G.R. No.
124050 June 19, 1997 have no obligation to pay the amount claimed by
MAYER STEEL PIPE CORPORATION and HONGKONG
GOVERNMENT SUPPLIES DEPARTMENT, petitioners,
vs.
COURT OF APPEALS, SOUTH SEA SURETY AND
INSURANCE CO., INC. and the CHARTER INSURANCE
CORPORATION, respondents.
PUNO, J.:
This is a petition for review on certiorari to annul and set
aside the Decision of respondent Court of Appeals dated
December 14, 1995 1 and its Resolution dated February 22,
1996 2 in CA-G.R. CV No. 45805 entitled Mayer Steel Pipe
Corporation and Hongkong Government Supplies
Department v. South Sea Surety Insurance Co., Inc. and The
Charter Insurance Corporation. 3
In 1983, petitioner Hongkong Government Supplies
Department (Hongkong) contracted petitioner Mayer Steel
Pipe Corporation (Mayer) to manufacture and supply
various steel pipes and fittings. From August to October,
1983, Mayer shipped the pipes and fittings to Hongkong as
evidenced by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-
1025, MSPC-1020, MSPC-1017 and MSPC-1022. 4
Prior to the shipping, petitioner Mayer insured the pipes
and fittings against all risks with private respondents
South Sea Surety and Insurance Co., Inc. (South Sea) and
Charter Insurance Corp. (Charter). The pipes and fittings
covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a
total amount of US$212,772.09 were insured with
respondent South Sea, while those covered by Invoice Nos.
1020, 1017 and 1022 with a total amount of
US$149,470.00 were insured with respondent Charter.
Petitioners Mayer and Hongkong jointly appointed
Industrial Inspection (International) Inc. as third-party
inspector to examine whether the pipes and fittings are
manufactured in accordance with the specifications in the
contract. Industrial Inspection certified all the pipes and
fittings to be in good order condition before they were
loaded in the vessel. Nonetheless, when the goods reached
Hongkong, it was discovered that a substantial portion
thereof was damaged.
Petitioners filed a claim against private respondents for
indemnity under the insurance contract. Respondent
Charter paid petitioner Hongkong the amount of
HK$64,904.75. Petitioners demanded payment of the
balance of HK$299,345.30 representing the cost of repair
of the damaged pipes. Private respondents refused to pay
because the insurance surveyor's report allegedly showed
that the damage is a factory defect.
On April 17, 1986, petitioners filed an action against
private respondents to recover the sum of HK$299,345.30.
For their defense, private respondents averred that they
petitioners because the damage to the goods is due to
factory defects which are not covered by the insurance
policies.
The trial court ruled in favor of petitioners. It found that
the damage to the goods is not due to manufacturing
defects. It also noted that the insurance contracts executed
by petitioner Mayer and private respondents are "all risks"
policies which insure against all causes of conceivable loss
or damage. The only exceptions are those excluded in the
policy, or those sustained due to fraud or intentional
misconduct on the part of the insured. The dispositive
portion of the decision states:
WHEREFORE, judgment is hereby
rendered ordering the defendants jointly
and severally, to pay the plaintiffs the
following:
1. the sum equivalent in Philippine
currency of HK$299,345.30, with legal
rate of interest as of the filing of the
complaint;
2. P100,000.00 as and for attorney's fees;
and
3. costs of suit.
SO ORDERED. 5
Private respondents elevated the case to respondent Court
of Appeals.
Respondent court affirmed the finding of the trial court
that the damage is not due to factory defect and that it was
covered by the "all risks" insurance policies issued by
private respondents to petitioner Mayer. However, it set
aside the decision of the trial court and dismissed the
complaint on the ground of prescription. It held that the
action is barred under Section 3(6) of the Carriage of
Goods by Sea Act since it was filed only on April 17, 1986,
more than two years from the time the goods were
unloaded from the vessel. Section 3(6) of the Carriage of
Goods by Sea Act provides that "the carrier and the ship
shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after
delivery of the goods or the date when the goods should
have been delivered." Respondent court ruled that this
provision applies not only to the carrier but also to the
insurer, citing Filipino Merchants Insurance
Co., Inc. v. Alejandro. 6
Hence this petition with the following assignments of
error:
1. The respondent Court of Appeals erred
in holding that petitioners' cause of action
 had already prescribed on the mistaken
application of the Carriage of Goods by
Sea Act and the doctrine of Filipino
Merchants Co., Inc. v. Alejandro (145
SCRA 42); and
2. The respondent Court of Appeals
committed an error in dismissing the
complaint. 7
The petition is impressed with merit. Respondent court
erred in applying Section 3(6) of the Carriage of Goods by
Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that
the carrier and the ship shall be discharged from all
liability for loss or damage to the goods if no suit is filed
within one year after delivery of the goods or the date
when they should have been delivered. Under this
provision, only the carrier's liability is extinguished if no
suit is brought within one year. But the liability of the
insurer is not extinguished because the insurer's liability is
based not on the contract of carriage but on the contract of
insurance. A close reading of the law reveals that the
Carriage of Goods by Sea Act governs the relationship
between the carrier on the one hand and the shipper, the
consignee and/or the insurer on the other hand. It defines
the obligations of the carrier under the contract of
carriage. It does not, however, affect the relationship
between the shipper and the insurer. The latter case is
governed by the Insurance Code.
Our ruling in Filipino Merchants Insurance
Co., Inc. v. Alejandro 8 and the other cases 9 cited therein
does not support respondent court's view that the
insurer's liability prescribes after one year if no action for
indemnity is filed against the carrier or the insurer. In that
case, the shipper filed a complaint against the insurer for
recovery of a sum of money as indemnity for the loss and
damage sustained by the insured goods. The insurer, in
turn, filed a third-party complaint against the carrier for
reimbursement of the amount it paid to the shipper. The
insurer filed the third-party complaint on January 9, 1978,
more than one year after delivery of the goods on
December 17, 1977. The court held that the insurer was
already barred from filing a claim against the carrier
because under the Carriage of Goods by Sea Act, the suit
against the carrier must be filed within one year after
delivery of the goods or the date when the goods should
have been delivered. The court said that "the coverage of
the Act includes the insurer of the goods." 10
The Filipino Merchants case is different from the case at
bar. In Filipino Merchants, it was the insurer which filed a
claim against the carrier for reimbursement of the amount
it paid to the shipper. In the case at bar, it was the shipper
which filed a claim against the insurer. The basis of the
shipper's claim is the "all risks" insurance policies issued
by private respondents to petitioner Mayer.
The ruling in Filipino Merchants should apply only to suits
against the carrier filed either by the shipper, the
consignee or the insurer. When the court said in Filipino
Merchants that Section 3(6) of the Carriage of Goods by
Sea Act applies to the insurer, it meant that the insurer,
like the shipper, may no longer file a claim against the
carrier beyond the one-year period provided in the law.
But it does not mean that the shipper may no longer file a
claim against the insurer because the basis of the insurer's
liability is the insurance contract. An insurance contract is
a contract whereby one party, for a consideration known
as the premium, agrees to indemnify another for loss or
damage which he may suffer from a specified peril. 11 An
"all risks" insurance policy covers all kinds of loss other
than those due to willful and fraudulent act of the
insured. 12 Thus, when private respondents issued the "all
risks" policies to petitioner Mayer, they bound themselves
to indemnify the latter in case of loss or damage to the
goods insured. Such obligation prescribes in ten years, in
accordance with Article 1144 of the New Civil Code. 13
IN VIEW WHEREOF, the petition is GRANTED. The
Decision of respondent Court of Appeals dated December
14, 1995 and its Resolution dated February 22, 1996 are
hereby SET ASIDE and the Decision of the Regional Trial
Court is hereby REINSTATED. No costs.
SO ORDERED.
G.R. No. 167330 June 12, 2008
PHILIPPINE HEALTH CARE PROVIDERS,
INC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
CORONA, J.:
Is a health care agreement in the nature of an insurance
contract and therefore subject to the documentary stamp
tax (DST) imposed under Section 185 of Republic Act 8424
(Tax Code of 1997)?
This is an issue of first impression. The Court of Appeals
(CA) answered it affirmatively in its August 16, 2004
decision1 in CA-G.R. SP No. 70479. Petitioner Philippine
Health Care Providers, Inc. believes otherwise and assails
the CA decision in this petition for review under Rule 45 of
the Rules of Court.
Petitioner is a domestic corporation whose primary
purpose is "[t]o establish, maintain, conduct and operate a
prepaid group practice health care delivery system or a
health maintenance organization to take care of the sick
and disabled persons enrolled in the health care plan and
to provide for the administrative, legal, and financial
responsibilities of the organization."2 Individuals enrolled
in its health care programs pay an annual membership fee
and are entitled to various preventive, diagnostic and
curative medical services provided by its duly licensed
physicians, specialists and other professional technical
staff participating in the group practice health delivery
system at a hospital or clinic owned, operated or
accredited by it.3
The pertinent part of petitioner's membership or health
care agreement4 provides:
VII BENEFITS
Subject to paragraphs VIII [on pre-existing
medical condition] and X [on claims for
reimbursement] of this Agreement, Members shall
have the following Benefits under this Agreement:
In-Patient Services. In the event that a Member
contract[s] sickness or suffers injury which
requires confinement in a participating Hospital[,]
the services or benefits stated below shall be
provided to the Member free of charge, but in no
case shall [petitioner] be liable to pay more than
P75,000.00 in benefits with respect to anyone
sickness, injury or related causes. If a member has
exhausted such maximum benefits with respect to
a particular sickness, injury or related causes, all
accounts in excess of P75,000.00 shall be borne by
the enrollee. It is[,] however, understood that the
payment by [petitioner] of the said maximum in
In-Patient Benefits to any one member shall
preclude a subsequent payment of benefits to such
member in respect of an unrelated sickness, injury
or related causes happening during the remainder
of his membership term.
(a) Room and Board
(b) Services of physician and/or surgeon
or specialist
(c) Use of operating room and recovery
room
(d) Standard Nursing Services
(e) Drugs and Medication for use in the
hospital except those which are used to
dissolve blood clots in the vascular
systems (i.e., trombolytic agents)
(f) Anesthesia and its administration
(g) Dressings, plaster casts and other
miscellaneous supplies
(h) Laboratory tests, x-rays and other
necessary diagnostic services
(i) Transfusion of blood and other blood
elements
Condition for in-Patient Care. The provision of
the services or benefits mentioned in the
immediately preceding paragraph shall be subject
to the following conditions:
(a) The Hospital Confinement must be
approved by [petitioner's] Physician,
Participating Physician or [petitioner's]
Medical Coordinator in that Hospital prior
to confinement.
(b) The confinement shall be in a
Participating Hospital and the
accommodation shall be in accordance
with the Member[']s benefit classification.
(c) Professional services shall be provided
only by the [petitioner's] Physicians or
Participating Physicians.
(d) If discharge from the Hospital has
been authorized by [petitioner's]
attending Physician or Participating
Physician and the Member shall fail or
refuse to do so, [petitioner] shall not be
responsible for any charges incurred after
discharge has been authorized.
Out-Patient Services. A Member is entitled free
of charge to the following services or benefits
which shall be rendered or administered either in
[petitioner's] Clinic or in a Participating Hospital
under the direction or supervision of [petitioner's]
Physician, Participating Physician or [petitioner's]
Medical Coordinator.
(a) Gold Plan Standard Annual Physical
Examination on the anniversary date of
membership, to be done at [petitioner's]
designated hospital/clinic, to wit:
(i) Taking a medical history
(ii) Physical examination
(iii) Chest x-ray
(iv) Stool examination
(v) Complete Blood Count
(vi) Urinalysis
(vii) Fasting Blood Sugar (FBS)
 (viii) SGPT
(ix) Creatinine
(x) Uric Acid
(xi) Resting Electrocardiogram
(xii) Pap Smear (Optional for
women 40 years and above)
(b) Platinum Family Plan/Gold Family
Plan and Silver Annual Physical
Examination.
The following tests are to be done as part
of the Member[']s Annual check-up
program at [petitioner's] designated
clinic, to wit:
1) Routine Physical Examination
2) CBC (Complete Blood Count)
* Hemoglobin
Hematocrit
* Differential * RBC/WBC
3) Chest X-ray
4) Urinalysis
5) Fecalysis
(c) Preventive Health Care, which shall
include:
(i) Periodic Monitoring of Health
Problems
(ii) Family planning counseling
(iii) Consultation and advices on
diet, exercise and other healthy
habits
(iv) Immunization but excluding
drugs for vaccines used
(d) Out-Patient Care, which shall include:
(i) Consultation, including
specialist evaluation
(ii) Treatment of injury or illness
(iii) Necessary x-ray and
laboratory examination
(iv) Emergency medicines
needed for the immediate
relief of symptoms
(v) Minor surgery not requiring
confinement
Emergency Care. Subject to the conditions and
limitations in this Agreement and those specified
below, a Member is entitled to receive emergency
care [in case of emergency. For this purpose, all
hospitals and all attending physician(s) in the
Emergency Room automatically become
accredited. In participating hospitals, the member
shall be entitled to the following services free of
charge: (a) doctor's fees, (b) emergency room fees,
(c) medicines used for immediate relief and
during treatment, (d) oxygen, intravenous fluids
and whole blood and human blood products, (e)
dressings, casts and sutures and (f) x-rays,
laboratory and diagnostic examinations and other
* medical services related to the emergency
treatment of the patient.]5 Provided, however, that
in no case shall the total amount payable by
[petitioner] for said Emergency, inclusive of
hospital bill and professional fees, exceed
P75,000.00.
If the Member received care in a non-participating
hospital, [petitioner] shall reimburse [him]6 80%
of the hospital bill or the amount of P5,000.00[,]
whichever is lesser, and 50% of the professional
fees of non-participating physicians based on
[petitioner's] schedule of fees provided that the
total amount[,] inclusive of hospital bills and
professional fee shall not exceed P5,000.00.
On January 27, 2000, respondent Commissioner of Internal
Revenue sent petitioner a formal demand letter and the
corresponding assessment notices demanding the
payment of deficiency taxes, including surcharges and
interest, for the taxable years 1996 and 1997 in the total
amount of P224,702,641.18. The assessment represented
the following:
Value Added Tax (VAT) DST
1996 P 45,767,596.23 P 55,746,352.19
1997 54,738,434.03 68,450,258.73
P 100,506,030.26 P 124,196,610.9
The deficiency DST assessment was imposed on
petitioner's health care agreement with the members of its
health care program pursuant to Section 185 of the 1997
Tax Code which provides:
 Section 185. Stamp tax on fidelity bonds and other
insurance policies. - On all policies of
insurance or bonds or obligations of the nature
of indemnity for loss, damage, or liability made
or renewed by any person, association or
company or corporation transacting the
business of accident, fidelity, employer's liability,
plate, glass, steam boiler, burglar, elevator,
automatic sprinkler, or other branch of
insurance (except life, marine, inland, and fire
insurance), and all bonds, undertakings, or
recognizances, conditioned for the performance of
the duties of any office or position, for the doing or
not doing of anything therein specified, and on all
obligations guaranteeing the validity or legality of
any bond or other obligations issued by any
province, city, municipality, or other public body
or organization, and on all obligations
guaranteeing the title to any real estate, or
guaranteeing any mercantile credits, which may
be made or renewed by any such person, company
or corporation, there shall be collected a
documentary stamp tax of fifty centavos (P0.50)
on each four pesos (P4.00), or fractional part
thereof, of the premium charged. (emphasis
supplied)
Petitioner protested the assessment in a letter dated
February 23, 2000. As respondent did not act on the
protest, petitioner filed a petition for review in the Court of
Tax Appeals (CTA) seeking the cancellation of the
deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision,7 the
dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant
Petition for Review is PARTIALLY GRANTED.
Petitioner is hereby ORDERED to PAY the
deficiency VAT amounting to P22,054,831.75
inclusive of 25% surcharge plus 20% interest
from January 20, 1997 until fully paid for the 1996
VAT deficiency and P31,094,163.87 inclusive of
25% surcharge plus 20% interest from January
20, 1998 until fully paid for the 1997 VAT
deficiency. Accordingly, VAT Ruling No. [231]-88
is declared void and without force and effect. The
1996 and 1997 deficiency DST assessment against
petitioner is hereby CANCELLED AND SET ASIDE.
Respondent is ORDERED to DESIST from
collecting the said DST deficiency tax.
SO ORDERED.8
Respondent appealed the CTA decision to the CA 9 insofar
as it cancelled the DST assessment. He claimed that
petitioner's health care agreement was a contract of
insurance subject to DST under Section 185 of the 1997
Tax Code.
On August 16, 2004, the CA rendered its decision.10 It held
that petitioner's health care agreement was in the nature
of a non-life insurance contract subject to DST:
WHEREFORE, the petition for review is GRANTED.
The Decision of the Court of Tax Appeals, insofar
as it cancelled and set aside the 1996 and 1997
deficiency documentary stamp tax assessment
and ordered petitioner to desist from collecting
the same is REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts
of P55,746,352.19 and P68,450,258.73 as
deficiency Documentary Stamp Tax for 1996 and
1997, respectively, plus 25% surcharge for late
payment and 20% interest per annum from
January 27, 2000, pursuant to Sections 248 and
249 of the Tax Code, until the same shall have
been fully paid.
SO ORDERED.11
Petitioner moved for reconsideration but the CA denied it.
Hence, this petition.
Petitioner essentially argues that its health care agreement
is not a contract of insurance but a contract for the
provision on a prepaid basis of medical services, including
medical check-up, that are not based on loss or damage.
Petitioner also insists that it is not engaged in the
insurance business. It is a health maintenance organization
regulated by the Department of Health, not an insurance
company under the jurisdiction of the Insurance
Commission. For these reasons, petitioner asserts that the
health care agreement is not subject to DST.
We do not agree.
The DST is levied on the exercise by persons of certain
privileges conferred by law for the creation, revision, or
termination of specific legal relationships through the
execution of specific instruments.12 It is an excise upon the
privilege, opportunity, or facility offered at exchanges for
the transaction of the business.13 In particular, the DST
under Section 185 of the 1997 Tax Code is imposed on
the privilege of making or renewing any policy of
insurance (except life, marine, inland and fire
insurance), bond or obligation in the nature of
indemnity for loss, damage, or liability.
Under the law, a contract of insurance is an agreement
whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an
unknown or contingent event.14 The event insured against
must be designated in the contract and must either be
unknown or contingent.15
Petitioner's health care agreement is primarily a contract
of indemnity. And in the recent case of Blue Cross
Healthcare, Inc. v. Olivares,16 this Court ruled that a health
care agreement is in the nature of a non-life insurance
policy.
Contrary to petitioner's claim, its health care agreement is
not a contract for the provision of medical services.
Petitioner does not actually provide medical or hospital
services but merely arranges for the same17 and pays for
them up to the stipulated maximum amount of coverage. It
is also incorrect to say that the health care agreement is
not based on loss or damage because, under the said
agreement, petitioner assumes the liability and
indemnifies its member for hospital, medical and related
expenses (such as professional fees of physicians). The
term "loss or damage" is broad enough to cover the
monetary expense or liability a member will incur in case
of illness or injury.
Under the health care agreement, the rendition of hospital,
medical and professional services to the member in case of
sickness, injury or emergency or his availment of so-called
"out-patient services" (including physical examination, x-
ray and laboratory tests, medical consultations, vaccine
administration and family planning counseling) is the
contingent event which gives rise to liability on the part of
the member. In case of exposure of the member to liability,
he would be entitled to indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its
member from liability by paying for expenses arising from
the stipulated contingencies belies its claim that its
services are prepaid. The expenses to be incurred by each
member cannot be predicted beforehand, if they can be
predicted at all. Petitioner assumes the risk of paying for
the costs of the services even if they are significantly and
substantially more than what the member has "prepaid."
Petitioner does not bear the costs alone but distributes or
spreads them out among a large group of persons bearing
a similar risk, that is, among all the other members of the
health care program. This is insurance.
must pay for the same to the extent agreed upon
under the contract.19 (emphasis supplied)
Similarly, the insurable interest of every member of
petitioner's health care program in obtaining the health
care agreement is his own health. Under the agreement,
petitioner is bound to indemnify any member who incurs
hospital, medical or any other expense arising from
sickness, injury or other stipulated contingency to the
extent agreed upon under the contract.
Petitioner's contention that it is a health maintenance
organization and not an insurance company is irrelevant.
Contracts between companies like petitioner and the
beneficiaries under their plans are treated as insurance
contracts.20
Moreover, DST is not a tax on the business transacted but
an excise on the privilege, opportunity, or facility offered at
exchanges for the transaction of the business.21 It is an
excise on the facilities used in the transaction of the
business, separate and apart from the business itself.22
WHEREFORE, the petition is hereby DENIED. The August
16, 2004 decision of the Court of Appeals in CA-G.R. SP
No. 70479 is AFFIRMED.
Petitioner is ordered to pay the amounts
of P55,746,352.19 and P68,450,258.73 as deficiency
documentary stamp tax for 1996 and 1997, respectively,
plus 25% surcharge for late payment and 20% interest per
annum from January 27, 2000 until full payment thereof.
Costs against petitioner.
SO ORDERED.

Petitioner's health care agreement is substantially similar

to that involved in Philamcare Health Systems, Inc. v.
CA.18 The health care agreement in that case entitled the
subscriber to avail of the hospitalization benefits, whether
ordinary or emergency, listed therein. It also provided for
"out-patient benefits" such as annual physical
examinations, preventive health care and other out-patient
services. This Court ruled in Philamcare Health Systems,
Inc.:

[T]he insurable interest of [the subscriber] in

obtaining the health care agreement was his own
health. The health care agreement was in the
nature of non-life insurance, which is
primarily a contract of indemnity. Once the
member incurs hospital, medical or any other
expense arising from sickness, injury or other
stipulated contingency, the health care provider
G.R. No. 166245 April 9, 2008
ETERNAL GARDENS MEMORIAL PARK
CORPORATION, petitioner,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondent.
DECISION
VELASCO, JR., J.:
The Case
Central to this Petition for Review on Certiorari under Rule
45 which seeks to reverse and set aside the November 26,
2004 Decision1 of the Court of Appeals (CA) in CA-G.R. CV
No. 57810 is the query: May the inaction of the insurer on
the insurance application be considered as approval of the
application?
The Facts
On December 10, 1980, respondent Philippine American
Life Insurance Company (Philamlife) entered into an
agreement denominated as Creditor Group Life Policy No.
P-19202 with petitioner Eternal Gardens Memorial Park
Corporation (Eternal). Under the policy, the clients of
Eternal who purchased burial lots from it on installment
basis would be insured by Philamlife. The amount of
insurance coverage depended upon the existing balance of
the purchased burial lots. The policy was to be effective for
a period of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least
18 but not more than 65 years of age, is indebted
to the Assured for the unpaid balance of his loan
with the Assured, and is accepted for Life
Insurance coverage by the Company on its
effective date is eligible for insurance under the
Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for
amounts of insurance up to P50,000.00. However,
a declaration of good health shall be required for
all Lot Purchasers as part of the application. The
Company reserves the right to require further
evidence of insurability satisfactory to the
Company in respect of the following:
1. Any amount of insurance in excess of
P50,000.00.
2. Any lot purchaser who is more than 55
years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser
at any time shall be the amount of the unpaid
balance of his loan (including arrears up to but not
exceeding 2 months) as reported by the Assured
to the Company or the sum of P100,000.00,
whichever is smaller. Such benefit shall be paid to
the Assured if the Lot Purchaser dies while
insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall
be effective on the date he contracts a loan with
the Assured. However, there shall be no insurance
if the application of the Lot Purchaser is not
approved by the Company.3
Eternal was required under the policy to submit to
Philamlife a list of all new lot purchasers, together with a
copy of the application of each purchaser, and the amounts
of the respective unpaid balances of all insured lot
purchasers. In relation to the instant petition, Eternal
complied by submitting a letter dated December 29,
1982,4 containing a list of insurable balances of its lot
buyers for October 1982. One of those included in the list
as "new business" was a certain John Chuang. His balance
of payments was PhP 100,000. On August 2, 1984, Chuang
died.
Eternal sent a letter dated August 20, 19845 to Philamlife,
which served as an insurance claim for Chuang’s death.
Attached to the claim were the following documents: (1)
Chuang’s Certificate of Death; (2) Identification Certificate
stating that Chuang is a naturalized Filipino Citizen; (3)
Certificate of Claimant; (4) Certificate of Attending
Physician; and (5) Assured’s Certificate.
In reply, Philamlife wrote Eternal a letter on November 12,
1984,6 requiring Eternal to submit the following
documents relative to its insurance claim for Chuang’s
death: (1) Certificate of Claimant (with form attached); (2)
Assured’s Certificate (with form attached); (3) Application
for Insurance accomplished and signed by the insured,
Chuang, while still living; and (4) Statement of Account
showing the unpaid balance of Chuang before his death.
Eternal transmitted the required documents through a
letter dated November 14, 1984,7 which was received by
Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished
Eternal with any reply to the latter’s insurance claim. This
prompted Eternal to demand from Philamlife the payment
of the claim for PhP 100,000 on April 25, 1986.8
In response to Eternal’s demand, Philamlife denied
Eternal’s insurance claim in a letter dated May 20, 1986, 9 a
portion of which reads:
The deceased was 59 years old when he entered
into Contract #9558 and 9529 with Eternal
Gardens Memorial Park in October 1982 for the
total maximum insurable amount of P100,000.00
each. No application for Group Insurance was
submitted in our office prior to his death on
August 2, 1984.
In accordance with our Creditor’s Group Life
Policy No. P-1920, under Evidence of Insurability
provision, "a declaration of good health shall be
required for all Lot Purchasers as party of the
application." We cite further the provision on
Effective Date of Coverage under the policy which
states that "there shall be no insurance if the
application is not approved by the Company."
Since no application had been submitted by the
Insured/Assured, prior to his death, for our
approval but was submitted instead on November
15, 1984, after his death, Mr. John Uy Chuang was
not covered under the Policy. We wish to point out
that Eternal Gardens being the Assured was a
party to the Contract and was therefore aware of
these pertinent provisions.
With regard to our acceptance of premiums, these
do not connote our approval per se of the
insurance coverage but are held by us in trust for
the payor until the prerequisites for insurance
coverage shall have been met. We will however,
return all the premiums which have been paid in
behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City
Regional Trial Court (RTC) for a sum of money against
Philamlife, docketed as Civil Case No. 14736. The trial
court decided in favor of Eternal, the dispositive portion of
which reads:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of Plaintiff ETERNAL,
against Defendant PHILAMLIFE, ordering the
Defendant PHILAMLIFE, to pay the sum of
P100,000.00, representing the proceeds of the
Policy of John Uy Chuang, plus legal rate of
interest, until fully paid; and, to pay the sum of
P10,000.00 as attorney’s fees.
SO ORDERED.
The RTC found that Eternal submitted Chuang’s
application for insurance which he accomplished before
his death, as testified to by Eternal’s witness and
evidenced by the letter dated December 29, 1982, stating,
among others: "Encl: Phil-Am Life Insurance Application
Forms & Cert."10 It further ruled that due to Philamlife’s
inaction from the submission of the requirements of the
group insurance on December 29, 1982 to Chuang’s death
on August 2, 1984, as well as Philamlife’s acceptance of the
premiums during the same period, Philamlife was deemed
to have approved Chuang’s application. The RTC said that
since the contract is a group life insurance, once proof of
death is submitted, payment must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial
Court of Makati in Civil Case No. 57810
is REVERSED and SET ASIDE, and the complaint
is DISMISSED. No costs.
SO ORDERED.11
The CA based its Decision on the factual finding that
Chuang’s application was not enclosed in Eternal’s letter
dated December 29, 1982. It further ruled that the non-
accomplishment of the submitted application form
violated Section 26 of the Insurance Code. Thus, the CA
concluded, there being no application form, Chuang was
not covered by Philamlife’s insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a
question of substance, not therefore determined
by this Honorable Court, or has decided it in a way
not in accord with law or with the applicable
jurisprudence, in holding that:
I. The application for insurance was not
duly submitted to respondent PhilamLife
before the death of John Chuang;
II. There was no valid insurance coverage;
and
III. Reversing and setting aside the
Decision of the Regional Trial Court dated
May 29, 1996.
The Court’s Ruling
As a general rule, this Court is not a trier of facts and will
not re-examine factual issues raised before the CA and first
level courts, considering their findings of facts are
conclusive and binding on this Court. However, such rule is
subject to exceptions, as enunciated in Sampayan v. Court
of Appeals:
(1) when the findings are grounded entirely on
speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of
 facts are conflicting; (6) when in making its
findings the [CA] went beyond the issues of the
case, or its findings are contrary to the admissions
of both the appellant and the appellee; (7) when
the findings [of the CA] are contrary to the trial
court; (8) when the findings are conclusions
without citation of specific evidence on which they
are based; (9) when the facts set forth in the
petition as well as in the petitioner’s main and
reply briefs are not disputed by the respondent;
(10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by
the evidence on record; and (11) when the Court
of Appeals manifestly overlooked certain relevant
facts not disputed by the parties, which, if
properly considered, would justify a different
conclusion.12(Emphasis supplied.)
In the instant case, the factual findings of the RTC were
reversed by the CA; thus, this Court may review them.
Eternal claims that the evidence that it presented before
the trial court supports its contention that it submitted a
copy of the insurance application of Chuang before his
death. In Eternal’s letter dated December 29, 1982, a list of
insurable interests of buyers for October 1982 was
attached, including Chuang in the list of new businesses.
Eternal added it was noted at the bottom of said letter that
the corresponding "Phil-Am Life Insurance Application
Forms & Cert." were enclosed in the letter that was
apparently received by Philamlife on January 15, 1983.
Finally, Eternal alleged that it provided a copy of the
insurance application which was signed by Chuang himself
and executed before his death.
On the other hand, Philamlife claims that the evidence
presented by Eternal is insufficient, arguing that Eternal
must present evidence showing that Philamlife received a
copy of Chuang’s insurance application.
The evidence on record supports Eternal’s position.
The fact of the matter is, the letter dated December 29,
1982, which Philamlife stamped as received, states that the
insurance forms for the attached list of burial lot buyers
were attached to the letter. Such stamp of receipt has the
effect of acknowledging receipt of the letter together with
the attachments. Such receipt is an admission by Philamlife
against its own interest.13 The burden of evidence has
shifted to Philamlife, which must prove that the letter did
not contain Chuang’s insurance application. However,
Philamlife failed to do so; thus, Philamlife is deemed to
have received Chuang’s insurance application.
To reiterate, it was Philamlife’s bounden duty to make sure
that before a transmittal letter is stamped as received, the
contents of the letter are correct and accounted for.
Philamlife’s allegation that Eternal’s witnesses ran out of
credibility and reliability due to inconsistencies is
groundless. The trial court is in the best position to
determine the reliability and credibility of the witnesses,
because it has the opportunity to observe firsthand the
witnesses’ demeanor, conduct, and attitude. Findings of
the trial court on such matters are binding and conclusive
on the appellate court, unless some facts or circumstances
of weight and substance have been overlooked,
misapprehended, or misinterpreted,14 that, if considered,
might affect the result of the case.15
An examination of the testimonies of the witnesses
mentioned by Philamlife, however, reveals no overlooked
facts of substance and value.
Philamlife primarily claims that Eternal did not even know
where the original insurance application of Chuang was, as
shown by the testimony of Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form
which is required in case of new coverage?
[Mendoza:]
A It is [a] standard operating procedure for the
new client to fill up two copies of this form and the
original of this is submitted to Philamlife together
with the monthly remittances and the second copy
is remained or retained with the marketing
department of Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not
responsive as counsel is merely asking for the
location and does not [ask] for the number of
copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the
original but when I submitted with that payment
together with the new clients all the originals I see
to it before I sign the transmittal letter the
originals are attached therein.16
In other words, the witness admitted not knowing where
the original insurance application was, but believed that
the application was transmitted to Philamlife as an
attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony
of Manuel Cortez on whether one or two insurance
application forms were accomplished and the testimony of
Mendoza on who actually filled out the application form,
these are minor inconsistencies that do not affect the
credibility of the witnesses. Thus, we ruled in People v.
Paredes that minor inconsistencies are too trivial to affect
the credibility of witnesses, and these may even serve to
strengthen their credibility as these negate any suspicion
that the testimonies have been rehearsed.17
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not
impair the essential integrity of the prosecution’s
evidence as a whole or reflect on the witnesses’
honesty. The test is whether the testimonies agree
on essential facts and whether the respective
versions corroborate and substantially coincide
with each other so as to make a consistent and
coherent whole.18
In the present case, the number of copies of the insurance
application that Chuang executed is not at issue, neither is
whether the insurance application presented by Eternal
has been falsified. Thus, the inconsistencies pointed out by
Philamlife are minor and do not affect the credibility of
Eternal’s witnesses.
However, the question arises as to whether Philamlife
assumed the risk of loss without approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an
agreement denominated as Creditor Group Life Policy No.
P-1920 dated December 10, 1980. In the policy, it is
provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall
be effective on the date he contracts a loan with
the Assured. However, there shall be no insurance
if the application of the Lot Purchaser is not
approved by the Company.
An examination of the above provision would show
ambiguity between its two sentences. The first sentence
appears to state that the insurance coverage of the clients
of Eternal already became effective upon contracting a
loan with Eternal while the second sentence appears to
require Philamlife to approve the insurance contract
before the same can become effective.
It must be remembered that an insurance contract is a
contract of adhesion which must be construed liberally in
favor of the insured and strictly against the insurer in
order to safeguard the latter’s interest. Thus, in Malayan
Insurance 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.19 (Emphasis supplied.)
In the more recent case of Philamcare Health Systems, Inc.
v. Court of Appeals, we reiterated the above ruling, stating
that:
When the terms of insurance contract contain
limitations on liability, courts should construe
them in such a way as to preclude the insurer
from non-compliance with his obligation. Being a
contract of adhesion, the terms of an insurance
contract are to be construed strictly against the
party which prepared the contract, the insurer. By
reason of the exclusive control of the insurance
company over the terms and phraseology of the
insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in
favor of the insured, especially to avoid
forfeiture.20
Clearly, the vague contractual provision, in Creditor Group
Life Policy No. P-1920 dated December 10, 1980, must be
construed in favor of the insured and in favor of the
effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions
must be harmonized to mean that upon a party’s purchase
of a memorial lot on installment from Eternal, an insurance
contract covering the lot purchaser is created and the
same is effective, valid, and binding until terminated by
Philamlife by disapproving the insurance application. The
second sentence of Creditor Group Life Policy No. P-1920
on the Effective Date of Benefit is in the nature of a
resolutory condition which would lead to the cessation of
the insurance contract. Moreover, the mere inaction of the
insurer on the insurance application must not work to
prejudice the insured; it cannot be interpreted as a
termination of the insurance contract. The termination of
the insurance contract by the insurer must be explicit and
unambiguous.
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.21

WHEREFORE, we GRANT the petition. The November 26,

2004 CA Decision in CA-G.R. CV No. 57810
is REVERSED and SET ASIDE. The May 29, 1996 Decision
of the Makati City RTC, Branch 138 is MODIFIED.
Philamlife is hereby ORDERED:

(1) To pay Eternal the amount of PhP 100,000

representing the proceeds of the Life Insurance
Policy of Chuang;

(2) To pay Eternal legal interest at the rate of six

percent (6%) per annum of PhP 100,000 from the
time of extra-judicial demand by Eternal until
Philamlife’s receipt of the May 29, 1996 RTC
Decision on June 17, 1996;

(3) To pay Eternal legal interest at the rate of

twelve percent (12%) per annum of PhP 100,000
from June 17, 1996 until full payment of this
award; and

(4) To pay Eternal attorney’s fees in the amount of

PhP 10,000.

No costs.

SO ORDERED.
WESTERN GUARANTY CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS, PRISCILLA E.
RODRIGUEZ, and DE DIOS TRANSPORTATION CO.,
INC., respondents.
Narciso E. Ramirez for petitioner.
Alejandro Z. Barin and Carlos C. Fernando for private
respondent.
FELICIANO, J.:
At around 4:30 in the afternoon of 27 March 1982, while
crossing Airport Road on a pedestrian lane on her way to
work, respondent Priscilla E. Rodriguez was struck by a De
Dios passenger bus owned by respondent De Dios
Transportation Co., Inc., then driven by one Walter Saga y
Aspero The bus driver disregarded the stop signal given by
a traffic policeman to allow pedestrians to cross the road.
Priscilla was thrown to the ground, hitting her forehead.
She was treated at the Protacio Emergency Hospital and
later on hospitalized at the San Juan De Dios Hospital. Her
face was permanently disfigured, causing her serious
anxiety and moral distress. Respondent bus company was
insured with petitioner Western Guaranty Corporation
("Western") under its Master Policy which provided,
among other things, for protection against third party
liability, the relevant section reading as follows:
Section 1. Liability to the Public — c) the sum of P10,000.00 as and by way of
Company will, subject to the Limits of
Liability, pay all sums necessary to
discharge liability of the insured in
respect of —
(a) death of or bodily injury to or damage
to property of any passenger as defined
herein.
(b) death of or bodily injury or damage to
property of any THIRD PARTY as defined
herein in any accident caused by or
arising out of the use of the Schedule
Vehicle, provided that the liability shall
have first been determined. In no case,
however, shall the Company's total
payment under both Section I and Section
11 combined exceed the Limits of
Liability set forth herein. With respect to
death of or bodily injury to any third
party or passenger, the company's
payment per victim in any one accident
shall not exceed the limits indicated in the
Schedule of indemnities provided for in
this policy excluding the cost of additional
medicines, and such other burial and
funeral expenses that might have been
incurred. (Emphasis supplied)
Respondent Priscilla Rodriguez filed a complaint for
damages before the Regional Trial Court of Makati against
De Dios Transportation Co. and Walter A. Saga Respondent
De Dios Transportation Co., in turn, filed a third-party
complaint against its insurance carrier, petitioner Western.
On 6 August 1985, the trial court rendered a decision in
favor of respondent Priscilla E. Rodriguez, the dispositive
portion of which read:
WHEREFORE, judgment is hereby
rendered in favor of plaintiff and against
the defendants, ordering the latter to pay
the former, jointly and severally, and for
the third-party defendant to pay to the
plaintiff, by way of contribution,
indemnity or subrogation whatever
amount may be left unpaid by the
defendant De Dios Transportation
Company, Inc. to the extent of not more
than P50,000.00, as follows:
a) The sum of P2,776.00 as actual
damages representing doctor's fees,
hospitalization and medicines;
b) the sum of P1,500.00 by way of
compensation for loss of earning during
plaintiffs incapacity to work;
moral damages ;
d) the sum of P10,000.00 as and by way of
attorney's fees ;and
e) the cost of suit.
On appeal, the Court of Appeals affirmed in toto the
decision of the trial court. Petitioner moved for the
reconsideration of the appellate court's decision. In a
Resolution dated 10 January 1990, the Court of Appeals
denied the motion for reconsideration petition for lack of
merit.
Petitioner Western is now before us on a Petition for
Review alleging that the Court of Appeals erred in holding
petitioner liable to pay beyond the limits set forth in the
Schedule of Indemnities and in finding Western liable for
loss of earnings, moral damages and attorney's fees.
Succinctly stated, it is petitioner Western's position that it
cannot be held liable for loss of earnings, moral damages
and attorney's fees because these items are not among
those included in the Schedule of Indemnities set forth in
the insurance policy.
Deliberating on the instant Petition for Review, we
Injuries resulting
consider that petitioner Western has failed to show any
in being
reversible error on the part of the Court of Appeals in
permanently
rendering its Decision dated 26 April 1989 and its
Resolution dated 10 January 1990. bedridden 6,000.00

An examination of Section 1 entitled "Liability to the Any other injury

Public", quoted above, of the Master Policy issued by causing
petitioner Western shows that that Section defines permanent
the scope of the liability of insurer Western as well as
the events which generate such liability. The scope of total disablement 6,000.00
liability of Western is marked out in comprehensive terms:
"all sums necessary to discharge liability of the insured in Loss of arm or 4,200.00
respect of [the precipitating events]—" The precipitating above elbow
events which generate liability on the part of the insurer,
either in favor of a passenger or a third party, are specified Loss of arm 3,000.00
in the following terms: (1) death of, or (2) bodily injury to, between elbow
or (3) damage to property of, the passenger or the third and wrist
party. Where no death, no bodily injury and no damage to
property resulted from the casualty ("any accident caused Loss of hand P2,550.00
by or arising out of the use of the Schedule Vehicle"), no
Loss of four 2,550.00
liability is created so far as concerns the insurer, petitioner
fingers and
Western.
thumb of one
hand
The "Schedule of Indemnities for Death and/or Bodily
Injury" attached to the Master Policy, which petitioner Loss of four 2,100.00
Western invokes, needs to be quoted in full: fingers

Schedule of Indemnities for Death and/or Bodily Injury: Loss of leg at or 3,600.00
above knee
The following schedule of indemnities should be observed
in the settlement of claims for death, bodily injuries of, Loss of leg below 2,400.00
professional fees and hospital charges, for services knee
rendered to traffic accident victims under CMVLI coverage:
Loss of one foot 2,400.00

DEATH P12,000.00 Loss of toes-all of 900.00

INDEMNITY one foot

Loss of thumb 900.00

PERMANENT
DISABLEMENT — Loss of index 600.00
finger
DESCRIPTION OF Amount
DISABLEMENT Loss of sight of 1,800.00
one eye
Loss of two limbs P6,000.00
Loss of hearing 3,000.00
Loss of both
both ears
hands, or all
fingers and Loss of hearing- 450.00
one ear
both thumbs 6,000.00

Loss of both feet 6,000.00 Total of Accommodation of Professional Attendance

Loss of one hand 6,000.00
and one foot Extended Services
Rendered
Loss of sight of 6,000.00
both eyes HOSPITAL ROOM Maximum
of
 days/year- loss of P6,000.00;
both
Laboratory feet
fees, drugs
loss of P2,400.00;
x-rays, etc. one foot
300.0 0
loss of P1,800.00;
SURGICAL Major 1,000.00
sight of
Operation one eye

EXPENSES Medium 500.00

OperationIt must be stressed, however, that the Schedule of
Indemnities does not purport to limit, or to enumerate
Minor exhaustively, the species of bodily injury occurrence of
100.00
Operationwhich generate liability for petitioner Western. A car
accident may, for instance, result in injury to internal
ANAESTHESIOLOGIST Major organs of a passenger or third party, without any
Operationaccompanying amputation or loss of an external member
300.00 (e.g., a foot or an arm or an eye). But such internal injuries
are surely covered by Section I of the Master Policy, since
LOGISTS' FEES Medium they certainly constitute bodily injuries.
Operation
150.00 Petitioner Western in effect contends before this Court, as
it did before the Court of Appeals, that because the
Minor
Schedule of Indemnities limits the amount payable for
Operation
certain kinds of expenses —"hospital room", "surgical
50.00
expenses", "anaesthesiologists' fee", "operating room" and
"medical expenses" that Schedule should be read as
OPERATING Major 150.00
excluding liability for any other type of expense or damage
Operation
or loss even though actually sustained or incurred by the
ROOM Medium third party victim. We are not persuaded by Western's
100.00
contention.
Operation

Minor Firstly, the Schedule 40.00of Indemnities does not purport to

Operationrestrict the kinds of damages that may be awarded against
Western once liability has arisen. Section 1, quoted above,
MEDICAL For daily
does refer to certain "Limits of Liability" which in the case
visits of of the third party liability section of the Master Policy, is
apparently P50,000.00 per person per accident. Within
EXPENSES Practitioner 20.00 limit, all kinds of damages
this over-all quantitative
or allowable by law" — actual or compensatory damages";
"moral damages'; "nominal damages"; "temperate or
Specialistmoderate damages";/day"liquidated damages"; and
"exemplary damages" 2 — may be awarded by a competent
Total amount court against the insurer once liability is shown to have
of medical arisen, and the essential requisites or conditions for grant
of each species of damages are present. It appears to us
expenses
self-evident that the Schedule of Indemnities was not
must not
intended to be an enumeration, much less a closed
exceed
enumeration, of the specific kinds of damages which may
(for single be awarded under the Master Policy Western has issued.
period of Accordingly, we agree with the Court of Appeals that:

confinement) 400.00 1 ... we cannot agree with the movant that

the schedule was meant to be an exclusive
enumeration of the nature of the damages
It will be seen that the above quoted Schedule of for which it would be liable under its
Indemnities establishes monetary limits which Western policy. As we see it, the schedule was
may invoke in case of occurrence of the particular kinds of merely meant to set limits to the amounts
physical injury there listed, e.g.:
 the movant would be liable for in cases of
claims for death, bodily injuries of,
professional services and hospital
charges, for services rendered to traffic
accident victims,' and not necessarily
exclude claims against the insurance
policy for other kinds of damages, such as
those in question.

Secondly, the reading urged by Western of the Schedule of

Indemnities comes too close to working fraud upon both
the insured and the third party beneficiary of Section 1,
quoted above. For Western's reading would drastically and
without warning limit the otherwise unlimited (save for
the over-all quantitative limit of liability of P50,000.00 per
person per accident) and comprehensive scope of liability
assumed by the insurer Western under Section 1: "all sums
necessary to discharge liability of the insured in respect of
[bodily injury to a third party]". This result- which is not
essentially different from taking away with the left hand
what had been given with the right hand we must avoid as
obviously repugnant to public policy. If what Western now
urges is what Western intended to achieve by its Schedule
of Indemnities, it was incumbent upon Western to use
language far more specific and precise than that used in
fact by Western, so that the insured, and potential
purchasers of its Master Policy, and the Office of the
Insurance Commissioner, may be properly informed and
act accordingly.

Petitioner Western would have us construe the Schedule of

Indemnities as comprising contractual limitations of
liability which, as already noted, is comprehensively
defined in Section 1 — Liability to the Public" — of the
Master Policy. It is wellsettled, however, that contractual
limitations of liability found in insurance contracts should
be regarded by courts with a jaundiced eye and extreme
care and should be so construed as to preclude the insurer
from evading compliance with its just obligations. 3

Finally, an insurance contract is a contract of adhesion. The

rule is well entrenched in our jurisprudence that the terms
of such contract are to be construed strictly against the
party which prepared the contract, which in this case
happens to be petitioner Western. 4

ACCORDINGLY, the Court Resolved to DENY the Petition

for Review for lack of merit Costs against petitioner.
G.R. No. L-31845 April 30, 1979
GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-31878 April 30, 1979
LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
DE CASTRO, J.:
The two above-entitled cases were ordered consolidated
by the Resolution of this Court dated April 29, 1970, (Rollo,
No. L-31878, p. 58), because the petitioners in both cases
seek similar relief, through these petitions for certiorari by
way of appeal, from the amended decision of respondent
Court of Appeals which affirmed in toto the decision of the
Court of First Instance of Cebu, ordering "the defendants
(herein petitioners Great Pacific Ligfe Assurance Company
and Mondragon) jointly and severally to pay plaintiff
(herein private respondent Ngo Hing) the amount of
P50,000.00 with interest at 6% from the date of the filing
of the complaint, and the sum of P1,077.75, without
interest.
It appears that on March 14, 1957, private respondent Ngo
Hing filed an application with the Great Pacific Life
Assurance Company (hereinafter referred to as Pacific
Life) for a twenty-year endownment policy in the amount
of P50,000.00 on the life of his one-year old daughter
Helen Go. Said respondent supplied the essential data
which petitioner Lapulapu D. Mondragon, Branch Manager
of the Pacific Life in Cebu City wrote on the corresponding
form in his own handwriting (Exhibit I-M). Mondragon
finally type-wrote the data on the application form which
was signed by private respondent Ngo Hing. The latter
paid the annual premuim the sum of P1,077.75 going over
to the Company, but he reatined the amount of P1,317.00
as his commission for being a duly authorized agebt of
Pacific Life. Upon the payment of the insurance premuim,
the binding deposit receipt (Exhibit E) was issued to
private respondent Ngo Hing. Likewise, petitioner
Mondragon handwrote at the bottom of the back page of
the application form his strong recommendation for the
approval of the insurance application. Then on April 30,
1957, Mondragon received a letter from Pacific Life
disapproving the insurance application (Exhibit 3-M). The
letter stated that the said life insurance application for 20-
year endowment plan is not available for minors below
seven years old, but Pacific Life can consider the same
under the Juvenile Triple Action Plan, and advised that if
the offer is acceptable, the Juvenile Non-Medical
Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life
was allegedly not communicated by petitioner Mondragon
to private respondent Ngo Hing. Instead, on May 6, 1957,
Mondragon wrote back Pacific Life again strongly
recommending the approval of the 20-year endowment
insurance plan to children, pointing out that since 1954
the customers, especially the Chinese, were asking for such
coverage (Exhibit 4-M).
It was when things were in such state that on May 28,
1957 Helen Go died of influenza with complication of
bronchopneumonia. Thereupon, private respondent
sought the payment of the proceeds of the insurance, but
having failed in his effort, he filed the action for the
recovery of the same before the Court of First Instance of
Cebu, which rendered the adverse decision as earlier
refered to against both petitioners.
The decisive issues in these cases are: (1) whether the
binding deposit receipt (Exhibit E) constituted a
temporary contract of the life insurance in question; and
(2) whether private respondent Ngo Hing concealed the
state of health and physical condition of Helen Go, which
rendered void the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents
required before a deposit is considered a BINDING
RECEIPT. These conditions state that:
A. If the Company or its agent, shan have
received the premium deposit ... and the
insurance application, ON or PRIOR to the
date of medical examination ... said
insurance shan be in force and in
effect from the date of such medical
examination, for such period as is covered
by the deposit ..., PROVIDED the company
shall be satisfied that on said date the
applicant was insurable on standard rates
under its rule for the amount of insurance
and the kind of policy requested in the
application.
D. If the Company does not accept the
application on standard rate for the
amount of insurance and/or the kind of
policy requested in the
application but issue, or offers to issue a
policy for a different plan and/or amount
..., the insurance shall not be in force and in
effect until the applicant shall have
accepted the policy as issued or offered by
the Company and shall have paid the full
premium thereof. If the applicant does not
accept the policy, the deposit shall be
refunded.
E. If the applicant shall not have been
insurable under Condition A above, and the
Company declines to approve the
application the insurance applied for shall
not have been in force at any time and the
sum paid be returned to the applicant upon
 the surrender of this receipt. (Emphasis
Ours).
The aforequoted provisions printed on Exhibit E show that
the binding deposit receipt is intended to be merely a
provisional or temporary insurance contract and only
upon compliance of the following conditions: (1) that the
company shall be satisfied that the applicant was insurable
on standard rates; (2) that if the company does not accept
the application and offers to issue a policy for a different
plan, the insurance contract shall not be binding until the
applicant accepts the policy offered; otherwise, the deposit
shall be reftmded; and (3) that if the applicant is not ble
according to the standard rates, and the company
disapproves the application, the insurance applied for shall
not be in force at any time, and the premium paid shall be
returned to the applicant.
Clearly implied from the aforesaid conditions is that the
binding deposit receipt in question is merely an
acknowledgment, on behalf of the company, that the
latter's branch office had received from the applicant the
insurance premium and had accepted the application
subject for processing by the insurance company; and that
the latter will either approve or reject the same on the
basis of whether or not the applicant is "insurable on
standard rates." Since petitioner Pacific Life disapproved
the insurance application of respondent Ngo Hing, the
binding deposit receipt in question had never become in
force at any time.
Upon this premise, the binding deposit receipt (Exhibit E)
is, manifestly, merely conditional and does not insure
outright. As held by this Court, where an agreement is
made between the applicant and the agent, no liability
shall attach until the principal approves the risk and a
receipt is given by the agent. The acceptance is merely
conditional and is subordinated to the act of the company
in approving or rejecting the application. Thus, in life
insurance, a "binding slip" or "binding receipt" does not
insure by itself (De Lim vs. Sun Life Assurance Company of
Canada, 41 Phil. 264).
It bears repeating that through the intra-company
communication of April 30, 1957 (Exhibit 3-M), Pacific Life
disapproved the insurance application in question on the
ground that it is not offering the twenty-year endowment
insurance policy to children less than seven years of age.
What it offered instead is another plan known as the
Juvenile Triple Action, which private respondent failed to
accept. In the absence of a meeting of the minds between
petitioner Pacific Life and private respondent Ngo Hing
over the 20-year endowment life insurance in the amount
of P50,000.00 in favor of the latter's one-year old
daughter, and with the non-compliance of the abovequoted
conditions stated in the disputed binding deposit receipt,
there could have been no insurance contract duly
perfected between thenl Accordingly, the deposit paid by
private respondent shall have to be refunded by Pacific
Life.
As held in De Lim vs. Sun Life Assurance Company of
Canada, supra, "a contract of insurance, like other
contracts, must be assented to by both parties either in
person or by their agents ... The contract, to be binding
from the date of the application, must have been a
completed contract, one that leaves nothing to be dione,
nothing to be completed, nothing to be passed upon, or
determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties have
met in agreement."
We are not impressed with private respondent's
contention that failure of petitioner Mondragon to
communicate to him the rejection of the insurance
application would not have any adverse effect on the
allegedly perfected temporary contract (Respondent's
Brief, pp. 13-14). In this first place, there was no contract
perfected between the parties who had no meeting of their
minds. Private respondet, being an authorized insurance
agent of Pacific Life at Cebu branch office, is indubitably
aware that said company does not offer the life insurance
applied for. When he filed the insurance application in
dispute, private respondent was, therefore, only taking the
chance that Pacific Life will approve the recommendation
of Mondragon for the acceptance and approval of the
application in question along with his proposal that the
insurance company starts to offer the 20-year endowment
insurance plan for children less than seven years.
Nonetheless, the record discloses that Pacific Life had
rejected the proposal and recommendation. Secondly,
having an insurable interest on the life of his one-year old
daughter, aside from being an insurance agent and an
offense associate of petitioner Mondragon, private
respondent Ngo Hing must have known and followed the
progress on the processing of such application and could
not pretend ignorance of the Company's rejection of the
20-year endowment life insurance application.
At this juncture, We find it fit to quote with approval, the
very apt observation of then Appellate Associate Justice
Ruperto G. Martin who later came up to this Court, from
his dissenting opinion to the amended decision of the
respondent court which completely reversed the original
decision, the following:
Of course, there is the insinuation that
neither the memorandum of rejection
(Exhibit 3-M) nor the reply thereto of
appellant Mondragon reiterating the
desire for applicant's father to have the
application considered as one for a 20-
year endowment plan was ever duly
communicated to Ngo; Hing, father of the
minor applicant. I am not quite conninced
that this was so. Ngo Hing, as father of the
applicant herself, was precisely the
"underwriter who wrote this case"
(Exhibit H-1). The unchallenged
statement of appellant Mondragon in his
letter of May 6, 1957) (Exhibit 4-M),
 specifically admits that said Ngo Hing was insurer to rescind the contract of insurance (Section 26,
"our associate" and that it was the latter Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930;
who "insisted that the plan be placed on Satumino vs. Philippine American Life Insurance Company,
the 20-year endowment plan." Under 7 SCRA 316). Private respondent appears guilty thereof.
these circumstances, it is inconceivable
that the progress in the processing of the We are thus constrained to hold that no insurance contract
application was not brought home to his was perfected between the parties with the
knowledge. He must have been duly noncompliance of the conditions provided in the binding
apprised of the rejection of the receipt, and concealment, as legally defined, having been
application for a 20-year endowment plan comraitted by herein private respondent.
otherwise Mondragon would not have
asserted that it was Ngo Hing himself who WHEREFORE, the decision appealed from is hereby set
insisted on the application as originally aside, and in lieu thereof, one is hereby entered absolving
filed, thereby implictly declining the offer petitioners Lapulapu D. Mondragon and Great Pacific Life
to consider the application under the Assurance Company from their civil liabilities as found by
Juvenile Triple Action Plan. Besides, the respondent Court and ordering the aforesaid insurance
associate of Mondragon that he was, Ngo company to reimburse the amount of P1,077.75, without
Hing should only be presumed to know interest, to private respondent, Ngo Hing. Costs against
what kind of policies are available in the private respondent.
company for minors below 7 years old.
What he and Mondragon were apparently
trying to do in the premises was merely to SO ORDERED.
prod the company into going into the
business of issuing endowment policies
for minors just as other insurance
companies allegedly do. Until such a
definite policy is however, adopted by the
company, it can hardly be said that it
could have been bound at all under the
binding slip for a plan of insurance that it
could not have, by then issued at all.
(Amended Decision, Rollo, pp- 52-53).

2. Relative to the second issue of alleged concealment. this

Court is of the firm belief that private respondent had
deliberately concealed the state of health and piysical
condition of his daughter Helen Go. Wher private
regpondeit supplied the required essential data for the
insurance application form, he was fully aware that his
one-year old daughter is typically a mongoloid child. Such
a congenital physical defect could never be ensconced nor
disguished. Nonetheless, private respondent, in apparent
bad faith, withheld the fact materal to the risk to be
assumed by the insurance compary. As an insurance agent
of Pacific Life, he ought to know, as he surely must have
known. his duty and responsibility to such a material fact.
Had he diamond said significant fact in the insurance
application fom Pacific Life would have verified the same
and would have had no choice but to disapprove the
application outright.

The contract of insurance is one of perfect good faith

uberrima fides meaning good faith, absolute and perfect
candor or openness and honesty; the absence of any
concealment or demotion, however slight [Black's Law
Dictionary, 2nd Edition], not for the alone but equally so
for the insurer (Field man's Insurance Co., Inc. vs. Vda de
Songco, 25 SCRA 70). Concealment is a neglect to
communicate that which a partY knows aDd Ought to
communicate (Section 25, Act No. 2427). Whether
intentional or unintentional the concealment entitles the
G.R. No. 112360 July 18, 2000
RIZAL SURETY & INSURANCE COMPANY, petitioner,
vs.
COURT OF APPEALS and TRANSWORLD KNITTING
MILLS, INC., respondents.
DECISION
PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45
of the Rules of Court seeking to annul and set aside the July
15, 1993 Decision1 and October 22, 1993 Resolution2 of the
Court of Appeals3 in CA-G.R. CV NO. 28779, which modified
the Ruling4 of the Regional Trial Court of Pasig, Branch
161, in Civil Case No. 46106.
The antecedent facts that matter are as follows:
On March 13, 1980, Rizal Surety & Insurance Company
(Rizal Insurance) issued Fire Insurance Policy No. 45727
in favor of Transworld Knitting Mills, Inc. (Transworld),
initially for One Million (₱1,000,000.00) Pesos and
eventually increased to One Million Five Hundred
Thousand (₱1,500,000.00) Pesos, covering the period from
August 14, 1980 to March 13, 1981.
Pertinent portions of subject policy on the buildings
insured, and location thereof, read:
"‘On stocks of finished and/or unfinished products, raw
materials and supplies of every kind and description, the
properties of the Insureds and/or held by them in trust, on
commission or on joint account with others and/or for
which they (sic) responsible in case of loss whilst
contained and/or stored during the currency of this Policy
in the premises occupied by them forming part of the
buildings situate (sic) within own Compound at MAGDALO
STREET, BARRIO UGONG, PASIG, METRO MANILA,
PHILIPPINES, BLOCK NO. 601.’
x xx x xx x xx
‘Said building of four-span lofty one storey in height with
mezzanine portions is constructed of reinforced concrete
and hollow blocks and/or concrete under galvanized iron
roof and occupied as hosiery mills, garment and lingerie
factory, transistor-stereo assembly plant, offices,
warehouse and caretaker's quarters.
'Bounds in front partly by one-storey concrete building
under galvanized iron roof occupied as canteen and
guardhouse, partly by building of two and partly one storey
constructed of concrete below, timber above
undergalvanized iron roof occupied as garage and quarters
and partly by open space and/or tracking/ packing, beyond
which is the aforementioned Magdalo Street; on its right and
left by driveway, thence open spaces, and at the rear by open
spaces.'"5
The same pieces of property insured with the petitioner
were also insured with New India Assurance Company,
Ltd., (New India).
On January 12, 1981, fire broke out in the compound of
Transworld, razing the middle portion of its four-span
building and partly gutting the left and right sections
thereof. A two-storey building (behind said four-span
building) where fun and amusement machines and spare
parts were stored, was also destroyed by the fire.
Transworld filed its insurance claims with Rizal Surety &
Insurance Company and New India Assurance Company
but to no avail.
On May 26, 1982, private respondent brought against the
said insurance companies an action for collection of sum of
money and damages, docketed as Civil Case No. 46106
before Branch 161 of the then Court of First Instance of
Rizal; praying for judgment ordering Rizal Insurance and
New India to pay the amount of ₱2,747, 867.00 plus legal
interest, ₱400,000.00 as attorney's fees, exemplary
damages, expenses of litigation of ₱50,000.00 and costs of
suit.6
Petitioner Rizal Insurance countered that its fire insurance
policy sued upon covered only the contents of the four-
span building, which was partly burned, and not the
damage caused by the fire on the two-storey annex
building.7
On January 4, 1990, the trial court rendered its decision;
disposing as follows:
"ACCORDINGLY, judgment is hereby rendered as follows:
(1)Dismissing the case as against The New India
Assurance Co., Ltd.;
(2) Ordering defendant Rizal Surety And
Insurance Company to pay Transwrold (sic)
Knitting Mills, Inc. the amount of P826, 500.00
representing the actual value of the losses
suffered by it; and
(3) Cost against defendant Rizal Surety and
Insurance Company.
SO ORDERED."8
Both the petitioner, Rizal Insurance Company, and private
respondent, Transworld Knitting Mills, Inc., went to the
Court of Appeals, which came out with its decision of July
15, 1993 under attack, the decretal portion of which reads:
"WHEREFORE, and upon all the foregoing, the decision of
the court below is MODIFIED in that defendant New India
Assurance Company has and is hereby required to pay
plaintiff-appellant the amount of P1,818,604.19 while the
other Rizal Surety has to pay the plaintiff-appellant
P470,328.67, based on the actual losses sustained by
plaintiff Transworld in the fire, totalling P2,790,376.00 as
against the amounts of fire insurance coverages
respectively extended by New India in the amount of
P5,800,000.00 and Rizal Surety and Insurance Company in
the amount of P1,500,000.00.
No costs.
SO ORDERED."9
On August 20, 1993, from the aforesaid judgment of the
Court of Appeals New India appealed to this Court
theorizing inter alia that the private respondent could not
be compensated for the loss of the fun and amusement
machines and spare parts stored at the two-storey
building because it (Transworld) had no insurable interest
in said goods or items.
On February 2, 1994, the Court denied the appeal with
finality in G.R. No. L-111118 (New India Assurance
Company Ltd. vs. Court of Appeals).
Petitioner Rizal Insurance and private respondent
Transworld, interposed a Motion for Reconsideration
before the Court of Appeals, and on October 22, 1993, the
Court of Appeals reconsidered its decision of July 15, 1993,
as regards the imposition of interest, ruling thus:
"WHEREFORE, the Decision of July 15, 1993 is amended
but only insofar as the imposition of legal interest is
concerned, that, on the assessment against New India
Assurance Company on the amount of P1,818,604.19 and
that against Rizal Surety & Insurance Company on the
amount of P470,328.67, from May 26, 1982 when the
complaint was filed until payment is made. The rest of the
said decision is retained in all other respects.
SO ORDERED."10
Undaunted, petitioner Rizal Surety & Insurance Company
found its way to this Court via the present Petition,
contending that:
I.....SAID DECISION (ANNEX A) ERRED IN
ASSUMING THAT THE ANNEX BUILDING WHERE
THE BULK OF THE BURNED PROPERTIES WERE
STORED, WAS INCLUDED IN THE COVERAGE OF
THE INSURANCE POLICY ISSUED BY RIZAL
SURETY TO TRANSWORLD.
II.....SAID DECISION AND RESOLUTION (ANNEXES
A AND B) ERRED IN NOT CONSIDERING THE
PICTURES (EXHS. 3 TO 7-C-RIZAL SURETY),
TAKEN IMMEDIATELY AFTER THE FIRE, WHICH
CLEARLY SHOW THAT THE PREMISES OCCUPIED
BY TRANSWORLD, WHERE THE INSURED
PROPERTIES WERE LOCATED, SUSTAINED
PARTIAL DAMAGE ONLY.
III. SAID DECISION (ANNEX A) ERRED IN NOT
HOLDING THAT TRANSWORLD HAD ACTED IN
PALPABLE BAD FAITH AND WITH MALICE IN
FILING ITS CLEARLY UNFOUNDED CIVIL ACTION,
AND IN NOT ORDERING TRANSWORLD TO PAY
TO RIZAL SURETY MORAL AND PUNITIVE
DAMAGES (ART. 2205, CIVIL CODE), PLUS
ATTORNEY'S FEES AND EXPENSES OF
LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL
CODE).11
The Petition is not impressed with merit.
It is petitioner's submission that the fire insurance policy
litigated upon protected only the contents of the main
building (four-span),12 and did not include those stored in
the two-storey annex building. On the other hand, the
private respondent theorized that the so called "annex"
was not an annex but was actually an integral part of the
four-span building13 and therefore, the goods and items
stored therein were covered by the same fire insurance
policy.
Resolution of the issues posited here hinges on the proper
interpretation of the stipulation in subject fire insurance
policy regarding its coverage, which reads:
"xxx contained and/or stored during the currency of this
Policy in the premises occupied by them forming part of
the buildings situate (sic) within own Compound xxx"
Therefrom, it can be gleaned unerringly that the fire
insurance policy in question did not limit its coverage to
what were stored in the four-span building. As opined by
the trial court of origin, two requirements must concur in
order that the said fun and amusement machines and
spare parts would be deemed protected by the fire
insurance policy under scrutiny, to wit:
"First, said properties must be contained and/or stored in
the areas occupied by Transworld and second, said areas
must form part of the building described in the policy
xxx"14
'Said building of four-span lofty one storey in height with
mezzanine portions is constructed of reinforced concrete
and hollow blocks and/or concrete under galvanized iron
roof and occupied as hosiery mills, garment and lingerie
factory, transistor-stereo assembly plant, offices, ware
house and caretaker's quarter.'
The Court is mindful of the well-entrenched doctrine that
factual findings by the Court of Appeals are conclusive on
the parties and not reviewable by this Court, and the same
carry even more weight when the Court of Appeals has
affirmed the findings of fact arrived at by the lower court.15
In the case under consideration, both the trial court and
the Court of Appeals found that the so called "annex " was
not an annex building but an integral and inseparable part
of the four-span building described in the policy and
consequently, the machines and spare parts stored therein
were covered by the fire insurance in dispute. The letter-
report of the Manila Adjusters and Surveyor's Company,
which petitioner itself cited and invoked, describes the
"annex" building as follows:
"Two-storey building constructed of partly timber and
partly concrete hollow blocks under g.i. roof which is
adjoining and intercommunicating with the repair of the
first right span of the lofty storey building and thence by
property fence wall."16
Verily, the two-storey building involved, a permanent
structure which adjoins and intercommunicates with the
"first right span of the lofty storey building",17 formed part
thereof, and meets the requisites for compensability under
the fire insurance policy sued upon.
So also, considering that the two-storey building
aforementioned was already existing when subject fire
insurance policy contract was entered into on January 12,
1981, having been constructed sometime in
1978,18 petitioner should have specifically excluded the
said two-storey building from the coverage of the fire
insurance if minded to exclude the same but if did not, and
instead, went on to provide that such fire insurance policy
covers the products, raw materials and supplies stored
within the premises of respondent Transworld which was
an integral part of the four-span building occupied by
Transworld, knowing fully well the existence of such
building adjoining and intercommunicating with the right
section of the four-span building.
After a careful study, the Court does not find any basis for
disturbing what the lower courts found and arrived at.
Indeed, the stipulation as to the coverage of the fire
insurance policy under controversy has created a doubt
regarding the portions of the building insured thereby.
Article 1377 of the New Civil Code provides:
"Art.1377. The interpretation of obscure words or
stipulations in a contract shall not favor the party who
caused the obscurity"
Conformably, it stands to reason that the doubt should be
resolved against the petitioner, Rizal Surety Insurance
Company, whose lawyer or managers drafted the fire
insurance policy contract under scrutiny. Citing the
aforecited provision of law in point, the Court in Landicho
vs. Government Service Insurance System,19 ruled:
"This is particularly true as regards insurance policies, in
respect of which it is settled that the 'terms in an insurance
policy, which are ambiguous, equivocal, or uncertain x xx are
to be construed strictly and most strongly against the
insurer, and liberally in favor of the insured so as to effect
the dominant purpose of indemnity or payment to the
insured, especially where forfeiture is involved' (29 Am. Jur.,
181), and the reason for this is that the 'insured usually has
no voice in the selection or arrangement of the words
employed and that the language of the contract is selected
with great care and deliberation by experts and legal
advisers employed by, and acting exclusively in the interest
of, the insurance company.' (44 C.J.S., p. 1174).""20
Equally relevant is the following disquisition of the Court
in Fieldmen's Insurance Company, Inc. vs. Vda. De
Songco,21 to wit:
"'This rigid application of the rule on ambiguities has
become necessary in view of current business
practices.1âwphi1 The courts cannot ignore that nowadays
monopolies, cartels and concentration of capital, endowed
with overwhelming economic power, manage to impose
upon parties dealing with them cunningly prepared
'agreements' that the weaker party may not change one
whit, his participation in the 'agreement' being reduced to
the alternative to 'take it or leave it' labelled since Raymond
Saleilles 'contracts by adherence' (contrats [sic] d'adhesion),
in contrast to these entered into by parties bargaining on an
equal footing, such contracts (of which policies of insurance
and international bills of lading are prime example)
obviously call for greater strictness and vigilance on the part
of courts of justice with a view to protecting the weaker
party from abuses and imposition, and prevent their
becoming traps for the unwary (New Civil Code, Article 24;
Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February
1942.)'"22
The issue of whether or not Transworld has an insurable
interest in the fun and amusement machines and spare
parts, which entitles it to be indemnified for the loss
thereof, had been settled in G.R. No. L-111118,
entitled New India Assurance Company, Ltd., vs. Court of
Appeals, where the appeal of New India from the decision
of the Court of Appeals under review, was denied with
finality by this Court on February 2, 1994.
The rule on conclusiveness of judgment, which obtains
under the premises, precludes the relitigation of a
particular fact or issue in another action between the same
parties based on a different claim or cause of action. "xxx
the judgment in the prior action operates as estoppel only
as to those matters in issue or points controverted, upon
the determination of which the finding or judgment was
rendered. In fine, the previous judgment is conclusive in
the second case, only as those matters actually and directly
controverted and determined and not as to matters merely
involved therein."23
Applying the abovecited pronouncement, the Court, Appeals in CA-G.R. CV NO. 28779 are AFFIRMED in toto. No
in Smith Bell and Company (Phils.), Inc. vs. Court of pronouncement as to costs.
Appeals,24held that the issue of negligence of the shipping
line, which issue had already been passed upon in a case SO ORDERED.
filed by one of the insurers, is conclusive and can no longer
be relitigated in a similar case filed by another insurer
against the same shipping line on the basis of the same
factual circumstances. Ratiocinating further, the Court
opined:

"In the case at bar, the issue of which vessel ('Don Carlos' or
'Yotai Maru') had been negligent, or so negligent as to have
proximately caused the collision between them, was an issue
that was actually, directly and expressly raised, controverted
and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J., resolved
that issue in his Decision and held the 'Don Carlos' to have
been negligent rather than the 'Yotai Maru' and, as already
noted, that Decision was affirmed by this Court in G.R. No. L-
48839 in a Resolution dated 6 December 1987. The Reyes
Decision thus became final and executory approximately
two (2) years before the Sison Decision, which is assailed in
the case at bar, was promulgated. Applying the rule of
conclusiveness of judgment, the question of which vessel had
been negligent in the collision between the two (2) vessels,
had long been settled by this Court and could no longer be
relitigated in C.A.-G.R. No. 61206-R. Private respondent Go
Thong was certainly bound by the ruling or judgment of
Reyes, L.B., J. and that of this Court. The Court of Appeals fell
into clear and reversible error when it disregarded the
Decision of this Court affirming the Reyes Decision."25

The controversy at bar is on all fours with the aforecited

case. Considering that private respondent's insurable
interest in, and compensability for the loss of subject fun
and amusement machines and spare parts, had been
adjudicated, settled and sustained by the Court of Appeals
in CA-G.R. CV NO. 28779, and by this Court in G.R. No. L-
111118, in a Resolution, dated February 2, 1994, the same
can no longer be relitigated and passed upon in the
present case. Ineluctably, the petitioner, Rizal Surety
Insurance Company, is bound by the ruling of the Court of
Appeals and of this Court that the private respondent has
an insurable interest in the aforesaid fun and amusement
machines and spare parts; and should be indemnified for
the loss of the same.

So also, the Court of Appeals correctly adjudged petitioner

liable for the amount of P470,328.67, it being the total loss
and damage suffered by Transworld for which petitioner
Rizal Insurance is liable.26

All things studiedly considered and viewed in proper

perspective, the Court is of the irresistible conclusion, and
so finds, that the Court of Appeals erred not in holding the
petitioner, Rizal Surety Insurance Company, liable for the
destruction and loss of the insured buildings and articles of
the private respondent.

WHEREFORE, the Decision, dated July 15, 1993, and the

Resolution, dated October 22, 1993, of the Court of
G.R. No. 138941 October 8, 2001
AMERICAN HOME ASSURANCE COMPANY, petitioner,
vs.
TANTUCO ENTERPRISES, INC., respondent.
PUNO, J.:
Before us is a Petition for Review on Certiorari assailing
the Decision of the Court of Appeals in CA-G.R. CV No.
52221 promulgated on January 14, 1999, which affirmed
in toto the Decision of the Regional Trial Court, Branch 53,
Lucena City in Civil Case No. 92-51 dated October 16, 1995.
Respondent Tantuco Enterprises, Inc. is engaged in the
coconut oil milling and refining industry. It owns two oil
mills. Both are located at factory compound at Iyam,
Lucena City. It appears that respondent commenced its
business operations with only one oil mill. In 1988, it
started operating its second oil mill. The latter came to be
commonly referred to as the new oil mill.
The two oil mills were separately covered by fire
insurance policies issued by petitioner American Home
Assurance Co., Philippine Branch.1 The first oil mill was
insured for three million pesos (P3,000,000.00) under
Policy No. 306-7432324-3 for the period March 1, 1991 to
1992.2 The new oil mill was insured for six million pesos
(P6,000,000.00) under Policy No. 306-7432321-9 for the
same term.3 Official receipts indicating payment for the full
amount of the premium were issued by the petitioner's
agent.4
A fire that broke out in the early morning of September
30,1991 gutted and consumed the new oil mill.
Respondent immediately notified the petitioner of the
incident. The latter then sent its appraisers who inspected
the burned premises and the properties destroyed.
Thereafter, in a letter dated October 15, 1991, petitioner
rejected respondent's claim for the insurance proceeds on
the ground that no policy was issued by it covering the
burned oil mill. It stated that the description of the insured
establishment referred to another building thus: "Our
policy nos. 306-7432321-9 (Ps 6M) and 306-7432324-4
(Ps 3M) extend insurance coverage to your oil mill under
Building No. 5, whilst the affected oil mill was under
Building No. 14. "5
A complaint for specific performance and damages was
consequently instituted by the respondent with the RTC,
Branch 53 of Lucena City. On October 16, 1995, after trial,
the lower court rendered a Decision finding the petitioner
liable on the insurance policy thus:
"WHEREFORE, judgment is rendered in favor of
the plaintiff ordering defendant to pay plaintiff:
(a) P4,406,536.40 representing damages for loss
by fire of its insured property with interest at the
legal rate;
(b) P80,000.00 for litigation expenses;
(c) P300,000.00 for and as attorney's fees; and
(d) Pay the costs.
SO ORDERED."6
Petitioner assailed this judgment before the Court of
Appeals. The appellate court upheld the same in a Decision
promulgated on January 14, 1999, the pertinent portion of
which states:
"WHEREFORE, the instant appeal is hereby
DISMISSED for lack of merit and the trial court's
Decision dated October 16, 1995 is hereby
AFFIRMED in toto.
SO ORDERED."7
Petitioner moved for reconsideration. The motion,
however, was denied for lack of merit in a Resolution
promulgated on June 10, 1999.
Hence, the present course of action, where petitioner
ascribes to the appellate court the following errors:
"(1) The Court of Appeals erred in its conclusion
that the issue of non-payment of the premium was
beyond its jurisdiction because it was raised for
the first time on appeal."8
"(2) The Court of Appeals erred in its legal
interpretation of 'Fire Extinguishing Appliances
Warranty' of the policy."9
"(3) With due respect, the conclusion of the Court
of Appeals giving no regard to the parole evidence
rule and the principle of estoppel is erroneous."10
The petition is devoid of merit.
The primary reason advanced by the petitioner in resisting
the claim of the respondent is that the burned oil mill is
not covered by any insurance policy. According to it, the oil
mill insured is specifically described in the policy by its
boundaries in the following manner:
"Front: by a driveway thence at 18 meters
distance by Bldg. No. 2.
Right: by an open space thence by Bldg. No. 4.
 Left: Adjoining thence an imperfect wall by Bldg.
No. 4.
Rear: by an open space thence at 8 meters
distance."
However, it argues that this specific boundary description
clearly pertains, not to the burned oil mill, but to the other
mill. In other words, the oil mill gutted by fire was not the
one described by the specific boundaries in the contested
policy.
What exacerbates respondent's predicament, petitioner
posits, is that it did not have the supposed wrong
description or mistake corrected. Despite the fact that the
policy in question was issued way back in 1988, or about
three years before the fire, and despite the "Important
Notice" in the policy that "Please read and examine the
policy and if incorrect, return it immediately for alteration,"
respondent apparently did not call petitioner's attention
with respect to the misdescription.
By way of conclusion, petitioner argues that respondent is
"barred by the parole evidence rule from presenting
evidence (other than the policy in question) of its self-
serving intention (sic) that it intended really to insure the
burned oil mill," just as it is "barred by estoppel from
claiming that the description of the insured oil mill in the
policy was wrong, because it retained the policy without
having the same corrected before the fire by an
endorsement in accordance with its Condition No. 28."
These contentions can not pass judicial muster.
In construing the words used descriptive of a building
insured, the greatest liberality is shown by the courts in
giving effect to the insurance.11 In view of the custom of
insurance agents to examine buildings before writing
policies upon them, and since a mistake as to the identity
and character of the building is extremely unlikely, the
courts are inclined to consider that the policy of insurance
covers any building which the parties manifestly intended
to insure, however inaccurate the description may be.12
Notwithstanding, therefore, the misdescription in the
policy, it is beyond dispute, to our mind, that what the
parties manifestly intended to insure was the new oil mill.
This is obvious from the categorical statement embodied
in the policy, extending its protection:
"On machineries and equipment with complete
accessories usual to a coconut oil mill including
stocks of copra, copra cake and copra mills whilst
contained in the new oil mill building, situate (sic)
at UNNO. ALONG NATIONAL HIGH WAY, BO.
IYAM, LUCENA CITY UNBLOCKED.''13 (emphasis
supplied.)
If the parties really intended to protect the first oil
mill, then there is no need to specify it as new.
Indeed, it would be absurd to assume that respondent
would protect its first oil mill for different amounts and
leave uncovered its second one. As mentioned earlier, the
first oil mill is already covered under Policy No. 306-
7432324-4 issued by the petitioner. It is unthinkable for
respondent to obtain the other policy from the very same
company. The latter ought to know that a second
agreement over that same realty results in its over
insurance.
The imperfection in the description of the insured oil mill's
boundaries can be attributed to a misunderstanding
between the petitioner's general agent, Mr. Alfredo Borja,
and its policy issuing clerk, who made the error of copying
the boundaries of the first oil mill when typing the policy
to be issued for the new one. As testified to by Mr. Borja:
"Atty. G. Camaligan:
Q: What did you do when you received the
report?
A: I told them as will be shown by the map the
intention really of Mr. Edison Tantuco is to cover
the new oil mill that is why when I presented the
existing policy of the old policy, the policy issuing
clerk just merely (sic) copied the wording from
the old policy and what she typed is that the
description of the boundaries from the old
policy was copied but she inserted covering
the new oil mill and to me at that time the
important thing is that it covered the new oil
mill because it is just within one compound
and there are only two oil mill[s] and so just
enough, I had the policy prepared. In fact, two
policies were prepared having the same date one
for the old one and the other for the new oil mill
and exactly the same policy period,
sir."14(emphasis supplied)
It is thus clear that the source of the discrepancy happened
during the preparation of the written contract.
These facts lead us to hold that the present case falls
within one of the recognized exceptions to the parole
evidence rule. Under the Rules of Court, a party may
present evidence to modify, explain or add to the terms of
the written agreement if he puts in issue in his pleading,
among others, its failure to express the true intent and
agreement of the parties thereto.15 Here, the contractual
intention of the parties cannot be understood from a mere
reading of the instrument. Thus, while the contract
explicitly stipulated that it was for the insurance of the
new oil mill, the boundary description written on the
policy concededly pertains to the first oil mill. This
irreconcilable difference can only be clarified by admitting
evidence aliunde, which will explain the imperfection and
clarify the intent of the parties.
Anent petitioner's argument that the respondent is barred
by estoppel from claiming that the description of the
insured oil mill in the policy was wrong, we find that the
same proceeds from a wrong assumption. Evidence on
record reveals that respondent's operating manager, Mr.
Edison Tantuco, notified Mr. Borja (the petitioner's agent
with whom respondent negotiated for the contract) about
the inaccurate description in the policy. However, Mr.
Borja assured Mr. Tantuco that the use of the
adjective new will distinguish the insured property. The
assurance convinced respondent, despite the
impreciseness in the specification of the boundaries, the
insurance will cover the new oil mill. This can be seen from
the testimony on cross of Mr. Tantuco:
"ATTY. SALONGA:
Q: You mentioned, sir, that at least in so far as
Exhibit A is concern you have read what the policy
contents. (sic)
Kindly take a look in the page of Exhibit A which
was marked as Exhibit A-2 particularly the
boundaries of the property insured by the
insurance policy Exhibit A, will you tell us as the
manager of the company whether the boundaries
stated in Exhibit A-2 are the boundaries of the old
(sic) mill that was burned or not.
A: It was not, I called up Mr. Borja regarding
this matter and he told me that what is important is
the word new oil mill. Mr. Borja said, as a matter of
fact, you can never insured (sic) one property with
two (2) policies, you will only do that if you will
make to increase the amount and it is by
indorsement not by another policy, sir.,16
We again stress that the object of the court in construing a
contract is to ascertain the intent of the parties to the
contract and to enforce the agreement which the parties
have entered into. In determining what the parties
intended, the courts will read and construe the policy as a
whole and if possible, give effect to all the parts of the
contract, keeping in mind always, however, the prime rule
that in the event of doubt, this doubt is to be resolved
against the insurer. In determining the intent of the parties
to the contract, the courts will consider the purpose and
object of the contract.17
In a further attempt to avoid liability, petitioner claims that
respondent forfeited the renewal policy for its failure to
pay the full amount of the premium and breach of the Fire
Extinguishing Appliances Warranty.
The amount of the premium stated on the face of the policy
was P89,770.20. From the admission of respondent's own
witness, Mr. Borja, which the petitioner cited, the former
only paid it P75,147.00, leaving a difference of P14,623.20.
The deficiency, petitioner argues, suffices to invalidate the
policy, in accordance with Section 77 of the Insurance
Code.18
The Court of Appeals refused to consider this contention of
the petitioner. It held that this issue was raised for the first
time on appeal, hence, beyond its jurisdiction to resolve,
pursuant to Rule 46, Section 18 of the Rules of Court.19
Petitioner, however, contests this finding of the appellate
court. It insists that the issue was raised in paragraph 24 of
its Answer, viz.:
"24. Plaintiff has not complied with the condition
of the policy and renewal certificate that the
renewal premium should be paid on or before
renewal date."
Petitioner adds that the issue was the subject of the cross-
examination of Mr. Borja, who acknowledged that the paid
amount was lacking by P14,623.20 by reason of a discount
or rebate, which rebate under Sec. 361 of the Insurance
Code is illegal.
The argument fails to impress. It is true that the
asseverations petitioner made in paragraph 24 of its
Answer ostensibly spoke of the policy's condition for
payment of the renewal premium on time and
respondent's non-compliance with it. Yet, it did not contain
any specific and definite allegation that respondent did not
pay the premium, or that it did not pay the full amount, or
that it did not pay the amount on time.
Likewise, when the issues to be resolved in the trial court
were formulated at the pre-trial proceedings, the question
of the supposed inadequate payment was never raised.
Most significant to point, petitioner fatally neglected to
present, during the whole course of the trial, any witness
to testify that respondent indeed failed to pay the full
amount of the premium. The thrust of the cross-
examination of Mr. Borja, on the other hand, was not for
the purpose of proving this fact. Though it briefly touched
on the alleged deficiency, such was made in the course of
discussing a discount or rebate, which the agent
apparently gave the respondent. Certainly, the whole tenor
of Mr. Borja's testimony, both during direct and cross
examinations, implicitly assumed a valid and subsisting
insurance policy. It must be remembered that he was
called to the stand basically to demonstrate that an
existing policy issued by the petitioner covers the burned
building.
Finally, petitioner contends that respondent violated the
express terms of the Fire Extinguishing Appliances
Warranty. The said warranty provides:
"WARRANTED that during the currency of this Policy, Fire IN VIEW WHEREOF, finding no reversible error in the
Extinguishing Appliances as mentioned below shall be impugned Decision, the instant petition is hereby
maintained in efficient working order on the premises to DISMISSED.
which insurance applies:
SO ORDERED.
- PORTABLE EXTINGUISHERS

- INTERNAL HYDRANTS

- EXTERNAL HYDRANTS

- FIRE PUMP

- 24-HOUR SECURITY SERVICES

BREACH of this warranty shall render this policy null and

void and the Company shall no longer be liable for any loss
which may occur."20

Petitioner argues that the warranty clearly obligates the

insured to maintain all the appliances specified therein.
The breach occurred when the respondent failed to install
internal fire hydrants inside the burned building as
warranted. This fact was admitted by the oil mill's expeller
operator, Gerardo Zarsuela.

Again, the argument lacks merit. We agree with the

appellate court's conclusion that the aforementioned
warranty did not require respondent to provide for all the
fire extinguishing appliances enumerated therein.
Additionally, we find that neither did it require that the
appliances are restricted to those mentioned in the
warranty. In other words, what the warranty mandates is
that respondent should maintain in efficient working
condition within the premises of the insured property, fire
fightingequipments such as, but not limited to, those
identified in the list, which will serve as the oil mill's first
line of defense in case any part of it bursts into flame.

To be sure, respondent was able to comply with the

warranty. Within the vicinity of the new oil mill can be
found the following devices: numerous portable fire
extinguishers, two fire hoses,21 fire hydrant,22 and an
emergency fire engine.23 All of these equipments were in
efficient working order when the fire occurred.

It ought to be remembered that not only are warranties

strictly construed against the insurer, but they should,
likewise, by themselves be reasonably interpreted.24 That
reasonableness is to be ascertained in light of the factual
conditions prevailing in each case. Here, we find that there
is no more need for an internal hydrant considering that
inside the burned building were: (1) numerous portable
fire extinguishers, (2) an emergency fire engine, and (3) a
fire hose which has a connection to one of the external
hydrants.
G.R. No. 81026 April 3, 1990
PAN MALAYAN INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, ERLINDA FABIE AND HER
UNKNOWN DRIVER, respondents.
Regulus E. Cabote& Associates for petitioner.
Benito P. Fabie for private respondents.
CORTES, J.:
Petitioner Pan Malayan Insurance Company (PANMALAY)
seeks the reversal of a decision of the Court of Appeals
which upheld an order of the trial court dismissing for no
cause of action PANMALAY's complaint for damages
against private respondents Erlinda Fabie and her driver.
The principal issue presented for resolution before this
Court is whether or not the insurer PANMALAY may
institute an action to recover the amount it had paid its
assured in settlement of an insurance claim against private
respondents as the parties allegedly responsible for the
damage caused to the insured vehicle.
On December 10, 1985, PANMALAY filed a complaint for
damages with the RTC of Makati against private
respondents Erlinda Fabie and her driver. PANMALAY
averred the following: that it insured a Mitsubishi Colt
Lancer car with plate No. DDZ-431 and registered in the
name of Canlubang Automotive Resources Corporation
[CANLUBANG]; that on May 26, 1985, due to the
"carelessness, recklessness, and imprudence" of the
unknown driver of a pick-up with plate no. PCR-220, the
insured car was hit and suffered damages in the amount of
P42,052.00; that PANMALAY defrayed the cost of repair of
the insured car and, therefore, was subrogated to the
rights of CANLUBANG against the driver of the pick-up and
his employer, Erlinda Fabie; and that, despite repeated
demands, defendants, failed and refused to pay the claim
of PANMALAY.
Private respondents, thereafter, filed a Motion for Bill of
Particulars and a supplemental motion thereto. In
compliance therewith, PANMALAY clarified, among others,
that the damage caused to the insured car was settled
under the "own damage", coverage of the insurance policy,
and that the driver of the insured car was, at the time of
the accident, an authorized driver duly licensed to drive
the vehicle. PANMALAY also submitted a copy of the
insurance policy and the Release of Claim and Subrogation
Receipt executed by CANLUBANG in favor of PANMALAY.
On February 12, 1986, private respondents filed a Motion
to Dismiss alleging that PANMALAY had no cause of action
against them. They argued that payment under the "own
damage" clause of the insurance policy precluded
subrogation under Article 2207 of the Civil Code, since
indemnification thereunder was made on the assumption
that there was no wrongdoer or no third party at fault.
After hearings conducted on the motion, opposition
thereto, reply and rejoinder, the RTC issued an order dated
June 16, 1986 dismissing PANMALAY's complaint for no
cause of action. On August 19, 1986, the RTC denied
PANMALAY's motion for reconsideration.
On appeal taken by PANMALAY, these orders were upheld
by the Court of Appeals on November 27, 1987.
Consequently, PANMALAY filed the present petition for
review.
After private respondents filed its comment to the petition,
and petitioner filed its reply, the Court considered the
issues joined and the case submitted for decision.
Deliberating on the various arguments adduced in the
pleadings, the Court finds merit in the petition.
PANMALAY alleged in its complaint that, pursuant to a
motor vehicle insurance policy, it had indemnified
CANLUBANG for the damage to the insured car resulting
from a traffic accident allegedly caused by the negligence
of the driver of private respondent, Erlinda Fabie.
PANMALAY contended, therefore, that its cause of action
against private respondents was anchored upon Article
2207 of the Civil Code, which reads:
If the plaintiffs property has been insured, and he
has received indemnity from the insurance
company for the injury or loss arising out of the
wrong or breach of contract complained of, the
insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the
person who has violated the contract. . . .
PANMALAY is correct.
Article 2207 of the Civil Code is founded on the well-
settled principle of subrogation. If the insured property is
destroyed or damaged through the fault or negligence of a
party other than the assured, then the insurer, upon
payment to the assured, will be subrogated to the rights of
the assured to recover from the wrongdoer to the extent
that the insurer has been obligated to pay. Payment by the
insurer to the assured operates as an equitable assignment
to the former of all remedies which the latter may have
against the third party whose negligence or wrongful act
caused the loss. The right of subrogation is not dependent
upon, nor does it grow out of, any privity of contract or
upon written assignment of claim. It accrues simply upon
payment of the insurance claim by the insurer
[CompaniaMaritima v. Insurance Company of North
America, G.R. No. L-18965, October 30, 1964, 12 SCRA 213;
Fireman's Fund Insurance Company v. Jamilla& Company,
Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323].
There are a few recognized exceptions to this rule. For
instance, if the assured by his own act releases the
wrongdoer or third party liable for the loss or damage,
from liability, the insurer's right of subrogation is defeated
[Phoenix Ins. Co. of Brooklyn v. Erie & Western Transport,
Co., 117 US 312, 29 L. Ed. 873 (1886); Insurance Company
of North America v. Elgin, Joliet & Eastern Railway Co., 229
F 2d 705 (1956)]. Similarly, where the insurer pays the
assured the value of the lost goods without notifying the
carrier who has in good faith settled the assured's claim
for loss, the settlement is binding on both the assured and
the insurer, and the latter cannot bring an action against
the carrier on his right of subrogation [McCarthy v. Barber
Steamship Lines, Inc., 45 Phil. 488 (1923)]. And where the
insurer pays the assured for a loss which is not a risk
covered by the policy, thereby effecting "voluntary
payment", the former has no right of subrogation against
the third party liable for the loss
[SverigesAngfartygsAssuransForening v. Qua Chee Gan, G.
R. No. L-22146, September 5, 1967, 21 SCRA 12].
None of the exceptions are availing in the present case.
The lower court and Court of Appeals, however, were of
the opinion that PANMALAY was not legally subrogated
under Article 2207 of the Civil Code to the rights of
CANLUBANG, and therefore did not have any cause of
action against private respondents. On the one hand, the
trial court held that payment by PANMALAY of
CANLUBANG's claim under the "own damage" clause of the
insurance policy was an admission by the insurer that the
damage was caused by the assured and/or its
representatives. On the other hand, the Court of Appeals in
applying the ejusdem generis rule held that Section III-1 of
the policy, which was the basis for settlement of
CANLUBANG's claim, did not cover damage arising from
collision or overturning due to the negligence of third
parties as one of the insurable risks. Both tribunals
concluded that PANMALAY could not now invoke Article
2207 and claim reimbursement from private respondents
as alleged wrongdoers or parties responsible for the
damage.
The above conclusion is without merit.
It must be emphasized that the lower court's ruling that
the "own damage" coverage under the policy
implies damage to the insured car caused by the assured
itself, instead of third parties, proceeds from an incorrect
comprehension of the phrase "own damage" as used by the
insurer. When PANMALAY utilized the phrase "own
damage" — a phrase which, incidentally, is not found in
the insurance policy — to define the basis for its
settlement of CANLUBANG's claim under the policy, it
simply meant that it had assumed to reimburse the costs
for repairing the damage to the insured
vehicle [See PANMALAY's Compliance with Supplementary
Motion for Bill of Particulars, p. 1; Record, p. 31]. It is in
this sense that the so-called "own damage" coverage under
Section III of the insurance policy is differentiated from
Sections I and IV-1 which refer to "Third Party Liability"
coverage (liabilities arising from the death of, or bodily
injuries suffered by, third parties) and from Section IV-2
which refer to "Property Damage" coverage (liabilities
arising from damage caused by the insured vehicle to the
properties of third parties).
Neither is there merit in the Court of Appeals' ruling that
the coverage of insured risks under Section III-1 of the
policy does not include to the insured vehicle arising from
collision or overturning due to the negligent acts of the
third party. Not only does it stem from an erroneous
interpretation of the provisions of the section, but it also
violates a fundamental rule on the interpretation of
property insurance contracts.
It is a basic rule in the interpretation of contracts that the
terms of a contract are to be construed according to the
sense and meaning of the terms which the parties
thereto have used. In the case of property insurance
policies, the evident intention of the contracting
parties, i.e., the insurer and the assured, determine the
import of the various terms and provisions embodied in
the policy. It is only when the terms of the policy are
ambiguous, equivocal or uncertain, such that the parties
themselves disagree about the meaning of particular
provisions, that the courts will intervene. In such an event,
the policy will be construed by the courts liberally in favor
of the assured and strictly against the insurer [Union
Manufacturing Co., Inc. v. Philippine Guaranty Co., Inc.,
G.R., No. L-27932, October 30, 1972, 47 SCRA 271;
National Power Corporation v. Court of Appeals, G.R. No. L-
43706, November 14, 1986, 145 SCRA 533; Pacific Banking
Corporation v. Court of Appeals, G.R. No. L-41014,
November 28, 1988, 168 SCRA 1. Also Articles 1370-1378
of the Civil Code].
Section III-1 of the insurance policy which refers to the
conditions under which the insurer PANMALAY is liable to
indemnify the assured CANLUBANG against damage to or
loss of the insured vehicle, reads as follows:
SECTION III — LOSS OR DAMAGE
1. The Company will, subject to the Limits of
Liability, indemnify the Insured against loss of or
damage to the Scheduled Vehicle and its
accessories and spare parts whilst thereon: —
(a) by accidental collision or overturning,
or collision or overturning consequent
upon mechanical breakdown or
consequent upon wear and tear;
(b) by fire, external explosion, self
ignition or lightning or burglary,
housebreaking or theft;
(c) by malicious act;
 (d) whilst in transit (including the
processes of loading and unloading)
incidental to such transit by road, rail,
inland, waterway, lift or elevator.
x xx x xx x xx
[Annex "A-1" of PANMALAY's Compliance with
Supplementary Motion for Bill of Particulars;
Record, p. 34; Emphasis supplied].
PANMALAY contends that the coverage of insured risks
under the above section, specifically Section III-1(a), is
comprehensive enough to include damage to the insured
vehicle arising from collision or overturning due to the
fault or negligence of a third party. CANLUBANG is
apparently of the same understanding. Based on a police
report wherein the driver of the insured car reported that
after the vehicle was sideswiped by a pick-up, the driver
thereof fled the scene [Record, p. 20], CANLUBANG filed its
claim with PANMALAY for indemnification of the damage
caused to its car. It then accepted payment from
PANMALAY, and executed a Release of Claim and
Subrogation Receipt in favor of latter.
Considering that the very parties to the policy were not
shown to be in disagreement regarding the meaning and
coverage of Section III-1, specifically sub-paragraph (a)
thereof, it was improper for the appellate court to indulge
in contract construction, to apply the ejusdem generis rule,
and to ascribe meaning contrary to the clear intention and
understanding of these parties.
It cannot be said that the meaning given by PANMALAY
and CANLUBANG to the phrase "by accidental collision or
overturning" found in the first paint of sub-paragraph (a)
is untenable. Although the terms "accident" or "accidental"
as used in insurance contracts have not acquired a
technical meaning, the Court has on several occasions
defined these terms to mean that which 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" [De la Cruz v.
The Capital Insurance & Surety Co., Inc., G.R. No. L-21574,
June 30, 1966, 17 SCRA 559; Filipino Merchants Insurance
Co., Inc. v. Court of Appeals, G.R. No. 85141, November 28,
1989]. Certainly, it cannot be inferred from jurisprudence
that these terms, without qualification, exclude events
resulting in damage or loss due to the fault, recklessness or
negligence of third parties. The concept "accident" is not
necessarily synonymous with the concept of "no fault". It
may be utilized simply to distinguish intentional or
malicious acts from negligent or careless acts of man.
Moreover, a perusal of the provisions of the insurance
policy reveals that damage to, or loss of, the insured
vehicle due to negligent or careless acts of third parties is
not listed under the general and specific exceptions to the
coverage of insured risks which are enumerated in detail
in the insurance policy itself [See Annex "A-1" of
PANMALAY's Compliance with Supplementary Motion for
Bill of Particulars, supra.]
The Court, furthermore. finds it noteworthy that the
meaning advanced by PANMALAY regarding the coverage
of Section III-1(a) of the policy is undeniably more
beneficial to CANLUBANG than that insisted upon by
respondents herein. By arguing that this section covers
losses or damages due not only to malicious, but also to
negligent acts of third parties, PANMALAY in effect
advocates for a more comprehensive coverage of insured
risks. And this, in the final analysis, is more in keeping with
the rationale behind the various rules on the
interpretation of insurance contracts favoring the assured
or beneficiary so as to effect the dominant purpose of
indemnity or payment [SeeCalanoc v. Court of Appeals, 98
Phil. 79 (1955); Del Rosario v. The Equitable Insurance and
Casualty Co., Inc., G.R. No. L-16215, June 29, 1963, 8 SCRA
343; Serrano v. Court of Appeals, G.R. No. L-35529, July 16,
1984, 130 SCRA 327].
Parenthetically, even assuming for the sake of argument
that Section III-1(a) of the insurance policy does not cover
damage to the insured vehicle caused by negligent acts of
third parties, and that PANMALAY's settlement of
CANLUBANG's claim for damages allegedly arising from a
collision due to private respondents' negligence would
amount to unwarranted or "voluntary payment", dismissal
of PANMALAY's complaint against private respondents for
no cause of action would still be a grave error of law.
For even if under the above circumstances PANMALAY
could not be deemed subrogated to the rights of its
assured under Article 2207 of the Civil Code, PANMALAY
would still have a cause of action against private
respondents. In the pertinent case
of SverigesAngfartygsAssuransForening v. Qua Chee Gan,
supra., the Court ruled that the insurer who may have no
rights of subrogation due to "voluntary" payment may
nevertheless recover from the third party responsible for
the damage to the insured property under Article 1236 of
the Civil Code.
In conclusion, it must be reiterated that in this present
case, the insurer PANMALAY as subrogee merely prays
that it be allowed to institute an action to recover from
third parties who allegedly caused damage to the insured
vehicle, the amount which it had paid its assured under the
insurance policy. Having thus shown from the above
discussion that PANMALAY has a cause of action against
third parties whose negligence may have caused damage
to CANLUBANG's car, the Court holds that there is no legal
obstacle to the filing by PANMALAY of a complaint for
damages against private respondents as the third parties
allegedly responsible for the damage. Respondent Court of
Appeals therefore committed reversible error in
sustaining the lower court's order which dismissed
PANMALAY's complaint against private respondents for no
cause of action. Hence, it is now for the trial court to
determine if in fact the damage caused to the insured
vehicle was due to the "carelessness, recklessness and
imprudence" of the driver of private respondent Erlinda
Fabie.

WHEREFORE, in view of the foregoing, the present petition

is GRANTED. Petitioner's complaint for damages against
private respondents is hereby REINSTATED. Let the case
be remanded to the lower court for trial on the merits.

SO ORDERED.