Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 85141 November 28, 1989
FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,
vs.
COURT OF APPEALS and CHOA TIEK SENG, respondents.
Balgos & Perez Law Offices for petitioner.
Lapuz Law office for private respondent.

REGALADO, J.:
This is a review of the decision of the Court of Appeals, promulgated on July 19,1988, the
dispositive part of which reads:
WHEREFORE, the judgment appealed from is affirmed insofar as it orders
defendant Filipino Merchants Insurance Company to pay the plaintiff the sum
of P51,568.62 with interest at legal rate from the date of filing of the
complaint, and is modified with respect to the third party complaint in that (1)
third party defendant E. Razon, Inc. is ordered to reimburse third party plaintiff
the sum of P25,471.80 with legal interest from the date of payment until the
date of reimbursement, and (2) the third-party complaint against third party
defendant Compagnie Maritime Des Chargeurs Reunis is dismissed. 1
The facts as found by the trial court and adopted by the Court of Appeals are as follows:
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 under Policy No.
M-2678. 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 (sic) defendants in case Judgment is
rendered against the third party plaintiff. It appears from the evidence
presented that in December 1976, 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. Actually, what was imported was

59.940 metric tons not 600 tons at $395.42 a ton CNF Manila. The fishmeal in
666 new gunny bags were unloaded from the ship on December 11, 1976 at
Manila unto the arrastre contractor E. Razon, Inc. and defendant's surveyor
ascertained and certified that in such discharge 105 bags were in bad order
condition as jointly surveyed by the ship's agent and the arrastre contractor.
The condition of the bad order was reflected in the turn over survey report of
Bad Order cargoes Nos. 120320 to 120322, as Exhibit C-4 consisting of three
(3) pages which are also Exhibits 4, 5 and 6- Razon. 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. Defendant's surveyor has conducted a final
and detailed survey of the cargo in the warehouse for which he prepared a
survey report Exhibit F with the findings on the extent of shortage or loss on
the bad order bags totalling 227 bags amounting to 12,148 kilos, Exhibit F-1.
Based on said computation the plaintiff made a formal claim against the
defendant Filipino Merchants Insurance Company for P51,568.62 (Exhibit C)
the computation of which claim is contained therein. A formal claim statement
was also presented by the plaintiff against the vessel dated December 21,
1976, Exhibit B, 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. 2
The court below, after trial on the merits, rendered judgment in favor of private respondent,
the decretal portion whereof reads:
WHEREFORE, on the main complaint, judgment is hereby rendered in favor of
the plaintiff and against the defendant Filipino Merchant's (sic) Insurance Co.,
ordering the defendants to pay the plaintiff the following amount:
The sum of P51,568.62 with interest at legal rate from the date of the filing of
the complaint;
On the third party complaint, the third party defendant Compagnie Maritime
Des Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to
pay to the third party plaintiff jointly and severally reimbursement of the
amounts paid by the third party plaintiff with legal interest from the date of
such payment until the date of such reimbursement.
Without pronouncement as to costs. 3
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 with the following assignment of errors:

1. The Court of Appeals erred in its interpretation and application of the "all
risks" clause of the marine insurance policy when it held the petitioner liable
to the private respondent for the partial loss of the cargo, notwithstanding the
clear absence of proof of some fortuitous event, casualty, or accidental cause
to which the loss is attributable, thereby contradicting the very precedents
cited by it in its decision as well as a prior decision of the same Division of the
said court (then composed of Justices Cacdac, Castro-Bartolome, and
Pronove);
2. The Court of Appeals erred in not holding that the private respondent had
no insurable interest in the subject cargo, hence, the marine insurance policy
taken out by private respondent is null and void;
3. The Court of Appeals erred in not holding that the private respondent was
guilty of fraud in not disclosing the fact, it being bound out of utmost good
faith to do so, that it had no insurable interest in the subject cargo, which bars
its recovery on the policy. 4
On the first assignment of error, petitioner contends that an "all risks" marine policy has a
technical meaning in insurance in that before a claim can be compensable it is essential that
there must be "some fortuity, " "casualty" or "accidental cause" to which the alleged loss is
attributable and the failure of herein private respondent, upon whom lay the burden, to
adduce evidence showing that the alleged loss to the cargo in question was due to a
fortuitous event precludes his right to recover from the insurance policy. We find said
contention untenable.
The "all risks clause" of the Institute Cargo Clauses read as follows:
5. 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. 5
An "all risks policy" should be read literally as meaning all risks whatsoever and covering all
losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in
insurance contracts, have not acquired any technical meaning. They are construed by the
courts in their ordinary and common acceptance. Thus, the terms have been taken to mean
that which happens 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. 6
The very nature of the term "all risks" must be given a broad and comprehensive meaning
as covering any loss other than a willful and fraudulent act of the insured. 7 This is 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. 8 An "all asks" 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. 9
The term "all risks" cannot be given a strained technical meaning, the language of the
clause under the Institute Cargo Clauses being unequivocal and clear, to the effect that it
extends to all damages/losses suffered by the insured cargo except (a) loss or damage or
expense proximately caused by delay, and (b) loss or damage or expense proximately
caused by the inherent vice or nature of the subject matter insured.
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. 10 As
we held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd. 11 the basic rule is that
the insurance company has the burden of proving that the loss is caused by the risk
excepted and for want of such proof, the company is liable.
Coverage under an "all risks" provision of a marine insurance policy creates a special type of
insurance which extends coverage to risks not usually contemplated and avoids putting
upon the insured the burden of establishing that the loss was due to the peril falling within
the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific
provision expressly excludes the loss from coverage. 12 A marine insurance policy providing
that the insurance was to be "against all risks" must be construed as creating a special
insurance and extending to other risks than are usually contemplated, and covers all losses
except such as arise from the fraud of the insured. 13 The burden of the insured, therefore, is
to prove merely that the goods he transported have been lost, destroyed or deteriorated.
Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted
perils. To impose on the insured the burden of proving the precise cause of the loss or
damage would be inconsistent with the broad protective purpose of "all risks" insurance.
In the present case, there being no showing that the loss was caused by any of the excepted
perils, the insurer is liable under the policy. As aptly stated by the respondent Court of
Appeals, upon due consideration of the authorities and jurisprudence it discussed
... it is believed that in the absence of any showing that the losses/damages
were caused by an excepted peril, i.e. delay or the inherent vice or nature of
the subject matter insured, and there is no such showing, the lower court did
not err in holding that the loss was covered by the policy.
There is no evidence presented to show that the condition of the gunny bags
in which the fishmeal was packed was such that they could not hold their
contents in the course of the necessary transit, much less any evidence that
the bags of cargo had burst as the result of the weakness of the bags
themselves. Had there been such a showing that spillage would have been a
certainty, there may have been good reason to plead that there was no risk

covered by the policy (See Berk vs. Style [1956] cited in Marine Insurance
Claims, Ibid, p. 125). Under an 'all risks' policy, it was sufficient to show that
there was damage occasioned by some accidental cause of any kind, and
there is no necessity to point to any particular cause. 14
Contracts of insurance are contracts of indemnity upon the terms and conditions specified in
the policy. The agreement has the force of law between the parties. The terms of the policy
constitute the measure of the insurer's liability. If such terms are clear and unambiguous,
they must be taken and understood in their plain, ordinary and popular sense. 15
Anent the issue of insurable interest, we uphold the ruling of the respondent court that
private respondent, as consignee of the goods in transit under an invoice containing the
terms under "C & F Manila," has insurable interest in said goods.
Section 13 of the Insurance Code defines insurable interest in property as every interest in
property, whether real or personal, or any relation thereto, or liability in respect thereof, of
such nature that a contemplated peril might directly damnify the insured. In principle,
anyone has an insurable interest in property who derives a benefit from its existence or
would suffer loss from its destruction whether he has or has not any title in, or lien upon or
possession of the property y. 16 Insurable interest in property may consist in (a) an existing
interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy,
coupled with an existing interest in that out of which the expectancy arises. 17
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. 18 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 be performed the conditions of the sale. 19 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.
Further, 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. 20
C & F contracts are shipment contracts. The term means that the price fixed includes in a
lump sum the cost of the goods and freight to the named destination. 21 It simply means that
the seller must pay the costs and freight necessary to bring the goods to the named
destination but the risk of loss or damage to the goods is transferred from the seller to the
buyer when the goods pass the ship's rail in the port of shipment. 22

Moreover, the issue of lack of insurable interest was not among the defenses averred in
petitioners answer. It was neither an issue agreed upon by the parties at the pre-trial
conference nor was it raised during the trial in the court below. It is a settled rule that an
issue which has not been raised in the court a quo cannot be raised for the first time on
appeal as it would be offensive to the basic rules of fair play, justice and due process. 23 This
is but a permuted restatement of the long settled rule that when a party deliberately adopts
a certain theory, and the case is tried and decided upon that theory in the court below, he
will not be permitted to change his theory on appeal because, to permit him to do so, would
be unfair to the adverse party. 24
If despite the fundamental doctrines just stated, we nevertheless decided to indite a
disquisition on the issue of insurable interest raised by petitioner, it was to put at rest all
doubts on the matter under the facts in this case and also to dispose of petitioner's third
assignment of error which consequently needs no further discussion.
WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent
Court of Appeals is AFFIRMED in toto.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 184300

July 11, 2012

MALAYAN INSURANCE CO., INC., Petitioner,

vs.
PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER SERVICES,
INC., Respondents.
DECISION
REYES, J.:
Before the Court is a petitiOn for review on certiorari filed by petitioner Malayan Insurance
Co., lnc. (Malayan) assailing the Decision1 dated February 29, 2008 and Resolution2 dated
August 28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 71204 which affirmed with
modification the decision of the Regional Trial Court (RTC), Branch 38 of Manila.
Antecedent 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 formers products to its customers, dealers or
salesmen.3
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 Wyeths nutritional, pharmaceutical and
other products usual or incidental to the insureds 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 Wyeths
representative/s.4 Nevertheless, it was admittedly signed by Reputables 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. 5
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". 6
The contract also required Reputable to secure an insurance policy on Wyeths goods. 7 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 Wyeths 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.
On March 8, 1995, Philippines First, after due investigation and adjustment, and pursuant to
the Marine Policy, paid Wyeth P2,133,257.00 as indemnity. Philippines First then demanded
reimbursement from Reputable, having been subrogated to the rights of Wyeth by virtue of
the payment. The latter, however, ignored the demand.
Consequently, Philippines First instituted an action for sum of money against Reputable on
August 12, 1996.8 In its complaint, Philippines First stated that Reputable is a "private
corporation engaged in the business of a common carrier." In its answer, 9 Reputable claimed
that it is a private carrier. It also claimed that it cannot be made liable under the contract of
carriage with Wyeth since the contract was not signed by Wyeths representative and that
the cause of the loss was force majeure, i.e., the hijacking incident.

Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to collect

the amount covered in the SR Policy. According to Reputable, "it was validly insured with
Malayan for P1,000,000.00 with respect to the lost products under the latters Insurance
Policy No. SR-0001-02577 effective February 1, 1994 to February 1, 1995" and that the SR
Policy covered the risk of robbery or hijacking. 10
Disclaiming any liability, Malayan argued, among others, that under Section 5 of the SR
Policy, the insurance does not cover any loss or damage to property which at the time of the
happening of such loss or damage is insured by any marine policy and that the SR Policy
expressly excluded third-party liability.
After trial, the RTC rendered its Decision11 finding Reputable liable to Philippines First for the
amount of indemnity it paid to Wyeth, among others. In turn, Malayan was found by the RTC
to be liable to Reputable to the extent of the policy coverage. The dispositive portion of the
RTC decision provides:
WHEREFORE, on the main Complaint, judgment is hereby rendered finding [Reputable] liable
for the loss of the Wyeth products and orders it to pay Philippines First the following:
1. the amount of P2,133,257.00 representing the amount paid by Philippines First to
Wyeth for the loss of the products in question;
2. the amount of P15,650.00 representing the adjustment fees paid by Philippines
First to hired adjusters/surveyors;
3. the amount of P50,000.00 as attorneys fees; and
4. the costs of suit.
On the third-party Complaint, judgment is hereby rendered finding
Malayan liable to indemnify [Reputable] the following:
1. the amount of P1,000,000.00 representing the proceeds of the insurance policy;
2. the amount of P50,000.00 as attorneys fees; and
3. the costs of suit.
SO ORDERED.12
Dissatisfied, both Reputable and Malayan filed their respective appeals from the RTC
decision.
Reputable asserted that the RTC erred in holding that its contract of carriage with Wyeth was
binding despite Wyeths failure to sign the same. Reputable further contended that the
provisions of the contract are unreasonable, unjust, and contrary to law and public policy.

For its part, Malayan invoked Section 5 of its SR Policy, which provides:
Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover any loss or
damage to property which at the time of the happening of such loss or damage is insured by
or would but for the existence of this policy, be insured by any Fire or Marine policy or
policies except in respect of any excess beyond the amount which would have been payable
under the Fire or Marine policy or policies had this insurance not been effected.
Malayan argued that inasmuch as there was already a marine policy issued by Philippines
First securing the same subject matter against loss and that since the monetary
coverage/value of the Marine Policy is more than enough to indemnify the hijacked cargo,
Philippines First alone must bear the loss.
Malayan sought the dismissal of the third-party complaint against it. In the alternative, it
prayed that it be held liable for no more than P468,766.70, its alleged pro-rata share of the
loss based on the amount covered by the policy, subject to the provision of Section 12 of the
SR Policy, which states:
12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening to any
property hereby insured, there be any other subsisting insurance or insurances, whether
effected by the insured or by any other person or persons, covering the same property, the
company shall not be liable to pay or contribute more than its ratable proportion of such loss
or damage.
On February 29, 2008, the CA rendered the assailed decision sustaining the ruling of the
RTC, the decretal portion of which reads:
WHEREFORE, in view of the foregoing, the assailed Decision dated 29 September 2000, as
modified in the Order dated 21 July 2001, is AFFIRMED with MODIFICATION in that the award
of attorneys fees in favor of Reputable is DELETED.
SO ORDERED.13
The CA ruled, among others, that: (1) Reputable is estopped from assailing the validity of the
contract of carriage on the ground of lack of signature of Wyeths representative/s; (2)
Reputable is liable under the contract for the value of the goods even if the same was lost
due to fortuitous event; and (3) Section 12 of the SR Policy prevails over Section 5, it being
the latter provision; however, since the ratable proportion provision of Section 12 applies
only in case of double insurance, which is not present, then it should not be applied and
Malayan should be held liable for the full amount of the policy coverage, that is,
P1,000,000.00.14
On March 14, 2008, Malayan moved for reconsideration of the assailed decision but it was
denied by the CA in its Resolution dated August 28, 2008. 15
Hence, this petition.

Malayan insists that the CA failed to properly resolve the issue on the "statutory limitations
on the liability of common carriers" and the "difference between an other insurance clause
and an over insurance clause."
Malayan also contends that the CA erred when it held that Reputable is a private carrier and
should be bound by the contractual stipulations in the contract of carriage. This argument is
based on its assertion that Philippines First judicially admitted in its complaint that
Reputable is a common carrier and as such, Reputable should not be held liable pursuant to
Article 1745(6) of the Civil Code.16 Necessarily, if Reputable is not liable for the loss, then
there is no reason to hold Malayan liable to Reputable.
Further, Malayan posits that there resulted in an impairment of contract when the CA failed
to apply the express provisions of Section 5 (referred to by Malayan as over insurance
clause) and Section 12 (referred to by Malayan as other insurance clause) of its SR Policy as
these provisions could have been read together there being no actual conflict between
them.
Reputable, meanwhile, contends that it is exempt from liability for acts committed by
thieves/robbers who act with grave or irresistible threat whether it is a common carrier or a
private/special carrier. It, however, maintains the correctness of the CA ruling that Malayan
is liable to Philippines First for the full amount of its policy coverage and not merely a ratable
portion thereof under Section 12 of the SR Policy.
Finally, Philippines First contends that the factual finding that Reputable is a private carrier
should be accorded the highest degree of respect and must be considered conclusive
between the parties, and that a review of such finding by the Court is not warranted under
the circumstances. As to its alleged judicial admission that Reputable is a common carrier,
Philippines First proffered the declaration made by Reputable that it is a private carrier. Said
declaration was allegedly reiterated by Reputable in its third party complaint, which in turn
was duly admitted by Malayan in its answer to the said third-party complaint. In addition,
Reputable even presented evidence to prove that it is a private carrier.
As to the applicability of Sections 5 and 12 in the SR Policy, Philippines First reiterated the
ruling of the CA. Philippines First, however, prayed for a slight modification of the assailed
decision, praying that Reputable and Malayan be rendered solidarily liable to it in the
amount of P998,000.00, which represents the balance from the P1,000.000.00 coverage of
the SR Policy after deducting P2,000.00 under Section 10 of the said SR Policy. 17
Issues
The liability of Malayan under the SR Policy hinges on the following issues for resolution:
1) Whether Reputable is a private carrier;
2) Whether Reputable is strictly bound by the stipulations in its contract of carriage
with Wyeth, such that it should be liable for any risk of loss or damage, for any cause
whatsoever, including that due to theft or robbery and other force majeure;

3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and Section 12
of the SR Policy; and
4) Whether Reputable should be held solidarily liable with Malayan for the amount of
P998,000.00 due to Philippines First.
The Courts Ruling
On the first issue Reputable is a private carrier.
The Court agrees with the RTC and CA that Reputable is a private carrier. Well-entrenched in
jurisprudence is the rule that factual findings of the trial court, especially when affirmed by
the appellate court, are accorded the highest degree of respect and considered conclusive
between the parties, save for certain exceptional and meritorious circumstances, none of
which are present in this case.18
Malayan relies on the alleged judicial admission of Philippines First in its complaint that
Reputable is a common carrier.19 Invoking Section 4, Rule 129 of the Rules on Evidence that
"an admission verbal or written, made by a party in the course of the proceeding in the
same case, does not require proof," it is Malayans position that the RTC and CA should have
ruled that
Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the Civil Code,
the liability of Reputable for the loss of Wyeths goods should be dispensed with, or at least
diminished.
It is true that judicial admissions, such as matters alleged in the pleadings do not require
proof, and need not be offered to be considered by the court. "The court, for the proper
decision of the case, may and should consider, without the introduction of evidence, the
facts admitted by the parties."20 The rule on judicial admission, however, also states that
such allegation, statement, or admission is conclusive as against the pleader, 21 and that the
facts alleged in the complaint are deemed admissions of the plaintiff and binding upon
him.22 In this case, the pleader or the plaintiff who alleged that Reputable is a common
carrier was Philippines First. It cannot, by any stretch of imagination, be made conclusive as
against Reputable whose nature of business is in question.
It should be stressed that Philippines First is not privy to the SR Policy between Wyeth and
Reputable; rather, it is a mere subrogee to the right of Wyeth to collect from Reputable
under the terms of the contract of carriage. Philippines First is not in any position to make
any admission, much more a definitive pronouncement, as to the nature of Reputables
business and there appears no other connection between Philippines First and Reputable
which suggests mutual familiarity between them.
Moreover, records show that the alleged judicial admission of Philippines First was
essentially disputed by Reputable when it stated in paragraphs 2, 4, and 11 of its answer
that it is actually a private or special carrier.23 In addition, Reputable stated in paragraph 2 of
its third-party complaint that it is "a private carrier engaged in the carriage of goods." 24 Such
allegation was, in turn, admitted by Malayan in paragraph 2 of its answer to the third-party

complaint.25 There is also nothing in the records which show that Philippines First
persistently maintained its stance that Reputable is a common carrier or that it even
contested or proved otherwise Reputables position that it is a private or special carrier.
Hence, in the face of Reputables contrary admission as to the nature of its own business,
what was stated by Philippines First in its complaint is reduced to nothing more than mere
allegation, which must be proved for it to be given any weight or value. The settled rule is
that mere allegation is not proof.26
More importantly, the finding of the RTC and CA that Reputable is a special or private carrier
is warranted by the evidence on record, primarily, the unrebutted testimony of Reputables
Vice President and General Manager, Mr. William Ang Lian Suan, who expressly stated in
open court that Reputable serves only one customer, Wyeth.27
Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or
associations engaged in the business of carrying or transporting passenger or goods, or both
by land, water or air for compensation, offering their services to the public. On the other
hand, a private carrier is one wherein the carriage is generally undertaken by special
agreement and it does not hold itself out to carry goods for the general public. 28 A common
carrier becomes a private carrier when it undertakes to carry a special cargo or chartered to
a special person only.29 For all intents and purposes, therefore, Reputable operated as a
private/special carrier with regard to its contract of carriage with Wyeth.
On the second issue Reputable is bound by the terms of the contract of carriage.
The extent of a private carriers obligation is dictated by the stipulations of a contract it
entered into, provided its stipulations, clauses, terms and conditions are not contrary to law,
morals, good customs, public order, or public policy. "The Civil Code provisions on common
carriers should not be applied where the carrier is not acting as such but as a private carrier.
Public policy governing common carriers has no force where the public at large is not
involved."30
Thus, being a private carrier, the extent of Reputables liability is fully governed by the
stipulations of the contract of carriage, one of which is that it shall be liable to Wyeth for the
loss of the goods/products due to any and all causes whatsoever, including theft, robbery
and other force majeure while the goods/products are in transit and until actual delivery to
Wyeths customers, salesmen and dealers.31
On the third issue other insurance vis--vis over insurance.
Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to Section 12
as a "modified other insurance clause".32 In rendering inapplicable said provisions in the SR
Policy, the CA ruled in this wise:
Since Sec. 5 calls for Malayans complete absolution in case the other insurance would be
sufficient to cover the entire amount of the loss, it is in direct conflict with Sec. 12 which
provides only for a pro-rated contribution between the two insurers. Being the later

provision, and pursuant to the rules on interpretation of contracts, Sec. 12 should therefore
prevail.
xxxx
x x x The intention of both Reputable and Malayan should be given effect as against the
wordings of Sec. 12 of their contract, as it was intended by the parties to operate only in
case of double insurance, or where the benefits of the policies of both plaintiff-appellee and
Malayan should pertain to Reputable alone. But since the court a quo correctly ruled that
there is no double insurance in this case inasmuch as Reputable was not privy thereto, and
therefore did not stand to benefit from the policy issued by plaintiff-appellee in favor of
Wyeth, then Malayans stand should be rejected.
To rule that Sec. 12 operates even in the absence of double insurance would work injustice
to Reputable which, despite paying premiums for a P1,000,000.00 insurance coverage,
would not be entitled to recover said amount for the simple reason that the same property is
covered by another insurance policy, a policy to which it was not a party to and much less,
from which it did not stand to benefit. Plainly, this unfair situation could not have been the
intention of both Reputable and Malayan in signing the insurance contract in question. 33
In questioning said ruling, Malayan posits that Sections 5 and 12 are separate provisions
applicable under distinct circumstances. Malayan argues that "it will not be completely
absolved under Section 5 of its policy if it were the assured itself who obtained additional
insurance coverage on the same property and the loss incurred by Wyeths cargo was more
than that insured by Philippines Firsts marine policy. On the other hand, Section 12 will not
completely absolve Malayan if additional insurance coverage on the same cargo were
obtained by someone besides Reputable, in which case Malayans SR policy will contribute
or share ratable proportion of a covered cargo loss."34
Malayans position cannot be countenanced.
Section 5 is actually the other insurance clause (also called "additional insurance" and
"double insurance"), one akin to Condition No. 3 in issue in Geagonia v. CA, 35 which validity
was upheld by the Court as a warranty that no other insurance exists. The Court ruled that
Condition No. 336 is a condition which is not proscribed by law as its incorporation in the
policy is allowed by Section 75 of the Insurance Code. It was also the Courts finding that
unlike the other insurance clauses, Condition No. 3 does not absolutely declare void any
violation thereof but expressly provides that the 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."
In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity
of the SR Policy but simply limits the liability of Malayan only up to the excess of the amount
that was not covered by the other insurance policy. In interpreting the "other insurance
clause" in Geagonia, the Court ruled that the prohibition applies only in case of double
insurance. The Court ruled that in order to constitute a violation of the clause, the other
insurance must be upon same subject matter, the same interest therein, and the same risk.
Thus, even though the multiple insurance policies involved were all issued in the name of

the same assured, over the same subject matter and covering the same risk, it was ruled
that there was no violation of the "other insurance clause" since there was no double
insurance.
Section 12 of the SR Policy, on the other hand, is the over insurance clause. More
particularly, it covers the situation where there is over insurance due to double insurance. In
such case, Section 15 provides that Malayan shall "not be liable to pay or contribute more
than its ratable proportion of such loss or damage." This is in accord with the principle of
contribution provided under Section 94(e) of the Insurance Code, 37 which states that "where
the insured is over insured by double insurance, each insurer is bound, as between himself
and the other insurers, to contribute ratably to the loss in proportion to the amount for which
he is liable under his contract."
Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal
question that now arises is whether there is double insurance in this case such that either
Section 5 or Section 12 of the SR Policy may be applied.
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: 38
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 Malayans 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 Reputables. 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 latters insurable
interest over the safety of the goods, which may become the basis of the latters liability in
case of loss or damage to the property and falls within the contemplation of Section 15 of
the Insurance Code.39

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.
Apart from the foregoing, the Court is also wont to strictly construe the controversial
provisions of the SR Policy against Malayan.1wphi1 This is in keeping with the rule that:
"Indemnity and liability insurance policies are construed in accordance with the general rule
of resolving any ambiguity therein in favor of the insured, where the contract or policy is
prepared by the insurer. A contract of insurance, being a contract of adhesion, par
excellence, any ambiguity therein should be resolved against the insurer; in other words, it
should be construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be construed in
such a way as to preclude the insurer from noncompliance with its obligations." 40
Moreover, the CA correctly ruled that:
To rule that Sec. 12 operates even in the absence of double insurance would work injustice
to Reputable which, despite paying premiums for a P1,000,000.00 insurance coverage,
would not be entitled to recover said amount for the simple reason that the same property is
covered by another insurance policy, a policy to which it was not a party to and much less,
from which it did not stand to benefit. x x x41
On the fourth issue Reputable is not solidarily liable with Malayan.
There is solidary liability only when the obligation expressly so states, when the law so
provides or when the nature of the obligation so requires.
In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc., 42 the Court ruled 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, particularly, the
insurance policy:43 (Citation omitted and emphasis supplied)
Suffice it to say that Malayan's and Reputable's respective liabilities arose from different
obligations- Malayan's is based on the SR Policy while Reputable's is based on the contract
of carriage.
All told, the Court finds no reversible error in the judgment sought to be reviewed.

WHEREFORE, premises considered, the petition is DENIED. The Decision dated February 29,
2008 and Resolution dated August 28, 2008 of the Court of Appeals in CA-G.R. CV No. 71204
are hereby AFFIRMED.
Cost against petitioner Malayan Insurance Co., Inc.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 114427 February 6, 1995

ARMANDO GEAGONIA, petitioner,
vs.
COURT OF APPEALS and COUNTRY BANKERS INSURANCE
CORPORATION, respondents.

DAVIDE, JR., J.:

Four our review under Rule 45 of the Rules of Court is the decision 1 of the Court of Appeals
in CA-G.R. SP No. 31916, entitled "Country Bankers Insurance Corporation versus Armando
Geagonia," reversing the decision of the Insurance Commission in I.C. Case No. 3340 which
awarded the claim of petitioner Armando Geagonia against private respondent Country
Bankers Insurance Corporation.
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 2 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, itemized as follows:

Zenco Sales, Inc.

P55,698.00

F. Legaspi Gen. Merchandise

Cebu Tesing Textiles

86,432.50

250,000.00 (on credit)

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). 3 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. COINSURANCE DECLARED: P100,000. Phils. First CEB/F 24758. 4
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 5 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" 6 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, 7 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, 8 the Insurance Commission found that the petitioner did not
violate Condition 3 as he had no knowledge of the existence of the two fire insurance
policies obtained from the PFIC; that it was Cebu Tesing Textiles which procured the PFIC
policies without informing him or securing his consent; and that Cebu Tesing Textile, as his
creditor, had insurable interest on the stocks. 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. The Insurance Commission then decreed:
WHEREFORE, judgment is hereby rendered ordering the respondent company
to pay complainant the sum of P100,000.00 with legal interest from the time
the complaint was filed until fully satisfied plus the amount of P10,000.00 as
attorney's fees. With costs. The compulsory counterclaim of respondent is
hereby dismissed.
Its motion for the reconsideration of the decision 9 having been denied by the Insurance
Commission in its resolution of 20 August 1993, 10 the private respondent appealed to the
Court of Appeals by way of a petition for review. The petition was docketed as CA-G.R. SP No.
31916.
In its decision of 29 December 1993, 11 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. It said:
It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that
the insurance was taken in the name of private respondent [petitioner herein].
The policy states that "DISCOUNT MART (MR. ARMANDO GEAGONIA, PROP)"
was the assured and that "TESING TEXTILES" [was] only the mortgagee of the
goods.
In addition, the premiums on both policies were paid for by private
respondent, not by the Tesing Textiles which is alleged to have taken out the
other insurance without the knowledge of private respondent. This is shown
by Premium Invoices nos. 46632 and 46630. (Annexes M and N). In both
invoices, Tesing Textiles is indicated to be only the mortgagee of the goods
insured but the party to which they were issued were the "DISCOUNT MART
(MR. ARMANDO GEAGONIA)."
In is clear that it was the private respondent [petitioner herein] who took out
the policies on the same property subject of the insurance with petitioner.
Hence, in failing to disclose the existence of these insurances private
respondent violated Condition No. 3 of Fire Policy No. 1462. . . .
Indeed private respondent's allegation of lack of knowledge of the provisions
insurances is belied by his letter to petitioner [of 18 January 1991. The body of
the letter reads as follows;]

xxx xxx xxx

Please be informed that I have no knowledge of the provision
requiring me to inform your office about my
prior insurance under FGA-28146 and F-CEB-24758. Your
representative did not mention about said requirement at the
time he was convincing me to insure with you. If he only die or
even inquired if I had other existing policies covering my
establishment, I would have told him so. You will note that at
the time he talked to me until I decided to insure with your
company the two policies aforementioned were already in
effect. Therefore I would have no reason to withhold such
information and I would have desisted to part with my hard
earned peso to pay the insurance premiums [if] I know I could
not recover anything.
Sir, I am only an ordinary businessman interested in protecting
my investments. The actual value of my stocks damaged by the
fire was estimated by the Police Department to be
P1,000,000.00 (Please see xerox copy of Police Report Annex
"A"). My Income Statement as of December 31, 1989 or five
months before the fire, shows my merchandise inventory was
already some P595,455.75. . . . These will support my claim that
the amount claimed under the three policies are much below
the value of my stocks lost.
xxx xxx xxx
The letter contradicts private respondent's pretension that he did not know
that there were other insurances taken on the stock-in-trade and seriously
puts in question his credibility.
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:
A . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE
COMMISSION, A QUASI-JUDICIAL BODY CHARGED WITH THE DUTY OF
DETERMINING INSURANCE CLAIM AND WHOSE DECISION IS ACCORDED
RESPECT AND EVEN FINALITY BY THE COURTS;
B . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT
PRESENTED AS EVIDENCE DURING THE HEARING OR TRIAL; AND
C . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST
THE PRIVATE RESPONDENT.
The chief issues that crop up from the first and third grounds are (a) whether the petitioner
had prior knowledge of the two insurance policies issued by the PFIC when he obtained the
fire insurance policy from the private respondent, thereby, for not disclosing such fact,
violating Condition 3 of the policy, and (b) if he had, whether he is precluded from
recovering therefrom.

The second ground, which is based on the Court of Appeals' reliance on the petitioner's
letter of reconsideration of 18 January 1991, is without merit. The petitioner claims that the
said letter was not offered in evidence and thus should not have been considered in deciding
the case. However, as correctly pointed out by the Court of Appeals, a copy of this letter was
attached to the petitioner's complaint in I.C. Case No. 3440 as Annex "M" thereof and
made integral part of the complaint. 12 It has attained the status of a judicial admission and
since its due execution and authenticity was not denied by the other party, the petitioner is
bound by it even if it were not introduced as an independent evidence. 13
As to the first issue, the Insurance Commission found that the petitioner had no knowledge
of the previous two policies. The Court of Appeals disagreed and found otherwise in view of
the explicit admission by the petitioner in his letter to the private respondent of 18 January
1991, which was quoted in the challenged decision of the Court of Appeals. These divergent
findings of fact constitute an exception to the general rule that in petitions for review under
Rule 45, only questions of law are involved and findings of fact by the Court of Appeals are
conclusive and binding upon this Court. 14
We agree with the Court of Appeals that the petitioner knew of the prior policies issued by
the PFIC. His letter of 18 January 1991 to the private respondent conclusively proves this
knowledge. His testimony to the contrary before the Insurance Commissioner and which the
latter relied upon cannot prevail over a written admission made ante litem motam. It was,
indeed, incredible that he did not know about the prior policies since these policies were not
new or original. Policy No. GA-28144 was a renewal of Policy No. F-24758, while Policy No.
GA-28146 had been renewed twice, the previous policy being F-24792.
Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not
proscribed by law. Its incorporation in the policy is allowed by Section 75 of the Insurance
Code 15 which provides that "[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." Such a condition is a provision which invariably appears in fire insurance policies and
is intended to prevent an increase in the moral hazard. It is commonly known as the
additional or "other insurance" clause and has been upheld as valid and as a warranty that
no other insurance exists. Its violation would thus avoid the
policy. 16 However, in order to constitute a violation, the other insurance must be upon same
subject matter, the same interest therein, and the same risk. 17
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. 18 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. 19 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. 20 Thus, separate insurances
covering different insurable interests may be obtained by the mortgagor and the mortgagee.
A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is
the usual practice. The mortgagee may be made the beneficial payee in several ways. He
may become the assignee of the policy with the consent of the insurer; or the mere pledgee
without such consent; or the original policy may contain a mortgage clause; or a rider
making the policy payable to the mortgagee "as his interest may appear" may be attached;
or a "standard mortgage clause," containing a collateral independent contract between the
mortgagee and insurer, may be attached; or the policy, though by its terms payable

absolutely to the mortgagor, may have been procured by a mortgagor under a contract duty
to insure for the mortgagee's benefit, in which case the mortgagee acquires an equitable
lien upon the proceeds. 21
In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee
as his interest may appear, the mortgagee is only a beneficiary under the contract, and
recognized as such by the insurer but not made a party to the contract himself. Hence, any
act of the mortgagor which defeats his right will also defeat the right of the
mortgagee. 22 This kind of policy covers only such interest as the mortgagee has at the
issuing of the policy.23
On the other hand, a mortgagee may also procure a policy as a contracting party in
accordance with the terms of an agreement by which the mortgagor is to pay the premiums
upon such insurance. 24 It has been noted, however, that although the mortgagee is himself
the insured, as where he applies for a policy, fully informs the authorized agent of his
interest, pays the premiums, and obtains on the assurance that it insures him, the policy is
in fact in the form used to insure a mortgagor with loss payable clause. 25
The fire insurance policies issued by the PFIC name the petitioner as the assured and contain
a mortgage clause which reads:
Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their
interest may appear subject to the terms of this policy.
This is clearly a simple loss payable clause, not a standard mortgage clause.
It must, however, be underscored that unlike the "other insurance" clauses involved
in General Insurance and Surety Corp. vs. Ng Hua 26 or in Pioneer Insurance & Surety
Corp. vs. Yap, 27 which read:
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 hereby insured, and unless such notice be given and the particulars
of such insurance or insurances be stated in or endorsed on this Policy by or
on behalf of the Company before the occurrence of any loss or damage, all
benefits under this Policy shall be forfeited.
or in the 1930 case of Santa Ana vs. Commercial Union Assurance
Co. 28 which provided "that any outstanding insurance upon the whole or a portion of
the objects thereby assured must be declared by the insured in writing and he must
cause the company to add or insert it in the policy, without which such policy shall be
null and void, and the insured will not be entitled to indemnity in case of
loss," Condition 3in the private respondent's policy No. F-14622 does not absolutely
declare void any violation thereof. It expressly provides that the 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."
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. 29 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. 30 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. 31
With these principles in mind, we are of the opinion that Condition 3 of the subject policy is
not totally free from ambiguity and must, perforce, be meticulously analyzed. Such analysis
leads us to conclude that (a) the prohibition applies only to double insurance, and (b) the
nullity of the policy shall only be to the extent exceeding P200,000.00 of the total policies
obtained.
The first conclusion is supported by the portion of the condition referring to other insurance
"covering any of the property or properties consisting of stocks in trade, goods in process
and/or inventories only hereby insured," and the portion regarding the insured's declaration
on the subheading CO-INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the
sum of P50,000.00. A double insurance exists where the same person is insured by several
insurers separately in respect of the same subject and interest. As earlier stated, 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 nondisclosure then of the former policies was not fatal to the petitioner's right to recover on the
private respondent's policy.
Furthermore, by stating within Condition 3 itself that such condition shall not apply if the
total insurance in force at the time of loss does not exceed P200,000.00, the private
respondent was amenable to assume a co-insurer's liability up to a loss not exceeding
P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale
behind the incorporation of "other insurance" clause in fire policies is to prevent overinsurance and thus avert the perpetration of fraud. When a property owner obtains
insurance policies from two or more insurers in a total amount that exceeds the property's
value, the insured may have an inducement to destroy the property for the purpose of
collecting the insurance. The public as well as the insurer is interested in preventing a
situation in which a fire would be profitable to the insured. 32
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in
CA-G.R. SP No. 31916 is SET ASIDE and the decision of the Insurance Commission in Case
No. 3340 is REINSTATED.
Costs against private respondent Country Bankers Insurance Corporation.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 113899 October 13, 1999

GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,
vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court, assails the Decision 1 dated May
17, 1993, of the Court of Appeals and its Resolution 2 dated January 4, 1994 in CA-G.R. CV
No. 18341. The appellate court affirmed in toto the judgment of the Misamis Oriental
Regional Trial Court, Branch 18, in an insurance claim filed by private respondent against
Great Pacific Life Assurance Co. The dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC
LIFE ASSURANCE CORPORATION as insurer under its Group policy No. G-1907,
in relation to Certification B-18558 liable and ordered to pay to the
DEVELOPMENT BANK OF THE PHILIPPINES as creditor of the insured Dr.
Wilfredo Leuterio, the amount of EIGHTY SIX THOUSAND TWO HUNDRED
PESOS (P86,200.00); dismissing the claims for damages, attorney's fees and
litigation expenses in the complaint and counterclaim, with costs against the
defendant and dismissing the complaint in respect to the plaintiffs, other than
the widow-beneficiary, for lack of cause of action. 3
The facts, as found by the Court of Appeals, are as follows:
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.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP
applied for membership in the group life insurance plan. In an application form, Dr. Leuterio
answered questions concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart
condition, high blood pressure, cancer, diabetes, lung; kidney or
stomach disorder or any other physical impairment?
Answer: No. If so give details _____________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [x] Yes [ ] NO.

On November 15, 1983, 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.1wphi1.nt
On August 6, 1984, 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 on November
15, 1983. 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.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio,
filed a complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against
Grepalife for "Specific Performance with Damages." 5 During the trial, Dr. Hernando Mejia,
who issued the death certificate, was called to testify. Dr. Mejia's findings, based partly from
the information given by the respondent widow, stated that Dr. Leuterio complained of
headaches presumably due to high blood pressure. The inference was not conclusive
because Dr. Leuterio was not autopsied, hence, other causes were not ruled out.
On February 22, 1988, the trial court rendered a decision in favor of respondent widow and
against Grepalife. On May 17, 1993, the Court of Appeals sustained the trial court's decision.
Hence, the present petition. Petitioners interposed the following assigned errors:
1. THE LOWER COURT ERRED IN HOLDING DEFENDANTAPPELLANT LIABLE TO THE DEVELOPMENT BANK OF THE
PHILIPPINES (DBP) WHICH IS NOT A PARTY TO THE CASE FOR
PAYMENT OF THE PROCEEDS OF A MORTGAGE REDEMPTION
INSURANCE ON THE LIFE OF PLAINTIFF'S HUSBAND WILFREDO
LEUTERIO ONE OF ITS LOAN BORROWERS, INSTEAD OF
DISMISSING THE CASE AGAINST DEFENDANT-APPELLANT
[Petitioner Grepalife] FOR LACK OF CAUSE OF ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE
FOR WANT OF JURISDICTION OVER THE SUBJECT OR NATURE OF
THE ACTION AND OVER THE PERSON OF THE DEFENDANT.
3. THE LOWER COURT ERRED IN ORDERING DEFENDANTAPPELLANT TO PAY TO DBP THE AMOUNT OF P86,200.00 IN THE
ABSENCE OF ANY EVIDENCE TO SHOW HOW MUCH WAS THE
ACTUAL AMOUNT PAYABLE TO DBP IN ACCORDANCE WITH ITS
GROUP INSURANCE CONTRACT WITH DEFENDANT-APPELLANT.
4. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS NO
CONCEALMENT OF MATERIAL INFORMATION ON THE PART OF
WILFREDO LEUTERIO IN HIS APPLICATION FOR MEMBERSHIP IN
THE GROUP LIFE INSURANCE PLAN BETWEEN DEFENDANTAPPELLANT OF THE INSURANCE CLAIM ARISING FROM THE
DEATH OF WILFREDO LEUTERIO. 6

Synthesized below are the assigned errors for our resolution:

1. Whether the Court of Appeals erred in holding petitioner
liable to DBP as beneficiary in a group life insurance contract
from a complaint filed by the widow of the
decedent/mortgagor?
2. Whether the Court of Appeals erred in not finding that Dr.
Leuterio concealed that he had hypertension, which would
vitiate the insurance contract?
3. Whether the Court of Appeals erred in holding Grepalife liable
in the amount of eighty six thousand, two hundred (P86,200.00)
pesos without proof of the actual outstanding mortgage payable
by the mortgagor to DBP.
Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real
party in interest, hence the trial court acquired no jurisdiction over the case. It argues that
when the Court of Appeals affirmed the trial court's judgment, Grepalife was held liable to
pay the proceeds of insurance contract in favor of DBP, the indispensable party who was not
joined in the suit.
To resolve the issue, we must consider the insurable interest in mortgaged properties and
the parties to this type of contract. 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. 7 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. 8 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. 9
Sec. 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property effects insurance in
his own name providing that the loss shall be payable to the mortgagee, or
assigns a policy of insurance to a mortgagee, the insurance is deemed to be
upon the interest of the mortgagor, who does not cease to be a party to the
original contract, and any act of his, prior to the loss, which would otherwise
avoid the insurance, will have the same effect, although the property is in the
hands of the mortgagee, but any act which, under the contract of insurance, is
to be performed by the mortgagor, may be performed by the mortgagee

therein named, with the same effect as if it had been performed by the
mortgagor.
The insured private respondent did not cede to the mortgagee all his rights or interests in
the insurance, the policy stating that: "In the event of the debtor's death before his
indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the creditor and the balance of sum assured,
if there is any, shall then be paid to the beneficiary/ies designated by the debtor." 10 When
DBP submitted the insurance claim against petitioner, the latter denied payment thereof,
interposing the defense of concealment committed by the insured. Thereafter, DBP collected
the debt from the mortgagor and took the necessary action of foreclosure on the residential
lot of private respondent. 11 In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co. 12 we
held:
Insured, being the person with whom the contract was made, is primarily the
proper person to bring suit thereon. * * * Subject to some exceptions, insured
may thus sue, although the policy is taken wholly or in part for the benefit of
another person named or unnamed, and although it is expressly made
payable to another as his interest may appear or otherwise. * * * Although a
policy issued to a mortgagor is taken out for the benefit of the mortgagee and
is made payable to him, yet the mortgagor may sue thereon in his own name,
especially where the mortgagee's interest is less than the full amount
recoverable under the policy, * * *.
And in volume 33, page 82, of the same work, we read the following:
Insured may be regarded as the real party in interest, although he has
assigned the policy for the purpose of collection, or has assigned as collateral
security any judgment he may obtain. 13
And since a policy of insurance upon life or health may pass by transfer, will or succession to
any person, whether he has an insurable interest or not, and such person may recover it
whatever the insured might have recovered,14 the widow of the decedent Dr. Leuterio may
file the suit against the insurer, Grepalife.
The second assigned error refers to an alleged concealment that the petitioner interposed as
its defense to annul the insurance contract. Petitioner contends that Dr. Leuterio failed to
disclose that he had hypertension, which might have caused his death. 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 assured, but he designedly and
intentionally withholds the same. 15
Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as
supported by the information given by the widow of the decedent. Grepalife asserts that Dr.
Mejia's technical diagnosis of the cause of death of Dr. Leuterio was a duly documented
hospital record, and that the widow's declaration that her husband had "possible
hypertension several years ago" should not be considered as hearsay, but as part of res
gestae.

On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct
an autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated that he
had no knowledge of Dr. Leuterio's any previous hospital confinement. 16 Dr. Leuterio's death
certificate stated that hypertension was only "the possible cause of death." The private
respondent's statement, as to the medical history of her husband, was due to her unreliable
recollection of events. Hence, the statement of the physician was properly considered by the
trial court as hearsay.
The question of whether there was concealment was aptly answered by the appellate court,
thus:
The insured, Dr. Leuterio, had answered in his insurance application that he
was in good health and that he had not consulted a doctor or any of the
enumerated ailments, including hypertension; when he died the attending
physician had certified in the death certificate that the former died of cerebral
hemorrhage, probably secondary to hypertension. From this report, the
appellant insurance company refused to pay the insurance claim. Appellant
alleged that the insured had concealed the fact that he had hypertension.
Contrary to appellant's allegations, there was no sufficient proof that the
insured had suffered from hypertension. Aside from the statement of the
insured's widow who was not even sure if the medicines taken by Dr. Leuterio
were for hypertension, the appellant had not proven nor produced any witness
who could attest to Dr. Leuterio's medical history . . .
xxx xxx xxx
Appellant insurance company had failed to establish that there was
concealment made by the insured, hence, it cannot refuse payment of the
claim. 17
The fraudulent intent on the part of the insured must be established to entitle the insurer to
rescind the contract.18 Misrepresentation as a defense of the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer. 19 In the case at bar, the petitioner failed to clearly and
satisfactorily establish its defense, and is therefore liable to pay the proceeds of the
insurance.1wphi1.nt
And that brings us to the last point in the review of the case at bar. Petitioner claims that
there was no evidence as to the amount of Dr. Leuterio's outstanding indebtedness to DBP
at the time of the mortgagor's death. Hence, for private respondent's failure to establish the
same, the action for specific performance should be dismissed. 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."22 (Emphasis omitted)
However, we noted that the Court of Appeals' decision was promulgated on May 17, 1993. In
private respondent's memorandum, she states that DBP foreclosed in 1995 their residential
lot, in satisfaction of mortgagor's outstanding loan. Considering this supervening event, the
insurance proceeds shall inure to the benefit of the heirs of the deceased person or his
beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the expense of
another (Nemo cum alterius detrimenio protest). Hence, it cannot collect the insurance
proceeds, after it already foreclosed on the mortgage. The proceeds now rightly belong to
Dr. Leuterio's heirs represented by his widow, herein private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court of
Appeals in CA-G.R. CV 18341 is AFFIRMED with MODIFICATION that the petitioner is
ORDERED to pay the insurance proceeds amounting to Eighty-six thousand, two hundred
(P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio (deceased), upon
presentation of proof of prior settlement of mortgagor's indebtedness to Development Bank
of the Philippines. Costs against petitioner.1wphi1.nt
SO ORDERED.

FIRST DIVISION
[G.R. No. 124520. August 18, 1997]
Spouses NILO CHA and STELLA UY CHA, and
INC., petitioners, vs. COURT OF APPEALS
CORPORATION, respondents.

UNITED INSURANCE CO.,

and CKS DEVELOPMENT

DECISION
PADILLA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set
aside a decision of respondent Court of Appeals.
The undisputed facts of the case are as follows:

1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract
with private respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5
October 1988.
2. One of the stipulations of the one (1) year lease contract states:
18. x x x. The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods
and effects placed at any stall or store or space in the leased premises without first
obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the
insurance thereof without the consent of the LESSOR then the policy is deemed assigned
and transferred to the LESSOR for its own benefit; x x x[1]
3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured
against loss by fire their merchandise inside the leased premises for Five Hundred Thousand
(P500,000.00) with the United Insurance Co., Inc. (hereinafter United) without the written
consent of private respondents CKS.
4. On the day that the lease contract was to expire, fire broke out inside the leased
premises.
5. When CKS learned of the insurance earlier procured by the Cha spouses (without its
consent), it wrote the insurer (United) a demand letter asking that the proceeds of the
insurance contract (between the Cha spouses and United) be paid directly to CKS, based on
its lease contract with Cha spouses.
6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses
and United.
7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision * ordering
therein defendant United to pay CKS the amount of P335,063.11 and defendant Cha spouses
to pay P50,000.00 as exemplary damages, P20,000.00 as attorneys fees and costs of suit.
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a
decision** dated 11 January 1996, affirming the trial court decision, deleting however the
awards for exemplary damages and attorneys fees. A motion for reconsideration by United
was denied on 29 March 1996.
In the present petition, the following errors are assigned by petitioners to the Court of
Appeals:
I
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE
STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE PROCEEDS OF THE
INSURANCE TO RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO LAW,
MORALS AND PUBLIC POLICY
II

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT OF

LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND THEREFORE THE
QUESTIONABLE PROVISION THEREIN TRANSFERRING THE PROCEEDS OF THE
INSURANCE TO RESPONDENT MUST BE RULED OUT IN FAVOR OF PETITIONER
III
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN
INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN
CONTRAVENTION OF THE INSURANCE LAW
IV
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN
INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID FOR BEING
WITHOUT CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON THE WILL OF THE
RESPONDENT CORPORATION.[2]
The core issue to be resolved in this case is whether or not the aforequoted paragraph
18 of the lease contract entered into between CKS and the Cha spouses is valid insofar as it
provides that any fire insurance policy obtained by the lessee (Cha spouses) over their
merchandise inside the leased premises is deemed assigned or transferred to the lessor
(CKS) if said policy is obtained without the prior written of the latter.
It is, of course, basic in the law on contracts that the stipulations contained in a contract
cannot be contrary to law, morals, good customs, public order or public policy. [3]
Sec. 18 of the Insurance Code provides:
Sec. 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.
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses
over their merchandise is primarily 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.
[4]
The basis of such requirement of insurable interest in property insured is based on sound
public policy: to prevent a person from taking out an insurance policy on property upon
which he has no insurable interest and collecting the proceeds of said policy in case of loss
of the property. In such a case, the contract of insurance is a mere wager which is void under
Section 25 of the Insurance Code, which provides:
SECTION 25. Every stipulation in a policy of 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.

In the present case, it cannot be denied that CKS has no insurable interest in the goods
and merchandise inside the leased premises under the provisions of Section 17 of the
Insurance Code which provide.
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."
Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a
beneficiary of the fire insurance policy taken by the petitioner-spouses over their
merchandise. This insurable interest over said merchandise remains with the insured, the
Cha spouses. The automatic assignment of the policy to CKS under the provision of the lease
contract previously quoted is void for being contrary to law and/or public policy. The
proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella
Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the
proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the
property insured.
The liability of the Cha spouses to CKS for violating their lease contract in that Cha
spouses obtained a fire insurance policy over their own merchandise, without the consent of
CKS, is a separate and distinct issue which we do not resolve in this case.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET
ASIDE and a new decision is hereby entered, awarding the proceeds of the fire insurance
policy to petitioners Nilo Cha and Stella Uy-Cha.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 137172 June 15, 1999

UCPB GENERAL INSURANCE CO., INC., petitioner,
vs.
MASAGANA TELAMART, INC., respondent.

PARDO, J.:
The case is an appeal via certiorari seeking to set aside the decision of the Court of
Appeals, 1 affirming with modification that of the Regional Trial Court, Branch 58, Makati,
ordering petitioner to pay respondent the sum of P18,645,000.00, as the proceeds of the
insurance coverage of respondent's property razed by fire; 25% of the total amount due as
attorney's fees and P25,000.00 as litigation expenses, and costs.
The facts are undisputed and may be related as follows:
On April 15, 1991, petitioner issued five (5) insurance policies covering respondent's various
property described therein against fire, for the period from May 22, 1991 to May 22, 1992.
In March 1992, petitioner evaluated the policies and decided not to renew them upon
expiration of their terms on May 22, 1992. Petitioner advised respondent's broker, Zuellig
Insurance Brokers, Inc. of its intention not to renew the policies.
On April 6, 1992, petitioner gave written notice to respondent of the non-renewal of the
policies at the address stated in the policies.
On June 13, 1992, fire razed respondent's property covered by three of the insurance
policies petitioner issued.
On July 13, 1992, respondent presented to petitioner's cashier at its head office five (5)
manager's checks in the total amount of P225,753.95, representing premium for the renewal
of the policies from May 22, 1992 to May 22, 1993. No notice of loss was filed by respondent
under the policies prior to July 14, 1992.
On July 14, 1992, respondent filed with petitioner its formal claim for indemnification of the
insured property razed by fire.
On the same day, July 14, 1992, petitioner returned to respondent the five (5) manager's
checks that it tendered, and at the same time rejected respondent's claim for the reasons
(a) that the policies had expired and were not renewed, and (b) that the fire occurred on
June 13, 1992, before respondent's tender of premium payment.
On July 21, 1992, respondent filed with the Regional Trial Court, Branch 58, Makati City, a
civil complaint against petitioner for recovery of P18,645,000.00, representing the face value
of the policies covering respondent's insured property razed by fire, and for attorney's fees. 2
On October 23, 1992, after its motion to dismiss had been denied, petitioner filed an answer
to the complaint. It alleged that the complaint "fails to state a cause of action"; that
petitioner was not liable to respondent for insurance proceeds under the policies because at
the time of the loss of respondent's property due to fire, the policies had long expired and
were not renewed. 3
After due trial, on March 10, 1993, the Regional Trial Court, Branch 58, Makati, rendered
decision, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of

the plaintiff and against the defendant, as follows:
(1) Authorizing and allowing the plaintiff to consign/deposit with this Court the
sum of P225,753.95 (refused by the defendant) as full payment of the
corresponding premiums for the replacement-renewal policies for Exhibits A,
B, C, D and E;
(2) Declaring plaintiff to have fully complied with its obligation to pay the
premium thereby rendering the replacement-renewal policy of Exhibits A, B, C,
D and E effective and binding for the duration May 22, 1992 until May 22,
1993; and, ordering defendant to deliver forthwith to plaintiff the said
replacement-renewal policies;
(3) Declaring Exhibits A & B, in force from August 22, 1991 up to August 23,
1992 and August 9, 1991 to August 9, 1992, respectively; and
(4) Ordering the defendant to pay plaintiff the sums of: (a) P18,645,000.00
representing the latter's claim for indemnity under Exhibits A, B & C and/or its
replacement-renewal policies; (b) 25% of the total amount due as and for
attorney's fees; (c) P25,000.00 as necessary litigation expenses; and, (d) the
costs of suit.
All other claims and counterclaims asserted by the parties are denied and/or
dismissed, including plaintiff's claim for interests.
SO ORDERED.
Makati, Metro-Manila, March 10, 1993.
ZOSIMO Z. ANGELES.
Judge. 4
In due time, petitioner appealed to the Court of Appeals.

On September 7, 1998, the Court of Appeals promulgated its decision 6 affirming that of the
Regional Trial Court with the modification that item No. 3 of the dispositive portion was
deleted, and the award of attorney's fees was reduced to 10% of the total amount due. 7
The Court of Appeals held that following previous practise, respondent was allowed a sixty
(60) to ninety (90) day credit term for the renewal of its policies, and that the acceptance of
the late premium payment suggested an understanding that payment could be made later.
Hence, this appeal.

By resolution adopted on March 24, 1999, we required respondent to comment on the

petition, not to file a motion to dismiss within ten (10) days from notice. 8 On April 22, 1999,
respondent filed its comment. 9
Respondent submits that the Court of Appeals correctly ruled that no timely notice of nonrenewal was sent. The notice of non-renewal sent to broker Zuellig which claimed that it
verbally notified the insurance agency but not respondent itself did not suffice. Respondent
submits further that the Court of Appeals did not err in finding that there existed a sixty (60)
to ninety (90) days credit agreement between UCPB and Masagana, and that, finally, the
Supreme Court could not review factual findings of the lower court affirmed by the Court of
Appeals. 10
We give due course to the appeal.
The basic issue raised is whether the fire insurance policies issued by petitioner to the
respondent covering the period May 22, 1991 to May 22, 1992, had expired on the latter
date or had been extended or renewed by an implied credit arrangement though actual
payment of premium was tendered on a later date after the occurrence of the risk (fire)
insured against.
The answer is easily found in the Insurance Code. No, an insurance policy, other than life,
issued originally or on renewal, is not valid and binding until actual payment of the premium.
Any agreement to the contrary is void. 11The parties may not agree expressly or impliedly on
the extension of creditor time to pay the premium and consider the policy binding before
actual payment.
The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo, 12 cited by the Court of Appeals, is
not applicable. In that case, payment of the premium was in fact actually made on
December 24, 1981, and the fire occurred on January 18, 1982. Here, the payment of the
premium for renewal of the policies was tendered on July 13, 1992, a month after the fire
occurred on June 13, 1992. The assured did not even give the insurer a notice of loss within
a reasonable time after occurrence of the fire.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of
Appeals in CA-G.R. CV No. 42321. In lieu thereof the Court renders judgment dismissing
respondent's complaint and petitioner's counterclaims thereto filed with the Regional Trial
Court, Branch 58, Makati City, in Civil Case No. 92-2023. Without costs.1wphi1.nt
SO ORDERED.
THIRD DIVISION
VIOLETA R. LALICAN,
Petitioner,

G.R. No. 183526

Present:

- versus -

CARPIO MORALES,* J.,

CHICO-NAZARIO,**
THE INSULAR LIFE ASSURANCE
COMPANY
LIMITED,
AS
REPRESENTED BY THE PRESIDENT
VICENTE R. AVILON,
Respondent.

Acting Chairperson,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.
Promulgated:

August 25, 2009

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION

CHICO-NAZARIO, J.:
Challenged in this Petition for Review on Certiorari[1] under Rule 45 of the Rules of
Court are the Decision[2] dated 30 August 2007 and the Orders dated 10 April 2008[3] and 3
July 2008[4] of the Regional Trial Court (RTC) of Gapan City, Branch 34, in Civil Case No.
2177. In its assailed Decision, the RTC dismissed the claim for death benefits filed by
petitioner Violeta R. Lalican (Violeta) against respondent Insular Life Assurance Company
Limited (Insular Life); while in its questioned Orders dated 10 April 2008 and 3 July 2008,
respectively, the RTC declared the finality of the aforesaid Decision and denied petitioners
Notice of Appeal.
The factual and procedural antecedents of the case, as culled from the records, are
as follows:
Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio).
During his lifetime, Eulogio applied for an insurance policy with Insular Life. On 24
April 1997, Insular Life, through Josephine Malaluan (Malaluan), its agent in Gapan City,
issued in favor of Eulogio Policy No. 9011992, [5] which contained a 20-Year Endowment
Variable Income Package Flexi Plan worth P500,000.00,[6] with two riders valued
at P500,000.00 each.[7] Thus, the value of the policy amounted to P1,500,000.00. Violeta was
named as the primary beneficiary.
Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a
quarterly basis in the amount of P8,062.00, payable every 24 April, 24 July, 24 October and
24 January of each year, until the end of the 20-year period of the policy. 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.[8]

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 [9] of Policy No. 9011992, together with the
amount ofP8,062.00 to pay for the premium due on 24 January 1998. In a letter[10] 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. Eulogio was likewise advised by Malaluan to pay the
premiums that subsequently became due on 24 April 1998 and 24 July 1998, plus interest.
On 17 September 1998, Eulogio went to Malaluans house and submitted a second
Application for Reinstatement[11] 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 Eulogios 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 cardiorespiratory arrest secondary to electrocution.
Without knowing of Eulogios death, Malaluan forwarded to the Insular Life Regional
Office in the City of San Fernando, on 18 September 1998, Eulogios second Application for
Reinstatement of Policy No. 9011992 and P17,500.00 deposit. However, Insular Life no
longer acted upon Eulogios 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.
In a letter[12] dated 14 January 1999, 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. Enclosed with the 14 January 1999 letter of Insular Life to Violeta was DBP
Check No. 0000309734, for the amount of P25,417.00, drawn in Violetas favor, representing
the full refund of the payments made by Eulogio on Policy No. 9011992.
On 12 February 1998, Violeta requested a reconsideration of the disallowance of her
claim. In a letter[13] dated 10 March 1999, Insular Life stated that it could not find any reason
to reconsider its decision rejecting Violetas claim. Insular Life again tendered to Violeta the
above-mentioned check in the amount of P25,417.00.

Violeta returned the letter dated 10 March 1999 and the check enclosed therein to
the Cabanatuan District Office of Insular Life. Violetas counsel subsequently sent a
letter[14] dated 8 July 1999 to Insular Life, demanding payment of the full proceeds of Policy
No. 9011992. On 11 August 1999, Insular Life responded to the said demand letter by
agreeing to conduct a re-evaluation of Violetas claim.
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, [15] 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. Violeta prayed that Insular Life be ordered to pay her death claim benefits on Policy
No. 9011992, in the amount of P1,500,000.00, plus interests, attorneys fees, and cost of
suit.
Insular Life filed with the RTC an Answer with Counterclaim, [16] asserting that Violetas
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. By way of counterclaim, Insular Life prayed that Violeta be ordered to pay attorneys
fees and expenses of litigation incurred by the former.
Violeta, in her Reply and Answer to Counterclaim, asserted that the requirements for
the reinstatement of Policy No. 9011992 had been complied with and the defenses put up by
Insular Life were purely invented and illusory.
After trial, the RTC rendered, on 30 August 2007, a Decision in favor of Insular Life.
The RTC found that Policy No. 9011992 had indeed lapsed and Eulogio needed to
have the same reinstated:
[The] arguments [of Insular Life] are not without basis. When the premiums for
April 24 and July 24, 1998 were not paid by [Eulogio] even after the lapse of
the 31-day grace period, his insurance policy necessarily lapsed. This is clear
from the terms and conditions of the contract between [Insular Life] and
[Eulogio] which are written in [the] Policy provisions of Policy No. 9011992 x x
x.[17]

The RTC, taking into account the clear provisions of the Policy Contract between
Eulogio and Insular Life and the Application for Reinstatement Eulogio subsequently signed
and submitted to Insular Life, held that Eulogio was not able to fully comply with the
requirements for the reinstatement of Policy No. 9011992:
The well-settled rule is that a contract has the force of law between the
parties. In the instant case, the terms of the insurance contract between
[Eulogio] and [Insular Life] were spelled out in the policy provisions of
Insurance Policy No. 9011992. There is likewise no dispute that said insurance
contract is by nature a contract of adhesion[,] which is defined as one in

which one of the contracting parties imposes a ready-made form of contract

which the other party may accept or reject but cannot modify. (Polotan, Sr. vs.
CA, 296 SCRA 247).
xxxx
The New Lexicon Websters Dictionary defines ambiguity as the quality of
having more than one meaning and an idea, statement or expression capable
of being understood in more than one sense. In Nacu vs. Court of Appeals,
231 SCRA 237 (1994), the Supreme Court stated that[:]
Any ambiguity in a contract, whose terms are susceptible of
different interpretations as a result thereby, must be read and
construed against the party who drafted it on the assumption
that it could have been avoided by the exercise of a little care.
In the instant case, the dispute arises from the afore-quoted
provisions written on the face of the second application for
reinstatement. Examining the said provisions, the court finds the
same clearly written in terms that are simple enough to admit of only
one interpretation. They are clearly not ambiguous, equivocal or
uncertain that would need further construction. The same are written
on the very face of the application just above the space where
[Eulogio] signed his name. It is inconceivable that he signed it
without reading and understanding its import.
Similarly, the provisions of the policy provisions (sic) earlier mentioned are
written in simple and clear laymans language, rendering it free from any
ambiguity that would require a legal interpretation or construction. Thus, the
court believes that [Eulogio] was well aware that when he filed the said
application for reinstatement, his lapsed policy was not automatically
reinstated and that its approval was subject to certain conditions. Nowhere
in the policy or in the application for reinstatement was it ever
mentioned that the payment of premiums would have the effect of an
automatic and immediate renewal of the lapsed policy. Instead, what
was clearly stated in the application for reinstatement is that
pending approval thereof, the premiums paid would be treated as a
deposit only and shall not bind the company until this application is
finally approved during my/our lifetime and good health[.]
Again, the court finds nothing in the aforesaid provisions that would even
suggest an ambiguity either in the words used or in the manner they were
written. [Violeta] did not present any proof that [Eulogio] was not conversant
with the English language. Hence, his having personally signed the application
for reinstatement[,] which consisted only of one page, could only mean that
he has read its contents and that he understood them. x x x
Therefore, consistent with the above Supreme Court ruling and finding no
ambiguity both in the policy provisions of Policy No. 9011992 and in the
application for reinstatement subject of this case, the court finds no merit in
[Violetas] contention that the policy provision stating that [the lapsed policy of
Eulogio] should be reinstated during his lifetime is ambiguous and should be
construed in his favor. It is true that [Eulogio] submitted his application for
reinstatement, together with his premium and interest payments, to [Insular
Life] through its agent Josephine Malaluan in the morning of September 17,

1998. Unfortunately, he died in the afternoon of that same day. It was only on
the following day, September 18, 1998 that Ms. Malaluan brought the said
document to [the regional office of Insular Life] in San Fernando, Pampanga
for approval. As correctly pointed out by [Insular Life] there was no
more application to approve because the applicant was already dead
and no insurance company would issue an insurance policy to a dead
person.[18] (Emphases ours.)

The RTC, in the end, explained that:

While the court truly empathizes with the [Violeta] for the loss of her husband,
it cannot express the same by interpreting the insurance agreement in her
favor where there is no need for such interpretation. It is conceded that
[Eulogios] payment of overdue premiums and interest was received by
[Insular Life] through its agent Ms. Malaluan. It is also true that [the]
application for reinstatement was filed by [Eulogio] a day before his
death. However, there is nothing that would justify a conclusion that
such receipt amounted to an automatic reinstatement of the policy
that has already lapsed. The evidence suggests clearly that no such
automatic renewal was contemplated in the contract between
[Eulogio] and [Insular Life]. Neither was it shown that Ms. Malaluan
was the officer authorized to approve the application for
reinstatement and that her receipt of the documents submitted by
[Eulogio] amounted to its approval.[19] (Emphasis ours.)
The fallo of the RTC Decision thus reads:
WHEREFORE, all the foregoing premises considered and finding that [Violeta]
has failed to establish by preponderance of evidence her cause of action
against the defendant, let this case be, as it is hereby DISMISSED.[20]

On 14 September 2007, Violeta filed a Motion for Reconsideration[21] of the afore-mentioned

RTC Decision. Insular Life opposed[22] the said motion, averring that the arguments raised
therein were merely a rehash of the issues already considered and addressed by the RTC. In
an Order[23] dated 8 November 2007, the RTC denied Violetas Motion for Reconsideration,
finding no cogent and compelling reason to disturb its earlier findings. Per the Registry
Return Receipt on record, the 8 November 2007 Order of the RTC was received by Violeta
on 3 December 2007.
In the interim, on 22 November 2007, Violeta filed with the RTC a Reply[24] to the Motion for
Reconsideration, wherein she reiterated the prayer in her Motion for Reconsideration for the
setting aside of the Decision dated 30 August 2007. Despite already receiving on 3
December 2007, a copy of the RTC Order dated 8 November 2007, which denied her Motion
for Reconsideration, Violeta still filed with the RTC, on 26 February 2008, a Reply Extended
Discussion elaborating on the arguments she had previously made in her Motion for
Reconsideration and Reply.

On 10 April 2008, the RTC issued an Order, [25] declaring that the Decision dated 30 August
2007 in Civil Case No. 2177 had already attained finality in view of Violetas failure to file the
appropriate notice of appeal within the reglementary period. Thus, any further discussions
on the issues raised by Violeta in her Reply and Reply Extended Discussion would be moot
and academic.
Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with Motion, [26] praying that
the Order dated 10 April 2008 be set aside and that she be allowed to file an appeal with the
Court of Appeals.
In an Order[27] dated 3 July 2008, the RTC denied Violetas Notice of Appeal with Motion given
that the Decision dated 30 August 2007 had long since attained finality.
Violeta directly elevated her case to this Court via the instant Petition for Review
on Certiorari, raising the following issues for consideration:
1.

Whether or not the Decision of the court a quo dated August 30,
2007, can still be reviewed despite having allegedly attained finality
and despite the fact that the mode of appeal that has been availed of
by Violeta is erroneous?

2.

Whether or not the Regional Trial Court in its original jurisdiction

has decided the case on a question of law not in accord with law and
applicable decisions of the Supreme Court?

Violeta insists that her former counsel committed an honest mistake in filing a Reply, instead
of a Notice of Appeal of the RTC Decision dated 30 August 2007; and in the computation of
the reglementary period for appealing the said judgment. Violeta claims that her former
counsel suffered from poor health, which rapidly deteriorated from the first week of July
2008 until the latters death just shortly after the filing of the instant Petition on 8 August
2008. In light of these circumstances, Violeta entreats this Court to admit and give due
course to her appeal even if the same was filed out of time.
Violeta further posits that the Court should address the question of law arising in this
case involving the interpretation of the second sentence of Section 19 of the Insurance
Code, which provides:
Section. 19. x x x [I]nterest 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.
On the basis thereof, Violeta argues that Eulogio still had insurable interest in his own
life when he reinstated Policy No. 9011992 just before he passed away on 17
September 1998. The RTC should have construed the provisions of the Policy Contract and
Application for Reinstatement in favor of the insured Eulogio and against the insurer Insular
Life, and considered the special circumstances of the case, to rule that Eulogio had complied
with the requisites for the reinstatement of Policy No. 9011992 prior to his death, and that
Violeta is entitled to claim the proceeds of said policy as the primary beneficiary thereof.

The Petition lacks merit.

At the outset, the Court notes that the elevation of the case to us via the instant
Petition for Review on Certiorari is not justified. Rule 41, Section 1 of the Rules of Court,
[28]
provides that no appeal may be taken from an order disallowing or dismissing an
appeal. In such a case, the aggrieved party may file a Petition for Certiorari under Rule 65 of
the Rules of Court.[29]
Furthermore, the RTC Decision dated 30 August 2007, assailed in this Petition, had
long become final and executory. Violeta filed a Motion for Reconsideration thereof, but the
RTC denied the same in an Order dated 8 November 2007. The records of the case reveal
that Violeta received a copy of the 8 November 2007 Order on 3 December 2007. Thus,
Violeta had 15 days[30] from said date of receipt, or until 18 December 2007, to file a
Notice of Appeal. Violeta filed a Notice of Appeal only on 20 May 2008, more than five
months after receipt of the RTC Order dated 8 November 2007 denying her Motion for
Reconsideration.
Violetas claim that her former counsels failure to file the proper remedy within the
reglementary period was an honest mistake, attributable to the latters deteriorating health,
is unpersuasive.
Violeta merely made a general averment of her former counsels poor health, lacking
relevant details and supporting evidence. By Violetas own admission, her former counsels
health rapidly deteriorated only by the first week of July 2008. The events pertinent to
Violetas Notice of Appeal took place months before July 2008, i.e., a copy of the RTC Order
dated 8 November 2007, denying Violetas Motion for Reconsideration of the Decision dated
30 August 2007, was received on 3 December 2007; and Violetas Notice of Appeal was
filed on 20 May 2008. There is utter lack of proof to show that Violetas former counsel was
already suffering from ill health during these times; or that the illness of Violetas former
counsel would have affected his judgment and competence as a lawyer.
Moreover, the failure of her former counsel to file a Notice of Appeal within the
reglementary period binds Violeta, which failure the latter cannot now disown on the basis of
her bare allegation and self-serving pronouncement that the former was ill. A client is bound
by his counsels mistakes and negligence.[31]
The Court, therefore, finds no reversible error on the part of the RTC in denying
Violetas Notice of Appeal for being filed beyond the reglementary period. Without an appeal
having been timely filed, the RTC Decision dated 30 August 2007 in Civil Case No.
2177 already became final and executory.
A judgment becomes "final and executory" by operation of law. Finality becomes a fact when
the reglementary period to appeal lapses and no appeal is perfected within such period. As a
consequence, no court (not even this Court) can exercise appellate jurisdiction to review a
case or modify a decision that has become final. [32] When a final judgment is executory, it
becomes immutable and unalterable. It may no longer be modified in any respect either by

the court, which rendered it or even by this Court. The doctrine is founded on considerations
of public policy and sound practice that, at the risk of occasional errors, judgments must
become final at some definite point in time.[33]
The only recognized exceptions to the doctrine of immutability and unalterability are the
correction of clerical errors, the so-called nunc pro tunc entries, which cause no prejudice to
any party, and void judgments. [34] The instant case does not fall under any of these
exceptions.
Even if the Court ignores the procedural lapses committed herein, and proceeds to resolve
the substantive issues raised, the Petition must still fail.
Violeta makes it appear that her present Petition involves a question of law, particularly,
whether Eulogio had an existing insurable interest in his own life until the day of his death.
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. [35] The existence of an
insurable interest gives a person the legal right to insure the subject matter of the policy of
insurance.[36] Section 10 of the Insurance Code indeed provides that every person has an
insurable interest in his own life.[37] 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.[38]
Upon more extensive study of the Petition, it becomes evident that the matter of insurable
interest is entirely irrelevant in the case at bar. It is actually beyond question that while
Eulogio was still alive, he had an insurable interest in his own life, which he did insure under
Policy No. 9011992. The real point of contention herein is whether Eulogio was able to
reinstate the lapsed insurance policy on his life before his death on 17 September 1998.
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 nonpayment 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.
That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogios filing
of his first Application for Reinstatement with Insular Life, through Malaluan, on 26 May
1998, constitutes an admission that Policy No. 9011992 had lapsed by then. Insular Life did
not act on Eulogios first Application for Reinstatement, since the amount Eulogio
simultaneously deposited was sufficient to cover only the P8,062.00 overdue premium for 24

January 1998, but not the P322.48 overdue interests thereon. On 17 September 1998,
Eulogio submitted a second Application for Reinstatement to Insular Life, again through
Malaluan, depositing at the same time P17,500.00, to cover payment for the overdue
interest on the premium for 24 January 1998, and the premiums that had also become due
on 24 April 1998 and 24 July 1998. On the very same day, Eulogio passed away.
To reinstate a policy means to restore the same to premium-paying status after it has been
permitted to lapse.[39] Both the Policy Contract and the Application for Reinstatement provide
for specific conditions for the reinstatement of a lapsed policy.
The Policy Contract between Eulogio and Insular Life identified the following
conditions for reinstatement should the policy lapse:
10. REINSTATEMENT
You may reinstate this policy at any time within three years after it lapsed if
the following conditions are met: (1) the policy has not been surrendered for
its cash value or the period of extension as a term insurance has not expired;
(2) evidence of insurability satisfactory to [Insular Life] is furnished; (3)
overdue premiums are paid with compound interest at a rate not exceeding
that which would have been applicable to said premium and indebtedness in
the policy years prior to reinstatement; and (4) indebtedness which existed at
the time of lapsation is paid or renewed.[40]

Additional conditions for reinstatement of a lapsed policy were stated in the

Application for Reinstatement which Eulogio signed and submitted, to wit:
I/We agree that said Policy shall not be considered reinstated until this
application is approved by the Company during my/our lifetime and
good health and until all other Company requirements for the
reinstatement of said Policy are fully satisfied.
I/We further agree that any payment made or to be made in connection
with this application shall be considered as deposit only and shall not
bind the Company until this application is finally approved by the
Company during my/our lifetime and good health. If this application is
disapproved, I/We also agree to accept the refund of all payments made in
connection herewith, without interest, and to surrender the receipts for such
payment.[41](Emphases ours.)

In the instant case, Eulogios 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 Eulogios lifetime and good health.
Relevant herein is the following pronouncement of the Court in Andres v. The Crown Life
Insurance Company,[42] citing McGuire v. The Manufacturer's Life Insurance Co.[43]:

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. Theinsurer
has the right to deny the reinstatement if it is not satisfied as to the
insurability of the insured and if the latter does not pay all overdue premium
and all other indebtedness to the insurer. 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.
(Emphases ours.)

It does not matter that when he died, Eulogios Application for Reinstatement and deposits
for the overdue premiums and interests were already with Malaluan. Insular Life, through the
Policy Contract, expressly limits the power or authority of its insurance agents, thus:
Our agents have no authority to make or modify this contract, to extend the
time limit for payment of premiums, to waive any lapsation, forfeiture or any
of our rights or requirements, such powers being limited to our president,
vice-president or persons authorized by the Board of Trustees and only in
writing.[44] (Emphasis ours.)

Malaluan did not have the authority to approve Eulogios Application for
Reinstatement. Malaluan still had to turn over to Insular Life Eulogios Application for
Reinstatement and accompanying deposits, for processing and approval by the latter.
The Court agrees with the RTC that the conditions for reinstatement under the Policy
Contract and Application for Reinstatement were written in clear and simple language, which
could not admit of any meaning or interpretation other than those that they so obviously
embody. A construction in favor of the insured is not called for, as there is no ambiguity in
the said provisions in the first place. The words thereof are clear, unequivocal, and simple
enough so as to preclude any mistake in the appreciation of the same.
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. [45]
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.[46]
Policy No. 9011992 remained lapsed and void, not having been reinstated in
accordance with the Policy Contract and Application for Reinstatement before Eulogios
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.
WHEREFORE, premises considered, the Court DENIES the instant Petition for
Review on Certiorari under Rule 45 of the Rules of Court. The Court AFFIRMS the Orders
dated 10 April 2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No.
2177, denying petitioner Violeta R. Lalicans Notice of Appeal, on the ground that the
Decision dated 30 August 2007 subject thereof, was already final and executory. No costs.

SO ORDERED.

SECOND DIVISION
April 18, 2016
G.R. No. 195176
THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner,
vs.
PAZ Y. KHU, FELIPE Y. KHU, JR., and FREDERICK Y. KHU, Respondents.
DECISION
DEL CASTILLO, J.:
The date of last reinstatement mentioned in Section 48 of the Insurance Code pertains to
the date that the insurer approved the application for reinstatement. However, in light of

the ambiguity in the insurance documents to this case, this Court adopts the interpretation
favorable to the insured in determining the date when the reinstatement was approved.
Assailed in this Petition for Review on Certiorari1 are the June 24, 2010 Decision2 of the
Court of Appeals (CA), which dismissed the Petition in CA-GR. CV No. 81730, and its
December 13, 2010 Resolution3 which denied the petitioner Insular Life Assurance Company
Ltd. 's (Insular Life) motion for partial reconsideration.4
Factual Antecedents
On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular
Life under the latters Diamond Jubilee Insurance Plan. Felipe accomplished the required
medical questionnaire wherein he did not declare any illness or adverse medical condition.
Insular Life thereafter issued him Policy Number A000015683 with a face value of P1 million.
This took effect on June 22, 1997.5
On June 23, 1999, Felipes policy lapsed due to non-payment of the premium covering the
period from June 22, 1999 to June 23, 2000.6
On September 7, 1999, Felipe applied for the reinstatement of his policy and paid
P25,020.00 as premium. Except for the change in his occupation of being self-employed to
being the Municipal Mayor of Binuangan, Misamis Oriental, all the other information
submitted by Felipe in his application for reinstatement was virtually identical to those
mentioned in his original policy.7
On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may
only be considered if he agreed to certain conditions such as payment of additional premium
and the cancellation of the riders pertaining to
premium waiver and accidental death benefits. Felipe agreed to these conditions 8 and on
December 27, 1999 paid the agreed additional premium of P3,054.50. 9
On January 7, 2000, Insular Life issued Endorsement No. PNA000015683, which reads:
This certifies that as agreed by the Insured, the reinstatement of this policy has been
approved by the Company on the understanding that the following changes are made on the
policy effective June 22, 1999:
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY
(WPD) rider originally attached to and forming parts of this policy [are] deleted.
In consequence thereof, the premium rates on this policy are adjusted to P28,000.00
annually, P14,843.00 semi-annually and P7,557.00 quarterly, Philippine currency. 10

On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00 covering the
period from June 22, 2000 to June 22, 2001. And on July 2, 2001, he also paid the same
amount as annual premium covering the period from June 22, 2001 to June 21, 2002. 11
On September 22, 2001, Felipe died. His Certificate of Death enumerated the following as
causes of death:
Immediate cause: a. End stage renal failure, Hepatic failure
Antecedent cause: b. Congestive heart failure, Diffuse myocardial ischemia.
Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia. 12
On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu (collectively, Felipes
beneficiaries or respondents) filed with Insular Life a claim for benefit under the reinstated
policy. This claim was denied. Instead, Insular Life advised Felipes beneficiaries that it had
decided to rescind the reinstated policy on the grounds of concealment and
misrepresentation by Felipe.
Hence, respondents instituted a complaint for specific performance with damages.
Respondents prayed that the reinstated life insurance policy be declared valid, enforceable
and binding on Insular Life; and that the latter be ordered to pay unto Felipes beneficiaries
the proceeds of this policy, among others.13
In its Answer, Insular Life countered that Felipe did not disclose the ailments (viz., Type 2
Diabetes Mellitus, Diabetes Nephropathy and Alcoholic Liver Cirrhosis with Ascites) that he
already had prior to his application for reinstatement of his insurance policy; and that it
would not have reinstated the insurance policy had Felipe disclosed the material information
on his adverse health condition. It contended that when Felipe died, the policy was still
contestable.14
Ruling of the Regional Trial Court (RTC)
On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found 15 for Felipes
beneficiaries, thus:
WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their] claim by
preponderance of evidence, judgment is hereby rendered in their favor and against
defendants, ordering the latter to pay jointly and severally the
sum of One Million (P1,000,000.00) Pesos with legal rate of interest from the date of demand
until it is fully paid representing the face value of Plan Diamond Jubilee No. PN-A000015683
issued to insured the late Felipe N. Khu[,] Sr; the sum of P20,000.00 as moral damages;
P30,000.00 as attorneys fees; P10,000.00 as litigation expenses.
SO ORDERED.16

In ordering Insular Life to pay Felipes beneficiaries, the RTC agreed with the latters claim
that the insurance policy was reinstated on June 22, 1999. The RTC cited the ruling
in Malayan Insurance Corporation v. Court of
Appeals17 that any ambiguity in a contract of insurance should be resolved strictly against
the insurer upon the principle that an insurance contract is a contract of adhesion. 18 The RTC
also held that the reinstated insurance policy had already become incontestable by the time
of Felipes death on September 22, 2001 since more than two years had already lapsed from
the date of the policys reinstatement on June 22, 1999. The RTC noted that since it was
Insular Life itself that supplied all the pertinent forms relative to the reinstated policy, then it
is barred from taking advantage of any ambiguity/obscurity perceived therein particularly as
regards the date when the reinstated insurance policy became effective.
Ruling of the Court of Appeals
On June 24, 2010, the CA issued the assailed Decision 19 which contained the following
decretal portion:
WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the lower court is
AFFIRMED with the MODIFICATION that the award of moral damages, attorneys fees and
litigation expenses [is] DELETED.
SO ORDERED.20
The CA upheld the RTCs ruling on the non-contestability of the reinstated insurance policy
on the date the insured died. It declared that contrary to Insular Lifes contention, there in
fact exists a genuine ambiguity or obscurity in the language of the two documents prepared
by Insular Life itself, viz., Felipes Letter of Acceptance and Insular Lifes Endorsement; that
given the obscurity/ambiguity in the language of these two documents, the
construction/interpretation that favors the insureds right to recover should be adopted; and
that in keeping with this principle, the insurance policy in dispute must be deemed
reinstated as of June 22, 1999.21
Insular Life moved for partial reconsideration22 but this was denied by the CA in its
Resolution of December 13, 2010.23 Hence, the present Petition.
Issue
The fundamental issue to be resolved in this case is whether Felipes reinstated life
insurance policy is already incontestable at the time of his death.
Petitioners Arguments
In praying for the reversal of the CA Decision, Insular Life basically argues that respondents
should not be allowed to recover on the reinstated insurance policy because the two-year
contestability period had not yet lapsed inasmuch as the insurance policy was reinstated
only on December 27, 1999, whereas Felipe died on September 22, 2001; 24 that the CA
overlooked the fact that Felipe paid the additional extra premium only on December 27,

1999, hence, it is only upon this date that the reinstated policy had become effective; that
the CA erred in declaring that resort to the principles of statutory construction is still
necessary to resolve that question given that the Application for Reinstatement, the Letter of
Acceptance and the Endorsement in and by themselves already embodied unequivocal
provisions stipulating that the two-year contestability clause should be reckoned from the
date of approval of the reinstatement;25 and that Felipes misrepresentation and
concealment of material facts in regard to his health or adverse medical condition gave it
(Insular Life) the right to rescind the contract of insurance and consequently, the right to
deny the claim of Felipes beneficiaries for death benefits under the disputed policy. 26
Respondents Arguments
Respondents maintain that the phrase "effective June 22, 1999" found in both the Letter of
Acceptance and in the Endorsement is unclear whether it refers to the subject of the
sentence, i.e., the "reinstatement of this policy" or to the subsequent phrase "changes are
made on the policy;" that granting that there was any obscurity or ambiguity in the
insurance policy, the same should be laid at the door of Insular Life as it was this insurance
company that prepared the necessary documents that make up the same; 27 and that given
the CAs finding which effectively affirmed the RTCs finding on this particular issue, it stands
to reason that the insurance policy had indeed become incontestable upon the date of
Felipes death.28
Our Ruling
We deny the Petition.
The Insurance Code pertinently provides that:
Sec. 48. 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
rescindible by reason of the fraudulent concealment or misrepresentation of the insured or
his agent.
The rationale for this provision was discussed by the Court in Manila Bankers Life Insurance
Corporation v. Aban,29
Section 48 regulates both the actions of the insurers and prospective takers of life insurance.
It gives insurers enough time to inquire whether the policy was obtained by fraud,
concealment, or misrepresentation; on the other hand, it forewarns scheming individuals
that their attempts at insurance fraud would be timely uncovered thus deterring them from
venturing into such nefarious enterprise. At the same time, legitimate policy holders are
absolutely protected from unwarranted denial of their claims or delay in the collection of
insurance proceeds occasioned by allegations of fraud, concealment, or misrepresentation

by insurers, claims which may no longer be set up after the two-year period expires as
ordained under the law.
xxxx
The Court therefore agrees fully with the appellate courts pronouncement thatxxxx
The insurer is deemed to have the necessary facilities to discover such fraudulent
concealment or misrepresentation within a period of two (2) years. It is not fair for the
insurer to collect the premiums as long as the insured is still alive, only to raise the issue of
fraudulent concealment or misrepresentation when the insured dies in order to defeat the
right of the beneficiary to recover under the policy.
At least two (2) years from the issuance of the policy or its last reinstatement, the
beneficiary is given the stability to recover under the policy when the insured dies. The
provision also makes clear when the two-year period should commence in case the policy
should lapse and is reinstated, that is, from the date of the last reinstatement.
In Lalican v. The Insular Life Assurance Company, Limited,30 which coincidentally also
involves the herein petitioner, it was there held that the reinstatement of the insureds
policy is to be reckoned from the date when the
application was processed and approved by the insurer. There, we stressed that:
To reinstate a policy means to restore the same to premium-paying status after it has been
permitted to lapse. x x x
xxxx
In the instant case, Eulogios 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 Eulogios lifetime
and good health.31
Thus, it is settled that the reinstatement of an insurance policy should be reckoned from the
date when the same was approved by the insurer.
In this case, the parties differ as to when the reinstatement was actually approved. Insular
Life claims that it approved the reinstatement only on December 27, 1999. On the other
hand, respondents contend that it was on June

22, 1999 that the reinstatement took effect.

The resolution of this issue hinges on the following documents: 1) Letter of Acceptance; and
2) the Endorsement.
The Letter of Acceptance32 wherein Felipe affixed his signature was actually drafted and
prepared by Insular Life. This pro-forma document reads as follows:
LETTER OF ACCEPTANCE
Place: Cag. De [O]ro City
The Insular Life Assurance Co., Ltd.
P.O. Box 128, MANILA
Policy No. A000015683
Gentlemen:
Thru your Reinstatement Section, I/WE learned that this policy may be reinstated provided
I/we agree to the following condition/s indicated with a check mark:
[xx] Accept the imposition of an extra/additional extra premium of [P]5.00 a year per
thousand of insurance; effective June 22, 1999
[ ] Accept the rating on the WPD at ____ at standard rates; the ABD at _____ the
standard rates; the SAR at P____ annually per thousand of Insurance;
[xx] Accept the cancellation of the Premium waiver & Accidental death benefit.
[]
I am/we are agreeable to the above condition/s. Please proceed with the reinstatement of
the policy.
Very truly yours,
Felipe N. Khu, Sr.
After Felipe accomplished this form, Insular Life, through its Regional Administrative
Manager, Jesse James R. Toyhorada, issued an Endorsement33 dated January 7, 2000. For
emphasis, the Endorsement is again quoted as follows:
ENDORSEMENT
PN-A000015683

This certifies that as agreed to by the Insured, the reinstatement of this policy has been
approved by the Company on the understanding that the following changes are made on the
policy effective June 22, 1999:
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY
(WPD) rider originally attached to and forming parts of this policy is deleted.
In consequence thereof, the PREMIUM RATES on this policy are adjusted to [P]28,000.00
annuallly, [P]14,843.00 semi-annually and [P]7,557.00 quarterly, Philippine Currency.
Cagayan de Oro City, 07 January 2000.
RCV/
(Signed) Authorized Signature
Based on the foregoing, we find that the CA did not commit any error in holding that the
subject insurance policy be considered as reinstated on June 22, 1999. This finding must be
upheld not only because it accords with the evidence, but also because this is favorable to
the insured who was not responsible for causing the ambiguity or obscurity in the insurance
contract.34
The CA expounded on this point thus
The Court discerns a genuine ambiguity or obscurity in the language of the two documents.
In the Letter of Acceptance, Khu declared that he was accepting "the imposition of an
extra/additional x x x premium of P5.00 a year per thousand of insurance; effective June 22,
1999". It is true that the phrase as used in this
particular paragraph does not refer explicitly to the effectivity of the reinstatement. But the
Court notes that the reinstatement was conditioned upon the payment of additional
premium not only prospectively, that is, to cover the
remainder of the annual period of coverage, but also retroactively, that is for the period
starting June 22, 1999. Hence, by paying the amount of P3,054.50 on December 27, 1999 in
addition to the P25,020.00 he had earlier paid on September 7, 1999, Khu had paid for the
insurance coverage starting June 22, 1999. At the very least, this circumstance has
engendered a true lacuna.
In the Endorsement, the obscurity is patent. In the first sentence of the Endorsement, it is
not entirely clear whether the phrase "effective June 22, 1999" refers to the subject of the
sentence, namely "the reinstatement of this policy," or to the subsequent phrase "changes
are made on the policy."
The court below is correct. Given the obscurity of the language, the construction favorable to
the insured will be adopted by the courts.

Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus, the period of
contestability has lapsed.35
In Eternal Gardens Memorial Park Corporation v. The Philippine American Life Insurance
Company,36 we ruled in favor of the insured and in favor of the effectivity of the insurance
contract in the midst of ambiguity in theinsurance contract provisions. We held that:
It must be remembered that an insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to
safeguard the latters interest. Thus, in MalayanInsurance Corporation v. Court of Appeals,
this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule
of resolving any ambiguity therein in favor of the insured, where the contract or policy is
prepared by the insurer. A contract of insurance, being a contract of adhesion, par
excellence, any ambiguity therein should be resolved against the insurer; in other
words, it should be construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be construed in
such a way as to preclude the insurer from noncompliance with its obligations.
xxxx
As a final note, to characterize the insurer and the insured as contracting parties on equal
footing is inaccurate at best. Insurance contracts are wholly prepared by the insurer with
vast amounts of experience in the industry
purposefully used to its advantage. More often than not, insurance contracts are contracts of
adhesion containing technical terms and conditions of the industry, confusing if at all
understandable to laypersons, that are imposed on those who wish to avail of insurance. As
such, insurance contracts are imbued with public interest that must be considered whenever
the rights and obligations of the insurer and the insured are to be delineated. Hence, in
order to protect the interest of insurance applicants, insurance companies must be obligated
to act with haste upon insurance applications, to either deny or approve the same, or
otherwise be bound to honor the application as a valid, binding, and effective insurance
contract.37
Indeed, more than two years had lapsed from the time the subject insurance policy was
reinstated on June 22, 1999 vis-a-vis Felipes death on September 22, 2001.1wphi1 As
such, the subject insurance policy has already become incontestable at the time of Felipes
death.
Finally, we agree with the CA that there is neither basis nor justification for the RTCs award
of moral damages, attorneys fees and litigation expenses; hence this award must be
deleted.
WHEREFORE, the Petition is DENIED. The assailed .June 24, 2010 Decision and December
13, 2010 Resolution of the Court of Appeals in CA-GR. CV No. 81730 are AFFIRMED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 175666

July 29, 2013

MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner.

vs.
CRESENCIA P. ABAN, Respondent.
DECISION
DEL CASTILLO, J.:
The ultimate aim of Section 48 of the Insurance Code is to compel insurers to solicit business
from or provide insurance coverage only to legitimate and bona fide clients, by requiring
them to thoroughly investigate those they insure within two years from effectivity of the
policy and while the insured is still alive. If they do not, they will be obligated to honor claims
on the policies they issue, regardless of fraud, concealment or misrepresentation. The law
assumes that they will do just that and not sit on their laurels, indiscriminately soliciting and
accepting insurance business from any Tom, Dick and Harry.
Assailed in this Petition for Review on Certiorari1 are the September 28, 2005 Decision2 of
the Court of Appeals' (CA) in CA-G.R. CV No. 62286 and its November 9, 2006
Resolution3 denying the petitioners Motion for Reconsideration.4
Factual Antecedents
On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Manila Bankers
Life Insurance Corporation (Bankers Life), designating respondent Cresencia P. Aban (Aban),
her niece,5 as her beneficiary.
Petitioner issued Insurance Policy No. 747411 (the policy), with a face value of P100,000.00,
in Soteros favor on August 30, 1993, after the requisite medical examination and payment
of the insurance premium.6
On April 10, 1996,7 when the insurance policy had been in force for more than two years and
seven months, Sotero died. Respondent filed a claim for the insurance proceeds on July 9,
1996. Petitioner conducted an investigation into the claim, 8 and came out with the following
findings:
1. Sotero did not personally apply for insurance coverage, as she was illiterate;

2. Sotero was sickly since 1990;

3. Sotero did not have the financial capability to pay the insurance premiums on
Insurance Policy No. 747411;
4. Sotero did not sign the July 3, 1993 application for insurance; 9 and
5. Respondent was the one who filed the insurance application, and x x x designated
herself as the beneficiary.10
For the above reasons, petitioner denied respondents claim on April 16, 1997 and refunded
the premiums paid on the policy.11
On April 24, 1997, petitioner filed a civil case for rescission and/or annulment of the policy,
which was docketed as Civil Case No. 97-867 and assigned to Branch 134 of the Makati
Regional Trial Court. The main thesis of the Complaint was that the policy was obtained by
fraud, concealment and/or misrepresentation under the Insurance Code, 12 which thus
renders it voidable under Article 139013 of the Civil Code.
Respondent filed a Motion to Dismiss14 claiming that petitioners cause of action was barred
by prescription pursuant to Section 48 of the Insurance Code, which provides as follows:
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
rescindible by reason of the fraudulent concealment or misrepresentation of the insured or
his agent.
During the proceedings on the Motion to Dismiss, petitioners investigator testified in court,
stating among others that the insurance underwriter who solicited the insurance is a cousin
of respondents husband, Dindo Aban,15and that it was the respondent who paid the annual
premiums on the policy.16
Ruling of the Regional Trial Court
On December 9, 1997, the trial court issued an Order17 granting respondents Motion to
Dismiss, thus:
WHEREFORE, defendant CRESENCIA P. ABANs Motion to Dismiss is hereby granted. Civil
Case No. 97-867 is hereby dismissed.
SO ORDERED.18

In dismissing the case, the trial court found that Sotero, and not respondent, was the one
who procured the insurance; thus, Sotero could legally take out insurance on her own life
and validly designate as she did respondent as the beneficiary. It held further that under
Section 48, petitioner had only two years from the effectivity of the policy to question the
same; since the policy had been in force for more than two years, petitioner is now barred
from contesting the same or seeking a rescission or annulment thereof.
Petitioner moved for reconsideration, but in another Order19 dated October 20, 1998, the
trial court stood its ground.
Petitioner interposed an appeal with the CA, docketed as CA-G.R. CV No. 62286. Petitioner
questioned the dismissal of Civil Case No. 97-867, arguing that the trial court erred in
applying Section 48 and declaring that prescription has set in. It contended that since it was
respondent and not Sotero who obtained the insurance, the policy issued was rendered
void ab initio for want of insurable interest.
Ruling of the Court of Appeals
On September 28, 2005, the CA issued the assailed Decision, which contained the following
decretal portion:
WHEREFORE, in the light of all the foregoing, the instant appeal is DISMISSED for lack of
merit.
SO ORDERED.20
The CA thus sustained the trial court. Applying Section 48 to petitioners case, the CA held
that petitioner may no longer prove that the subject policy was void ab initio or rescindible
by reason of fraudulent concealment or misrepresentation after the lapse of more than two
years from its issuance. It ratiocinated that petitioner was equipped with ample means to
determine, within the first two years of the policy, whether fraud, concealment or
misrepresentation was present when the insurance coverage was obtained. If it failed to do
so within the statutory two-year period, then the insured must be protected and allowed to
claim upon the policy.
Petitioner moved for reconsideration,21 but the CA denied the same in its November 9, 2006
Resolution.22Hence, the present Petition.
Issues
Petitioner raises the following issues for resolution:
I
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE ORDER OF THE TRIAL COURT
DISMISSING THE COMPLAINT ON THE GROUND OF PRESCRIPTION IN CONTRAVENTION (OF)
PERTINENT LAWS AND APPLICABLE JURISPRUDENCE.

II
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE APPLICATION OF THE
INCONTESTABILITY PROVISION IN THE INSURANCE CODE BY THE TRIAL COURT.
III
WHETHER THE COURT OF APPEALS ERRED IN DENYING PETITIONERS MOTION FOR
RECONSIDERATION.23
Petitioners Arguments
In praying that the CA Decision be reversed and that the case be remanded to the trial court
for the conduct of further proceedings, petitioner argues in its Petition and Reply 24 that
Section 48 cannot apply to a case where the beneficiary under the insurance contract posed
as the insured and obtained the policy under fraudulent circumstances. It adds that
respondent, who was merely Soteros niece, had no insurable interest in the life of her aunt.
Relying on the results of the investigation that it conducted after the claim for the insurance
proceeds was filed, petitioner insists that respondents claim was spurious, as it appeared
that Sotero did not actually apply for insurance coverage, was unlettered, sickly, and had no
visible source of income to pay for the insurance premiums; and that respondent was an
impostor, posing as Sotero and fraudulently obtaining insurance in the latters name without
her knowledge and consent.
Petitioner adds that Insurance Policy No. 747411 was void ab initio and could not have given
rise to rights and obligations; as such, the action for the declaration of its nullity or
inexistence does not prescribe.25
Respondents Arguments
Respondent, on the other hand, essentially argues in her Comment26 that the CA is correct in
applying Section 48. She adds that petitioners new allegation in its Petition that the policy is
void ab initio merits no attention, having failed to raise the same below, as it had claimed
originally that the policy was merely voidable.
On the issue of insurable interest, respondent echoes the CAs pronouncement that since it
was Sotero who obtained the insurance, insurable interest was present. Under Section 10 of
the Insurance Code, Sotero had insurable interest in her own life, and could validly designate
anyone as her beneficiary. Respondent submits that the CAs findings of fact leading to such
conclusion should be respected.
Our Ruling
The Court denies the Petition.
The Court will not depart from the trial and appellate courts finding that it was Sotero who
obtained the insurance for herself, designating respondent as her beneficiary. Both courts

are in accord in this respect, and the Court is loath to disturb this. While petitioner insists
that its independent investigation on the claim reveals that it was respondent, posing as
Sotero, who obtained the insurance, this claim is no longer feasible in the wake of the
courts finding that it was Sotero who obtained the insurance for herself. This finding of fact
binds the Court.
With the above crucial finding of fact that it was Sotero who obtained the insurance for
herself petitioners case is severely weakened, if not totally disproved. Allegations of fraud,
which are predicated on respondents alleged posing as Sotero and forgery of her signature
in the insurance application, are at once belied by the trial and appellate courts finding that
Sotero herself took out the insurance for herself. "Fraudulent intent on the part of the
insured must be established to entitle the insurer to rescind the contract." 27 In the absence
of proof of such fraudulent intent, no right to rescind arises.
Moreover, the results and conclusions arrived at during the investigation conducted
unilaterally by petitioner after the claim was filed may simply be dismissed as self-serving
and may not form the basis of a cause of action given the existence and application of
Section 48, as will be discussed at length below.
Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the
insured. Under the provision, an insurer is given two years from the effectivity of a life
insurance contract and while the insured is alive to discover or prove that the policy is void
ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of
the insured or his agent. After the two-year period lapses, or when the insured dies within
the period, the insurer must make good on the policy, even though the policy was obtained
by fraud, concealment, or misrepresentation. This is not to say that insurance fraud must be
rewarded, but that insurers who recklessly and indiscriminately solicit and obtain business
must be penalized, for such recklessness and lack of discrimination ultimately work to the
detriment of bona fide takers of insurance and the public in general.
Section 48 regulates both the actions of the insurers and prospective takers of life insurance.
It gives insurers enough time to inquire whether the policy was obtained by fraud,
concealment, or misrepresentation; on the other hand, it forewarns scheming individuals
that their attempts at insurance fraud would be timely uncovered thus deterring them from
venturing into such nefarious enterprise. At the same time, legitimate policy holders are
absolutely protected from unwarranted denial of their claims or delay in the collection of
insurance proceeds occasioned by allegations of fraud, concealment, or misrepresentation
by insurers, claims which may no longer be set up after the two-year period expires as
ordained under the law.
Thus, the self-regulating feature of Section 48 lies in the fact that both the insurer and the
insured are given the assurance that any dishonest scheme to obtain life insurance would be
exposed, and attempts at unduly denying a claim would be struck down. Life insurance
policies that pass the statutory two-year period are essentially treated as legitimate and
beyond question, and the individuals who wield them are made secure by the thought that
they will be paid promptly upon claim. In this manner, Section 48 contributes to the stability
of the insurance industry.

Section 48 prevents a situation where the insurer knowingly continues to accept annual
premium payments on life insurance, only to later on deny a claim on the policy on specious
claims of fraudulent concealment and misrepresentation, such as what obtains in the instant
case. Thus, instead of conducting at the first instance an investigation into the
circumstances surrounding the issuance of Insurance Policy No. 747411 which would have
timely exposed the supposed flaws and irregularities attending it as it now professes,
petitioner appears to have turned a blind eye and opted instead to continue collecting the
premiums on the policy. For nearly three years, petitioner collected the premiums and
devoted the same to its own profit. It cannot now deny the claim when it is called to
account. Section 48 must be applied to it with full force and effect.
The Court therefore agrees fully with the appellate courts pronouncement that
the "incontestability clause" is a provision in law that after a policy of life insurance made
payable on the death of the insured shall have been in force during the lifetime of the
insured for a period of two (2) years from the date of its issue or of its last reinstatement,
the insurer cannot prove that the policy is void ab initio or is rescindible by reason of
fraudulent concealment or misrepresentation of the insured or his agent.
The purpose of the law is to give protection to the insured or his beneficiary by limiting the
rescinding of the contract of insurance on the ground of fraudulent concealment or
misrepresentation to a period of only two (2) years from the issuance of the policy or its last
reinstatement.
The insurer is deemed to have the necessary facilities to discover such fraudulent
concealment or misrepresentation within a period of two (2) years. It is not fair for the
insurer to collect the premiums as long as the insured is still alive, only to raise the issue of
fraudulent concealment or misrepresentation when the insured dies in order to defeat the
right of the beneficiary to recover under the policy.
At least two (2) years from the issuance of the policy or its last reinstatement, the
beneficiary is given the stability to recover under the policy when the insured dies. The
provision also makes clear when the two-year period should commence in case the policy
should lapse and is reinstated, that is, from the date of the last reinstatement.
After two years, the defenses of concealment or misrepresentation, no matter how patent or
well-founded, will no longer lie.
Congress felt this was a sufficient answer to the various tactics employed by insurance
companies to avoid liability.
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
insureds 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."

As borne by the records, the policy was issued on August 30, 1993, the insured died on April
10, 1996, and the claim was denied on April 16, 1997. The insurance policy was thus in force
for a period of 3 years, 7 months, and 24 days. Considering that the insured died after the
two-year period, the plaintiff-appellant is, therefore, barred from proving that the policy is
void ab initio by reason of the insureds fraudulent concealment or misrepresentation or
want of insurable interest on the part of the beneficiary, herein defendant-appellee.
Well-settled is the rule that it is the plaintiff-appellants burden to show that the factual
findings of the trial court are not based on substantial evidence or that its conclusions are
contrary to applicable law and jurisprudence. The plaintiff-appellant failed to discharge that
burden.28
Petitioner claims that its insurance agent, who solicited the Sotero account, happens to be
the cousin of respondents husband, and thus insinuates that both connived to commit
insurance fraud. If this were truly the case, then petitioner would have discovered the
scheme earlier if it had in earnest conducted an investigation into the circumstances
surrounding the Sotero policy. But because it did not and it investigated the Sotero account
only after a claim was filed thereon more than two years later, naturally it was unable to
detect the scheme. For its negligence and inaction, the Court cannot sympathize with its
plight. Instead, its case precisely provides the strong argument for requiring insurers to
diligently conduct investigations on each policy they issue within the two-year period
mandated under Section 48, and not after claims for insurance proceeds are filed with them.
Besides, if insurers cannot vouch for the integrity and honesty of their insurance
agents/salesmen and the insurance policies they issue, then they should cease doing
business. If they could not properly screen their agents or salesmen before taking them in to
market their products, or if they do not thoroughly investigate the insurance contracts they
enter into with their clients, then they have only themselves to blame. Otherwise said,
insurers cannot be allowed to collect premiums on insurance policies, use these amounts
collected and invest the same through the years, generating profits and returns therefrom
for their own benefit, and thereafter conveniently deny insurance claims by questioning the
authority or integrity of their own agents or the insurance policies they issued to their
premium-paying clients. This is exactly one of the schemes which Section 48 aims to
prevent.
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, 29 and is imbued with public
interest.30 "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 formers
interest."31
WHEREFORE, the Petition is DENIED. The assailed September 28, 2005 Decision and the
November 9, 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 62286 are
AFFIRMED.

SO ORDERED.