance contract between
Malayan and ABB Koppel even prior to the loss of the motors.

All told, we hold that Malayan was not able to establish its cause of
action as stated in its complaint, based as it was on its right to be
subrogated to ABB Koppel under the insurance contract which it failed to
present as an actionable document, or as evidence before the trial court.
The result reached by the Court of Appeals the dismissal of the instant
complaint is thus correct. As such, there is no need to consider the other
issues raised in the petition.
ARIQUEZ, CEDDIE I.

36. SUBJECT MATTER: ON PRESENTATION OF POLICIES

CASE TITLE: ITCSI VS. FGU INSURANCE CORP.

G.R. NO. 161539 JUNE 27, 2008
AUSTRIA-MARTINEZ, J.

FACTS:
In a Decision dated July 1, 1999 in Civil Case No. 95-73532, the
Regional Trial Court (RTC) of Manila, Branch 30, ordered International
Container Terminal Services, Inc. (petitioner) to pay FGU Insurance
Corporation (respondent) the following sums: (1) P1,875,068.88 with 12%
interest per annum from January 3, 1995 until fully paid; (2) P50,000.00 as
attorney's fees; and (3) P10,000.00 as litigation expenses.

Petitioner's liability arose from a lost shipment of "14 Cardboards 400

kgs. of Silver Nitrate 63.53 FCT Analytically Pure (purity 99.98 PCT),"
shipped by Hapag-Lloyd AG through the vessel Hannover Express from
Hamburg, Germany on July 10, 1994, with Manila, Philippines as the port
of discharge, and Republic Asahi Glass Corporation (RAGC) as consignee.
Said shipment was insured by FGU Insurance Corporation (FGU). When
RAGC's customs broker, Desma Cargo Handlers, Inc., was claiming the
shipment, petitioner, which was the arrastre contractor, could not find it in
its storage area. At the behest of petitioner, the National Bureau of
Investigation (NBI) conducted an investigation. The AAREMA Marine and
Cargo Surveyors, Inc. also conducted an inquiry. Both found that the
shipment was lost while in the custody and responsibility of petitioner.

As insurer, FGU paid RAGC the amount of P1,835,068.88 on

January 3, 1995. In turn, FGU sought reimbursement from petitioner, but
the latter refused. This constrained FGU to file with the RTC of Manila Civil
Case No. 95-73532 for a sum of money. After trial, the RTC rendered its
Decision dated July 1, 1999 finding petitioner liable.
ARIQUEZ, CEDDIE I.

Petitioner appealed to the Court of Appeals (CA), which, in the

assailed Decision dated October 22, 2003, affirmed the RTC Decision.
Petitioner filed a motion for reconsideration which the CA denied in its
Resolution dated January 8, 2004.

ISSUES:
1. Whether or not the Court of Appeals seriously erred in failing to
apply the limitation of liability of p3,5000 per package which limits
petitioner's liability, if any, to a total of only P49,000.00
2. Whether or not the Court of Appeals seriously erred in upholding
the marine open policy despite the fact that the same was no
longer in force at the time the shipment was loaded on board the
carrying vessel.
3. Assuming arguendo that petitioner is liable, whether or not the
Court of Appeals seriously erred in affirming the award of 12%
interest despite the fact that the obligation purportedly breached
does not constitute a loan of forbearance of money and despite the
clear guidelines set forth by this honorable court.

HELD:
The rule in our jurisdiction is that only questions of law may be
entertained by this Court in a petition for review on certiorari. This rule,
however, is not ironclad and admits certain exceptions, such as when (1)
the conclusion is grounded on speculations, surmises or conjectures; (2)
the inference is manifestly mistaken, absurd or impossible; (3) there is
grave abuse of discretion; (4) the judgment is based on a misapprehension
of facts; (5) the findings of fact are conflicting; (6) there is no citation of
specific evidence on which the factual findings are based; (7) the findings
of absence of facts are contradicted by the presence of evidence on record;
(8) the findings of the CA are contrary to those of the trial court; (9) the CA
manifestly overlooked certain relevant and undisputed facts that, if properly
considered, would justify a different conclusion; (10) the findings of the CA
are beyond the issues of the case; and (11) such findings are contrary to
the admissions of both parties.  In the present case, there is nothing on
record which will show that it falls within the exceptions. Hence, the petition
must be denied.
ARIQUEZ, CEDDIE I.

Petitioner posits that its liability for the lost shipment should be limited
to P3,500.00 per package as provided in Philippine Ports Authority
Administrative Order No. 10-81 (PPA AO 10-81), under Article VI, Section
6.01 of which provides:

Section 6.01. Responsibility and Liability for Losses and Damages;

Exceptions - The CONTRACTOR shall at its own expense handle all
merchandise in all work undertaken by it hereunder diligently and in a
skillful, workman-like and efficient manner; that the CONTRACTOR shall
be solely responsible as an independent CONTRACTOR, and hereby
agrees to accept liability and to promptly pay to the shipping company
consignees, consignors or other interested party or parties for the loss,
damage, or non-delivery of cargoes to the extent of the actual invoice value
of each package which in no case shall be more than THREE THOUSAND
FIVE HUNDRED PESOS (P3,500.00) (for import cargo) x x x for each
package unless the value of the cargo importation is otherwise specified or
manifested or communicated in writing together with the declared bill of
lading value and supported by a certified packing list to the CONTRACTOR
by the interested party or parties before the discharge x x x of the
goods, as well as all damage that may be suffered on account of loss,
damage, or destruction of any merchandise while in custody or under the
control of the CONTRACTOR in any pier, shed, warehouse facility or other
designated place under the supervision of the AUTHORITY x x x.

The CA summarily ruled that PPA AO 10-81 is not applicable to this

case without laying out the reasons therefor. PPA AO 10-81 is the
management contract between by the Philippine Ports Authority and the
cargo handling services providers. In Summa Insurance Corporation v.
Court of Appeals, the Court ruled that:

In the performance of its job, an arrastre operator is bound by the

management contract it had executed with the Bureau of Customs.
However, a management contract, which is a sort of a stipulation pour
autrui within the meaning of Article 1311 of the Civil Code, is also binding
on a consignee because it is incorporated in the gate pass and delivery
receipt which must be presented by the consignee before delivery can be
effected to it. The insurer, as successor-in-interest of the consignee, is
likewise bound by the management contract. Indeed, upon taking delivery
of the cargo, a consignee (and necessarily its successor-in- interest) tacitly
accepts the provisions of the management contract, including those which
ARIQUEZ, CEDDIE I.

are intended to limit the liability of one of the contracting parties, the
arrastre operator.

However, a consignee who does not avail of the services of the

arrastre operator is not bound by the management contract. Such an
exception to the rule does not obtain here as the consignee did in fact
accept delivery of the cargo from the arrastre operator. While it appears in
the present case that the RAGC availed itself of petitioner's services and
therefore, PPA AO 10-81 should apply, the Court finds that the extent of
petitioner's liability should cover the actual value of the lost shipment and
not the P3,500.00 limit per package as provided in said Order.

It is borne by the records that when Desma Cargo Handlers was

negotiating for the discharge of the shipment, it presented Hapag-Lloyd's
Bill of Lading, Degussa's Commercial Invoice, which indicates that value of
the shipment, including seafreight charges, was DM94.960,00 (CFR
Manila), and Degussa's Packing List, which likewise notes that the value of
the shipment was DM94.960,00. It is highly unlikely that petitioner was not
made aware of the actual value of the shipment, since it had to examine
the pertinent documents for stripping purposes and, later on, for the
discharge of the shipment to the consignee or its representative. In fact, the
NBI Report dated September 26, 1994 on the investigation conducted by it
regarding the loss of the shipment shows that petitioner's Admeasurer
Rosco Esquibal was shown the Bill of Lading by Desma Brokerage's
representative, Rey Villanueva. Esquibal also stated that another
representative of Desma Brokerage, Joey Laurente, went to their office and
furnished him a copy of the "processed papers of the fourteen cartons of
Asahi Glass cargoes."

By its own act of not charging the corresponding arrastre fees based
on the value of the shipment after it came to know of such declared value
from the marine insurance policy, petitioner cannot escape liability for the
actual value of the shipment. The value of the merchandise or shipment
may be declared or stated not only in the bill of lading or shipping manifest,
but also in other documents required by law before the shipment is cleared
from the piers.

Petitioner insists that Marine Open Policy No. MOP-12763 under

which the shipment was insured was no longer in force at the time it was
loaded on board the Hannover Express on June 10, 1994, as provided in
ARIQUEZ, CEDDIE I.

the Endorsement portion of the policy, which states: "IT IS HEREBY

DECLARED AND AGREED that effective June 10, 1994, this policy is
deemed CANCELLED." FGU, on the other hand, insists that it was under
Marine Risk Note No. 9798, which was executed on May 26, 1994, that
said shipment was covered.

It must be emphasized that a marine risk note is not an insurance

policy. It is only an acknowledgment or declaration of the insurer confirming
the specific shipment covered by its marine open policy, the evaluation of
the cargo and the chargeable premium. It is the marine open policy which
is the main insurance contract. In other words, the marine open policy is
the blanket insurance to be undertaken by FGU on all goods to be shipped
by RAGC during the existence of the contract, while the marine risk note
specifies the particular goods/shipment insured by FGU on that specific
transaction, including the sum insured, the shipment particulars as well as
the premium paid for such shipment. In any event, as it stands, it is evident
that even prior to the cancellation by FGU of Marine Open Policy No. MOP-
12763 on June 10, 1994, it had already undertaken to insure the shipment
of the 400 kgs. of silver nitrate, specially since RAGC had already paid the
premium on the insurance of said shipment.

However, as in every general rule, there are admitted exceptions.

In Delsan Transport Lines, Inc. v. Court of Appeals, the Court stated that
the presentation of the insurance policy was not fatal because the loss of
the cargo undoubtedly occurred while on board the petitioner's vessel,
unlike in Home Insurance in which the cargo passed through several
stages with different parties and it could not be determined when the
damage to the cargo occurred, such that the insurer should be liable for it.

As in Delsan, there is no doubt that the loss of the cargo in the

present case occurred while in petitioner's custody. Moreover, there is no
issue as regards the provisions of Marine Open Policy No.
MOP-12763, such that the presentation of the contract itself is necessary
for perusal, not to mention that its existence was already admitted by
petitioner in open court. And even though it was not offered in evidence, it
still can be considered by the court as long as they have been properly
identified by testimony duly recorded and they have themselves been
incorporated in the records of the case.
ARIQUEZ, CEDDIE I.

Finally, petitioner questions the imposition of a 12% interest rate,

instead of 6%, on its adjudged liability. The ruling in Prudential Guarantee
and Assurance Inc. v. Trans-Asia Shipping Lines, Inc., to wit:

This Court in Eastern Shipping Lines, Inc. v. Court of Appeals,

inscribed the rule of thumb in the application of interest to be imposed on
obligations, regardless of their source. Eastern emphasized beyond cavil
that when the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, regardless of whether the
obligation involves a loan or forbearance of money, shall be 12% per
annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.

We find application of the rule in the case at bar proper, thus, a rate
of 12% per annum from the finality of judgment until the full satisfaction
thereof must be imposed on the total amount of liability adjudged to
PRUDENTIAL. It is clear that the interim period from the finality of judgment
until the satisfaction of the same is deemed equivalent to a forbearance of
credit, hence, the imposition of the aforesaid interest is instructive. The CA
did not commit any error in applying the same.

The Court notes, however, an apparent clerical error made in the

dispositive portion of the RTC Decision. While it appears that FGU paid
RAGC the amount of P1,835,068.88, as shown in the Subrogation
Receipt,  as prayed for in its Complaint, the RTC awarded the sum
of 1,875,068.88. Thus, a necessary modification should be made on this
score.

WHEREFORE, the petition is DENIED. The Decision dated October

22, 2003 and Resolution dated January 8, 2004 of the Court of Appeals
are AFFIRMED, with the modification that the award in the RTC Decision
dated July 1, 1999 should be P1,835,068.88 instead of P1,875,068.88.
ARIQUEZ, CEDDIE I.

37. SUBJECT MATTER: SUBROGATION

CASE TITLE: KEPPEL CEBU SHIPYARD, INC. V. PIONEER INS.

G.R. NOS. 180880-81 SEPT. 25, 2009
NACHURA, J.

FACTS:
KCSI and WG&A executed a Ship Repair Agreement wherein KCSI
would renovate and reconstruct WG&A’s M/V “Superferry 3” using its dry
docking facilities pursuant to its restrictive safety and security rules and
regulations. Prior to the execution of the Ship Repair Agreement,
“Superferry 3” was already insured by WG&A with Pioneer. In the course of
its repair, M/V “Superferry 3” was gutted by fire. Claiming that the extent of
the damage was pervasive, WG&A declared the vessel’s damage as a
“total constructive loss” and, hence, filed an insurance claim with Pioneer.
Armed with the subrogation receipt, Pioneer tried to collect from KCSI, but
the latter denied any responsibility for the loss of the subject vessel.
Arbitration ensued, the Construction Industry Arbitration Commission
(CIAC) rendered its Decision declaring both WG&A and KCSI guilty of
negligence. However, the award amount was limited to only PhP50 Million.

ISSUE:
Whether or not the right of subrogation covers total constructive loss
of “Superferry 3”

HELD:
YES. There existed a total constructive loss so that it had to pay
WG&A the full amount of the insurance coverage and, by operation of law,
it was entitled to be subrogated to the rights of WG&A to claim the amount
of the loss. The SC held that payment by the insurer to the insured
ARIQUEZ, CEDDIE I.

operates as an equitable assignment to the insurer of all the remedies that

the insured may have against the third party whose negligence or wrongful
act caused the loss. The right of subrogation is not dependent upon, nor
does it grow out of, any privity of contract. It accrues simply upon payment
by the insurance company of the insurance claim. The doctrine of
subrogation has its roots in equity. It is designed to promote and to
accomplish justice; and is the mode that equity adopts to compel the
ultimate payment of a debt by one who, in justice, equity, and good
conscience, ought to pay. KCSI is ordered to pay Pioneer the net amount
of P329,747,351.91 plus legal interests.
38. SUBJECT MATTER: SUBROGATION

CASE TITLE: MALAYAN INS. CO., INC. VS. RODELIO ALBERTO AND
ENRICO ALBERTO REYES
G.R. NO. 194320 FEB.1, 2012
VELASCO JR., J.

FACTS:
An accident occurred at the corner of EDSA and Ayala Avenue,
Makati City, involving four (4) vehicles. Having insured the vehicle against
such risks, Malayan Insurance claimed in its Complaint that it paid the
damages sustained by the assured. Respondent questioned the
subrogation by Malayan. Trial Court ruled in favor of Malayan. Respondent
appealed contending that the evidence on record has failed to establish not
only negligence on the part of respondents, but also compliance with the
other requisites and the consequent right of Malayan Insurance to
subrogation. These were raised for the first time in the appellate court and
noted that the police report, which has been made part of the records of the
trial court, was not properly identified by the police officer who conducted
the on-the-spot investigation of the subject collision.

ISSUE:
Whether or not the subrogation by Malayan Insurance is proper and
valid

HELD:
YES. Malayan has been properly and validly subrogated to the rights
and interests of the assured by operation of law. Respondents are now
deemed to have waived their right to make an objection. It is worth
ARIQUEZ, CEDDIE I.

mentioning that just like any other disputable presumptions or inferences,

the presumption of negligence may be rebutted or overcome by other
evidence to the contrary. It is unfortunate, however, that respondents failed
to present any evidence before the trial court. Bearing in mind that the
claim check voucher and the Release of Claim and Subrogation Receipt
presented by Malayan Insurance are already part of the evidence on
record, and since it is not disputed that the insurance company, indeed,
paid already to the assured, then there is a valid subrogation in the case at
bar.

39. SUBJECT MATTER: FIRE INSURANCE

CASE TITLE: UY HU & CO. V. THE PRUDENTIAL ASSURANCE CO.,

LTD. 51, PHIL. 231 (1927)
JOHNS, J.

FACTS:
The defendant undertook to and did insure against loss and damage
by fire the property, goods, wares and merchandise of the plaintiff for the
sum of P30,000.00. While the policy was in full force and effect, the
property therein described was destroyed by fire without the fault or
negligence of the plaintiff.

That in accordance with the terms and conditions of the policy,

plaintiff notified the defendant of the fire and of its loss, and requested
payment of the P30,000, the full amount of the policy, and at the same time
submitted evidence to verify its claim, but that defendant, without any legal
or just ground, refused to pay the claim or any part of it.

The lower court rendered judgment for the plaintiff for P16,000, with
legal interest from June 10, 1926, and costs, to which both plaintiff and
defendant duly excepted and filed their respective motions for a new trial
which were overruled, and exceptions duly taken, from which both parties
appeal.

On the morning of the fire the manager of the insurance agent and a
Mr. Heintsch, one of its employees, went to the building in question for the
purpose of making an inspection. James R. Herridge and James Chalmers
Glegg of that firm also went at once to the scene of the fire and placed a
ARIQUEZ, CEDDIE I.

guard around the premises to see that nothing was removed. The evidence
shows that the fire was an ordinary one, and that it did not start in plaintiff’s
bodegas.
Glegg and Zulueta of the firm of Bayne & Company went to the
plaintiff’s premises where the fire occurred, and took an actual, detailed
inventory of all of the merchandise found in plaintiff’s store and bodegas.
The merchandise in the store was not damaged either by fire or water, and
all of it was turned over to, and accepted by, the plaintiff, with an estimated
value of P1,453.13.
After Exhibit 8 was completed showing that the value of the
merchandise in the bodegas at the time of the fire was P4,823.20, Glegg,
Zulueta and Heintsch, as the representative of the insurance company,
went with Tan Chong U.
Arriving upon the scene, they asked Tan Chong U to point out to
them where the missing merchandise and effects had been stored which
he was unable to do, and the only explanation which he could make was
that the missing merchandise and effect had been completely consumed by
the fire, and that no trace of them whatever was left. It also appears that
Mr. Herridge on behalf of the adjustors made demand upon Tan Chong U
as the manager of the plaintiff to furnish him with all the invoices of the
merchandise which the plaintiff claims to have stored in his bodegas at the
time of the fire, with the exception of the alleged invoices of the cigars,
cigarettes and candies, which were previously delivered, in response to
which Tan Chong U stated that it was impossible for him to deliver the
invoices because many of them were not in his possession as he had
made the purchases in cash.

ISSUE:
Can the plaintiff claim for insurance?
HELD:
No, the plaintiff was barred for his claim. Although much latitude
should be given to the insured in presenting his proof of claim as to the
value of his loss, in particular as to the price, kind and quality of the
property destroyed, yet where the proof is conclusive, as in this case, that
the insured made a claim for a large amount of property which was never in
the bodegas at the time of the fire and for a much larger amount of property
than was actually in the bodegas, it makes the whole claim false and
ARIQUEZ, CEDDIE I.

fraudulent, the legal effect of which is to bar plaintiff from the recovery of
the amount of its actual loss.

40. SUBJECT MATTER: FIRE INSURANCE

CASE TITLE: MALAYAN INSURANCE CO., INC., VS. PAP LTD. CO.
(PHIL. BR.)
G.R. NO. 200784 AUG. 07, 2013
MENDOZA, J.

FACTS:
On May 13, 1996, Malayan Insurance Company (Malayan) issued a
Fire Insurance Policy to PAP Co., Ltd. (PAP Co.) for the latter’s
machineries and equipment located at Sanyo Precision Phils. Bldg., Phase
III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo Building). The insurance,
which was for Fifteen Million Pesos (₱15,000,000.00) and effective for a
period of one (1) year, was procured by PAP Co. for Rizal Commercial
Banking Corporation (RCBC), the mortgagee of the insured machineries
and equipment. After the passage of almost a year but prior to the
expiration of the insurance coverage, PAP Co. renewed the policy on an
“as is” basis. Pursuant thereto, a renewal policy was issued by Malayan to
PAP Co. for the period May 13, 1997 to May 13, 1998. On October 12,
1997 and during the subsistence of the renewal policy, the insured
machineries and equipment were totally lost by fire. Hence, PAP Co. filed a
fire insurance claim with Malayan in the amount insured. In a letter, dated
December 15, 1997, Malayan denied the claim upon the ground that, at the
time of the loss, the insured machineries and equipment were transferred
by PAP Co. to a location different from that indicated in the policy.
Specifically, that the insured machineries were transferred in September
1996 from the Sanyo Building to the Pace Pacific Bldg., Lot 14, Block 14,
Phase III, PEZA, Rosario, Cavite (Pace Pacific). Contesting the denial,
PAP Co. argued that Malayan cannot avoid liability as it was informed of
ARIQUEZ, CEDDIE I.

the transfer by RCBC, the party duty-bound to relay such information.

However, Malayan reiterated its denial of PAP Co.’s claim. Distraught, PAP
Co. filed the complaint below against Malayan.

ISSUE:
Whether or not Malayan should be held liable under the fire insurance
policy

HELD:
No. The Court agrees with the position of Malayan that it cannot be
held liable for the loss of the insured properties under the fire insurance
policy.

The policy forbade the removal of the insured properties unless

sanctioned by Malayan Condition No. 9(c) of the renewal policy provides:

9. Under any of the following circumstances the insurance ceases to

attach as regards the property affected unless the insured, before the
occurrence of any loss or damage, obtains the sanction of the company
signified by endorsement upon the policy, by or on behalf of the Company:
xxxxxxxxxxxx
(c) If property insured be removed to any building or place other than
in that which is herein stated to be insured.

Evidently, by the clear and express condition in the renewal policy,

the removal of the insured property to any building or place required the
consent of Malayan. Any transfer effected by the insured, without the
insurer’s consent, would free the latter from any liability.

The transfer from the Sanyo Factory to the PACE Factory increased
the risk. The Court agrees with Malayan that the transfer to the Pace
Factory exposed the properties to a hazardous environment and negatively
affected the fire rating stated in the renewal policy. The increase in tariff
rate from 0.449% to 0.657% put the subject properties at a greater risk of
loss. Such increase in risk would necessarily entail an increase in the
premium payment on the fire policy. Unfortunately, PAP chose to remain
ARIQUEZ, CEDDIE I.

completely silent on this very crucial point. Despite the importance of the
issue, PAP failed to refute Malayan’s argument on the increased risk.

Malayan is entitled to rescind the insurance contract. Considering that

the original policy was renewed on an “as is basis,” it follows that the
renewal policy carried with it the same stipulations and limitations. The
terms and conditions in the renewal policy provided, among others, that the
location of the risk insured against is at the Sanyo factory in PEZA. The
subject insured properties, however, were totally burned at the Pace
Factory. Although it was also located in PEZA, Pace Factory was not the
location stipulated in the renewal policy. There being an unconsented
removal, the transfer was at PAP’s own risk. Consequently, it must suffer
the consequences of the fire.

It can also be said that with the transfer of the location of the subject
properties, without notice and without Malayan’s consent, after the renewal
of the policy, PAP clearly committed concealment, misrepresentation and a
breach of a material warranty. Section 26 of the Insurance Code provides:
Section 26. A neglect to communicate that which a party knows and ought
to communicate, is called a concealment and under Section 27 of the
Insurance Code, “a concealment entitles the injured party to rescind a
contract of insurance.”

Moreover, under Section 168 of the Insurance Code, the insurer is

entitled to rescind the insurance contract in case of an alteration in the use
or condition of the thing insured. Section 168 of the Insurance Code
provides, as follows:

Section 168. An alteration in the use or condition of a thing insured

from that to which it is limited by the policy made without the consent of the
insurer, by means within the control of the insured, and increasing the risks,
entitles an insurer to rescind a contract of fire insurance.

Accordingly, an insurer can exercise its right to rescind an insurance

contract when the following conditions are present, to wit: 1) The policy
limits the use or condition of the thing insured; 2) There is an alteration in
said use or condition; 3) The alteration is without the consent of the insurer;
4) The alteration is made by means within the insured's control; and 5) The
alteration increases the risk of loss.
ARIQUEZ, CEDDIE I.

In the case at bench, all these circumstances are present. It was

clearly established that the renewal policy stipulated that the insured
properties were located at the Sanyo factory; that PAP removed the
properties without the consent of Malayan; and that the alteration of the
location increased the risk of loss.

41. SUBJECT MATTER: FIRE INSURANCE

CASE TITLE: UNITED MERCHANTS CORP. VS. COUNTRY BANKERS

INS. CORP.
G.R. NO. 198588 JULY 11, 2012
CARPIO, J.

FACTS:
UMC’s General Manager Alfredo Tan insured UMC’s stocks in trade
of Christmas lights against fire with Country Bankers Insurance
Corporation. A fire gutted the warehouse rented by UMC. Consequently,
UMC, through the appointed adjuster of Country Bankers, submitted its
Sworn Statement of Formal Claim, with proofs of its loss. It demanded for
at least 50% payment of its claim from Country Bankers. However, Country
Bankers rejected the claim due to breach of Condition No. 15 of the
Insurance Policy which states that:

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 devices are
used by the Insured or anyone acting in his behalf to obtain any benefit
under this Policy; or if the loss or damage be occasioned by the willful act,
or with the connivance of the Insured, all the benefits under this Policy shall
be forfeited.

UMC filed a Complaint with the RTC of Manila. The RTC rendered a
Decision in favor of UMC. However, the CA reversed the said decision.
Hence, this petition.
ARIQUEZ, CEDDIE I.

ISSUE:
Whether or not UMC is entitled to claim from Country Bankers the full
coverage of its fire insurance policy?

HELD:
It has long been settled that a false and material statement made with
an intent to deceive or defraud voids an insurance policy. Furthermore, the
Insurance Code provides that a policy may declare that a violation of
specified provisions thereof shall avoid it. Thus, in fire insurance policies,
which contain provisions such as Condition No. 15 of the Insurance Policy,
a fraudulent discrepancy between the actual loss and that claimed in the
proof of loss voids the insurance policy. Mere filing of such a claim will
exonerate the insurer.
In the present case, the claim is twenty five times the actual claim
proved. The most liberal human judgment cannot attribute such difference
to mere innocent error in estimating or counting but to a deliberate intent to
demand from insurance companies payment for indemnity of goods not
existing at the time of the fire. This constitutes the so called fraudulent
claim which, by express agreement between the insurers and the insured,
is a ground for the exemption of insurers from civil liability.

Considering that all the circumstances point to the inevitable

conclusion that UMC padded its claim and was guilty of fraud, UMC
violated Condition No. 15 of the Insurance Policy. Thus, UMC forfeited
whatever benefits it may be entitled under the Insurance Policy, including
its insurance claim.
ARIQUEZ, CEDDIE I.

42. SUBJECT MATTER: SURETY

CASE TITLE: CLARITA QUIAMCO VS. CAPITAL INSURANCE & SURETY

CO., INC.
G.R. NO. 170852 SEPT. 12, 2008
CORONA, J.

FACTS:
Petitioner spouses Noe and Clarita Quiamco are husband and wife
engaged in the sea transportation business. On April 30, 1997, a decision
in a labor case was rendered against Clarita as representative of Sto. Niño
Ferry Boat Services. Petitioners received the decision on May 7, 1997.

Petitioners then applied for a supersedeas bond with respondent

Capital Insurance & Surety Co., Inc., a surety and non-life insurance
company. This bond was required in order to perfect their appeal to the
National Labor Relations Commission (NLRC). Respondent required
petitioners to do the following: (1) to issue and deliver to it an undated
check in the amount equivalent to that of the supersedeas bond which it
would issue; (2) to execute a supplementary counter-guaranty with chattel
mortgage over the sea vessel M/L Gretchen 2 owned by petitioners and to
surrender their original copy of certificate of ownership over the vessel; (3)
to execute an indemnity agreement wherein petitioners would agree to
indemnify respondent all damages it might sustain in its capacity as surety
and (4) to pay the premiums. Except for the original copy of the certificate
of ownership of M/L Gretchen 2, these requirements were complied with.

Accordingly, the bond was issued on May 23, 1997 and delivered to
petitioners who filed it in the NLRC on May 24, 1997. On July 16, 1997, the
ARIQUEZ, CEDDIE I.

NLRC dismissed the appeal for petitioners' failure to post the bond within
10 days from receipt of the decision (May 7, 1997). This made the decision
in the labor case final against them.

On June 17, 1998, a writ of execution for the amount of P461,514.67

was served by the sheriff of the NLRC on respondent to collect on the
supersedeas bond. This was to fully satisfy the judgment amount in the
labor case. Respondent paid to the NLRC the amount guaranteed by the
bond. It notified petitioners and forthwith deposited the undated check. It
was, however, dishonored because the account was already closed.

On December 3, 1998, respondent filed in the Regional Trial Court

(RTC) of Cebu City, Branch 22, a complaint for sum of money and
damages with prayer for a writ of preliminary attachment against
petitioners. The RTC ruled in favor of respondent. It ordered petitioners to
pay to respondent the amount of P461,514.67 plus legal interest of 6% per
annum, attorney's fees equivalent to 10% of P461,514.67 and P10,000 as
litigation expenses.

On appeal, the CA affirmed the RTC's decision but deleted the award
of attorney's fees and litigation expenses for lack of basis. Reconsideration
was denied in a resolution dated November 24, 2005. The CA agreed with
the RTC that the surety agreement between petitioners and respondent
had been perfected. Its perfection was not dependent on the acceptance by
the NLRC of the appeal of petitioners in the labor case. Thus, respondent
correctly paid the indebtedness of petitioners.

ISSUES:
(1) Whether the surety agreement was perfected; and
(2) Whether petitioners are liable to respondent.

HELD:
There is no dispute that the parties entered into a contract of
suretyship wherein respondent as surety bound itself solidarily with
petitioners (the principal debtors) to fulfill an obligation. The obligation was
to pay the monetary award in the labor case should the decision become
final and executory against petitioners.

Contracts are perfected by mere consent. This is manifested by the

meeting of the offer and the acceptance upon the object and cause which
ARIQUEZ, CEDDIE I.

are to constitute the contract. Here, the object of the contract was the
issuance of the bond. The cause or consideration consisted of the
premiums paid. The bond was issued after petitioners complied with the
requirements. At this point, the contract of suretyship was perfected.

Petitioners cannot insist that the contract was subject to a suspensive

condition, that is, the stay of the judgment of the labor arbiter. This was not
a condition for the perfection of the contract but merely a statement of the
purpose of the bond in its "whereas" clauses. Aside from this, there was no
mention of the condition that before the contract could become valid and
binding, perfection of the appeal was necessary. If the intention was to
make it a suspensive condition, then the parties should have made it clear
in certain and unambiguous terms.

From the moment the contract is perfected, the parties are bound to
comply with what is expressly stipulated as well as with what is required by
the nature of the obligation in keeping with good faith, usage and the law.  A
surety is considered in law to be on the same footing as the principal debtor
in relation to whatever is adjudged against the latter. Accordingly, as surety
of petitioners, respondent was obliged to pay on the bond when a writ of
execution was served on it. Consequently, it now has the right to seek full
reimbursement from petitioners for the amount paid.

Moreover, petitioners signed an indemnity agreement which

contained the following stipulations:

INDEMNIFICATION: - To indemnify the SURETY for all damages,

payments, advances, losses, costs, taxes, penalties, charges, attorney's
fees and expenses of whatever kind and nature that the SURETY may at
any time sustain or incur as a consequence of having become surety upon
the above-mentioned bond, and to pay, reimburse and make good to the
SURETY, its successors and assigns, all sums or all money which it shall
pay or become liable to pay by virtue to said bond even if said payment/s or
liability exceeds the amount of the bond. The indemnity for attorney's fees
shall be twenty (20%) percent of the amount claimed by the SURETY, but
in no case less than TWO THOUSAND PESOS (P2,000.00), whether the
SURETY'S claim is settled judicially or extra-judicially.

INCONSTESTABILITY OF PAYMENT MADE BY THE SURETY:

- Any payment or disbursement made by the SURETY on account of the
ARIQUEZ, CEDDIE I.

above-mentioned bond, either in the belief that the SURETY was obligated
to made such payment or in the belief that said payment was necessary in
order to avoid a greater loss or obligation for which the SURETY might be
liable by virtue of the terms of the above-mentioned bond shall be final, and
will not be contested by the undersigned, who jointly and severally bind
themselves to indemnity the SURETY for any such payment or
disbursement.

Undoubtedly, under these provisions, they are obligated to reimburse

respondent. It was never respondent's obligation to inquire about the
deadline for which the bond was being issued. It was the duty of petitioners
to make sure it was filed on time. The delay in filing the bond was purely
the result of petitioners' negligence or oversight. They should bear the
consequences.

WHEREFORE, the petition is hereby DENIED.

ARIQUEZ, CEDDIE I.

43. SUBJECT MATTER: SURETY

CASE TITLE: STRONGHOLD INSURANCE CO., INC. VS. TOKYU

CONSTRUCTION CO., LTD.
G.R. NOS. 158820-21 JUNE 5, 2009
NACHURA, J.

FACTS:
Respondent Tokyu Construction Company, Ltd., a member of a
consortium of four (4) companies, was awarded by the Manila International
Airport Authority a contract for the construction of the Ninoy Aquino
International Airport (NAIA) Terminal 2 (also referred to as "the project").
On July 2, 1996, respondent entered into a Subcontract Agreement with
G.A. Gabriel Enterprises, owned and managed by Remedios P. Gabriel
(Gabriel), for the construction of the project's Storm Drainage System
(SDS) for P33,007,752.00 and Sewage Treatment Plant (STP) for
P23,500,000.00, or a total contract price of P56,507,752.00. The parties
agreed that the construction of the SDS and STP would be completed on
August 10, 1997 and May 31, 1997, respectively.

In accordance with the terms of the agreement, respondent paid

Gabriel 15% of the contract price, as advance payment, for which the latter
obtained from petitioner Stronghold Insurance Company, Inc. Surety
Bonds dated February 26, 1996 and April 15, 1996, to guarantee its
repayment to respondent. Gabriel also obtained from petitioner
Performance Bonds to guarantee to respondent due and timely
ARIQUEZ, CEDDIE I.

performance of the work. Both bonds were valid for a period of one year
from date of issue.

In utter defiance of the parties' agreements, Gabriel defaulted in the

performance of her obligations.  On February 10, 1997, in a letter sent to
Gabriel, respondent manifested its intention to terminate the subcontract
agreement.  Respondent also demanded that petitioner comply with its
undertaking under its bonds.

On February 26, 1997, both parties (respondent and Gabriel) agreed

to revise the scope of work, reducing the contract price for the SDS phase
from P33,007,752.00 to P1,175,175.00 and the STP from P23,500,000.00
to P11,095,930.50, fixing the completion time on May 31, 1997.

Gabriel thereafter obtained from Tico Insurance Company, Inc. (Tico)

Surety and Performance Bonds to guarantee the repayment of the advance
payment given by respondent to Gabriel and the completion of the work for
the SDS, respectively.

Still, Gabriel failed to accomplish the works within the agreed

completion period. Eventually, on April 26, 1997, Gabriel abandoned the
project. On August 8, 1997, respondent served a letter upon Gabriel
terminating their agreement since the latter had only completed 63.48% of
the SDS project, valued at P744,965.00; and 46.60% of the STP, valued at
P5,171,032.48. Respondent thereafter demanded from Gabriel the return
of the balance of the advance payment. Respondent, likewise, demanded
the payment of the additional amount that it incurred in completing the
project. Finally, respondent made formal demands against petitioner and
Tico to make good their obligations under their respective performance and
surety bonds.  However, all of them failed to heed respondent's demand.
Hence, respondent filed a complaint against petitioner, Tico, and Gabriel,
before the Construction Industry Arbitration Commission (CIAC).

In the complaint, respondent prayed that Gabriel, Tico, and petitioner

be held jointly and severally liable for the payment of the additional costs it
incurred in completing the project covered by the subcontract agreement;
for liquidated damages; for the excess down payment paid to Gabriel; for
exemplary damages; and for attorney's fees.
ARIQUEZ, CEDDIE I.

Gabriel denied liability and argued that the delay in the completion of
the project was caused by respondent.  She also contended that the
original subcontract agreement was novated by the revised scope of work
and completion schedule. To counter respondent's monetary demands, she
claimed that it was, in fact, respondent who had an unpaid balance.

For its part, Tico averred that it actually treated respondent's demand
as a claim on the performance and surety bonds it issued; but it could not
make payment since the claim was still subject to determination, findings,
and recommendation of its assigned independent adjuster.

On the other hand, petitioner interposed the following special and

affirmative defenses: 1) the surety and performance bonds had expired; 2)
the premium on the bonds had not been paid by Gabriel; 3) the contract for
which the bonds were issued was set aside/novated; 4) the requisite
notices were not made which thus barred respondent's claims against it;
and 5) the damages claimed were not arbitrable.

On February 5, 1999, the parties signed the Terms of

Reference (TOR) wherein their admission of facts, their respective
positions and claims, the issues to be determined, and the amount of
arbitration fees were summarized and set forth.

The CIAC refused to resolve the issue of novation since respondent

had already terminated the agreement by sending a letter to Gabriel. It
further held that petitioner's liabilities under the surety and performance
bonds were not affected by the revision of the scope of work, contract
price, and completion time.

Petitioner and respondent separately appealed the CIAC decision to

the CA via a petition for review under Rule 43 of the Rules of Court.  The
appeals were docketed as CA-G.R. SP Nos. 54920 (petitioner) and 55167
(respondent) which were later consolidated.  On January 21, 2003, the CA
rendered a decision modifying the awards made by the Arbitral Tribunal.

ISSUES:
(1) Whether the bonds (surety and performance) are null and void having
been secured without a valid and existing principal contract;
(2) Whether the bonds were invalidated by the modification of the
subcontract agreement without notice to the surety; and
ARIQUEZ, CEDDIE I.

(3) Whether the bonds for which petitioner was being made liable already
expired.

HELD:
Initially, petitioner argued that the surety and performance bonds
(which were accessory contracts) were of no force and effect since they
were issued ahead of the execution of the principal contract.  To support
this contention, it now adds that the bonds were actually secured through
misrepresentation, as petitioner was made to believe that the principal
contract was already in existence when the bonds were issued, but it was,
in fact, yet to be executed. We are not persuaded.

In the first place, as correctly observed by respondent, the claim of

misrepresentation was never raised by petitioner as a defense in its
Answer.  Settled is the rule that points of law, theories, issues, and
arguments not adequately brought to the attention of the trial court need
not be, and ordinarily will not be, considered by a reviewing court.  They
cannot be raised for the first time on appeal.  To allow this would be
offensive to the basic rules of fair play, justice, and due process.

Besides, even if we look into the merit of such contention, the CA is

correct in holding that there was no evidentiary support of petitioner's claim
of misrepresentation. This being a factual issue, we respect the finding
made in the assailed decision. We have repeatedly held that we are not a
trier of facts.  We generally rely upon, and are bound by, the conclusions
on factual matters made by the lower courts, which are better equipped and
have better opportunity to assess the evidence first-hand, including the
testimony of the witnesses.
Petitioner also contends that the principal contract (original
subcontract agreement) was novated by the revised scope of work and
contract schedule, without notice to the surety, thereby rendering the bonds
invalid and ineffective.  Finally, it avers that no liability could attach because
the subject bonds expired and were replaced by the Tico bonds.

Again, we do not agree. Petitioner's liability was not affected by the

revision of the contract price, scope of work, and contract schedule. 
Neither was it extinguished because of the issuance of new bonds
procured from Tico.
ARIQUEZ, CEDDIE I.

As early as February 10, 1997, respondent already sent a letter to

Gabriel informing the latter of the delay incurred in the performance of the
work, and of the former's intention to terminate the subcontract agreement
to prevent further losses.  Apparently, Gabriel had already been in default
even prior to the aforesaid letter; and demands had been previously made
but to no avail.  By reason of said default, Gabriel's liability had arisen; as a
consequence, so also did the liability of petitioner as a surety arise.

A contract of suretyship is an agreement whereby a party, called the

surety, guarantees the performance by another party, called the principal or
obligor, of an obligation or undertaking in favor of another party, called the
obligee. By its very nature, under the laws regulating suretyship, the liability
of the surety is joint and several but is limited to the amount of the bond,
and its terms are determined strictly by the terms of the contract of
suretyship in relation to the principal contract between the obligor and the
obligee.

By the language of the bonds issued by petitioner, it guaranteed the

full and faithful compliance by Gabriel of its obligations in the construction
of the SDS and STP specifically set forth in the subcontract agreement,
and the repayment of the 15% advance payment given by respondent. 
These guarantees made by petitioner gave respondent the right to proceed
against the former following Gabriel's non-compliance with her obligation.

Confusion, however, transpired when Gabriel and respondent

agreed, on February 26, 1997, to reduce the scope of work and,
consequently, the contract price. Petitioner viewed such revision as
novation of the original subcontract agreement; and since no notice was
given to it as a surety, it resulted in the extinguishment of its obligation.

We wish to stress herein the nature of suretyship, which actually

involves two types of relationship --- the underlying principal relationship
between the creditor (respondent) and the debtor (Gabriel), and the
accessory surety relationship between the principal (Gabriel) and the surety
(petitioner). The creditor accepts the surety's solidary undertaking to pay if
the debtor does not pay.  Such acceptance, however, does not change in
any material way the creditor's relationship with the principal debtor nor
does it make the surety an active party to the principal creditor-debtor
relationship. In other words, the acceptance does not give the surety the
right to intervene in the principal contract.  The surety's role arises only
ARIQUEZ, CEDDIE I.

upon the debtor's default, at which time, it can be directly held liable by the
creditor for payment as a solidary obligor.

The surety is considered in law as possessed of the identity of the

debtor in relation to whatever is adjudged touching upon the obligation of
the latter.  Their liabilities are so interwoven as to be inseparable.  Although
the contract of a surety is, in essence, secondary only to a valid principal
obligation, the surety's liability to the creditor is direct, primary, and
absolute; he becomes liable for the debt and duty of another although he
possesses no direct or personal interest over the obligations nor does he
receive any benefit therefrom.
Indeed, a surety is released from its obligation when there is a
material alteration of the principal contract in connection with which the
bond is given, such as a change which imposes a new obligation on the
promising party, or which takes away some obligation already imposed, or
one which changes the legal effect of the original contract and not merely
its form.  However, a surety is not released by a change in the contract,
which does not have the effect of making its obligation more onerous.

In the instant case, the revision of the subcontract agreement did not
in any way make the obligations of both the principal and the surety more
onerous. To be sure, petitioner never assumed added obligations, nor were
there any additional obligations imposed, due to the modification of the
terms of the contract. Failure to receive any notice of such change did not,
therefore, exonerate petitioner from its liabilities as surety. Neither can
petitioner be exonerated from liability simply because the bonds it issued
were replaced by those issued by Tico.

The Court notes that petitioner issued four bonds, namely: 1)

Performance Bond No. 43601 which guaranteed the full and faithful
compliance of Gabriel's obligations for the construction of the SDS; 2)
Performance Bond No. 13608 for the construction of the STP; 3) Surety
Bond No. 065493 which guaranteed the repayment of the 15% advance
payment for the SDS project; and 4) Surety Bond No. 068189 for the STP
project.  Under the surety agreements, the first and third bonds were to
expire on February 25, 1997 or one year from date of issue of the bonds,
while the second and fourth bonds were to expire one year from April 15,
1996.
ARIQUEZ, CEDDIE I.

The impending expiration of the first and third bonds prompted

respondent to require Gabriel to arrange for their (the bonds) immediate
revalidation. Thus, in a letter dated February 21, 1997, respondent asked
that the performance bond for the SDS phase be extended until May 31,
1998; and for the surety bond, until June 30, 1997. [41]  Contrary to
petitioner's contention, this should not be construed as a recognition on the
part of respondent that the bonds were no longer valid by reason of the
modification of the subcontract agreement. There was indeed a need for
the renewal of petitioner's bonds because they were about to expire,
pursuant to the terms of the surety agreements.  Since petitioner refused to
revalidate the aforesaid bonds, Gabriel was constrained to secure the
required bonds from Tico which issued, on February 25, 1997, the new
performance and surety bonds (for the SDS phase) replacing those of
petitioner's.  The performance bond was coterminous with the final
acceptance of the project, while the surety bond was to expire on February
26, 1998.

Notwithstanding the issuance of the new bonds, the fact remains that
the event insured against, which is the default in the performance of
Gabriel's obligations set forth in the subcontract agreement, already took
place. By such default, petitioner's liability set in.  Thus, petitioner remains
solidarily liable with Gabriel, subject only to the limitations on the amount of
its liability as provided for in the Bonds themselves.

Considering that the performance bonds issued by petitioner were

valid only for a period of one year, its liabilities should further be limited to
the period prior to the expiration date of said bonds.  As to Performance
Bond No. 43601 for the SDS project, the same was valid only for one year
from February 26, 1996; while Performance Bond No. 13608 was valid only
for one year from April 15, 1996. Logically, petitioner can be held solidarily
liable with Gabriel only for the cost overrun and liquidated damages
accruing during the above periods.  The assailed CA decision is, therefore,
modified in this respect.

WHEREFORE, premises considered, the petition is DENIED.  The

Decision of the Court of Appeals dated January 21, 2003 and its Resolution
dated June 25, 2003 are AFFIRMED with the MODIFICATION that
petitioner Stronghold Insurance, Company, Inc. is jointly and severally
liable with Remedios P. Gabriel only for the cost overrun and liquidated
damages accruing during the effectivity of its bonds.
ARIQUEZ, CEDDIE I.

44. SUBJECT MATTER: SURETY

CASE TITLE: FIRST LEPANTO-TAISHO INS. CORP. VS. CHEVRON

PHILS., INC.,
G.R. NO. 177839 JAN. 18, 2012
VILLARAMA JR., J.

FACTS:
Chevron Philippines sued First Lepanto-Taisho Insurance Corp. for
payment of unpaid oil and petroleum purchases made by its distributor
Fumitechniks Corp. Fumitechniks applied for and were issued a Surety
Bond by First Lepanto. As stated in the attached rider, the bond was in
compliance with the requirement for the grant of a credit line with Chevron
to guarantee payment/remittance of the cost of fuel products withdrawn
within the stipulated time in accordance with the terms and conditions of
the agreement. Fumitechniks defaulted on its obligation to Chevron. As
such, Chevron notified First Lepanto of Fumitechniks’ unpaid purchases.
First Lepanto then demanded from Fumitechniks the delivery of
documents including, among others, a copy of the agreement secured by
the Surety Bond and information such as terms and conditions of any
arrangement that Fumitechniks might have made or ongoing negotiations
with Chevron in connection with the settlement of its obligations.
Fumitechniks responded by saying that no such agreement was executed
with Chevron. First Lepanto then advised Chevron the non-existence of the
principal agreement as confirmed by Fumitechniks. Chevron formally
demanded from First Lepanto the payment of its claim under the surety
ARIQUEZ, CEDDIE I.

bond. First Lepanto reiterated its position that without the basic contract
subject of the bond, t cannot act on Chevron’s claim. Thus, Chevron sued.

ISSUE:
Whether or not First Lepanto, as surety, is liable to Chevron, the
creditor, in the absence of a written contract with the principal.

HELD:
No. Sec. 175, Insurance Code defines suretyship as a contract or
agreement whereby a party, called the surety, guarantees the performance
by another party, called the principal or obligor, of an obligation or
undertaking in favor of a third party, called the obligee. It arises upon the
solidary binding of a person – deemed the surety – with the principal
debtor, for the purpose of fulfilling an obligation. Such undertaking makes a
surety agreement an ancillary contract as it presupposes the existence of a
principal contract. Although the contract of a surety is in essence
secondary only to a valid principal obligation, the surety becomes liable for
the debt or duty of another although it possesses no direct or personal
interest over the obligations nor does it receive any benefit therefrom. And
notwithstanding the fact that the surety contract is secondary to the
principal obligation, the surety assumes liability as a regular party to the
undertaking. The extent of the surety’s liability is determined by the
language of the suretyship contract or bond itself. It cannot be extended by
implications beyond the terms of the contract.

Thus, to determine whether First Lepanto is liable to Chevron under

the surety bond, we need to examine the terms of the contract itself. A
reading of the bond shows that it secures the payment of purchases on
credit by Fumitechniks in accordance with the terms and conditions of the
“agreement” it entered into with Chevron. The word “agreement” has
reference to the distributorship agreement, the principal contract and by
implication included the credit agreement in the rider. But in this case,
Chevron has executed written agreements only with its direct customers
but not to distributors like Fumitechniks and it also never relayed the terms
and conditions of its distributorship agreement to First Lepanto after the
delivery of the bond.

The law is clear that a surety contract should be read and interpreted
together with the contract entered into between the creditor and the
ARIQUEZ, CEDDIE I.

principal (Sec. 176). A surety contract is merely collateral one, its basis is
the principal contract or undertaking which it secures. Necessarily, the
stipulations in such principal agreement must at least be communicated or
made known to the surety. The bond in this case specifically makes
reference to a “written agreement”. Having accepted the bond, the creditor
is bound by the recital in the surety bond that the terms and conditions of
its distributorship contract be reduced in writing or at the very least
communicated in writing to the surety. Such non-compliance by the creditor
impacts not on the validity or legality of the surety contract but on the
creditor’s right to demand performance.

45. SUBJECT MATTER: ON MOTOR VEHICLE INSURANCE

CASE TITLE: PERLA COMPANIA DE SEGUROS, INC. PETITIONER, VS.

THE COURT OF APPEALS
G.R. NO. 96452 MAY 7, 1992
NOCON, J.

FACTS:
The Lim spouses opened a chattel mortgage and bought a Ford
Laser from Supercars for Php 77,000 and insured it with Perla Compania
de Seguros. The vehicle was stolen while Evelyn Lim was driving it with an
expired license. The spouses requested for a moratorium on payments but
this was denied by FCP, the assignee of rights over collection of the
mortgage amount of the car. The spouses also called on the insurance
company to pay the balance of the mortgage due to theft but this was
denied by the company due to the spouses’ violation of the Authorized
Driver clause stating (driving with an expired license before being
carnapped):

Any of the following: (a) The Insured (b) Any person driving on the
Insured's order, or with his permission. Provided that the person driving is
permitted, in accordance with the licensing or other laws or regulations, to
drive the Scheduled Vehicle, or has been permitted and is not disqualified
ARIQUEZ, CEDDIE I.

by order of a Court of Law or by reason of any enactment or regulation in

that behalf.

Since the spouses didn’t pay the mortgage, FCP filed suit against
them. The trial court ruled in its favor ordering spouses to pay.
The appellate court reversed their decision. FCP and Perla appealed to the
SC.

ISSUES:
1.Was there grave abuse of discretion on the part of the appellate court in
holding that private respondents did not violate the insurance contract
because the authorized driver clause is not applicable to the "Theft" clause
of said Contract?

2. Whether or not the loss of the collateral exempted the debtor from his
admitted obligations under the promissory note particularly the payment of
interest, litigation expenses and attorney's fees.
HELD:
No. Petition was dismissed.
1. The car was insured against a malicious act such as theft. Therefore the
“Theft” clause in the contract should apply and not the authorized driver
clause. The risk against accident is different from the risk against theft. 
The appellate court stated: The "authorized driver clause" in a typical
insurance policy is in contemplation or anticipation of accident in the legal
sense in which it should be understood, and not in contemplation or
anticipation of an event such as theft. The distinction — often seized upon
by insurance companies in resisting claims from their assureds — between
death occurring as a result of accident and death occurring as a result of
intent may, by analogy, apply to the case at bar. There was no connection
between valid possession of a license and the loss of a vehicle. Ruling in a
different way would render the policy a sham because the company can
then easily cite restrictions not applicable to the claim.

2.  The Supreme Court stated: “The chattel mortgage constituted over

the automobile is merely an accessory contract to the promissory note.
Being the principal contract, the promissory note is unaffected by whatever
befalls the subject matter of the accessory contract. Therefore, the
unpaid balance on the promissory note should be paid, and not just the
installments due and payable before the automobile was carnapped, as
erronously held by the Court of Appeals.” The court, however, construed
ARIQUEZ, CEDDIE I.

the insurance, chattel mortgage, and promissory note as interrelated

contracts, hence eliminating the payment of interests, litigation expenses,
and attorney’s fees stated in the promissory note. The promissory note
required securing a chattel mortage which in turn required opening an
insurance contract. The insurance was made as an accessory to the
principal contract, making sure that the value in the promissory note will be
paid even if the car was lost. The insurance company promised to pay FCP
for loss or damage of the property. CA didn’t err in requiring Perla to pay
the spouses, but the spouses must pay FCP for the balance in the note.

46. SUBJECT MATTER: THEFT CLAUSE

CASE TITLE: PARAMOUNT INS. CORP. VS. SPS. YVES AND MARIA
TERESA REMONDEULAZ
G.R. NO. 173773 NOV. 28, 2012
PERALTA, J.

FACTS:
On May 26, 1994, respondents insured with petitioner their 1994
Toyota Corolla sedan under a comprehensive motor vehicle insurance
policy for one year. During the effectivity of said insurance, respondents'
car was unlawfully taken. Hence, they immediately reported the theft to the
Traffic Management Command of the PNP who made them accomplish a
complaint sheet.  In said complaint sheet, respondents alleged that a
certain.

Ricardo Sales (Sales) took possession of the subject vehicle to add

accessories and improvements thereon, however, Sales failed to return the
subject vehicle within the agreed three-day period. As a result, respondents
notified petitioner to claim for the reimbursement of their lost vehicle.
However, petitioner refused to pay. Accordingly, respondents lodged a
complaint for a sum of money against petitioner before the Regional Trial
ARIQUEZ, CEDDIE I.

Court of Makati City (trial court) praying for the payment of the insured
value of their car plus damages on April 21, 1995.

Acting thereon, the trial court dismissed the complaint filed by

respondents. Not in conformity with the trial court's Order, respondents
interposed an appeal to the Court of Appeals. In its Decision dated April 12,
2005, the appellate court reversed and set aside the Order issued by the
trial court. Petitioner, thereafter, filed a motion for reconsideration against
said Decision, but the same was denied by the appellate court.

Consequently, petitioner filed a petition for review on certiorari before

this Court praying that the appellate court's Decision and Resolution be
reversed and set aside. Petitioner argues that the loss of respondents'
vehicle is not a peril covered by the policy. It maintains that it is not liable
for the loss, since the car cannot be classified as stolen as respondents
entrusted the possession thereof to another person.

ISSUES:
(1)Whether or not petitioner is liable under the insurance policy for the
loss of respondents' vehicle.
(2)Whether the loss of respondents' vehicle falls within the concept of
the "theft clause" under the insurance policy.

HELD:
We do not agree. Adverse to petitioner's claim, respondents' policy
clearly undertook to indemnify the insured against loss of or damage to the
scheduled vehicle when caused by theft.

The Company will, subject to the Limits of Liability, indemnify the

insured against loss of or damage to the Scheduled Vehicle and its
accessories and spare parts whilst thereon:
(a) by accidental collision or overturning, or collision or overturning
consequent upon mechanical breakdown or consequent upon wear and
tear;
(b) by fire, external explosion, self-ignition or lightning or burglary,
housebreaking or theft;
(c) by malicious act;
ARIQUEZ, CEDDIE I.

(d) whilst in transit (including the [process] of loading and unloading)

incidental to such transit by road, rail, inland waterway, lift or elevator.

In People v. Bustinera, this Court had the occasion to interpret the

"theft clause" of an insurance policy. In this case, the Court explained that
when one takes the motor vehicle of another without the latter's consent
even if the motor vehicle... is later returned, there is theft there being intent
to gain as the use of the thing unlawfully taken constitutes gain. Also, in
Malayan Insurance Co., Inc. v. Court of Appeals... this Court held that the
taking of a vehicle by another person without the permission or authority
from the owner thereof is sufficient to place it within the ambit of the word
theft as... contemplated in the policy, and is therefore, compensable.

Moreover, the case of Santos v. People, he owner of a car entrusted

his vehicle to therein petitioner Lauro Santos who owns a repair shop for
carburetor repair and repainting.  However, when the owner tried to retrieve
her car, she was not able to do so since Santos had abandoned his shop. 
In the said case, the crime that was actually committed was Qualified Theft.
However, the Court held that because of the fact that it was not
alleged in the information that the object of the crime was a car, which is a
qualifying circumstance, the Court found that Santos was only guilty of the
crime of Theft and merely considered the qualifying circumstance as an
aggravating circumstance in the imposition of the appropriate penalty. The
Court therein clarified the distinction between the crime of Estafa and Theft,
to wit.

The principal distinction between the two crimes is that in theft the
thing is taken while in estafa the accused receives the property and
converts it to his own use or benefit. However, there may be theft even if
the accused has possession of the property. If he was entrusted only with
the material or physical (natural) or de facto possession of the thing, his
misappropriation of the same constitutes theft, but if he has the juridical
possession of the thing, his conversion of the same constitutes
embezzlement or estafa.

In the instant case, Sales did not have juridical possession over the
vehicle.  Here, it is apparent that the taking of respondents' vehicle by
Sales is without any consent or authority from the former. Records would
show that respondents entrusted possession of their vehicle only to the
extent that Sales will introduce repairs and improvements thereon, and not
ARIQUEZ, CEDDIE I.

to permanently deprive them of possession thereof.  Since, Theft can also

be committed through misappropriation, the fact that Sales failed to return
the subject vehicle to respondents constitutes Qualified Theft.  Hence,
since respondents' car is undeniably covered by a Comprehensive Motor
Vehicle Insurance Policy that allows for recovery in cases of theft, petitioner
is liable under the policy for the loss of respondents' vehicle under the "theft
clause." All told, Sales' act of depriving respondents of their motor vehicle
at, or soon after the transfer of physical possession of the movable
property, constitutes theft under the insurance policy, which is
compensable.

47. SUBJECT MATTER: THEFT CLAUSE

CASE TITLE: ALPHA INSURANCE AND SURETY CO. VS. ARSENIA

SONIA CASTOR
G.R. NO. 198174 SEPT. 2, 2013
PERALTA, J.

FACTS:
Arsenia Sonia Castor (Castor) obtained a Motor Car Policy for her
Toyota Revo DLX DSL with Alpha Insurance and Surety Co (Alpha). The
contract of insurance obligates the petitioner to pay the respondent the
amount of P630,000 in case of loss or damage to said vehicle during the
period covered. On April 16, 2007, respondent instructed her driver, Jose
Joel Salazar Lanuza to bring the vehicle to nearby auto-shop for a tune up.
However, Lanuza no longer returned the motor vehicle and despite diligent
efforts to locate the same, said efforts proved futile. Resultantly,
respondent promptly reported the incident to the police and concomitantly
notified petitioner of the said loss and demanded payment of the insurance
proceeds.
ARIQUEZ, CEDDIE I.

Alpha, however, denied the demand of Castor claiming that they are
not liable since the culprit who stole the vehicle is employed with Castor.
Under the Exceptions to Section III of the Policy, the Company shall not be
liable for (4) any malicious damage caused by the insured, any member of
his family or by “A PERSON IN THE INSURED’S SERVICE”.

Castor filed a Complaint for Sum of Money with Damages against

Alpha before the Regional Trial Court of Quezon City. The trial court
rendered its decision in favor of Castor which decision is affirmed in toto by
the Court of Appeals. Hence, this Petition for Review on Certiorari.

ISSUE:
Whether or not the loss of respondent’s vehicle is excluded under the
insurance policy

HELD:
No. The words “loss” and “damage” mean different things in common
ordinary usage. The word “loss” refers to the act or fact of losing, or failure
to keep possession, while the word “damage” means deterioration or injury
to property. Therefore, petitioner cannot exclude the loss of Castor’s
vehicle under the insurance policy under paragraph 4 of “Exceptions to
Section III”, since the same refers only to “malicious damage”, or more
specifically, “injury” to the motor vehicle caused by a person under the
insured’s service. Paragraph 4 clearly does not contemplate “loss of
property”.

A contract of insurance is a contract of adhesion. So, when the terms

of the 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. Thus, in Eternal Gardens Memorial Park
Corporation vs. Philippine American Life Insurance Company, this Court
ruled that 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.
ARIQUEZ, CEDDIE I.

48. SUBJECT MATTER: OTHER INSURANCE CLAUSE

CASE TITLE: MALAYAN INSURANCE CO., INC. VS. PHILS. FIRST

INSURANCE CO., INC.
G.R. NO. 184300 JULY 11, 2012
REYES, J.

FACTS:
Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder
Services, Inc. (Reputable) had been annually executing a contract of
carriage, whereby the latter undertook to transport and deliver the former's
products to its customers, dealers or salesmen. Wyeth procured Marine
Policy No. MAR 13797 (Marine Policy) from respondent Philippines First
Insurance Co., Inc. (Philippines First) to secure its interest over its own
products. Philippines First thereby insured Wyeth's nutritional,
pharmaceutical and other products usual or incidental to the insured's
business while the same were being transported or shipped in the
Philippines. The policy covers all risks of direct physical loss or damage
ARIQUEZ, CEDDIE I.

from any external cause, if by land, and provides a limit of P6,000,000.00

per any one land vehicle.

Wyeth executed its annual contract of carriage with Reputable. It

turned out, however, that the contract was not signed by Wyeth's
representative/s. Under the contract, Reputable undertook to answer for "all
risks with respect to the goods and shall be liable to the COMPANY
(Wyeth), for the loss, destruction, or damage of the goods/products due to
any and all causes whatsoever, including theft, robbery, flood, storm,
earthquakes, lightning, and other force majeure while the goods/products
are in transit and until actual delivery to the customers, salesmen, and
dealers of the Company.

The contract also required Reputable to secure an insurance policy

on Wyeth's goods. Reputable signed a Special Risk Insurance Policy (SR
Policy) with petitioner Malayan for the amount of P1,000,000.00 during the
effectivity of the Marine Policy and SR Policy, Reputable received from
Wyeth 1,000 boxes of Promil infant formula worth P2,357,582.70 to be
delivered by Reputable to Mercury Drug Corporation in Libis, Quezon City.

Unfortunately, on the same date, the truck carrying Wyeth's products

was hijacked by about 10 armed men. They threatened to kill the truck
driver and two of his helpers should they refuse to turn over the truck and
its contents to the said highway robbers. The hijacked truck was recovered
two weeks later without its cargo. Philippines First, after due investigation
and adjustment, and pursuant to the Marine Policy, paid Wyeth. Philippines
First then demanded reimbursement from Reputable, having been
subrogated to the rights of Wyeth by virtue of the payment. The latter,
however, ignored the demand.

Philippines First instituted an action for sum of money against

Reputable. Philippines First stated that Reputable is a common carrier.
Reputable claimed that it is a private carrier. It also claimed that it cannot
be made liable under the contract of carriage with Wyeth since the contract
was not signed by Wyeth's representative and that the cause of the loss
was force majeure, i.e., the hijacking incident. Reputable impleaded
Malayan as third-party defendant in an effort to collect the amount covered
in the SR Policy and that the SR Policy covered the risk of robbery or
hijacking.
ARIQUEZ, CEDDIE I.

Disclaiming any liability, Malayan argued, among others, that under

Section 5 of the SR Policy, the insurance does not cover any loss or
damage to property which at the time of the happening of such loss or
damage is insured by any marine policy and that the SR Policy expressly...
excluded third-party liability. The RTC rendered its Decision finding
Reputable liable to Philippines First for the amount of indemnity it paid to
Wyeth. Malayan was found by the RTC to be liable to Reputable to the
extent of the policy coverage the CA rendered the assailed decision
sustaining the ruling of the RTC.

ISSUES:

(1) Whether Reputable is a private carrier;

(2) Whether Reputable is strictly bound by the stipulations in its contract of
carriage with Wyeth, such that it should be liable for any risk of loss or
damage, for any cause whatsoever, including that due to theft or robbery
and other force majeure;
(3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and
Section 12 of the SR Policy; and
(4) Whether Reputable should be held solidarily liable with Malayan for the
amount of P998,000.00 due to Philippines First.

HELD:
On the first issue, Reputable is a private carrier. A common carrier
becomes a private carrier when it undertakes to carry a special cargo or
chartered to a special person only. For all intents and purposes, therefore,
Reputable operated as a private/special carrier with regard to its contract of
carriage with Wyeth.

On the second issue, Reputable is bound by the terms of the contract

of carriage. The extent of a private carrier's obligation is dictated by the
stipulations of a contract it entered into, provided its stipulations, clauses,
terms and conditions are not contrary to law, morals, good customs, public
order, or public policy. Thus, being a private carrier, the extent of
Reputable's liability is fully governed by the stipulations of the contract of
carriage, one of which is that it shall be liable to Wyeth for the loss of the
goods/products due to any and all causes whatsoever, including theft,
robbery and other force majeure while the goods/products are in transit and
until actual delivery to Wyeth's customers, salesmen and dealers.
ARIQUEZ, CEDDIE I.

On the third issue other insurance vis-à-vis over insurance. Malayan

posits that Sections 5 and 12 are separate provisions applicable under
distinct circumstances. Malayan argues that "it will not be completely
absolved under Section 5 of its policy if it were the assured itself who
obtained additional insurance coverage on the same property and the loss
incurred by Wyeth's cargo was more than that insured by Philippines First's
marine policy. On the other hand, Section 12 will not completely absolve
Malayan if additional insurance coverage on the same cargo were obtained
by someone besides Reputable, in which case Malayan's SR policy will
contribute or share ratable proportion of a covered cargo loss."

Section 5 is actually the other insurance clause (also called

"additional insurance" and "double insurance"), Section 5 does not provide
for the nullity of the SR Policy but simply limits the liability of Malayan only
up to the excess of the amount that was not covered by the other insurance
policy. In interpreting the "other insurance clause" in Geagonia, the Court
ruled that the prohibition applies only in case of double insurance. The
Court ruled that in order to constitute a violation of the clause, the other
insurance must be upon same subject matter, the same interest therein
and the same risk. Thus, even though the multiple insurance policies
involved were all issued in the name of the same assured, over the same
subject matter and covering the same risk, it was ruled that there was no
violation of the "other insurance clause" since there was no double
insurance. Section 12 of the SR Policy, on the other hand, is the over
insurance clause. More particularly, it covers the situation where there is
over insurance due to double insurance. In such case, Section 15 provides
that Malayan shall "not be liable to pay or contribute more than its ratable
proportion of such loss or damage." This is in accord with the principle of
contribution provided under Section 94(e) of the Insurance Code, which
states that "where the insured is over insured by double insurance, each
insurer is bound, as between himself and the other insurers, to contribute
ratably to the loss in proportion to the amount for which he is liable under
his contract."

Clearly, both Sections 5 and 12 presuppose the existence of a double

insurance. The pivotal question that now arises is whether there is double
insurance in this case such that either Section 5 or Section 12 of the SR
Policy may be applied.
ARIQUEZ, CEDDIE I.

By the express provision of Section 93 of the Insurance Code, double

insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest. The requisites in
order for double insurance to arise are as follows:
(1)The person insured is the same;
(2)Two or more insurers insuring separately;
(3)There is identity of subject matter;
(4)There is identity of interest insured; and
(5)There is identity of the risk or peril insured against.
In the present case, while it is true that the Marine Policy and the SR
Policy were both issued over the same subject matter, i.e. goods belonging
to Wyeth, and both covered the same peril insured against, it is, however,
beyond cavil that the said policies were issued to two different persons or
entities. It is undisputed that Wyeth is the recognized insured of Philippines
First under its Marine Policy, while Reputable is the recognized insured of
Malayan under the SR Policy. The fact that Reputable procured Malayan's
SR Policy over the goods of Wyeth pursuant merely to the stipulated
requirement under its contract of carriage with the latter does not make
Reputable a mere agent of Wyeth in obtaining the said SR Policy.

The interest of Wyeth over the property subject matter of both

insurance contracts is also different and distinct from that of Reputable's.
The policy issued by Philippines First was in consideration of the legal
and/or equitable interest of Wyeth over its own goods. On the other hand,
what was issued by Malayan to Reputable was over the latter's insurable
interest over the safety of the goods, which may become the basis of the
latter's liability in case of loss or damage to the property and falls within the
contemplation of Section 15 of the Insurance Code.

Therefore, even though the two concerned insurance policies were

issued over the same goods and cover the same risk, there arises no
double insurance since they were issued to two different persons/entities
having distinct insurable interests.

On the fourth issue Reputable is not solidarily liable with Malayan.

There is solidarily liability only when the obligation expressly so states,
when the law so provides or when the nature of the obligation so requires.
Suffice it to say that Malayan's and Reputable's respective liabilities arose
ARIQUEZ, CEDDIE I.

from different obligations-Malayan's is based on the SR Policy while

Reputable's is based on the contract of carriage.

49. SUBJECT MATTER: ON MORTGAGE REDEMPTION INSURANCE

CASE TITLE: GREAT PACIFIC LIFE ASS. CORP. VS. COURT OF

APPEALS, ET. AL.
G.R. NO. 113899 OCT. 13, 1999
QUISUMBING, J.

FACTS:
A contract of group life insurance was executed between petitioner
Great Pacific and Development Bank Grepalife agreed to insure the lives of
eligible housing loan mortgagors of DBP. Wilfredo Leuterio, a physician
and a housing debtor of DBP, applied for membership in the group life
insurance plan. In an application form, Dr. Leuterio answered questions
concerning his health condition as follows:

“7. Have you ever had, or consulted, a physician for a heart condition,
high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or
any other physical impairment?
ARIQUEZ, CEDDIE I.

8. Are you now, to the best of your knowledge, in good health?”

Grepalife issued a coverage to the value of P86,200.00 pesos. Dr.

Leuterio died due to “massive cerebral hemorrhage.” DBP submitted a
death claim to Grepalife. Grepalife denied the claim alleging that Dr.
Leuterio was not physically healthy when he applied for an insurance
coverage. Grepalife insisted that Dr. Leuterio did not disclose he had been
suffering from hypertension, which caused his death. Allegedly, such non-
disclosure constituted concealment that justified the denial of the claim.

ISSUE:
Whether or not Grepalife is liable.

HELD:
Yes. The medical findings were not conclusive because Dr. Mejia did
not conduct an autopsy on the body of the decedent. The medical
certificate stated that hypertension was “the possible cause of death.”
Hence, the statement of the physician was properly considered by the trial
court as hearsay. Contrary to appellant’s allegations, there was no
sufficient proof that the insured had suffered from hypertension. Aside from
the statement of the insured’s widow who was not even sure if the
medicines taken by Dr. Leuterio were for hypertension, the appellant had
not proven nor produced any witness who could attest to Dr. Leuterio’s
medical history.

Appellant insurance company had failed to establish that there was

concealment made by the insured, hence, it cannot refuse payment of the
claim.” The fraudulent intent on the part of the insured must be established
to entitle the insurer to rescind the contract. Misrepresentation as a defense
of the insurer to avoid liability is an affirmative defense and the duty to
establish such defense by satisfactory and convincing evidence rests upon
the insurer. A life insurance policy is a valued policy. Unless the interest of
a person insured is susceptible of exact pecuniary measurement, the
measure of indemnity under a policy of insurance upon life or health is the
sum fixed in the policy.

The mortgagor paid the premium according to the coverage of his

insurance. In the event of the debtor’s death before his indebtedness with
the creditor shall have been fully paid, an amount to pay the outstanding
indebtedness shall first be paid to the creditor. DBP foreclosed one of the
ARIQUEZ, CEDDIE I.

deceased person’s lots to satisfy the mortgage. Hence, the insurance

proceeds shall inure to the benefit of the heirs of the deceased person or
his beneficiaries.

50. SUBJECT MATTER: ON THE LIABILITY OF INSURER FOR LOSS

DUE TO NEGLIGENCE

CASE TITLE: FGU INSURANCE CORP. VS. THE COURT OF APPEALS,

ET. AL.
G.R. NO. 137775 MARCH 31, 2005
CHICO-NAZARIO, J.

FACTS:
Anco Enterprises Company owned the M/T ANCO tugboat and the
D/B Lucio barge which were operated as common carriers. San Miguel
Corporation entered into agreement with ANCO wherein the latter will
shipped its cargoes on board the D/B Lucio, for towage by M/T ANCO.
They further agreed that SMC will insure the cargoes in order to recover
indemnity in case of loss, hence the cargoes was insured with FGU
Insurance Corporation.
ARIQUEZ, CEDDIE I.

ANCO failed to deliver to SMC’s consignee the cargoes. As a

consequence of the incident, SMC filed a complaint for Breach of Contract
of Carriage and Damages against ANCO. Subsequently, ANCO, with leave
of court, filed a Third-Party Complaint against FGU on the ground that the
loss of said cargoes occurred as a result of risks insured against in the
insurance policy and during the existence and lifetime of said insurance
policy. ANCO went on to assert that in case the court will order ANCO to
pay SMC’s claim, FGU should be held liable to indemnify or reimburse
ANCO whatever amounts, or damages, it may be required to pay to SMC.

The trial court found ANCO liable to pay SMC and consequently FGU
is liable to bear the 53% of the amount of the lost cargoes because the risk
insured against was the cause of the loss. The appellate court affirmed in
toto the decision of the lower court. Hence, the petition.

ISSUE:
Whether or not FGU can be held liable under the insurance policy to
reimburse ANCO for the loss of the Cargoes?

HELD:
It is a basic rule in insurance that the carelessness and negligence of
the insured or his agents constitute no defense on the part of the insurer.
This rule however presupposes that the loss has occurred due to causes
which could not have been prevented by the insured, despite the exercise
of due diligence.

However, when evidence show that the insured’s negligence or

recklessness is so gross as to be sufficient to constitute a willful act, the
insurer must be exonerated. In the case at bar, ANCO’s representatives
had failed to exercise extraordinary diligence required of common carriers
in the shipment of SMC’s cargoes.

Such blatant negligence being the proximate cause of the loss of the
cargoes and is of such gross character that it amounts to a wrongful act
which must exonerate FGU from liability under the insurance contract.