1. Philippine Health Care Providers, Inc.vs.

Commissioner Of Internal Revenue

G.R. No. 167330 September 18, 2009

FACTS:
Phil. Health Care Provider (Petitioner) received a demand letter and assessment notices
from the CIR (Respondent) on the DST deficiency taxes among others, for the taxable years 1996
and 1997. Petitioner filed a protest, stating among others, that DST under Section 185 of the NIRC is
imposed only on a company engaged in the business of fidelity bonds and other insurance policies;
petitioner, as an HMO, is a service provider, not an insurance company; and that agreements do not
fall under the phrase "other branch of insurance" mentioned in Section 185. However, as respondent
did not act on the protest, petitioner filed a petition for review in the CTA. The CTA ordered the CIR
to cease and desist from collecting the DST.
Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled
the DST assessment. He claimed that petitioner’s health care agreement was a contract of
insurance subject to DST under Section 185 of the 1997 Tax Code. Moreover, DST is not a tax on
the business transacted but an excise on the privilege, opportunity or facility offered at exchanges
for the transaction of the business.
The CA rendered its decision and held that petitioner’s health care agreement was in the
nature of a non-life insurance contract subject to DST. Petitioner moved for reconsideration but the
CA denied it.
Aggrieved by the petition, the petitioner appealed with the SC. In its decision, the Court
denied the petition and affirmed the CA’s decision. Unable to accept the verdict, petitioner filed the
present motion for reconsideration and supplemental motion for reconsideration. Hence the case at
bar.

ISSUE:
Whether or not the petitioner is a HMO and not an insurance company, so as to exempt
them from the payment of the DST.

RULING:
The petitioner is a Health Maintenance Organization (HMO) and is not engaged in the
insurance business, hence, not subject to DST.
From the language of Section 185, it is evident that two requisites must concur before the
DST can apply, namely: (1) the document must be a policy of insurance or an obligation in the
nature of indemnityand (2) the maker should be transacting the business of accident, fidelity,
employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch
of insurance (except life, marine, inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of
1995"), an HMO is "an entity that provides, offers or arranges for coverage of designated health
services needed by plan members for a fixed prepaid premium." The payments do not vary with the
extent, frequency or type of services provided.
On the other hand, Section 2 (2) of PD 1460 (otherwise known as the Insurance Code)
enumerates what constitutes "doing an insurance business" or "transacting an insurance business:"
a) making or proposing to make, as insurer, any insurance contract;

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 b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety;
c) doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;
d) doing or proposing to do any business in substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code.
In the application of the provisions of this Code, the fact that no profit is derived from the
making of insurance contracts, agreements or transactions or that no separate or direct
consideration is received therefore, shall not be deemed conclusive to show that the making thereof
does not constitute the doing or transacting of an insurance business.
One test that SC have applied is the "principal object and purpose test." It relates to whether
the assumption of risk and indemnification of loss (which are elements of an insurance business) are
the principal object and purpose of the organization or whether they are merely incidental to its
business. If these are the principal objectives, the business is that of insurance. But if they are
merely incidental and service is the principal purpose, then the business is not insurance.
The decision mentioned that American courts have pointed out that the main difference
between an HMO and an insurance company is that HMOs undertake to provide or arrange for the
provision of medical services through participating physicians while insurance companies simply
undertake to indemnify the insured for medical expenses incurred up to a pre-agreed limit.
Even though petitioner appears to provide insurance-type benefits to its members (with
respect to its curative medical services), but these are incidental to the principal activity of providing
them medical care. The "insurance-like" aspect of petitioner’s business is miniscule compared to its
noninsurance activities. Therefore, since it substantially provides health care services rather than
insurance services, it cannot be considered as being in the insurance business.
Lastly, it is significant to note that a health care agreement is not an insurance contract
contemplated under Section 185 of the NIRC, thus, not subject to DST.
Section 2(1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event. An insurance contract exists where the following
elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk and
5. In consideration of the insurer’s promise, the insured pays a premium.
An examination of petitioner’s agreements with its members leads the Court to conclude that
it is not an insurance contract within the context of our Insurance Code.
First, even if a contract contains all the elements of an insurance contract, if its primary
purpose is the rendering of service, it is not a contract of insurance; it does not necessarily follow
however, that a contract containing all the four elements mentioned above would be an insurance
contract. The primary purpose of the parties in making the contract may negate the existence of an
insurance contract.
Second. Not all the necessary elements of a contract of insurance are present in petitioner’s
agreements. To begin with, there is no loss, damage or liability on the part of the member that

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should be indemnified by petitioner as an HMO. Under the agreement, the member pays petitioner a
predetermined consideration in exchange for the hospital, medical and professional services
rendered by the petitioner’s physician or affiliated physician to him. In case of availment by a
member of the benefits under the agreement, petitioner does not reimburse or indemnify the
member as the latter does not pay any third party. Instead, it is the petitioner who pays the
participating physicians and other health care providers for the services rendered at pre-agreed
rates. The member does not make any such payment.
In other words, there is nothing in petitioner's agreements that gives rise to a monetary
liability on the part of the member to any third party-provider of medical services which might in turn
necessitate indemnification from petitioner. The terms "indemnify" or "indemnity" presuppose that a
liability or claim has already been incurred. There is no indemnity precisely because the member
merely avails of medical services to be paid or already paid in advance at a pre-agreed price under
the agreements.
Lastly, although risk is a primary element of an insurance contract, it is not necessarily true
that risk alone is sufficient to establish it. Almost anyone who undertakes a contractual obligation
always bears a certain degree of financial risk. Consequently, there is a need to distinguish prepaid
service contracts (like those of petitioner) from the usual insurance contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health
services: the risk that it might fail to earn a reasonable return on its investment. But it is not the risk
of the type peculiar only to insurance companies. Insurance risk, also known as actuarial risk, is the
risk that the cost of insurance claims might be higher than the premiums paid. The amount of
premium is calculated on the basis of assumptions made relative to the insured.
However, assuming that petitioner’s commitment to provide medical services to its members
can be construed as an acceptance of the risk that it will shell out more than the prepaid fees, it still
will not qualify as an insurance contract because petitioner’s objective is to provide medical services
at reduced cost, not to distribute risk like an insurer.
Thus, since the petitioner is not an insurance company, and the agreement it entered into is
not a contract of insurance, therefore, it is not subject to DST in relation to Section 185 of the NIRC.

2. PHILAMCARE Health Systems, Inc. VS. Court of Appeals And Julita Trinos

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G.R. No. 125678 March 18, 2002

FACTS:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care
coverage with petitioner Philamcare Health Systems, Inc. 
Under the agreement, respondent’s husband was entitled to avail of hospitalization benefits,
whether ordinary or emergency, listed therein. He was also entitled to avail of out-patient benefits
such as annual physical examinations, preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year. The amount
of coverage was increased to a maximum sum of P75,000.00 per disability.
During the period of his coverage, Ernani suffered a heart attack and was confined. While her
husband was in the hospital, respondent tried to claim the benefits under the health care
agreement. However, petitioner denied her claim saying that the Health Care Agreement was void
for concealing Ernanis medical history.
After her husband was discharged and was attended by a physical therapist at home. Later,
Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to the
Hospital where he died on the same day.
Respondent the filed an action before the RTC for damages against petitioner and its
president, Dr. Benito Reverente, askeing for reimbursement of her expenses plus moral damages
and attorneys fees. The Court renders judgment in favor of the plaintiff Julita Trinos.
Upon appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards
for damages and absolved petitioner Reverente.Hence, this petition.

ISSUE:
Whether health care agreement is an insurance contract.

HELD:
YES. Supreme Court affirm the decision of C.A.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby
one undertakes for a consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event. An insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a premium. [8]
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or
future, which may damnify a person having an insurable interest against him, may be insured
against. Every person has an insurable interest in the life and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:

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 (1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting
property or service, of which death or illness might delay or prevent the performance;
and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondents husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent, the health care provider must
pay for the same to the extent agreed upon under the contract.
Concealment as a defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing evidence
rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner
is liable for claims made under the contract. Having assumed a responsibility under the agreement,
petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the
health care provider attaches once the member is hospitalized for the disease or injury covered by
the agreement or whenever he avails of the covered benefits which he has prepaid.

3. Lalican vs Insular Life

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FACTS:

During his lifetime, Eulogio applied for an insurance policy with Insular Life. Insular Life, through
Josephine Malaluan (Malaluan), its agent in Gapan City, issued in favor of Eulogio Policy No.
9011992, which contained a 20-Year Endowment Variable Income Package Flexi Plan worth
P500,000.00, with two riders valued at P500,000.00 each.
Thus, the value of the policy amounted to P1,500,000.00. Violeta was named as the primary
beneficiary. Eulogio was to pay the premiums on a quarterly basis, According to the Policy Contract,
there was a grace period of 31 days for the payment of each premium subsequent to the first. If any
premium was not paid on or before the due date, the policy would be in default, and if the premium
remained unpaid until the end of the grace period, the policy would automatically lapse and become
void. Eulogio paid the premiums due on 24 July 1997 and 24 October 1997.
However, he failed to pay the premium due on 24 January 1998, even after the lapse of the grace
period of 31 days. Policy No. 9011992, therefore, lapsed and became void. Eulogio submitted to the
Cabanatuan District Office of Insular Life, through Malaluan, Insular Life notified Eulogio that his
Application for Reinstatement could not be fully processed because, although he already deposited
P8,062.00 as payment for the 24 January 1998 premium, he left unpaid the overdue interest thereon
amounting to P322.48.
Thus, Insular Life instructed Eulogio to pay the amount of interest and to file another application for
reinstatement. Eulogio was likewise advised by Malaluan to pay the premiums that subsequently
became due on 24 April 1998 and 24 July 1998, plus interest.
A while later, on the same day, 17 September 1998, Eulogio died of cardio-respiratory arrest
secondary to electrocution. Violeta filed with Insular Life a claim for payment of the full proceeds of
Policy Insular Life informed Violeta that her claim could not be granted since, at the time of Eulogios
death, Policy No. 9011992 had already lapsed, and Eulogio failed to reinstate the same. According
to the Application for Reinstatement, the policy would only be considered reinstated upon approval
of the application by Insular Life during the applicants lifetime and good health, and whatever
amount the applicant paid in connection thereto was considered to be a deposit only until approval of
said application.

ISSUE:

WON, violeta’s petition petition should be granted.

RULING:
The Court rules in the negative.
Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30 August
2007 Decision that Policy No. 9011992 lapsed because of Eulogios non-payment of the premiums
which became due on 24 April 1998 and 24 July 1998. Policy No. 9011992 had lapsed and become
void earlier, on 24 February 1998, upon the expiration of the 31-day grace period for payment of the
premium, which fell due on 24 January 1998, without any payment having been made.
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. In the instant case, Eulogios death rendered

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impossible full compliance with the conditions for reinstatement of Policy No. 9011992. 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 Eulogios lifetime and good health.
Eulogios death, just hours after filing his Application for Reinstatement and depositing his payment
for overdue premiums and interests with Malaluan, does not constitute a special circumstance that
can persuade this Court to already consider Policy No. 9011992 reinstated. Said circumstance
cannot override the clear and express provisions of the Policy Contract and Application for
Reinstatement, and operate to remove the prerogative of Insular Life thereunder to approve or
disapprove the Application for Reinstatement.
Even though the Court commiserates with Violeta, as the tragic and fateful turn of events leaves her
practically empty-handed, the Court cannot arbitrarily burden Insular Life with the payment of
proceeds on a lapsed insurance policy. Justice and fairness must equally apply to all parties to a
case. Courts are not permitted to make contracts for the parties. The function and duty of the courts
consist simply in enforcing and carrying out the contracts actually made.

4. Alpha Insurance and Surety Co. vs. Castor

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G.R. NO. 198174 September 2, 2013

FACTS:
Respondent Castor entered into a contract of insurance with Petitioner Alpha involving her
vehicle. The contract obligates Petitioner to pay Respondent the amount of Six Hundred Thirty
Thousand Pesos (P630,000.00) in case of loss or damage to the vehicle within the period of
coverage, from February 26, 2007 to February 26, 2008.
On April 16, 2007, Respondent sent her vehicle for a tune-up at a nearby autoshop through
her driver Jose Joel Salazar Lanuza (Lanuza). However, Lanuza never returned the vehicle and
despite diligence exerted to locate the same, such effort proved futile. Hence the insurance claim
demanded against Petitioner.
Citing an exception under Section III of the policy contract, Petitioner denied said claim
stating that the culprit is under the employ of Repondent.
Thus Respondent filed her complaint with the Regional Trial Court (RTC) in Quezon City
which, after due course, decided in her favour stating that the theft perpetrated by her driver is not
covered under paragraph 4 of exceptions to Section III of the policy contract as it does not mention
any “loss” of the property but merely “malicious damage” caused by the insured, a family member, or
by a person in the insured’s service.
The Court of Appeals, on appeal, affirmed the decision of the RTC.

ISSUE:
Whether or not the loss of Respondent’s vehicle is excluded from insurance coverage.

RULING:
The High Court ruled that the loss of Respondent’s vehicle is NOT EXCLUDED from the
insurance coverage and thus entitles Respondent to claim against Petitioner.
Indemnity and liability insurance policies, being contract of adhesion, are construed in
accordance with the general rule of resolving any ambiguity therein in favor of the assured – when
the terms of the policy are ambiguous, equivocal or uncertain, such that the parties themselves
disagree about the meaning of a particular provision, the courts will construe the same liberally in
favor of the assured and strictly against the insurer.
Paragraph 4 of the exceptions of Section III of the policy clearly does not contemplate loss of
the property subject of the insurance policy but merely refers to “malicious damage” caused by the
insured, a family member, or by a person in the insured’s service.

5. PHILAMCARE Health Systems, Inc. vs. Court Of Appeals and Julita Trinos

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G.R. No. 125678 March 18, 2002

FACTS:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care
coverage with petitioner Philamcare Health Systems, Inc which was approved for a period of one
year.
During the period of his coverage, Ernani suffered a heart attack and was confined at the
Manila Medical Center (MMC) for one month. While her husband was in the hospital, respondent
tried to claim the benefits under the health care agreement. However, petitioner denied her claim
saying that the Health Care Agreement was void due to concealment regarding Ernanis medical
history. Thus, respondent paid the hospitalization expenses herself.

Eventually, Ernani died. The respondent instituted with the Regional Trial Court of Manila an
action for damages against petitioner and its president, Dr. Benito Reverente.  She asked for
reimbursement of her expenses plus moral damages and attorneys fees. After trial, the lower court
ruled against petitioners.
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards
for damages and absolved petitioner Reverente. Petitioner’s motion for reconsideration was denied.
Hence, petitioner brought the instant petition for review, raising the primary argument that a health
care agreement is not an insurance contract.

ISSUE:
Whether or not the health care agreement is an insurable contract.

RULING:
Yes. In affirming the decision of the Court of Appeals, the Supreme Court ruled that Section
2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the following elements concur: an
insurance contract exists when the following elements concur: (1) the insured has an insurable
interest; (2) the insured is subject to a risk of loss by the happening of the designated peril; (3) the
insurer assumes the risk; (4) such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and (5) in consideration of the insurer's
promise, the insured pays a premium.
In the case at bar, the insurable interest of respondent’s husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent, the health care provider must
pay for the same to the extent agreed upon under the contract.

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6. Fortune Medicare Inc. vs. Amorin
G. R. No. 195872 March 12, 2014

FACTS;
David Robert U. Amorin, the respondent in this case, was a cardholder/member of Fortune
Medicare, the petitioner in this case. While on a vacation in Honolulu, Hawaii, United States of
America, Amorin underwent an emergency surgery, specifically appendectomy causing him to incur
professional and hospitalization expenses of US$7,242 and US$1,777.79, respectively.
He attempted to recover from Fortune Care the full amount thereof upon his return but the company
merely approved a reimbursement of P12, 151.36, an amount that was based on the average cost of
appendectomy, net of medicare deduction, if the procedure were performed I an accredited hospital
in Metro Manila. Amorin instituted an action against Fortune Medicare and the Regional Trial Court
ruled against Amorin stating that the court is convinced that the parties intended to use the
Philippine standard as basis as stated in Section 3 Article V of the Corporate Health Care Program.
Amorin appealed to the Court of Appeals and the Court of Appeals ruled in favor of Amorin stating
that health care agreements such the subject Health Care contract, being like insurance contracts
must be liberally construed in favor of the subscriber and CA also explained that there is nothing in
Article V that provides that Philippine standard should be used even in the event of an emergency
confinement in a foreign territory.

ISSUE:
Whether or not the Court of Appeals was correct in ruling that Health Care contract, being like
insurance contracts must be liberally construed in favor of the subscriber.

RULING:
Yes. The Supreme Court finds no reason to disturb the CA’s finding. The Supreme Court
reiterated the guideline laid down in Philamcare Health Systems v. CA, “Being a contract of
adhesion, the terms of an insurance contract are to be construed strictly against the party which
prepared the contract—the insurer.

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7. Heirs Of Loreto C. Maramag vs. Maramag

FACTS:
 Loreto Maramag designated as beneficiary his concubine Eva de Guzman Maramag
 Vicenta Maramag and Odessa, Karl Brian, and Trisha Angelie (heirs of Loreto Maramag) and his
concubine Eva de Guzman Maramag, also suspected in the killing of Loreto and his illegitimate
children are claiming for his insurance.
 Vicenta alleges that Eva is disqualified from claiming
 RTC: Granted - civil code does NOT apply
 CA: dismissed the case for lack of jurisdiction for filing beyond reglementary period.

ISSUE:
Whether or not Eva can claim even though prohibited under the civil code against donation.

RULING:
Petition is DENIED. 
 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
 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. 
 SECTION 53. 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.
 EX: 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
 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.

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8. Sps. Tibay vs. Court of appeals
G.R. No. 119655 May 24, 1996

FACTS:
FORTUNE issued Fire Insurance Policy in favor of Violeta R. Tibay and/or Nicolas Roraldo on
their two-storey residential building in Makati, together with all their personal effects therein. The
insurance was for P600,000.00 covering the period from January 23, 1987 to January 23, 1988.
Of the total premium of P2,983.50, petitioner Violeta Tibay only paid P600.00 thus leaving a
considerable balance unpaid. On March 8, 1987 the insured building was completely destroyed
by fire. Two days later or on March 10, 1987 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 sued FORTUNE for damages. The Trial Court adjudged FORTUNE liable but the Court of
Appeals reversed the decision, hence, this petition.

ISSUE:
May a fire insurance policy be valid, binding and enforceable upon mere partial payment of
premium?

RULING:
The Court ruled in the negative. 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. The consideration is the premium, which must be paid at the time and in the
way and manner specified in the policy, and if not so paid, the policy will lapse and be forfeited by
its own terms. The pertinent provisions in the Policy on premium read — THIS POLICY OF
INSURANCE WITNISSETH THAT only after payment to the Company in accordance with Policy
Condition No. 2 of the total premiums by the insured as stipulated above for the period
aforementioned for insuring against Loss or Damage by Fire or Lightning as herein appears, the
Property herein described . . . 2. This policy including any renewal thereof and/or any
endorsement thereon is not in force until the premium has been fully paid to and duly receipted
by the Company in the manner provided herein. Any supplementary agreement seeking to
amend this condition prepared by agent, broker or Company official, shall be deemed invalid and
of no effect. xxx xxx xxx Clearly the Policy provides for payment of premium in full. 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 on the policy. This is fully supported by Sec. 77 of the Insurance Code which 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.

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9. Philamcare Health Systems, Inc. vs Court Of Appeals

FACTS:
In 1988, Ernani Trinos applied for a health care insurance under the Philamcare Health Systems,
Inc. He was asked if he was ever treated for high blood, heart trouble, diabetes, cancer, liver
disease, asthma, or peptic ulcer; he answered no. His application was approved and it was effective
for one year. His coverage was subsequently renewed twice for one year each. While the coverage
was still in force in 1990, Ernani suffered a heart attack for which he was hospitalized. The cost of
the hospitalization amounted to P76,000.00. Julita Trinos, wife of Ernani, filed a claim before
Philamcare for the latter to pay the hospitalization cost. Philamcare refused to pay as it alleged that
Ernani failed to disclose the fact that he was diabetic, hypertensive, and asthmatic. Julita ended up
paying the hospital expenses. Ernani eventually died. In July 1990, Julita sued Philamcare for
damages. Philamcare alleged that the health coverage is not an insurance contract; that the
concealment made by Ernani voided the agreement.

ISSUE: 
Whether or not Philamcare can avoid the health coverage agreement.

RULING:
No. The health coverage agreement (health care agreement) entered upon by Ernani with
Philamcare is a non-life insurance contract and is covered by the Insurance Law. It is primarily a
contract of indemnity. Once the member incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract. There is no concealment on the part of Ernani. He answered
the question with good faith. He was not a medical doctor hence his statement in answering the
question asked of him when he was applying is an opinion rather than a fact. Answers made in good
faith will not void the policy.
Further, Philamcare, in believing there was concealment, should have taken the necessary steps to
void the health coverage agreement prior to the filing of the suit by Julita. Philamcare never gave
notice to Julita of the fact that they are voiding the agreement. Therefore, Philamcare should pay the
expenses paid by Julita.

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10. Lalican v. Insular Life Assurance Company, Ltd.
597 SCRA 159 (2009)

FACTS:
Violeta is the widow of the deceased Eulogio C. Lalican. During his lifetime, Eulogio applied for an
insurance policy with Insular Life. On 24 April 1997, Insular Life, through Josephine Malaluan, its
agent in Gapan City, issued in favor of Eulogio Policy No. 9011992, which contained a 20-Year
Endowment Variable Income Package Flexi Plan worth P500,000.00, with two riders valued at
P500,000.00 each. Thus, the value of the policy amounted to P1,500,000.00. Violeta was named as
the primary beneficiary.
Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he failed to pay the
premium due on 24 January 1998, even after the lapse of the grace period of 31 days. Policy No.
9011992, therefore, lapsed and became void. Eulogio submitted to the Cabanatuan District Office of
Insular Life, through Malaluan, on 26 May 1998, an Application for Reinstatement of Policy No.
9011992, together with the amount of P8, 062.00 to pay for the premium due on 24 January 1998. In
a letter dated 17 July 1998, Insular Life notified Eulogio that his Application for Reinstatement could
not be fully processed because, although he already deposited P8,062.00 as payment for the 24
January 1998 premium, he left unpaid the overdue interest thereon amounting to P322.48. Thus,
Insular Life instructed Eulogio to pay the amount of interest and to file another application for
reinstatement.
On 17 September 1998, Eulogio went to Malaluan’s house and submitted a second Application for
Reinstatement of Policy No. 9011992, including the amount of P17, 500.00, representing payments
for the overdue interest on the premium for 24 January 1998, and the premiums which became due
on 24 April 1998 and 24 July 1998.
As Malaluan was away on a business errand, her husband received Eulogio’s second Application for
Reinstatement and issued a receipt for the amount Eulogio deposited. A while later, on the same
day, 17 September 1998, Eulogio died of cardio-respiratory arrest secondary to electrocution.
Without knowing of Eulogio’s death, Malaluan forwarded to the Insular Life Regional Office in the
City of San Fernando, on 18 September 1998, Eulogio’s second Application for Reinstatement of
Policy No. 9011992 and P17, 500.00 deposit. However, Insular Life no longer acted upon Eulogio’s
second Application for Reinstatement, as the former was informed on 21 September 1998 that
Eulogio had already passed away.
On 28 September 1998, Violeta filed with Insular Life a claim for payment of the full proceeds of
Policy No. 9011992. Violeta requested a reconsideration of the disallowance of her claim. In a letter
dated 10 March 1999, Insular Life stated that it could not find any reason to reconsider its decision
rejecting Violeta’s claim. Insular Life again tendered to Violeta the above-mentioned check in the
amount of P25,417.00.
Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the RTC, on 11
October 1999, a Complaint for Death Claim Benefit, which was docketed as Civil Case No. 2177.
Violeta alleged that Insular Life engaged in unfair claim settlement practice and deliberately failed to
act with reasonable promptness on her insurance claim. Insular Life filed with the RTC an Answer
with Counterclaim asserting that Violeta’s Complaint had no legal or factual bases. Insular Life
maintained that Policy No. 9011992, on which Violeta sought to recover, was rendered void by the
non-payment of the 24 January 1998 premium and non-compliance with the requirements for the
reinstatement of the same..
After trial, the RTC rendered, Decision in favor of Insular Life. The RTC found that Policy No.
9011992 had indeed lapsed and Eulogio needed to have the same reinstated. Violeta filed a Motion
for Reconsideration but it was denied by the RTC. Hence, this petition.

M.L. DEL MUNDO ROBLEDO | 14

ISSUE:
Whether or not the policy of Eulogio was reinstated before his death.
Whether or not, insurable interest is an essential requirement in an insurance contract

RULING:
No. In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for
reinstatement of Policy No. 9011992. 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.
Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import
and meaning of the provisions of his Policy Contract and/or Application for Reinstatement, both of
which he voluntarily signed. 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 as 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. If such terms are clear
and unambiguous, they must be taken and understood in their plain, ordinary and popular sense.
A person may reinstate his insurance 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.
An insurable interest is one of the most basic and essential requirements in an insurance contract. In
general, an insurable interest is that interest which a person is deemed to have in the subject matter
insured, where he has a relation or connection with or concern in it, such that the person will derive
pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer
pecuniary loss or damage from its destruction, termination, or injury by the happening of the event
insured against. The existence of an insurable interest gives a person the legal right to insure the
subject matter of the policy of insurance. Section 10 of the Insurance Code indeed provides that
every person has an insurable interest in his own life. Section 19 of the same code also states that
an interest in the life or health of a person insured must exist when the insurance takes effect, but
need not exist thereafter or when the loss occurs.
Policy No. 9011992 remained lapsed and void, not having been reinstated in accordance with the
Policy Contract and Application for Reinstatement before Eulogio’s death. Violeta, therefore, cannot
claim any death benefits from Insular Life on the basis of Policy No. 9011992 but she is entitled to
receive the full refund of the payments made by Eulogio thereon.
The Court DENIES the instant Petition.

M.L. DEL MUNDO ROBLEDO | 15

11. El Oriente Fabrica De Tabacos, Inc. vs. Juan Posadas
G.R. No. 34774 September 21, 1931

FACTS:
The plaintiff is a domestic corporation duly organized and existing under and by virtue of the laws of
the Philippine Islands, and the defendant is the duly appointed, qualified and acting Collector of
Internal Revenue of the Philippine Islands. Plaintiff, in order to protect itself against the loss that it
might suffer by reason of the death of its manager, A. Velhagen, procured from the Manufacturers
Life Insurance Co., of Toronto, Canada, thru its local agent E.E. Elser, an insurance policy on the life
of the said A. Velhagen for the sum of $50,000, United States currency.
El Oriente, Fabrica de Tabacos, Inc., designated itself as the sole beneficiary of said policy on the
life of its said manager. The life insurance policy was in force and effect plaintiff paid from its funds
all the insurance premiums due thereon. Plaintiff charged as expenses of its business all the said
premiums and deducted the same from its gross incomes as reported in its annual income tax
returns, which deductions were allowed by the defendant upon a showing made by the plaintiff that
such premiums were legitimate expenses of its (plaintiff's) business.
A. Velhagen had no interest or participation in the proceeds of said life insurance policy. Upon the
death of A. Velhagen in the year 1929, the plaintiff received all the proceeds of the said life
insurance policy, together with the interests and the dividends. Over the protest of the plaintiff, which
claimed exemption under section 4 of the Income Tax Law, the defendant Collector of Internal
Revenue assessed and levied as income tax on the proceeds of the insurance policy mentioned in
the preceding paragraph, which tax the plaintiff paid under instant protest

ISSUE:
Whether the proceeds of insurance taken by a corporation on the life of an important official to
indemnify it against loss in case of his death, are taxable as income under the Philippine Income Tax
Law.

RULING:
El Oriente, Fabrica de Tabacos, Inc., took out the insurance on the life of its manager, who had had
more than thirty-five years' experience in the manufacture of cigars in the Philippines, to protect itself
against the loss it might suffer by reason of the death of its manager. The Court do not believe that
this fact signifies that when the plaintiff received P104,957.88 from the insurance on the life of its
manager, it thereby realized a net profit in this amount. It is true that the Income Tax Law, in
exempting individual beneficiaries, speaks of the proceeds of life insurance policies as income, but
this is a very slight indication of legislative intention. In reality, what the plaintiff received was in the
nature of an indemnity for the loss which it actually suffered because of the death of its manager.
It is enough to sustain our construction of the act to say that proceeds of a life insurance policy paid
on the death of the insured are not usually classed as income.
Dispositive: The foregoing pronouncement will result in the judgment being reversed and in another
judgment being rendered in favor of the plaintiff and against the defendant.

M.L. DEL MUNDO ROBLEDO | 16

12. Sps. Cha vs. Court of Appeals
G.R. No. 124520 August 18, 1997

FACTS:

On October 5, 1988, Spouses Nilo Cha and Stella Uy Cha entered into a lease contract with
CKS Development Corporation (CKS) for a period of one year. One of the stipulations of the
contract, particularly item number 18, states that the lessees shall not insure against fire the chattels,
merchandise, textiles goods and effects placed in the leased premises without first obtaining the
written consent and approval of the lessor and if the lessees obtain said insurance without the
consent of the lessor, the policy will be deemed assigned and transferred to the lessor for its own
benefit. Despite the prohibition, the Spouses Cha insured against loss by fire the merchandise inside
the leased premises with United Insurance Co. (United) without the consent of the lessor CKS.
Subsequently, on the day that the lease contract was to expire, fire broke out inside the leased
premises. Upon learning of the insurance procured by the lessees without its consent, CKS sent a
demand letter to United asking for the proceeds of the insurance contract between United and the
Spouses Cha in accordance with the lease contract. United refused to pay CKS, who then filed a
complaint against United and the Spouses Cha. The lower court ruled in favor of CKS, ordering
United to pay CKS the proceeds of the insurance contract. On appeal, the Court of Appeal affirmed
the lower court’s decision.

ISSUE:

Whether or not CKS has an insurable interest in the property insured.

RULING:
CKS has no insurable interest in the goods and merchandise inside the leased premises under
the provisions of the Insurance Code.

Sections 17 and 18 of the Insurance Code provides:

“Section 17. The measure of an insurable interest in property is the extent to which the
insured might be damnified by loss of injury thereof.

Section 18. 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.”

The insurable interest over the goods and merchandise inside the leased premises remains with the
Spouses Cha. CKS cannot be the beneficiary of the fire insurance policy taken by the Spouse Cha
over their goods and merchandise. The provision in the lease contract for the automatic assignment
of the policy to CKS is void for being contrary to law and public policy. The proceeds of the fire
insurance policy rightfully belong to the Spouses Cha. United cannot be compelled to pay the
proceeds to CKS because it has no insurable interest in the property insured.

M.L. DEL MUNDO ROBLEDO | 17

 The fire insurance policy taken by the Spouses Cha over their goods and 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. The reason for this requirement is to prevent a person
from insuring a property upon which he has no insurable interest and later on collecting the proceeds
of the policy in case of loss of the property. This kind of contract of insurance is a mere wager, which
is considered void under Section 25 of the Insurance Code, to wit:

“Section 25. Every stipulation in a policy insurance for the payment of loss, whether the
person insured has or has not any interest in the property insured, or that the policy shall be
received as proof of such interest, and every policy executed by way of gaming or wagering,
is void.”

13. Malayan Insurance Co., Inc vs Philippines First Insurance Co., Inc
G.R. No. 184300 July 11, 2012
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 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.
RULING:
RULING:

M.L. DEL MUNDO ROBLEDO | 18

RULING:
 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 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.

M.L. DEL MUNDO ROBLEDO | 19

14. GEAGONIA V. CA
G.R. No. 114427
February 6, 1995

FACTS:
The petitioner is the owner of Norman's Mart located in the public market of San Francisco, Agusan
del Sur. On 22 December 1989, he obtained from the private respondent fire insurance policy No. F-
14622 for P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990
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. From 1989 to 1990, the petitioner had in his inventory stocks amounting to
P392,130.50. The policy contained the following condition:

3. The insured shall give notice to the Company of any insurance or insurances
already affected, 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 in 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 the loss or damage is not more than
P200,000.00.

On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San
Francisco, Agusan del Sur. The petitioner's insured stock-in-trade were completely destroyed
prompting him to file with the private respondent a claim under the policy. On 28 December 1990,
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 fire insurance policies No. GA-28146 and No. GA-28144,
for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc.
(hereinafter PFIC).  These policies indicate that the insured was "Messrs. Discount Mart (Mr.
Armando Geagonia, Prop.)" with a mortgage clause reading:

MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu
City as their interest may appear subject to the terms of this policy. CO-INSURANCE
DECLARED: P100,000. — Phils. First CEB/F 24758.

The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of
the policy.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. He attached as Annex "AM" thereof his letter of
18 January 1991 which asked for the reconsideration of the denial. He admitted in the said letter that
at the time he obtained the private respondent's fire insurance policy he knew that the two policies
issued by the PFIC were already in existence; however, he had no knowledge of the provision in the
private respondent's policy requiring him to inform it of the prior policies; this requirement was not
mentioned to him by the private respondent's agent; and had it been mentioned, he would not have
withheld such information. He further asserted that the total of the amounts claimed under the three
policies was below the actual value of his stocks at the time of loss, which was P1,000,000.00.In its
answer, the private respondent specifically denied the allegations in the complaint and set up as its
principal defense the violation of Condition 3 of the policy. In its decision of 21 June 1993,  the
Insurance Commission found that the petitioner did not violate Condition 3 as he had no knowledge

M.L. DEL MUNDO ROBLEDO | 20

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. These findings were based
on the petitioner's testimony that he came to know of the PFIC policies only when he filed his claim
with the private respondent and that Cebu Tesing Textile obtained them and paid for their premiums
without informing him thereof. Its motion for the reconsideration of the decision having been denied
by the Insurance Commission in its resolution of 20 August 1993,  the private respondent appealed
to the Court of Appeals by way of a petition for review. In its decision of 29 December 1993,  the
Court of Appeals reversed the decision of the Insurance Commission because it found that the
petitioner knew of the existence of the two other policies issued by the PFIC. His motion to
reconsider the adverse decision having been denied, the petitioner filed the instant petition. He
contends therein that the Court of Appeals acted with grave abuse of discretion amounting to lack or
excess of jurisdiction.

ISSUE:
WON Insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct
and separate.

RULING:
YES. SC ruled in the affirmative and stated that as to a mortgaged property, the mortgagor and the
mortgagee have each an independent insurable interest therein and both interests may be one
policy, or each may take out a separate policy covering his interest, either at the same or at separate
times.  The mortgagor's insurable interest covers the full value of the mortgaged property, even
though the mortgage debt is equivalent to the full value of the property. The mortgagee's insurable
interest is to the extent of the debt, since the property is relied upon as security thereof, and in
insuring he is not insuring the property but his interest or lien thereon. His insurable interest is prima
facie the value mortgaged and extends only to the amount of the debt, not exceeding the value of
the mortgaged property.  Thus, separate insurances covering different insurable interests may be
obtained by the mortgagor and the mortgagee. SC also said that it is a cardinal rule on insurance
that a policy or insurance contract is to be interpreted liberally in favor of the insured and strictly
against the company, the reason being, undoubtedly, to afford the greatest protection which the
insured was endeavoring to secure when he applied for insurance. It is also a cardinal principle of
law that forfeitures are not favored and that any construction which would result in the forfeiture of
the policy benefits for the person claiming thereunder, will be avoided, if it is possible to construe the
policy in a manner which would permit recovery, as, for example, by finding a waiver for such
forfeiture.  Stated differently, provisions, conditions or exceptions in policies which tend to work a
forfeiture of insurance policies should be construed most strictly against those for whose benefits
they are inserted, and most favorably toward those against whom they are intended to operate.  The
reason for this is that, except for riders which may later be inserted, the insured sees the contract
already in its final form and has had no voice in the selection or arrangement of the words employed
therein. On the other hand, the language of the contract was carefully chosen and deliberated upon
by experts and legal advisers who had acted exclusively in the interest of the insurers and the
technical language employed therein is rarely understood by ordinary laymen. Moreover, as earlier
stated by the SC, 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, no double insurance exists. The non-disclosure then
of the former policies was not fatal to the petitioner's right to recover on the private respondent's
policy.

M.L. DEL MUNDO ROBLEDO | 21

15. Malayan Insurance Company, Inc
vs. PAP Co., Ltd. (PHIL. BRANCH)
G.R. No. 200784               August 7, 2013

FACTS:
(Malayan) issued Fire Insurance Policy No. F-00227-000073 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
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.
PAP Co. argued that Malayan cannot avoid liability as it was informed of the transfer by RCBC, the
party duty-bound to relay such information.
Distraught, PAP Co. filed the complaint below against Malayan. 4
RTC ordering Malayan to pay PAP Company Ltd (PAP) an indemnity for the loss under the fire
insurance policy as well as for attorney’s fees.
Although there was a change in the condition of the thing insured as a result of the transfer of the
subject machineries to another location, said insurance company failed to show proof that such
transfer resulted in the increase of the risk insured against
Malayan appealed the RTC decision to the CA which rendered the assailed decision which affirmed
the RTC decision but deleted the attorney’s fees.
The CA wrote that Malayan failed to show proof that there was a prohibition on the transfer of the
insured properties during the efficacy of the insurance policy.
The CA further stated that even if there was such a provision on transfer restrictions of the insured
properties, still Malayan could not escape liability because the transfer was made during the
subsistence of the original policy, not the renewal policy.
Finally, the CA added that Malayan failed to show that the transfer of the insured properties
increased the risk of the loss.
Not in conformity with the CA decision, Malayan filed this petition for review.

ISSUE:
Whether Malayan cannot be held liable for the loss of the insured properties under the fire insurance
policy?

M.L. DEL MUNDO ROBLEDO | 22

RULING:
Yes.
As can be gleaned from the pleadings, it is not disputed that on May 13, 1996, PAP obtained a ?
15,000,000.00 fire insurance policy from Malayan covering its machineries and equipment effective
for one (1) year or until May 13, 1997; that the policy expressly stated that the insured properties
were located at "Sanyo Precision Phils. Building, Phase III, Lots 4 & 6, Block 15, EPZA, Rosario,
Cavite"; that before its expiration, the policy was renewed 11 on an "as is" basis for another year or
until May 13, 1998; that the subject properties were later transferred to the Pace Factory also in
PEZA; and that on October 12, 1997, during the effectivity of the renewal policy, a fire broke out at
the Pace Factory which totally burned the insured properties.
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:
x x x           x x x          x x x
(c) If property insured be removed to any building or place other than in that which is herein stated to
be insured.12
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 respondent failed to notify, and to obtain the consent of, Malayan regarding the removal.
The courts below held that even if Malayan was not notified thereof, the transfer of the insured
properties to the Pace Factory was insignificant as it did not increase the 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.
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.
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.
WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby REVERSED and
SET ASIDE. Petitioner Malayan Insurance Company, Inc. is hereby declared NOT liable for the loss
of the insured machineries and equipment suffered by PAP Co., Ltd.

M.L. DEL MUNDO ROBLEDO | 23

16. Armando Geogonia vs. Court of Appeals, et al.
241 SCRA 152

Facts:
Geagonia, owner of a store, obtained from Country Bankers 1year fire insurance covering the stock
trading of dry goods. The policy noted the requirement that
"3. The insured shall give notice to the Company 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, xxx
The petitioners’ stocks were destroyed by fire. He then filed a claim which was subsequently denied
because the petitioner’s stocks were covered by two other fire insurance policies issued by PFIC.
The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of
the policy. 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 w/o informing him or securing his consent;
and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks.

Issue:
Whether or not there was a violation of the other insurance clause for failure of the insured to give
notice to the insurer of other insurance/s covering the subject matter.

RULING:
The Court ruled that the prohibition therein applies only to double insurance which exists where the
same person is insured by several insurers separately in respect of the same subject and interest.
The insurable interest of a mortgager and a mortgagee on the mortgaged property being distinct and
separate, and the policies in dispute not covering the same interest, no double insurance exists and,
thus, there is no violation of the other insurance clause.

M.L. DEL MUNDO ROBLEDO | 24

17. Great Pacific Life vs. CA
316 SCRA 677 (1999)

FACTS:
 A contract of group life insurance was executed between petitioner Great Pacific Life
Assurance Corporation (hereinafter Grepalife) and Development Bank of the Philippines
(hereinafter DBP). Grepalife agreed to insure the lives of eligible housing loan mortgagors of
DBP.
 Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in
the group life insurance plan. Grepalife issued Certificate No. B-18558, as insurance
coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to
eighty-six thousand, two hundred (P86,200.00) pesos.
 Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, 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.
 RTC of Misamis Oriental rendered a judgment adjudging Great Pacific Life Assurance
Corporation liable and ordered to pay DBP as creditor of the insured Dr. Wilfredo Leuterio
the amount of P86,000.00. This decision was sustained by the Court of Appeals.
ISSUE:
Whether or not the CA erred in holding Grepalife liable in the amount of P86,200.00?
RULING:
The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage
redemption insurance," is a device for the protection of both the mortgagee and the mortgagor. On
the part of the mortgagee, it has to enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds
from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs
of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the
mortgagor under such a concept so that in the event of death; the mortgage obligation will be
extinguished by the application of the insurance proceeds to the mortgage indebtedness.
Consequently, where the mortgagor pays the insurance premium under the group insurance policy,
making the loss payable to the mortgagee, the insurance is on the mortgagor's interest, and the
mortgagor continues to be a party to the contract. In this type of policy insurance, the mortgagee is
simply an appointee of the insurance fund, such loss-payable clause does not make the mortgagee
a party to the contract.
Petitioner's claim is without merit. A life insurance policy is a valued policy. 20 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. 21 The
mortgagor paid the premium according to the coverage of his insurance, which states that: The
policy states that upon receipt of due proof of the Debtor's death during the terms of this insurance,
a death benefit in the amount of P86,200.00 shall be paid.
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 and the
balance of the Sum Assured, if there is any shall then be paid to the beneficiary/ies designated by
the debtor.

M.L. DEL MUNDO ROBLEDO | 25

18. People Of The Philippines Vs.Yip Wai Ming
G.R. No. 120959 November 14, 1996

FACTS:
Accused-appellant Yip Wai Ming and victim Lam Po Chun, both Hongkong nationals, came
to Manila on vacation on July 10, 1993. The two were engaged to be married. Hardly a day had
passed when Lam Po Chun was brutally beaten up and strangled to death in their hotel room. On
the day of the killing, July 11, 1993, Yip Wai Ming, was touring Metro Manila with Filipino welcomers
while Lam Po Chun was left in the hotel room allegedly because she had a headache and was not
feeling well enough to do the sights.
There was no eyewitness to the actual killing of Lam Po Chun. All the evidence about the
killing is circumstantial; but prior to the death of the victim learned that her life was insured with the
Insurance Company of New Zealand in Causeway Bay, Hongkong, with appellant as the beneficiary.
It was on the bases of the conviction of Yip Wai Ming of the crime of murder.

ISSUE:
Whether or not the trial court erred in finding the accused guilty of murder based merely on
circumstantial evidence that Yip Wai Ming killed the Lam Po Chun for the insurance proceeds.

RULING:
Yes. The court erred in finding the accused guilty based merely on circumstantial evidence
that Yip Wai Ming killed the Lam Po Chun for the insurance proceeds. Review of the record,
however, disclosed that the conclusions made by the trial court are faulty and unsound, are not
based on reliable evidence, which appeared to be mere surmises and assumptions rather than hard
facts or well-grounded conclusions.

A key element in the web of circumstantial evidence is motive which the prosecution tried to
establish. In the absence of direct evidence indubitably showing that accused-appellant was the
perpetrator of the killing, motive becomes important. The trial court would have been justified in
finding that there was evident premeditation of murder if the story is proved that Lam Po Chun
insured herself for the amounts of US $498,750.00 and US $249,375.00 naming accused-appellant
as the beneficiary.
There is, however, no evidence that the victim secured an insurance policy for a big amount
in US dollars and indicated accused-appellant as the beneficiary. The prosecution presented Exhibit
"X", a mere xerox copy of a document captioned "Proposal for Life Insurance" as proof the alleged
insurance. It is not a certified copy, nor was the original first identified.

It needs not much emphasis to say that an application form does not prove that insurance
was secured. Anybody can get an application form for insurance, fill it up at home before filing it with
the insurance company. In fact, the very first sentence of the form states that it merely "forms the
basis of a contract between you and NZI Life." There was no contract yet. There is no proof that the
insurance company approved the proposal, no proof that any premium payments were made, and
no proof from the record of exhibits as to the date it was accomplished. It appearing that no
insurance was issued to Lam Po Chun with accused-appellant as the beneficiary, the motive

M.L. DEL MUNDO ROBLEDO | 26

capitalized upon by the trial court vanishes. Thus, the picture changes to one of the alleged
perpetrator killing his fiancee under cold-blooded circumstances for nothing.

There are other suspicious circumstances about the insurance angle. Lam Po Chun was
working for the National Insurance Company. Why then should she insure her life with the New
Zealand Insurance Company? Lam's monthly salary was only HK $5,000.00. The premiums for the
insurance were HK $5,400.00 or US $702.00 per month. Why should Lam insure herself with the
monthly premiums exceeding her monthly salary? And why should any insurance company approve
insurance, the premiums of which the supposed insured obviously con not afford to pay, in the
absence of any showing that somebody else is paying for said premiums. It is not even indicated
whether or not there are rules in Hongkong allowing a big amount of insurance to be secured where
the beneficiary is not a spouse, a parent, a sibling, a child, or other close relative.

It is usually the man who insures himself with the wife or future wife or beneficiary instead of
the other way around. Why should Lam Po Chun, with her relatively small salary which is not even
enough to pay for the monthly premiums, insure herself for such a big amount. This is another
reason why doubts arise as to the truth of the insurance angle.

In view of the lack of evidence beyond reasonable doubt, Yip Wai Ming was acquitted.

M.L. DEL MUNDO ROBLEDO | 27

19. Great Pacific Life Assurance Company vs. Honorable Court Of Appeals.
G.R. No. L-31845 April 30, 1979

FACTS:
Private respondent Ngo Hing filed an application herein petitioner for a twenty-year endowment
policy on the life of his one-year old daughter Helen Go. Upon the payment of the insurance
premium, the binding deposit receipt was issued to private respondent Ngo Hing. Likewise, petitioner
Mondragon handwrote at the bottom of the back page of the application form his strong
recommendation for the approval of the insurance application. However, Pacific Life disapproving
the insurance application. The letter stated that the said life insurance application for 20-year
endowment plan is not available for minors below seven years old, but Pacific Life can consider the
same under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile
Non-Medical Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by
petitioner Mondragon to private respondent Ngo Hing. Instead, Mondragon wrote back Pacific Life
again strongly recommending the approval of the 20-year endowment insurance plan to children.
Helen Go then died of influenza with complication of bronchopneumonia. 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, which rendered the
adverse decision as earlier referred to against both petitioners.
ISSUE:
(1) whether the binding deposit receipt constituted a temporary contract of the life insurance in
question.
(2) whether private respondent Ngo Hing concealed the state of health and physical condition of
Helen Go, which rendered void.
RULING:
SC constrained to hold that no insurance contract was perfected between the parties with the
noncompliance of the conditions provided in the binding receipt, and concealment, as legally
defined, having been committed by herein private respondent.
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 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.
It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M),
Pacific Life disapproved the insurance application in question on the ground that it is not offering the
twenty-year endowment insurance policy to children less than seven years of age. What it offered
instead is another plan known as the Juvenile Triple Action, which private respondent failed to
accept. In the absence of a meeting of the minds between petitioner Pacific Life and private
respondent Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in
favor of the latter's one-year old daughter, and with the non-compliance of the above quoted
conditions stated in the disputed binding deposit receipt, there could have been no insurance
contract duly perfected between them. Accordingly, the deposit paid by private respondent shall
have to be refunded by Pacific Life.

M.L. DEL MUNDO ROBLEDO | 28

20. COMMISSIONER OF INTERNAL REVENUE vs. MALAYAN INSURANCE COMPANY, INC

FACTS:
Malayan Insurance Company, Inc. a domestic corporation which has reinsurance contract with Orion
Insurance Company, Ltd. of London (hereafter referred to as ORION) a non-resident foreign
corporation, without previous authorization, filed the latter's income tax return for 1958 and paid the
tax due thereon. Finding later that ORION had commissioned another domestic entity, Filipinas
Compañia de Seguros (to be referred hereafter as FILIPINAS) to file the income tax return on its
behalf, and that the said agent paid the sum of P778.00 as corresponding income tax for the same
year (1958), MALAYAN requested the Commissioner of Internal Revenue for the refund of the
P958.00 it had paid. When no action was taken thereon, MALAYAN filed a petition in the Court of
Tax Appeals for the same purpose. The Commissioner of Internal Revenue alleged, inter alia, that in
1958, petitioner had ceded to ORION reinsurance premiums covering risks located in the Philippines
amounting to P64,327.36; that this amount is subject to withholding tax in the sum of P15,416.96;
that demand for payment of the withholding tax was made upon petitioner on February 16, 1962;
and that even if petitioner is to be credited with the sum of P958.00 there would still be due from the
latter the sum of P14,458.96. Respondent, therefore, asked the Court that the petition be dismissed
and petitioner be ordered to pay P14,458.96, with the penalties incident to late payment.

ISSUE:

Whether or not, the petitioner is liable for the withholding taxes.

RULING:

In assailing the correctness of the ruling of the Court of Tax Appeals, however, the petitioner
Commissioner of Internal Revenue contends that the payment by FILIPINAS of the supposed tax on
the incomes derived by ORION from Philippine sources did not relieve MALAYAN of its obligation to
withhold and pay the withholding tax on the reinsurance premiums it had ceded to ORION. The
contention is meritorious.
It may be noted that the abovequoted provision is not only broad and all-embracing — covering the
receipt, control, custody, etc. by any person, natural or judicial, for a foreign corporation not doing
business in the Philippines, of practically all forms of income as long as they are fixed or
determinable and are received with regularity; but also, the obligation imposed thereunder upon the
withholding agent is compulsory. This is evident from paragraph (c) of the same Section 53 of the
Tax Code which makes the withholding agent personally liable for payment of the tax treated therein.
And this has to be so, for it must be realized that the withholding provision of Section 53 (b) is a
device without which the Philippine Government may not be able to collect the proper and correct
tax on incomes, derived from sources in the Philippines, by aliens who are outside of the taxing
jurisdiction of this country. It is for this reason that the withholding provision is not being applied if the
income is to be remitted to Filipino citizens, or resident aliens, or to non-resident aliens but
conducting business and maintaining office or place of business in the Philippines. In this
connection, this Court has already held that reinsurance premiums ceded by domestic entities to
non-resident foreign corporations are determinable, periodical income of those foreign corporations
from sources within the Philippines and, therefore, are subject to withholding tax.

M.L. DEL MUNDO ROBLEDO | 29

21. THE CAPITAL INSURANCE AND SURETY CO., INC vs. PLASTIC ERA CO., INC. and THE
COURT OF APPEALS
G.R. NO. L-22375 July 18, 1975

Doctrines:
Perfection of the contract of Insurance. The delivery of promissory notes payable to order, or
bills of exchange or other mercantile documents shall produce the effect of payment only when they
have been cashed, or when through the fault of the creditor they have been impaired [Article 1249 of
the (New) Civil Code];
Credit extension (Insurance); Estoppel; Where a credit is given by an insurance company for
the payment of the premium it has no right to cancel the policy for non-payment except by putting
the insured in default and giving him personal notice.

FACTS:
On December 17, 1960, Petitioner Capital delivered to Respondent Plastic Era its Fire Policy
to insure the latter’s building, equipment, raw materials, products and accessories all of which are
situated at Mandaluyong, Rizal.
The policy covers the period from December 15, 1960, until 1 o’clock in the afternoon of
December 15, 1961 in the amount of One Hundred Thousand Pesos (P100,000.00) against all such
loss or damage.
Respondent however failed to pay premium amounting to P2,220.00 upon the delivery date
but instead issued an acknowledgment receipt of the policy with a promise to pay its premium within
30 days.
On January 8, 1961, Respondent delivered to Petitioner a post-dated check (dated January
16, 1961) amounting to P1,000.00 in partial payment of the premium, Bank of America (Bank)
attested a recorded balance amounting to P1,193.41 in Respondent’s account on January 19, 1961.
For some reason, Petitioner tried to deposit the check only on February 20, 1961 (or 35 days
later) which was dishonoured by the bank for lack of funds.
Between 4 and 5 o’clock in the morning of January 18, 1961, the property insured was
destroyed by fire.
Petitioner denied Respondent’s demand for coverage claims causing the latter to file its
complaint for the recovery of the sum of P100,000.00 plus attorney’s fees and other expenses.
Petitioner, on the other hand, filed its counterclaim.
The trial court rendered its decision in favor of Respondent which was later on affirmed en
toto by the Court of Appeals (CA), on appeal. Hence the filing of a Petition for Review by herein
Petitioner.

ISSUE:
Whether or not the contract of insurance has been duly perfected between Petitioner Capital
and Respondent Plastic Era.

M.L. DEL MUNDO ROBLEDO | 30

RULING:
The High Court affirmed the decision of the CA. In consideration of the stipulations embodied
in the contract of insurance or policy coverage, Petitioner’s acceptance of the promise by
Respondent to pay the insurance premium within 30 days from the effective date of the policy, may
be construed that it impliedly agreed to modify the tenor of the insurance policy and in effect, waived
the provision therein that it would pay only for the loss or damage in case the same occurs after the
payment of the premium. In short, Petitioner extended credit to Respondent rendering the policy
immediately operative on the day it was delivered.
The fact that the check issued by Respondent in partial payment was later on dishonoured
did not in any way operate as a forfeiture of its rights under the policy, there being no express
stipulation to that effect in the policy contract.
As in most cases decided in the United States, if the insurance policy is silent as to the mode
of payment, promissory notes received by the insurer must be deemed to have been accepted in
payment of premiums.

M.L. DEL MUNDO ROBLEDO | 31

22. Philippine Phoenix Surety & Insurance Companyvs. Woodworks, Inc.
G.R. No. L-25317

FACTS:
The case originated from the unpaid premium on a fire insurance policy issued by the Philippine
Phoenix Surety and Insurance Company in favour of Woodworks, Inc.
Woodworks, Inc. applied for a fire insurance policy for P500,000 to Philippine Phoenix to insure
the former’s building, machinery and equipment for a term of one (1) year. The premium and other
charges amounted to P10,593.36.
However, the Woodworks did not pay the premium stipulated in the policy when it was
issued nor at the time thereafter.
Before the expiration of the one-year term, Philippine Phoenix notified Woodworks of the
cancellation of the Policy allegedly upon request of the same wherein the latter has denied having
made such a request. Philippine Phoenix credited Woorkworks with the amount of P3,110. 25 for the
unexpired period of 94 days and claimed the balance of P7,483.11. Philippine Phoenix demanded in
writing for the payment of said amount but Woodworks disclaimed liability contending that it need not
pay premium because the insurer did not stand liable for any indemnity during the period the
premiums were not paid.
Consequently, Philippine Phoenix instituted an action before the Court of First Instance in
Manila for the recovery of the unpaid premium. Judgment was rendered in favor of Philippine
Phoenix. Woodworks appealed to the Court of Appeals which certified the case to the Supreme
Court on a question of law.
ISSUE:
Whether or not the insurer, Philippine Phoenix, may collect the unpaid premiums from Woodworks,
Inc.
RULING:
No. The Supreme Court’s findings is buttressed by Section 77 of the Insurance Code which
provides that “no contract of insurance by an insurance company is valid and binding unless and
until the premium thereof has been paid, notwithstanding any agreement to the contrary.”
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.” The consideration is
the “premium”. The premium must be paid at the time and in the way and manner specified in the
policy and, if not so paid, the policy will lapse and be forfeited by its own terms.
The Supreme Court also ruled that when the policy is tendered, the insured must pay the
premium unless credit, which required acceptance by the insured, is given or there is a waiver, or
some agreement obviating the necessity for pre-payment.
In this case, since the premium had not been paid, the policy must be deemed to have
lapsed. The non-payment of premiums does not merely suspend but put an end to an insurance
contract. The contract becomes void or forfeited, or the obligation of the insurer shall cease.
An insurer cannot treat a contract as valid for the purpose of collecting premiums and invalid
for the purpose of indemnity.

M.L. DEL MUNDO ROBLEDO | 32

DISPOSITION:
The judgment appealed from is reversed and Philippine Phoenix’s complaint is dismissed.

23. Pacific Timber Export Corp. vs. Court of Appeals

No. L-38613 February 25, 1982

FACTS:
The petitioner, Pacific Timber Export Corp., secured a temporary insurance from the private
respondent Workmen’s Insurance Company, Inc. for an exportation of logs. Some of the logs
intended to be exported were lost during loading operations. Pacific Timber Export Corp. submitted a
claim statement demanding payment of the loss under the policy. The adjustment company found
that the loss of the logs is not covered by the policies but it can be covered by a Cover Note No.
1010 The Insurance Commissioner observed that it is only fair and equitable to indemnify the
insured under the Cover Note and advised early settlement of marine loss and salvage claim. The
Court of Appeals, however, ruled in favor of the private respondent stating that the cover note was
null and void for lack of valuable consideration.

ISSUE/S:
Whether or not the CA is correct in ruling that the Cover Note was null and void for lack of
valuable consideration.

RULING:
No. the Supreme Court ruled that the fact that there was no separate premium on the cover not,
it does not militate against the validity of petitioner’s contention, for no such premium could have
been paid, since by nature of the cover note, it did not contain, as all cover notes do not contain
particulars of the shipment that would serve as a basis for the computation of the premiums. This is
a fact admitted by an official of the respondent company. Decision of the Court of First Instance is
affirmed.

M.L. DEL MUNDO ROBLEDO | 33

24. Arturo Valenzuela v. CA

FACTS:

Arturo Valenzuela [Valenzuela] is a general agent of Philippine American General Insurance

Company [Philamgen] since 1965. As such, he was authorized to solicit and sell in behalf of
Philamgen all kinds of non-life insurance, and in consideration of services rendered was entitled to
receive the full agent's commission of 32.5% from Philamgen. From 1973 to 1975, Valenzuela
solicited marine insurance from Delta Motors. However, Valenzuela did not receive his full
commission.

In 1977, Philamgen started to become interested in and expressed its intent to share in the
commission due Valenzuela on a 50-50 basis, but he refused. In 1978, Philamgen and its President
[Aragon] insisted on the sharing of the commission with Valenzuela, but he firmly reiterated his
objection to the proposals. Because of the refusal of Valenzuela, Philamgen and its officers took
drastic action. They reversed the commission due him by not crediting in his account the
commission earned from the Delta Motors insurance, placed agency transactions on a cash and
carry basis, threatened the cancellation of policies issued by his agency, and started to leak out
news that Valenzuela has a substantial account with Philamgen. This resulted in the decline of his
business as insurance agent. Philamgen terminated the General Agency Agreement of Valenzuela
in December 1978.

Valenzuela filed a complaint against Philamgen, and the RTC ruled in his favor, as his termination
was found to be unjustified. However, the CA ruled in favor of Philamgen, as CA ordered Valenzuela
to pay Philamgen the amount corresponding to the unpaid and uncollected premiums.

ISSUE:

Whether or not Valenzuela should be held liable for unpaid and uncollected premiums. 

RULING:
 The non-payment of premium does not merely suspend but puts an end to an insurance
contract since the time of the payment is peculiarly of the essence of the contract.
 An insurer cannot treat a contract as valid for the purpose of collecting premiums and invalid for
the purpose of indemnity.
The foregoing findings are buttressed by Section 776 of the Insurance Code (PD 612), which now
provides that no contract of insurance by an insurance company is valid and binding unless and until
the premium thereof has been paid, notwithstanding any agreement to the contrary
Hence, for Philamgen which had no more liability under the lapsed and inexistent policies to
demand, much less sue Valenzuela for the unpaid premiums would be the height of injustice and

M.L. DEL MUNDO ROBLEDO | 34

unfair dealing. In this instance, with the lapsing of the policies through the non-payment of premiums
by the insured there were no more insurance contracts to speak of.
Petition is granted.
25. PHILIPPINE PRYCE ASSURANCE CORPORATION vs. THE COURT OF APPEALS, and
GEGROCO, INC’. G.R. No. 107062 February 21, 1994
FACTS:
Herein respondent Gegroco, Inc. filed before the Makati Regional Trial Court a complaint for
collection of money against Philippine Pryce Assurance Corporation. The complaint alleged that
petitioner issued two surety bonds in behalf of its principal Sagum General Merchandise for FIVE
HUNDRED THOUSAND (P500,000.00) PESOS and ONE MILLION (1,000,000.00) PESOS,
respectively. The petitioner admitted having executed the said bonds, but denied liability because
allegedly 1) the checks which were to pay for the premiums bounced and were dishonored hence
there is no contract to speak of between petitioner and its supposed principal; and 2) that the bonds
were merely to guarantee payment of its principal's obligation, thus, excussion is necessary. The
Trial Court ruled in favor of the respondent. The Petitioner filed a Motion for Reconsideration and
New Trial which were both denied. It elevated its case to the Court of Appeals but the CA affirmed
the decision of the Trial Court, hence, this petition.

ISSUE:
Whether or not the petitioner is liable for the amount due, plus legal interest.

RULING:
The court ruled in the affirmative. Petitioner hinges its defense on two arguments, namely: a) that
the checks issued by its principal which were supposed to pay for the premiums, bounced, hence
there is no contract of surety to speak of; and 2) that as early as 1986 and covering the time of the
Surety Bond, Interworld Assurance Company (now Phil. Pryce) was not yet authorized by the
insurance Commission to issue such bonds. The Court said, this is not a good defense. The
Insurance Code states that: Sec. 177. The surety is entitled to payment of the premium as soon as
the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship
or bonding shall be valid and binding unless and until the premium therefor has been paid, except
where the obligee has accepted the bond, in which case the bond becomes valid and enforceable
irrespective of whether or not the premium has been paid by the obligor to the surety. . . . The above
provision outrightly negates petitioner's first defense. In a desperate attempt to escape liability,
petitioner further asserts that the above provision is not applicable because the respondent allegedly
had not accepted the surety bond, hence could not have delivered the goods to Sagum Enterprises.
This statement clearly intends to muddle the facts as found by the trial court and which are on
record. In the first place, petitioner, in its answer, admitted to have issued the bonds subject matter
of the original action. Likewise attached to the record are exhibits consisting of delivery invoices
addressed to Sagum General Merchandise proving that parts were purchased, delivered and
received. As to the petitioner's defense that it did not have authority to issue a Surety Bond when it
did, such is an admission of fraud committed against respondent. No person can claim benefit from
the wrong he himself committed.

M.L. DEL MUNDO ROBLEDO | 35

26. American Home Assurance Co. V. Chua (1999)
G.R. No. 130421  June 28, 1999

FACTS: 
 April 5, 1990: Antonio Chua renewed the fire insurance for its stock-in-trade of his business,
Moonlight Enterprises with American Home Assurance Companyby issuing a check
of P2,983.50 to its agent James Uy who delivered the Renewal Certificate to him.
 April 6, 1990: Moonlight Enterprises was completely razed by fire with an est. loss of P4,000,000
to P5,000,000
 April 10, 1990: An official receipt was issued and subsequently, a policy was issued
covering March 25 1990 to March 25 1991
 Antonio Chua filed an insurance claim with American Home and 4 other co-insurers (Pioneer
Insurance and Surety Corporation, Prudential Guarantee and Assurance, Inc. and Filipino
Merchants Insurance Co)
 American Home refused alleging the no premium was paid
 RTC: favored Antonio Chua for paying by way of check a day before the fire occurred
 CA: Affirmed 

ISSUE: 
1. W/N there was a valid payment of premium considering that the check was cashed after the
occurrence of the fire since the renewal certificate issued containing the acknowledgement receipt
2. W/N Chua violated the policy by his submission of fraudulent documents and non-disclosure of
the other existing insurance contracts or “other insurance clause"

RULING:
petition is partly GRANTED modified by deleting the awards of P200,000 for loss of profit, P200,000
as moral damages and P100,000 as exemplary damages, and reducing the award of attorney’s fees
from P50,000 to P10,000

1. YES. 
 Section 77 of the Insurance Code
 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 life or an industrial life policy whenever the grace
period provision applies
 Section 66 of the Insurance Code - not applicable since not termination but renewal
 renewal certificate issued contained the acknowledgment that premium had been paid 

M.L. DEL MUNDO ROBLEDO | 36

 Section 306 of the Insurance Code provides that any insurance company which delivers a policy
or contract of insurance to an insurance agent or insurance broker shall be deemed to have
authorized such agent or broker to receive on its behalf payment of any premium which is due
on such policy or contract of insurance at the time of its issuance or delivery or which becomes
due thereon
 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
 Section 78 of the Insurance Code
 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 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 
2. NO.
 purpose for the “other insurance clause”  is to prevent an increase in the moral hazard
 failure to disclose was not intentional and fraudulent
 Section 75
 A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the
breach of an immaterial provision does not avoid the policy.
 American Home is estopped because its loss adjusters had previous knowledge of the co-
insurers 
 The loss adjuster, being an employee of petitioner, is deemed a representative of the latter
whose awareness of the other insurance contracts binds petitioner
 no legal and factual basis for the award of P200,000 for loss of profit
 no such fraud or bad faith = no moral damages
 grant of attorney’s fees as part of damages is the exception rather than the rule
 award attorney’s fees where it deems just and equitable that it be so granted
 reduced to P10,000

M.L. DEL MUNDO ROBLEDO | 37

27. UCPB GENERAL INSURANCE , CO. V. MASAGANA TELEMART, INC.
G.R. NO. 137172 APRIL 4, 2001

FACTS:
Respondent obtained from Petitioner five (5) insurance policies on its properties in
Pasay City and Manila. All five (5) policies reflect on their face the affectivity term: “from 4:00
P.M. of 22 May 1991 to 4:00 P.M. of 22 May 1992.” On June 13, 1992, plaintiffs properties
located at 2410-2432 and 2442-2450 Taft Avenue, Pasay City were razed by fire. On July
13, 1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank Manager’s
Checks in the total amount of P225,753.45 as renewal premium payments for which Official
Receipt Direct Premium No. 62926 was issued by defendant. On July 14, 1992, Masagana
made its formal demand for indemnification for the burned insured properties. Hence
Masagana filed this case.
Both the Court of Appeals and the trial court found that sufficient proof exists that
Respondent, which had procured insurance coverage from Petitioner for a number of years,
had been granted a 60 to 90-day credit term for the renewal of the policies. Moreover,
according to the Court of Appeals the following circumstances constitute preponderant proof
that no timely notice of non-renewal was made by Petitioner.
Respondent seasonably filed a motion for the reconsideration of the adverse verdict.
Petitioner filed an opposition to the Respondent’s motion for reconsideration. It argues that
both the trial court and the Court of Appeals overlooked the fact that on 6 April 1992
Petitioner sent by ordinary mail to Respondent a notice of non-renewal and sent by personal
delivery a copy thereof to Respondent’s broker, Zuellig. Both courts likewise ignored the fact
that Respondent was fully aware of the notice of non-renewal. Motion for Reconsideration is
hereby granted.
Hence, this MR at the SC.
ISSUE:
Whether or not, the fire insurance policies issued by Insurer to Insured had expired on May
1992 and the cannot be enforced
RULING:
Yes. The policy had already expired. Assuming arguendo that the 60 to 90 day-
credit-term has been agreed between the parties, respondent could not still invoke estoppel
to back up its claim. “Estoppel is unavailing in this case,” thus spoke the Supreme Court
through the pen of Justice HiJario G. Davide, Jr., now Chief Justice. Mutatis mutandi, he may
well be speaking of this case. He added that “ Estoppel cannot give validity to an act that is
prohibited by law or against public policy.” The actual payment of premiums is a condition
precedent to the validity of an insurance contract other than life insurance policy.
Hence, because of respondent’s failure to pay the premiums prior to the occurrence
of the fire insured against, no valid and binding insurance policy was created to cover the
loss and destruction of the property. The fire took place on June 13, 1992, twenty-two (22)
days after the expiration of the policy of fire insurance. The tender of payment of premiums
was made only thirty (30) days after the occurrence of the fire, or on July 13, 1992.

M.L. DEL MUNDO ROBLEDO | 38

 Respondent Masagana did not give immediate notice to petitioner of the fire as it occurred
as required in the insurance policy.
By weight of authority, estoppel cannot create a contract of insurance, neither can it
be successfully invoked to create a primary liability, nor can it give validity to what the law so
proscribes as a matter of public policy. So essential is the premium payment to the creation
of the vinculum juris between the insured and the insurer that it would be doubtful to have
that payment validly excused even for a fortuitous event.
Thus, the insurance policy, including any renewal thereof or any endorsements
thereon shall not come in force until the premiums have been fully paid and duly received by
the insurance Company. No payment in respect of any premiums shall be deemed to be
payment to the Insurance Company unless a printed form of receipt for the same signed by
an Official or duly appointed Agent of the Company shall be given to the insured.
Even in the absence of notice of non-renewal, the assured would be bound by the
law that a non life insurance policy takes effect only on the date payment of the premium was
made.Verily, it is elemental law that the payment of premium is a mandatory requisite to
make the policy of insurance effective. If the premium is not paid in the manner prescribed in
the policy as intended by the parties, the policy is void and ineffective.
Basically a contract of indemnity, an insurance contract is the law between the parties. Its terms and
conditions constitute the measure of the insurer’s liability and compliance therewith is a condition
precedent to the insured’s right to recovery from the insurer.

The respondent’s motion for reconsideration is hereby DENIED for lack of merit.

M.L. DEL MUNDO ROBLEDO | 39

28. MAKATI TUSCANY CONDOMINIUM CORPORATION, vs. THE COURT OF APPEALS,
AMERICAN HOME ASSURANCE CO.,
G.R. No. 95546 November 6, 1992
FACTS:
Private respondent American Home Assurance Co. (AHAC), represented by American International
Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany Condominium Corporation
(TUSCANY) Insurance Policy No. AH-CPP-9210452, the premium was paid on installments -all of
which were accepted by private respondent. The insurance policy was renewed twice, on the second
renewal this, petitioner made two installment payments, both accepted by private respondent, the
first on 6 February 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00.
Thereafter, petitioner refused to pay the balance of the premium. Consequently, private respondent
filed an action to recover the unpaid balance. In its answer, petitioner admitted the issuance of
Insurance Policy. It explained that 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, as well as the two (2) previous policies, stated the following reservations:
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.
The trial court dismissed the complaint and the counterclaim on the ground that the receipts issued
to the defendant contained the aforementioned reservations, it is equally true that 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.
Furthermore, the 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. Both
parties appealed from the judgment of the trial court. Thereafter, the Court of Appeals rendered a
decision modifying that of the trial court by ordering herein petitioner to pay the balance of the
premiums due plus legal interest until fully paid, and affirming the denial of the counterclaim
ISSUE:
Whether 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?
RULING:
The Courtholds that the subject policies are valid even if the premiums were paid on installments.
The records clearly show that petitioner and private respondent intended subject insurance policies
to be binding and effective notwithstanding the staggered payment of the premiums. The initial
insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three (3) years,
the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of
the insurer's intention to honor the policies it issued to petitioner. Certainly, basic principles of equity
and fairness would not allow the insurer to continue collecting and accepting the premiums, although
paid on installments, and later deny liability on the lame excuse that the premiums were not
prepared in full. therefore the Court sustain the Court of Appeals’ decision
Dispositive: WHEREFORE, finding no reversible error in the judgment appealed from, the same is
AFFIRMED.

M.L. DEL MUNDO ROBLEDO | 40

29. JOSE MARQUES and MAXILITE TECHNOLOGIES, INC. vs. FAR EAST BANK AND TRUST
COMPANY, FAR EAST BANK INSURANCE BROKERS, INC., and MAKATI INSURANCE
COMPANY
G.R. No. 171379 January 10, 2011

FAR EAST BANK AND TRUST COMPANY and MAKATI INSURANCE COMPANY vs.
JOSE MARQUES and MAXILITE TECHNOLOGIES, INC.
G.R. No. 171419

FACTS:

Maxilite Technologies, Inc. (Maxilite), with its President Jose N. Marques (Marques), entered
into a trust receipt transaction with Far East Bank and Trust Co. (FEBTC) on June 17, 1993 for the
shipment of various high-technology equipment from the United States, with the merchandise
serving as collateral. The trust receipt document, signed by Marques on behalf of Maxilite, provides
that Marques agrees to keep the merchandise insured against fire to its full value, payable to the
bank, at his own cost and expense. Far East Bank Insurance Brokers, Inc. (FEBIBI), a subsidiary of
FEBTC, facilitated the procurement and processing from Makati Insurance Company, another
subsidiary of FEBTC, of four separate and independent fire insurance policies over the trust
receipted merchandise. Maxilite paid the premiums for these policies through debit arrangement with
FEBTC, who would debit Maxilite’s account for the premium payments. The insurance policy
covering the trust receipted merchandise specifically provides that the policy, including any renewal
or endorsement thereon, is not in force until the premium has been fully paid. Finding that Maxilite
failed to pay the insurance premium for the period June 24, 1994 to June 24, 1995, FEBIBI sent
written reminders to FEBTC to debit Maxilite’s account. On October 24 and 26, 1994, Maxilite fully
settled its trust receipt account. On March 5, 1995, a fire broke out at the Aboitiz Sea Transport
Building in Cebu City where Maxilite’s office and warehouse were located. Maxilite claimed against
the insurance policy with Makati Insurance Company, but was denied on the ground of non-payment
of premium. FEBTC and FEBIBI disclaimed any responsibility for the denial of the claim. Maxilite and
Marques sued FEBTC, FEBIBI and Makati Insurance Company.

The lower court ruled in favor of Maxilite and Marques, finding that the non-payment of the
premium of the insurance policy was due to the fault or negligence of FEBTC. The reminders by
FEBIBI of the non-payment of premiums were made through FEBTC, and not to Maxilite directly.
FEBTC did not heed the reminders even when Maxilite had sufficient funds in its trust receipt
account. Makati Insurance did not cancel the policy nor informed Maxilite of its cancellation if the
insurance premium should not be paid. As FEBTC, FEBIBI and Makati Insurance Company are
sister companies, the non-payment of the premium of the insurance policy should be imputable to
their fault or negligence. The Court of Appeals affirmed the trial court’s decision.

ISSUE:

M.L. DEL MUNDO ROBLEDO | 41

 Whether or not FEBTC, FEBIBI and Makati Insurance Company are jointly and severally
liable to pay respondents the full coverage of the subject insurance policy.

RULING:
The Supreme Court held that FEBTC is estopped from claiming that the insurance premium has
been unpaid. FEBTC has led Maxilite and Marques to believe that the insurance premium was
debited from Maxilite’s account based on the following facts: (1) FEBTC represented and committed
to handle Maxilite’s financing and capital requirements, including the insurance of the trust receipted
merchandise; (2) prior to the subject insurance policy, the premiums for the three separate fire
insurance policies had been paid through automatic debit arrangement; (3) FEBIBI sent FEBTC, not
Maxilite nor Marques, written reminders to debit Maxilite’s account, establishing FEBTC’s obligation
to automatically debit Maxilite’s account for the premium amount; (4) there was no written demand
from FEBTC or Makati Insurance Company for Maxilite or Marques to pay the insurance premium;
(5) the subject insurance policy was released to Maxilite on 19 August 1994; and (6) the subject
insurance policy remained uncancelled despite the alleged non-payment of the premium, making it
appear that the insurance policy remained in force and binding.

It is worthy to note that prior to the full settlement of the trust receipt account, FEBTC had
insurable interest over the merchandise. They therefore had greater reason to debit Maxilite’s
account. Maxilite had sufficient funds at the time of the first reminder. FEBTC should have debited
Maxilite’s account as what it had repeatedly done, as an established practice, with respect to the
previous insurance policies. FEBTC failed to debit and instead disregarded the reminder from
FEBIBI to debit Maxilite’s account. FEBTC’s conduct constitutes negligence. Negligence is defined
as “the omission to do something which a reasonable man, guided upon those considerations which
ordinarily regulate the conduct of human affairs, would do, or the doing of something which a
prudent man and reasonable man could not do.” As a result of FEBTC’s negligence, it must be held
liable for damages under Article 2176 of the Civil Code. Maxilite suffered damage to the extent of the
face value of the insurance policy.

FEBTC is solely liable for the payment of the face value of the insurance policy and the
monetary awards stated in the Court of Appeal’s decision. FEBTC, FEBIBI and Makati Insurance
Company are independent and separate juridical entities, even if FEBIBI and Makati Insurance
Company are subsidiaries of FEBTC. A subsidiary’s separate existence shall be respected, and the
liability of the parent corporation as well as the subsidiary shall be confined to those arising in their
respective business. There is no evidence showing FEBIBI’s and Makati Insurance Company’s
negligence as regards the non-payment of the insurance premium.

M.L. DEL MUNDO ROBLEDO | 42

30. G.R. No. L-3581             September 21, 1950
JAMES MCGUIRE, plaintiff-appellee, 
vs.
THE MANUFACTURERS LIFE INSURANCE CO., defendant-appellant.
Camus, Zavalla, Bautista and Nuevas for appellant.
Vicente C. Santos for appellee.
OZAETA, J.:
This case was submitted to and decided by the Court of First Instance of Samar upon a stipulation of
facts, from which it appears that:
On August 18, 1932, the defendant issued an insurance policy on the life of Jaime McGuire for the
sum of $5,000, and an additional sum of $5,000 as double indemnity accident benefit, payable to the
plaintiff as beneficiary. The insured paid the premiums on said policy up to and including that due on
July 19, 1940. On June 22, 1940, the insured secured from the defendant a loan of $760 on said
insurance policy. The insured failed to pay the loan with the interest thereon on January 1, 1941,
when it became due, or on any other date thereafter. He likewise failed to pay the premiums which
fell due on July 19, 1941, as well as those payable thereafter. Paragraphs 6, 7, and 8 of the
stipulation of facts reads as follows:
(6) That upon the default of the insured to pay the premiums due on July 19, 1941, and
subsequent ones, the defendant insurance company applied the stipulation contained in
clause 8 (Automatic Premium Loan) of the provisions of the policy Exhibit A and said policy
was carried on under said nonforfeiture clause of the policy up to and including March 1,
1942, the date said policy lapsed, as shown in the letter of the defendant company of
January 17, 1946, to plaintiff, a copy of which is hereto attached, marked Exhibit B and is
made a part hereof;
(7) That the insured Jaime McGuire died on August 4, 1943, in a motorcycle accident at
Borongan, Samar, Philippines;
(8) That during the interim period between March 1, 1942, the date the policy lapsed, to
August 4, 1943, the date of the death of the insured, the insured attempted to reinstate the
policy under the stipulation contained in clause 3 of the "Provisions" of the same but his
attempts failed because of his inability to communicate with defendant's branch office at
Manila due to the then existence of war and the occupation of the Philippines by enemy
forces from January 1, 1942, to February, 1945.
Upon those facts the trial court rendered judgment in favor of the plaintiff, adjudging the defendant to
pay to him the sum of P20,000, minus the premiums due and unpaid up to the date of the death of
the insured, with legal interest thereon from the date of the filing of the complaint, and the costs.
The trial court considered erroneous paragraph 6 of the stipulation of facts above quoted to the
effect that the policy in question lapsed on March 1, 1942, for failure to pay the premiums due
thereafter on account of the war, the trial court being of the opinion that the war legally suspended
the obligation of the insured to pay the premiums up to the time of the death of the insured, which
occurred during said war, citing the decision of the Court of Appeals to that effect in
Gubagaras vs. West Coast Life Insurance Company, CA-G. R. No. 1628, January 6, 1949.
According to the complaint, plaintiff's theory is that, although the policy lapsed on March 1, 1942, the
insured had the privilege of reinstating it so as to keep it in force up to the time of his death upon a

M.L. DEL MUNDO ROBLEDO | 43

written application within three years from the date of lapse and upon production of evidence of
insurability satisfactory to the company and the payment of all overdue premiums and any other
indebtedness to the company, but that the insured was unable to exercise that privilege because of
the war. Adopting another theory, the trial court held that it was unnecessary for the plaintiff to
invoke the reinstatement clause of the policy because it had not lapsed inasmuch as the failure to
pay the premiums was due to the war.
Plaintiff's theory is untenable. Even if the insured had applied for reinstatement within three years
after the policy had lapsed, his right thereto was not absolute under the terms of the policy but
discretionary on the part of the insurance company, which had the right to deny the reinstatement if it
was not satisfied as to the insurability of the insured and if the latter did not pay all overdue
premiums and all other indebtedness to the company. After the death of the insured the insurance
company could not be compelled to entertain an application for reinstatement of the policy because
the conditions precedent to reinstatement could no longer be determined and satisfied.
Aside from the error of the trial court in motu proprio setting aside the stipulation of fact that the
policy had lapsed on March 1, 1942, its theory that the payment of premiums was legally suspended
during the war is contrary to the decision of this court of August 31, 1950, in Lopez de Constantino
vs. Asia Life Insurance Company, and Peralta vs. Asia Life Insurance Company, G. R. Nos. L-1669
and L-1670, supra, p. 248. In those cases we rejected the New York rule which holds that war
between states in which the parties reside suspends the contract of life insurance and that, upon
tender of all premiums due by the insured or his representative after the war was terminated, the
contract revives and becomes fully operative; and adopted the United States rule which declares
that the contract is not merely suspended, but is abrogated by reason of nonpayment of premiums,
since the time of the payments is peculiarly of the essence of the contract. Speaking through Mr.
Justice Bengzon, this court, after a review of various pertinent cases, further said:
After pursuing the Insurance Act, we are firmly persuaded that the nonpayment of premiums
is such a vital defense of insurance companies that since the very beginning, said Act 2427
expressly preserved it, by providing that after the policy shall have been in force for two
years, it shall become incontestable (i. e., the insurer shall have no defense) except for
fraud, nonpayment of premiums, and military or naval service in time of war (sec. 184 [b],
Insurance Act). And when Congress recently amended this section (Rep. Act 171), the
defense of fraud was eliminated, while the defense of nonpayment was preserved. Thus the
fundamental character of the undertaking to pay premiums and high importance of the
defense of nonpayment thereof, was specifically recognized.
We reiterate the doctrine laid down in the Asia Life Insurance Company cases above cited.
It appears that the insured in the present case has used up all the reserve value of the policy in
question thru loans in cash and the application of the nonforfeiture clause by keeping the policy
subsisting until March 1, 1942.
Reversing the judgment appealed from, we absolve the defendant-appellant from the complaint, with
costs.

M.L. DEL MUNDO ROBLEDO | 44

31. ANDRES V. CROWN LIFE INSURANCE
G.R. No. L-l0874          
January 28, 1958

FACTS:
On April 20, 1952, Rufino D. Andres filed a complaint in the Court of First Instance of Ilocos
Norte against the Crown Life Insurance Company for the recovery of the amount of P5,000, as the
face value of a joint 20-year endowment insurance policy issued in favor of the plaintiff Rufino D.
Andres and his wife Severa G. Andres on the 13th of February, 1950, by said insurance company.
On Jun 7, 1951, Rufino Andres presented his death claim as survivor-beneficiary of the deceased
Severa G. Andres, who died May 3, 1951. Payment having been denied by the insurance company
on April 20, 1952, this case was instituted.
Defendant Company filed its answer in due time disclaiming liability and setting forth the special
defense that the aforementioned policy had already lapsed. Later, on March 25, 1954, the parties
submitted the case for decision by the lower court. On August 5, 1954, Judge Julio Villamor
rendered decision absolving the defendant from any liability on the ground that the policy having
lapsed, it was not reinstated at the time the plaintiff's wife died. Not satisfied with the decision,
plaintiff appealed to the Court of Appeals, but the appeal was later certified to this Court, for there is
no question of fact involved therein.

ISSUE:
WON policy No. 536423 (Exhibit "2") which has been in a state of lapse before May 3, 1951,
has been validly and completely reinstated after said date. In other words, was there a perfected
contract of reinstatement after the policy lapsed due to non-payment of premiums?

RULING:
NO. SC ruled in the negative stating that the stipulation of facts and accompanying exhibits
render it undisputable that the original policy No. 536423 lapsed for non-payment of premiums on
December 26, 1950, upon expiration of the customary 31-day period of grace. The stipulation of
facts and accompanying exhibits render it undisputable that the original policy No. 536423 lapsed for
non-payment of premiums on December 26, 1950, upon expiration of the customary 31-day period
of grace. Furthermore, SC stated  in the case of James McGuire vs. The Manufacturer's Life
Insurance Co. (87 Phil,. 370, 48 Off. Gaz. [1], 114), that;
The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon
written application does not give the insured absolute right to such reinstatement by the
mere filing of an application. The Company has the right to deny the reinstatement if it is not
satisfied as to the insurability of the insured and if the latter does no pay all overdue premium
and all other indebtedness to the Company. After the death of the 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.

M.L. DEL MUNDO ROBLEDO | 45

32. GREAT PACIFIC LIFE INSURANCE CORPORATION vs.
THE HON. COURT OF APPEALS and TEODORO CORTEZ
G.R. No. L-57308               April 23, 1990

FACTS:
This case involves an insured's claim for refund of the first premium on the endowment policy on his
life, upon being notified by the insurer that the policy never took effect despite the premium payment.
Private respondent Teodoro Cortez, upon the solicitation of Margarita Siega an underwriter for the
petitioner Great Pacific Insurance Corporation, applied for a 20-year endowment policy for P30,000.
His application, with the requisite medical examination, was accepted and approved by the company
and in due course, Endowment Policy No. 221944 was issued in his name. It was released for
delivery on January 24, 1973, and was actually delivered to him by the underwriter, Mrs. Siega on
January 25, 1973. The effective date indicated on the face of the policy in question was December
25, 1972. The annual premium was P1,416.60. Mrs. Siega assured him that the first premium may
be paid within the grace period of thirty (30) days from date of delivery of the policy. The first
premium of P1,416.60 was paid by him in three (3) installments
In a letter dated June 1, 1973 (Exh. E), defendant advised plaintiff that Policy No. 221944 (Exh. A)
was not in force. To make it enforceable and operative, plaintiff was asked to remit the balance of
P1,015.60 to complete his initial annual premium due December 15, 1972, and to see Dr. Felipe V.
Remollo for another full medical examination at his own expense.
Cortez' reaction to the company's act was to immediately inform it that he was cancelling the policy
and he demanded the return of his premium plus damages.
When the company ignored his demand, Cortez filed on August 14, 1973, a complaint for damages
in the Court of First Instance of Negros Oriental, docketed as Civil Case No. 5709, entitled "Teodoro
Cortez vs. Pacific Life Assurance Corporation." He prayed for the refund of the insurance premium of
P1,416.60 which he paid, plus P45,000 as moral damages, and P2,000 as attorney's fees.
After trial, the court a quo rendered judgment in favor of the plaintiff and against the defendant.
The insurer appealed to the Court of Appeals and filed a motion for reconsideration, but the same
was denied.

ISSUE:
Whether Cortez is entitled to a refund of his premium?

RULING:
When the petitioner advised private respondent on June 1, 1973, four months after he had paid the
first premium, that his policy had never been in force, and that he must pay another premium and
undergo another medical examination to make the policy effective, the petitioner committed a
serious breach of the contract of insurance.
Petitioner should have informed Cortez of the deadline for paying the first premium before or at least
upon delivery of the policy to him, so he could have complied with what was needful and would not
have been misled into believing that his life and his family were protected by the policy, when
actually they were not. And, if the premium paid by Cortez was unacceptable for being late, it was

M.L. DEL MUNDO ROBLEDO | 46

the company's duty to return it. By accepting his premiums without giving him the corresponding
protection, the company acted in bad faith.
Sections 79, 81 and 82 of P.D. 612 of the Insurance Code of 1978 provide when the insured is
entitled to the return of premium paid.
Since his policy was in fact inoperative or ineffectual from the beginning, the company was never at
risk, hence, it is not entitled to keep the premium.
The award of moral damages to Cortez was proper for there can hardly be any doubt that he must
have suffered moral shock, serious anxiety and wounded feelings upon being informed by the
petitioner six (6) months after it issued the policy to him and four (4) months after receiving the full
premium, that his policy was in fact worthless for it never took effect, hence, he and his family never
received the protection that he paid for.
WHEREFORE, the petition for review is denied for lack of merit.

M.L. DEL MUNDO ROBLEDO | 47

33. Great Pacific v CA
G.R. No. L-31845 April 30, 1979

FACTS:
Ngo Hing filed an application with the Great Pacific for a twenty-year endowment policy in the
amount of P50,000.00 on the life of his one-year old daughter Helen. He supplied the essential data
which petitioner Mondragon, the Branch Manager, wrote on the form. Helen Go died of influenza.
Ngo Hing sought the payment of the proceeds of the insurance, but having failed in his effort, he
filed the action for the recovery before the Court of First Instance of Cebu, which ruled against him.

ISSUES:
Whether Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered
void the policy

HELD:  
Yes. The Supreme Court stated that it is of “the firm belief that private respondent [the father] had
deliberately concealed the state of health and physical condition of his daughter. When private
respondent supplied the required essential data for the insurance application form, he was fully
aware that his one-year-old daughter is typically a mongoloid child. Such a congenital physical
defect could never be ensconced nor disguised. Nonetheless, private respondent, in apparent bad
faith, withheld the fact material to the risk to be assumed by the insurance company.” The Court
reiterated that a “contract of insurance is one of perfect good faith (uberrimae fides) which requires
perfect candor and openness between the insured and the insurer”. Thus the concealment
committed by the father voided the contract.

M.L. DEL MUNDO ROBLEDO | 48

34. Ng Gan Zee vs. Asian Crusader Life Assurance Corporation
G.R. No. L-30685 (May 30, 1993)

FACTS:
 On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the
sum of P20,000.00, with his wife, appellee Ng Gan Zee as beneficiary. On the same date,
appellant, upon receipt of the required premium from the insured, approved the application
and issued the corresponding policy. On December 6, 1963, Kwong Nam died of cancer of
the liver with metastasis. All premiums had been religiously paid at the time of his death.
 Ng Gan Zee presented a claim in due form to appellant for payment of the face value of the
policy. On the same date, she submitted the required proof of death of the insured. Appellant
denied the claim on the ground that the answers given by the insured to the questions
appealing in his application for life insurance were untrue.
 Insurance Commissioner found no material concealment on the part of the insured and that,
therefore, appellee should be paid the full face value of the policy. This opinion of the
Insurance Commissioner notwithstanding, appellant refused to settle its obligation.
 Court of First Instance of Manila, ordering the appellant Asian-Crusader Life Assurance
Corporation to pay the face value of an insurance policy issued on the life of Kwong Nam the
deceased husband of appellee Ng Gan Zee.

ISSUE:
Whether or not Asian Crusader Life Assurance Corporation because of insured's aforesaid
representation, misled or deceived into entering the contract or in accepting the risk at the rate of
premium agreed upon?

RULING:
No.
Section 27 of the Insurance Law [Act 2427] provides:
Sec. 27. Such party a contract of insurance must communicate to the other, in good faith, all
facts within his knowledge which are material to the contract, and which the other has not the means
of ascertaining, and as to which he makes no warranty.
Thus, "concealment exists where the assured had knowledge of a fact material to the risk,
and honesty, good faith, and fair dealing requires that he should communicate it to the assurer, but
he designedly and intentionally withholds the same."
It has also been held "that the concealment must, in the absence of inquiries, be not only
material, but fraudulent, or the fact must have been intentionally withheld."

35. NEW LIFE ENTERPRISES and JULIAN SY vs. HON. COURT OF APPEALS, EQUITABLE
INSURANCE CORPORATION, RELIANCE SURETY AND INSURANCE CO., INC. and WESTERN
GUARANTY CORPORATION,

M.L. DEL MUNDO ROBLEDO | 49

G.R. No. 94071 March 31, 1992
FACTS:
Julian Syand Jose Sy Bang have formed a business partnership under the business name of
New Life Enterprises, which is engaged in the sale of construction materials. Julian Sy insured the
materials in trade of New Life Enterprises with Western Guaranty Corporation, Reliance Surety and
Insurance. Co., Inc., and Equitable Insurance Corporation for a total amount of P1.550 million.
Breakdown of which is shown below:
Fire
Date Insurer Insurance Amount
Policy no.
May15,1981 WesternGuaranty Corporation 37201 350,000.00
(renewed on May 13, 1982)
July 30, 1981 Reliance Surety and Insurance 69135 300,000.00
Co., Inc.
November12,1981 (additional) 71547 700,000.00
February8,1982 EquitableInsurance Corporation 39328 200,000.00
Total 1,550,000.00
Atabout2:00 o'clockinthemorningofOctober19,1982, the building occupied by theNew Life
Enterprises wasguttedbyfirethe stocksinthe trade inside said building. Accordingly,
thecauseoffirewas electricalinnature.
Afterthefire,JulianSyfiled a claim on the insurance companies. However,
thethreeinsurancecompanies denied plaintiffs' claim for payment because he allegedly violated the
insurance Policy Condition Nos. "3" and “27,” as follows:
3. The insured shallgivenoticetotheCompany ofanyinsuranceorinsurancesalready
effected,orwhich maysubsequentlybeeffected, covering anyoftheproperty or properties
consistingofstocksintrade,goodsinprocess and/orinventoriesonlyherebyinsured,andunless
suchnoticebegivenandtheparticularsofsuch insuranceorinsurancesbestatedthereinor endorsed on
this policy pursuant to Section 50 of the Insurance Code,byoronbehalfoftheCompany
beforetheoccurrenceofanylossordamage,all benefits underthispolicyshall be deemed forfeited,
provided however, that this condition shallnotapply when the total insuranceor insurances in force at
thetimeoflossordamagenotmorethan P200,000.00. 5
27. Action or suit clause. —Ifaclaimbemadeandrejectedandanactionorsuitbenotcommenced
eitherintheInsuranceCommissionoranycourtofcompetentjurisdictionofnoticeofsuch
rejection,orincaseof arbitration takingplace as provided herein,withintwelve(12)monthsafter due
noticeoftheawardmadebythearbitratororarbitrators orumpire,thentheclaimshallforall purposes be
deemedtohavebeenabandonedandshallnot thereafter be recoverable hereunder.
Because of the denial of theirclaimsforpaymentbythe three (3)insurance
companies,petitionerfiledseparate civilactionsagainsttheformerbeforetheRTC,
andthereafterthecourtrendereditsdecision against the three insurance companies. Court
ofAppealsreversed saidjudgmentof the trial court, hence this petition.

ISSUE:

M.L. DEL MUNDO ROBLEDO | 50

 Whether or not Conditions Nos. 3 and27of
theinsurancecontractswereviolatedbypetitionersthereby resulting in
theirforfeitureofallthebenefitsthereunder.

RULING:

Yes. Conditions Nos. 3 and27of theinsurancecontractswereviolatedbypetitionersthereby

resulting in theirforfeitureofallthebenefitsthereunder.
As to Insurance Policy Condition no. 3, although Petitioners contend that they
arenottobeblamedfor the omissions, allegingthatinsuranceagentLeonAlvarez (for Western) and Yap
Kam Chuan (for RelianceandEquitable) knew about the existence of the additional
insurancecoverage and that they were not informedabouttherequirementthat such other or additional
insurance shouldbestatedinthe policy,astheyhavenotevenreadpolicies. These contentions cannot
pass judicial muster.
The terms ofthecontractareclearandunambiguous.
Theinsuredisspecificallyrequiredtodisclosetothe insurer any other insurance and its
particularswhichhemay have effected on the samesubjectmatter.Theknowledgeof such insurance
bytheinsurer'sagents,evenassumingthe acquisition thereof by the former, isnotthe"notice"that
wouldestop the insurers from denying theclaim. 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.
Theconclusionof thetrialcourtthatRelianceandEquitableare"sister
companies"isanunfoundedconjecturedrawnfromthemere fact that Yap Kam Chuan was
anagentforbothcompanieswhich also had the sameinsuranceclaimsadjuster.Availmentof the
servicesofthesameagentsandadjustersbydifferent companies is a
commonpracticeintheinsurancebusinessand such facts donotwarrantthespeculativeconclusionofthe
trial court.
Moreover, obligationsarisingfromcontractshavetheforceoflaw between
thecontractingpartiesandshouldbecompliedwith in good faith. Petitioners should be aware
ofthefactthatapartyis not relieved of the duty to exercise the ordinary care and
prudencethatwouldbeexactedinrelationto other contracts.The conformity of the insured to the terms
of the policyisimpliedfromhisfailureto expressany disagreement with whatis provided for. It is and
was incumbent uponpetitioner Sy to read the insurance contracts, and this can be reasonably
expected ofhimconsideringthathehasbeena businessman since 1965,andthe contract concerns
indemnity in case oflossinhismoney-makingtradeofwhich important
considerationhecouldnothavebeenunawareasit was pre-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.
Thestatementinquestionmustbedeemedtobeastatement (warranty) binding on bothinsurer
and insured, that there were noother insurance on the property. Violationthereofentitledtheinsurerto
rescind. Suchmisrepresentation is fatal. The obvious purposeof the aforesaid requirementinthepolicy
istopreventover-insurance and thus avert the perpetration of fraud.Thepublic, as well as the insurer,
isinterested in preventing the situation inwhichafirewouldbe profitable to theinsured.
Accordingto Justice Story: "The insured has norighttocomplain,forhe assents to comply
withallthestipulationson hisside,inordertoentitlehimselftothe benefitofthecontract,which,uponreasonor
principle, he hasnorighttoaskthecourtto dispense with the performanceofhisownpartofthe agreement,

M.L. DEL MUNDO ROBLEDO | 51

and yet to bindtheotherpartyto obligations,which,butforthosestipulations, would not have been
entered into."
The insured mayhavebeen guiltyof a falsedeclaration;aclearmisrepresentationand a vital one
because where theinsuredhadbeenasked to reveal butdidnot,thatwasdeception.Otherwise stated,
had the insurerknownthattherewere many co-insurances, it could havehesitatedor plainly desisted
from enteringintosuchcontract. Hence,theinsuredwasguiltyofclearfraud.
As to Insurance Policy Condition no. 27, additionally,thecomplaint for recovery was filed in
court by petitioners only on January31,1984,oraftermorethanone(1)yearhad
elapsedfrompetitioners'receiptoftheinsurers'letterof denial.
The court held that theconditioncontainedinaninsurancepolicythatclaimsmustbepresented
within one year afterrejectionisnotmerelyaproceduralrequirementbutanimportantmatter essential to a
prompt settlementofclaims against insurance companies as it
demandsthatinsurancesuitsbebroughtby theinsuredwhiletheevidenceastothe
originandcauseofdestructionhavenot yet disappeared.
The contention oftherespondentsthattheone-yearprescriptive perioddoes
notstarttorununtilthepetitionforreconsiderationhadbeenresolvedbytheinsurer,runscountertothedeclare
dpurpose forrequiringthatan actionorsuitbefiledinthe Insurance Commissionorinacourtofcompetent
jurisdictionfromthedenialoftheclaim. Touphold respondents' contention would contradict anddefeat
the very principle which this Court had laiddown.Moreover, itcaneasilybeusedbyinsured persons as a
scheme or device to waste time untilanyevidencewhichmaybeconsideredagainstthem is destroyed.
Thus, forfeitureofallthebenefitsthereunder is but proper.

M.L. DEL MUNDO ROBLEDO | 52

36. SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner, 
vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA
BACANI, respondents.
G.R. No. 105135 June 22, 1995
FACTS:
Robert John B. Bacani procured a life insurance contract for himself from petitioner. He was issued
Policy No. with double indemnity in case of accidental death. The designated beneficiary was his
mother, respondent Bernarda Bacani.

Later, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim with petitioner,
seeking the benefits of the insurance policy taken by her son. Petitioner conducted an investigation
and its findings prompted it to reject the claim.

In its letter, petitioner informed respondent that the insured did not disclose material facts relevant to
the issuance of the policy, thus rendering the contract of insurance voidable.

Petitioner discovered that two weeks prior to his application for insurance, the insured was examined
and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During
his confinement, the deceased was subjected to urinalysis, ultra-sonography and hematology tests.

Respondent then filed an action for specific performance against petitioner with the RTC. Petitioner
filed its answer with counterclaim and a list of exhibits consisting of medical records furnished by the
Lung Center of the Philippines. RTC ruled in favor for respondent, concluded that the facts
concealed by the insured were made in good faith and under a belief that they need not be
disclosed. Moreover, it held that the health history of the insured was immaterial since the insurance
policy was "non-medical".

Upon appealed, CA affirmed the decision of the trial court. Hence, this petition.

ISSUE:
WON the facts concealed or misrepresented were irrelevant since the policy was "non-medical".

RULING:
NO
SC reverse the decision of the Court of Appeals. Therefore, rule that petitioner properly exercised its
right to rescind the contract of insurance by reason of the concealment employed by the insured. It
must be emphasized that rescission was exercised within the two-year contestability period as
recognized in Section 48 of The Insurance Code.
Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has no means of ascertaining.
Said Section provides:

M.L. DEL MUNDO ROBLEDO | 53

A neglect to communicate that which a party knows and ought to communicate, is called
concealment.

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 communication is due, in forming his estimate of the
disadvantages of the proposed contract or in making his inquiries (The Insurance Code, Sec. 31).
The terms of the contract are clear. The insured is specifically required to disclose to the insurer
matters relating to his health.

The information which the insured failed to disclose were material and relevant to the approval and
issuance of the insurance policy. The matters concealed would have definitely affected petitioner's
action on his application, either by approving it with the corresponding adjustment for a higher
premium or rejecting the same. Moreover, a disclosure may have warranted a medical examination
of the insured by petitioner in order for it to reasonably assess the risk involved in accepting the
application.

M.L. DEL MUNDO ROBLEDO | 54

37. IGNACIO SATURNINO, in his own behalf and as the JUDICIAL GUARDIAN OF CARLOS
SATURNINO, minor, plaintiffs-appellants,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee.

FACTS:

Plaintiff filed an action to recover the sum of corresponding to the face value of an insurance policy
issued by defendant on the life of Estefania A. Saturnino, Defendant, now appellee, set up special
defenses in its answer, with a counterclaim for damages allegedly sustained as a result of the
unwarranted presentation of this case. Both the complaint and the counterclaim were dismissed by
the trial court; but appellants were declared entitled to the return of the premium already paid; plus
interest at 6% up to January 8, 1959, when a check for the corresponding amount — P359.65 —
was sent to them by appellee. The policy sued upon is one for 20-year endowment non-medical
insurance. This kind of policy dispenses with the medical examination of the applicant usually
required in ordinary life policies. However, detailed information is called for in the application
concerning the applicant's health and medical history. The written application in this case was
submitted by Saturnino to appellee on November 16, 1957, witnessed by appellee's agent Edward
A. Santos. The policy was issued on the same day, upon payment of the first year's premium of
P339.25. On September 19, 1958 Saturnino died of pneumonia, secondary to influenza. Appellants
here, who are her surviving husband and minor child, respectively, demanded payment of the face
value of the policy. The claim was rejected and this suit was subsequently instituted.

ISSUE:

Whether or not the insured made such false representations of material facts as to avoid the policy.

RULING:

There can be no dispute that the information given by her in her application for insurance was false,
namely, that she had never had cancer or tumors, or consulted any physician or undergone any
operation within the preceding period of five years. Are the facts then falsely represented material?
The Insurance Law (Section 30) 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 in making his inquiries." It
seems to be the contention of appellants that the facts subject of the representation were not
material in view of the "non-medical" nature of the insurance applied for, which does away with the
usual requirement of medical examination before the policy is issued. The contention is without
merit. If anything, the waiver of medical examination renders even more material the information
required of the applicant concerning previous condition of health and diseases suffered, for such
information necessarily constitutes an important factor which the insurer takes into consideration in
deciding whether to issue the policy or not. It is logical to assume that if appellee had been properly
apprised of the insured's medical history she would at least have been made to undergo medical
examination in order to determine her insurability.

M.L. DEL MUNDO ROBLEDO | 55

38. IGNACIO SATURNINO, in his own behalf and as the JUDICIAL GUARDIAN OF CARLOS
SATURNINO, minor, plaintiffs-appellants,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee.

FACTS:

Plaintiff filed an action to recover the sum of corresponding to the face value of an insurance policy
issued by defendant on the life of Estefania A. Saturnino, Defendant, now appellee, set up special
defenses in its answer, with a counterclaim for damages allegedly sustained as a result of the
unwarranted presentation of this case. Both the complaint and the counterclaim were dismissed by
the trial court; but appellants were declared entitled to the return of the premium already paid; plus
interest at 6% up to January 8, 1959, when a check for the corresponding amount — P359.65 —
was sent to them by appellee. The policy sued upon is one for 20-year endowment non-medical
insurance. This kind of policy dispenses with the medical examination of the applicant usually
required in ordinary life policies. However, detailed information is called for in the application
concerning the applicant's health and medical history. The written application in this case was
submitted by Saturnino to appellee on November 16, 1957, witnessed by appellee's agent Edward
A. Santos. The policy was issued on the same day, upon payment of the first year's premium of
P339.25. On September 19, 1958 Saturnino died of pneumonia, secondary to influenza. Appellants
here, who are her surviving husband and minor child, respectively, demanded payment of the face
value of the policy. The claim was rejected and this suit was subsequently instituted.

ISSUE:

Whether or not the insured made such false representations of material facts as to avoid the policy.

RULING:

There can be no dispute that the information given by her in her application for insurance was false,
namely, that she had never had cancer or tumors, or consulted any physician or undergone any
operation within the preceding period of five years. Are the facts then falsely represented material?
The Insurance Law (Section 30) 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 in making his inquiries." It
seems to be the contention of appellants that the facts subject of the representation were not
material in view of the "non-medical" nature of the insurance applied for, which does away with the
usual requirement of medical examination before the policy is issued. The contention is without
merit. If anything, the waiver of medical examination renders even more material the information
required of the applicant concerning previous condition of health and diseases suffered, for such
information necessarily constitutes an important factor which the insurer takes into consideration in
deciding whether to issue the policy or not. It is logical to assume that if appellee had been properly
apprised of the insured's medical history she would at least have been made to undergo medical
examination in order to determine her insurability.

M.L. DEL MUNDO ROBLEDO | 56

39. MA .LOURDES S. FLORENDO vs PHILAM PLANS, INC., PERLA ABCEDE, MA. CELESTE
ABCEDE

G.R. No. 186983

February 22, 2012

FACTS:
The petitioner’s deceased husband, Manuel Florendo, applied for a comprehensive pension
plan with respondent Philam Plans Inc. Manuel Signed the application form and left to respondent
Perla the task of supplying the information needed in the application. It was Perla’s daughter,
respondent Ma. Celeste, who signed the application as sales counselor.
The comprehensive pension plan applied by Florendo is also provided with life insurance
coverage with petitioner as the beneficiary.
Eleven (11) months later, Manuel died of blood poisoning. Subsequently, the petitioner filed
a claim with Philam Plans for the payment of the benefits under her husband’s plan. However,
Philam Plans declined her claim for her husband’s concealment of his medical condition from his
pension plan application.
Petitioner Florendo renewed her demand for payment under the plan but was also rejected.
This prompted her to file and action against Philam Plans before the Regional Trial Court (RTC) of
Quezon City.
RTC rendered judgment ordering the respondents, Philam Plans, Perla and Ma. Celeste,
solidarily, to pay petitioner all the benefits from her husband’s pension plan. RTC ruled that Manuel
was not guilty of concealing the state of his health from his pension plan application.
Aggrieved, the respondents elevated it to the appellate court. The Court of Appeals reversed
the RTC decision holding that insurance policies are contracts uberrimae fidae or contracts of utmost
good faith, thus, requires disclosing the of his true medical condition. Hence, the petition.
Petitioner contends that seeing the unfilled spaces in Manuel’s application relative to his
medical history, Philam Plans should have returned it to him for completion. Also, petitioner pointed
out that any defect or insufficiency in the information should be deemed waived after the same has
been approved, the policy has been issued, and the premiums have been collected.

ISSUE:
Whether or not Manuel is guilty of concealing his illness when he kept blank and did not answer
questions in his pension plan application the ailments he suffered from
RULING:
Yes. The Supreme Court ruled the Manuel knew more than anyone that he had been under
treatment for heart condition and diabetes for more than five years preceding his submission of his
pension plan application. But he kept those crucial facts from Philam Plans. Philam Plans waived
medical examination for Manuel since it had relied largely on the application submitted by Manuel
without filling in the details regarding his continuing treatments for heart condition and diabetes. The
assumption is that he has never been treated for the said illness in the last five years preceding his
application.

M.L. DEL MUNDO ROBLEDO | 57

 When Manuel signed the said application, he adopted as his own the written representations
and declarations embodied in it. It is clear form these representations that he concealed his true
medical condition.
Assuming that it was respondent Perla who filled up the application form, Manuel is still
bound by what it contains since he certified that he authorized the respondent’s action. Philam Plans
has every right to act on the faith of that certification.
Furthermore, the Supreme Court ruled that the comprehensive pension plan that Philam
issued contains a one (1) year incontestability period. The incontestability clause precludes the
insurer from disowning liability under the policy it issued on the ground of concealment or
misrepresentation regarding the health of the insurer after a year of its issuance.
Since Manuel died on the 11th month following the issuance of his plan, the one year
incontestability period has not yet set in. Philam Plans was not barred from questioning petitioner’s
entitlement to the benefits of her husband’s pension plan.
DISPOSITION:
The Supreme Court affirmed in its entirety the decision of the Court of Appeals.

M.L. DEL MUNDO ROBLEDO | 58

40. Tan vs. Court of Appeals
G. R. No. 48049 (June 29, 1989)

FACTS:
Tan Lee Siong died of hepatoma. Petitioners then filed with the respondent company their claim
for the proceeds of the life insurance policy. The company refused to pay the petitioners by reason
of alleged misrepresentation and alleged concealment of material facts made by the deceased. The
petitioners then alleged that the refusal was unjustified and unreasonable. The Insurance
Commissioner dismissed the petitioners complaint. The Court of Appeals dismissed the petitioner’s
appeal for lack of merit. The petitioners contend that the private insurance company no longer had
the right to rescind the contract of insurance as rescission must be done during the lifetime of the
insured within 2 years and prior to the commencement of action.

ISSUE/S;
Whether or not the private insurance company was barred.

RULING:
No. The Supreme Court held that the company is not barred from proving that the policy is void
ab initio by reason of the insured’s fraudulent concealment or representation. As noted by the court
of appeals, “the policy was issued on November 6, 1973 and the insured dies on April 26, 1975. The
policy was thus in force for a period of only one year and five months. Considering that the insured
died before the two-year period had lapsed. The respondent company therefore is not barred.
Petition is denied.

M.L. DEL MUNDO ROBLEDO | 59

41. MANILA BANKERS LIFE INSURANCE CORPORATION vs. CRESENCIA P. ABANG

FACTS:

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. ManilaBankers issued an insurance
policy, with a face value of P100,000.00, in Sotero’s favor after the requisite
medical examination and payment of the insurance premium. When the insurance policy had been
inforce for more than two years and seven months, Sotero died. Aban filed a claim for the
insuranceproceeds. Manila Bankers denied the claim because of fraud, concealment and/or
misrepresentation(Sotero was not the one who personally applied for insurance coverage but Aban)
and filed a case forrescission and/or annulment of the policy.

ISSUE:
 Whether or not Manila Bankers can still rescind the insurance policy.

RULING:

Under the law, 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.

Insurers may not be allowed to delay the payment of claims by filing frivolous cases in court, hoping
that the inevitable may be put off for years — or even decades — by the pendency of these
unnecessary court cases. In the meantime, they benefit from collecting the interest and/or returns on
both the premiums previously paid by the insured and the insurance proceeds which should
otherwise go to their beneficiaries. The business of insurance is a highly regulated commercial
activity in the country, and is imbued with public interest. 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 former’s interest

Petition is denied.

M.L. DEL MUNDO ROBLEDO | 60

42. MA. LOURDES S. FLORENDO, Petitioner, vs. PHILAM PLANS, INC., PERLA ABCEDE MA.
CELESTE ABCEDE, Respondents.
G.R. No. 186983 February 22, 2012
FACTS:
Petitioner's deceased husband, Manuel Florendo, filed an application for comprehensive pension
plan with respondent Philam Plans, Inc. Manuel signed the application and left to Perla the task of
supplying the information needed in the application. Apparently, Perla did not fill-up the portion about
the health status of Manuel. Since Manuel signed the application without filling in the details
regarding his continuing treatments for heart condition and diabetes, leaving an impression that he
has never been treated for the said illnesses in the last five years preceding his application. 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. Philam Plans declined Lourdes' claim after
it has found out that Manuel was on maintenance medicine for his heart and had an implanted
pacemaker and that he suffered from diabetes mellitus and was taking insulin. Lourdes renewed her
demand for payment under the plan but Philam Plans rejected it, prompting her to file an action
against the pension plan company. The RTC ruled in favor of Lourdes but the Court of Appeals
reversed the decision, hence, this petition where Lourdes points out that any defect or insufficiency
in the information provided by his pension plan application should be deemed waived after the same
has been approved, the policy has been issued, and the premiums have been collected.

ISSUE:
Whether or not Philam Plans is liable to pay the insurance benefit being claimed by Lourdes

RULING:
The Court ruled in the negative due to the following reasons: 1. When 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. 2. 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.

M.L. DEL MUNDO ROBLEDO | 61

43. QUA CHEE GAN VS LAW UNION AND ROCK INSURANCE CO., LTD.

FACTS:
Qua Chee Gan owns four warehouses in Albay. He was using these warehouses to house crops like
copra and hemp. All warehouses were insured by Law Union and Rock Insurance for the amount of
P370,000.00. The insurance states that Qua Chee Gan should install 11 hydrants in the
warehouses’ premises. Qua Chee Gan installed only two, but Law Union nevertheless went on with
the insurance policy and collected premiums from Qua Chee Gan. The insurance contract also
provides that “oil” should not be stored within the premises of the warehouses.
In 1940, three of the warehouses were destroyed by fire. The damage caused amounted to P398k.
Qua Chee Gan demanded insurance pay from Law Union but the latter refused as it alleged that
after investigation from their part, they found out that Qua Chee Gan caused the fire. Law Union in
fact sued Qua Chee Gan for Arson.
Qua Chee Gan was acquitted in the arson case. He then demanded that Law Union pay up. This
time, Law Union averred that the insurance contract is void because Qua Chee Gan failed to install
11 hydrants; and that gasoline was found in one of the warehouses.

ISSUE: 
Whether or not the insurance contract is void.

RULING:
No. Law Union cannot exempt itself from paying Qua Chee Gan because it is estopped from
invoking the same. It is a well settled rule of law that an insurer which with knowledge of facts
entitling it to treat a policy as no longer in force, receives and accepts a premium on the policy,
estopped to take advantage of the forfeiture.
Also, gasoline is not one of those items specifically prohibited from the premises of the warehouses.
What was mentioned was the word “oil” which could mean anything (from palm oil to lubricant and
not gasoline or kerosene). This ambiguity is to be interpreted against Law Union because a contract
of insurance is a contract of adhesion. Further, oil is incidental to Qua Chee Gan’s business, it being
used for motor fuel.

M.L. DEL MUNDO ROBLEDO | 62

44. MALAYAN INSURANCE COMPANY, INC. v. PAP CO., LTD
G.R. NO. 200784 August 7, 2013

FACTS:
On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance
Policy No. F-00227-000073 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, Fire Insurance Policy No. F-00227-000079, 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 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.
The RTC handed down its decision, ordering Malayan to pay PAP Company Ltd an
indemnity for the loss under the fire insurance policy. Malayan appealed the RTC decision to
the CA basically arguing that the trial court erred in ordering it to indemnify PAP for the loss
of the subject machineries since the latter, without notice and/or consent, transferred the
same to a location different from that indicated in the fire insurance policy.
The CA rendered the assailed decision which affirmed the RTC decision but deleted
the attorney’s fees.
Hence, this petition.

ISSUE:
Whether or not, Malayan is liable under the insurance contract?
RULING:
No. Malayan basically argues that it cannot be held liable under the insurance contract
because PAP committed concealment, misrepresentation and breach of an affirmative warranty
under the renewal policy when it transferred the location of the insured properties without informing
it. Such transfer affected the correct estimation of the risk which should have enabled Malayan to
decide whether it was willing to assume such risk and, if so, at what rate of premium. The transfer
also affected Malayan’s ability to control the risk by guarding against the increase of the risk brought
about by the change in conditions, specifically the change in the location of the risk.

M.L. DEL MUNDO ROBLEDO | 63

 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.
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 68. 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?
Decision of the Court of Appeals is hereby REVERSED and SET ASIDE. Petitioner Malayan
Insurance Company, Inc. is hereby declared NOT liable for the loss of the insured machineries and
equipment suffered by PAP Co., Ltd.

M.L. DEL MUNDO ROBLEDO | 64

45. NEW LIFE ENTERPRISES and JULIAN SY, vs. HON. COURT OF APPEALS, EQUITABLE
INSURANCE CORPORATION, RELIANCE SURETY AND INSURANCE CO., INC. and WESTERN
GUARANTY CORPORATION

Nature: This appeal by certiorari seeks the nullification of the decision of respondent Court of
Appeals in CA-G.R. CV No. 13866 which reversed the decision of the Regional Trial Court, Branch
LVII at Lucena City.
FACTS: Julian Sy and Jose Sy Bang have formed a business partnership- New Life Enterprises
which is engaged in the sale of construction materials in the City of Lucena. 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. When the building occupied by the New
Life Enterprises was gutted by fire, Julian Sy went to the agent of Reliance Insurance. He further
testified that the three 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. Because of the denial of their claims for payment by the three (3)
insurance companies, petitioner filed separate civil actions against the former before the Regional
Trial Court of Lucena. The RTC ruled in favor of the petitioner upon appeal these were reversed by
CA. hence, this petition

ISSUE:
Whether or not Sy can claim against the insurance companies for violating the Other Insurance
Clause?

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

M.L. DEL MUNDO ROBLEDO | 65

46. K. S. YOUNG vs. THE MIDLAND TEXTILE INSURANCE COMPANY
G.R. No. L-9370 March 31, 1915

FACTS:

Plaintiff K. S. Young operated a candy and fruit store in Escolta, Manila. His residence/“bodega”
was located in a building in Calle Claveria. Plaintiff and defendant Midland Textile Insurance
Company entered into a contract of insurance. For the payment of a premium of P60.00, defendant
promised to pay plaintiff the amount of P3,000.00 in case plaintiff’s residence/bodega should be
destroyed by fire. One of the conditions of the contract of insurance, found in “Warranty B”, required
plaintiff not to store hazardous goods in the building to which the insurance applies. However, on
February 4 or 5, 1913, plaintiff placed in his residence/bodega three boxes which were filled with
fireworks. They were given to plaintiff by the former owner of Luneta Candy Store and were intended
to be used for the Chinese New Year celebration. Unfortunately, the city government of Manila
prohibited the use of fireworks. On March 18, 1913, plaintiff’s residence/bodega, including the
contents thereof, were partially destroyed by fire. The fireworks were later discovered in a part of the
building that was not destroyed by fire, and that it did not contribute to the fire, or the loss
occasioned thereby. Plaintiff sought to recover the sum of P3,000.00 on the insurance policy. The
lower court rendered judgment in favor of the plaintiff and against the defendant.

ISSUE:

Whether or not the placing of the fireworks in the insured building, being hazardous goods, is a
violation of the terms of the contract of insurance.

HELD:

Under Warranty B of the contract of insurance, plaintiff is prohibited to store hazardous goods in
the premises. The dictionary defines the word ”store” to be a deposit in a store or warehouse for
preservation or safe keeping. The definition does not include a deposit in a store, in small quantities,
for daily use. No claim was made by plaintiff that the hazardous goods were placed in the bodega for
present or daily use. They were placed there for future use, or future consumption, or for safe
keeping.

Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the
policy. The insurance company undertakes to guarantee the insured against loss or damage, upon
the terms and conditions agreed upon, and upon no other, and when called upon to pay, in case of
loss, the insurer, therefore, may justly insist upon a fulfillment of these terms. If the insured cannot
bring himself within the conditions of the policy, he is not entitled to recover for the loss. If it appears
that the contract has been terminated by a violation, on the part of the insured, of its conditions, then
there can be no right of recovery. The compliance of the insured with the terms of the contract is a
condition precedent to the right of recovery. While it is true, as a general rule, that contracts of
insurance are construed most favorably to the insured, 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. The conditions of contracts of insurance, when plainly expressed in a policy,

M.L. DEL MUNDO ROBLEDO | 66

are binding upon the parties and should be enforced by the courts, if the evidence brings the case
clearly within their meaning and intent.

Even if the “storing” of the hazardous goods did not cause injury to the defendant company, it
was still a violation of the terms of the contract. The plaintiff paid a premium based upon the risk at
the time the policy was issued. It cannot be denied that the placing of the firecrackers in the building
insured increased the risk. The plaintiff had not paid a premium based upon the increased risk,
neither had the defendant issued a policy upon the theory of a different risk. Plaintiff was enjoying
the benefits of an insurance policy upon one risk, whereas, as a matter of fact, it was issued upon an
entirely different risk. Defendant had neither been paid nor had issued a policy to cover the
increased risk. An increase of risk which is substantial and which is continued for a considerable
period of time is a direct and certain injury to the insurer, and changes the basis upon which the
contract of insurance rests.

The judgement of the lower court was revoked and the defendant was relieved from any
responsibility under the complaint.

M.L. DEL MUNDO ROBLEDO | 67

47. Insurance Case Digest: Bachrach V. British American Assurance Co. (1910)
G.R. No. L-5715 December 20, 1910

FACTS:

E. M. Bachrach insured goods belonging to a general furniture store, such as iron and brass
bedsteads, toilet tables, chairs, ice boxes, bureaus, washstands, mirrors, and sea-grass furniture
stored in the ground floor and first story of house and dwelling with an authorized agent of the British
American Assurance Company
British American Assurance Company denied alleging that:
property covered by the policy to H. W. Peabody & Co. to secure certain indebtedness due and
owing to said company
interest in certain of the goods covered by the said policy is trasnferred to Macke to secure certain
obligations assumed by Macke and on behalf of Bachrach
willfully placed a gasoline can containing 10 gallons of gasoline close to the insured goods
made no proof of the loss with the time required by the condition
RTC: British American Assurance Company liable to bACHRACH

ISSUE: W/N Bachrach can claim

RULING:
YES. lower court affirmed

keeping of inflammable oils on the premises, though prohibited by the policy, does not void it if such
keeping is incidental to the business
It may be added that there was no provision in the policy prohibiting the keeping of paints and
varnishes upon the premises where the insured property was stored. If the company intended to rely
upon a condition of that character, it ought to have been plainly expressed in the policy.
alienation clause - forfeiture if the interest in the property pass from the insured
there is no alienation within the meaning of the insurance law until the mortgage acquires a right to
take possession by default under the terms of the mortgage. No such right is claimed to have
accrued in the case at bar, and the alienation clause is therefore inapplicable.
we can not find that there is a preponderance of evidence showing that the plaintiff did actually set
fire or cause fire to be set to the goods in question
It does not positively appear of record that the automobile in question was not included in the other
policies. It does appear that the automobile was saved and was considered as a part of the
salvaged. It is alleged that the salvage amounted to P4,000, including the automobile. This amount
(P4,000) was distributed among the different insurers and the amount of their responsibility was
proportionately reduced. The defendant and appellant in the present case made no objection at any
time in the lower court to that distribution of the salvage. The claim is now made for the first time.

M.L. DEL MUNDO ROBLEDO | 68

48. YOUNG V. MIDLAND TEXTILE INSURANCE CO.
G.R. No. L-9370      
March 31, 1915

FACTS:
The plaintiff conducted a candy and fruit store on the Escolta, in the city of Manila, and
occupied a building at 321 Calle Claveria, as a residence and bodega (storehouse).On the 29th of
May, 1912, the defendant, in consideration of the payment of a premium of P60, entered into a
contract of insurance with the plaintiff (policy No. 509105) by the terms of which the defendant
company, upon certain conditions, promised to pay to the plaintiff the sum of P3,000, in case said
residence and bodegaand contends should be destroyed by fire.On the conditions of said contract of
insurance is found in "warranty B" and is as follows: "Waranty B. — It is hereby declared and agreed
that during the pendency of this policy no hazardous goods stored or kept for sale, and no
hazardous trade or process be carried on, in the building to which this insurance applies, or in any
building connected therewith."On the 4th or 5th of February, 1913, the plaintiff placed in said
residence and bodega three boxes, 18 by 18 by 20 inches measurement, which belonged to him and
which were filed with fireworks.On the 18th day of March, q913, said residence and bodega and the
contents thereof were partially destroyed by fire. The said fireworks had been given to the plaintiff by
the former owner of the Luneta Candy Store; that the plaintiff intended to use the same in the
celebration of the Chinese new year; that the authorities of the city of Manila had prohibited the use
of fireworks on said occasion, and that the plaintiff then placed the same in said  bodega, where they
remained from the 4th or 5th of February, 1913, until after the fire of the 18th of March, 1913.Both of
the parties agree that said fireworks come within the phrase "hazardous goods," mentioned in said
"warranty B" of the policy.The said fireworks were found in a part of the building not destroyed by the
fire; that they in no way contributed to the fire, or to the loss occasioned thereby.

ISSUE: WON the placing of said fireworks in the building insured, under the conditions above
enumerated, they being "hazardous goods," is a violation of the terms of the contract of insurance
and especially of "warranty B."

RULING:
NO. SC ruled in the negative. SC stated that In the present case no claim is made that the
"hazardous goods" were placed in the bodega for present or daily use. It is admitted that they were
placed in the bodega "for future use," or for future consumption, or for safe keeping. The plaintiff
makes no claim that he deposited them there with any other idea than "for future use" — for future
consumption. It seems clear to us that the "hazardous goods" in question were "stored" in
the bodega, as that word is generally defined. That being true, suppose the defendant had made an
examination of the premises, even in the absence of a fire, and had found he "hazardous goods"
there, under the conditions above described, would it not have been justified, then and there, in
declaring the policy null and of no effect by reason of a violation of its terms on he par of the
plaintiff? If it might, then may it no repudiate is liability, even after the fire? If the "warranty" is a term
of the contract, will not its violation cause a breach and justify noncompliance or a repudiation?
Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the
policy. The parties have a right to impose such reasonable conditions at the time of the making of
the contract as they may deem wise and necessary. The rate of premium is measured by the
character of the risk assumed. The insurance company, for a comparatively small consideration,
undertakes to guarantee the insured against loss or damage, upon the terms and conditions agreed
upon, and upon no other, and when called upon to pay, in case of loss, the insurer, therefore, may
justly insist upon a fulfillment of these terms. If the insured cannot bring himself within the conditions
of the policy, he is not entitled to recover for the loss. The terms of the policy constitute the measure
of the insurer's liability, and in order to recover the insured must show himself within those terms;

M.L. DEL MUNDO ROBLEDO | 69

and if it appears that the contract has been terminated by a violation, on the part of the insured, of its
conditions, then there can be no right of recovery. The compliance of the insured with the terms of
the contract is a condition precedent to the right of recovery. If the insured has violated or failed to
perform the conditions of the contract, and such a violation or want of performance has not been
waived by the insurer, then the insured cannot recover. Courts are not permitted to make contracts
for the parties. The function and duty of the courts consist simply in enforcing and carrying out he
contracts actually made. While it is true, as a general rule, that contracts of insurance are construed
most favorably to the insured, 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. If such
terms are clear and unambiguous they must be taken and understood in their plain, ordinary and
popular sense. (Imperial Fire Ins. Co. vs. County of Coos, 151 U. S., 542; Kyte vs. Commercial
Union Assurance Co., 149 Mass., 116, 122.) The conditions of contracts of insurance, when plainly
expressed in a policy, are binding upon the parties and should be enforced by the courts, if the
evidence brings the case clearly within their meaning and intent. It tends to bring the law itself into
disrepute when, by astute and subtle distinctions, a plain case is attempted to be taken without the
operation of a clear, reasonable, and material obligation of the contract. (Mack vs. Rochester
German Ins. Co., 106 N. Y., 560, 564.)

M.L. DEL MUNDO ROBLEDO | 70

49. RE: CLAIMS FOR BENEFITS OF THE HEIRS OF THE LATE MARIO V. CHANLIONGCO,
FIDELA B. CHANLIONGCO, MARIO B. CHANLIONGCO II, MA. ANGELINA C. BUENAVENTURA
and MARIO C. CHANLIONGCO, JR., 
A.M. No. 190 October 18, 1977

FACTS:
This matter refers to the claims for retirement benefits filed by the heirs of the late ATTY. MARIO V.
CHANLIONGCO an attorney in this Court, under the provisions of R.A. No. 1616, as amended by
R.A. No. 4986, which was approved by this Court in its resolution of August 19, 1976, effective on
July 12, 1976 it a g from the records that at the time of his death on July 12, 1976, Atty. Chanliongco
was more than 63 years of age, with more than 38 years of service in the government.
The above named flied the appellants for benefits with the accruing and with the Government
Service System.
Aside from his widow, Dra. Fidel B. Chanliongco and an only Intimate Mario it appears that there are
other deceased to namely, Mrs. Angelina C. , Jr., both born out of wedlock to Angelina R Crespo,
and duly recognized by the deceased. Except Mario, Jr., who is only 17 years of age, all the
claimants are of legal age.
According to law, the benefits accruing to the deceased consist of: (1) retirement benefits; (2) money
value of terminal leave; (3) life insurance and (4) refund of retirement premium.

ISSUE:
What, therefore, to be settled are the retirement benefits and the money value of leave, both of
which are to be paid by this court as the deceased's last employer.

RULING:
The record also shows that the late Atty. Chanliongco died ab intestato and that he filed or over to
state in his application for membership with the GSIS the beneficiary or benefits of his retirement
benefits, should he die before retirement. Hence, the retirement benefits shall accrue to his estate
and will be distributed among his Legal heirs in with the benefits on intestate s , as in the caw of a
fife if no benefit is named in the policy (Vda. de vs. GSIS, L-28093, Jan. 30, 1971, 37 SCRA 315,
325).
WHEREFORE, THE CLAIMS ARE HEREBY APPROVED. THE FINANCE AND/OR DISBURSING OFFICER OF
THIS COURT IS ORDERED To pay IMMEDIATELY TO EACH AND EVERY CLAIMANT HE VARIOUS SUMS
HEREUNDER INDICATED OPPOSITE THEIR NAMES, AS FOLLOWS:

1
. FIDELA B. CHANLIONGCO  

A. HER 4/16 SHARE OF RETIREMENT GRATUITY P19,535.025

B. HER SHARE FROM MONEY VALUE OF TEAL  

LEAVE, UNPAID SALARY AND 10% ADJUSTMENT:

(1) AS HER CONJUGAL SHARE 6,752.72

(2) AS A LEGAL HEIR P1,688.18

M.L. DEL MUNDO ROBLEDO | 71

TOTAL AMOUNT DUE HER P27,975.93

2. MARIO CHANLIONGCO II  

A. HIS 8/16 SHARE OF RETIREMENT GRATUITY P39,070.05

B. HIS SHARE FROM MONEY VALUE OF TERMINAL 3,376.36

LEAVE, UNPAID SALARY AND 10% ADJUSTMENT

TOTAL AMOUNT DUE HIM P42,446.41

3. MA. ANGELINA C. BUENAVENTURA:  

A. HER 2/16 SHARE OF RETIREMENT GRATUITY P9,767.51

B. HER SHARE FROM MONEY VALUE OF TERMINAL 844.10

LEAVE, UNPAID SALARY AND 10% ADJUSTMENT

TOTAL AMOUNT DUE HER P10,611.61

4. MARIO CHANLIONGCO JR. TO BE PAID THROUGH  

HIS MOTHER AND NATURAL GUARDIAN, ANGELINA
CRESPO):

A. HIS 2/16 SHARE OF RETIREMENT GRATUITY P9,767.51

B. HIS SHARE FROM MONEY VALUE OF TERMINAL 844.10

LEAVE, UNPAID SALARY AND 10% ADJUSTMENT

TOTAL AMOUNT DUE HIM P10,611.61

SO ORDERED.

50. INSULAR LIFE ASSURANCE COMPANY, LTD. vs. CARPONIA T. EBRADO G.R. No. L-
44059, October 28, 1977

M.L. DEL MUNDO ROBLEDO | 72

FACTS:
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd.,
on a whole-life for P5,882.00 with a rider for Accidental Death for the same amount. He designated
Carponia T. Ebrado, his common-law wife as the revocable beneficiary in his policy. He referred to
her as his wife in the policy. On October 21, 1969, He died as a result of an accident when he was
hit by a failing branch of a tree. As the policy was in force, the insurance company was liable to pay
the coverage in the total amount of P11,745.73. Carponia T. Ebrado filed a claim for the proceeds of
the Policy as the designated beneficiary therein, although she admits that she and the insured
Buenaventura C. Ebrado were merely living as husband and wife without the benefit of marriage.
Pascual T. Ebrado, also filed a claim to the insurance company, this time claiming to be the legal
wife Buenaventura. She asserts that she has a better right over the proceeds than Carponia who is a
common-law wife. As the insurance company is at a loss as to whom to give the proceeds, it
commenced an action for interpleader in court.

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

RULING:
No, Carponia T. Ebrado is hereby declared disqualified to be the beneficiary of the late
Buenaventura C. Ebrado in his life insurance policy. As a consequence, the proceeds of the policy
are hereby held payable to the estate of the deceased insured.

A common-law wife named as a beneficiary in the life insurance policy of a legally married man
cannot claim the proceeds thereof in case the death of the latter. The contract of insurance is govern
by the provisions of the new civil code on matters not specifically provided for in the insurance code.
Rather, the general rules of civil law should be applied to resolve this void in the Insurance Law.
Article 2011 of the New Civil Code states: “The contract of insurance is governed by special laws.
Matters not expressly provided for in such special laws shall be regulated by this Code.” 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, definitely, barred from receiving donations from each other. Also conviction for
adultery or concubinage is not required as only preponderance of evidence is necessary. “In
essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is
concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee,
because the premiums of the policy which the insured pays out of liberality, the beneficiary will
receive the proceeds or profits of said insurance.”

M.L. DEL MUNDO ROBLEDO | 73

51. Great Pacific Life Assurance Company vs. CA
89 SCRA 543 (1979)

FACTS:
 Private respondent Ngo Hing filed an application with the Great Pacific Life Assurance
Company (hereinafter referred to as Pacific Life) for a twenty-year endownment policy in the
amount of P50,000.00 on the life of his one-year old daughter Helen Go. He supplied the
essential data with Mondragon, Manager of the Pacific Life in Cebu City.
 Mondragon received a letter from Pacific Life disapproving the insurance application. The
letter stated that the said life insurance application for 20-year endowment plan is not
available for minors below seven years old, but Pacific Life can consider the same under the
Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-
Medical Declaration be sent to the company.
 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 of influenza with complication of bronchopneumonia. 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.
 The CA affirmed the decision of the CFI, the defendants (herein petitioners Great Pacific
Ligfe Assurance Company and Mondragon) jointly and severally to pay plaintiff (herein
private respondent Ngo Hing) the amount of P50,000.00 with interest at 6% from the date of
the filing of the complaint, and the sum of P1,077.75, without interest.

ISSUE:
Whether or not there was a perfected insurance contract between the parties?

HELD:
No.
When private respondent supplied the required essential data for the insurance application
form, he was fully aware that his one-year old daughter is typically a mongoloid child. Such a
congenital physical defect could never be ensconced nor disguished. Nonetheless, private
respondent, in apparent bad faith, withheld the fact material to the risk to be assumed by the
insurance company. As an insurance agent of Pacific Life, he ought to know, as he surely must have
known. his duty and responsibility to such a material fact. Had he diamond said significant fact in the
insurance application fom Pacific Life would have verified the same and would have had no choice
but to disapprove the application outright.
The contract of insurance is one of perfect good faith uberrima fides meaning good faith,
absolute and perfect candor or openness and honesty; the absence of any concealment or
demotion, however slight [Black's Law Dictionary, 2nd Edition], not for the alone but equally so for
the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70). Concealment is a
neglect to communicate that which a partY knows aDd Ought to communicate (Section 25, Act No.
2427). Whether intentional or unintentional the concealment entitles the insurer to rescind the
contract of insurance (Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930;
Satumino vs. Philippine American Life Insurance Company, 7 SCRA 316). Private respondent
appears guilty thereof.

M.L. DEL MUNDO ROBLEDO | 74

No insurance contract was perfected between the parties with the noncompliance of the conditions
provided in the binding receipt, and concealment, as legally defined, having been committed by
herein private respondent.
No insurance contract was perfected between the parties with the noncompliance of the
conditions provided in the binding receipt, and concealment, as legally defined, having been
committed by herein private respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is
hereby entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance
Company from their civil liabilities as found by respondent Court and ordering the aforesaid
insurance company to reimburse the amount of P1,077.75, without interest, to private respondent,
Ngo Hing. Costs against private respondent.

52. EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,
vs.

M.L. DEL MUNDO ROBLEDO | 75

THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY,
respondents.
G.R. No. 48049 June 29, 1989
FACTS:
On September 23, 1973, Tan Lee Siong, father of herein petitioners, applied for life
insurance in the amount of P80,000.00 with respondent company. Said application was issued
effective November 6, 1973, with petitioners the beneficiaries thereof.
On April 26, 1975, Tan Lee Siong died of hepatoma. Petitioners then filed with respondent
company their claim for the proceeds of the life insurance policy. However, respondent company
denied petitioners' claim and rescinded the policy by reason of the alleged misrepresentation and
concealment of material facts made by the deceased Tan Lee Siong in his application. The
premiums paid on the policy were thereupon refunded.
Alleging that respondent company's refusal to pay them the proceeds of the policy was
unjustified and unreasonable, petitioners filed a complaint against the former with the Office of the
Insurance Commissioner, which were dismissed eventually. Likewise, the Court of Appeals
dismissed the petitioners' appeal from the Insurance Commissioner's decision for lack of merit.
Hence, this petition.
ISSUES:
(1) Whether or not the respondent insurer has the right to rescind the policy contract when
insured is already dead; and (2) whether or not the insurer may be allowed to avoid the policy on
grounds of concealment by the deceased.
HELD:
(1) Yes. The respondent insurer has the right to rescind the policy contract even when
insured is already dead, subject to certain conditions.
Under Section 48 of the Insurance Law, also known as the incontestability clause, “whenever
a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such
right must be exercised previous to the commencement of an action on the contract. 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 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 rescindable by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.”
The so-called "incontestability clause" precludes the insurer from raising the defenses of
false representations or concealment of material facts insofar as health and previous diseases are
concerned if the insurance has been in force for at least two years during the insured's lifetime. The
phrase "during the lifetime" found in Section 48 simply means that the policy is no longer considered
in force after the insured has died. The key phrase in the second paragraph of Section 48 is "for a
period of two years."
The policy was issued on November 6, 1973 and the insured died on April 26, 1975. The
policy was thus in force for a period of only one year and five months. Considering that the insured
died before the two-year period had lapsed, respondent company is not, therefore, barred from
proving that the policy is void ab initio by reason of the insured's fraudulent concealment or
misrepresentation.
(2) Yes, the insurer may be allowed to avoid the policy on grounds of concealment by the
deceased.
In this case, the beneficiary of the insured pressed that there was no concealment on the
insurance agreement, as there was “whirlwind pressure of insurance selling,” especially of the

M.L. DEL MUNDO ROBLEDO | 76

agent's practice of 'supplying the information, preparing and answering the application, submitting
the application to their companies, concluding the transactions and otherwise smoothing out all
difficulties. The court took judicial cognizance of this whirlwind pressure of insurance selling.
However, it would be unjust if, having been subjected to the whirlwind pressure of insurance
salesmanship this Court itself has long denounced, the assured who dies within the two-year period,
should stand charged of fraudulent concealment and misrepresentation." That’s why the
"incontestability clause" added by the second paragraph of Section 48.
The insurer has two years from the date of issuance of the insurance contract or of its last
reinstatement within which to contest the policy, whether or not, the insured still lives within such
period. After two years, the defenses of concealment or misrepresentation, no matter how patent or
well founded, no longer lie. Congress felt this was a sufficient answer to the various tactics employed
by insurance companies to avoid liability.

53. SUN INSURANCE OFFICE, LTD., petitioner, 

vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

M.L. DEL MUNDO ROBLEDO | 77

G.R. No. 92383 July 17, 1992

FACTS:
Petitioner issued Personal Accident Policy No. to Felix Lim, Jr..Two months later, Lim accidentally
killed himself when he had removed the magazine from the gun pointing the gun at his secretary,
and pointing the gun at his temple believing it was no longer dangerous. As beneficiary, his wife
Nerissa Lim sought payment on the policy but her claim was rejected. The petitioner agreed that
there was no suicide. It argued, however that there was no accident either.
The widow sued the petitioner in the RTC and was sustained. The petitioner was sentenced to pay
private respondent. Upon appeal, decision was affirmed. Hence, this petition.

ISSUE:
won private respondent is entitled to receive the benefits.

RULING:
YES.
An accident is an event which happens without any human agency or, if happening through human
agency, an event which, under the circumstances, is unusual to and not expected by the person to
whom it happens. It has also been defined as an injury which happens by reason of some violence
or casualty to the injured without his design, consent, or voluntary co-operation
The Court is convinced that the incident that resulted in Lim's death was indeed an accident. The
petitioner, invoking the case of De la Cruz v. Capital Insurance,  says that "there is no accident when
a deliberate act is performed unless some additional, unexpected, independent and unforeseen
happening occurs which produces or brings about their injury or death." There was such a
happening. This was the firing of the gun, which was the additional unexpected and independent and
unforeseen occurrence that led to the insured person's death.

54. Heirs of Loreto Maramag v Maramag

M.L. DEL MUNDO ROBLEDO | 78

Facts:
The case stems from a petition filed against respondents with the Regional Trial Court, Branch 29,
for revocation and/or reduction of insurance proceeds for being void and/or inofficious, with prayer
for a temporary restraining order (TRO) and a writ of preliminary injunction. The petition alleged that:
(1) petitioners were the legitimate wife and children of Loreto Maramag (Loreto), while respondents
were Loretos illegitimate family; (2) Eva de Guzman Maramag (Eva) 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. (Insular) and Great Pacific Life
Assurance Corporation (Grepalife); (3) the illegitimate children of LoretoOdessa, Karl Brian, and
Trisha Angeliewere 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 (4) petitioners could not be deprived of their legitimes, which
should be satisfied first.

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

RULING:
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”
“SECTION 53. 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. 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 Loretos 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

55. DEVELOPMENT INSURANCE CORPORATION, Petitioner,

M.L. DEL MUNDO ROBLEDO | 79

-vs-
INTERMEDIATE APPELLATE COURT and PHILIPPINE UNION REALTY
DEVELOPMENT CORPORATION, Respondents.
G.R. NO.71360 July16, 1986
DOCTRINES:
Open policy is one in which the value of a thing insured is not agreed upon but is left to be
ascertained in case of loss. This means that actual loss, as determined, will represent the total
indemnity due the unsured from the insurer except only that the total indemnity shall not exceed the
face value of the policy [Sec. 60, Insurance Code]
FACTS:
Private Respondent’s building was gutted by fire and consequently sued for recovery of
damages from Petitioner on the basis of an insurance contract between them.
After unreasonable and pattern of failure amounting to inexcusable neglect to file its answer
in spite of several extensions held by the trial court in his favor, Petitioner was adjudged to be in
default by the trial court. On appeal, the judgment was affirmed en toto by the appellate court.
Hence this appeal. Petitioner argues that Private Respondent must share the difference
between that amount of the building, at P5,800,000.00 and the face value of the policy cited under
Condition 17 of the policy.
ISSUE:
Whether or not Private Respondent should jointly indemnify the building with Petitioner.
RULING:
The High Court ruled against the Petition. The contract between the parties covers an open
policy where the value of the insured is not agreed upon but is left to be ascertained in case of loss,
per Section 60 of the Insurance Code. The construction of the building was yet on-going when the
disaster struck and there is no way to ascertain the building’s worth at the time of the loss.
Thus, as to the parties, the building was insured at P2,500,000.00 as the actual value which
should be considered. The value of the loss sustained by Private Respondent amounting to
P508,867.00, as claimed by it, should be awarded on the basis of the open policy enetered into by
them.
The Court affirmed in full the decision of the appellate court with costs against Petitioner.

56. PACIFIC BANKING CORPORATION vs COURT OF APEEALS and ORIENTAL ASSURANCE

CORPORATION

M.L. DEL MUNDO ROBLEDO | 80

G.R. No. L-41014
November 28, 1988

FACTS:
Fire Policy was issued to the Paramount Shirt Manufacturing Co. by which private respondent,
Oriental Assurance Corporation, bound itself to indemnify the insured for any loss or damage caused
by fire to its property.
The insured was a debtor of petitioner, Pacific Banking Corp., and the goods described in
the policy were in held in trust by the insured for the petitioner. While the aforesaid policy was in full
force and effect, a fire broke out on the premises of the insured destroying the goods contained in
the ground and second floors.
The counsel for the petitioner sent a letter of demand to Oriental Assurance Corp for
indemnity due to loss of property by fire but the latter informed the counsel of the petitioner that they
are waiting for the final report of the insurance adjuster. The said insurance adjuster notified the
former that the determination of the liability of the private respondent could not be had as the insured
under the policy had not filed any claim with it, nor submitted proof of loss which is a clear violation
of Policy Conditions No. 11.
For failure of the insurance company to pay the loss as demanded, petitioner filed an action
for sum of money against private respondent. At the trial, petitioner presented communications of the
insurance adjuster to Asian Surety revealing undeclared co-insurances: Php30,000 with Wellington
Insurance, Php25,000 with Empire Surety and Php250,000 with Asian Surety.
The defense of fraud and/or violation of Condition No. 3 in the Policy in the form of non-
declaration of co-insurances which was not pleaded in the answers was not also pleaded in the
Motion to Dismiss.
The trial court rendered decision in favour of the petitioner, Pacific Banking Corp.
On appeal, the Court of Appeals (CA) reversed the decision of the trial court. Petitioner filed
a motion for reconsideration but was denied for lack or merit. Hence, the petition.
ISSUE:
Whether or not the petitioner, Pacific Banking Corp., can claim for indemnity to the private
respondent, Oriental Assurance Corp.
RULING:
No. the Supreme Court ruled that insurance policy against fire expressly required that notice
should be given by the insured of other insurance upon the same property, the total absence of such
notice nullifies the policy.
In the case at bar, policy condition No. 11 specifically provides that the insured shall, on the
happening of any loss or damage, give notice to the company and shall within fifteen (15) days after
such loss or damage deliver to the private respondent (a) a claim in writing giving particular account
as to the articles or goods destroyed and the amount of the loss or damage and (b) particulars of all
other insurances, if any.
The evidence adduced shows that twenty-four (24) days after the fire, petitioner merely wrote
letters to private respondent to serve as a notice of loss, it did not furnish the latter whatever
pertinent documents were necessary to prove and estimate its loss. Instead, petitioner shifted upon
private respondent the burden of fishing out the necessary information to ascertain the particular
account of the articles destroyed by fire as well as the amount of loss.

M.L. DEL MUNDO ROBLEDO | 81

 Furthermore, the insured failed to reveal before the loss three other insurances. Had the
insurer known that there were many co-insurances, it could have hesitated or plainly refused from
entering into such contract. Hence, the insured was guilty of clear fraud.
Concrete evidence of fraud or false declaration by the insured was furnished by the
petitioner itself when the facts alleged in the policy under clauses "Co-Insurances Declared" and
"Other Insurance Clause" are materially different from the actual number of co-insurances taken
over the subject property. Consequently, the whole foundation of the contract fails, the risk does not
attach and the policy never becomes a contract between the parties.
It appearing that insured has violated or failed to perform the conditions under Nos. 3 and 11
of the contract, and such violation or want of performance has not been waived by the insurer, the
insured cannot recover, much less the herein petitioner.
DISPOSITION:
The petition is dismissed for lack for merit and the decision appealed from is affirmed.

57. Philippine Home Assurance Corporation vs. Court of Appeals

M.L. DEL MUNDO ROBLEDO | 82

G. R. No. 119446 (January 21, 1999)

FACTS:
Petitioners are domestic corporations engaged in the insurance business. They paid under
protest as documentary stamp taxes on various life and non-life insurance policies issued by them.
The petitioners filed separate claims for refund from the Bureau of Internal Revenue. They alleged
that the premiums on the insurance policies issued by them had not been paid thus in accordance
with Section 77 of the Insurance Code, no documentary stamp taxes was due on the policies. The
BIR failed to act on the refund and the Court of Appeals ruled that the court characterized a
documentary stamp tax as an excise tax. As as such, it is imposed on the privilege of conducting a
particular business or transaction and not on the business or transaction itself. Thus, the
documentary stamp taxon insurance policies is in effect.

ISSUE/S:
Whether or not the documentary stamp tax should be paid on on insurance policies that has
not been paid.

RULING:
Yes. The Supreme Court ruled that’s the documentary stamp taxes must be paid upon the issuance
of instruments, without regard go whether the contracts which gave rise to them are rescissibld, void,
voidable, or unenforceable. As the Supreme Court of the United States held in Du Pont United
States.

58. Fortune Insurance and Surety Co., Inc. vs. Court of Appeals

M.L. DEL MUNDO ROBLEDO | 83

FACTS:

Producers Bank was insured by Fortune Insurance and Surety Co., Inc. An armored car of the
plaintiff, while in the process of transferring cash under the custody of its teller from its Pasay Branch
to its Head Office at Makati was robbed of the said cash. After an investigation conducted by the
Pasay police authorities, the driver Magalong and guard Atiga were charged, together with Edelmer
Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532 (Anti-Highway
Robbery Law) before the Fiscal of Pasay City. Demands were made by the Producers Bank upon
the Insurer to pay the amount of the loss, but the latter refused to pay as the loss is excluded from
the coverage of the insurance policy, specifically under "General Exceptions" Section (b), and which
reads as follows:
“the company shall not be liable under this policy in respect of any loss caused by any dishonest,
fraudulent or criminal act of the insured or any officer, employee, partner, director, trustee or
authorized representative of the Insured whether acting alone or in conjunction with others.

ISSUE:

Whether recovery thereunder is precluded under the general exceptions clause thereof.

HELD:

Yes. The SC are satisfied that Magalong and Atiga were, in respect of the transfer of Producer's
money from its Pasay City branch to its head office in Makati, its "authorized representatives" who
served as such with its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three
with the specific duty to safely transfer the money to its head office, with Alampay to be responsible
for its custody in transit; Magalong to drive the armored vehicle which would carry the money; and
Atiga to provide the needed security for the money, the vehicle, and his two other companions. In
short, for these particular tasks, the three acted as agents of Producers. A "representative" is
defined as one who represents or stands in the place of another; one who represents others or
another in a special capacity, as an agent, and is interchangeable with "agent."

Petition is granted.

59. MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW TAXICAB CO., INC.,
plaintiffs-appellees, vs. FIELDMEN'S INSURANCE CO., INC., defendant-appellant.

M.L. DEL MUNDO ROBLEDO | 84

G.R. No. L-23276 November 29, 1968

FACTS:
Appellant Fieldmen's Insurance Company, Inc. issued, in favor of the Manila Yellow Taxicab Co.,
Inc. a common carrier accident insurance policy, covering the period from December 1, 1961 to
December 1, 1962. It was stipulated in said policy that: The Company will, subject to the Limits of
Liability and under the Terms of this Policy, indemnify the Insured in the event of accident caused by
or arising out of the use of Motor Vehicle against all sums which the Insured will become legally
liable to pay in respect of: Death or bodily injury to any fare-paying passenger including the Driver,
Conductor and/or Inspector who is riding in the Motor Vehicle insured at the time of accident or
injury. While the policy was in force, a taxicab of the Insured, driven by Carlito Coquia, met a
vehicular accident, in consequence of which Carlito died. The Insured filed therefor a claim for
P5,000.00 to which the Company replied with an offer to pay P2,000.00, by way of compromise. The
Insured rejected the same and made a counter-offer for P4,000.00, but the Company did not accept
it. Hence, the Insured and Carlito's parents, filed a complaint against the Company to collect the
proceeds of the aforementioned policy. In its answer, the Company admitted the existence thereof,
but pleaded lack of cause of action on the part of the plaintiffs because: 1) the Coquias have no
contractual relation with the Company; and 2) the Insured has not complied with the provisions of the
policy concerning arbitration.

ISSUE:
Whether or not the Company is liable to the insured

RULING:
The court ruled in the affirmative. As the to the first contention of the Company, that the Coquias
have no contractual relation with the Company, the court said: “The policy under consideration is
typical of contracts pour autrui.” Proof of this is the portion of the contract which states that:
“Pursuant to these stipulations, the Company "will indemnify any authorized Driver who is driving the
Motor Vehicle" of the Insured and, in the event of death of said driver, the Company shall, likewise,
"indemnify his personal representatives.” In fact, the Company "may, at its option, make indemnity
payable directly to the claimants or heirs of claimants ... it being the true intention of this Policy to
protect ... the liabilities of the Insured towards the passengers of the Motor Vehicle and the Public"
— in other words, third parties”. Thus, the enforcement of which may be demanded by a third party
for whose benefit it was made (in this case the heirs of Coquia), although they are not a party to the
contract. As to the issue of arbitration, it wasn't stated in the policy who among the parties should
initiate it thus leaving an impression that it is “at the choice of either party”. And since, none of the
representatives of either party initiate an arbitration, a waiver by both of the right to arbitration
followed as a matter of law.

60. FAR EASTERN SURETY & INSURANCE COMPANY, INC., petitioner, 

vs.

M.L. DEL MUNDO ROBLEDO | 85

SOCORRO DANCEL VDA. DE MISA, ARACELI MARIA PINTO and LA
MALLORCA, respondents.
FACTS:
Appeal by petition for review from a judgment of the Court of Appeals, in its Case CA-G.R. No.
30846-R, sentencing the Far Eastern Surety & Insurance Company to indemnify La Mallorca on its
insurance contract for P9,661.50.
Respondents, Socorro Dancel Vda.de Misa and Araceli Pinto, hired a taxicab operated by
respondent La Mallorca in Quezon City. While proceeding south toward the Archbishop's Palace in
Shaw Boulevard, the taxicab collided with a gravel and sand truck, driven by one Faustino Nabor,
that was proceeding in the opposite direction. As a result the two passengers of the La Mallorca
taxicab were injured, and filed suit for damages against the taxicab company in the Court of First
Instance. The operator denied liability, but instituted a third party complaint against herein appellant,
Far Eastern Surety and Insurance Company, to recoup from the latter, based on its Common
Carrier's Accident Insurance No. CCA 106, any damages that might be recovered by the plaintiffs
taxicab passengers. The insurer, likewise, denied responsibility.
The CFI of QC awarded to plaintiffs Vda. de Misa and Pinto (now respondents) actual, moral, and
exemplary damages and attorney's fees, payable by the taxicab operator, La Mallorca; and
sentenced the insurance company to pay to La Mallorca P10,000.00 on its third party liability
insurance.
On appeal, the Court of Appeals, while holding that the collision was due to the fault of the driver of
the sand truck nevertheless held the taxicab operator liable in damages to the passengers of its
motor vehicle on the strength of its representation that the passengers were insured against
accidents, as shown by the sticker affixed to the taxicab; and, overruling the defense of the
insurance company that it was not answerable except for whatever amounts the insured might be
legally liable for in the event of accident caused by, or arising out of, the use of the motor vehicle, the
appellate court adjudged the said insurer answerable to La Mallorca in view of its third party liability
insurance contract. As a result, the CA affirmed with modifications; so that; 1st, on the complaint,
appellant La Mallorca is sentenced to pay unto appellee, Socorro Dancel Vda. de Misa the sum of
P3,910.00 plus P1,000.00 attorney's fees; and unto appellee, Araceli Pinto, the sum of P3,751.50
plus P1,000.00 attorney's fees; and pursuant to Art. 2210, of the New Civil Code, this Court orders
that the P3,910.00 awarded unto Socorro Dancel and the P3,751.50 awarded unto Araceli Pinto
shall earn interest from the date of the promulgation of this decision; and 2ndly, on the third party
complaint, condemning Far Eastern Surety and Insurance Co. Inc., to pay unto La Mallorca the sum
of P4,910.00 corresponding to Socorro Dancel and P4,751.50 corresponding to Araceli Pinto; costs
against appellants La Mallorca and Far Eastern Surety and Insurance Company.

ISSUE:
Whether or not the CA erred in its decision in affirming with modification the decision of the trial
court.

RULING:
The SC agree with the appellant that the decision of the Court of Appeals on this point is not legally
tenable, for the reason that the policy of insurance limited the recovery of the insured to "all sums
including claimant's" (passengers in this case) "cost and expenses which the Insured shall become
legally liable" in the "event of accident caused by or arising out of the use of the Motor Vehicle;" and
the appealed decision itself shows that the indemnity awarded to the passengers of the La Mallorca
taxicab was not because of the accident but was exclusively predicated on the representation made
by the taxicab company to its passengers that the latter were insured against accidents.

M.L. DEL MUNDO ROBLEDO | 86

While the decision correctly held that la Mallorca was in estoppel, and could not be heard to deny
that its passengers were insured, it does not necessarily follow that the estoppel, likewise, applied to
the appellant insurer. The Court of Appeals concurred in the finding of the trial court that only the
negligence of the driver of the sand and gravel truck was the causative factor of the mishap, and
made no pronouncement that the driver of the taxicab in any way contributed thereto; so that, had it
not been for its representation that its passengers were insured, the taxicab company would not
have been liable at all. As it does not appear that the insurance company authorized or consented
to, or even knew of, the representation made by the taxicab company to its passengers, it follows
that the source of the award of damages against the taxicab company was beyond, or outside of, the
contemplation of the parties to the contract of Accident Insurance No. CCA 106, and that the insurer
may not be held liable for such damages.
WHEREFORE, the decision of the Court of Appeals is modified, by eliminating therefrom the award
against the appellant, Far Eastern Insurance Co., Inc., in favor of the taxicab operator, La Mallorca,
including the sharing of the costs of litigation, which shall be exclusively borne by the latter entity.
Without costs in this instance.

61. FINMAN GENERAL ASSURANCE CORPORATIOM V. COURT OF APPEALS

213 SCRA 493

M.L. DEL MUNDO ROBLEDO | 87

FACTS:
It appears on record that on October 22, 1986, deceased Carlie Surposa was insured
with petitioner Finman General Assurance Corporation under Finman General Teachers
Protection Plan Master Policy No. 2005 and Individual Policy No. 08924 with his parents,
spouses Julia and Carlos Surposa, and brothers Christopher, Charles, Chester and Clifton,
all surnamed Surposa, as beneficiaries. While said insurance policy was in full force and
effect, the insured Carlie Surposa, died on October 18, 1988 as a result of a stab would
inflicted by one of the three (3) unidentified men without provocation and warning on the part
of the former as he and his cousin. Winston Surposa, were waiting for a ride on their way
home along Rizal-Locsin Streets, Bacolod City after attending the celebration of the
“Maskarra Annual Festival.

Thereafter, private respondent and the other beneficiaries of said insurance policy
filed a written notice of claim with the petitioner insurance company which denied said claim
contending that murder and assault are not within the scope of the coverage of the insurance
policy. Private respondent filed a complaint with the Insurance Commission.On July 11,
1991; the appellate court affirmed said decision.
Hence, petitioner filed this petition.

ISSUE:
Whether or not, petitioner is correct that results from assault or murder deemed are not
included in the terms “accident” and “accidental”.

RULING:

No. 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.
Thus, the terms have been taken to mean that which happen by chance or fortuitously, without
intention and design, and which is unexpected, unusual, and unforeseen. An accident is an event
that takes place without one’s foresight or expectation an event that proceeds from an unknown
cause, or is an unusual effect of a known cause and, therefore, not expected.

The generally accepted rule is that, death or injury does not result from accident or
accidental means within the terms of an accident-policy if it is the natural result of the insured’s
voluntary act, unaccompanied by anything unforeseen except the death or injury. There is no
accident when a deliberate act is performed unless some additional, unexpected, independent, and
unforeseen happening occurs which produces or brings about the result of injury or death. In other
words, where the death or injury is not the natural or probable result of the insured’s voluntary act, or
if something unforeseen occurs in the doing of the act which produces the injury, the resulting death
is within the protection of the policies insuring against death or injury from accident.

In the case at bar, it cannot be pretended that Carlie Surposa died in the course of an
assault or murder as a result of his voluntary act considering the very nature of these crimes. In the
first place, the insured and his companion were on their way home from attending a festival. They

M.L. DEL MUNDO ROBLEDO | 88

were confronted by unidentified persons. The record is barren of any circumstance showing how the
stab wound was inflicted. Nor can it be pretended that the malefactor aimed at the insured precisely
because the killer wanted to take his life. In any event, while the act may not exempt the unknown
perpetrator from criminal liability, the fact remains that the happening was a pure accident on the
part of the victim. The insured died from an event that took place without his foresight or expectation,
an event that proceeded from an unusual effect of a known cause and, therefore, not expected.
Neither can it be said that there was a capricious desire on the part of the accused to expose his life
to danger considering that he was just going home after attending a festival.

Furthermore, the personal accident insurance policy involved herein specifically enumerated
only ten (10) circumstances wherein no liability attaches to petitioner insurance company for any
injury, disability or loss suffered by the insured as a result of any of the stipulated causes. The
principle of “expresso unius exclusio alterius” the mention of one thing implies the exclusion of
another thing is therefore applicable in the instant case since murder and assault, not having been
expressly included in the enumeration of the circumstances that would negate liability in said
insurance policy cannot be considered by implication to discharge the petitioner insurance company
from liability for any injury, disability or loss suffered by the insured. Thus, the failure of the petitioner
insurance company to include death resulting from murder or assault among the prohibited risks
leads inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such
death.
The petition for certiorari with restraining order and preliminary injunction is hereby DENIED for lack
of merit.

62. FIRST LEPANTO-TAISHO INSURANCE CORPORATION (now known as FLT PRIME

INSURANCE CORPORATION), v .CHEVRON PHILIPPINES, INC. (formerly known as CALTEX
[PHILIPPINES], INC.),

M.L. DEL MUNDO ROBLEDO | 89

G.R. No. 177839 January 18,2012

NATURE Rule 45 Petition assailing the Decision and Resolution of the Court of Appeals (CA) which
reversed the Decision of the Regional Trial Court (RTC) of Makati City

FACTS:
Chevron Philippines sued First Lepanto for the payment of unpaid oil and petroleum purchases
made by its distributor, Fumitechniks. Fumitechniks had applied for and was issued a surety bond by
First Lepanto for 15, 700,000 this was in compliance with the requirement for the grant of a credit
line with Chevron to guarantee payment of the cost of fuel. Fumitechniks defaulted on its obligation
because the check it issued was dishonored. Chevron then notified First Lepanto of Fumitechniks’
unpaid purchases through a letter. Chevron also sent copies of invoices showing the deliveries of
fuel as requested by First Lepanto. Simultaneously, a letter was sent to Fumitechniks demanding
that it submit to First Lepanto: its comment on Chevron’s notification letter, copy of the agreement
secured by the Bond plus the delivery receipts, etc; information on the particulars including terms
and conditions.
However Fumitechniks replied that it cannot submit the requested agreement since there was no
such agreement executed between Fumitechniks and Chevron. However it enclosed a copy of
another surety bond issued by CICI General Insurance Corporation in favor of Chevron to secure the
obligation of Fumitechniks and/or Prime Asia Sales and Services in the amount of 15,000,000.
First Lepanto then advised Chevron of the nonexistence of the principal agreement as confirmed by
Fumitechniks. It explained that being an accessory contract, the bond cannot exist without a
principal agreement as it is essential that the copy of the basic contract be submitted to the surety.
Chevron then formally demanded from First Lepanto the payment of its claim under the surety bond.
First Lepanto refused to pay, then Chevron prayed for judgment ordering First Lepanto to pay the
sum of 15,080,030.30 pesos plus interest, cost and attorney’s fees. RTC dismissed the complaint.
Terms and conditions of the oral credit line between Chevron and Fumitechniks have not been
relayed to First Lepanto. Since the surety bond is a mere accessory contract, the RTC concluded
that the bond cannot stand in the absence of the written agreement secured thereby.
CA reversed the RTC’s decision and ruled in favor of Chevron. First Lepanto is estopped from
assailing the oral credit line agreement, having consented to the same upon presentation by
Fumitechniks of the surety bond it issued. Considering that such oral contract between Fumitechniks
and respondent has been partially executed, the CA ruled that the provisions of the Statute of
Frauds do not apply.

ISSUE:
Whether or not is liable to the creditor in the absence of a written contract with the principal?

RULING:
Section 175 of the Insurance Code defines a 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 includes official
recognizances, stipulations, bonds or undertakings issued under Act 536 as amended. Suretyship
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

M.L. DEL MUNDO ROBLEDO | 90

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 a suretys liability is determined by the language of the suretyship contract or bond
itself. It cannot be extended by implication, beyond the terms of the contract. Thus, to determine
whether petitioner is liable to respondent under the surety bond, it becomes necessary to examine
the terms of the contract itself.
Dispositive: WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The
Decision dated November 20, 2006 and Resolution dated May 8, 2007 of the Court of Appeals in
CA-G.R. CV No. 86623, are REVERSED and SET ASIDE. The Decision dated August 5, 2005 of the
Regional Trial Court of MakatiCity, Branch 59 in Civil Case No. 02-857 dismissing respondents
complaint as well as petitioners counterclaim, is hereby REINSTATED and UPHELD.

63. NATIONAL POWER CORPORATION vs. COURT OF APPEALS and PHILIPPINE AMERICAN
GENERAL INSURANCE CO., INC.
G.R. No. L-43706 November 14, 1986

M.L. DEL MUNDO ROBLEDO | 91

FACTS:

The National Power Corporation (NPC) entered into a contract with the Far Eastern Electric,
Inc. (FEEI) for the erection of the Angat Balintawak transmission lines for the Angat Hydroelectric
Project. FEEI agreed to complete the work within 120 days from the signing of the contract,
otherwise it would pay NPC P200.00 per calendar day as liquidated damages, while NPC agreed to
pay the sum of P97,829.00 as consideration. The Philippine American General Insurance Co., Inc.
(Philamgen) issued a surety bond in the amount of P30,672.00 for the faithful performance of the
undertaking by FEEI. The condition of the bond provides that the liability of Philamgen will expire
one year from the final completion and acceptance and that the bond will be cancelled 30 days after
its expiration. FEEI started construction on December 26, 1962 but on May 30, 1963, both FEEI and
Philamgen wrote NPC requesting the assistance of the latter to complete the project due to
unavailability of the equipment of FEEI. The work was abandoned on June 26, 1963, leaving the
construction unfinished. On July 19, 1963 Philamgen and FEEI informed NPC that FEEI was giving
up the construction due to financial difficulties. On the same date, NPC wrote Philamgen informing it
of the withdrawal of FEEI from the work and formally holding both FEEI and Philamgen liable for the
cost of the work to be completed as of July 20, 1962 plus damages. The work was completed by
NPC on September 30, 1963. On January 30, 1967 NPC notified Philamgen that FEEI had an
outstanding obligation in the amount of P75,019.85 and demanded the remittance of the amount of
the surety bond the answer for the cost of completion of the work. Philamgen did not pay as
demanded but contended instead that its liability under the bond has expired on September 20, 1964
and claimed that no notice of any obligation of the surety was made within 30 days after its
expiration. NPC filed a civil case for collection of the amount of P75,019.89. Only Philamgen
answered while FEEI was declared in default. The trial court rendered judgment in favor of NPC. On
appeal by Philamgen, the Court of Appeals reversed the lower court’s decision and dismissed the
complaint.

ISSUE:

Whether or not petitioner should have given notice to respondent of any existing obligation
within 30 days from expiration of the bond to hold said surety liable there under.

RULING:

The petitioner claims that it has already complied with such requirement by virtue of its notice
dated July 19, 1963 of abandonment of work by FEEI and of its takeover to finish the construction, at
the same time formally holding both FEEI and Philamgen liable for the uncompleted work and
damages. The notice required in the bond within 30 days after its expiration of any existing
obligation, is applicable only in case the contractor itself had completed the contract and not when
the contractor failed to complete the work, from which arises the continued liability of the surety
under its bond as expressly provided for in the contract.

Respondent insists that petitioner's notice dated July 19, 1983 is not sufficient despite previous
events that it had knowledge of FEEI's failure to comply with the contract and claims that it cannot be
held liable under the bond without notice within thirty days from the expiration of the bond, that there
is a subsisting obligation.

M.L. DEL MUNDO ROBLEDO | 92

 As early as May 30, 1963, Philamgen was duly informed of the failure of its principal to comply
with its undertaking. On July 19, 1963, when FEEI informed NPC that it was abandoning the
construction job, the latter forthwith informed Philamgen of the fact on the same date. The 30-day
notice adverted to in the surety bond applies to the completion of the work by the contractor. This
completion by the contractor never materialized. The surety bond must be read in its entirety and
together with the contract between NPC and the contractors. The provisions must be construed
together to arrive at their true meaning. Certain stipulations cannot be segregated and then made to
control. It is also well settled that contracts of insurance are to be construed liberally in favor of the
insured and strictly against the insurer. Thus, ambiguity in the words of an insurance contract should
be interpreted in favor of its beneficiary.

In the case at bar, it cannot be denied that the breach of contract in this case, the
abandonment of the unfinished work of the transmission line of the petitioner by the contractor Far
Eastern Electric, Inc., was within the effective date of the contract and the surety bond. Such
abandonment gave rise to the continuing liability of the bond as provided for in the contract which is
deemed incorporated in the surety bond executed for its completion. To rule therefore that private
respondent was not properly notified would be gross error.

The decision of the Court of Appeals was set aside and the decision of the lower court was
reinstated.

64. Finman General vs Inocencio

Facts:

M.L. DEL MUNDO ROBLEDO | 93

Pan Pacific Overseas is a recruitment agency which offers jobs abroad duly registered with the
POEA. Finman General is acting as Pan Pacific’s surety (as required by POEA rules and Art. 31 of
the Labor Code). Pan Pacific was sued by William Inocencio and 3 others for alleged violation of
Article 32 and 34 of the Labor Code. Inocencio alleged that Pan Pacific charged and collected fees
but failed to provide employment abroad.

POEA ruled in favor of Inocencio et al and had impleaded Finman (upon request of Inocencio) in the
complaint as well (Pan Pacific changed business address without prior notice to POEA). The Labor
Secretary affirmed POEA’s ruling. Finman General asserts that it should not be impleaded in the
case because it is not a party to the contract between Pan Pacific and Inocencio et al.

ISSUE: Whether or not Finman General is solidarily liable in the case at bar.

RULING:
Yes. Since Pan Pacific had thoughtfully refrained from notifying the POEA of its new address and
from responding to the complaints, petitioner Finman may well be regarded as an indispensable
party to the proceedings before the POEA. Whether Finman was an indispensable or merely a
proper party to the proceedings, the SC held that the POEA could properly implead it as party
respondent either upon the request of Inocencio et al or motu propio. Such is the situation under the
Revised Rules of Court.

Finman General is solidarily liable. Under Section 176 of the Insurance Code, as amended, the
liability of a surety in a surety bond (Finman) is joint and several with the principal obligor (Pan
Pacific).

Further, Article 31 of the Labor Code provides:

Art. 31. Bonds. — All applicants for license or authority shall post such cash and surety bonds as
determined by the Secretary of Labor to guarantee compliance with prescribed recruitment
procedures, rules and regulations, and terms and, conditions of employment as appropriate.

xxx

The Secretary of Labor shall have the exclusive power to determine, decide, order or direct payment
from, or application of, the cash and surety bond for any claim or injury covered and guaranteed by
the bonds.

65. COUNTRY BANKERS INSURANCE CORP. V. LAGMAN

G.R. No. 165487
July 13, 2011

M.L. DEL MUNDO ROBLEDO | 94

FACTS:
Nelson Santos (Santos) applied for a license with the National Food Authority (NFA) to
engage in the business of storing not more than 30,000 sacks of palay valued at P5,250,000.00 in
his warehouse at Barangay Malacampa, Camiling, Tarlac. Under Act No. 3893 or the General
Bonded Warehouse Act, as amended, [3] the approval for said license was conditioned upon posting
of a cash bond, a bond secured by real estate, or a bond signed by a duly authorized bonding
company, the amount of which shall be fixed by the NFA Administrator at not less than thirty-three
and one third percent (33 1/3%) of the market value of the maximum quantity of rice to be received.
Accordingly, Country Bankers Insurance Corporation (Country Bankers) issued Warehouse Bond
No. 03304 for P1,749,825.00 on 5 November 1989 and Warehouse Bond No. 02355for P749,925.00
on 13 December 1989 (1989 Bonds) through its agent, Antonio Lagman (Lagman). Santos was the
bond principal, Lagman was the surety and the Republic of the Philippines, through the NFA was the
obligee. In consideration of these issuances, corresponding Indemnity Agreements were executed
by Santos, as bond principal, together with Ban Lee Lim Santos (Ban Lee Lim), Rhosemelita
Reguine (Reguine) and Lagman, as co-signors. The latter bound themselves jointly and severally
liable to Country Bankers for any damages, prejudice, losses, costs, payments, advances and
expenses of whatever kind and nature, including attorneys fees and legal costs, which it may sustain
as a consequence of the said bond; to reimburse Country Bankers of whatever amount it may pay or
cause to be paid or become liable to pay thereunder; and to pay interest at the rate of 12% per
annum computed and compounded monthly, as well as to pay attorneys fees of 20% of the amount
due it. Santos then secured a loan using his warehouse receipts as collateral. When the loan
matured, Santos defaulted in his payment. The sacks of palay covered by the warehouse receipts
were no longer found in the bonded warehouse. By virtue of the surety bonds, Country Bankers was
compelled to pay P1,166,750.37. Consequently, Country Bankers filed a complaint for a sum of
money docketed as Civil Case No. 95-73048 before the Regional Trial Court (RTC) of Manila.  In his
Answer, Lagman alleged that the 1989 Bonds were valid only for 1 year from the date of their
issuance, as evidenced by receipts; that the bonds were never renewed and revived by payment of
premiums; that on 5 November 1990, Country Bankers issued Warehouse Bond No. 03515 (1990
Bond) which was also valid for one year and that no Indemnity Agreement was executed for the
purpose; and that the 1990 Bond supersedes, cancels, and renders no force and effect the 1989
Bonds. The bond principals, Santos and Ban Lee Lim, were not served with summons because they
could no longer be found. The case was eventually dismissed against them without prejudice. The
other co-signor, Reguine, was declared in default for failure to file her answer. On 21 September
1998, the trial court rendered judgment declaring Reguine and Lagman jointly and severally liable to
pay Country Bankers the amount of P2,400,499.87. Lagman filed an appeal to the Court of Appeals,
docketed as CA G.R. CV No. 61797. He insisted that the lifetime of the 1989 Bonds, as well as the
corresponding Indemnity Agreements was only 12 months. According to Lagman, the 1990 Bond
was not pleaded in the complaint because it was not covered by an Indemnity Agreement and it
superseded the two prior bonds. On 21 June 2004, the Court of Appeals rendered the assailed
Decision reversing and setting aside the Decision of the RTC and ordering the dismissal of the
complaint filed against Lagman.
Country Bankers sought reconsideration which was denied in a Resolution dated 24 September
2004. Expectedly, Country Bankers filed the instant petition attributing two (2) errors to the Court of
Appeals,

ISSUE:
WON the 1989 bonds were effective only for one (1) year, as evidenced by the receipts on the
payment of premiums.

RULING:

M.L. DEL MUNDO ROBLEDO | 95

 NO. SC ruled in the negative. SC stated that the official receipts in question serve as
proof of payment of the premium for one year on each surety bond. It does not, however,
automatically mean that the surety bond is effective for only one (1) year. In fact, the effectivity of the
bond is not wholly dependent on the payment of premium. Section 177 of the Insurance Code
expresses:
Sec. 177. The surety is entitled to payment of the premium as soon as the contract of
suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding
shall be valid and binding unless and until the premium therefor has been paid, except where the
obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective
of whether or not the premium has been paid by the obligor to the surety: Provided, That if the
contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect
only reasonable amount, not exceeding fifty per centum of the premium due thereon as service fee
plus the cost of stamps or other taxes imposed for the issuance of the contract or bond:  Provided,
however, That if the non-acceptance of the bond be due to the fault or negligence of the surety, no
such service fee, stamps or taxes shall be collected. This provision in the bonds is but in compliance
with the second paragraph of Section 177 of the Insurance Code, which specifies that a continuing
bond, as in this case where there is no fixed expiration date, may be cancelled only by the obligee,
which is the NFA, by the Insurance Commissioner, and by the court. Thus:
 
In case of a continuing bond, the obligor shall pay the subsequent annual premium
as it falls due until the contract of suretyship is cancelled by the obligee or by the
Commissioner or by a court of competent jurisdiction, as the case may be.
 
By law and by the specific contract involved in this case, the effectivity of the bond required for the
obtention of a license to engage in the business of receiving rice for storage is determined not alone
by the payment of premiums but principally by the Administrator of the NFA. From beginning to end,
the Administrators brief is the enabling or disabling document. The clear import of these provisions is
that the surety bonds in question cannot be unilaterally cancelled by Lagman. 

66. FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, LEONILA M.

MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, all surnamed

M.L. DEL MUNDO ROBLEDO | 96

MAGLANA, herein represented by their mother, FIGURACION VDA. DE
MAGLANA, petitioners, 
vs.
HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch II, and
AFISCO INSURANCE CORPORATION, respondents.
G.R. No. 60506 August 6, 1992

FACTS:
Lope Maglana was an employee of the Bureau of Customs whose work station was at Lasa, here in
Davao City. On December 20, 1978, early morning, Lope Maglana was on his way to his work
station, driving a motorcycle owned by the Bureau of Customs. At Km. 7, Lanang, he met an
accident that resulted in his death. He died on the spot. The PUJ jeep that bumped the deceased
was driven by Pepito Into, operated and owned by defendant Destrajo. From the investigation
conducted by the traffic investigator, the PUJ jeep was overtaking another passenger jeep that was
going towards the city poblacion. While overtaking, the PUJ jeep of defendant Destrajo running
abreast with the overtaken jeep, bumped the motorcycle driven by the deceased who was going
towards the direction of Lasa, Davao City. The point of impact was on the lane of the motorcycle and
the deceased was thrown from the road and met his untimely death. 1
The heirs of Lope Maglana, Sr., here petitioners, filed an action for damages and attorney's fees
against operator Patricio Destrajo and the Afisco Insurance Corporation.

During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty of one
(1) year, eight (8) months and one (1) day of prision correccional, as minimum, to four (4) years, nine
(9) months and eleven (11) days of prision correccional, as maximum, with all the accessory
penalties provided by law.
The lower court rendered a decision finding that Destrajo had not exercised sufficient diligence as
the operator of the jeepney.
Petitioners filed a motion for the reconsideration of the second paragraph of the dispositive portion of
the decision contending that AFISCO should not merely be held secondarily liable because the
Insurance Code provides that the insurer's liability is "direct and primary and/or jointly and severally
with the operator of the vehicle, although only up to the extent of the insurance coverage." 
The lower court denied the motion for reconsideration ruling that since the insurance contract "is in
the nature of suretyship, then the liability of the insurer is secondary only up to the extent of the
insurance coverage." 5
Petitioners filed a second motion for reconsideration reiterating that the liability of the insurer is
direct, primary and solidary with the jeepney operator because the petitioners became direct
beneficiaries under the provision of the policy which, in effect, is a stipulation pour autrui.  6 This
motion was likewise denied for lack of merit.
Hence, petitioners filed the instant petition for certiorari which, although it does not seek the reversal
of the lower court's decision in its entirety, prays for the setting aside or modification of the second
paragraph of the dispositive portion of said decision. Petitioners reassert their position that the
insurance company is directly and solidarily liable with the negligent operator up to the extent of its
insurance coverage.

ISSUE:

M.L. DEL MUNDO ROBLEDO | 97

Joint Liability

RULING:
The particular provision of the insurance policy on which petitioners base their claim is as follows:
 Sec. 1 — LIABILITY TO THE PUBLIC
1. The Company will, subject to the Limits of Liability, pay all sums necessary to discharge liability of
the insured in respect of
(a) death of or bodily injury to any THIRD PARTY
(b) . . . .
2. . . . .
3. In the event of the death of any person entitled to indemnity under this Policy, the Company will, in
respect of the liability incurred to such person indemnify his personal representatives in terms of,
and subject to the terms and conditions hereof. 7
The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable
by petitioners.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos (the injured third
party), but it cannot, as incorrectly held by the trial court, be made "solidarily" liable with the two
principal tortfeasors, namely respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-
insurer were solidarily liable with said, two (2) respondents by reason of the indemnity contract
against third party liability — under which an insurer can be directly sued by a third party —  this will
result in a violation of the principles underlying solidary obligation and insurance contracts.
In fine, we conclude that the liability of AFISCO based on the insurance contract is direct, but not
solidary with that of Destrajo which is based on Article 2180 of the Civil Code. 12 As such, petitioners
have the option either to claim the P15,000 from AFISCO and the balance from Destrajo or enforce
the entire judgment from Destrajo subject to reimbursement from AFISCO to the extent of the
insurance coverage.
WHEREFORE, premises considered, the present petition is hereby GRANTED. The award of
P28,800.00 representing loss of income is INCREASED to P192,000.00 and the death indemnity of
P12,000.00 to P50,000.00.
SO ORDERED

67. THE HEIRS OF GEORGE Y. POE vs MALAYAN INSURANCE COMPANY, INC.,(MICI)

G.R. No. 156302- April 7, 2009

M.L. DEL MUNDO ROBLEDO | 98

Facts:
Sometime on 26 January 1996, George Y. Poe while waiting for a ride to work in front of Capital
Garments Corporation, Ortigas Avenue Extension, Barangay Dolores, Taytay, Rizal, was run over by
a ten-wheeler Isuzu hauler truck with Plate No. PMH-858 owned by Rhoda Santos, and then being
driven by Willie Labrador . The said truck was insured with respondent MICI under Policy No. CV-
293-007446-8.
To seek redress for George’s untimely death, his heirs filed with the RTC a Complaint for damages
against Rhoda and respondent MICI.
Rhoda and respondent MICI denied liability for Georges death averringthat: a) the accident was
caused by the negligent act of the victim George; b) the liability of respondent MICI, if any, would
attach only upon a judicial pronouncement that the insured Rhoda and her driver Willie are liable; c)
the liability of MICI should be based on the extent of the insurance coverage as embodied in Rhodas
policy; and d) Rhoda had always exercised the diligence of a good father of a family in the selection
and supervision of her driver Willie.
The court, however, find Rhoda and MICI solidarily liable for damages for the death of George.
Hence, this petition.

RULING:
It is settled that where the insurance contract provides for indemnity against liability to third persons,
the liability of the insurer is direct and such third persons can directly sue the insurer. The direct
liability of the insurer under indemnity contracts against third party liability does not mean, however,
that the insurer can be held solidarily liable with the insured and/or the other parties found at fault,
since they are being held liable under different obligations. The liability of the insured carrier or
vehicle owner is based on tort, in accordance with the provisions of the Civil Code; while that of the
insurer arises from contract, particularlythe insurance policy. The third-party liability of the insurer is
only up to the extent of the insurance policy and that required by law; and it cannot be held solidarily
liable for anything beyond that amount. Any award beyond the insurance coverage would already be
the sole liability of the insured and/or the other parties at fault.
However in this case, the insurance policy between Rhoda and respondent MICI, covering the truck
involved in the accident which killed George, was never presented. There is no means, therefore, to
ascertain the supposed limited liability of respondent MICI under said policy. Without the
presentation of the insurance policy, the existence of any limitation on the liability of respondent MICI
under said policy, and the extent or amount of such limitation cannot be determined.

68. Villacorta vs. Insurance Commission, et. al.,

G.R. No. 54171 (October 28, 1970)

M.L. DEL MUNDO ROBLEDO | 99

Facts:
 Petitioner was the owner of a car insured with Empire Insurance Company.
 The vehicle was brought to the Sunday Machine Works, Inc., for general check-up and repairs.
while it was in the custody of the Sunday Machine Works, the car was allegedly taken by six (6)
persons and driven out to Montalban, Rizal. While travelling along Mabini St., Sitio Palyasan, Barrio
Burgos, going North at Montalban, Rizal, the car figured in an accident, hitting and bumping a
gravel and sand truck parked at the right side of the road going south. As a consequence, the
gravel and sand truck veered to the right side of the pavement going south and the car veered to
the right side of the pavement going north. The driver, Benito Mabasa, and one of the passengers
died and the other four sustained physical injuries. The car, as well, suffered extensive damage.
Complainant, thereafter, filed a claim for total loss with the respondent company but claim was
denied. Hence, complainant, was compelled to institute the present action.
 Respondent insurance commission, however, dismissed petitioner's complaint for recovery of
the total loss of the vehicle against private respondent, sustaining respondent insurer's contention
that the accident did not fall within the provisions of the policy either for the Own Damage or Theft
coverage, invoking the policy provision on "Authorized Driver" clause.

Issue:
Whether or not respondent’s dismissal of the complaint is contrary to the evidence and the law?

RULING:

Yes.
The insurer must indemnify the petitioner-owner for the total loss of the insured car in the
sum of P35,000.00 under the theft clause of the policy, subject to the filing of such claim for
reimbursement or payment as it may have as subrogee against the Sunday Machine Works, Inc.
First, respondent commission's ruling that the person who drove the vehicle in the person of
Benito Mabasa, who, according to its finding, was one of the residents of the Sunday Machine
Works, Inc. to whom the car had been entrusted for general check-up and repairs was not an
"authorized driver" of petitioner-complainant is too restrictive and contrary to the established
principle that insurance contracts, being contracts of adhesion where the only participation of the
other party is the signing of his signature or his "adhesion" thereto, "obviously call for greater
strictness and vigilance on the part of courts of justice with a view of protecting the weaker party
from abuse and imposition, and prevent their becoming traps for the unwary.
The main purpose of the "authorized driver" clause, as may be seen from its text, supra, is
that a person other than the insured owner, who drives the car on the insured's order, such as his
regular driver, or with his permission, such as a friend or member of the family or the employees of a
car service or repair shop must be duly licensed drivers and have no disqualification to drive a motor
vehicle.
Secondly, and independently of the foregoing (since when a car is unlawfully taken, it is the
theft clause, not the "authorized driver" clause, that applies), where a car is admittedly as in this
case unlawfully and wrongfully taken by some people, be they employees of the car shop or not to
whom it had been entrusted, and taken on a long trip to Montalban without the owner's consent or
knowledge, such taking constitutes or partakes of the nature of theft as defined in Article 308 of the
Revised Penal Code, viz. "Who are liable for theft. — Theft is committed by any person who, with
intent to gain but without violence against or intimidation of persons nor force upon things, shall take

M.L. DEL MUNDO ROBLEDO | 100

personal property of another without the latter's consent," for purposes of recovering the loss under
the policy in question.

69. JAMES STOKES, as Attorney-in-Fact of Daniel Stephen Adolfson and DANIEL STEPHEN
ADOLFSON, Plaintiffs-Appellees,

M.L. DEL MUNDO ROBLEDO | 101

v.
MALAYAN INSURANCE CO., INC., Defendant-Appellant. ]
G.R. No.L-34768. February 24, 1984

FACTS:
Adolfson had a subsisting Malayan car insurance policy with the above coverage on
November 23, 1969 when his car collided with a car owned by Cesar Poblete, resulting in damage to
both vehicles. At the time of the accident, Adolfson’s car was being driven by James Stokes, who
was authorized to do so by Adolfson. Stokes, an Irish citizen who had been in the Philippines as a
tourist for more than ninety days, had a valid and subsisting Irish driver’s license but without a
Philippine driver’s license.
After the collision, Adolfson filed a claim with Malayan but the latter refused to pay,
contending that Stokes was not an authorized driver under the "Authorized Driver" clause of the
insurance policy in relation to Section 21 of the Land Transportation and Traffic Code.
Under the insurance policy, "authorized driver" refers to: (a) the insured; or (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 motor vehicle and is not
disqualified from driving such motor vehicle by order of a court of law or by reason of any enactment
or regulation in that behalf."
The cited Section 21 of the Land Transportation and Traffic Code provides that “bona fide
tourists and similar transients who are duly licensed to operate motor vehicles in their respective
countries may be allowed to operate motor vehicles during but not after ninety days of their sojourn
in the Philippines. After ninety days, any tourist or transient desiring to operate motor vehicles shall
pay fees and obtain and carry a license as hereinafter provided."
Stokes and Adolfson brought suit before the Court of First Instance of Manila and succeeded
in getting a favorable judgment. The Court held that Stokes’ lack of a Philippine driver’s license was
not fatal to the enforcement of the insurance policy; and the Malayan was estopped from denying
liability under the insurance policy because it accepted premium payment made by the insured one
day after the accident. Hence, the case at bar.
ISSUE:
(1) Whether or not Stokes was an "Authorized Driver," as such that they are entitled to their
claim on car insurance policy with Malayan; and (2) whether or not Malayan is estopped from
denying liability because it had accepted premium payment made by the insured one day after the
accident.
RULING:
(1) No. Stokes was not an "Authorized Driver," as such that they are not entitled to their
claim on car insurance policy with Malayan.
A contract of insurance is a contract of indemnity upon the terms and conditions specified
therein. When the insurer is called upon to pay in case of loss or damage, he has the right to insist
upon compliance with the terms of the contract. If the insured cannot bring himself within the terms
and conditions of the contract, he is not entitled as a rule to recover for the loss or damage suffered.
For the terms of the contract constitute the measure of the insurer’s liability, and compliance
therewith is a condition precedent to the right of recovery.
Under the "authorized driver" clause, an authorized driver must not only be permitted to drive
by the insured. It is also essential that he is permitted under the law and regulations to drive the
motor vehicle and is not disqualified from so doing under any enactment or regulation.

M.L. DEL MUNDO ROBLEDO | 102

 At the time of the accident, Stokes had been in the Philippines for more than 90 days.
Hence, under the law, he could not drive a motor vehicle without a Philippine driver’s license. He
was therefore not an "authorized driver" under the terms of the insurance policy in question, and
MALAYAN was right in denying the claim of the insured.
(2) No. Acceptance of premium within the stipulated period for payment thereof, including the
agreed period of grace, merely assures continued effectivity of the insurance policy in accordance
with its terms. Such acceptance does not estop the insurer from interposing any valid defense under
the terms of the insurance policy.
The principle of estoppel is an equitable principle rooted upon natural justice which prevents
a person from going back on his own acts and representations to the prejudice of another whom he
has led to rely upon them. The principle does not apply to the instant case. In accepting the premium
payment of the insured, Malayan was not guilty of any inequitable act or representation. There is
nothing inconsistent between acceptance of premium due under an insurance policy and the
enforcement of its terms.

70.ANDREWPALERMO, plaintiff-appellee,  vs. PYRAMID INSURANCE CO., INC., defendant-

appellant.G.R. No. L-36480 May 31, 1988
FACTS:

M.L. DEL MUNDO ROBLEDO | 103

Palermo, having purchased a brand-new car plaintiff insured the same with the defendant insurance
company against any loss or damage. However, it was mortgage to a Motor Co., to secure the
payment of the balance of the purchases price. While driving the automobile in question, the plaintiff
met a violent accident. The insurance policy, grants an option unto the defendant, in case of
accident either to indemnify the plaintiff for loss or damage to the car in cash or to replace the
damaged car. The defendant, however, refused to take either of the above-mentioned alternatives
for the reason as alleged, that the insured himself had violated the terms of the policy when he drove
the car in question with an expired driver's license.
Palermo filed a complaint before Court of First Instance against Pyramid Insurance Co., Inc., for
payment of his claim under a Private Car Comprehensive Policy issued by the defendant.
Respondent rejected the claim because at the time of the accident, the insured was driving his car
with an expired driver's license. The Court ruled in favor of petitioner.
ISSUE:
WON Palermo is entitled for payment of his claim
RULING:
YES. There is no merit in the appellant's allegation that the plaintiff was not authorized to drive the
insured motor vehicle because his driver's license had expired. The driver of the insured motor
vehicle at the time of the accident was, the insured himself, hence an "authorized driver" under the
policy.
While the Motor Vehicle Law prohibits a person from operating a motor vehicle on the highway
without a license or with an expired license, an infraction of the Motor Vehicle Law on the part of the
insured, is not a bar to recovery under the insurance contract. It however renders him subject to the
penal sanctions of the Motor Vehicle Law.
The requirement that the driver be "permitted in accordance with the licensing or other laws or
regulations to drive the Motor Vehicle and is not disqualified from driving such motor vehicle by order
of a Court of Law or by reason of any enactment or regulation in that behalf," applies only when the
driver" is driving on the insured's order or with his permission." It does not apply when the person
driving is the insured himself. There is no merit in the appellant's allegation that the plaintiff was not
authorized to drive the insured motor vehicle because his driver's license had expired. The driver of
the insured motor vehicle at the time of the accident was, the insured himself, hence an "authorized
driver" under the policy.
While the Motor Vehicle Law prohibits a person from operating a motor vehicle on the highway
without a license or with an expired license, an infraction of the Motor Vehicle Law on the part of the
insured, is not a bar to recovery under the insurance contract. It however renders him subject to the
penal sanctions of the Motor Vehicle Law.
The requirement that the driver be "permitted in accordance with the licensing or other laws or
regulations to drive the Motor Vehicle and is not disqualified from driving such motor vehicle by order
of a Court of Law or by reason of any enactment or regulation in that behalf," applies only when the
driver" is driving on the insured's order or with his permission." It does not apply when the person
driving is the insured himself.

71, AGAPITO GUTIERREZ, plaintiff-appellee, vs. CAPITAL INSURANCE & SURETY CO., INC.,
defendant-appellant.
FACTS:

M.L. DEL MUNDO ROBLEDO | 104

Capital Insurance & Surety Co., Inc. insured on December 7, 1961 for one year the jeepney of
Agapito Gutierrez against passenger and third-party liability. The passenger liability would not
exceed P5,000 for any one person. The policy provides in item 13 that the authorized driver must be
the holder of a valid and subsisting professional driver's license. "A driver with an expired Traffic
Violation Receipt or expired Temporary Operator's Permit is not considered an authorized driver".
Item 13 is part of the "declarations" which formed part of the policy and had a promissory nature and
effect and constituted "the basis of the policy". On May 29, 1962, the insured jeepney figured in an
accident at Buendia Avenue, Makati, Rizal. As a result, a passenger named Agatonico Ballega fell
off the vehicle and died. The jeepney driver, was duly licensed for the years 1962 and 1963.
However, at the time of the accident he did not have the license. Instead, he had a carbon copy of a
traffic violation report (summons) issued by a policeman on February 22, 1962, with the notation that
he had committed the violation: "Inattentive to driving — (Inv. in accident) at 9:30 a.m., 2-22-62".
The same TVR, which served as a receipt for his license, required him to report to Branch 8 of the
traffic court at the corner of Arroceros and Concepcion Streets, Manila at nine o'clock in the morning
of March 2, 1962. The TVR would "serve as a temporary operator's permit for 15 days from receipt
hereof". It is indisputable that at the time of the accident (May 29, 1962), Ventura was holding an
"expired Temporary Operator's Permit."
Gutierrez paid P4,000 to the passenger's widow, Rosalina Abanes Vda. de Ballega, by reason of her
husband's death. As Capital Insurance refused to make any reimbursement, he filed on October 14,
1963 in the city court of Manila an action for specific performance and damages.
ISSUE:
Whether or not, an insurance covers a jeepney whose driver's traffic violation report or temporary
operator's permit had already expired.
RULING:
We hold that paragraph 13 of the policy, already cited, is decisive and controlling in this case. It
plainly provides, and we repeat, that "a driver with an expired Traffic Violation Receipt or expired
Temporary Operator's permit is not considered an authorized driver within the meaning" of the
policy. Obviously, Ventura was not an authorized driver. His temporary operator's permit had
expired. The expiration bars recovery under the policy.

In liability insurance, "the parties are bound by the terms of the policy and the right of insured to
recover is governed thereby" It may be that for purposes of the Motor Vehicle Law the TVR is
coterminous with the confiscated license. That is why the Acting Administrator of the Motor Vehicles
Office and the Manila deputy chief of police ventured the opinion that a TVR does not suspend the
erring driver's license, that it serves as a temporary license and that it may be renewed but should in
no case extend beyond the expiration date of the original license.
But the instant case deals with an insurance policy which definitively fixed the meaning of
"authorized driver". That stipulation cannot be disregarded or rendered meaningless. It is binding on
the insured.

It means that to be entitled to recovery the insured should see to it that his driver is authorized as
envisaged in paragraph 13 of the policy which is the law between the parties. The rights of the
parties flow from the insurance contract.
72. RUDY LAO, Petitioner,

-vs-

M.L. DEL MUNDO ROBLEDO | 105

STANDARD INSURANCE CO., INC., Respondent.
G.R. NO.140023 August 14, 2003
Doctrines:
Requisites for the admissibility of police blotter: (1) that the entry was made by a public
officer, or by another person, specially enjoined by law to do so; (2) that it was made in the
performance of his duties, or by such other person in the performance of a duty specially enjoined by
law; and (3) that the person had sufficient knowledge of the facts stated which must have been
acquired personally of through official information {Rule 130, Sec. 44, Rules of Court].
Although police blotters are of little probative value, they are nevertheless admitted and
considered in the absence of competent evidence to refute the facts stated therein

FACTS:
Petitioner Lao is the owner of a truck which was insured with Respondent Standard
Insurance covering the maximum amount of P200,000.00 and additional P50,000.00 to cover
damages on goods.
During its period of coverage, said insured truck met an accident as it bumped against
another truck owned also by Petitioner. The insured truck sustained damage estimated at P110,692.
A police investigation was conducted and blotter report revealed that the driver of the insured truck,
Leonardi Anit, did not possess a proper driver’s license appropriate to the driving weight of the
insured truck as said license was only restricted for the operation of four-wheeled vehicles weighing
not more than 4,500 kgs. This fact caused Respondent to deny the Petitioner’s claim for recovery on
the ground that Petitioner violated the authorized driver clause in the insurance policy. Hence the
filing of a civil case for recovery plus damages with the Regional Trial Court.
Petitioner alleged that the driver of the insured truck was not Anit but another who
possessed appropriate license to drive it as corroborated by Motor Vehicle Accident Report (MVAR).
The court however found the MVAR inadmissible as it was only made 3 days after the accident, the
police blotter, on the other hand, was offered immediately to the court uncontested by any of the
witnesses.
However, the trial court dismissed the case for lack of sufficient cause of action. The Court of
Appeals affirmed the decision of the trial court on appeal, hence, this petition for review.

ISSUE:
Whether or not the Petitioner was entitled to the insurance coverage.

RULING:
The Supreme Court decided in the negative. It affirmed the decisions of both the trial and the
appellate courts for lack of merit.
The factual findings by the lower courts on the admissibility of the police blotter cannot be
belied by the MVAR which was made 3 days after the occurrence of the accident which is rather
dubious in nature. Requisites for the admissibility of the police blotter was in accordance to Rule
130, Sec. 44 of the Rules of Court and thus was admitted as to form part of the record of the case.

73. PERLA COMPANIA de SEGUROS, INC.

vs.

M.L. DEL MUNDO ROBLEDO | 106

HON. CONSTANTE A. ANCHETA, Presiding Judge of the Court of First instance of Camarines
Norte, Branch III, ERNESTO A. RAMOS and GOYENA ZENAROSA-RAMOS, for themselves
and as Guardian Ad Litem for Minors JOBET, BANJO, DAVID and GRACE all surnamed
RAMOS, FERNANDO M. ABCEDE, SR., for himself and Guardian Ad Litem for minor
FERNANDO G. ABCEDE, JR., MIGUEL JEREZ MAGO as Guardian Ad Litem for minors
ARLEEN R. MAGO, and ANACLETA J. ZENAROSA.G.R. No. L-49699August 8, 1988

FACTS:
The case originated from a complaint for damages filed by the private respondents against
Superlines bus, the driver and insurer of the bus, Perla Compania de Seguros Inc., for sustaining
physical injuries due to the collision between Superlines bus and IH Scout.
IH Scout, the vehicle in which the private respondents were riding, was insured with Malayan
Insurance Co.
The respondent judge issued an order for the petitioner, Perla Compania de Seguros to pay
immediately the Php5,000 under the “no fault clause” as provided for under Section 378 of the
Insurance Code.
Petitioner moved for the reconsideration of the order contending that the insurer liable to pay
the said amount is the insurer of the vehicle in which the private respondents were riding and not the
petitioner, referring to the same section of the Insurance Code as their legal basis.
Hence, the petition is filed seeking to annul and set aside the orders of the respondent judge.
ISSUE:
Whether or not the petitioner is the insurer liable to indemnify private respondents under Sec. 378 of
the Insurance Code
RULING:
No. The Supreme Court held that the claim shall lie against the insurer of the vehicle in
which the “occupant” is riding and no other.
Paragraph 3 of Section 378 of the Insurance Code provides that “Claim may be made
against one motor vehicle only. In the case of an occupant of a vehicle, claim shall lie against the
insurer of the vehicle in which the occupant is riding, mounting or dismounting from. In any other
case, claim shall lie against the insurer of the directly offending vehicle. In all cases, the right of the
party paying the claim to recover against the owner of the vehicle responsible for the accident shall
be maintained.”
Irrespective of whether or not fault or negligence lies with the driver of the Superlines bus, as
private respondents were not occupants of the bus, they cannot claim the “no fault indemnity”
provided in Sec. 378 from petitioner. The claim should be made against the insurer of the vehicle
they were riding which is the Malayan Insurance Co.
The claimant is not free to choose from which insurer he will claim the “no fault indemnity” as
the law, by using the word "shall”, makes it mandatory that the claim be made against the insurer of
the vehicle in which the occupant is riding, mounting or dismounting from.
Furthermore, the Supreme Court explains that the essence of “no fault indemnity” is to
provide victims of vehicular accidents or their heirs immediate compensation, although in a limited
amount, pending final determination of who is responsible for the accident and liable for the victims’
injuries or death. DISPOSITION:The petition granted and respondent judge’s orders are annulled
and set aside.

M.L. DEL MUNDO ROBLEDO | 107

74. Gibson vs. Revilla
No. L-41432 (July 30, 1979)

FACTS:
In November, 1971, a cargo of concentrates was shipped by Lepanto on the M/V Hermosa at
Poro, San Fernando, La Union destined for Tacoma, Washington. During the sea voyage, while the
vessel was in the Northern Pacific Ocean south of Japan on or about Nov. 11, 1971, it encountered
heavy weather and rough seas which caused it to roll, pitch and vibrate heavily so that certain
shifting boards in the vessel broke and part of the cargo shifted transversely, thereby causing a list.
The vessel deviated to Moji, Japan and after the shifting boards were repaired and/or replaced, it
proceeded on its trip to Tacoma, but about the end of the month, the ship once again met with strong
winds, monsoon rains, severe winter and very rough seas and it rolled, pitched and vibrated heavily
so other shifting boards broke and part of the cargo also shifted causing a heavier list. The captain of
the boat, fearing that the vessel might sink, sailed to Osaka and unloaded the cargo. Expenses were
incurred by Lepanto relative to the cargo while in Japan but eventually the cargo was transhipped to
Tacoma via another vessel. Also in November, 1971, another cargo of concentrates was shipped by
Lepanto on board the M/V General Aguinaldo at Poro, San Fernando, La Union and destined for
Tacoma, Washington. Similarly, during the sea voyage on or about November 30, 1971 in the
Northern Pacific Ocean southeast of Japan, it met with heavy weather and rough seas, causing it to
pitch, roll and vibrate heavily so that certain shifting boards in the vessel broke and part of the cargo
shifted transversely which caused the listing of the vessel. The captain, fearing also that the vessel
might sink, sailed for Miyako, Japan, unloaded the cargo and exepnses were incurred relative to the
cargo while in Japan. Thereafter, the cargo was transhipped to Tacoma on board another vessel.
Gibson, one of the underwriters filed a motion to intevene which was denied by the lower court.
Hence the petition.

ISSUE/S:
Whether or not the judge abused his discretion to not allow the motion for intervention.

RULING:
No. After carefully considering the arguments of both the petitioner and Lepanto, the facts
and circumstances obtaining in the case at bar and applying Rule 12, Sec. 2 of the Rules of Court
and the doctrines enunciated by the Supreme Court on the matter, We rule that the respondent
Judge committed no error of law in denying petitioner’s Motion to Intervene. And neither has he
abused his discretion in his denial of petitioner’s Motion for Intervention. It is quite crystal clear that
the questioned Order of the respondent Court was based strictly and squarely on Section 2(b) of
Rule 12 which specifically directs the Court in allowing or disallowing a motion for intervention in the
exercise of discretion to consider whether or not the intervention will unduly delay or prejudice the
adjudication of the rights of the original parties and whether or not the intervention will unduly delay
or prejudice the adjudication of the rights of the original parties and whether or not the intervenor’s
rights may be fully protected in a separate proceeding, The Court a quo has specifically and
correctly complied with the Rule’s mandate and We cannot fault the respondent Judge therefor.

M.L. DEL MUNDO ROBLEDO | 108

75. AVON INSURANCE PLC., ET AL. V. CA
FACTS:
Respondent Yupangco Cotton Mills engaged to secure with Worldwide Security and Insurance Co.
several of its properties which were then covered by reinsurance treaties between Worldwide
Security and several foreign reinsurance companies, including herein petitioners. These reinsurance
agreements had been made through an international broker acting for Worldwide Security. While the
policies are in effect, Yupangco’s properties were razed in fire giving rise to their indemnification.
Worldwide acknowledged a remaining balance and assigned to Yupangco all reinsurance proceeds
still collectible from all the reinsurance companies. Thus, as assignee and original insured,
Yupangco instituted a collection suit against petitioners. Petitioners averred that they are foreign
corporations not doing business in the Philippines therefore cannot be subject to the jurisdiction of its
courts. CA found for Yupangco.

ISSUE:

Whether or not petitioners are foreign corporations doing business in the Philippines.

RULING:
No. To qualify the petitioners’ business of reinsurance within the Philippine forum, resort must be
made to the established principles in determining what is meant by “doing business in the
Philippines.” The term ordinarily implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of the functions
normally incident to and in progressive prosecution of the purpose and object of its organization.

As it is, private respondent has made no allegation or demonstration of the existence of petitioners’
domestic agent, but avers simply that they are doing business not only abroad but in the Philippines
as well. It does not appear at all that the petitioners had performed any act which would give the
general public the impression that it had been engaging, or intends to engage in its ordinary and
usual business undertakings in the country. The reinsurance treaties between the petitioners and
Worldwide Surety and Insurance were made through an international insurance broker, and not
through any entity or means remotely connected with the Philippines. Moreover, there is authority to
the effect that a reinsurance company is not doing business in a certain state merely because the
property or lives which are insured by the original insurer company are located in that state. The
reason for this is that a contract of reinsurance is generally a separate and distinct arrangement from
the original contract of insurance, whose contracted risk is insured in the reinsurance agreement.
Hence, the original insured has generally no interest in the contract of reinsurance.

Indeed, if a foreign corporation does not do business here, there would be no reason for it to be
subject to the State’s regulation. As we observed, in so far as the State is concerned, such foreign
corporation has no legal existence. Therefore, to subject such corporation to the courts’ jurisdiction
would violate the essence of sovereignty.

Petition is granted.

M.L. DEL MUNDO ROBLEDO | 109

76. ISABELA ROQUE, doing busines under the name and style of Isabela Roque Timber
Enterprises and ONG CHIONG, petitioners, vs. HON. INTERMEDIATE APPELATE COURT and
PIONEER INSURANCE AND SURETY CORPORATION, respondent.
G.R. No. L-66935 November 11, 1985

FACTS:
Manila Bay Lighterage Corporation, a common carrier, entered into a contract with the petitioners
whereby the former would load and carry on board its barge Mable 10 about 422.18 cubic meters of
logs from Malampaya Sound, Palawan to North Harbor, Manila. The petitioners insured the logs
against loss for P100,000.00 with respondent Pioneer Insurance and Surety Corporation. The
petitioners loaded on the barge, but the shipment never reached its destination because Mable 10
sank with the 811 pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila. The
petitioners wrote a letter to Manila Bay demanding payment of P150,000.00 for the loss of the
shipment plus P100,000.00 as unrealized profits but the latter ignored the demand. Another letter
was sent to respondent Pioneer claiming the full amount of P100,000.00 under the insurance policy
but respondent refused to pay. Hence, petitioners commenced Civil Case No. 86599 against Manila
Bay and respondent Pioneer. The Trial Court ruled in favor of the petitioners. Respondent Pioneer
appealed; Manila Bay did not as according to the petitioners, the transportation company is no
longer doing business and is without funds. The appellate court modified the trial court's decision
and absolved Pioneer from liability after finding that there was a breach of implied warranty of
seaworthiness on the part of the petitioners and that the loss of the insured cargo was caused by the
"perils of the ship" and not by the "perils of the sea". It ruled that the loss is not covered by the
marine insurance policy.

ISSUE:
Whether or not the loss is covered by the marine insurance policy.

RULING:
The court ruled in the negative. The petitioners state that a mere shipper of cargo, having no control
over the ship, has nothing to do with its seaworthiness. This argument have no merit. The liability of
the insurance company is governed by law. Section 113 of the Insurance Code provides: In every
marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of
marine insurance, a warranty is implied that the ship is seaworthy. Section 99 of the same Code also
provides in part. Marine insurance includes: (1) Insurance against loss of or damage to: (a) Vessels,
craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ... From the above-quoted provisions,
there can be no mistaking the fact that the term "cargo" can be the subject of marine insurance and
that once it is so made, the implied warranty of seaworthiness immediately attaches to whoever is
insuring the cargo whether he be the shipowner or not. The fact that the unseaworthiness of the ship
was unknown to the insured is immaterial in ordinary marine insurance and may not be used by him
as a defense in order to recover on the marine insurance policy. Since the law provides for an
implied warranty of seaworthiness in every contract of ordinary marine insurance, it becomes the
obligation of a cargo owner to look for a reliable common carrier which keeps its vessels in
seaworthy condition. The shipper of cargo may have no control over the vessel but he has full
control in the choice of the common carrier that will transport his goods. Or the cargo owner may
enter into a contract of insurance which specifically provides that the insurer answers not only for the
perils of the sea but also provides for coverage of perils of the ship.

M.L. DEL MUNDO ROBLEDO | 110

77. Cathay Insurance Co. vs. Court of Appeals
[GR 76145, 30 June 1987]
FACTS:
A complaint was filed by Remington Industrial Sales Corporation against Cathay Insurance Co.
seeking collection of the sum of P868,339.15 representing Remington's losses and damages
incurred in a Commercial Law – Insurance Law, 2006 ( 41 ) Narratives (Berne Guerrero) shipment of
seamless steel pipes under an insurance contract in favor of Remington as the insured, consignee
or importer of aforesaid merchandise while in transit from Japan to the Philippines on board vessel
SS "Eastern Mariner." The total value of the shipment was P2,894,463.83 at the prevailing rate of
P7.95 to a dollar in June and July 1984, when the shipment was made. The trial court decided in
favor of Remington by ordering Cathay Insurance to pay it the sum of P866,339.15 as its
recoverable insured loss equivalent to 30% of the value of the seamless steel pipes; ordering Cathay
Insurance to pay Remington interest on the aforecited amount at the rate of 34% or double the
ceiling prescribed by the Monetary Board per annum from 3 February 1982 or 90 days from
Remington's submission of proof of loss to Cathay Insurance until paid as provided in the settlement
of claim provision of the policy; and ordering Cathay Insurance to pay Remington certain amounts
for marine surveyor's fee, attorney's fees and costs of the suit. On appeal, the Court of Appeals
affirmed the decision of the Regional Trial Court National Capital Region (NCR) Manila, Branch 38.
Cathay Insurance moved for reconsideration, but was denied. It thus filed the petition for review.
Remington, in its comment on the petition, contends that (1) Coverage of Remington's loss under the
insurance policy issued by Cathay Insurance is unmistakable; (2) Alleged contractual limitations
contained in insurance policies are regarded with extreme caution by courts and are to be strictly
construed against the insurer; obscure phrases and exceptions should not be allowed to defeat the
very purpose for which the policy was procured; (3) Rust is not an inherent vice of the seamless
steel pipes without interference of external factors; (4) No matter how Cathay Insurance might want
it otherwise, the 15-day clause of the policy had been foreclosed in the pre-trial order and it was not
even raised in Cathay Insurance's answer to Remington's complaint; (5) The decision was correct in
not holding that the heavy rusting of the seamless steel pipes did not occur during the voyage of 7
days from July 1 to July 7, 1981; (6) The alleged lack of supposed bad order survey from the
arrastre capitalized on by Cathay Insurance was more than clarified by no less than 2 witnesses; (7)
The placing of notation "rusty" in the way bills is not only Remington's right but a natural and
spontaneous reaction of whoever received the seamless steel pipes in a rusty condition at
Remington's bodega; (8) The Court of Appeals did not engage in any guesswork or speculation in
concluding a loss allowance of 30% in the amount of P868,339.15; and (9) The rate of 34% per
annum double the ceiling prescribed by the Monetary Board is the rate of interest fixed by the
Insurance Policy itself and the Insurance Code. Cathay Insurance however maintains that (1)
Remington does not dispute the fact that, contrary to the finding of the respondent Court (that
Cathay Insurance has failed "to present any evidence of any viable exception to the application of
the policy") there is in fact an express exception to the application of the policy; (2) As adverted to in
the Petition for Review, Remington has admitted that the questioned shipment is not covered by a
"square provision of the contract," but Remington claims implied coverage from the phrase "perils of
the sea" mentioned in the opening sentence of the policy; (3) The insistence of Remington that
rusting is a peril of the sea is erroneous; (4) Remington inaccurately invokes the rule of strict
construction against insurer under the guise of construction in order to impart a non-existing
ambiguity or doubt into the policy so as to resolve it against the insurer; (5) Remington while
impliedly admitting that a loss occasioned by an inherent defect or vice in the insured article is not
within the terms of the policy, erroneously insists that rusting is not an inherent vice or in the nature
of steel pipes; (6) Rusting is not a risk insured against, since a risk to be insured against should be a
casualty or some casualty, something which could not be foreseen as one of the necessary incidents
of adventure; (7) A fact capable of unquestionable demonstration or of public knowledge needs no
evidence. This fact of unquestionable demonstration or of public knowledge is that heavy rusting of

M.L. DEL MUNDO ROBLEDO | 111

steel or iron pipes cannot occur within a period of a 7 day voyage. Besides, Cathay Insurance had
introduced the clear cargo receipts or tally sheets indicating that there was no damage on the steel
pipes during the voyage; and (8) The evidence of Remington betrays the fact that the account of
P868,339.15 awarded by the respondent Court is founded on speculation, surmises or conjectures
and the amount of less has not been proven by competent, satisfactory and clear evidence.

ISSUE:
Whether the rusting of steel pipes in the course of a voyage is a "peril of the sea," and whether
rusting is a risk insured against.

RULING:
YES. There is no question that the rusting of steel pipes in the course of a voyage is a "peril of the
sea" in view of the toll on the cargo of wind, water, and salt conditions. At any rate if the insurer
cannot be held accountable therefor, the Court would fail to observe a cardinal rule in the
interpretation of contracts, namely, that any ambiguity therein should be construed against the
maker/issuer/drafter thereof, namely, the insurer. Besides the precise purpose of insuring cargo
during a voyage would be rendered fruitless.

M.L. DEL MUNDO ROBLEDO | 112

78.FILIPINO MERCHANTS INSURANCE CO., INC.
V. COURT OF APPEALS
G.R. NO. 85141
NOVEMBER 28, 1989

FACTS:
This is an action brought by the consignee of the shipment of fishmeal loaded on
board the vessel SS Bougainville and unloaded at the Port of Manila on or about December
11, 1976 and seeks to recover from the defendant insurance company the amount of
P51,568.62 representing damages to said shipment which has been insured by the
defendant insurance company. The defendant brought a third party complaint against third
party defendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking
judgment against the third defendants in case judgment is rendered against the third party
plaintiff.
It appears from the evidence presented that plaintiff insured said shipment with
defendant insurance company under said cargo Policy No. M-2678 for the sum of
P267,653.59 for the goods described as 600 metric tons of fishmeal in new gunny bags of 90
kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse
terms. The condition of the bad order was reflected in the turn over survey report of Bad
Order cargoes Nos. 120320 to 120322. The cargo was also surveyed by the arrastre
contractor before delivery of the cargo to the consignee and the condition of the cargo on
such delivery was reflected in E. Razon’s Bad Order Certificate No. 14859, 14863 and 14869
covering a total of 227 bags in bad order condition.
A formal claim statement was also presented by the plaintiff against the vessel dated
December 21, 1976, but the defendant Filipino Merchants Insurance Company refused to
pay the claim. Consequently, the plaintiff brought an action against said defendant as
adverted to above and defendant presented a third party complaint against the vessel and
the arrastre contractor.
The court below, after trial on the merits, rendered judgment in favor of private
respondent. On appeal, the respondent court affirmed the decision of the lower court insofar
as the award on the complaint is concerned and modified the same with regard to the
adjudication of the third-party complaint. A motion for reconsideration of the aforesaid
decision was denied.
Hence, this petition.

ISSUE:
Whether or not, Court of Appeals was correct in its interpretation of the “all risk” clause in the
maritime insurance contract.

Whether or not, the insured had insurable interest over the property insured.

RULING:
1. No. The very nature of the term “all risks” must be given a broad and comprehensive
meaning as covering any loss other than a wilful and fraudulent act of the insured. This is

M.L. DEL MUNDO ROBLEDO | 113

 pursuant to the very purpose of an “all risks” insurance to give protection to the insured in
those cases where difficulties of logical explanation or some mystery surround the loss or
damage to property. An “all risks” policy has been evolved to grant greater protection than
that afforded by the “perils clause,” in order to assure that no loss can happen through the
incidence of a cause neither insured against nor creating liability in the ship; it is written
against all losses, that is, attributable to external causes.
Generally, the burden of proof is upon the insured to show that a loss arose from a covered
peril, but under an “all risks”, policy the burden is not on the insured to prove the precise
cause of loss or damage for which it seeks compensation. The insured under an “all risks
insurance policy” has the initial burden of proving that the cargo was in good condition when
the policy attached and that the cargo was damaged when unloaded from the vessel;
thereafter, the burden then shifts to the insurer to show the exception to the coverage. As we
held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd. the basic rule is that the
insurance company has the burden of proving that the loss is caused by the risks excepted
and for want of such proof, the company is liable.
2. Yes. Herein private respondent, as vendee/consignee of the goods in transit has such
existing interest therein as may be the subject of a valid contract of insurance. His interest
over the goods is based on the perfected contract of sale. The perfected contract of sale
between him and the shipper of the goods operates to vest in him an equitable title even
before delivery or before he performed the conditions of the sale. The contract of shipment,
whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of
whether the vendee has an insurable interest or not in the goods in transit. The perfected
contract of sale even without delivery vests in the vendee an equitable title, an existing
interest over the goods sufficient to be the subject of insurance.
Moreover, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the
seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier,
whether named by the buyer or not, for, the purpose of transmission to the buyer is deemed to be a
delivery of the goods to the buyer, the exceptions to said rule not obtaining in the present case. The
Court has heretofore ruled that the delivery of the goods on board the carrying vessels partake of the
nature of actual delivery since, from that time, the foreign buyers assumed the risks of loss of the
goods and paid the insurance premium covering them.
The instant petition is DENIED and the assailed decision of the respondent Court of Appeals is
AFFIRMED in toto.

M.L. DEL MUNDO ROBLEDO | 114

79. CHOA TIEK SENG, doing business under the name and style of SENG'S COMMERCIAL
ENTERPRISES, vs. HON. COURT OF APPEALS, FILIPINO MERCHANTS' INSURANCE
COMPANY, INC., BEN LINES CONTAINER, LTD. AND E. RAZON, INC., G.R. No. 84507 March
15, 1990
Nature: This is an appeal from a decision of the Court of Appeals which affirmed the decision of the
Regional Trial Court (RTC) of Manila which in turn dismissed the complaint.
FACTS:
Petitioner imported some lactose crystals from Holland. The importation involved fifteen (15) metric
tons packed in 600 6-ply paper bags with polythelene inner bags, each bag at 25 kilos net. The
goods were loaded at the port at Rotterdam in sea vans on board the vessel "MS Benalder' as the
mother vessel, and thereafter aboard the feeder vessel "Wesser Broker V-25" of respondent Ben
Lines Container, Ltd. The goods were insured by the respondent Filipino Merchants' Insurance Co.,
Inc. Upon arrival at the port of Manila, the cargo was discharged into the custody of the arrastre
operator respondent E. Razon, Inc. prior to the delivery to petitioner through his broker. Of the 600
bags delivered to petitioner, 403 were in bad order.
Petitioner filed a claim for said loss against respondent insurance company. Respondent insurance
company rejected the claim alleging that assuming that spillage took place while the goods were in
transit, petitioner and his agent failed to avert or minimize the loss by failing to recover spillage from
the sea van, thus violating the terms of the insurance policy sued upon; and that assuming that the
spillage did not occur while the cargo was in transit, the said 400 bags were loaded in bad order, and
that in any case, the van did not carry any evidence of spillage.
Hence, petitioner filed the complaint in the Regional Trial Court of Manila against respondent
insurance company, in its answer, respondent insurance company denied all the material allegations
of the complaint and raised several special defenses as well as a compulsory counterclaim and they
filed a third-party complaint against respondents Ben Lines and broker. Respondent Ben Lines filed
a motion for preliminary hearing on the affirmative defense of prescription. The trial court deferred
resolution of the aforesaid motion after trial on the ground that the defense of prescription did not
appear to be indubitable. the court a quo rendered a judgment dismissing the complaint, the
counterclaim and the third-party complaint with costs against the petitioner.
Upon appeal, Court of Appeals affirmed the judgment of the trial court. A motion for reconsideration
of said judgment was denied by the appellate court. Hence, this petition.
ISSUE:
Whether or not respondent court erred in holding that”all risks" coverage covers only losses
occasioned by or resulting from "extra and fortuitous events" despite the clear and unequivocal
definition of the term made and contained in the policy sued upon.
RULING:
In the present case, the "all risks" clause of the policy sued upon reads as follows:
This insurance is against all risks of loss or damage to the subject matter insured but shall in no
case be deemed to extend to cover loss, damage, or expense proximately caused by delay or
inherent vice or nature of the subject matter insured. Claims recoverable hereunder shall be payable
irrespective of percentage. 13
The terms of the policy are so clear and require no interpretation. The insurance policy covers all
loss or damage to the cargo except those caused by delay or inherent vice or nature of the cargo
insured. It is the duty of the respondent insurance company to establish that said loss or damage
falls within the exceptions provided for by law, otherwise it is liable therefor.
An "all risks" provision of a marine policy creates a special type of insurance which extends
coverage to risks not usually contemplated and avoids putting upon the insured the burden of

M.L. DEL MUNDO ROBLEDO | 115

establishing that the loss was due to peril falling within the policy's coverage. The insurer can avoid
coverage upon demonstrating that a specific provision expressly excludes the loss from coverage.
14
In this case, the damage caused to the cargo has not been attributed to any of the exceptions
provided for nor is there any pretension to this effect. Thus, the liability of respondent insurance
company is clear.
Dispositive: WHEREFORE, the decision appealed from is hereby REVERSED AND SET ASIDE

M.L. DEL MUNDO ROBLEDO | 116

80. KEPPEL CEBU SHIPYARD, INC. vs. PIONEER INSURANCE AND SURETY CORPORATION
G.R. Nos. 180880-81 September 25, 2009

PIONEER INSURANCE AND SURETY CORPORATION vs KEPPEL CEBU SHIPYARD, INC.

G.R. Nos. 180896-97

FACTS:

On January 26, 2000, Keppel Cebu Shipyard, Inc. (KCSI) and WG&A Jebsens
Shipmanagement, Inc. (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 Shiprepair Agreement,
"Superferry 3" was already insured by WG&A with Pioneer Insurance and Surety Corporation
(Pioneer). On February 8, 2000, 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. On June 16, 2000,
Pioneer paid the insurance claim of WG&A. WG&A, in turn, executed a Loss and Subrogation
Receipt. The receipt states that WG&A assigns and transfers to Pioneer each and all claims and
demands against any person, persons, corporation or property arising from or connected with such
loss or damage. Armed with the subrogation receipt, Pioneer tried to collect from KCSI, but the latter
denied any responsibility for the loss of the subject vessel. As KCSI continuously refused to pay
despite repeated demands, Pioneer filed a Request for Arbitration before the Construction Industry
Arbitration Commission (CIAC). An amicable settlement was reached between KCSI and WG&A,
with the latter filing a Notice of Withdrawal of Claim. The CIAC granted the withdrawal, and
dismissed the claim of WG&A against KCSI. Pioneer remained as the only claimant. As to Pioneer's
claim, CIAC ruled that both WG&A and KCSI are guilty of negligence and ordered KCSI to pay
Pioneer P25,000,000 with interest at 6% per annum from the time of the filing of the case up to the
of promulgation of decision, and 12% per annum from date of its finality. Upon appeal by both
parties, the Court of Appeals initially dismissed Pioneer's petition and granted KCSI's petition. In its
amended decision, however, the CA partially granted Pioneer's claim and ordered KCSI to pay P
25,000,000 without legal interest within 15 days from its finality. Hence, this consolidated petitions by
both parties.

ISSUE:

Whether or not the negligence over the fire that broke out on board the “Superferry 3” can be
imputed to KCSI.

RULING:

The Supreme Court held that the immediate cause of the fire was the hot work done by
Angelino Sevillejo (Sevillejo) on the accommodation area of the vessel, specifically on Deck A. As
established before the CIAC, Sevillejo was KCSI’s employee who, at the time the fire broke out, was
doing his assigned task, and that KCSI was solely responsible for all the hot works done on board
the vessel. Sevillejo was subject to KCSI’s direct control and supervision. There was a lapse in

M.L. DEL MUNDO ROBLEDO | 117

KCSI’s supervision of Sevillejo’s work at the time the fire broke out. KCSI failed to exercise the
necessary degree of caution and foresight called for by the circumstances. The circumstances,
taken collectively, yield the inevitable conclusion that Sevillejo was negligent in the performance of
his assigned task. His negligence was the proximate cause of the fire on board M/V “Superferry 3.”
As he was then definitely engaged in the performance of his assigned tasks as an employee of
KCSI, his negligence gave rise to the vicarious liability of his employer under Article 2180 of the Civil
Code. KCSI failed to prove that it exercised the necessary diligence incumbent upon it to rebut the
legal presumption of its negligence in supervising Sevillejo. Consequently, it is responsible for the
damages caused by the negligent act of its employee, and its liability is primary and solidary.

In marine insurance, a constructive total loss occurs under any of the conditions set forth in
Section 139 of the Insurance Code, which provides:

“Section 139. A person insured by a contract of marine insurance may abandon the thing
insured, or any particular portion hereof separately valued by the policy, or otherwise
separately insured, and recover for a total loss thereof, when the cause of the loss is a peril
insured against:

(a) If more than three-fourths thereof in value is actually lost, or would have to be expended
to recover it from the peril;

(b) If it is injured to such an extent as to reduce its value more than three-fourths; x x x.”

It cannot be denied that M/V “Superferry 3” suffered widespread damage from the fire that
occurred on February 8, 2000, a covered peril under the marine insurance policies obtained by
WG&A from Pioneer. The estimates given by the three disinterested and qualified shipyards show
that the damage to the ship would exceed P270,000,000.00, or ¾ of the total value of the policies –
P360,000,000.00. These estimates constituted credible and acceptable proof of the extent of the
damage sustained by the vessel. Considering the extent of the damage, WG&A opted to abandon
the ship and claimed the value of its policies. Pioneer, finding the claim compensable, paid the claim,
with WG&A issuing a Loss and Subrogation Receipt evidencing receipt of the payment of the
insurance proceeds from Pioneer. The Loss and Subrogation Receipt issued by WG&A to Pioneer is
the best evidence of payment of the insurance proceeds to the former, and no controverting
evidence was presented by KCSI to rebut the presumed authority of the signatory to receive such
payment.

M.L. DEL MUNDO ROBLEDO | 118

81. Mayer Steel Pipe vs. CA
FACTS:

 1983: Hongkong Government Supplies Department (Hongkong) contracted Mayer Steel Pipe

Corporation (Mayer) to manufacture and supply various steel pipes and fittings
 August to October, 1983: Mayer shipped the pipes and fittings to Hongkong as evidenced by
Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-
1022
 Prior to the shipping, Mayer insured the pipes and fittings against all risks with South Sea
Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter)
 South Sea:Invoice Nos. MSPC-1014, 1015 and 1025 for US$212,772.09
 Charter: Invoice Nos. 1020, 1017 and 1022 for US$149,470.00
 Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-party
inspector to examine whether the pipes and fittings are manufactured in accordance with the
specifications in the contract
 Industrial Inspection certified all the pipes and fittings to be in good order condition
before they were loaded in the vessel
 When the goods reached Hongkong, it was discovered that a substantial portion
thereof was damaged
 Mayer and Hongkong a claim against private respondents for indemnity under the insurance
contract
 Charter paid petitioner Hongkong the amount of HK$64,904.75
 demanded payment of the balance of HK$299,345.30 which was refused
 April 17, 1986: filed an action to recover HK$299,345.30
 Defense: insurance surveyor's report allegedly showed that the damage is a factory
defect
 Trial Court: in favor of Mayer and Hongkong
 CA: reversed 
 affirmed the finding of the trial court that the damage is not due to factory defect and
that it was covered by the "all risks" insurance policies 
 BUT held that Section 3(6) of the Carriage of Goods by Sea Act provides that "the
carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after delivery of the goods or the date when the
goods should have been delivered
 applies not only to the carrier but also to the insurer
ISSUE: W/N Section 3(6) of the Carriage of Goods by Sea also applies to insurer

RULING:
NO.  Petition is granted. CA reversed. RTC reinstated
 Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be
discharged from all liability for loss or damage to the goods if no suit is filed within one year
after delivery of the goods or the date when they should have been delivered.   Under this
provision, only the carrier's liability is extinguished if no suit is brought within one year.  But
the liability of the insurer is not extinguished because the insurer's liability is based not on the
contract of carriage but on the contract of insurance - governed by the Insurance Code
 An insurance contract is a contract whereby one party, for a consideration known as the
premium, agrees to indemnify another for loss or damage which he may suffer from a
specified peril
 "all risks" insurance policy covers all kinds of loss other than those due to willful and
fraudulent act of the insured
 prescribes in ten years, in accordance with Article 1144 of the New Civil Code

M.L. DEL MUNDO ROBLEDO | 119

82. PERLA COMPANIA DE SEGUROS V. CA
G.R. No. 78860
May 28, 1990

FACTS:
Private respondent Milagros Cayas was the registered owner of a Mazda bus with serial No.
TA3H4 P-000445 and plate No.PUB-4G-593.  Said passenger vehicle was insured with Perla
Compania de Seguros, Inc. (PCSI) under policy No. LTO/60CC04241 issued on February 3, 1978. 
On December 17, 1978, the bus figured in an accident in Naic, Cavite injuring several of its
passengers. One of them, 19-year old Edgardo Perea, sued Milagros Cayas for damages in the
Court of First Instance of Cavite, Branch docketed as Civil Case No. NC-794; while three others,
namely: Rosario del Carmen, Ricardo Magsarili and Charlie Antolin, agreed to a settlement of
P4,000.00 each with Milagros Cayas. At the pre-trial of Civil Case No. NC-794, Milagros Cayas
failed to appear and hence, she was declared as in default. After trial, the court rendered a
decision  in favor of Perea. When the decision in Civil Case No. NC-794 was about to be executed
against her, Milagros Cayas filed a complaint against PCSI in the Office of the Insurance
Commissioner praying that PCSI be ordered to pay P40,000.00 for all the claims against her arising
from the vehicular accident plus legal and other expenses. Realizing her procedural mistake, she
later withdrew said complaint. Consequently, on November 11, 1981, Milagros Cayas filed a
complaint for a sum of money and damages against PCSI in the Court of First Instance of Cavite
(Civil Case No. N-4161). She alleged therein that to satisfy the judgment in Civil Case No. NC-794,
her house and lot were levied upon and sold at public auction for P38,200; that to avoid numerous
suits and the "detention" of the insured vehicle, she paid P4,000 to each of the following injured
passengers: Rosario del Carmen, Ricardo Magsarili and Charlie Antolin; that she could not have
suffered said financial setback had the counsel for PCSI, who also represented her, appeared at the
trial of Civil Case No. NC-794 and attended to the claims of the three other victims; that she sought
reimbursement of said amounts from the defendant, which notwithstanding the fact that her claim
was within its contractual liability under the insurance policy, refused to make such re-imbursement;
that she suffered moral damages as a consequence of such refusal, and that she was constrained to
secure the services of counsel to protect her rights. She prayed that judgment be rendered directing
PCSI to pay her P50,000 for compensation of the injured victims, such sum as the court might
approximate as damages, and P6,000 as attorney's fees. In view of Milagros Cayas' failure to
prosecute the case, the court motu propio ordered its dismissal without prejudice. 11 Alleging that she
had not received a copy of the answer to the complaint, and that "out of sportsmanship", she did not
file a motion to hold PCSI in default, Milagros Cayas moved for the reconsideration of the dismissal
order. Said motion for reconsideration was acted upon favorably by the court in its order of March
31, 1982. About two months later, Milagros Cayas filed a motion to declare PCSI in default for its
failure to file an answer. The motion was granted and plaintiff was allowed to adduce evidence  ex-
parte. On July 13, 1982, the court rendered judgment by default ordering PCSI to pay Milagros
Cayas P50,000 as compensation for the injured passengers, P5,000 as moral damages and P5,000
as attorney's fees. Said decision was set aside after the PCSI filed a motion therefor. Trial of the
case ensued. The court, however, held that inasmuch as Milagros Cayas failed to establish that she
underwant moral suffering and mental anguish to justify her prayer for damages, there should be no
such award. But, there being proof that she was compelled to engage the services of counsel to
protect her rights under the insurance policy, the court allowed attorney's fees in the amount of
P5,000.
PCSI appealed to the Court of Appeals, which, in its decision of May 8, 1987 affirmed in toto the
lower court's decision. Its motion for reconsideration having been denied by said appellate court,
PCSI filed the instant petition charging the Court of Appeals with having erred in affirming  in toto the
decision of the lower court.

M.L. DEL MUNDO ROBLEDO | 120

ISSUE:
WON petitioner was correct in limiting its liability only to the payment made by private respondent to
Perea and only up to the amount of P12,000.00. 

RULING:
YES. SC held that the insurance policy involved explicitly limits petitioner's liability to P12,000.00 per
person and to P50,000.00 per accident. As the SC ruled in the in Stokes vs. Malayan Insurance Co.,
Inc., that the terms of the contract 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.

M.L. DEL MUNDO ROBLEDO | 121

83. MALAYAN INSURANCE V CA

FACTS:
At around 5 oclock in the morning of December 17, 1995, an accident occurred at the corner of
EDSA and Ayala Avenue, Makati City, involving four (4) vehicles, to wit: (1) a Nissan Bus operated
by Aladdin Transit with plate number NYS 381; (2) an Isuzu Tanker with plate number PLR 684; (3)
a Fuzo Cargo Truck with plate number PDL 297; and (4) a Mitsubishi Galant with plate number TLM
732.[4]
Based on the Police Report issued by the on-the-spot investigator, Senior Police Officer 1 Alfredo M.
Dungga (SPO1 Dungga), the Isuzu Tanker was in front of the Mitsubishi Galant with the Nissan Bus
on their right side shortly before the vehicular incident. All three (3) vehicles were at a halt along
EDSA facing the south direction when the Fuzo Cargo Truck simultaneously bumped the rear
portion of the Mitsubishi Galant and the rear left portion of the Nissan Bus. Due to the strong impact,
these two vehicles were shoved forward and the front left portion of the Mitsubishi Galant rammed
into the rear right portion of the Isuzu Tanker.[5]
 Previously, particularly on December 15, 1994, Malayan Insurance issued Car Insurance Policy No.
PV-025-00220 in favor of First Malayan Leasing and Finance Corporation (the assured), insuring the
aforementioned Mitsubishi Galant against third party liability, own damage and theft, among
others. Having insured the vehicle against such risks, Malayan Insurance claimed in its Complaint
dated October 18, 1999 that it paid the damages sustained by the assured amounting to PhP
700,000.[6] 
Maintaining that it has been subrogated to the rights and interests of the assured by operation of law
upon its payment to the latter.
The trial court, in Civil Case No. 99-95885, ruled in favor of Malayan Insurance and declared
respondents liable for damages.

ISSUE:
WHETHER THE SUBROGATION OF MALAYAN INSURANCE IS IMPAIRED AND/OR DEFICIENT.

RULING:
 Malayan Insurance contends that there was a valid subrogation in the instant case, as evidenced by
the claim check voucher[30] and the Release of Claim and Subrogation Receipt [31] presented by it
before the trial court. Respondents, however, claim that the documents presented by Malayan
Insurance do not indicate certain important details that would show proper subrogation.
 As noted by Malayan Insurance, respondents had all the opportunity, but failed to object to the
presentation of its evidence. Thus, and as We have mentioned earlier, respondents are deemed to
have waived their right to make an objection. As this Court held in Asian Construction and
Development Corporation v. COMFAC Corporation:
 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 PhP 700,000 to the assured, then there is a valid
subrogation in the case at bar. As explained in Keppel Cebu Shipyard, Inc. v. Pioneer Insurance and
Surety Corporation:
 Subrogation is the substitution of one person by another with reference to a lawful claim or right, so
that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including

M.L. DEL MUNDO ROBLEDO | 122

its remedies or securities. The principle covers a situation wherein an insurer has paid a loss under
an insurance policy is entitled to all the rights and remedies belonging to the insured against a third
party with respect to any loss covered by the policy. It contemplates full substitution such that it
places the party subrogated in the shoes of the creditor, and he may use all means that the creditor
could employ to enforce payment.
 We have held that payment by the insurer to the insured 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.[33]
 WHEREFORE, the petition is hereby GRANTED. The CAs July 28, 2010 Decision and October 29,
2010 Resolution in CA-G.R. CV No. 93112 are hereby REVERSED and SET ASIDE. The Decision
dated February 2, 2009 issued by the trial court in Civil Case No. 99-95885 is hereby REINSTATED.
 No pronouncement as to cost.

M.L. DEL MUNDO ROBLEDO | 123

84. FGU insurance Company vs. Court of Appeals
FACTS:
Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was engaged in the
shipping business operating two common carriers. M/T ANCO tugboat and D/B Lucio barge with no
engine of its own, it could not maneuver by itself and had to be towed by a tugboat for it to move
from one place to another.

On September 23 1979 San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board
the D/B Lucio, for towage by M/T ANCO 25,000 cases Pale Pilsen and 350 cases Cerveza
Negra and Consignee SMC’s Beer Marketing Division (BMD Estancia, Iloilo 15,000 cases Pale
Pilsen and 200 cases Cerveza Negra.

OnSeptember 30, 1979 D/B Lucio was towed by the M/T ANCO arrived and M/T ANCO left the
barge immediately.The clouds were dark and the waves were big so SMC’s District Sales
Supervisor, Fernando Macabuag, requested ANCO’s representative to transfer the barge to a safer
place but it refused so around the midnight, the barge sunk along with 29,210 cases of Pale Pilsen
and 500 cases of Cerveza Negra totalling to P1,346,197

HELD:
The Supreme Court ruled the one of the purposes of taking out insurance is to protect the insured
against consequences of his own negligence and that his agents. Thus, 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.

M.L. DEL MUNDO ROBLEDO | 124

85. United Merchants Corporation vs. Country Bankers Insurance Corporation
G.R. No. 198588 (July 11, 2012)
FACTS:
 Petitioner United Merchants Corporation (UMC) is engaged in the business of buying,
selling, and manufacturing Christmas lights. UMC leased a warehouse at 19-B Dagot Street, San
Jose Subdivision, Barrio Manresa, Quezon City, where UMC assembled and stored its products.
 UMC’s General Manager Alfredo Tan insured UMC’s stocks in trade of Christmas lights
against fire with defendant Country Bankers Insurance Corporation (CBIC) for ₱15,000,000.00.
 On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM
Adjustment Corporation (CRM) to investigate and evaluate UMC’s loss by reason of the fire. CBIC’s
reinsurer, Central Surety, likewise requested the National Bureau of Investigation (NBI) to conduct a
parallel investigation. On 6 July 1996, UMC, through CRM, submitted to CBIC its Sworn Statement
of Formal Claim, with proofs of its loss.
 On 20 November 1996, UMC demanded for at least fifty percent (50%) payment of its claim
from CBIC. On 25 February 1997, UMC received CBIC’s letter, dated 10 January 1997, rejecting
UMC’s claim due to breach of Condition No. 15 of the Insurance Policy. Condition No. 15 states:
 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.
 RTC of Manila render a decision in favor of UMC. It ruled for UMC’s entitlement to the
insurance proceeds.
 CA promulgated its decision in favor of CBIC. It ruled that UMC’s claim under the Insurance
policy is void.
ISSUE:
Whether or not UMC is entitled to claim from CBIC the full coverage of its insurance policy?
RULING:
In the present case, CBIC failed to discharge its primordial burden of establishing that the
damage or loss was caused by arson, a limitation in the policy. Moreover, CBIC’s evidence did not
prove that the fire was intentionally caused by the insured.
In the present case, arson and fraud are two separate grounds based on two different sets of
evidence, either of which can void the insurance claim of UMC. The absence of one does not
necessarily result in the absence of the
other. Thus, on the allegation of fraud, we affirm the findings of the Court of Appeals.
Condition No. 15 of the Insurance Policy provides that all the benefits under the policy shall be
forfeited, if the claim be in any respect fraudulent, or if any false declaration be made or used in
support thereof, to wit: 15. 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.
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.

M.L. DEL MUNDO ROBLEDO | 125

86. FINMAN GENERAL ASSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS and USIPHIL INCORPORATED, respondents.
FACTS:
On September 15, 1981, private respondent obtained a fire insurance policy from covering
certain properties and other trade equipment. Sometime in 1982, private respondent filed with
petitioner an insurance claim amounting to P987,126.11 for the loss of the insured properties due to
fire.
Acting thereon, petitioner have undertaken the valuation and adjustment of the loss. H.H.
Bayne then required private respondent to file a formal claim and submit proof of loss. In compliance
therewith, private respondent submitted its Sworn Statement of Loss and Formal Claim, dated July
22, 1982. Respondent likewise submitted Proof of Loss signed by its Accounting Manager.
Palallos personally followed-up private respondent’s claim. During their meeting, Ortega
instructed their Finance Manager to reconcile the records. Thereafter, both parties signed a
Statement/Agreement which indicated that the amount due respondent was P842,683.40.
Despite repeated demands by private respondent, petitioner refused to pay the insurance
claim. Thus, private respondent was constrained to file a complaint against petitioner for the unpaid
insurance claim. In its Answer, petitioner maintained that the claim of private respondent could not
be allowed because it failed to comply with Policy Condition No. 13 regarding the submission of
certain documents to prove the loss.
Trial court rendered judgment in favor of private respondent. On appeal, the CA substantially
affirmed the decision of the trial court. Hence, the case at bar.
ISSUE:
Whether or not the private respondent substantially complied with Policy Condition No. 13.
RULING:
Yes. The private respondent had substantially complied with Policy Condition No. 13, which
reads:
“13. The insured shall give immediate written notice to the Company of any loss, protect the
property from further damage, forthwith separate the damaged and undamaged personal property,
put it in the best possible order, furnish a complete inventory of the destroyed, damaged, and
undamaged property, showing in detail quantities, costs, actual cash value and the amount of loss
claimed; AND WITHIN SIXTY DAYS AFTER THE LOSS, UNLESS SUCH TIME IS EXTENDED IN
WRITING BY THE COMPANY, THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF
LOSS, signed and sworn to by the insured, stating the knowledge and belief of the insured as to the
following: the time and origin of the loss, the interest of the insured and of all others in the property,
the actual cash value of each item thereof and the amount of loss thereto, all encumbrances
thereon, all other contracts of insurance, whether valid or not, covering any of said property, any
changes in the title, use, occupation, location, possession or exposures of said property since the
issuing of this policy by whom and for what purpose any buildings herein described and the several
parts thereof were occupied at the time of loss and whether or not it then stood on leased ground,
and shall furnish a copy of all the descriptions and schedules in all policies, and if required verified
plans and specifications of any building, fixtures, or machinery destroyed or damaged. The insured,
as often as may be reasonably required, shall exhibit to any person designated by the company all
that remains of any property herein described, and submit to examination under oath by any person
named by the Company, and subscribe the same; and, as often as may be reasonably required,
shall produce for examination all books of account, bills, invoices, and other vouchers or certified
copies thereof if originals be lost, at such reasonable time and place as may be designated by the

M.L. DEL MUNDO ROBLEDO | 126

Company or its representative and shall permit extracts and copies thereof to be made. No claim
under this policy shall be payable unless the terms of this condition have been complied with.”
A perusal of the records shows that private respondent, after the occurrence of the fire,
immediately notified petitioner thereof. Thereafter, private respondent submitted the following
documents: (1) Sworn Statement of Loss and Formal Claim (Exhibit C) and; (2) Proof of Loss
(Exhibit D). The submission of these documents, to the Court’s mind, constitutes substantial
compliance with the above provision. Indeed, as regards the submission of documents to prove loss,
substantial, not strict as urged by petitioner, compliance with the requirements will always be
deemed sufficient.
In any case, petitioner itself acknowledged its liability when through its Finance Manager,
Rosauro Maghirang, it signed the document indicating that the amount due private respondent is
P842,683.40. Even assuming that plaintiff-appellee indeed failed to submit certain required
documents as proof of loss per Section 13, such violation was waived by the insurer when it signed
a breakdown of the amount due to plaintiff-appellee as of February 1985 on the insurance claim. By
such act, defendant-appellant acknowledged its liability under the insurance policy.
However, Defendant-appellant alleges that Maghirang was without authority to sign the
document, and therefore without authority to bind defendant-appellant corporation. The court did not
agree as the evidence indicate that at a meeting between plaintiff-appellee’s corporate president and
his counterpart in defendant-appellant corporation, summoned Rosauro Maghirang to reconcile the
claims of plaintiff-appellee. One who clothes another with apparent authority as his agent and
holds him to the public as such, cannot later be allowed to deny the authority of such person
to act as his agent when such third person entered into the contract in good faith and in an
honest belief that he is such agent.
Anent the payment of 24% interest per annum computed from May 3, 1985 until fully paid,
suffice it to say that the same is authorized by Sections 243 and 244 of the Insurance Code.

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86.b. TAN IT, plaintiff-appellant,
vs.
SUN INSURANCE OFFICE, defendant-appellant.
G.R. No. L-27847 December 12, 19
FACTS:
On November 25, 1924, the Sun Insurance Office issued to the Chinese merchant, Tan It, a
policy of fire insurance covering certain goods and merchandise then deposited in the bodega
situated at Nos. 326-240 Calle Nueva, Binondo, Manila. The policy was good for one year. It
stipulated that in case of fire the insurer was to pay the insured three-fourths of the value of the
goods, but in no case exceeding P30,000. The policy contained other clauses, particularly one
relating to fraudulent claims.
On November 1, 1925, a fire of unknown origin, destroyed a portion of the goods and
merchandise covered by the insurance policy. On November 3, 1925, Tan It presented a verified
claim of the alleged loss suffered by him on account of the fire. On November 5, 1925, the
representatives of the insurance company proceeded to the scene of the fire, and in the presence
and with the assistance of Tan It, made a physical inventory of the pieces of merchandise existing in
the bodega. Subsequently, the salvaged merchandise was sold for P3,000, which was deposited in
a bank on behalf of whom it may concern. The parties having found it impossible to arrive at an
amicable settlement, the instant suit is the result.
ISSUE:
Whether or not Tan It's claim was merely erroneous and exaggerated as found by the trial
court, or fraudulent and thus voidable as contended by the insurance company.
RULING:
Yes. Tan It's claim was merely erroneous and exaggerated. Clause 13 of the contract of
insurance provides that "if the claim be in any respect fraudulent, or if any false declaration be made
or used in support thereof, all benefit under this Policy shall be forfeited." A false and material
statement made with an intent to decide or defraud avoids an insurance policy. That has become the
settled doctrine in the Philippines. It should not now be departed from out of a spirit of sympathy in
one particular case. It is well for those who are unfortunate enough to have losses by fire to know
that they can only hope to recoup themselves by fair dealing. No court could, for a moment,
subscribe to a confirmation of a fire insurance claim dishonesty made.
A serious discrepancy between the true value of the property and that sworn to in the proofs
of loss, and is an outstanding fact to be considered as bearing upon the presence of fraud. It is more
than an honest misstatement, more than inadvertence or mistake, more than a mere error in opinion,
more than a slight exaggeration, and in connection with all the surrounding circumstances, discloses
a material overvaluation made intentionally and willfully. The court might condone one who
overvalues his loss to offset counter-undervaluation by an insurance company, but it cannot forgive
one who asks for reimbursement for good alleged to have been consumed by fire when no such
good were in the place to be consumed.

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87. SUMMIT GUARANTY AND INSURANCE COMPANY, INC., petitioner, 
vs.
HON. JOSE C. DE GUZMAN, in his capacity as Presiding Judge of Branch III, CFI of Tarlac,
GERONIMA PULMANO and ARIEL PULMANO, respondents.
G.R. No. L-50997 June 30, 1987

FACTS:
Private respondent Jose Ledesma was the owner of a tractor which was bumped by a minibus
insured with petitioner company for purposes of Third Party Liability.
private respondent immediately thereafter made a notice of claim with petitioner for the damage and
loss suffered by the tractor. Petitioner company then advised private respondent to have the tractor
repaired at GA Machineries which estimated the job at Twenty-One Thousand Pesos
(P21,000.00).  Later, petitioner company through its officials, made an assurance of payment of the
said amount.  However, petitioner failed to fulfill its obligation even several demands was made.
Private respondent then filed a complaint to the Insurance Commission which petitioner company
moved to dismiss on the ground of prescription, having been filed beyond the one-year period
provided in Section 384 of the Insurance Code, can no longer prosper.
SECTION 384. Any person having any claim upon the policy issued pursuant to this chapter shall,
without any unnecessary delay, present to the insurance company concerned a written notice of
claim setting forth the amount of his loss, and/or the nature, extent and duration of the injuries
sustained as certified by a duly licensed physician. Notice of claim must be filed within six months
from date of the accident, otherwise, the claim shall be deemed waived Action or suit for recovery
of damage due to loss or injury must be brought, in proper cases, with the Commission or the
Courts within one year from date of accident, otherwise the claimant's right of action shall be
prescribed.
The Commission, ruled in favor of private respondent, Motion for reconsideration filed but also
denied. Hence, this petition for certiorari and prohibition.
ISSUE: whether or not the causes of action of private respondents have already prescribed.
RULING:
SC find no merit in the contention of petitioner company. There is absolutely nothing in the law which
mandates that the two periods must always concur. On the contrary, it is very clear that the one-year
period is only required "in proper cases." It appears that petitioner company disregarded this very
significant phrase when it made its own interpretation of the law. Had the lawmakers intended it to
be the way petitioner company assumes it to be, then the phrase "in proper cases" would not have
been inserted.
Supreme Court has made the observation that some insurance companies have been inventing
excuses to avoid their just obligations and it is only the State that can give the protection which the
insuring public needs from possible abuses of the insurers. 

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88. SUN INSURANCE OFFICE, LTD., petitioner,
vs.
COURT OF APPEALS and EMILIO TAN, respondents.

Facts:
Private respondent Emilio Tan took from herein petitioner a P300,000.00 property insurance policy
to cover his interest in the electrical supply store of his brother housed in a building in Iloilo City.
Four (4) days after the issuance of the policy, the building was burned including the insured store.
On August 20, 1983, Tan filed his claim for fire loss with petitioner, but on February 29, 1984,
petitioner wrote Tan denying the latter's claim.

Issue:
WHETHER OR NOT THE REJECTION OF THE CLAIM SHALL BE DEEMED FINAL ONLY IF IT
CONTAINS WORDS TO THE EFFECT THAT THE DENIAL IS FINAL.

RULING:
Indisputably, the above-cited pronouncements of this Court may be taken to mean that the insured's
cause of action or his right to file a claim either in the Insurance Commission or in a court of
competent jurisdiction commences from the time of the denial of his claim by the Insurer, either
expressly or impliedly.
But as pointed out by the petitioner insurance company, the rejection referred to should be
construed as the rejection, in the first instance, for if what is being referred to is a reiterated rejection
conveyed in a resolution of a petition for reconsideration, such should have been expressly
stipulated.
Thus, to allow the filing of a motion for reconsideration to suspend the running of the prescriptive
period of twelve months, a whole new body of rules on the matter should be promulgated so as to
avoid any conflict that may be brought by it, such as:
a) whether the mere filing of a plea for reconsideration of a denial is sufficient or must it be
supported by arguments/affidavits/material evidence;
b) how many petitions for reconsideration should be permitted?
While in the Eagle Star case (96 Phil. 701), this Court uses the phrase "final rejection", the same
cannot be taken to mean the rejection of a petition for reconsideration as insisted by respondents.
Such was clearly not the meaning contemplated by this Court. The Insurance policy in said case
provides that the insured should file his claim, first, with the carrier and then with the insurer. The
"final rejection" being referred to in said case is the rejection by the insurance company.

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89. COUNTRY BANKER INSURANCE CORP.(formerly Country Bankers
Insurance and Surety Co., Inc.), Petitioner,

-vs-
THE TRAVELLERS INSURANCE AND SURETY CORP., and THE HON.
COURT OF APPEALS, Respondent.
G.R. NO. 82509 August 16, 1989
Doctrines:
A (written) Notice of Claim must be filed within six months from the date of the accident
otherwise, the claim shall be deemed waived. Action or suit for the recovery of damage de to loss or
injury must be brought in proper cases, with the Commissioner or the Courts within one year FROM
THE DENIAL OF THE CLAIM, otherwise the claimant’s right of action shall prescribe [Sec. 384,
Insurance Code, as amended by B.P. Blg 874].

FACTS:
On May 24, 1979, a vehicular accident occurred at a corner stop along Epifanio de los
Santos Avenue (EDSA) involving a Toyota Land Cruiser which was bumped from its rear by an
Isuzu cargo truck. Philippine Technical Consultants, Inc. (PTCI), owner of the Cruiser declared total
loss of the vehicle and succeeded in recovering the amount of the vehicle (P83,470.00) from its
insurer, herein Petitioner Country Bankers. Consequently, as a subrogee to all rights and caused of
action of PTCI, petitioner demanded reimbursement from Private Respondent Travellers Insurance,
the latter being the insurer of the cargo truck. The latter however failed to act on said claim.
On October 14, 1980, Petitioner filed its complaint in the Regional Trial Court (RTC) of
Manila which rendered a decision in its favor.
On appeal, the appellate court (CA) affirmed the findings of the trial court and held that the
insurer of the truck is liable to Petitioner as the subrogee. Nevertheless, the CA dismissed the
complaint on the ground that petitioner’s cause of action had prescribed as the complaint was not
filed until October 14, 1980, or 17 months after the accident as now raised by Private Respondent.
Under Section 384 of the Insurance Code, action or suit for recovery of damage due to loss or injury
must be brought, in proper cases, with the courts within one year FROM THE DATE OF THE
ACCIDENT, otherwise the claimant’s right of action shall prescribed. Hence this Petition for review
on certiorari.
ISSUE:
Whether or not Petitioner’s cause of action has prescribed.
RULING:
The High Court found merit in the petition.
The Court held that the one-year period under Section 384 of the Insurance Code should be
counted not from the date of the accident but from the date of the rejection of the claim by the
insurer, as held by the Court in another but similar case [Summit Guarantee vs. De Guzman].
Petitioner sent a notice of claim to Private Respondent as early as July 26, 1979 or two
months after the accident and was followed by a letter dated August 3, 1979 urging the latter to take
appropriate action on the claim but to no avail until after one year, August 3, 1980, when Private
Respondent informed the former of its refusal to take action on such claim. Hence the latter’s setting

M.L. DEL MUNDO ROBLEDO | 131

up of the defense of prescription which was favored by the CA. In light of the Summit case, Private
respondent cannot anymore invoke Sec. 384 in the instant case.

90. PAN MALAYAN INSURANCE CORPORATION vs COURT OF APPEALS, ERLINDA FABIE

AND HER UNKNOWN DRIVER
G.R. No. 81026
April 3, 1990
FACTS:
Pan Malayan Insurance Company (PANMALAY) PANMALAY averred that it insured a
Mitsubishi Cold Lancer registered under the name of Canlubang Automotive Resources Corporation
(CANLUBANG) and that the insured car was hit by a pick-up owned by the private respondent and
driven by the latter’s unknown driver. The vehicle suffered damages in the amount of P42,000 in
which PANMALAY defrayed the cost of repair of the insured car. It then demanded reimbursement
from the private respondents, but to no avail.
PANMALAY filed a complaint for damages with the Regional Trial Court (RTC) Makati
against private respondents. It stated that the damages caused to the insured car was settled under
the “own damage” coverage of the insurance policy.
Private respondents filed a motion to dismiss alleging that PANMALAY had no cause of
action since the “own damage” policy precluded subrogation under Art. 2207 of the Civil Code. They
contended that indemnification under said article is on the assumption that there was no wrongdoer
or no third party at fault.
The RTC dismissed PANMALAY’s complaint and ruled that payment under the “own
damage’ clause was an admission by the insurer that the damage was caused by the assured
and/or its representatives.
The Court of Appeals affirmed but on different ground. Applying the ejusdem generis, it held
that Section III-I of the policy, which was the basis of the settlement of the claim against insurance,
did not cover damage arising from collision or overturning due to the negligence of the third parties
as one of the insurable risks.

ISSUE:
Whether or not the insurer, PANMALAY, subrogated to the rights of CANLUBANG against the
private respondents

RULING:
Yes. Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the
insured property is destroyed or damaged through the fault or negligence of a party other than the
assured, then the insurer, upon payment to the assured, will be subrogated to the rights of the
assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay.
Payment by the insurer to the assured operates as an equitable assignment to the former of all
remedies which the latter 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 or upon written assignment of claim. It accrues simply upon payment of the insurance claim
by the insurer.
There are few recognized exceptions to these rules:

M.L. DEL MUNDO ROBLEDO | 132

 1. if the assured by his own act releases the wrongdoer or third party liable for the loss or
damage, from liability.
2. where the insurer pays the assured the value of the lost goods without notifying the carrier
who has in good faith settled the assured's claim for loss,
3. where the insurer pays the assured for a loss which is not a risk covered by the policy,
thereby effecting "voluntary payment"
None of these exceptions are present in this case.
Even assuming for the sake of argument that PANMALAY could not be deemed subrogated
to the rights of its assured under Article 2207 of the Civil Code, PANMALAY would still have a cause
of action against private respondents. In a catena of cases, the Supreme Court ruled that the insurer
who may have no rights of subrogation due to "voluntary" payment may nevertheless recover from
the third party responsible for the damage to the insured property under Article 1236 of the Civil
Code.
DISPOSITION:
The petition is granted and the petitioner’s complaint for damages against private respondents is
hereby reinstated. The case is remanded to the lower court for trial on the merits.

M.L. DEL MUNDO ROBLEDO | 133

91. Aboitiz Shipping Corporation vs. Insurance Company of America
G.R. No. 168402 (August , 2008)
FACTS:
On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary
Companies (MSAS) procured a marine insurance policy from respondent ICNA UK Limited of
London. The insurance was for a transshipment of certain wooden work tools and workbenches
purchased for the consignee Science Teaching Improvement Project (STIP), Ecotech Center,
Sudlon Lahug, Cebu City, Philippines.ICNA issued an “all-risk” open marine policy.The cargo,
packed inside one container van, was shipped “freight prepaid” from Hamburg, Germany on board
M/S Katsuragi. A clean bill of lading was issued by Hapag-Lloyd which stated the consignee to be
STIP, Ecotech Center, Sudlon Lahug, Cebu City.On August 3, 1993, the shipment arrived in Cebu
City and discharged onto a receiving apron of the Cebu International Port. It was then brought to the
Cebu Bonded Warehousing Corporation pending clearance from the Customs authorities. In the
Stripping Reportdated August 5, 1993, petitioner’s checker noted that the crates were slightly broken
or cracked at the bottom. Perez found that except for the bottom of the crate which was slightly
broken, the crate itself appeared to be completely dry and had no water marks. But he confirmed
that the tools which were stored inside the crate were already corroded. He further explained that the
“grounded outside warehouse” notation in the bill of lading referred only to the container van bearing
the cargo. In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon
opening of the cargo.The letter stated that the crate was broken at its bottom part such that the
contents were exposed. The RTC ruled that ICNA failed to prove that it is the real party-in-interest to
pursue the claim against Aboitiz. The trial court noted that Marine Policy No. 87GB 4475 was issued
by ICNA UK Limited with address at Cigna House, 8 Lime Street, London EC3M 7NA. However,
complainant ICNA Phils.did not present any evidence to show that ICNA UK is its predecessor-in-
interest, or that ICNA UK assigned the insurance policy to ICNA Phils. The CA opined that the right
of subrogation accrues simply upon payment by the insurance company of the insurance claim. As
subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming that it is an unlicensed
foreign corporation. 

ISSUE/S:
Whether or not ICNA has the right to subrogate.

RULING:
Yes. To recapitulate, The Supreme Court have found that respondent, as subrogee of the
consignee, is the real party in interest to institute the claim for damages against petitioner; and  pro
hac vice, that a valid notice of claim was made by respondent.

M.L. DEL MUNDO ROBLEDO | 134

92. MALAYAN INSURANCE CO., INC.,VS.RODELIO ALBERTO and ENRICO ALBERTO REYES

FACTS:
At around 5 o’clock in the morning of December 17, 1995, an accident occurred at the corner of
EDSA and Ayala Avenue, Makati City, involving four (4) vehicles, to wit: (1) a Nissan Bus operated
by Aladdin Transit with plate number NYS 381; (2) an Isuzu Tanker with plate number PLR 684; (3)
a Fuzo Cargo Truck with plate number PDL297; and (4) a Mitsubishi Galant with plate number TLM
732.Based on the Police Report issued by the on-the-spot investigator, Senior Police Officer
1 Alfredo M. Dungga (SPO1Dungga), the Isuzu Tanker was in front of the Mitsubishi Galant with
the Nissan Bus on their right side shortly before the vehicular incident. All three (3) vehicles were
at a halt along EDSA facing the south direction when the Fuzo Cargo Truck simultaneously bumped
the rear portion of the Mitsubishi Galant and the rear left portion of the Nissan Bus. Due to the
strong impact, these two vehicles were shoved forward and the front left portion of the Mitsubishi
Galant rammed into the rear right portion of the Isuzu Tanker. Previously, particularly on December
15, 1994, Malayan Insurance issued Car Insurance Policy in favor of First Malayan Leasing and
Finance Corporation (the assured), insuring the aforementioned Mitsubishi Galant against third party
liability, own damage and theft, among others. Having insured the vehicle against such risks,
Malayan Insurance claimed in its Complaint dated October 18, 1999 that it paid the damages
sustained by the assured amounting to PhP 700,000.Maintaining that it has been subrogated to the
rights and interests of the assured by operation of law upon its payment to the latter,
Malayan Insurance sent several demand letters to respondents Rodelio Alberto (Alberto)and Enrico
Alberto Reyes (Reyes), the registered owner and the driver, respectively, of the Fuzo Cargo Truck,
requiring them to pay the amount it had paid to the assured. When respondents refused to settle
their liability, Malayan Insurance was constrained to file a complaint for damages for gross
negligence against respondents. The trial court ruled in favor of Malayan Insurance and declared
respondents liable for damages. The CA, reversed and set aside the Decision of the trial court and
ruled in favor of respondents, disposing:

ISSUE:
Whether there is a valid subrogation.

RULING:
Malayan Insurance contends that there was a valid subrogation in the instant case, as evidenced
by the claim check voucher and the Release of Claim and Subrogation Receipt presented by it
before the trial court. Respondents, however, claim that the documents presented by
Malayan Insurance do not indicate certain important details that would show proper subrogation.
As noted by Malayan Insurance, respondents had all the opportunity, but failed to object to the
presentation of its evidence.
Under the law, payment by the insurer to the insured 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.
Hence, it is only but proper that Malayan Insurance be subrogated to the rights of the assured.

M.L. DEL MUNDO ROBLEDO | 135

Petition is granted.
93. THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner, vs.
COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.
G.R. No. 116940 June 11, 1997

FACTS:
Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel owned and operated by
respondent Felman Shipping Lines, 7,500 cases of 1-liter Coca-Cola softdrink bottles to be
transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc.,
Cebu. The shipment was insured with petitioner PHILAMGEN, under Marine Open Policy No.
100367-PAG. "MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the evening
of the same day. At around eight forty-five the following morning, the vessel sank in the waters of
Zamboanga del Norte bringing down her entire cargo with her including the subject 7,500 cases of 1-
liter Coca-Cola softdrink bottles. The consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant,
filed a claim with respondent FELMAN for recovery of damages it sustained as a result of the loss of
its softdrink bottles that sank with "MV Asilda." Respondent denied the claim thus prompting the
consignee to file an insurance claim with PHILAMGEN which paid its claim of P755,250.00. Claiming
its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which disclaimed
any liability for the loss. Consequently, PHILAMGEN sued the shipowner for sum of money and
damages alleging that the sinking and total loss of "MV Asilda" and its cargo were due to the
vessel's unseaworthiness as she was put to sea in an unstable condition; that the vessel was
improperly manned and that its officers were grossly negligent in failing to take appropriate
measures to proceed to a nearby port or beach after the vessel started to list.

ISSUE: Whether or not the insurer has a right to be subrogated to the rights of the insured upon
payment of the insurance claim.

RULING:
The court ruled in the affirmative. PHILAMGEN's action against FELMAN is squarely sanctioned by
Art. 2207 of the Civil Code which provides: 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. Also, in its previous ruling in the
case of Pan Malayan Insurance Corporation v. Court of Appeals, the court said that payment by the
assurer to the assured operates as an equitable assignment to the assurer of all the remedies which
the assured 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 or upon
payment by the insurance company of the insurance claim. 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 which equity adopts to compel the
ultimate payment of a debt by one who in justice, equity and good conscience ought to pay.
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.

M.L. DEL MUNDO ROBLEDO | 136

94. FIREMAN'S FUND INSURANCE COMPANY and FIRESTONE TIRE AND RUBBER
COMPANY OF THE PHILIPPINES
vs.
JAMILA & COMPANY, INC. and FIRST QUEZON CITY INSURANCE CO., INC
AQUINO, J.:
April 7, 1976

SUMMARY:
Jamila supplies security guards to Firestone and assumes their responsibility. When some
properties of Firestone were lost due to connivance of some security guards, Fireman’s Fund as
insurer paid Firestone the value of such and is now subrogated to Firestone’s right to
reimbursement. They filed complaint to recover money when Jamila failed to pay. CFI dismissed
complaint as to Jamila citing that there is no cause of action as the latter did not consent to
subrogation and there are no allegations in the complaint that Firestone investigated the loss.
Subsequent MRs, F&F argue that their cause of action is on the basis of legal subrogation. SC:
There was cause of action on the part of Fireman’s Fund pursuant to Art. 2207. Payment by the
assurer to the assured operates as an equitable assignment to the assurer of all the remedies which
the assured may have against the third party whose negligence or wrongful act caused the loss.
DOCTRINE:Loss or injury for risk must be covered by the policy – Under Article 2207, the cause of
the loss or injury must be a risk covered by the policy to entitle the insurer to the subrogation. Thus,
where the insurer pays the insured for a loss which is not a risk covered by the policy, thereby
effecting “voluntary payment,” the insurer has no right of subrogation against the third party liable for
the loss. Nevertheless, the insurer may recover from the third party responsible for the damage to
the insured property under Article 1236 of the Civil Code.

FACTS:
 Jamila or the Veterans Philippine Scouts Security Agency contracted to supply security guards
to Firestone. Jamila assumed responsibility for the acts of its security guards
 First Quezon City Insurance Co., Inc. executed a bond in the sum of P20k to guarantee Jamila's
obligations under that contract
 May 18, 1963: Properties of Firestone valued at P11,925 were lost allegedly due to the acts of its
employees who connived with Jamila's security guard
 Fireman's Fund, as insurer, paid to Firestone the amount of the loss and is now subrogated to
Firestone's right to get reimbursement from Jamila
 Jamila and its surety, First Quezon City Insurance Co., Inc., failed to pay the amount of the loss
in spite of repeated demands.
 Fireman's Fund and Firestone Tire and Rubber Co instituted this complaint against Jamila for the
recovery of the sum of P11,925.00 plus interest, damages and attorney's fees
 Jamila moved to dismiss the complaint on the ground of lack of cause of action
o (1) complaint did not allege that Firestone, pursuant to the contractual stipulation
quoted in the complaint, had investigated the loss and that Jamila was represented in
the investigation and
o (2) Jamila did not consent to the subrogation of Fireman's Fund to Firestone's right to
get reimbursement from Jamila and its surety.

M.L. DEL MUNDO ROBLEDO | 137

 CFI: Dismissed the complaint as to Jamila on the second ground that there was no allegation
that it hadconsented to the subrogation and, therefore, Fireman's Fund had no cause of
action against it.
o Also dismissed the complaint as to First Quezon City Insurance Co., Inc. on the ground
of res judicata asthe same action was previously filed in a civil case which was dismissed
because of the failure of the same plaintiffs and their counsel to appear at the pre trial.
 Firestone and Fireman's Fund filed MR
 CFI on F&F’s MR: Set aside its order of dismissal. No res judicata as to First Quezon City
Insurance Co., Inc. because civil case was dismissed without prejudice
o However, due to inadvertence, the lower court did not state in its order of September 3,
1966 why it set aside its prior order dismissing the complaint with respect to Jamila.
 First Quezon City Insurance Co., Inc. filed its answer to the complaint.
 Jamila, upon noticing that the order had obliterated its victory without any reason therefor, filed
MR reconsideration
o Invoked the first ground in its original motion to dismiss which had never been passed
upon by the lower court that complaint did not allege that Firestone, pursuant to the
contractual stipulation quoted in the complaint, had investigated the loss and that
Jamila was represented in the investigation
 CFI on Jamila’s MR: Granted Jamila's MR. However, it completely ignored the 1st ground but
reverted to the second ground (no consent to subrogation thus no cause of action).
o It did not mention Firestone, the co-plaintiff of Fireman's Fund.
 Firestone and Fireman's Fund filed MR on the ground that Fireman's Fund Insurance Company
was suing on the basis of legal subrogation whereas CFI erroneously predicated its dismissal
order on the theory that there was no conventional subrogation because the debtor's consent
was lacking.
o Cited NCC 2207 which provides that "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
subrogatedto the rightsof the insured against the wrongdoer or the person who has
violated the contract".
 CFI on F&F MR: Denied motion.
 F&F filed 2nd MR and called CFI's attention to the fact that the issue of subrogation was of no
moment because Firestone, the subrogor (??), is a party-plaintiff and could sue directly Jamila in
its own right.
 CFI on F&F’S 2nd MR: Denied 2nd MR without resolving contention
 Appeal to SC
 F&F: CFI’s dismissal of their complaint is contrary to Article 2207 which provides for legal
subrogation.
 JAMILA: Legal subrogation under Art. 2207 requires the debtor's consent
o Legal subrogation takes place in the cases mentioned in NCC 1302 and the instant case
is not among the 3 cases enumerated in that article

M.L. DEL MUNDO ROBLEDO | 138

 o There could be no subrogation in this case because according to F&F, the contract
between Jamila and Firestone was entered into on June 1, 1965 but the loss
complained of occurred on May 18, 1963.
ISSUES:
1) Whether the complaint of Firestone as subrogor (???) states a cause of action against Jamila?
(Not really)
2) Whether the complaint of Fireman's Fund as subrogee states a cause of action against Jamila?
(YES)
3) Whether Jamila should reimburse Fireman’s Fund? (Not decided here)
RULING:
CFI Decision's order of dismissal is legally untenable so SET ASIDE with costs against Jamila & Co.,
Inc.

RATIO:
[F&F’s counsel gratuitously alleged in their brief that Firestone and Jamila entered into a "contract of
guard services" on June 1, ‘65. That allegationwas uncalled for because it is not found in the
complaint and so created confusion which did not exist. No copy of the contract was annexed to the
complaint. That confusing statement was an obvious error since it was expressly alleged in the
complaint that the loss occurred on May 18, ‘63. The fact that such an error was committed is
another instance substantiating the observation that F&F's counsel had not exercised due care in
the presentation of his case.]

1) Firestone is really a nominal party in this case as it had already been indemnified for the loss
which it had sustained. It joined as a party-plaintiff in order to help Fireman's Fund to recover the
amount of the loss from Jamila and First Quezon City Insurance Co., Inc. Firestone had tacitly
assigned to Fireman's Fund its cause of action against Jamila for breach of contract. Sufficient
ultimate facts are alleged in the complaint to sustain that cause of action.

2) Fireman's Fund's action against Jamila is squarely sanctioned by article 2207. As the insurer,
Fireman's Fund is entitled to go after the person or entity that violated its contractual commitment to
answer for the loss insured against (PAL vs. Heald Lumber Co).
 CFI erred in applying to this case the rules on novation. F&F in alleging in their complaint that
Fireman's Fund "became a party in interest in this case by virtue of a subrogation right given in
its favor by" Firestone, were not relying on the novationby change of creditors as
contemplated in NCC 1291 and 1300 to 1303 but rather on NCC 2207.
 Article 2207 is a restatement of a settled principle of American jurisprudence. Subrogation has
been referred to as the doctrine of substitution. It "is an arm of EQUITY that may guide or even
force one to pay a debt for which an obligation was incurred but which was in whole or in part
paid by another" (83 C.J.S. 576).
 "Subrogation is founded on principles of JUSTICE AND EQUITY, and its operation is governed
by principles of equity. It rests on the principle that substantial justice should be attained
regardless of form, that is, its basis is the doing of complete, essential, and perfect justice
between all the parties without regard to form"(83 C.J.S. 579- 80)

M.L. DEL MUNDO ROBLEDO | 139

 Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs Moses). Upon
payment of the loss, the insurer is entitled to be subrogated pro tanto to any right of
action which the insured may have against the third person whose negligence or
wrongful act caused the loss (44 Am. Jur. 2nd 745).
 The right of subrogation is of the highest EQUITY. The LOSS IN THE FIRST INSTANCE is that
of the INSURED but AFTER reimbursement or compensation, it becomes the LOSS OF THE
INSURER (44 Am. Jur. 2d 746).
 "Although many policies including policies in the standard form, now provide for subrogation, and
thus determine the rights of the insurer in this respect, the equitable right of subrogation as the
legal effect of payment inures to the insurer without any formal assignment or any
express stipulation to that effect in the policy" (44 Am. Jur. 2nd 746).
 Stated otherwise, when the insurance company pays for the loss, such payment operates as
an equitable assignment to the insurer of the property and all remedies which the insured
may have for the recovery thereof. That right is not dependent upon, nor does it grow out of,
any privity of contract, or upon written assignment of claim, and payment to the insured makes
the insurer an assignee in equity (Shambley v. Jobe-Blackley Plumbing and Heating Co).

3) Whether the plaintiffs would be able to prove their cause of action against Jamila is another
question.

M.L. DEL MUNDO ROBLEDO | 140

95. ST. PAUL FIRE AND MARINE INSURANCE COMPANY
V. JAMILA & COMPANY, INC.
G.R. NO. L27796
MARCH 25, 1976

FACTS:
On June 29, 1960, Winthrop Products, Inc., of New York, New York, U.S.A., shipped
aboard the SS “Tai Ping”, owned and operated by Wilhelm Wilhelmsen, 218 cartons and
drums of drugs and medicine, with the freight prepaid, which were consigned to Winthrop
Stearns, Inc., Manila, Philippines. Barber Steamship Lines, Inc., agent of Wilhelm
Wilhelmsen, issued Bill of Lading No. 34, in the name of Winthrop Products, Inc. as shipper,
with arrival notice in Manila to consignee Winthrop-Stearns, Inc., Manila, Philippines.
The shipment was insured by the shipper against loss and/or damage with the St.
Paul Fire & Marine Insurance Company under its insurance Special Policy No. OC-173766
dated June 23, 1960. On August 7, 1960, the SS “Tai Ping” arrived at the Port of Manila and
discharged its aforesaid shipment into the custody of Manila Port Service, the arrastre
contractor for the Port of Manila.
The said shipment was discharged complete and in good order with the exception of
one (1) drum and several cartons which were in bad order condition. Because consignee
failed to receive the whole shipment and as several cartons of medicine were received in
bad order condition, the consignee filed the corresponding claim in the amount of P1,109.67
representing the C.I.F. value of the damaged drum and cartons of medicine with the carrier,
and the Manila Port Service. However, both refused to pay such claim. Consequently, the
consignee filed its claim with the insurer, St. Paul Fire & Marine Insurance Co., and the
insurance company, on the basis of such claim, paid to the consignee the insured value of
the lost and damaged goods, including other expenses in connection therewith, in the total
amount of $1,134.46 U.S.
On August 5, 1961, as subrogee of the rights of the shipper and/or consignee, the
insurer, St. Paul Fire & Marine Insurance Co., instituted with the Court of First Instance of
Manila the present action against the defendants for the recovery of said amount of
$1,134.46, plus costs. On August 23, 1961, the defendants Manila Port Service and Manila
Railroad Company resisted the action, contending, among others, that the whole cargo was
delivered to the consignee in the same condition in which it was received from the carrying
vessel; that their rights, duties and obligations as arrastre contractor at the Port of Manila are
governed by and subject to the terms, conditions and limitations contained in the
Management Contract between the Bureau of Customs and Manila Port Service, and their
liability is limited to the invoice value of the goods, but in no case more than P500.00 per
package.
After due trial, the lower court, on March 10, 1965 rendered judgment ordering
defendants Macondray & Co., Inc., Barber Steamship Lines, Inc. and Wilhelm Wilhelmsen to
pay to the plaintiff, jointly, and severally, the sum of P300.00, with legal interest thereon from
the filing of the complaint until fully paid, and defendants Manila Railroad Company and
Manila Port Service to pay to plaintiff, jointly and severally, the sum of P809.67, with legal
interest thereon from the filing of the complaint until fully paid, the costs to be borne by all the
said defendants,
Plaintiff, contending that it should recover the amount of $1,134.46, or its equivalent
in pesos at the rate of P3.90, instead of P2.00, for every US$1.00, filed a motion for
reconsideration, but this was denied by the lower court. Hence, this appeal.

M.L. DEL MUNDO ROBLEDO | 141

ISSUE:
Whether or not, in case of loss or damage, the liability of the carrier to the consignee is
limited to the C.I.F. value of the goods which were lost or damaged; and

Whether the insurer who has paid the claim in dollars to the consignee should be reimbursed
in its peso equivalent on the date of discharge of the cargo or on the date of the decision.

RULING:
1. Yes. The stipulation in the bill of lading limiting the common carrier’s liability to the value
of the goods appearing in the bill, unless the shipper or owner declares a greater value,
is valid and binding. This limitation of the carrier’s liability is sanctioned by the freedom of
the contracting parties to establish such stipulations, clauses, terms, or conditions as
they may deem convenient, provided they are not contrary to law, morals, good customs
and public policy.

2. The plaintiff-appellant, as insurer, after paying the claim of the insured for damages
under the insurance, is subrogated merely to the rights of the assured. As subrogee, it
can recover only the amount that is recoverable by the latter. Since the right of the
assured, in case of loss or damage to the goods, is limited or restricted by the provisions
in the bill of lading, a suit by the insurer as subrogee necessarily is subject to like
limitations and restrictions.
Moreover, equally untenable is the contention of the plaintiff-appellant that because of
extraordinary inflation it should be reimbursed for its dollar payments at the rate of exchange
on the date of the judgment and not on the date of the loss or damage. The obligation of the
carrier to pay for the damage commenced on the date it failed to deliver the shipment in
good condition to the consignee.
The appealed decision is hereby AFFIRMED.

M.L. DEL MUNDO ROBLEDO | 142

96. MANILA MAHOGANY MANUFACTURING CORPORATION, vs. COURT OF APPEALS AND
ZENITH INSURANCE CORPORATION, G.R. No. L-52756 October 12, 1987
FACTS:
Petitioner insured its Mercedes Benz 4-door sedan w/ respondent insurance company from March 6,
1970 – 1971, On May 4, 1970, vehicle was bumped and damaged by a truck owned by San Miguel
Corp (SMC). Zenith paid P5,000 to petitioner in amicable settlement. Petitioner’s general manager
executed a Release Claim, subrogating respondent company to all its right to action against SMC
Respondent company wrote Insurance Adjusters Inc. to demand reimbursement from SMC.
Insurance Adjusters refused saying that SMC had already paid petitioner P4, 500 for the damages to
petitioner’s vehicle, as evidenced by a cash voucher and Release of Claim executed by the general
manager of petitioner discharging SMC from “all actions, claims, demands the rights of action that
now exist or hereafter develop arising out of or as a consequence of the accident. Respondent
demanded the P4,500 amount from petitioner. Petitioner refused to pay. The trial court ordered
petitioner to pay respondent. CFI affirmed. CA affirmed with modification that petitioner was to pay
respondent the total amount of 5,000 it had received from respondent company.
ISSUE:
Whether or not petitioner should pay respondent despite the subrogation in the Release of Claim
was conditioned on recovery of the total amount of damages petitioner has sustained?
RULING:
The Courtholds that CA is correct in holding petitioner should reimburse respondent 5,000. When
Manila Mahogany executed another release claim discharging SMC from all rights of action after the
insurer had paid the proceeds of the policy – the compromise agreement of 5,000- the insurer is
entitled to recover from the insured the amount of insurance money paid.
Petitioner by its own acts released SMC, thereby defeating respondent’s right of subrogation; the
right of action against the insurer was also nullified.
Furthermore, the Court held that since the insurer can be subrogated to only such rights as the
insured may have, should the insured, after receiving payment from the insurer, release the
wrongdoer who caused the loss, the insurer losses his rights against the latter. But in such a case,
the insurer will be entitled to recover from the insured whatever it has paid to the latter, unless the
release was made w/ the consent of the insurer
Dispositive: WHEREFORE, premises considered, the petition is DENIED. The judgment appealed
from is hereby AFFIRMED

M.L. DEL MUNDO ROBLEDO | 143

97. DELSAN TRANSPORT LINES, INC. vs. THE HON. COURT OF APPEALS and AMERICAN
HOME ASSURANCE CORPORATION
G.R. No. 127897 November 15, 2001

FACTS:
Caltex Philippines (Caltex) entered into a contract of affreightment with Delsan Transport
Lines, Inc., for a period of one year whereby the said common carrier agreed to transport Caltex’s
industrial fuel oil from the Batangas-Bataan Refinery to different parts of the country. Under the
contract, petitioner took on board its vessel, MT Maysun 2,277.314 kiloliters of industrial fuel oil of
Caltex to be delivered to the Caltex Oil Terminal in Zamboanga City. The shipment was insured with
the private respondent, American Home Assurance Corporation. On August 14, 1986, MT Maysum
set sail from Batangas for Zamboanga City. Unfortunately, the vessel sank in the early morning of
August 16, 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil.
Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six Thousand Six
Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.67) representing the insured
value of the lost cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code,
the private respondent demanded of the petitioner the same amount it paid to Caltex. Due to its
failure to collect from the petitioner despite prior demand, private respondent filed a complaint with
the Regional Trial Court of Makati City for collection of a sum of money. After the trial and upon
analyzing the evidence adduced, the trial court rendered a decision dismissing the complaint against
petitioner. The trial court found that the vessel, MT Maysum, was seaworthy to undertake the voyage
as determined by the Philippine Coast Guard upon inspection during its annual dry-docking and that
the incident was caused by unexpected inclement weather condition or force majeure, thus
exempting the common carrier from liability for the loss of its cargo. The Court of Appeals reversed
the decision of the trial court. The appellate court gave credence to the weather report issued by the
PAGASA which showed that from 2:00 o’clock to 8:oo o’clock in the morning on August 16, 1986,
the wind speed remained at 10 to 20 knots per hour while the waves measured from .7 to two (2)
meters in height only in the vicinity of the Panay Gulf where the subject vessel sank, in contrast to
herein petitioner’s allegation that the waves were twenty (20) feet high. In the absence of any
explanation as to what may have caused the sinking of the vessel coupled with the finding that the
same was improperly manned, the appellate court ruled that the petitioner is liable on its obligation
as common carrier to herein private respondent insurance company as subrogee of Caltex. The
subsequent motion for reconsideration of herein petitioner was denied by the appellate court.

ISSUES:

1. Whether or not the payment made by the private respondent to Caltex for the insured value
of the lost cargo amounted to an admission that the vessel was seaworthy, thus precluding
any action for recovery against the petitioner.

2. Whether or not the non-presentation of the marine insurance policy bars the complaint for
recovery of sum of money for lack of cause of action.

RULING:
The payment by the private respondent for the insured value of the lost cargo operates as
waiver of its right to enforce the term of the implied warranty against Caltex under the marine
insurance policy. However, the same cannot be validly interpreted as an automatic admission of the

M.L. DEL MUNDO ROBLEDO | 144

vessel’s seaworthiness by the private respondent as to foreclose recourse against the
petitioner for any liability under its contractual obligation as common carrier. The fact of payment
grants the private respondent subrogatory right which enables it to exercise legal remedies that
otherwise be available to Caltex as owner of the lost cargo against the petitioner common carrier.

The right of subrogation has its roots in equity. It is designed to promote and to accomplish
justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in
justice and good conscience ought to pay. It is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim. It accrues simply upon payment by the
insurance company of the insurance claim. Consequently, the payment made by the private
respondent to Caltex operates as an equitable assignment to the former of all the remedies which
the latter may have against the petitioner.

The presentation in evidence of the marine insurance policy is not indispensable in this case
before the insurer may recover from the common carrier the insured value of the lost cargo in the
exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only
the relationship of herein private respondent as insurer and Caltex, as the assured shipper of the lost
cargo of industrial fuel oil, 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.

M.L. DEL MUNDO ROBLEDO | 145

98.
EASTERN SHIPPING LINES v. PRUDENTIAL GUARANTEE, GR No. 174116, 2009-09-11

Facts:
fifty-six cases of completely knock-down auto parts of Nissan motor vehicle (cargoes) were loaded
on board M/V Apollo Tujuh (carrier) at Nagoya, Japan, to be shipped to Manila. The shipment was
consigned to Nissan Motor Philippines, Inc. (Nissan) and was... covered by Bill of Lading No. NMA-
1.[4] The carrier was owned and operated by petitioner Eastern Shipping Lines, Inc.
the shipment was then discharged from the vessel onto the custody of the arrastre operator, Asian
Terminals, Inc. (ATI), complete and in good condition, except for four... cases.
the shipment was withdrawn by Seafront Customs and Brokerage from the pier and delivered to the
warehouse of Nissan in Quezon City
A survey of the shipment was then conducted by Tan-Gaute Adjustment Company, Inc. (surveyor) at
Nissan's warehouse. On January 16, 1996, the surveyor submitted its report[7] with a finding that
there were "short (missing)" items in Cases Nos. 10/A26/T3K and
10/A26/7K and "broken/scratched" and "broken" items in Case No. 10/A26/70K"; and that "(i)n (its)
opinion, the "shortage and damage sustained by the shipment were due to pilferage and improper
handling, respectively while in the custody of the vessel and/or Arrastre
Contractors."[8]
As a result, Nissan demanded the sum of P1,047,298.34[9] representing the cost of the damages
sustained by the shipment from petitioner, the owner of the vessel, and ATI, the arrastre operator.
However, the demands were not heeded.[10]
Prudential Guarantee and Assurance Inc. paid Nissan the sum of P1,047,298.34.
respondent P... respondent sued petitioner and ATI for reimbursement of the amount it paid to
Nissan
Respondent claimed that it was subrogated to the rights of Nissan by virtue of said payment.[11]
RTC... rendered... judgment is hereby rendered in favor of the plaintiff and against the defendants
Eastern Shipping Lines, Inc. and ATI, and said defendants are hereby ordered to pay jointly and
solidarily plaintiff... the CA
AFFIRMED with MODIFICATIONS, in that (i) defendant-appellant Eastern Shipping Lines, Inc. is
ordered to pay appellee (a) the amount of P904,293.75 plus interest thereon at the rate of 6% per
annum from the filing of the complaint... up to the finality of this judgment, when the interest shall
become 12% per annum until fully paid... attorney's fees is DELETED
The CA exonerated ATI and ruled that petitioner was solely responsible for the damages caused to
the cargoes. Moreover, the CA relying on Delsan Transport Lines, Inc. vs. Court of Appeals,[15]
ruled that the right of subrogation accrues upon payment... by the insurance company of the
insurance claim and that the presentation of the insurance policy is not indispensable before the
appellee may recover in the exercise of its subrogatory right.[16]

Issues:
FINDING HEREIN PETITIONER LIABLE DESPITE THE FACT THAT RESPONDENT FAILED TO
SUBMIT ANY INSURANCE POLICY.

M.L. DEL MUNDO ROBLEDO | 146

THE COURT OF APPEALS ERRED IN NOT APPLYING THE US$500.00/PACKAGE/CASE
PACKAGE LIMITATION OF LIABILITY IN ACCORDANCE WITH THE CARRIAGE OF GOODS BY
SEA ACT.[
RULING:
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.[19] In International
Container Terminal Services, Inc. v. FGU Insurance Corporation (International),[20] the nature of a
marine cargo risk note was explained, thus:... x x x 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. x
x x.[
Therefore,... other than the marine cargo risk note, respondent should have also presented the
marine insurance policy, as the same also served as the basis for its complaint. Section 7, Rule 9 of
the 1997 Rules of Civil Procedure, provide:
SECTION 7. Action or defense based on document. Whenever an action or defense is based upon a
written instrument or document, the substance of such instrument or document shall be set forth in
the pleading, and the original or a copy thereof shall be attached... to the pleading as an exhibit,
which shall be deemed to be a part of the pleading, or said copy may, with like effect, be set forth in
the pleading.
In contrast, unlike in International where there was no issue as regards the... provisions of the
marine insurance policy, such that the presentation of the contract itself is necessary for perusal,
herein petitioner had repeatedly objected to the non-presentation of the marine insurance policy and
had manifested its desire to know the specific provisions... thereof. Moreover, and the same is
critical, the marine risk note in the case at bar is questionable because: first, it is dated on the same
day the cargoes arrived at the port of Manila and not during the duration of the voyage; second,
without the Marine
Insurance Policy to elucidate on the specifics of the terms and conditions alluded to in the marine
risk note, it would be simply guesswork to know if the same were complied with.
because of the inadequacy of the Marine Cargo Risk Note for the reasons already stated, it was
incumbent on respondent to present in evidence the Marine Insurance Policy, and having failed in
doing so,... its claim of subrogation must necessarily fail.

M.L. DEL MUNDO ROBLEDO | 147

99. Pacific Time Export Corp. vs. Court of Appeals
112 SCRA 199

FACTS:
In the case at bar, the insurance policy clearly and categorically placed petitioner's liability for all
damages arising out of death or bodily injury sustained by one person as a result of any one
accident at P12,000.00. Said amount complied with the minimum fixed by the law then prevailing,
Section 377 of Presidential Decree No. 612 (which was retained by P.D. No. 1460, the Insurance
Code of 1978), which provided that the liability of land transportation vehicle operators for bodily
injuries sustained by a passenger arising out of the use of their vehicles shall not be less than
P12,000. In other words, under the law, the minimum liability is P12,000 per passenger. Petitioner's
liability under the insurance contract not being less than P12,000.00, and therefore not contrary to
law, morals, good customs, public order or public policy, said stipulation must be upheld as effective,
valid and binding as between the parties. In like manner, SC ruled as valid and binding upon private
respondent the condition above-quoted requiring her to secure the written permission of petitioner
before effecting any payment in settlement of any claim against her. There is nothing unreasonable,
arbitrary or objectionable in this stipulation as would warrant its nullification. The same was obviously
designed to safeguard the insurer's interest against collusion between the insured and the claimants.
March 19, l963, the plaintiff secured temporary insurance from the defendant for its exportation of
1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped from the Diapitan. Bay,
Quezon Province to Okinawa and Tokyo, Japan. The defendant issued on said date Cover Note No.
1010, insuring the said cargo of the plaintiff "Subject to the Terms and Conditions of the
WORKMEN'S INSURANCE COMPANY, INC. printed Marine Policy form as filed with and approved
by the Office of the Insurance Commissioner. The regular marine cargo policies were issued by the
defendant in favor of the plaintiff on April 2, 1963. The two marine policies bore the numbers 53 HO
1032 and 53 HO 1033. Policy No. 53 H0 1033 was for 542 pieces of logs equivalent to 499,950
board feet. Policy No. 53 H0 1033 was for 853 pieces of logs equivalent to 695,548 board feet. The
total cargo insured under the two marine policies accordingly consisted of 1,395 logs, or the
equivalent of 1,195.498 bd. ft.After the issuance of Cover Note No. 1010 ,but before the issuance of
the two marine policies Nos. 53 HO 1032 and 53 HO 1033, some of the logs intended to be exported
were lost during loading operations in the Diapitan Bay. The logs were to be loaded on the 'SS
Woodlock' which docked about 500 meters from the shoreline of the Diapitan Bay. The logs were
taken from the log pond of the plaintiff and from which they were towed in rafts to the vessel. At
about 10:00 o'clock a. m. on March 29, 1963, while the logs were alongside the vessel, bad weather
developed resulting in 75 pieces of logs which were rafted together co break loose from each other.
45 pieces of logs were salvaged, but 30 pieces were verified to have been lost or washed away as a
result of the accident.In a letter dated April 4, 1963, the plaintiff informed the defendant about the
loss of 'appropriately 32 pieces of log's during loading of the 'SS Woodlock'.Although dated April 4,
1963, the letter was received in the office of the defendant only on April 15, 1963, as shown by the
stamp impression appearing on the left bottom corner of said letter. The plaintiff subsequently
submitted a 'Claim Statement demanding payment of the loss under Policies Nos. 53 HO 1032 and
53 HO 1033, in the total amount of P19,286.79. On July 17, 1963, the defendant requested the First
Philippine Adjustment Corporation to inspect the loss and assess the damage. The adjustment
company submitted its 'Report on August 23, 1963 (Exhibit H). In said report, the adjuster found that
'the loss of 30 pieces of logs is not covered by Policies Nos. 53 HO 1032 and 1033 inasmuch as said
policies covered the actual number of logs loaded on board the 'SS Woodlock' However, the loss of
30 pieces of logs is within the 1,250,000 bd. ft. covered by Cover Note 1010 insured for $70,000.00.
On September 14, 1963, the adjustment company submitted a computation of the defendant's
probable liability on the loss sustained by the shipment, in the total amount of Pl1,042.04. On
January 13, 1964, the defendant wrote the plaintiff denying the latter's claim, on the ground they
defendant's investigation revealed that the entire shipment of logs covered by the two marines
policies No. 53 110 1032 and 713 HO 1033 were received in good order at their point of destination.
It was further stated that the said loss may be considered as covered under Cover Note No. 1010

M.L. DEL MUNDO ROBLEDO | 148

because the said Note had become 'null and void by virtue of the issuance of Marine Policy Nos. 53
HO 1032 and 1033'. The denial of the claim by the defendant was brought by the plaintiff to the
attention of the Insurance Commissioner by means of a letter dated March 21, 1964. In a reply letter
dated March 30, 1964, Insurance Commissioner Francisco Y. Mandanas observed that 'it is only fair
and equitable to indemnify the insured under Cover Note No. 1010', and advised early settlement of
the said marine loss and salvage claim. On June 26, 1964, the defendant informed the Insurance
Commissioner that, on advice of their attorneys, the claim of the plaintiff is being denied on the
ground that the cover note is null and void for lack of valuable consideration 

ISSUE:

WON the defense of delay as raised by private respondent in resisting the claim cannot be
sustained.

RULING:

NO. SC ruled in the negative stating that the law requires this ground of delay to be promptly and
specifically asserted when a claim on the insurance agreement is made. The undisputed facts show
that instead of invoking the ground of delay in objecting to petitioner's claim of recovery on the cover
note, it took steps clearly indicative that this particular ground for objection to the claim was never in
its mind. The nature of this specific ground for resisting a claim places the insurer on duty to inquire
when the loss took place, so that it could determine whether delay would be a valid ground upon
which to object to a claim against it. As already stated earlier, private respondent's reaction upon
receipt of the notice of loss, which was on April 15, 1963, was to set in motion from July 1963 what
would be necessary to determine the cause and extent of the loss, with a view to the payment
thereof on the insurance agreement. Thus it sent its adjuster to investigate and assess the loss in
July, 1963. The adjuster submitted his report on August 23, 1963 and its computation of
respondent's liability on September 14, 1963. From April 1963 to July, 1963, enough time was
available for private respondent to determine if petitioner was guilty of delay in communicating the
loss to respondent company. In the proceedings that took place later in the Office of the Insurance
Commissioner, private respondent should then have raised this ground of delay to avoid liability. It
did not do so. It must be because it did not find any delay, as this Court fails to find a real and
substantial sign thereof. But even on the assumption that there was delay, this Court is satisfied and
convinced that as expressly provided by law, waiver can successfully be raised against private
respondent. Thus Section 84 of the Insurance Act provides:
Section 84.—Delay in the presentation to an insurer of notice or proof of loss is
waived if caused by any act of his or if he omits to take objection promptly and
specifically upon that ground.

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100. ZENITH INSURANCE CORPORATION, petitioner, 
vs.
HON. COURT OF APPEALS, HON. RICARDO J. FRANCISCO, as Presiding Judge of Branch VI,
Court of First Instance of Rizal, PROVINCIAL SHERIFF OF RIZAL JEZZER BOTE, Deputy
Sheriff of Rizal and PEDRO F. MEJORADA respondents.
G.R. No. L-57957 December 29, 1982

FACTS:
William B. Murphy filed a case for collection of a sum of money, accounting and damages, in the
Court of First Instance of Rizal, Branch VI, Pasig, against private respondent Pedro Mejorada (Civil
Case No. 9490). Murphy likewise prayed for a Writ of Preliminary Attachment, which the Trial Court
granted upon a bond of P250,000.00 issued by petitioner Zenith Insurance Corporation in favor of
Murphy.
Trial Court rendered its Decision against the plaintiff.
Plaintiff shall pay costs.
From the said Decision, Murphy and petitioner, as surety, appealed to the Court of Appeals (CA-
G.R. No. 53497-R). Pending appeal, and upon motion of respondent, judgment was partially
executed in the amount of P115 ,680.55
On May 22, 1979, the Court of Appeals rendered judgment affirming in toto the Decision of the Trial
Court, thus:
Murphy moved for reconsideration. This was denied by the Court of Appeals. Murphy then appealed
by way of certiorari to this Court (G.R. No. 53536). The petition was denied for late filing in this
Court's Resolution of June 13, 1980.
Thereafter, private respondent proceeded against the balance of petitioner's attachment bond
coverage, and collected P80,000.00 on July 24, 1980 and P54,319.45 on August 15, 1980, adding
up to the full value of the bond of P250,000.00, including the amount of P115,680.55 already
partially executed. Private respondent acknowledged the last payment on August 15, 1980 to be "in
full satisfaction of the writ of execution issued."
On November 26, 1980, private respondent filed a Motion for the Issuance of an Alias Writ of
Execution to enforce the judgment award. The Trial Court initially denied alias execution as against
petitioner on January 26, 1981, reasoning that, in executing the judgment, only the dispositive
portion is to be looked into in the absence of such ambiguity as would justify resort to the body of the
Decision, and that as the judgment is clear, the liability of petitioner is confined to the amount of the
bond.
Private respondent moved for reconsideration. On April 9, 1981, the Trial Court issued the
questioned Order reconsidering its Order of January 26, 1981, and granting the Motion for the
issuance of an Alias Writ of Execution, petitioner's liability "not (being) limited to the amount of the
bond it has put up but includes all the actual and consequential damages suffered by private
respondent, there having intervened malice and bad faith" on petitioner's part. Alias Writ was issued
and served upon petitioner.
Petitioner filed with the Court of Appeals, a Petition for "Certiorari and Prohibition with Preliminary
Mandatory Injunction" (CA-G.R. No. SP-12295) imputing grave abuse of discretion to respondent
Judge in the issuance of the Order of April 9, 1981 granting the Alias Writ.
On May 21, 1981, respondent Court of Appeals upheld the Alias Writ of Execution, petitioner's
"solidary liability (having) been clearly pronounced by this Court in case CA-G.R. No. 53497-R"

M.L. DEL MUNDO ROBLEDO | 150

when it held that petitioner is equally liable for all the damages that resulted from the wrongful
issuance of the writ (of attachment)."
Petitioner filed the present Petition stating that respondent Judge acted without or in excess of
jurisdiction in issuing the Order for the issuance of the Alias Writ of Execution for the further
enforcement of the judgment against petitioner; and that respondent Court of Appeals acted with
grave abuse of discretion or erred in sustaining the said order.
ISSUE: is whether or not respondent Court committed grave abuse of discretion in ordering the
issuance of the Alias Writ of Execution making petitioner solidarily liable for all costs and damages,
or, for more than the amount of its bond.
RULING:
We find for petitioner.
Paragraph " 6 " of the dispositive portion of the Trial Court's Decision, which states:
6. On the action of the defendant against the attachment bond, ordering the plaintiff and the
respondent Zenith Insurance Corporation to pay defendant, jointly and severally against the
attachment bond but not exceeding the amount secured thereby in the sum of P250,000.00 the
following amounts:
xxx xxx xxx
is clear and correct. There is no ambiguity that would "justify resort to the entire contents of the
decision in order to determine the extent of the liability of a party litigant". 
When a surety executes a bond, it does not guarantee that the plaintiff's cause of action is
meritorious, and that it will be responsible for all the costs that may be adjudicated against its
principal in case the action fails. 3 The extent of a surety's liability is determined only by the clause of
the contract of suretyship. 4 It cannot be extended by implication,
the default and the necessity of judicial collection. "
WHEREFORE, the Petition is hereby granted.

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101. Noda vs Cruz-Alrnaldo GR No. L-57322 June 22, 1987
FACTS:
In 1977, petitioner Norman R. Noda obtained from respondent Zenith Insurance Corporation two fire
insurance policies: [1] No. F-03724 covering the goods and stocks in trade in his business
establishment at the market site in Mangagoy, Bislig, Surigao del Sur for the period from March 3,
1977 to March 3, 1978 and [2] No. F-03734 for the period from May 10, 1977 to May 10, 1978 and
consisting of Item 1 on household furniture, fixtures, fittings and other personal effects, and Item 2
on stocks in trade usual to petitioner's retail business situated in a two-storey building at 039 Barreda
St., also in Mangagoy, Bislig, Surigao del Sur, the ground floor of which the petitioner used as store
and the second floor as family quarters.
While both policies were in force, fire destroyed petitioner's insured properties at the market site on
September 5, 1977 and at Barreda St. on November 9, 1977. When petitioner failed to obtain
indemnity on his claims from respondent Zenith, he filed a complaint with the Insurance Commission
on October 6, 1978 praying that respondent company be ordered to pay him "the sum of P130,000
representing the value of the two [2] policies insured by respondent with interest at 12% per annum,
plus damages, attorney's fees and other expenses of litigation. While the case was pending with the
Insurance Commission, Zenith, on March 4, 1980, settled petitioner’s fire loss claim under Item 1 of
Policy No. 03734 in the amount of P15,472.50
Respondent Commissioner thereafter discharged Zenith Insurance from its liability in Policy No.
03734. Maintaining that respondent Commissioner failed to take into account that there were two
separate items under Policy No. F-03734 and that his P60,000 claim under Item 2, covering stocks
in trade at Barreda Street, still remained unresolved despite payment to him of P15,472.50,
petitioner asked for a reconsideration.

ISSUE:
Whether or not the Commissioner was correct in discharging Zenith from liability on the ground of
insufficient proof from petitioner Noda.

RULING:
No, To prove the existence of the stocks in trade covered by Policy No. F-03734, petitioner offered
his testimony and that of his wife as well as documentary exhibits. The foregoing evidence for
petitioner preponderantly showed the presence of some P590,000 worth of goods in his retail store
during the fire of November 9, 1977.
While the insurer, and the Insurance Commissioner for that matter, have the right to reject proofs of
loss if they are unsatisfactory, they may not set up for themselves an arbitrary standard of
satisfaction. Substantial compliance with the requirements will always be deemed sufficient.

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102. Vda. De Maglana vs. Consolacion
212 SCRA 268 (1992)

FACTS:
 Lope Maglana was an employee of the Bureau of Customs. On his way to his work
station, driving a motorcycle owned by the Bureau of Customs, he met an accident
that resulted in his death. He was bumped by a PUJ jeep driven by Destrajo.
 The lower court rendered a decision finding that Destrajo had not exercised sufficient
diligence as the operator of the jeepney.
 Petitioners filed a motion for the reconsideration of the second paragraph of the
dispositive portion of the decision contending that AFISCO should not merely be held
secondarily liable because the Insurance Code provides that the insurer's liability is
"direct and primary and/or jointly and severally with the operator of the vehicle,
although only up to the extent of the insurance coverage." 4 Hence, they argued that
the P20,000.00 coverage of the insurance policy issued by AFISCO, should have
been awarded in their favor.
 The lower court denied the motion for reconsideration ruling that since the insurance
contract "is in the nature of suretyship, then the liability of the insurer is secondary
only up to the extent of the insurance coverage.
 Petitioners filed a second motion for reconsideration reiterating that the liability of the
insurer is direct, primary and solidary with the jeepney operator because the
petitioners became direct beneficiaries under the provision of the policy which, in
effect, is a stipulation pour autrui. 6 This motion was likewise denied for lack of merit.
 Hence, this petition for certiorari.

ISSUE:
Whether or not the petition is meritorious?

RULING:
YES.
In fine, we conclude that the liability of AFISCO based on the insurance contract is direct, but not
solidary with that of Destrajo which is based on Article 2180 of the Civil Code. 12 As such,
petitioners have the option either to claim the P15,000 from AFISCO and the balance from Destrajo
or enforce the entire judgment from Destrajo subject to reimbursement from AFISCO to the extent of
the insurance coverage.
While the petition seeks a definitive ruling only on the nature of AFISCO's liability, we noticed
that the lower court erred in the computation of the probable loss of income. Using the formula: 2/3
of (80-56) x P12,000.00, it awarded P28,800.00. 13 Upon recomputation, the correct amount is
P192,000.00. Being a "plain error," we opt to correct the same. 14 Furthermore, in accordance with
prevailing jurisprudence, the death indemnity is hereby increased to P50,000.00. 15
WHEREFORE, premises considered, the present petition is hereby GRANTED. The award
of P28,800.00 representing loss of income is INCREASED to P192,000.00 and the death indemnity
of P12,000.00 to P50,000.00.

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103. GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner,
vs.
COURT OF APPEALS (former Tenth Division), VICTORIA JAIME VDA. DE KHO, for herself and
minor ROY ROLAND, GLORIA KHO VDA. DE CALABIA for herself and minors MARY GRACE,
WILLIE, JR., VOLTAIRE, GLENN, and MAY, all surnamed CALABIA, DANIEL KHO, JOSEFINA
KHO, EMERITA KHO APEGO, ANTONIO KHO and TERESITA KHO, respondents.
G.R. No. 101439 June 21, 1999
FACTS:
NFA was the owner of a Chevrolet truck which was insured against liabilities for death of and
injuries to third persons with the GSIS. On May 9, 1979, at about 7:00 in the evening at Tabon-
Tabon, Butuan City, the said truck collided with a public utility vehicle owned and operated by Victor
Uy, under the name and style of "Victory Line." All the collision victims were passengers of the
Toyota Tamaraw. Five (5) passengers died 4 while ten (10) others sustained bodily injuries. Among
those injured were private respondents.
The court rendered its decision holding that the truck driver’s negligence was the proximate
cause of the collision. The findings of the trial court stated that the truck which crossed over to the
other lane was speeding because after the collision, its left front wheel was detached and the truck
traveled for about fifty (50) meters and fell into a ravine. Likewise, the court concluded that if both
vehicles had traveled in their respective lanes, the incident would not have occurred. However, the
Chevy cargo truck had crossed over to the other lane which, under traffic rules, was the lane of the
PUV.
The trial court held in favor of the private respondents, holding GSIS solidarily liable with
NFA. The Court of Appeals agreed with the conclusions of the trial court.
Petitioner denies solidary liability with the NFA or the negligent operator of the cargo truck
because it claims that they are liable under different obligations. It asserts that the NFA's liability is
based on quasi-delict, while petitioner's liability is based on the contract of insurance. Citing articles
1207 11 and 1208 12 of the Civil Code of the Philippines, petitioner states that when there are two or
more debtors or two or more creditors, the obligation as a general rule is joint. It claims that the only
exceptions are: (1) when there is a stipulation for solidary obligation; (2) when the nature of the
obligation requires solidary liability; and (3) when the law declares the obligation to be solidary.
However, since neither the provision of the contract nor the insurance law provides for solidary
liability, petitioner asserts that the presumption is that its obligation arising from a contract of
insurance is joint.
Hence, the case at bar.
ISSUES:
(1) Whether or not GSIS is solidarily liable with the negligent insured/owner-operator of the
truck, and whose amount of damages awarded exceed with the insurance contract; and (2) Whether
or not the private respondents have no cause of action against the petitioner, allegedly for failure of
the victims to file an insurance claim within six (6) months from the date of the accident.
RULING:
(1) No. The liability of GSIS is direct, but not solidary with the insured-owner.
It is now established that the injured or the heirs of a deceased victim of a vehicular accident
may sue directly the insurer of the vehicle. Note that common carriers are required to secure
Compulsory Motor Vehicle Liability Insurance [CMVLI] coverage as provided under Sec. 374 of the
Insurance Code, precisely for the benefit of victims of vehicular accidents and to extend them
immediate relief.

M.L. DEL MUNDO ROBLEDO | 154

 Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily
intended to provide compensation for the death or bodily injuries suffered by innocent third parties or
passengers as a result of a negligent operation and use of motor vehicles. The victims and/or their
defendants [dependents] are assured of immediate financial assistance, regardless of the financial
capacity of motor vehicle owners.
The injured for whom the contract of insurance is intended can sue directly the insurer. The
general purpose of statutes enabling an injured person to proceed directly against the insurer is to
protect injured persons against the insolvency of the insured who causes such injury, and to give
such injured person a certain beneficial interest in the proceeds of the policy, and statutes are to be
liberally construed so that their intended purpose may be accomplished.
However, although the victim may proceed directly against the insurer for indemnity, the third
party liability is only up to the extent of the insurance policy and those required by law. While it is
true that where the insurance contract provides for indemnity against liability to third persons, and
such third persons can directly sue the insurer, the direct liability of the insurer under indemnity
contracts against third party liability does not mean that the insurer can be held liable in solidum with
the insured and/or the other parties found at fault.For the liability of the insurer is based on
contract; that of the insured carrier or vehicle owner is based on tort. The liability of GSIS
based on the insurance contract is direct, but not solidary with that of the NFA. The latter's
liability is based separately on Article 2180 of the Civil Code.
Obviously, the insurer could be held liable only up to the extent of what was provided
for by the contract of insurance, in accordance with CMVLI law. At the time of the incident, the
schedule of indemnities for death and/or bodily injuries, professional fees, hospital and other
charges payable under a CMVLI coverage was provided under the Insurance Memorandum Circular
(IMC) No. 5-78.
Consequently, heirs of the victims who died in the May 9, 1979 vehicular incident, could
proceed (1) against GSIS for the indemnity of P12,000 for each dead victim, and against NFA and
Guillermo Corbeta for any other damages or expenses claimed; or (2) against NFA and Corbeta to
pay them all their claims in full.
It follows also that injured victims, Gloria Kho Vda. de Calabia and Victoria Kho, could claim
their medical expenses for eight thousand nine hundred thirty-five pesos and six centavos
(P8,935.06) and eight hundred thirty-two (P832.00) pesos, from any of the following: GSIS, NFA, or
Corbeta. As to the other damages, only NFA or Corbeta may be held liable therefor.
Computation of hospital charges and fees for the services rendered to the injured victims
was conclusively established by the trial court. The petitioner failed to object to the evidence
thereon, when presented by the private respondents during the trial. Thus, these factual bases for
the award of damages may no longer be attacked. For generally, findings of the judge who tried the
case and heard the witnesses could not be disturbed on appeal, unless there are substantial facts
and particular circumstances which have been overlooked but which, if properly considered, might
affect the result of the case. 23 Thus, considering the evidence on record including the schedule of
indemnities provided under IMC No. 5-78, we find no cogent reason to disturb the computation of
medical charges and expenses that justify the award of damages by the trial court.
(2) As to the second issue, the petitioner contends that it cannot be held liable without proof
nor allegation that the private respondents filed before its office a notice of claim within six (6)
months from the date of the accident. This requirement, according to the petitioner, gives the insurer
the opportunity to investigate the veracity of the claim, and non-compliance therewith constitutes
waiver. Since the claim was not reported to the insurer, the petitioner avers that the presumption is
that the victim opted to pursue his claim against the motor vehicle owner or against the tortfeasor.
However, in this case the records reveal that on September 7, 1979, the private respondents
sent a notice of loss to the petitioner informing the latter of the accident. This notice constitutes

M.L. DEL MUNDO ROBLEDO | 155

evidence of the loss they suffered by reason of the vehicular collision. They stressed further that the
petitioner did not deny receipt of notice of claim during the trial, and it would be too late now to state
otherwise.
Although merely factual, we need to emphasize that the alleged delay in reporting the loss
by the insured and/or by the beneficiaries must be promptly raised by the insurer in objecting to the
claims. When the insured presented proof of loss before the trial court, the insurer failed to object to
said presentation. The petitioner should have promptly interposed the defense of delay, or belated
compliance, concerning the notice of claim. Moreover, the petitioner merely waited for the victims or
beneficiaries to file their complaint. As matters stand now, the defense of laches or prescription is
deemed waived because of petitioner's failure to raise it not only before but also during the hearing.

M.L. DEL MUNDO ROBLEDO | 156

104. WILLIAM TIU, doing business under the name and style of D Rough Riders, and
VIRGILIO TE LAS PIAS petitioners, vs. PEDRO A. ARRIESGADO, BENJAMIN CONDOR,
SERGIO PEDRANO and PHILIPPINE PHOENIX SURETY AND INSURANCE, INC., respondents.
G.R. No. 138060. September 1, 2004
FACTS:
Pedrano was driving the cargo truck when one of its rear tires exploded, thereafter , then parked
along the right side of the national highway and removed the damaged tire to have it vulcanized at a
nearby shop. D Rough Riders passenger bus driven by Laspias was cruising along the national
highway then hit the cargo truck wherein some of its passenger the Sps. Arriesgo and shortly Mrs.
Arriesgo died.
Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage, damages
and attorneys fees before the Regional Trial Court against the petitioners, alleging that the
passenger bus in question was cruising at a fast and high speed along the national road, and that
petitioner Laspias did not take precautionary measures to avoid the accident and the proximate
cause of which was defendant-drivers failure to observe utmost diligence required of a very cautious
person under all circumstances. The bus was owned and operated by third-party plaintiff William Tiu,
is covered by a common carrier liability insurance issued by Philippine Phoenix Surety and
Insurance, Inc.
Trial court ruled that if petitioner Laspias had not been driving at a fast pace, he could have easily
swerved to the left to avoid hitting the truck, thus, averting the unfortunate incident. It then concluded
that petitioner Laspias was negligent. Petitioner then elevated the case to the C.A. but affirmed lower
court’s decision.
ISSUE: whetherrespondent Philippine Phoenix Surety and Insurance, Inc. as Insurer is liable for the
claim of Plaintiff.
RULING:YES. respondent PPSII admitted the existence of the contract of insurance and did not
dispute the existence of such contract, and admitted that it was liable thereon.
With respect to the claim of plaintiff, herein answering third party defendant through its authorized
insurance adjuster attended to said claim. In fact, there were negotiations to that effect. Only that it
cannot accede to the demand of said claimant considering that the claim was way beyond the
scheduled indemnity as per contract entered into with third party plaintiff William Tiu and third party
defendant (Philippine Phoenix Surety and Insurance, Inc.).
However, although the victim may proceed directly against the insurer for indemnity, the third party
liability is only up to the extent of the insurance policy and those required by law . While it is true that
where the insurance contract provides for indemnity against liability to third persons, and such
persons can directly sue the insurer, the direct liability of the insurer under indemnity contracts
against third party liability does not mean that the insurer can be held liable in  solidum with the
insured and/or the other parties found at fault. For the liability of the insurer is based on contract; that
of the insured carrier or vehicle owner is based on tort.
[IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the
Court of Appeals is AFFIRMED with MODIFICATIONS:
(1) Respondent Philippine Phoenix Surety and Insurance, Inc. and petitioner William Tiu
are ORDERED to pay, jointly and severally, respondent Pedro A. Arriesgado the total amount
of P13,113.80;
(2) The petitioners and the respondents Benjamin Condor and Sergio Pedrano
are ORDERED to pay, jointly and severally, respondent Pedro A. Arriesgado P50,000.00 as
indemnity; P26,441.50 as actual damages; P50,000.00 as moral damages; P50,000.00 as
exemplary damages; and P20,000.00 as attorneys fees.SO ORDERED. ]

M.L. DEL MUNDO ROBLEDO | 157

105. MAPALAD AISPORNA, petitioner,
vs.
THE COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.

FACTS:

Petitioner Aisporna was charged in the City Court of Cabanatuan for violation of Section 189 of the
Insurance Act as agent in the solicitation or procurement of an application for insurance by soliciting
therefor the application of one Eugenio S. Isidro, for and in behalf of Perla Compania de Seguros,
Inc., a duly organized insurance company, registered under the laws of the Republic of the
Philippines, resulting in the issuance of a Broad Personal Accident Policy No. 28PI-RSA 0001 in the
amount not exceeding FIVE THOUSAND PESOS (P5,000.00) without said accused having first
secured a certificate of authority to act as such agent from the office of the Insurance Commissioner.

ISSUE:

Whether or not a person can be convicted of having violated the first paragraph of Section 189 of the
Insurance Act without reference to the second paragraph of the same section. In other words, it is
necessary to determine whether or not the agent mentioned in the first paragraph of the aforesaid
section is governed by the definition of an insurance agent found on its second paragraph.

RULING:
The pertinent provision of Section 189 of the Insurance Act reads as follows:
No insurance company doing business within the Philippine Islands, nor any agent thereof, shall pay
any commission or other compensation to any person for services in obtaining new insurance,
unless such person shall have first procured from the Insurance Commissioner a certificate of
authority to act as an agent of such company as hereinafter provided. No person shall act as agent,
sub-agent, or broker in the solicitation of procurement of applications for insurance, or receive for
services in obtaining new insurance, any commission or other compensation from any insurance
company doing business in the Philippine Islands, or agent thereof, without first procuring a
certificate of authority so to act from the Insurance Commissioner, which must be renewed annually
on the first day of January, or within six months thereafter. Such certificate shall be issued by the
Insurance Commissioner only upon the written application of persons desiring such authority, such
application being approved and countersigned by the company such person desires to represent,
and shall be upon a form approved by the Insurance Commissioner, giving such information as he
may require. The Insurance Commissioner shall have the right to refuse to issue or renew and to
revoke any such certificate in his discretion. No such certificate shall be valid, however, in any event
after the first day of July of the year following the issuing of such certificate. Renewal certificates
may be issued upon the application of the company.

Any person who for compensation solicits or obtains insurance on behalf of any insurance company,
or transmits for a person other than himself an application for a policy of insurance to or from such
company or offers or assumes to act in the negotiating of such insurance, shall be an insurance
agent within the intent of this section, and shall thereby become liable to all the duties, requirements,
liabilities, and penalties to which an agent of such company is subject.

M.L. DEL MUNDO ROBLEDO | 158

Any person or company violating the provisions of this section shall be fined in the sum of five
hundred pesos. On the conviction of any person acting as agent, sub-agent, or broker, of the
commission of any offense connected with the business of insurance, the Insurance Commissioner
shall immediately revoke the certificate of authority issued to him and no such certificate shall
thereafter be issued to such convicted person.
From the above-mentioned ruling, the respondent appellate court seems to imply that the definition
of an insurance agent under the second paragraph of Section 189 is not applicable to the insurance
agent mentioned in the first paragraph. Parenthetically, the respondent court concludes that under
the second paragraph of Section 189, a person is an insurance agent if he solicits and obtains an
insurance for compensation, but, in its first paragraph, there is no necessity that a person solicits an
insurance for compensation in order to be called an insurance agent.

We find this to be a reversible error. As correctly pointed out by the Solicitor General, the definition
of an insurance agent as found in the second paragraph of Section 189 is intended to define the
word "agent" mentioned in the first and second paragraphs of the aforesaid section. More
significantly, in its second paragraph, it is explicitly provided that the definition of an insurance agent
is within the intent of Section 189.

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106. GREAT PACIFIC LIFE ASSURANCE CORP. (GREPALIFE), Petitioner,

-vs-
HONORATO JUDICO and NATIONAL LABOR RELATIONS
COMMISSION (NLRC), Respondent.
G.R. NO.73887December 21, 1989
Doctrines:
An insurance company has two classes of agents: (1) salaried employees who keep definite
hours and work under the control and supervision of the company; and (2) registered
representatives who work on commission basis who are not required to report for work at anytime
[Investment Planning Corp. vs. SSS];
Control Test is to determine the existence of an employer-employee relationship, whether
the “employer” controls or has reserved the right to control the “employee” not only as to the result of
the work to be done but also as to the means and methods by which the same is to be
accomplished.

Facts:
On August 27, 1982, Private Respondent Judico filed a case for illegal dismissal against
herein Petitioner Grepalife before the Labor Arbiter and prayed for the award of money claims and
damages by virtue of the former’s employment with the latter. Petitioner assails that there existed no
employer-employee relationship with Private Respondent. The Labor Arbiter however dismissed the
complaint on the ground that no employer-employee relationship existed between the parties.
However, the Public Respondent NLRC reversed the ruling stating that the Private Respondent is a
regular employee of Petitioner. The latter’s reconsideration was denied, hence the Petition for
Review.
Issue:
Whether or not there existed employer-employee relationship between the parties.

Ruling:
The High Court ruled in the affirmative – that herein Private respondent acted as a salaried
employee of Petitioner and not merely as registered representative. The element of control by the
Petitioner over Private Respondents engagement with it, as the latter received a definite minimum
amount per week as his wage, known as “sales reserves” wherein the failure to maintain the same
would bring him back to a beginner’s employment with a fixed weekly wage of P200.00 for 13 weeks
regardless of production. Moreso, he was required to make regular report to the company and an
anemic performance would mean dismissal. Faithful and productive service had earned him a
promotion to Zone Supervisor with additional allowance. In short, the undisputed facts shows that
herein Private Respondent was controlled by Petitioner not only as to the kind of work, the amount of
results, the kind of performance, but also the power of dismissal.
The appealed decision was thus affirmed in toto.

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107. GREAT PACIFIC LIFE ASSURANCE CORPORATION 
vs
NATIONAL LABOR RELATIONS COMMISSION, ERNESTO RUIZ and RODRIGO RUIZ
G.R. No. 80750-51
July 23, 1990

FACTS:
Brothers Rodrigo and Ernesto Ruiz (private respondents herein) entered into individual
agency agreements with petitioner Grepalife in 1977, each starting out as trainee-agents and later
promoted to higher positions. One of the private respondents, Ernesto, was designated as district
manager but was dismissed from service due to delayed remittances of premium collections in his
possession and to have appropriated the same for his own use. Grepalife then designated Ernesto’s
brother,Rodrigo, as officer-in charge to take over the functions of district manager in the Butuan
district. Unfortunately, Rodrigo proved to be made of the same stuff as his brother. He instigated the
other zone supervisors and debit agents of the Butuan district not to submit their weekly reports of
business and not to remit the premium collections. This prompted Grepalife to terminate Rodrigo’s
employment.
Rodrigo and Ernesto each filed an action for illegal dismissal which was consolidated. The
labor arbiter found that Rodrigo and Ernesto: (1) were employees of Grepalife; (2) committed acts
inimical to Grepalife's business; and (3) were dismissed without first being afforded due process by
way of a notice in writing of the grounds for their dismissal. Despite such findings, the labor arbiter
ordered their reinstatement without backwages
Upon appeal, the National Labor Relations Commission (NLRC) affirmed the factual findings
of the labor arbiter but reversed the order of reinstatement. Nevertheless, separation pay was
awarded in favor of private respondents for petitioner's failure to observe due process prior to their
termination from employment. Hence, the present petition.

ISSUE:
Whether or not Insurance Code and not the Labor Code governs their employment as insurance
agents.

RULING:
No. True, it cannot be denied that based on the definition of an "insurance agent" in the
Insurance Code [Art. 300] some of the functions performed by private respondents were those of
insurance agents. Nevertheless, it does not follow that they are not employees of Grepalife. The
Insurance Code may govern the licensing requirements and other particular duties of insurance
agents, but it does not bar the application of the Labor Code with regard to labor standards and labor
relations.
DISPOSITION:
The decision of the NLRC is hereby MODIFIED insofar as the award of "separation pay" is
concerned. In lieu of "separation pay" petitioner Grepalife is hereby ordered to indemnify private
respondents Rodrigo Ruiz and Ernesto Ruiz the amount of One Thousand Pesos (P1,000.00) each

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108. Pineda vs. Court of Appeals
G.R. No. 105562 (September 27, 1993)

FACTS:
This is an action for the payment of insurance claims and prayer for administrative sanctions.
Prime Marine Services, Inc. (PMSI), a crewing/manning outfit, procured a Group Policy from Insular
Life Assurance Co., Ltd. to provide life insurance coverage to its sea-based employees. During the
effectivity of the policy, six covered employees perished at sea when their vessel sunk. They were
survived by the complainants-appellees, the beneficiaries under the policy. The beneficiaries, except
the spouses Alarcon, executed special powers of attorney authorizing Capt. Nuval, President and
General Manager of PMSI, to , among others, “followup, ask, demand, collect and receive” for their benefit
indemnities of sums of money due them relative to the sinking of the vessel. By virtue of these
written powers of attorney, complainants-appellees were able to receive their respective death
benefits. Unknown to them, however, PMSI, in its capacity as employer and policyholder of the life
insurance of its deceased workers, filed with Insular Life formal claims for and in behalf of the
beneficiaries, through Capt. Nuval. On the basis of the five special powers of attorney, Insular Life
drew against its account six (6) checks, four for P200,000.00 each, one for P50,000.00 and another
for P40,000.00 payable to the order of complainants-appellees. Capt. Nuval, upon receipt of these
checks endorsed and deposited them in his own account. When the complainants-appellees learned
that they were entitled, as beneficiaries, to life insurance benefits under a group policy, they sought
to recover these benefits from Insular Life but the latter denied their claim on the ground that
the liability to complainants-appellees was already extinguished.

ISSUE/S:
Whether or not Insular Life is bound by the misconduct of the employer.

RULING:
Yes. In Elfstrom vs. New York Life Insurance Company, the California Supreme Court
explicitlyruled that in group insurance policies, the employer is the agent of the insurer. Thus: “We
are convinced that the employer is the agent of the insurer in performing the duties of administering
group insurance policies. It cannot be said that the employer acts entirely for its own benefit or for
the benefit of its employees in undertaking administrative functions. While a reduced premium may
result if the employer relieves the insurer of these tasks, and this, of course, is advantageous to both
the employer and the employees, the insurer also enjoys significant advantages from the
arrangement. The reduction in the premium which results from employer-administration permits the
insurer to realize a larger volume of sales, and at the same time the insurer’s own administrative
costs are markedly reduced. x x x The most persuasive rationale for adopting the view that the
employer acts as the agent of the insurer, however, is that the employee has no knowledge of or
control over the employer’s actions in handling the policy or its administration. An agency
relationship is based upon consent by one person that another shall act in his behalf and be subject
to his control. It is clear from the evidence regarding procedural techniques here that the insurer-
employer relationship meets this agency test with regard to the administration of the policy, whereas
that between the employer and its employees fails to reflect true agency. The insurer directs the
performance of the employer’s administrative acts, and if these duties are not undertaken properly
the insurer is in a position to exercise more constricted control over the employer’s conduct.”

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109. PHIL. AMERICAN LIFE INSURANCE COMPANY VS. ANSALDO

FACTS:

Paterno wrote a letter of complaint to Ansaldo (Insurance Commissioner) alleging problems

encountered by workers and public consumers as a result of Philamlife’s practices. Ansaldo sought
the comment of De Los Reyes, who in turn sought a bill of particulars. Paterno responded that his
letter was sufficient in form and sought for a hearing. Philamlife countered that Paterno’s response
did not enable him to answer the letter of complaint. Thereafter, a hearing on the complaint heard
the validity of the Contract of Agency(CoA) complained of, requiring Paterno to supply the specific
provisions in the CoA which he claims to be illegal. Paterno: (1) reiterated his initial letter of
complaint; (2) prayed that the (a) provisions on charges and fees in the CoA; (b) implementing
provisions in the agents' handbook, agency bulletins and circulars, be declared null and void; and (3)
to reimburse agents of the amounts deducted from charges andfees already collected with interest.
This was furnished by Ansaldo to Philamlife who thereafter submitted its contentions, to wit: (1)
Private respondent's letter of August 11, 1986 does not contain any of the particular information
which Philamlife was seeking from him and which he promised to submit; and (2) [t]hat since the
Commission's quasi-judicial power was being invoked with regard to the complaint, private
respondent must file a verified formal complaint before any further proceedings. Meanwhile, Paterno
sought for the resumption of hearing in re his complaint and about a month later executed his
affidavit. Philamlife questioned the jurisdiction of Ansaldo and the
locus standi of Paterno. Ansaldo thereafter notified parties to a hearing. Philamlife moved for
quashal since subpoena has no legal basis and Insurance Commission has no jurisdiction. The
same was however denied by Ansaldo. Hence, this petition.

ISSUE
(1). Can the Insurance Commission preside over issues assailing the validity of a Contract of
Agency?

RULING:

(1). No. The general authority of the Insurance Commissioner is laid down in the Insurance Code,
among others, to regulate the business of insurance. Since a Contract of Agency is not covered in
the authority of the Insurance Commission to regulate business of insurance, jurisdiction of Ansaldo
is wanting. Ansaldo also has no quasi-judicial power to speak of in the Insurance Code since “xxx
his power is limited to claims and complaints involving any loss, damage or liability for which an
insurer may be answerable under any kind of policy or contract of insurancexxx". This power does
not affect the relationship between an insurance company and its agents. In the same light, although
the Insurance Code provides for the subject Insurance Agents and Brokers, the same only speaks
licensing requirements and limitations imposed on insurance agents and brokers. Thus, it is clear
that the Insurance Code does not grant Ansaldo the authority to take cognizance of the case. On the
other hand, there are two classes of insurance agents: (1) salaried employees who keep definite
hours and work under the control and supervision of the company; and (2) registered
representatives, who work on commission basis. The former is cognizable by the Labor Arbiter (as it

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involves the Contract of Employment and provisions of the Labor Code) and the latter by regular
courts (as it involves issues on the Contract of Agency and the Civil Code provisions on Agency.
110. SOUTH SEA SURETY AND INSURANCE COMPANY, INC., petitioner, vs. HON. COURT OF
APPEALS and VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC., respondents.
G.R. No. 102253 June 2, 1995

FACTS:
Hardwood entered into an agreement with the defendant Seven Brothers whereby the latter
undertook to load on board its vessel M/V Seven Ambassador the former's lauan round logs
numbering 940 at the port of Maconacon, Isabela for shipment to Manila. The plaintiff insured the
logs, against loss and/or, damage with defendant South Sea Surety and Insurance Co., Inc.
Hardwood gave the check in payment of the premium on the insurance policy to Mr. Victorio Chua.
Unfortunately, M/V Seven Ambassador sank resulting in the loss of the plaintiffs insured logs even
before the check was tendered by Chua to South Sea. And when the check was tendered, South
Sea refused to accept it and instead cancelled the insurance policy for nonpayment of the premium.
Hardwood filed a complaint for the recovery of the value of lost logs and freight charges from Seven
Brothers Shipping Corporation or, to the extent of its alleged insurance cover, from South Sea
Surety and insurance Company.

ISSUE:
Whether or not the surety company is liable to the plaintiff for the latter's lost logs.

RULING:
Two issues on the subject of insurance are raised in this petition are: (1) requirement of premium
payment and (2) the agency relationship of parties under that contract. As to the first issue,
undoubtedly, the payment of the premium is a condition precedent to, and essential for, the
efficaciousness of the contract. The only two statutorily provided exceptions are (a) in case the
insurance coverage relates to life or industrial life (health) insurance when a grace period applies
and (b) when the insurer makes a written acknowledgment of the receipt of premium, this
acknowledgment being declared by law to be then conclusive evidence of the premium payment.
Having said that, the pivotal issue to be resolved to determine the liability, of the surety corporation
is whether Mr. Chua acted as an agent of the surety company or of the insured when he received
the check for insurance premiums. On cross-examination in behalf of South Sea Surety and
Insurance Co., Inc. Mr. Chua testified that the marine cargo insurance policy for the plaintiff's logs
was delivered to him on 21 January 1984 at his office to be delivered to the plaintiff. When the
appellant South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine cargo
insurance policy for the plaintiffs logs, he is deemed to have been authorized by the South Sea
Surety and Insurance Co., Inc. to receive the premium which is due on its behalf. Therefore , when
the insured logs were lost, the insured had already paid the premium to an agent of the South Sea
Surety and Insurance Co., Inc., which is consequently liable to pay the insurance proceeds under
the policy it issued to the insured.

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111. SMITH BELL AND COMPANY PHILS. V. CA (G.R. NO. L-56294)
FACTS:
M/V “Don Carlos,” an inter-island vessel owned and operated by private respondent Go Thong was
sailing south bound for Cebu, when it collided with M/S “Yotai Maru,” a merchant vessel of Japanese
registry which was approaching the port of Manila coming in from Kobe, Japan. The bow of the “Don
Carlos” rammed the left side of the “Yotai Maru” inflicting a gaping hole through which seawater
rushed in and flooded the hatch, damaging all the cargo stowed therein. The consignees of the
damaged cargo having been paid by their insurance companies, the latter in turn commenced
actions against private respondent Go Thong for damages sustained by the various shipments. 2
cases were filed before the RTC. The first case (Smith Bell and Sumitomo Insurance v. Go Thong)
reached the SC which ruled in finality that negligence was with the officers and crew of “Don Carlos.”
On the contrary, the second case (Smith Bell and Tokyo Insurance v. Go Thong) was decided by the
CA holding the officers and crew of “Yotai Maru” at fault in the collision. Hence the present petition.
ISSUE:
Whether or not inscrutable fault is present in said collision.

RULING: NO.
The Court believes that there are three (3) principal factors which are constitutive of negligence on
the part of the “Don Carlos,” which negligence was the proximate cause of the collision.
(1) The first of these factors was the failure of the “Don Carlos” to comply with the requirements of
Rule 18 (a) of the International Rules of the Road which provides as follows: (a) When two power-
driven vessels are meeting end on, or nearly end on, so as to involve risk of collision, each shall alter
her course to starboard, so that each may pass on the port side of the other. The evidence on this
factor state that “Don Carlos” altered its course by five degrees to the left instead of to the right
which maneuver was the error that caused the collision in question. Why it did so is because “Don
Carlos” was overtaking another vessel, the “Don Francisco”, and was then at the right side of the
aforesaid vessel. It was in the process of overtaking “Don Francisco” that “Don Carlos” was finally
brought into a situation where he was meeting end-on or nearly end-on “Yotai Maru, thus involving
risk of collision.
(2) The second circumstance constitutive of negligence on the part of the “Don Carlos” was its failure
to have on board that night a “proper look-out” as required by Rule I (B) Under Rule 29 of the same
set of Rules, all consequences arising from the failure of the “Don Carlos” to keep a “proper look-out”
must be borne by the “Don Carlos.” In the case at bar, the failure of the “Don Carlos” to recognize in
a timely manner the risk of collision with the “Yotai Maru” coming in from the opposite direction, was
at least in part due to the failure of the “Don Carlos” to maintain a proper look-out.
(3) The third factor constitutive of negligence on the part of the “Don Carlos” relates to the fact that
Second Mate Benito German was, immediately before and during the collision, in command of the
“Don Carlos.” Second Mate German simply did not have the level of experience, judgment and skill
essential for recognizing and coping with the risk of collision as it presented itself that early morning
when the “Don Carlos,” running at maximum speed and having just overtaken the “Don Francisco”
then approximately one mile behind to the right side of the “Don Carlos,” found itself head-on or
nearly head on vis-a-vis the “Yotai Maru. ” It is essential to point out that this situation was created
by the “Don Carlos” itself.
FOR ALL THE FOREGOING, the Decision of the Court of Appeals is hereby REVERSED and SET
ASIDE.

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112. PHILIPPINE HOME ASSURANCE CORP.
V. COURT OF APPEALS
301 SCRA 443 (1999)

FACTS:
Petitioners are the Philippine Home Assurance Corporation (PHAC), the Philippine
American Accident Insurance Company (PAAIC), the Philippine American General Insurance
Company (PAGIC), and the American International Underwriters (Phils.), Inc. (AIUPI), which
are domestic corporations engaged in the insurance business. On August 4, 1987,
petitioners filed separate claims for refund from the Bureau of Internal Revenue. They
alleged that the premiums on the insurance policies issued by them had not been paid thus,
in accordance with Sec. 77 of the Insurance Code, no documentary stamp taxes were due
on the policies.
Petitioners filed a joint appeal in the Court of Appeals which, however, in a judgment,
dated April 27, 1994, affirmed the decision of the Court of Tax Appeals. The respondent
court correctly characterized a documentary stamp tax as in the nature of an excise tax. As
such, it is imposed on the privilege of conducting a particular business or transaction and not
on the business or transaction itself. Thus, the documentary stamp tax on insurance policies
is, in effect, imposed on the privilege to conduct insurance business and not on the
insurance business itself or on the premiums paid under the said insurance policies. This
means then that the documentary stamp tax accrues when the said privilege is exercised.
As the respondent court stated, while it is true that a documentary stamp tax is
levied on the document and not on the property involved, the documentary stamp tax is not
intended to be a tax on the document alone. The law taxes the document because of the
transaction so that the tax becomes due and payable at the time the transaction is had or
accomplished, in this case, at the time of the issuance of the document.
This is the reason that the documentary stamp tax will not be refunded upon the subsequent
cancellation of the insurance policy. Likewise, when a policy already issued becomes
ineffective because of the non-payment of the first premium, the documentary stamp tax
cannot be refunded whether or not the policy has, in fact, become effective, since the
privilege subject of the tax has already been realized.
Hence, this appeal.
ISSUE:
Whether or not, life and non-life insurance policies in question are subject to documentary
stamp taxes.
RULING:
Yes. Documentary stamp taxes are levied on the exercise by persons of certain
privileges conferred by law for the creation, revision, or termination of specific legal
relationships through the execution of specific instruments. Examples of such privileges, the
exercise of which, as effected through the issuance of particular documents, are subject to
the payment of documentary stamp taxes are leases of lands, mortgages, pledges, and
trusts, and conveyances of real property.
Documentary stamp taxes are thus levied on the exercise of these privileges through
the execution of specific instruments, independently of the legal status of the transactions
giving rise thereto. The documentary stamp taxes must be paid upon the issuance of the

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 said instruments, without regard to whether the contracts which gave rise to them are
rescissible, void, voidable, or unenforceable. As the Supreme Court of the United States held
in Du Pont v. United States: The tax is not upon the business transacted but is an excise
upon the privilege, opportunity, or facility offered at exchanges for the transaction of the
business. It is an excise upon the facilities used in the transaction of the business separate
and apart from the business itself. In this view it is immaterial whether the transfer of the
account constituted a sale.
It is thus settled that the life and non-life insurance policies in question are subject to
documentary stamp taxes pursuant to Secs. 183 and 184 of the National Internal Revenue
Code by their mere issuance, and the fact that the policies have not become effective for
nonpayment of the corresponding premiums as required by Sec. 77 of the Insurance Code
cannot affect petitioners’ liability for payment of documentary stamp taxes. Their claim for
refund was correctly denied.
The tax is not upon the business transacted but is an excise upon the privilege,
opportunity, or facility offered at exchanges for the transaction of the business. It is an excise
upon the facilities used in the transaction of the business separate and apart from the
business itself. In this view it is immaterial whether the transfer of the account constituted a
sale.
The decision of the Court of Appeals is AFFIRMED.

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113. COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. LINCOLN PHILIPPINE LIFE
INSURANCE COMPANY, INC. (now JARDINE-CMA LIFE INSURANCE COMPANY, INC.) and
THE COURT OF APPEALS, [G.R. No. 119176. March 19, 2002]
Nature: This is a petition for review on certiorari filed by the Commission on Internal Revenue of the
decision of the Court of Appeals which reversed in part the decision of the Court of Tax Appeals
FACTS:
Private respondent Lincoln Philippine Life Insurance Co., Inc., (now Jardine-CMA Life Insurance
Company, Inc.) is a domestic corporation registered with the Securities and Exchange Commission
and engaged in life insurance business. In the years prior to 1984, respondents issued a special kind
of life insurance policy known as the Junior Estate Builder Policy, in which there is a clause providing
for an automatic increase in the amount of life insurance coverage upon attainment of a certain age
by the insured without the need of issuing a new policy. Commissioner of Internal Revenue then
issued deficiency documentary stamps tax assessment corresponding to the amount of automatic
increase of the sum assured on the policy issued by respondent. Respondent filed a petition with the
CTA which was held in their favor. The CIR appealed with the CA affirming the decision of the CTA.
ISSUE:
Whether 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?
RULING:
The Courtheld that the subject insurance policy at the time it was issued contained an automatic
increase clause. Although the clause was to take effect on a later date, it was written into the policy
at the time of its issuance.
Section 173 of the NIRC provides that the payment of documentary stamp taxes is done at the time
the act is done. Section 183 of the NIRC provides that the tax base for the computation of
documentary stamp taxes on life insurance policies is the amount fixed in policy.
Although the automatic increase in the amount of life insurance coverage was to take effect later on,
the amount of the increase was already definite at the time of the issuance of the policy. Thus, the
amount insured by the policy at the time of its issuance necessarily included the additional sum
covered by the automatic increase clause because it was already determinable at the time the
transaction was entered into and formed part of the policy.The additional insurance was an
obligation subject to a suspensive obligation, but still a part of the insurance sold to which
respondent was liable for the payment of the documentary stamp tax. The deficiency of documentary
stamp tax imposed on respondent is not on the amount of the original insurance coverage, but on
the increase of the amount insured upon the effectivity of the Junior Estate Builder Policy.
Dispositive: WHEREFORE, the petition is hereby given DUE COURSE. The decision of the Court
of Appeals is SET ASIDE insofar as it affirmed the decision of the Court of Tax Appeals nullifying the
deficiency stamp tax assessment petitioner imposed on private respondent.

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