Tirol

3. New Life Enterprises v. CA, Equitable Insurance Corporation, Reliance Surety and Insurance
Co., Inc., and Western Guaranty Corporation

DOCTRINE: While it is a cardinal principle of insurance law that a policy or contract of insurance
is to be construed liberally in favor of the insured and strictly against the insurer company, yet
contracts of insurance, like other contracts, are to be construed according to the sense and
meaning of the terms which the parties themselves have used. Petitioners should be aware of
the fact that a party is not relieved of the duty to exercise the ordinary care and prudence that
would be exacted in relation to other contracts. The conformity of the insured to the terms of
the policy is implied from his failure to express any disagreement with what is provided for.

Facts: Julian Sy and Jose Sy Bang formed a business partnership in the City of Lucena. Under the
business name of New Life Enterprises, the partnership 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. Thereafter:

 On May 15, 1981, Western Guaranty Corporation issued a Fire Insurance Policy
(P350,000.00). This policy was renewed on May 13, 1982.
 On July 30, 1981, Reliance Surety and Insurance Co., Inc. issued a Fire Insurance Policy
(P300,000.00), renewed under a Renewal Certificate. An additional insurance was issued
by the same company on November 12, 1981 under a Fire Insurance Policy (P700,000.00).
 On February 8, 1982, Equitable Insurance Corporation issued a Fire Insurance Policy
(P200,000.00).

When the building occupied by New Life Enterprises was gutted by fire at 2AM on October 19,
1982, the stocks in trade inside said building were insured against fire in the total amount of
P1,550,000.00. According to the certification issued by Camp Crame, the cause of fire was
electrical in nature. According to the plaintiffs, the building and the stocks inside were burned.

After the fire, Julian Sy went to the agent of Reliance Insurance whom he asked to accompany
him to the office of the company so that he can file his claim. He averred that in support of his
claim, he submitted the fire clearance, the insurance policies and inventory of stocks. He further
testified that the 3 insurance companies are sister companies, and as a matter of fact when he
was following-up his claim with Equitable Insurance, the Claims Manager told him to go first to
Reliance Insurance and if said company agrees to pay, they would also pay. The same treatment
was given him by the other insurance companies. Ultimately, the three insurance companies
denied plaintiffs' claim for payment.

Western Guaranty Corporation, Reliance Insurance, and Equitable Insurance Corporation denied
such claim “for breach of policy conditions.”
Executive Vice President of Reliance Surety, Mary Dee Co, informed Atty. Dator (who acted in
behalf of the plaintiff) that Julian Sy violated Policy Condition No. ' which requires the insured to
give notice of any insurance or insurances already effected covering the stocks in trade.

Because of the denial of their claims for payment by the 3 insurance companies, petitioner filed
separate civil actions against the former before the Regional Trial Court of Lucena City, which
cases were consolidated for trial and thereafter the court below rendered its decision:

 In Civil Case No. 6-84, judgment was rendered for the plaintiff New Life Enterprises and
against the defendant Equitable Insurance Corporation
 In Civil Case No. 7-84, judgment was rendered for the plaintiff Julian Sy and against the
defendant Reliance Surety and Insurance Co., Inc.
 In Civil Case No. 8-84, judgment was rendered for the plaintiff New Life Enterprises and
against the defendant Western Guaranty Corporation

Court of Appeals reversed said judgment of the trial court. Hence, this appeal.

Issue: Whether or not policy conditions of the insurance contracts were violated by petitioners
thereby resulting in their forfeiture of all the benefits thereunder.

Ruling: YES. The Policy Conditions were violated.

Condition No. 3 of said insurance policies, otherwise known as the "Other Insurance Clause," is
uniformly contained in all the aforestated insurance contracts of herein petitioners, as follows:

3. The insured shall give notice to the Com-pany of any insurance or insurances already effected,
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.

Petitioners admit that the respective insurance policies issued by private respondents did not
state or endorse thereon the other insurance coverage obtained or subsequently effected on the
same stocks in trade for the loss of which compensation is claimed by petitioners. The policy
issued by respondent Western Guaranty Corporation (Western) did not declare respondent
Reliance Surety and Insurance Co., Inc. (Reliance) and respondent Equitable Insurance
Corporation (Equitable) as co-insurers on the same stocks, while Reliance's policies covering the
same stocks did not likewise declare Western and Equitable as such co-insurers. It is further
admitted by petitioners that Equitable's policy stated "nil" in the space thereon requiring
indication of any co-insurance although there were three (3) policies subsisting on the same
stocks in trade at the time of the loss, namely, that of Western in the amount of P350,000.00 and
two (2) policies of Reliance in the total amount of P1,000,000.00.

In other words, the coverage by other insurance or co-insurance effected or subsequently

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 said policies. These contentions cannot pass judicial muster.

When the words and language of documents are clear and plain or readily understandable by an
ordinary reader thereof, there is absolutely no room for interpretation or construction anymore.
Courts are not allowed to make contracts for the parties; rather, they will intervene only when
the terms of the policy are ambiguous, equivocal, or uncertain. 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.

The terms of the contract are clear and unambiguous. The insured is specifically required to
disclose to the insurer any other insurance and its particulars which he may have effected on the
same subject matter. The knowledge of such insurance by the insurer's agents, even assuming
the acquisition thereof by the former, is not the "notice" that would estop the insurers from
denying the claim. Besides, the so-called theory of imputed knowledge, that is, knowledge of the
agent is knowledge of the principal, aside from being of dubious applicability here has likewise
been roundly refuted by respondent court whose factual findings we find acceptable.

While it is a cardinal principle of insurance law that a policy or contract of insurance is to be

Petitioners should be aware of the fact that a party is not relieved of the duty to exercise the
ordinary care and prudence that would be exacted in relation to other contracts. The conformity
of the insured to the terms of the policy is implied from his failure to express any disagreement
with what is provided for. It may be true that the majority rule, as cited by petitioners, is that
insured persons may accept policies without reading them, and that this is not negligence per se.
But, this is not without any exception. It is and was incumbent upon petitioner Sy to read the
insurance contracts, and this can be reasonably expected of him considering that he has been a
businessman since 1965 and the contract concerns indemnity in case of loss in his money-making
trade of which important consideration he could not have been unaware as it was precisely the
reason for his procuring the same.

In Pioneer Insurance and Surety Corporation vs. Yap, the SC emphasized:

The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and
thus avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing
the situation in which a fire would be profitable to the insured. According to Justice Story: "The
insured has no right to complain, for he assents to comply with all the stipulations on his side, in
order to entitle himself to the benefit of the contract, which, upon reason or principle, he has no
right to ask the court to dispense with the performance of his own part of the agreement, and
yet to bind the other party to obligations, which, but for those stipulations, would not have been
entered into."

Additionally, insofar as the liability of respondent Reliance is concerned, it is not denied that the
complaint for recovery was filed in court by petitioners only after more than 1 year had elapsed
from petitioners' receipt of the insurers' letter of denial on November 29, 1982. Policy Condition
No. 27 of their insurance contract with Reliance provides:

27. Action or suit clause. - If a claim be made and rejected and an action or suit be not commenced
either in the Insurance Commission or any court of competent jurisdiction of notice of such
rejection, or in case of arbitration taking place as provided herein, within twelve (12) months after
due notice of the award made by the arbitrator or arbitrators or umpire, then the claim shall for
all purposes be deemed to have been abandoned and shall not thereafter be recoverable
hereunder.

The condition contained in an insurance policy that claims must be presented within one year
after rejection is not merely a procedural requirement but an important matter essential to a
prompt settlement of claims against insurance companies as it demands that insurance suits be
brought by the insured while the evidence as to the origin and cause of destruction have not yet
disappeared.

Dispositive: WHEREFORE, finding no cogent reason to disturb the judgment of respondent Court
of Appeals, the same is hereby AFFIRMED.