G.R. No. L-27932 October 30, 1972
, for which the corresponding
UNION MANUFACTURING CO., INC. and the REPUBLIC BANK,
plaintiffs, REPUBLIC BANK, plaintiff-appellant,
vs.
PHILIPPINE GUARANTY CO., INC., defendant-appellee.
Armando L. Abad, Sr. for plaintiff-appellant.
Gamelo, Francisco and Aquino for defendant-appellee.
FERNANDO, J.:p
In a suit arising from a fire insurance policy, the insurer, Philippine
Guaranty Co., Inc., defendant in the lower court and now appellee, was able
to avoid liability upon proof that there was a violation of a warranty. There
was no denial thereof from the insured, Union Manufacturing Co., Inc. With
such a legally crippling blow, the effort of the Republic Bank, the main
plaintiff and now the sole appellant, to recover on such policy as mortgagee,
by virtue of the cover note in the insurance policy providing that it is
entitled to the payment of loss or damages as its interest may appear, was in
vain. The defect being legally incurable, its appeal is likewise futile. We
affirm.
As noted in the decision, the following facts are not disputed: "(1) That on
January 12, 1962, the Union Manufacturing Co., Inc. obtained certain loans,
overdrafts and other credit accommodations from the Republic Bank in the
total sum of P415,000.00 with interest at 9% per annum from said date and
to secure the payment thereof, said Union Manufacturing Co., Inc. executed
a real and chattel mortgages on certain properties, which are more
particularly described and listed at the back of the mortgage contract ...; (2)
That as additional condition of the mortgage contract, the Union
Manufacturing Co., Inc. undertook to secure insurance coverage over the
mortgaged properties for the same amount of P415,000.00 distributed as
follows: (a) Buildings, P30,000.00; (b) Machineries, P300,000.00; and (c)
Merchandise Inventory, P85,000.00, giving a total of P415,000.00; (3) That
as Union Manufacturing Co., Inc. failed to secure insurance coverage on the
mortgaged properties since January 12, 1962, despite the fact that Cua Tok,
its general manager, was reminded of said requirement, the Republic Bank
procured from the defendant, Philippine Guaranty Co., Inc. an insurance
coverage on loss against fire for P500,000.00 over the properties of the
Union Manufacturing Co., Inc., as described in defendant's 'Cover Note'
dated September 25, 1962, with the annotation that loss or damage, if any,
under said Cover Note is payable to Republic Bank as its interest may
appear, subject however to the printed conditions of said defendant's Fire
Insurance Policy Form; (4) That on September 27, 1962, Fire Insurance
Policy No. 43170 ... was issued for the sum of P500,000.00 in favor of the
assured, Union Manufacturing Co., Inc.
premium in the sum of P8,328.12, which was reduced to P6,688.12, was
paid by the Republic Bank to the defendant, Philippine Guaranty Co.,
Inc. ...; (5) That upon the expiration of said fire policy on September 25,
1963, the same was renewed by the Republic Bank upon payment of the
corresponding premium in the same amount of P6,663.52 on September 26,
1963; (6) That in the corresponding voucher ..., it appears that although said
renewal premium was paid by the Republic Bank, such payment was for the
account of Union Manufacturing Co., Inc. and that the cash voucher for the
payment of the first premium was paid also by the Republic Bank but for
the account Union Manufacturing Co., Inc.; (7) That sometime on
September 6, 1964, a fire occurred in the premises of the Union
Manufacturing Co., Inc.; (8) That on October 6, 1964, the Union
Manufacturing Co., Inc. filed its fire claim with the defendant Philippine
Guaranty Co., Inc., thru its adjuster, H. H. Bayne Adjustment Co., which
was denied by said defendant in its letter dated November 27, 1964 ..., on
the following grounds: 'a. Policy Condition No. 3 and/or the 'Other
Insurance Clause' of the policy violated because you did not give notice to
us the other insurance which you had taken from New India for P80,000.00,
Sincere Insurance for P25,000.00 and Manila Insurance for P200,000.00
with the result that these insurances, of which we became aware of only
after the fire, were not endorsed on our policy; and (b) Policy Condition No.
11 was not complied with because you have failed to give to our
representatives the required documents and other proofs with respect to
your claim and matters touching on our liability, if any, and the amount of
such liability'; (9) That as of September, 1962, when the defendant
Philippine Guaranty Co., issued Fire Insurance Policy No. 43170 ... in the
sum of P500,000.00 to cover the properties of the Union Manufacturing
Co., Inc., the same properties were already covered by Fire Policy No. 1533
of the Sincere Insurance Company for P25,000.00 for the period from
October 7, 1961 to October 7, 1962 ...; and by insurance policies Nos.
F-2314 ... and F-2590 ... of the Oceanic Insurance Agency for the total sum
of P300,000.00 and for periods respectively, from January 27, 1962 to
January 27, 1963, and from June 1, 1962 to June 1, 1963; and (10) That
when said defendant's Fire Insurance Policy No. 43170 was already in full
force and effect, the Union Manufacturing Co., Inc. without the consent of
the defendant, Philippine Guaranty Co., Inc., obtained other insurance
policies totalling P305,000.00 over the same properties prior to the fire, to
wit: (1) Fire Policy No. 250 of New India Assurance Co., Ltd., for
P80,000.00 for the period from May 27, 1964 to May 27, 1965 ...; (2) Fire
Policy No. 3702 of the Sincere Insurance Company for P25,000.00 for the
period from October 7, 1963 to October 7, 1964 ...; and (3) Fire Policy No.
6161 of Manila Insurance Co. for P200,000.00 for the period from May 15,
1964 to May 15, 1965 ... ."1 There is in the cover note2 and in the fire
insurance policy3 the following warranty: "[Co- Insurance Declared]: Nil."4
Why the appellant Republic Bank could not recover, as payee, in case of
loss as its "interest may appear subject to the terms and conditions, clauses
and warranties" of the policy was expressed in the appealed decision thus:
"However, inasmuch as the Union Manufacturing Co., Inc. has violated the
condition of the policy to the effect that it did not reveal the existence of
other insurance policies over the same properties, as required by the
warranty appearing on the face of the policy issued by the defendant and
that on the other hand said Union Manufacturing Co., Inc. represented that
there were no other insurance policies at the time of the issuance of said
defendant's policy, and it appearing furthermore that while the policy of the
defendant was in full force and effect the Union Manufacturing Co., Inc.
secured other fire insurance policies without the written consent of the
defendant endorsed on the policy, the conclusion is inevitable that both the
Republic Bank and Union Manufacturing Co., Inc. cannot recover from the
same policy of the defendant because the same is null and void."5 The tone
of confidence apparent in the above excerpts from the lower court decision
is understandable. The conclusion reached by the lower court finds support
in authoritative precedents. It is far from easy, therefore, for appellant
Republic Bank to impute to such a decision a failure to abide by the law.
Hence, as noted at the outset, the appeal cannot prosper. An affirmance is
indicated.
It is to Santa Ana v. Commercial Union Assurance Co.,6 a 1930 decision,
that one turns to for the first explicit formulation as to the controlling
principle. As was made clear in the opinion of this Court, penned by Justice
Villa-Real: "Without deciding whether notice of other insurance upon the
same property must be given in writing, or whether a verbal notice is
sufficient to render an insurance valid which requires such notice, whether
oral or written, we hold that in the absolute absence of such notice when it
is one of the conditions specified in the fire insurance policy, the policy is
null and void."7 The next year, in Ang Giok Chip v. Springfield Fire &
Marine Ins. Co.,8 the conformity of the insured to the terms of the policy,
implied from the failure to express any disagreement with what is provided
for, was stressed in these words of the ponente, Justice Malcolm: "It is
admitted that the policy before us was accepted by the plaintiff. The receipt
of this policy by the insured without objection binds both the acceptor and
the insured to the terms thereof. The insured may not thereafter be heard to
say that he did not read the policy or know its terms, since it is his duty to
read his policy and it will be assumed that he did so." 9 As far back as 1915,
in Young v. Midland Textile Insurance Company, 10 it was categorically set
forth that as a condition precedent to the right of recovery, there must be
compliance on the part of the insured with the terms of the policy. As stated
in the opinion of the Court through Justice Johnson: "If the insured has
violated or failed to perform the conditions of the contract, and such a
violation or want of performance has not been waived by the insurer, then
the insured cannot recover. Courts are not permitted to make contracts for
the parties. The function and duty of the courts consist simply in enforcing
and carrying out the contracts actually made. While it is true, as a general
rule, that contracts of insurance are construed most favorably to the insured,
yet contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and unambiguous they must
be taken and understood in their plain, ordinary and popular sense." 11 More
specifically, there was a reiteration of this Santa Ana ruling in a decision by
the then Justice, later Chief Justice, Bengzon, in General Insurance &
Surety Corp. v. Ng Hua. 12 Thus: "The annotation then, must be deemed to
be a warranty that the property was not insured by any other policy.
Violation thereof entitles the insurer to rescind. (Sec. 69, Insurance Act)
Such misrepresentation is fatal in the light of our views in Santa Ana v.
Commercial Union Assurance Company, Ltd. ... . The materiality of non-
disclosure of other insurance policies is not open to doubt." 13 As a matter
of fact, in a 1966 decision, Misamis Lumber Corp. v. Capital Ins. & Surety
Co., Inc., 14 Justice J.B.L. Reyes, for this Court, made manifest anew its
adherence to such a principle in the face of an assertion that thereby a
highly unfavorable provision for the insured would be accorded
recognition. This is the language used: "The insurance contract may be
rather onerous ('one sided', as the lower court put it), but that in itself does
not justify the abrogation of its express terms, terms which the insured
accepted or adhered to and which is the law between the contracting
parties." 15
There is no escaping the conclusion then that the lower court could not have
disposed of this case in a way other than it did. Had it acted otherwise, it
clearly would have disregarded pronouncements of this Court, the
compelling force of which cannot be denied. There is, to repeat, no
justification for a reversal.
WHEREFORE, the decision of the lower court of March 31, 1967 is
affirmed. No costs.
G.R. No. L-36232 December 19, 1974
PIONEER INSURANCE AND SURETY CORPORATION, petitioner-
appellant,
vs.
OLIVA YAP, represented by her attorney-in-fact, CHUA SOON POON
respondent-appellee.
Eriberto D. Ignacio for petitioner-appellant.
Paculdo, Miranda, Marquez, Sibal & Associates for respondent-appellee.
FERNANDEZ, J.:p
This is an appeal by certiorari from the decision of the Court of Appeals
dated December 16, 1972, in CA-G.R. No. 36669-R, affirming the
judgment of the Court of First Instance of Manila (Branch VI) in Civil Case
No. 54508, which latter court declared plaintiff Oliva Yap, herein
respondent, entitled to recover from defendant Pioneer Insurance & Surety
Corporation, herein petitioner, the full amount of the damage inquired in
Policy No. 4219, which is P25,000.00, plus 12% of said sum from the date
of filing of the complaint until full payment, in addition to the sum of
P6,000.00 for attorney's fees, and costs.
Respondent Oliva Yap was the owner of a store in a two-storey building
located at No. 856 Juan Luna Street, Manila, where in 1962 she sold
shopping bags and footwear, such as shoes, sandals and step-ins. Chua Soon
Poon Oliva Yap's son-in-law, was in charge of the store.
On April 19, 1962, respondent Yap took out Fire Insurance Policy No. 4216
from petitioner Pioneer Insurance & Surety Corporation with a face value
of P25,000.00 covering her stocks, office furniture, fixtures and fittings of
every kind and description. Among the conditions in the policy executed by
the parties are the following:
The Insured shall give notice to the Company of any insurance or
insurances already effected, or which may subsequently be effected,
covering any of the property hereby insured, and unless such notice be
given and the particulars of such insurance or insurances be stated in, or
endorsed on this Policy by or on behalf of the Company before the
occurrence of any loss or damage, all benefits under this Policy shall be
forfeited. (emphasis supplied)
It is understood that, except as may be stated on the face of this policy there
is no other insurance on the property hereby covered and no other insurance
is allowed except by the consent of the Company endorsed hereon. Any
false declaration or breach or this condition will render this policy null and
void.
At the time of the insurance on April 19, 1962 of Policy No. 4219 in favor
of respondent Yap, an insurance policy for P20,000.00 issued by the Great
American Insurance Company covering the same properties was noted on
said policy as co-insurance (Annex "1-E"). Later, on August 29, 1962, the
parties executed Exhibit "1-K", as an endorsement on Policy No. 4219,
stating:
It is hereby declared and agreed that the co-insurance existing at present
under this policy is as follows: P20,000.00 — Northwest Ins., and not as
originally stated. (emphasis supplied)
Except as varied by this endorsement, all other terms and conditions remain
unchanged.
Still later, or on September 26, 1962, respondent Oliva Yap took out another
fire insurance policy for P20,000.00 covering the same properties, this time
from the Federal Insurance Company, Inc., which new policy was, however,
procured without notice to and the written consent of petitioner Pioneer
Insurance & Surety Corporation and, therefore, was not noted as a co-
insurance in Policy No. 4219.
At dawn on December 19, 1962, a fire broke out in the building housing
respondent Yap's above-mentioned store, and the said store was burned.
Respondent Yap filed an insurance claim, but the same was denied in
petitioner's letter of May 17, 1963 (Exhibit "G"), on the ground of "breach
and/or violation of any and/or all terms and conditions" of Policy No. 4219.
On July 17, 1963, Oliva Yap filed with the Court of First Instance of Manila
the present complaint, asking, among others, for payment of the face value
of her fire insurance policy. In its answer, petitioner alleged that no property
belonging to plaintiff Yap and covered by the insurance policy was
destroyed by the fire; that Yap's claim was filed out of time; and that Yap
took out an insurance policy from another insurance company without
petitioner's knowledge and/or endorsement, in violation of the express
stipulations in Policy No. 4219, hence, all benefits accruing from the policy
were deemed forfeited.
As already stated at the beginning of this opinion, the trial court decided for
plaintiff Oliva Yap; and its judgment was affirmed in full by the Court of
Appeals.
The vital issue in this appeal is whether or not petitioner should be absolved
from liability on Fire Insurance Policy No. 4219 on account of any violation
by respondent Yap of the co-insurance clause therein. In resolving this
problem, the Court of Appeals stated in its decision:
5. The plaintiff-appellee has not violated the other insurance clause (Exhibit
1-F) of the insurance Policy No. 4219 that would justify the defendant-
appellant, as insurer, to avoid its liability thereunder. It appears on the face
of said policy that a co-insurance in the amount of P20,000.00 was secured
from the Great American Insurance and was declared by the plaintiff-
appellee and recognized by the defendant-appellant. This was later on
substituted for the same amount and secured by the Federal Insurance
Company. Chua Soon Poon on being cross-examined by counsel for the
defendant-appellant, declared that the Great American Insurance policy was
cancelled because of the difference in the premium and the same was
changed for that of the Federal (t.s.n., hearing of December 1, 1964, pp.
35-36). Contrary to the assertion of the defendant-appellant, the Great
American Insurance policy was not substituted by the Northwest Insurance
policy. As admitted by the defendant-appellant in its brief (p. 48), the fire
insurance policy issued by the Great American Insurance Company for
P20,000.00 (Exhibit 1-E) was cancelled on August 29, 1962. On the other
hand, the fire insurance policy issued by the Northwest Insurance & Surety
Company for P20,000.00 (Exhibit 1-K) was taken out on July 23, 1962.
How then can the Northwest Insurance policy issued on July 23, 1962, be
considered as having substituted the Great American policy which was
cancelled only on August 29, 1962? The defendant-appellant can be
considered to have waived the formal requirement of indorsing the policy of
co-insurance since there was absolutely no showing that it was not aware of
said substitution and preferred to continue the policy (Gonzales La O vs.
Yek Tong Lin Fire and Marine Insurance Co., 55 Phil. 386). Even assuming
that the defendant-appellant did not indorse the Federal Insurance policy,
there is no question that the same was only a substitution and did not in any
way increase the amount of the declared co-insurance. In other words, there
was no increase in the risk assumed by the defendant-appellant.
We do not agree with the conclusion of the Court of Appeals.
There was a violation by respondent Oliva Yap of the co-insurance clause
contained in Policy No. 4219 that resulted in the avoidance of petitioner's
liability. The insurance policy for P20,000.00 issued by the Great American
Insurance Company covering the same properties of respondent Yap and
duly noted on Policy No. 4219 as c-insurance, ceased, by agreement of the
parties (Exhibit "1-L"), to be recognized by them as a co-insurance policy.
The Court of Appeals says that the Great American Insurance policy was
substituted by the Federal Insurance policy for the same amount, and
because it was a mere case of substitution, there was no necessity for its
endorsement on Policy No. 4219. This finding, as well as reasoning, suffers
from several flaws. There is no evidence to establish and prove such a
substitution. If anything was substituted for the Great American Insurance
policy, it could only be the Northwest Insurance policy for the same amount
of P20,000.00. The endorsement (Exhibit "1-K") quoted above shows the
clear intention of the parties to recognize on the date the endorsement was
made (August 29, 1962), the existence of only one co-insurance, and that is
the Northwest Insurance policy, which according to the stipulation of the
parties during the hearing, was issued on August 20, 1962 (t.s.n., January
12, 1965, pp. 3-4) and endorsed only on August 20, 1962. The finding of
the Court of Appeals that the Great American Insurance policy was
substituted by the Federal Insurance policy is unsubstantiated by the
evidence of record and indeed contrary to said stipulation and admission of
respondent, and is grounded entirely on speculation, surmises or
conjectures, hence, not binding on the Supreme Court.1
The Court of Appeals would consider petitioner to have waived the formal
requirement of endorsing the policy of co-insurance "since there was
absolutely no showing that it was not aware of said substitution and
preferred to continue the policy." The fallacy of this argument is that,
contrary to Section 1, Rule 131 of the Revised Rules of Court, which
requires each party to prove his own allegations, it would shift to petitioner,
respondent's burden of proving her proposition that petitioner was aware of
the alleged substitution, and with such knowledge preferred to continue the
policy. Respondent Yap cites Gonzales La O vs. Yek Tong Lin Fire and
Marine Insurance Co., Ltd.2 to justify the assumption but in that case,
unlike here, there was knowledge by the insurer of violations of the
contract, to wit: "If, with the knowledge of the existence of other insurances
which the defendant deemed violations of the contract, it has preferred to
continue the policy, its action amounts to a waiver of the annulment of the
contract ..." A waiver must be express. If it is to be implied from conduct
mainly, said conduct must be clearly indicative of a clear intent to waive
such right. Especially in the case at bar where petitioner is assumed to have
waived a valuable right, nothing less than a clear, positive waiver, made
with full knowledge of the circumstances, must be required.
By the plain terms of the policy, other insurance without the consent of
petitioner would ipso facto avoid the contract. It required no affirmative act
of election on the part of the company to make operative the clause
avoiding the contract, wherever the specified conditions should occur. Its
obligations ceased, unless, being informed of the fact, it consented to the
additional insurance.
The validity of a clause in a fire insurance policy to the effect that the
procurement of additional insurance without the consent of the insurer
renders ipso facto the policy void is well-settled:
In Milwaukee Mechanids' Lumber Co., vs. Gibson, 199 Ark. 542, 134 S. W.
2d 521, 522, a substantially identical clause was sustained and enforced, the
court saying: "The rule in this state and practically all of the states is to the
effect that a clause in a policy to the effect that the procurement of
additional insurance without the consent of the insurer renders the policy
void is a valid provision. The earlier cases of Planters Mutual Insurance
Co., vs. Green, 72 Ark. 305, 80 S.W. 92, are to the same effect." And see
Vance, Insurance, 2nd Ed., 725. (Reach vs. Arkansas Farmers Mut. Fire Ins. as the insurer, is interested in preventing the situation in which a fire would
Co., [Ark. Nov. 14, 1949] 224 S. W. 2d 48, 49.) be profitable to the insured. According to Justice Story: "The insured has no
2. Where a policy contains a clause providing that the policy shall be void if right to complain, for he assents to comply with all the stipulation on his
insured has or shall procure any other insurance on the property, the side, in order to entitle himself to the benefit of the contract, which, upon
procurement of additional insurance without the consent of the insurer reason or principle, he has no right to ask the court to dispense with the
avoids the policy." (Planters' Mut. Ins. Ass'n vs. Green [Supreme Court of performance of his own part of the agreement, and yet to bind the other
Arkansas, March 19, 1904] 80 S.W. 151.) party to obligations, which, but for those stipulation would not have been
3. The policy provided that it should be void in case of other insurance entered into."5
"without notice and consent of this company. ..." It also authorized the In view of the above conclusion, We deem it unnecessary to consider the
company to terminate the contract at any time, at its option, by giving other defenses interposed by petitioner.
notice and refunding a ratable proportion of the premium. Held, that WHEREFORE, the appealed judgment of the Court of Appeals is reversed
additional insurance, unless consented to, or unless a waiver was shown, and set aside, and the petitioner absolved from all liability under the policy.
ipso facto avoided the contract, and the fact that the company had not, after Costs against private respondent.
notice of such insurance, cancelled the policy, did not justify the legal SO ORDERED.
conclusion that it had elected to allow it to continue in force." (Johnson vs.
American Fire Ins., Co., [Supreme Court of Minnesota, Aug. 12, 1889] 43
N.W., 59)
The aforecited principles have been applied in this jurisdiction in General
Insurance & Surety Corporation vs. Ng Hua 3 . There, the policy issued by
the General Insurance & Surety Corporation in favor of respondent Ng Hua
contained a provision identical with the provisions in Policy No. 4219
quoted above.4 This Court, speaking thru Justice Cesar P. Bengson, in
reversing the judgment of the Court of Appeals and absolving the insurer
from liability under the policy, held:
... And considering the terms of the policy which required the insured to
declare other insurances, the statement in question must be deemed to be a
statement (warranty) binding on both insurer and insured, that there were no
other insurance on the property. ...
The annotation then, must be deemed to be a warranty that the property was
not insured by any other policy. Violation thereof entitled the insurer to
rescind. (Sec. 69, Insurance Act.) Such misrepresentation is fatal in the light
of our views in Santa Ana vs. Commercial Union Assurance Company, Ltd.,
55 Phil. 329. The materiality of non-disclosure of other insurance policies is
not open to doubt.
Furthermore, even if the annotations were overlooked the defendant insurer
would still be free from liability because there is no question that the policy
issued by General Indemnity has not been stated in nor endorsed on Policy
No. 471 of defendant. And as stipulated in the above-quoted provisions of
such policy "all benefit under this policy shall be forfeited. (Emphasis
supplied)
The obvious purpose of the aforesaid requirement in the policy is to prevent
over-insurance and thus avert the perpetration of fraud. The public, as well
G.R. No. 114427 February 6, 1995
ARMANDO GEAGONIA, petitioner,
vs.
COURT OF APPEALS and COUNTRY BANKERS INSURANCE
CORPORATION, respondents.
DAVIDE, JR., J.:
Four our review under Rule 45 of the Rules of Court is the decision1 of the
Court of Appeals in CA-G.R. SP No. 31916, entitled "Country Bankers
Insurance Corporation versus Armando Geagonia," reversing the decision
of the Insurance Commission in I.C. Case No. 3340 which awarded the
claim of petitioner Armando Geagonia against private respondent Country
Bankers Insurance Corporation.
The petitioner is the owner of Norman's Mart located in the public market
of San Francisco, Agusan del Sur. On 22 December 1989, he obtained from
the private respondent fire insurance policy No. F-146222 for P100,000.00.
The period of the policy was from 22 December 1989 to 22 December 1990
and covered the following: "Stock-in-trade consisting principally of dry
goods such as RTW's for men and women wear and other usual to assured's
business."
The petitioner declared in the policy under the subheading entitled CO-
INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for
P50,000.00. From 1989 to 1990, the petitioner had in his inventory stocks
amounting to P392,130.50, itemized as follows:
Zenco Sales, Inc.
P55,698.00
F. Legaspi Gen. Merchandise
86,432.50
Cebu Tesing Textiles
250,000.00
(on credit)
—————
P392,130.50
The policy contained the following condition:
3. The insured shall give notice to the Company of any insurance or
insurances already affected, or which may subsequently be effected,
covering any of the property or properties consisting of stocks in trade,
goods in process and/or inventories only hereby insured, and unless such
notice be given and the particulars of such insurance or insurances be stated
therein or endorsed in this policy pursuant to Section 50 of the Insurance
Code, by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under this policy shall be deemed forfeited, provided
however, that this condition shall not apply when the total insurance or
insurances in force at the time of the loss or damage is not more than
P200,000.00.
On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at
the public market of San Francisco, Agusan del Sur. The petitioner's insured
stock-in-trade were completely destroyed prompting him to file with the
private respondent a claim under the policy. On 28 December 1990, the
private respondent denied the claim because it found that at the time of the
loss the petitioner's stocks-in-trade were likewise covered by fire insurance
policies No. GA-28146 and No. GA-28144, for P100,000.00 each, issued
by the Cebu Branch of the Philippines First Insurance Co., Inc. (hereinafter
PFIC). 3 These policies indicate that the insured was "Messrs. Discount
Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause reading:
MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing
Textiles, Cebu City as their interest may appear subject to the terms of this
policy. CO-INSURANCE DECLARED: P100,000. — Phils. First CEB/F
24758.4
The basis of the private respondent's denial was the petitioner's alleged
violation of Condition 3 of the policy.
The petitioner then filed a complaint 5 against the private respondent with
the Insurance Commission (Case No. 3340) for the recovery of P100,000.00
under fire insurance policy No. F-14622 and for attorney's fees and costs of
litigation. He attached as Annex "AM"6 thereof his letter of 18 January
1991 which asked for the reconsideration of the denial. He admitted in the
said letter that at the time he obtained the private respondent's fire insurance
policy he knew that the two policies issued by the PFIC were already in
existence; however, he had no knowledge of the provision in the private
respondent's policy requiring him to inform it of the prior policies; this
requirement was not mentioned to him by the private respondent's agent;
and had it been mentioned, he would not have withheld such information.
He further asserted that the total of the amounts claimed under the three
policies was below the actual value of his stocks at the time of loss, which
was P1,000,000.00.
In its answer,7 the private respondent specifically denied the allegations in
the complaint and set up as its principal defense the violation of Condition 3
of the policy.
In its decision of 21 June 1993,8 the Insurance Commission found that the
petitioner did not violate Condition 3 as he had no knowledge of the
existence of the two fire insurance policies obtained from the PFIC; that it
was Cebu Tesing Textiles which procured the PFIC policies without
informing him or securing his consent; and that Cebu Tesing Textile, as his
creditor, had insurable interest on the stocks. These findings were based on
the petitioner's testimony that he came to know of the PFIC policies only
when he filed his claim with the private respondent and that Cebu Tesing
Textile obtained them and paid for their premiums without informing him
thereof. The Insurance Commission then decreed:
WHEREFORE, judgment is hereby rendered ordering the respondent
company to pay complainant the sum of P100,000.00 with legal interest
from the time the complaint was filed until fully satisfied plus the amount
of P10,000.00 as attorney's fees. With costs. The compulsory counterclaim
of respondent is hereby dismissed.
Its motion for the reconsideration of the decision 9 having been denied by
the Insurance Commission in its resolution of 20 August 1993, 10 the private
respondent appealed to the Court of Appeals by way of a petition for
review. The petition was docketed as CA-G.R. SP No. 31916.
In its decision of 29 December 1993, 11 the Court of Appeals reversed the
decision of the Insurance Commission because it found that the petitioner
knew of the existence of the two other policies issued by the PFIC. It said:
It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144
that the insurance was taken in the name of private respondent [petitioner
herein]. The policy states that "DISCOUNT MART (MR. ARMANDO
GEAGONIA, PROP)" was the assured and that "TESING
TEXTILES" [was] only the mortgagee of the goods.
In addition, the premiums on both policies were paid for by private
respondent, not by the Tesing Textiles which is alleged to have taken out the
other insurance without the knowledge of private respondent. This is shown
by Premium Invoices nos. 46632 and 46630. (Annexes M and N). In both
invoices, Tesing Textiles is indicated to be only the mortgagee of the goods
insured but the party to which they were issued were the "DISCOUNT
MART (MR. ARMANDO GEAGONIA)."
In is clear that it was the private respondent [petitioner herein] who took out
the policies on the same property subject of the insurance with petitioner.
Hence, in failing to disclose the existence of these insurances private
respondent violated Condition No. 3 of Fire Policy No. 1462. . . .
Indeed private respondent's allegation of lack of knowledge of the
provisions insurances is belied by his letter to petitioner [of 18 January
1991. The body of the letter reads as follows;]
xxx xxx xxx
Please be informed that I have no knowledge of the provision requiring me
to inform your office about my
prior insurance under FGA-28146 and F-CEB-24758. Your representative
did not mention about said requirement at the time he was convincing me to
insure with you. If he only die or even inquired if I had other existing
policies covering my establishment, I would have told him so. You will note
that at the time he talked to me until I decided to insure with your company
the two policies aforementioned were already in effect. Therefore I would
have no reason to withhold such information and I would have desisted to
part with my hard earned peso to pay the insurance premiums [if] I know I
could not recover anything.
Sir, I am only an ordinary businessman interested in protecting my
investments. The actual value of my stocks damaged by the fire was
estimated by the Police Department to be P1,000,000.00 (Please see xerox
copy of Police Report Annex "A"). My Income Statement as of December
31, 1989 or five months before the fire, shows my merchandise inventory
was already some P595,455.75. . . . These will support my claim that the
amount claimed under the three policies are much below the value of my
stocks lost.
xxx xxx xxx
The letter contradicts private respondent's pretension that he did not know
that there were other insurances taken on the stock-in-trade and seriously
puts in question his credibility.
His motion to reconsider the adverse decision having been denied, the
petitioner filed the instant petition. He contends therein that the Court of
Appeals acted with grave abuse of discretion amounting to lack or excess of
jurisdiction:
A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE
INSURANCE COMMISSION, A QUASI-JUDICIAL BODY CHARGED
WITH THE DUTY OF DETERMINING INSURANCE CLAIM AND
WHOSE DECISION IS ACCORDED RESPECT AND EVEN FINALITY
BY THE COURTS;
B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH
WERE NOT PRESENTED AS EVIDENCE DURING THE HEARING OR
TRIAL; AND
C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER
HEREIN AGAINST THE PRIVATE RESPONDENT.
The chief issues that crop up from the first and third grounds are (a)
whether the petitioner had prior knowledge of the two insurance policies
issued by the PFIC when he obtained the fire insurance policy from the
private respondent, thereby, for not disclosing such fact, violating Condition
3 of the policy, and (b) if he had, whether he is precluded from recovering
therefrom.
The second ground, which is based on the Court of Appeals' reliance on the
petitioner's letter of reconsideration of 18 January 1991, is without merit.
The petitioner claims that the said letter was not offered in evidence and
thus should not have been considered in deciding the case. However, as
correctly pointed out by the Court of Appeals, a copy of this letter was
attached to the petitioner's complaint in I.C. Case No. 3440 as Annex "M"
thereof and made integral part of the complaint. 12 It has attained the status
of a judicial admission and since its due execution and authenticity was not
denied by the other party, the petitioner is bound by it even if it were not
introduced as an independent evidence. 13
As to the first issue, the Insurance Commission found that the petitioner had
no knowledge of the previous two policies. The Court of Appeals disagreed
and found otherwise in view of the explicit admission by the petitioner in
his letter to the private respondent of 18 January 1991, which was quoted in
the challenged decision of the Court of Appeals. These divergent findings of
fact constitute an exception to the general rule that in petitions for review
under Rule 45, only questions of law are involved and findings of fact by
the Court of Appeals are conclusive and binding upon this Court. 14
We agree with the Court of Appeals that the petitioner knew of the prior
policies issued by the PFIC. His letter of 18 January 1991 to the private
respondent conclusively proves this knowledge. His testimony to the
contrary before the Insurance Commissioner and which the latter relied
upon cannot prevail over a written admission made ante litem motam. It
was, indeed, incredible that he did not know about the prior policies since
these policies were not new or original. Policy No. GA-28144 was a
renewal of Policy No. F-24758, while Policy No. GA-28146 had been
renewed twice, the previous policy being F-24792.
Condition 3 of the private respondent's Policy No. F-14622 is a condition
which is not proscribed by law. Its incorporation in the policy is allowed by
Section 75 of the Insurance Code 15 which provides that "[a] policy may
declare that a violation of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision does not avoid the policy."
Such a condition is a provision which invariably appears in fire insurance
policies and is intended to prevent an increase in the moral hazard. It is
commonly known as the additional or "other insurance" clause and has been
upheld as valid and as a warranty that no other insurance exists. Its
violation would thus avoid the 

policy. 16 However, in order to constitute a violation, the other insurance
must be upon same subject matter, the same interest therein, and the same
risk.17
As to a mortgaged property, the mortgagor and the mortgagee have each an
independent insurable interest therein and both interests may be one policy,
or each may take out a separate policy covering his interest, either at the
same or at separate times. 18 The mortgagor's insurable interest covers the
full value of the mortgaged property, even though the mortgage debt is
equivalent to the full value of the property.19 The mortgagee's insurable
interest is to the extent of the debt, since the property is relied upon as
security thereof, and in insuring he is not insuring the property but his
interest or lien thereon. His insurable interest is prima facie the value
mortgaged and extends only to the amount of the debt, not exceeding the
value of the mortgaged property. 20 Thus, separate insurances covering
different insurable interests may be obtained by the mortgagor and the
mortgagee.
A mortgagor may, however, take out insurance for the benefit of the
mortgagee, which is the usual practice. The mortgagee may be made the
beneficial payee in several ways. He may become the assignee of the policy
with the consent of the insurer; or the mere pledgee without such consent;
or the original policy may contain a mortgage clause; or a rider making the
policy payable to the mortgagee "as his interest may appear" may be
attached; or a "standard mortgage clause," containing a collateral
independent contract between the mortgagee and insurer, may be attached;
or the policy, though by its terms payable absolutely to the mortgagor, may
have been procured by a mortgagor under a contract duty to insure for the
mortgagee's benefit, in which case the mortgagee acquires an equitable lien
upon the proceeds. 21
In the policy obtained by the mortgagor with loss payable clause in favor of
the mortgagee as his interest may appear, the mortgagee is only a
beneficiary under the contract, and recognized as such by the insurer but not
made a party to the contract himself. Hence, any act of the mortgagor which
defeats his right will also defeat the right of the mortgagee. 22 This kind of
policy covers only such interest as the mortgagee has at the issuing of the
policy.23
On the other hand, a mortgagee may also procure a policy as a contracting
party in accordance with the terms of an agreement by which the mortgagor
is to pay the premiums upon such insurance. 24 It has been noted, however,
that although the mortgagee is himself the insured, as where he applies for a
policy, fully informs the authorized agent of his interest, pays the
premiums, and obtains on the assurance that it insures him, the policy is in
fact in the form used to insure a mortgagor with loss payable clause. 25
The fire insurance policies issued by the PFIC name the petitioner as the
assured and contain a mortgage clause which reads:
Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City
as their interest may appear subject to the terms of this policy.
This is clearly a simple loss payable clause, not a standard mortgage clause.
It must, however, be underscored that unlike the "other insurance" clauses
involved in General Insurance and Surety Corp. vs. Ng Hua 26 or in
Pioneer Insurance & Surety Corp. vs. Yap, 27 which read:
The insured shall give notice to the company of any insurance or insurances
already effected, or which may subsequently be effected covering any of the
property hereby insured, and unless such notice be given and the particulars
of such insurance or insurances be stated in or endorsed on this Policy by or
on behalf of the Company before the occurrence of any loss or damage, all
benefits under this Policy shall be forfeited.
or in the 1930 case of Santa Ana vs. Commercial Union Assurance 
 interest. As earlier stated, the insurable interests of a mortgagor and a
Co. 28 which provided "that any outstanding insurance upon the whole or a
portion of the objects thereby assured must be declared by the insured in
writing and he must cause the company to add or insert it in the policy,
without which such policy shall be null and void, and the insured will not
be entitled to indemnity in case of loss," Condition 3 in the private
respondent's policy No. F-14622 does not absolutely declare void any
violation thereof. It expressly provides that the condition "shall not apply
when the total insurance or insurances in force at the time of the loss or
damage is not more than P200,000.00."
It is a cardinal rule on insurance that a policy or insurance contract is to be
interpreted liberally in favor of the insured and strictly against the company,
the reason being, undoubtedly, to afford the greatest protection which the
insured was endeavoring to secure when he applied for insurance. It is also
a cardinal principle of law that forfeitures are not favored and that any
construction which would result in the forfeiture of the policy benefits for
the person claiming thereunder, will be avoided, if it is possible to construe
the policy in a manner which would permit recovery, as, for example, by
finding a waiver for such forfeiture. 29 Stated differently, provisions,
conditions or exceptions in policies which tend to work a forfeiture of
insurance policies should be construed most strictly against those for whose
benefits they are inserted, and most favorably toward those against whom
they are intended to operate. 30 The reason for this is that, except for riders
which may later be inserted, the insured sees the contract already in its final
form and has had no voice in the selection or arrangement of the words
employed therein. On the other hand, the language of the contract was
carefully chosen and deliberated upon by experts and legal advisers who
had acted exclusively in the interest of the insurers and the technical
language employed therein is rarely understood by ordinary laymen. 31
With these principles in mind, we are of the opinion that Condition 3 of the
subject policy is not totally free from ambiguity and must, perforce, be
meticulously analyzed. Such analysis leads us to conclude that (a) the
prohibition applies only to double insurance, and (b) the nullity of the
policy shall only be to the extent exceeding P200,000.00 of the total
policies obtained.
The first conclusion is supported by the portion of the condition referring to
other insurance "covering any of the property or properties consisting of
stocks in trade, goods in process and/or inventories only hereby insured,"
and the portion regarding the insured's declaration on the subheading CO-
INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the
sum of P50,000.00. A double insurance exists where the same person is
insured by several insurers separately in respect of the same subject and
mortgagee on the mortgaged property are distinct and separate. Since the
two policies of the PFIC do not cover the same interest as that covered by
the policy of the private respondent, no double insurance exists. The non-
disclosure then of the former policies was not fatal to the petitioner's right
to recover on the private respondent's policy.
Furthermore, by stating within Condition 3 itself that such condition shall
not apply if the total insurance in force at the time of loss does not exceed
P200,000.00, the private respondent was amenable to assume a co-insurer's
liability up to a loss not exceeding P200,000.00. What it had in mind was to
discourage over-insurance. Indeed, the rationale behind the incorporation of
"other insurance" clause in fire policies is to prevent over-insurance and
thus avert the perpetration of fraud. When a property owner obtains
insurance policies from two or more insurers in a total amount that exceeds
the property's value, the insured may have an inducement to destroy the
property for the purpose of collecting the insurance. The public as well as
the insurer is interested in preventing a situation in which a fire would be
profitable to the insured.32
WHEREFORE, the instant petition is hereby GRANTED. The decision of
the Court of Appeals in CA-G.R. SP No. 31916 is SET ASIDE and the
decision of the Insurance Commission in Case No. 3340 is REINSTATED.
Costs against private respondent Country Bankers Insurance Corporation.
SO ORDERED.