Cases in Insurance 1.

Sotero did not personally apply for insurance coverage, as she was illiterate;

SECOND MEETING
2. Sotero was sickly since 1990;

3. Sotero did not have the financial capability to pay the insurance premiums on Insurance
I. Rules on construing Insurance Code Policy No. 747411;

G.R. No. 175666 July 29, 2013 4. Sotero did not sign the July 3, 1993 application for insurance;9 and

MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner. 5. Respondent was the one who filed the insurance application, and x x x designated herself
vs. as the beneficiary.10
CRESENCIA P. ABAN, Respondent.
For the above reasons, petitioner denied respondent’s claim on April 16, 1997 and refunded the
DECISION premiums paid on the policy.11

DEL CASTILLO, J.:
The ultimate aim of Section 48 of the Insurance Code is to compel insurers to solicit business from or
provide insurance coverage only to legitimate and bona fide clients, by requiring them to thoroughly
investigate those they insure within two years from effectivity of the policy and while the insured is still
alive. If they do not, they will be obligated to honor claims on the policies they issue, regardless of
fraud, concealment or misrepresentation. The law assumes that they will do just that and not sit on
their laurels, indiscriminately soliciting and accepting insurance business from any Tom, Dick and Harry.
On April 24, 1997, petitioner filed a civil case for rescission and/or annulment of the policy, which was
docketed as Civil Case No. 97-867 and assigned to Branch 134 of the Makati Regional Trial Court. The
main thesis of the Complaint was that the policy was obtained by fraud, concealment and/or
misrepresentation under the Insurance Code,12 which thus renders it voidable under Article 139013 of
the Civil Code.
Respondent filed a Motion to Dismiss14 claiming that petitioner’s cause of action was barred by
prescription pursuant to Section 48 of the Insurance Code, which provides as follows:

Assailed in this Petition for Review on Certiorari1 are the September 28, 2005 Decision2 of the Court of
Appeals' (CA) in CA-G.R. CV No. 62286 and its November 9, 2006 Resolution3 denying the petitioner’s
Motion for Reconsideration.4
Factual Antecedents
On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Manila Bankers Life
Insurance Corporation (Bankers Life), designating respondent Cresencia P. Aban (Aban), her niece,5 as
her beneficiary.
Petitioner issued Insurance Policy No. 747411 (the policy), with a face value of ₱100,000.00, in Sotero’s
favor on August 30, 1993, after the requisite medical examination and payment of the insurance
premium.6
Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this
chapter, such right must be exercised previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been in force during
the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement,
the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.
During the proceedings on the Motion to Dismiss, petitioner’s investigator testified in court, stating
among others that the insurance underwriter who solicited the insurance is a cousin of respondent’s
husband, Dindo Aban,15 and that it was the respondent who paid the annual premiums on the policy.16
Ruling of the Regional Trial Court

On April 10, 1996,7 when the insurance policy had been in force for more than two years and seven
months, Sotero died. Respondent filed a claim for the insurance proceeds on July 9, 1996. Petitioner
conducted an investigation into the claim,8 and came out with the following findings:
On December 9, 1997, the trial court issued an Order17 granting respondent’s Motion to Dismiss, thus:
WHEREFORE, defendant CRESENCIA P. ABAN’s Motion to Dismiss is hereby granted. Civil Case No. 97-
867 is hereby dismissed.
SO ORDERED.18
In dismissing the case, the trial court found that Sotero, and not respondent, was the one who procured
the insurance; thus, Sotero could legally take out insurance on her own life and validly designate – as
she did – respondent as the beneficiary. It held further that under Section 48, petitioner had only two
years from the effectivity of the policy to question the same; since the policy had been in force for more
than two years, petitioner is now barred from contesting the same or seeking a rescission or annulment
thereof.
Petitioner moved for reconsideration, but in another Order19 dated October 20, 1998, the trial court
stood its ground.
Petitioner interposed an appeal with the CA, docketed as CA-G.R. CV No. 62286. Petitioner questioned
the dismissal of Civil Case No. 97-867, arguing that the trial court erred in applying Section 48 and
declaring that prescription has set in. It contended that since it was respondent – and not Sotero – who
obtained the insurance, the policy issued was rendered void ab initio for want of insurable interest.
Ruling of the Court of Appeals
On September 28, 2005, the CA issued the assailed Decision, which contained the following decretal
portion:
WHEREFORE, in the light of all the foregoing, the instant appeal is DISMISSED for lack of merit.
SO ORDERED.20
The CA thus sustained the trial court. Applying Section 48 to petitioner’s case, the CA held that petitioner
may no longer prove that the subject policy was void ab initio or rescindible by reason of fraudulent
concealment or misrepresentation after the lapse of more than two years from its issuance. It
ratiocinated that petitioner was equipped with ample means to determine, within the first two years of
the policy, whether fraud, concealment or misrepresentation was present when the insurance coverage
was obtained. If it failed to do so within the statutory two-year period, then the insured must be
protected and allowed to claim upon the policy.
Petitioner moved for reconsideration,21 but the CA denied the same in its November 9, 2006
Resolution.22 Hence, the present Petition.
Issues
Petitioner raises the following issues for resolution:
I
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE ORDER OF THE TRIAL COURT
DISMISSING THE COMPLAINT ON THE GROUND OF PRESCRIPTION IN CONTRAVENTION (OF)
PERTINENT LAWS AND APPLICABLE JURISPRUDENCE.
II
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE APPLICATION OF THE
INCONTESTABILITY PROVISION IN THE INSURANCE CODE BY THE TRIAL COURT.
III
WHETHER THE COURT OF APPEALS ERRED IN DENYING PETITIONER’S MOTION FOR
RECONSIDERATION.23
Petitioner’s Arguments
In praying that the CA Decision be reversed and that the case be remanded to the trial court for the
conduct of further proceedings, petitioner argues in its Petition and Reply24 that Section 48 cannot apply
to a case where the beneficiary under the insurance contract posed as the insured and obtained the
policy under fraudulent circumstances. It adds that respondent, who was merely Sotero’s niece, had no
insurable interest in the life of her aunt.
Relying on the results of the investigation that it conducted after the claim for the insurance proceeds
was filed, petitioner insists that respondent’s claim was spurious, as it appeared that Sotero did not
actually apply for insurance coverage, was unlettered, sickly, and had no visible source of income to
pay for the insurance premiums; and that respondent was an impostor, posing as Sotero and
fraudulently obtaining insurance in the latter’s name without her knowledge and consent.
Petitioner adds that Insurance Policy No. 747411 was void ab initio and could not have given rise to
rights and obligations; as such, the action for the declaration of its nullity or inexistence does not
prescribe.25
Respondent’s Arguments
Respondent, on the other hand, essentially argues in her Comment26 that the CA is correct in applying
Section 48. She adds that petitioner’s new allegation in its Petition that the policy is void ab initio merits
no attention, having failed to raise the same below, as it had claimed originally that the policy was
merely voidable.
On the issue of insurable interest, respondent echoes the CA’s pronouncement that since it was Sotero
who obtained the insurance, insurable interest was present. Under Section 10 of the Insurance Code,
Sotero had insurable interest in her own life, and could validly designate anyone as her beneficiary.
Respondent submits that the CA’s findings of fact leading to such conclusion should be respected.
Our Ruling at unduly denying a claim would be struck down. Life insurance policies that pass the statutory two-
year period are essentially treated as legitimate and beyond question, and the individuals who wield
them are made secure by the thought that they will be paid promptly upon claim. In this manner,
The Court denies the Petition.
Section 48 contributes to the stability of the insurance industry.

The Court will not depart from the trial and appellate courts’ finding that it was Sotero who obtained
Section 48 prevents a situation where the insurer knowingly continues to accept annual premium
the insurance for herself, designating respondent as her beneficiary. Both courts are in accord in this
payments on life insurance, only to later on deny a claim on the policy on specious claims of fraudulent
respect, and the Court is loath to disturb this. While petitioner insists that its independent investigation
concealment and misrepresentation, such as what obtains in the instant case. Thus, instead of
on the claim reveals that it was respondent, posing as Sotero, who obtained the insurance, this claim
conducting at the first instance an investigation into the circumstances surrounding the issuance of
is no longer feasible in the wake of the courts’ finding that it was Sotero who obtained the insurance
Insurance Policy No. 747411 which would have timely exposed the supposed flaws and irregularities
for herself. This finding of fact binds the Court.
attending it as it now professes, petitioner appears to have turned a blind eye and opted instead to
continue collecting the premiums on the policy. For nearly three years, petitioner collected the
With the above crucial finding of fact – that it was Sotero who obtained the insurance for herself – premiums and devoted the same to its own profit. It cannot now deny the claim when it is called to
petitioner’s case is severely weakened, if not totally disproved. Allegations of fraud, which are account. Section 48 must be applied to it with full force and effect.
predicated on respondent’s alleged posing as Sotero and forgery of her signature in the insurance
application, are at once belied by the trial and appellate courts’ finding that Sotero herself took out the
The Court therefore agrees fully with the appellate court’s pronouncement that –
insurance for herself. "Fraudulent intent on the part of the insured must be established to entitle the
insurer to rescind the contract."27 In the absence of proof of such fraudulent intent, no right to rescind
arises. the "incontestability clause" is a provision in law that after a policy of life insurance made payable on
the death of the insured shall have been in force during the lifetime of the insured for a period of two
(2) years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy
Moreover, the results and conclusions arrived at during the investigation conducted unilaterally by
is void ab initio or is rescindible by reason of fraudulent concealment or misrepresentation of the insured
petitioner after the claim was filed may simply be dismissed as self-serving and may not form the basis
or his agent.
of a cause of action given the existence and application of Section 48, as will be discussed at length
below.
The purpose of the law is to give protection to the insured or his beneficiary by limiting the rescinding
of the contract of insurance on the ground of fraudulent concealment or misrepresentation to a period
Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under
of only two (2) years from the issuance of the policy or its last reinstatement.
the provision, an insurer is given two years – from the effectivity of a life insurance contract and while
the insured is alive – to discover or prove that the policy is void ab initio or is rescindible by reason of
the fraudulent concealment or misrepresentation of the insured or his agent. After the two-year period The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
lapses, or when the insured dies within the period, the insurer must make good on the policy, even misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the premiums
though the policy was obtained by fraud, concealment, or misrepresentation. This is not to say that as long as the insured is still alive, only to raise the issue of fraudulent concealment or misrepresentation
insurance fraud must be rewarded, but that insurers who recklessly and indiscriminately solicit and when the insured dies in order to defeat the right of the beneficiary to recover under the policy.
obtain business must be penalized, for such recklessness and lack of discrimination ultimately work to
the detriment of bona fide takers of insurance and the public in general.
At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given
the stability to recover under the policy when the insured dies. The provision also makes clear when
Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives the two-year period should commence in case the policy should lapse and is reinstated, that is, from
insurers enough time to inquire whether the policy was obtained by fraud, concealment, or the date of the last reinstatement.
misrepresentation; on the other hand, it forewarns scheming individuals that their attempts at insurance
fraud would be timely uncovered – thus deterring them from venturing into such nefarious enterprise.
After two years, the defenses of concealment or misrepresentation, no matter how patent or well-
At the same time, legitimate policy holders are absolutely protected from unwarranted denial of their
founded, will no longer lie.
claims or delay in the collection of insurance proceeds occasioned by allegations of fraud, concealment,
or misrepresentation by insurers, claims which may no longer be set up after the two-year period
expires as ordained under the law. Congress felt this was a sufficient answer to the various tactics employed by insurance companies to
avoid liability.
Thus, the self-regulating feature of Section 48 lies in the fact that both the insurer and the insured are
given the assurance that any dishonest scheme to obtain life insurance would be exposed, and attempts
The so-called "incontestability clause" precludes the insurer from raising the defenses of false WHEREFORE, the Petition is DENIED. The assailed September 28, 2005 Decision and the November 9,
representations or concealment of material facts insofar as health and previous diseases are concerned 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 62286 are AFFIRMED.
if the insurance has been in force for at least two years during the insured’s lifetime. The phrase "during
the lifetime" found in Section 48 simply means that the policy is no longer considered in force after the
SO ORDERED.
insured has died. The key phrase in the second paragraph of Section 48 is "for a period of two years."

As borne by the records, the policy was issued on August 30, 1993, the insured died on April 10, 1996, G.R. No. 211212, June 08, 2016
and the claim was denied on April 16, 1997. The insurance policy was thus in force for a period of 3
years, 7 months, and 24 days. Considering that the insured died after the two-year period, the plaintiff- SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. MA. DAISY'S. SIBYA, JESUS MANUEL
appellant is, therefore, barred from proving that the policy is void ab initio by reason of the insured’s S. SIBYA III, JAIME LUIS S. SIBYA, AND THE ESTATE OF THE DECEASED ATTY. JESUS SIBYA,
fraudulent concealment or misrepresentation or want of insurable interest on the part of the beneficiary, JR., Respondents.
herein defendant-appellee.
DECISION
Well-settled is the rule that it is the plaintiff-appellant’s burden to show that the factual findings of the
trial court are not based on substantial evidence or that its conclusions are contrary to applicable law
REYES, J.:
and jurisprudence. The plaintiff-appellant failed to discharge that burden.28

Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court seeking to
Petitioner claims that its insurance agent, who solicited the Sotero account, happens to be the cousin
annul and set aside the Decision2 dated November 18, 2013 and Resolution3 dated February 13, 2014
of respondent’s husband, and thus insinuates that both connived to commit insurance fraud. If this
of the Court of Appeals (CA) in CA-G.R. CV. No. 93269. In both instances, the CA affirmed the
were truly the case, then petitioner would have discovered the scheme earlier if it had in earnest
Decision4 dated March 16, 2009 of the Regional Trial Court (RTC) of Makati City, Branch 136, in Civil
conducted an investigation into the circumstances surrounding the Sotero policy. But because it did not
Case No. 01-1506, ordering petitioner Sun Life of Canada (Philippines), Inc. (Sun Life) to pay Ma. Daisy
and it investigated the Sotero account only after a claim was filed thereon more than two years later,
S. Sibya (Ma. Daisy), Jesus Manuel S. Sibya III, and Jaime Luis S. Sibya (respondents) the amounts of
naturally it was unable to detect the scheme. For its negligence and inaction, the Court cannot
P1,000,000.00 as death benefits, P100,000.00 as moral damages, P100,000.00 as exemplary damages,
sympathize with its plight. Instead, its case precisely provides the strong argument for requiring
and P100,000.00 as attorney's fees and costs of suit. Insofar as the charges for violation of Sections
insurers to diligently conduct investigations on each policy they issue within the two-year period
241 and 242 of Presidential Decree No. 612, or the Insurance Code of the Philippines, however, the CA
mandated under Section 48, and not after claims for insurance proceeds are filed with them.
modified the decision of the RTC and absolved Sun Life therein.

Besides, if insurers cannot vouch for the integrity and honesty of their insurance agents/salesmen and Statement of Facts of the Case
the insurance policies they issue, then they should cease doing business. If they could not properly
screen their agents or salesmen before taking them in to market their products, or if they do not On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun Life. In
thoroughly investigate the insurance contracts they enter into with their clients, then they have only his Application for Insurance, he indicated that he had sought advice for kidney problems.5 Atty. Jesus
themselves to blame. Otherwise said, insurers cannot be allowed to collect premiums on insurance Jr. indicated the following in his application:
policies, use these amounts collected and invest the same through the years, generating profits and chanRoblesvirtualLawlibrary
returns therefrom for their own benefit, and thereafter conveniently deny insurance claims by "Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus Benjamin Mendoza at
questioning the authority or integrity of their own agents or the insurance policies they issued to their National Kidney Institute, discharged after 3 days, no recurrence as
premium-paying clients. This is exactly one of the schemes which Section 48 aims to prevent. claimed."6ChanRoblesVirtualawlibrary
On February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued Insurance Policy No.
Insurers may not be allowed to delay the payment of claims by filing frivolous cases in court, hoping 031097335. The policy indicated the respondents as beneficiaries and entitles them to a death benefit
that the inevitable may be put off for years – or even decades – by the pendency of these unnecessary of P1,000,000.00 should Atty. Jesus Jr. dies on or before February 5, 2021, or a sum of money if Atty.
court cases. In the meantime, they benefit from collecting the interest and/or returns on both the Jesus Jr. is still living on the endowment date.7
premiums previously paid by the insured and the insurance proceeds which should otherwise go to their
beneficiaries. The business of insurance is a highly regulated commercial activity in the country,29 and On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin, Iloilo. As such,
is imbued with public interest.30 "An insurance contract is a contract of adhesion which must be Ma. Daisy filed a Claimant's Statement with Sun Life to seek the death benefits indicated in his insurance
construed liberally in favor of the insured and strictly against the insurer in order to safeguard the policy.8
former’s interest."31
In a letter dated August 27, 2001, however, Sun Life denied the claim on the ground that the details in a Resolution21 dated February 13, 2014.
on Atty. Jesus Jr.'s medical history were not disclosed in his application. Simultaneously, Sun Life
tendered a check representing the refund of the premiums paid by Atty. Jesus Jr.9 Undaunted, Sun Life filed an appeal by way of petition for review on certiorari under Rule 45 of the
Rules of Court before this Court.
The respondents reiterated their claim against Sun Life thru a letter dated September 17, 2001. Sun
Life, however, refused to heed the respondents' requests and instead filed a Complaint for Rescission The Issue
before the RTC and prayed for judicial confirmation of Atty. Jesus Jr.'s rescission of insurance policy. 10
Essentially, the main issue of the instant case is whether or not the CA erred when it affirmed the RTC
In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his insurance application his decision finding that there was no concealment or misrepresentation when Atty. Jesus Jr. submitted his
previous medical treatment at the National Kidney Transplant Institute in May and August of 1994. insurance application with Sun Life.
According to Sun Life, the undisclosed fact suggested that the insured was in "renal failure" and at a
high risk medical condition. Consequently, had it known such fact, it would not have issued the
Ruling of the Court
insurance policy in favor of Atty. Jesus Jr.11
The petition has no merit.
For their defense, the respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in his
application for insurance. They averred that Atty. Jesus Jr. was in good faith when he signed the
In Manila Bankers Life Insurance Corporation v. Aban,22 the Court held that if the insured dies within
insurance application and even authorized Sun Life to inquire further into his medical history for
the two-year contestability period, the insurer is bound to make good its obligation under the policy,
verification purposes. According to them, the complaint is just a ploy to avoid the payment of insurance
regardless of the presence or lack of concealment or misrepresentation. The Court held:
claims.12
chanRoblesvirtualLawlibrary
Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under
Ruling of the RTC the provision, an insurer is given two years - from the effectivity of a life insurance contract and while
the insured is alive - to discover or prove that the policy is void ab initio or is rescindible by reason of
On March 16, 2009, the RTC issued its Decision13 dismissing the complaint for lack of merit. The RTC the fraudulent concealment or misrepresentation of the insured or his agent. After the two-year
held that Sun Life violated Sections 241, paragraph 1(b), (d), and (e)14 and 24215 of the Insurance Code period lapses, or when the insured dies within the period, the insurer must make good on
when it refused to pay the rightful claim of the respondents. Moreover, the RTC ordered Sun Life to pay the policy, even though the policy was obtained by fraud, concealment, or
the amounts of P1,000,000.00 as death benefits, P100,000.00 as moral damages, P100,000.00 as misrepresentation. This is not to say that insurance fraud must be rewarded, but that insurers who
exemplary damages, and P100,000.00 as attorney's fees and costs of suit. recklessly and indiscriminately solicit and obtain business must be penalized, for such recklessness and
lack of discrimination ultimately work to the detriment of bona fide takers of insurance and the public
The RTC held that Atty. Jesus Jr. did not commit material concealment and misrepresentation when he in general.23 (Emphasis ours)
applied for life insurance with Sun Life. It observed that given the disclosures and the waiver and
authorization to investigate executed by Atty. Jesus Jr. to Sun Life, the latter had all the means of In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has two years
ascertaining the facts allegedly concealed by the applicant.16 from its issuance, to investigate and verify whether the policy was obtained by fraud, concealment, or
misrepresentation. Upon the death of Atty. Jesus Jr., however, on May 11, 2001, or a mere three
Aggrieved, Sun Life elevated the case to the CA. months from the issuance of the policy, Sun Life loses its right to rescind the policy. As discussed
in Manila Bankers, the death of the insured within the two-year period will render the right of the insurer
to rescind the policy nugatory. As such, the incontestability period will now set in.
Ruling of the CA
Assuming, however, for the sake of argument, that the incontestability period has not yet set in, the
On appeal, the CA issued its Decision17 dated November 18, 2013 affirming the RTC decision in ordering
Court agrees, nonetheless, with the CA when it held that Sun Life failed to show that Atty. Jesus Jr.
Sun Life to pay death benefits and damages in favor of the respondents. The CA, however, modified
committed concealment and misrepresentation.
the RTC decision by absolving Sun Life from the charges of violation of Sections 241 and 242 of the
Insurance Code.18
As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical treatment for
kidney ailment. Moreover, he executed an authorization in favor of Sun Life to conduct investigation in
The CA ruled that the evidence on records show that there was no fraudulent intent on the part of Atty.
reference with his medical history. The decision in part states:
Jesus Jr. in submitting his insurance application. Instead, it found that Atty. Jesus Jr. admitted in his
application that he had sought medical treatment for kidney ailment.19
Records show that in the Application for Insurance, [Atty. Jesus Jr.] admitted that he had sought medical
treatment for kidney ailment. When asked to provide details on the said medication, [Atty. Jesus Jr.]
Sun Life filed a Motion for Partial Reconsideration20 dated December 11, 2013 but the same was denied
indicated the following information: year ("1987"), medical procedure ("undergone lithotripsy due to
kidney stone"), length of confinement ("3 days"), attending physician ("Dr. Jesus Benjamin Mendoza") G.R. No. 198174 September 2, 2013
and the hospital ("National Kidney Institute").
ALPHA INSURANCE AND SURETY CO., PETITIONER,
It appears that [Atty. Jesus Jr.] also signed the Authorization which gave [Sun Life] the opportunity to
vs.
obtain information on the facts disclosed by [Atty. Jesus Jr.] in his insurance application. x x x
ARSENIA SONIA CASTOR, RESPONDENT.
x x x x
DECISION
Given the express language of the Authorization, it cannot be said that [Atty. Jesus Jr.] concealed his
medical history since [Sun Life] had the means of ascertaining [Atty. Jesus Jr.'s] medical record. PERALTA, J.:

With regard to allegations of misrepresentation, we note that [Atty. Jesus Jr.] was not a medical doctor,
and his answer "no recurrence" may be construed as an honest opinion. Where matters of opinion or Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the
judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy Decision1 dated May 31, 2011 and Resolution2 dated August 10, 2011 of the Court of Appeals (CA) in
even though they are untrue.24 (Citations omitted and italics in the original) CA-G.R. CV No. 93027.

Indeed, the intent to defraud on the part of the insured must be ascertained to merit rescission of the
insurance contract. Concealment as a defense for the insurer to avoid liability is an affirmative defense The facts follow.
and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider
or insurer.25 In the present case, Sun Life failed to clearly and satisfactorily establish its allegations, On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No. MAND/CV-
and is therefore liable to pay the proceeds of the insurance. 00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The contract of insurance
obligates the petitioner to pay the respondent the amount of Six Hundred Thirty Thousand Pesos
Moreover, well-settled is the rule that this Court is not a trier of facts. Factual findings of the lower (₱630,000.00) in case of loss or damage to said vehicle during the period covered, which is from
courts are entitled to great weight and respect on appeal, and in fact accorded finality when supported February 26, 2007 to February 26, 2008.
by substantial evidence on the record.26
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza
WHEREFORE, the petition for review is DENIED. The Decision dated November 18, 2013 and
(Lanuza), to bring the above-described vehicle to a nearby auto-shop for a tune-up. However, Lanuza
Resolution dated February 13, 2014 of the Court of Appeals in CA-G.R. CV. No. 93269 are
no longer returned the motor vehicle to respondent and despite diligent efforts to locate the same, said
hereby AFFIRMED.
efforts proved futile. Resultantly, respondent promptly reported the incident to the police and
concomitantly notified petitioner of the said loss and demanded payment of the insurance proceeds in
SO ORDERED.cralawlawlibrary
the total sum of ₱630,000.00.

In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating among
others, thus:
II. Rules on construing Insurance Policy
a. Intention of the Parties Upon verification of the documents submitted, particularly the Police Report and your Affidavit, which
b. Written Words vs. Printed Words states that the culprit, who stole the Insure[d] unit, is employed with you. We would like to invite you
c. Going out of the Written Instrument on the provision of the Policy under Exceptions to Section-III, which we quote:
d. Contra Proferentem
1.) The Company shall not be liable for:

xxxx

(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN THE
INSURED’S SERVICE."
In view [of] the foregoing, we regret that we cannot act favorably on your claim. WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND GROSSLY OR GRAVELY
ABUSED ITS DISCRETION WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST
THE PETITIONER AND RULED THAT EXCEPTION DOES NOT COVER LOSS BUT ONLY DAMAGE BECAUSE
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that the
THE TERMS OF THE INSURANCE POLICY ARE [AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH THAT
exception refers to damage of the motor vehicle and not to its loss. However, petitioner’s denial of
THE PARTIES THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR PROVISIONS, THE
respondent’s insured claim remains firm.
POLICY WILL BE CONSTRUED BY THE COURTS LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY
AGAINST THE INSURER.
Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before
the Regional Trial Court (RTC) of Quezon City on September 10, 2007.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND COMMITTED GRAVE
ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT.5
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in this
wise:
Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is excluded under
the insurance policy.
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against
the defendant ordering the latter as follows:
We rule in the negative.

To pay plaintiff the amount of ₱466,000.00 plus legal interest of 6% per annum from the time of demand
Significant portions of Section III of the Insurance Policy states:
up to the time the amount is fully settled;

SECTION III – LOSS OR DAMAGE

To pay attorney’s fees in the sum of ₱65,000.00; and

The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to
To pay the costs of suit.
the Schedule Vehicle and its accessories and spare parts whilst thereon:

All other claims not granted are hereby denied for lack of legal and factual basis.3
(a)

Aggrieved, petitioner filed an appeal with the CA.

by accidental collision or overturning, or collision or overturning consequent upon mechanical
breakdown or consequent upon wear and tear;
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon City’s decision. The
fallo reads:
(b)

WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision, dated
by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;
December 19, 2008, of Branch 215 of the Regional Trial Court of Quezon City, in Civil Case No. Q-07-
61099, is hereby AFFIRMED in toto.
(c)
SO ORDERED. 4

by malicious act;
Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in a
Resolution dated August 10, 2011. (d)

Hence, the present petition wherein petitioner raises the following grounds for the allowance of its whilst in transit (including the processes of loading and unloading) incidental to such transit by road,
petition: rail, inland waterway, lift or elevator.
xxxx
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for:
Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of
each and every loss for each and every vehicle insured by this Policy, such amount being equal to one
percent (1.00%) of the Insured’s estimate of Fair Market Value as shown in the Policy Schedule with a
minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or
breakages;
Damage to tires, unless the Schedule Vehicle is damaged at the same time;
Any malicious damage caused by the Insured, any member of his family or by a person in the Insured’s
service.6
In denying respondent’s claim, petitioner takes exception by arguing that the word "damage," under
paragraph 4 of "Exceptions to Section III," means loss due to injury or harm to person, property or
reputation, and should be construed to cover malicious "loss" as in "theft." Thus, it asserts that the loss
of respondent’s vehicle as a result of it being stolen by the latter’s driver is excluded from the policy.
We do not agree.
Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft perpetrated by
the driver of the insured is not an exception to the coverage from the insurance policy, since Section
III thereof did not qualify as to who would commit the theft. Thus:
Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance
policy subject of this case. This is evident from the very provision of Section III – "Loss or Damage."
The insurance company, subject to the limits of liability, is obligated to indemnify the insured against
theft. Said provision does not qualify as to who would commit the theft. Thus, even if the same is
committed by the driver of the insured, there being no categorical declaration of exception, the same
must be covered. As correctly pointed out by the plaintiff, "(A)n insurance contract should be interpreted
as to carry out the purpose for which the parties entered into the contract which is to insure against
risks of loss or damage to the goods. Such interpretation should result from the natural and reasonable
meaning of language in the policy. Where restrictive provisions are open to two interpretations, that
which is most favorable to the insured is adopted." The defendant would argue that if the person
employed by the insured would commit the theft and the insurer would be held liable, then this would
result to an absurd situation where the insurer would also be held liable if the insured would commit
the theft. This argument is certainly flawed. Of course, if the theft would be committed by the insured
himself, the same would be an exception to the coverage since in that case there would be fraud on the
part of the insured or breach of material warranty under Section 69 of the Insurance Code.7
Moreover, 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.8 Accordingly, in interpreting the exclusions in an insurance contract, the terms used specifying
the excluded classes therein are to be given their meaning as understood in common speech.9
Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common ordinary
usage. The word "loss" refers to the act or fact of losing, or failure to keep possession, while the word
"damage" means deterioration or injury to property.1âwphi1
Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy under
paragraph 4 of "Exceptions to Section III," since the same refers only to "malicious damage," or more
specifically, "injury" to the motor vehicle caused by a person under the insured’s service. Paragraph 4
clearly does not contemplate "loss of property," as what happened in the instant case.
Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of the
exceptions from coverage, is the damage that is the direct result from the deliberate or willful act of
the insured, members of his family, and any person in the insured’s service, whose clear plan or purpose
was to cause damage to the insured vehicle for purposes of defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the subject policy appears to clearly
delineate between the terms "loss" and "damage" by using both terms throughout the said policy. x x
x
xxxx
If the intention of the defendant-appellant was to include the term "loss" within the term "damage"
then logic dictates that it should have used the term "damage" alone in the entire policy or otherwise
included a clear definition of the said term as part of the provisions of the said insurance contract. Which
is why the Court finds it puzzling that in the said policy’s provision detailing the exceptions to the policy’s
coverage in Section III thereof, which is one of the crucial parts in the insurance contract, the insurer,
after liberally using the words "loss" and "damage" in the entire policy, suddenly went specific by using
the word "damage" only in the policy’s exception regarding "malicious damage." Now, the defendant-
appellant would like this Court to believe that it really intended the word "damage" in the term
"malicious damage" to include the theft of the insured vehicle.
The Court does not find the particular contention to be well taken.
True, 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. However,
when the terms of the insurance policy are ambiguous, equivocal or uncertain, such that the parties
themselves disagree about the meaning of particular provisions, the policy will be construed by the
courts liberally in favor of the assured and strictly against the insurer.10
Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the 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. Thus, in Eternal Gardens Memorial Park Corporation v.
Philippine American Life Insurance Company,11 this Court ruled –
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 non-compliance with its obligations.
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.12
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. Accordingly,
the Decision dated May 31, 2011 and Resolution dated August 10, 2011 of the Court of Appeals are
hereby AFFIRMED.
SO ORDERED.
G.R. No. L-23491 July 31, 1968
TAURUS TAXI CO., INC., FELICITAS V. MONJE, ET AL., plaintiffs-appellees,
vs.
THE CAPITAL INSURANCE & SURETY CO., INC., defendant-appellant.
Vergara and Dayot for plaintiffs-appellees.
Achacoso, Nera and Ocampo for defendant-appellant.
FERNANDO, J.:
The principal legal question in this appeal from a lower court decision, ordering defendant-appellant
The Capital Insurance & Surety Co., Inc. to pay the plaintiff-appellee Taurus Taxi Co., Inc. as well as
plaintiffs-appellees, widow and children of the deceased Alfredo Monje, who, in his lifetime, was
employed as a taxi driver of such plaintiff-appellee, "the sum of P5,000.00 with interest thereon at the
legal rate from the filing of the complaint until fully paid," with P500.00 as attorney's fees and the costs
of the suit, is whether or not a provision in the insurance contract that defendant-appellant will
indemnify any authorized driver provided that [he] is not entitled to any indemnity under any other
policy, it being shown that the deceased was paid his workman's compensation from another insurance
policy, should defeat such a right to recover under the insurance contract subject of this suit. The lower
court answered in the negative. Its holding cannot be successfully impugned.
The appealed decision stated at the outset that the motion for judgment on the pleadings filed by the
plaintiffs was granted, the defendant having no objection and the issue presented being capable of
resolution without the need of presenting any evidence. Then the decision continues: "Alfredo Monje,
according to the complaint, was employed as taxi driver by the plaintiff Taurus Taxi Co., Inc. On
December 6, 1962, the taxi he was driving collided with a Transport Taxicab at the intersection of Old
Sta. Mesa and V. Mapa Streets, Manila, resulting in his death. At the time of the accident, there was
subsisting and in force Commercial Vehicle Comprehensive Policy No. 101, 737 ... issued by the
defendant to the Taurus Taxi Co., Inc. The amount for which each passenger, including the driver, is
insured is P5,000.00. After the issuance of policy No. 101, 737, the defendant issued the Taurus Taxi
Co., Inc. Indorsement No. 1 which forms part of the policy ... " 1 Reference was then made to plaintiff-
appellee Felicitas Monje being the widow of the taxi driver, the other plaintiffs-appellees with the
exception of the Taurus Taxi Co., Inc., being the children of the couple. After which it was noted that
plaintiff Taurus Taxi Co., Inc. made representations "for the payment of the insurance benefit
corresponding to her and her children since it was issued in its name, benefit corresponding to her and
her children, ... but despite demands ... the defendant refused and still refuses to pay them." 2
On the above facts, the liability apparently clear, the defenses interposed by defendant insurance
company being in the opinion of the lower court without merit, the aforesaid judgment was rendered.
This being a direct appeal, to us on questions of law, the facts as found by the lower court cannot be
controverted.
Defendant-appellant Capital Insurance & Surety Co. Inc. alleged as the first error of the lower court its
failure to hold "that in view of the fact that the deceased Alfredo Monje was entitled to indemnity under
another insurance policy issued by Ed. A. Keller Co., Ltd., the heirs of the said deceased are not entitled
to indemnity under the insurance policy issued by appellant for the reason that the latter policy contains
a stipulation that "the company will indemnify any authorized driver provided that such authorized
driver is not entitled to indemnity under any other policy." " 3 In the discussion of the above error,
defendant-appellant stated the following: "The facts show that at the time of his death, the deceased
Alfredo Monje, as authorized driver and employee of plaintiff Taurus Taxi Co., Inc., was entitled to
indemnity under another insurance policy, then subsisting, which was Policy No. 50PH-1605 issued by indemnity or damages or otherwise and shall have full discretion in the conduct of any proceedings and
Ed. A. Keller Co., Ltd. to plaintiff Taurus Taxi Co., Inc. As a matter of fact, the indemnity to which the in the settlement of any claim and the Insured shall give all such information and assistance as the
deceased Alfredo Monje was entitled under the said Policy No. 50PH-1605 was paid by Ed. A. Keller Co., Company may require ... " 9
Ltd. to the heirs of Alfredo Monje on December 28, 1962, as evidenced by the records of W.C.C. Case
No. A88637 entitled "Felicitas V. Monje, et al. vs. Taurus Taxi Co., Inc.", Regional Office No. 4,
Such a plea is even less persuasive. It is understandable then why the lower court refused to be swayed
Department of Labor, Manila ... " 4
by it. The plaintiff Taurus Taxi Co., inc. had to join the suit on behalf of the real beneficiaries, the heirs
of the deceased driver, who are the other plaintiffs as it was a party to the policy.
The above defense, based on a fact which was not disputed, was raised and rightfully rejected by the
lower court. From its own version, defendant-appellant would seek to escape liability on the plea that
Moreover, as noted in the decision appealed from: "The institution of the action cannot possibly be
the workman's compensation to which the deceased driver was rightfully entitled was settled by the
construed as an admission, offer, promise, or payment by the company, for it merely seeks to enforce,
employer through a policy issued by another insurance firm. What was paid therefore was not indemnity
by court action, the only legal remedy available to it, its rights under the contract of insurance to which
but compensation.
it is a party. To consider, furthermore, the commencement of an action by the insured, alone or with
others, as a breach of the policy, resulting in forfeiture of the benefits thereunder, to place in the hands
Since what is prohibited by the insurance policy in question is that any "authorized driver of plaintiff of the insurer the power to nullify at will the whole contract of insurance by the simple expedient of
Taurus Taxi Co., Inc." should not be "entitled to any indemnity under any policy", it would appear refusing to make payment and compelling the insured to bring a suit to enforce the policy." 10
indisputable that the obligation of defendant-appellant under the policy had not in any wise been
extinguished. It is too well-settled to need the citation of authorities that what the law requires enters
To so construe the policy to yield a contrary result is to put a premium on technicality. If such a defense
into and forms part of every contract. The Workmen's Compensation Act, explicitly requires that an
is not frowned upon and rejected, the time will come when the confidence on the part of the public in
employee suffering any injury or death arising out of or in the course of employment be compensated.
the good faith of insurance firms would be minimized, if not altogether lost. Such a deplorable
The fulfillment of such statutory obligation cannot be the basis for evading the clear, explicit and
consequence ought to be avoided and a construction of any stipulation that would be fraught with such
mandatory terms of a policy.
a risk repudiated. What the lower court did then cannot be characterized as error.

In the same way as was held in Benguet Consolidated, Inc. v. Social Security System 5 that sickness
The third error assigned, namely, that the lower court should have considered the filing of the complaint
benefits under the Social Security Act may be recovered simultaneously with disability benefits under
against defendant-appellant as unjust and unwarranted, is, in the light of the above, clearly without
the Workmen's Compensation Act, the previous payment made of the compensation under such
merit.
legislation is no obstacle by virtue of a clause like that invoked by defendant-appellant to the payment
of indemnity under the insurance policy.
WHEREFORE, the appealed decision of the lower court ordering defendant-appellant "to pay the
plaintiffs the sum of P5,000.00 with interest thereon at the legal rate from the filing of the complaint
Assuming however that there is a doubt concerning the liability of defendant-appellant insurance firm,
until fully paid, P500.00 as attorney's fees," 11 with costs is affirmed. Costs against defendant-appellant.
nonetheless, it should be resolved against its pretense and in favor of the insured. It was the holding
in Eagle Star Insurance, Ltd. v. Chia Yu 6 that courts are to regard "with extreme jealousy" limitations
of liability found in insurance policies and to construe them in such a way as to preclude the insurer
from non-compliance with his obligation. In other words, to quote a noted authority on the subject, "a
contract of insurance couched in language chosen by the insurer is, if open to the construction III. Elements of an Insurance Contract
contended for by the insured, to be construed most strongly, or strictly, against the insurer and liberally
in favor of the contention of the insured, which means in accordance with the rule contra
proferentem." 7 Enough has been said therefore to dispose of the first assigned error.
G.R. No. 156167 May 16, 2005

The point is made in the second alleged error that the lower court ought to have held "that by joining
the heirs of Alfredo Monje as a party plaintiff, plaintiff Taurus Taxi Co., Inc. committed a breach of policy GULF RESORTS, INC., petitioner,
condition and thus forfeited whatever benefits, if any, to which it might be entitled under appellant's vs.
policy." 8 The basis for such an allegation is one of the conditions set forth in the policy. Thus: " "5. No PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.
admission, offer, promise or payment shall be made by or on behalf of the insured without the written
consent of the Company which shall be entitled if it so desires to take over and conduct in his name the DECISION
defense or settlement of any claim or to prosecute in his name for its own benefit any claim for
PUNO, J.: c) House Shed - P55,000.00 - 0.540%
P100,000.00 - for furniture, fixtures, lines air-con and operating equipment
Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court by petitioner
GULF RESORTS, INC., against respondent PHILIPPINE CHARTER INSURANCE CORPORATION. Petitioner
assails the appellate court decision1 which dismissed its two appeals and affirmed the judgment of the that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU) Policy No.
trial court. 206-4568061-9 (Exh. "H") provided that the policy wording and rates in said policy be copied
in the policy to be issued by defendant; that defendant issued Policy No. 31944 to plaintiff
covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total
For review are the warring interpretations of petitioner and respondent on the scope of the insurance premium of P45,159.92 (Exh. "I"); that in the computation of the premium, defendant’s Policy
company’s liability for earthquake damage to petitioner’s properties. Petitioner avers that, pursuant to No. 31944 (Exh. "I"), which is the policy in question, contained on the right-hand upper portion
its earthquake shock endorsement rider, Insurance Policy No. 31944 covers all damages to the of page 7 thereof, the following:
properties within its resort caused by earthquake. Respondent contends that the rider limits its liability
for loss to the two swimming pools of petitioner.
Rate-Various
The facts as established by the court a quo, and affirmed by the appellate court are as follows: Premium – P37,420.60 F/L
– 2,061.52 – Typhoon
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in – 1,030.76 – EC
said resort insured originally with the American Home Assurance Company (AHAC-AIU). In the
– 393.00 – ES
first four insurance policies issued by AHAC-AIU from 1984-85; 1985-86; 1986-1987; and
1987-88 (Exhs. "C", "D", "E" and "F"; also Exhs. "1", "2", "3" and "4" respectively), the risk of Doc. Stamps 3,068.10
loss from earthquake shock was extended only to plaintiff’s two swimming pools, thus, F.S.T. 776.89
"earthquake shock endt." (Item 5 only) (Exhs. "C-1"; "D-1," and "E" and two (2) swimming
pools only (Exhs. "C-1"; ‘D-1", "E" and "F-1"). "Item 5" in those policies referred to the two Prem. Tax 409.05
(2) swimming pools only (Exhs. "1-B", "2-B", "3-B" and "F-2"); that subsequently AHAC(AIU) TOTAL 45,159.92;
issued in plaintiff’s favor Policy No. 206-4182383-0 covering the period March 14, 1988 to
March 14, 1989 (Exhs. "G" also "G-1") and in said policy the earthquake endorsement clause
as indicated in Exhibits "C-1", "D-1", Exhibits "E" and "F-1" was deleted and the entry under that the above break-down of premiums shows that plaintiff paid only P393.00 as premium
Endorsements/Warranties at the time of issue read that plaintiff renewed its policy with AHAC against earthquake shock (ES); that in all the six insurance policies (Exhs. "C", "D", "E", "F",
(AIU) for the period of March 14, 1989 to March 14, 1990 under Policy No. 206-4568061-9 "G" and "H"), the premium against the peril of earthquake shock is the same, that is P393.00
(Exh. "H") which carried the entry under "Endorsement/Warranties at Time of Issue", which (Exhs. "C" and "1-B"; "2-B" and "3-B-1" and "3-B-2"; "F-02" and "4-A-1"; "G-2" and "5-C-1";
read "Endorsement to Include Earthquake Shock (Exh. "6-B-1") in the amount of P10,700.00 "6-C-1"; issued by AHAC (Exhs. "C", "D", "E", "F", "G" and "H") and in Policy No. 31944 issued
and paid P42,658.14 (Exhs. "6-A" and "6-B") as premium thereof, computed as follows: by defendant, the shock endorsement provide(sic):

In consideration of the payment by the insured to the company of the

Item - P7,691,000.00 - on the Clubhouse only
sum included additional premium the Company agrees, notwithstanding what is
stated in the printed conditions of this policy due to the contrary, that this insurance
@ .392%; covers loss or damage to shock to any of the property insured by this Policy
- 1,500,000.00 - on the furniture, etc. contained in the building above- occasioned by or through or in consequence of earthquake (Exhs. "1-D", "2-D", "3-
mentioned@ .490%; A", "4-B", "5-A", "6-D" and "7-C");

- 393,000.00 - on the two swimming pools, only (against the peril of

earthquake shock only) @ 0.100% that in Exhibit "7-C" the word "included" above the underlined portion was deleted; that on
July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiff’s properties
- 116,600.00 other buildings include as follows: covered by Policy No. 31944 issued by defendant, including the two swimming pools in its Agoo
a) Tilter House - P19,800.00 - 0.551% Playa Resort were damaged.2
b) Power House - P41,000.00 - 0.551%
After the earthquake, petitioner advised respondent that it would be making a claim under its Insurance
Policy No. 31944 for damages on its properties. Respondent instructed petitioner to file a formal claim,
then assigned the investigation of the claim to an independent claims adjuster, Bayne Adjusters and
Surveyors, Inc.3 On July 30, 1990, respondent, through its adjuster, requested petitioner to submit
various documents in support of its claim. On August 7, 1990, Bayne Adjusters and Surveyors, Inc.,
through its Vice-President A.R. de Leon,4 rendered a preliminary report5 finding extensive damage
caused by the earthquake to the clubhouse and to the two swimming pools. Mr. de Leon stated that
"except for the swimming pools, all affected items have no coverage for earthquake shocks."6 On August
11, 1990, petitioner filed its formal demand7 for settlement of the damage to all its properties in the
Agoo Playa Resort. On August 23, 1990, respondent denied petitioner’s claim on the ground that its
insurance policy only afforded earthquake shock coverage to the two swimming pools of the
resort.8 Petitioner and respondent failed to arrive at a settlement.9 Thus, on January 24, 1991,
petitioner filed a complaint10 with the regional trial court of Pasig praying for the payment of the
following:
1.) The sum of P5,427,779.00, representing losses sustained by the insured properties, with
interest thereon, as computed under par. 29 of the policy (Annex "B") until fully paid;
2.) The sum of P428,842.00 per month, representing continuing losses sustained by plaintiff
on account of defendant’s refusal to pay the claims;
3.) The sum of P500,000.00, by way of exemplary damages;
4.) The sum of P500,000.00 by way of attorney’s fees and expenses of litigation;
5.) Costs.11
Respondent filed its Answer with Special and Affirmative Defenses with Compulsory Counterclaims.12
On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:
The above schedule clearly shows that plaintiff paid only a premium of P393.00 against the
peril of earthquake shock, the same premium it paid against earthquake shock only on the two
swimming pools in all the policies issued by AHAC(AIU) (Exhibits "C", "D", "E", "F" and "G").
From this fact the Court must consequently agree with the position of defendant that the
endorsement rider (Exhibit "7-C") means that only the two swimming pools were insured
against earthquake shock.
Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, where
the language used in an insurance contract or application is such as to create ambiguity the
same should be resolved against the party responsible therefor, i.e., the insurance company
which prepared the contract. To the mind of [the] Court, the language used in the policy in
litigation is clear and unambiguous hence there is no need for interpretation or construction
but only application of the provisions therein.
From the above observations the Court finds that only the two (2) swimming pools had
earthquake shock coverage and were heavily damaged by the earthquake which struck on July
16, 1990. Defendant having admitted that the damage to the swimming pools was appraised
by defendant’s adjuster at P386,000.00, defendant must, by virtue of the contract of
insurance, pay plaintiff said amount.
Because it is the finding of the Court as stated in the immediately preceding paragraph that
defendant is liable only for the damage caused to the two (2) swimming pools and that
defendant has made known to plaintiff its willingness and readiness to settle said liability, there
is no basis for the grant of the other damages prayed for by plaintiff. As to the counterclaims
of defendant, the Court does not agree that the action filed by plaintiff is baseless and highly
speculative since such action is a lawful exercise of the plaintiff’s right to come to Court in the
honest belief that their Complaint is meritorious. The prayer, therefore, of defendant for
damages is likewise denied.
WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of THREE
HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00) representing damage to the two (2)
swimming pools, with interest at 6% per annum from the date of the filing of the Complaint
until defendant’s obligation to plaintiff is fully paid.
No pronouncement as to costs.13
Petitioner’s Motion for Reconsideration was denied. Thus, petitioner filed an appeal with the Court of
Appeals based on the following assigned errors:14
A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY RECOVER
FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS FIRE POLICY NO. 31944,
CONSIDERING ITS PROVISIONS, THE CIRCUMSTANCES SURROUNDING THE ISSUANCE OF
SAID POLICY AND THE ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE OF
JULY 16, 1990.
B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANT’S RIGHT TO RECOVER
UNDER DEFENDANT-APPELLEE’S POLICY (NO. 31944; EXH "I") BY LIMITING ITSELF TO A
CONSIDERATION OF THE SAID POLICY ISOLATED FROM THE CIRCUMSTANCES
SURROUNDING ITS ISSUANCE AND THE ACTUATIONS OF THE PARTIES AFTER THE
EARTHQUAKE OF JULY 16, 1990.
C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS ENTITLED TO
THE DAMAGES CLAIMED, WITH INTEREST COMPUTED AT 24% PER ANNUM ON CLAIMS ON
PROCEEDS OF POLICY.
On the other hand, respondent filed a partial appeal, assailing the lower court’s failure to award it
attorney’s fees and damages on its compulsory counterclaim.
After review, the appellate court affirmed the decision of the trial court and ruled, thus:
However, after carefully perusing the documentary evidence of both parties, We are not
convinced that the last two (2) insurance contracts (Exhs. "G" and "H"), which the plaintiff-
appellant had with AHAC (AIU) and upon which the subject insurance contract with Philippine
Charter Insurance Corporation is said to have been based and copied (Exh. "I"), covered an
extended earthquake shock insurance on all the insured properties.
xxx
We also find that the Court a quo was correct in not granting the plaintiff-appellant’s prayer
for the imposition of interest – 24% on the insurance claim and 6% on loss of income allegedly
amounting to P4,280,000.00. Since the defendant-appellant has expressed its willingness to
pay the damage caused on the two (2) swimming pools, as the Court a quo and this Court
correctly found it to be liable only, it then cannot be said that it was in default and therefore
liable for interest.
Coming to the defendant-appellant’s prayer for an attorney’s fees, long-standing is the rule
that the award thereof is subject to the sound discretion of the court. Thus, if such discretion
is well-exercised, it will not be disturbed on appeal (Castro et al. v. CA, et al., G.R. No. 115838,
July 18, 2002). Moreover, being the award thereof an exception rather than a rule, it is
necessary for the court to make findings of facts and law that would bring the case within the
exception and justify the grant of such award (Country Bankers Insurance Corp. v. Lianga Bay
and Community Multi-Purpose Coop., Inc., G.R. No. 136914, January 25, 2002). Therefore,
holding that the plaintiff-appellant’s action is not baseless and highly speculative, We find that
the Court a quo did not err in granting the same.
WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and judgment
of the Trial Court hereby AFFIRMED in toto. No costs.15
Petitioner filed the present petition raising the following issues:16
A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER RESPONDENT’S
INSURANCE POLICY NO. 31944, ONLY THE TWO (2) SWIMMING POOLS, RATHER THAN ALL
THE PROPERTIES COVERED THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE
SHOCK.
B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONER’S PRAYER FOR
DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED, ATTORNEY’S FEES AND
EXPENSES OF LITIGATION.
Petitioner contends:
First, that the policy’s earthquake shock endorsement clearly covers all of the properties insured and
not only the swimming pools. It used the words "any property insured by this policy," and it should be
interpreted as all inclusive.
Second, the unqualified and unrestricted nature of the earthquake shock endorsement is confirmed in
the body of the insurance policy itself, which states that it is "[s]ubject to: Other Insurance Clause,
Typhoon Endorsement, Earthquake Shock Endt., Extended Coverage Endt., FEA Warranty & Annual
Payment Agreement On Long Term Policies."17
Third, that the qualification referring to the two swimming pools had already been deleted in the
earthquake shock endorsement.
Fourth, it is unbelievable for respondent to claim that it only made an inadvertent omission when it
deleted the said qualification.
Fifth, that the earthquake shock endorsement rider should be given precedence over the wording of
the insurance policy, because the rider is the more deliberate expression of the agreement of the
contracting parties.
Sixth, that in their previous insurance policies, limits were placed on the endorsements/warranties
enumerated at the time of issue.
Seventh, any ambiguity in the earthquake shock endorsement should be resolved in favor of petitioner
and against respondent. It was respondent which caused the ambiguity when it made the policy in
issue.
Eighth, the qualification of the endorsement limiting the earthquake shock endorsement should be
interpreted as a caveat on the standard fire insurance policy, such as to remove the two swimming
pools from the coverage for the risk of fire. It should not be used to limit the respondent’s liability for
earthquake shock to the two swimming pools only.
Ninth, there is no basis for the appellate court to hold that the additional premium was not paid under
the extended coverage. The premium for the earthquake shock coverage was already included in the
premium paid for the policy.
Tenth, the parties’ contemporaneous and subsequent acts show that they intended to extend
earthquake shock coverage to all insured properties. When it secured an insurance policy from
respondent, petitioner told respondent that it wanted an exact replica of its latest insurance policy from
American Home Assurance Company (AHAC-AIU), which covered all the resort’s properties for
earthquake shock damage and respondent agreed. After the July 16, 1990 earthquake, respondent
assured petitioner that it was covered for earthquake shock. Respondent’s insurance adjuster, Bayne
Adjusters and Surveyors, Inc., likewise requested petitioner to submit the necessary documents for its
building claims and other repair costs. Thus, under the doctrine of equitable estoppel, it cannot deny
that the insurance policy it issued to petitioner covered all of the properties within the resort.
Eleventh, that it is proper for it to avail of a petition for review by certiorari under Rule 45 of the
Revised Rules of Court as its remedy, and there is no need for calibration of the evidence in order to
establish the facts upon which this petition is based.
On the other hand, respondent made the following counter arguments:18
First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended coverage
against earthquake shock to petitioner’s insured properties other than on the two swimming pools.
Petitioner admitted that from 1984 to 1988, only the two swimming pools were insured against
earthquake shock. From 1988 until 1990, the provisions in its policy were practically identical to its
earlier policies, and there was no increase in the premium paid. AHAC-AIU, in a letter19 by its
representative Manuel C. Quijano, categorically stated that its previous policy, from which respondent’s
policy was copied, covered only earthquake shock for the two swimming pools.
follow the exact provisions of its previous policy from AHAC-AIU. Respondent complied with this
requirement. Respondent’s only deviation from the agreement was when it modified the provisions
regarding the replacement cost endorsement. With regard to the issue under litigation, the riders of the
old policy and the policy in issue are identical.
Seventh, respondent did not do any act or give any assurance to petitioner as would estop it from
maintaining that only the two swimming pools were covered for earthquake shock. The adjuster’s letter
notifying petitioner to present certain documents for its building claims and repair costs was given to
petitioner before the adjuster knew the full coverage of its policy.
Petitioner anchors its claims on AHAC-AIU’s inadvertent deletion of the phrase "Item 5 Only" after the
descriptive name or title of the Earthquake Shock Endorsement. However, the words of the policy reflect
the parties’ clear intention to limit earthquake shock coverage to the two swimming pools.

Second, petitioner’s payment of additional premium in the amount of P393.00 shows that the policy Before petitioner accepted the policy, it had the opportunity to read its conditions. It did not object to
only covered earthquake shock damage on the two swimming pools. The amount was the same amount any deficiency nor did it institute any action to reform the policy. The policy binds the petitioner.
paid by petitioner for earthquake shock coverage on the two swimming pools from 1990-1991. No
additional premium was paid to warrant coverage of the other properties in the resort.
Eighth, there is no basis for petitioner to claim damages, attorney’s fees and litigation expenses. Since
respondent was willing and able to pay for the damage caused on the two swimming pools, it cannot
Third, the deletion of the phrase pertaining to the limitation of the earthquake shock endorsement to be considered to be in default, and therefore, it is not liable for interest.
the two swimming pools in the policy schedule did not expand the earthquake shock coverage to all of
petitioner’s properties. As per its agreement with petitioner, respondent copied its policy from the AHAC-
We hold that the petition is devoid of merit.
AIU policy provided by petitioner. Although the first five policies contained the said qualification in their
rider’s title, in the last two policies, this qualification in the title was deleted. AHAC-AIU, through Mr. J.
Baranda III, stated that such deletion was a mere inadvertence. This inadvertence did not make the In Insurance Policy No. 31944, four key items are important in the resolution of the case at bar.
policy incomplete, nor did it broaden the scope of the endorsement whose descriptive title was merely
enumerated. Any ambiguity in the policy can be easily resolved by looking at the other provisions, First, in the designation of location of risk, only the two swimming pools were specified as included, viz:
specially the enumeration of the items insured, where only the two swimming pools were noted as
covered for earthquake shock damage.
ITEM 3 – 393,000.00 – On the two (2) swimming pools only (against the peril of earthquake
shock only)20
Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, the phrase
"Item 5 – P393,000.00 – on the two swimming pools only (against the peril of earthquake shock only)"
meant that only the swimming pools were insured for earthquake damage. The same phrase is used in Second, under the breakdown for premium payments,21 it was stated that:
toto in the policies from 1989 to 1990, the only difference being the designation of the two swimming
pools as "Item 3." PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM
Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid for all
the properties covered. In all of its seven insurance policies, petitioner only paid P393.00 as premium xxx
for coverage of the swimming pools against earthquake shock. No other premium was paid for 3 393,000.00 0.100%-E/S 393.0022]
earthquake shock coverage on the other properties. In addition, the use of the qualifier "ANY" instead
of "ALL" to describe the property covered was done deliberately to enable the parties to specify the
properties included for earthquake coverage. Third, Policy Condition No. 6 stated:

Sixth, petitioner did not inform respondent of its requirement that all of its properties must be included 6. This insurance does not cover any loss or damage occasioned by or through or in
in the earthquake shock coverage. Petitioner’s own evidence shows that it only required respondent to consequence, directly or indirectly of any of the following occurrences, namely:--
 (a) Earthquake, volcanic eruption or other convulsion of nature. 23
1. The insured has an insurable interest;

Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To Include the Perils 2. The insured is subject to a risk of loss by the happening of the designated peril;
of Explosion, Aircraft, Vehicle and Smoke)," stated, viz:
3. The insurer assumes the risk;
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES
4. Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk; and
THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS INSURED IN
EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A DISCOUNT OF 5% OR 7 ½ % OF
5. In consideration of the insurer's promise, the insured pays a premium.26 (Emphasis
THE NET PREMIUM x x x POLICY HEREBY UNDERTAKES TO CONTINUE THE INSURANCE UNDER
ours)
THE ABOVE NAMED x x x AND TO PAY THE PREMIUM.

An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured
Earthquake Endorsement
against a specified peril.27 In fire, casualty, and marine insurance, the premium payable becomes a debt
as soon as the risk attaches.28 In the subject policy, no premium payments were made with regard to
In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . . . earthquake shock coverage, except on the two swimming pools. There is no mention of any premium
. . . . . . . additional premium the Company agrees, notwithstanding what is stated in the payable for the other resort properties with regard to earthquake shock. This is consistent with the
printed conditions of this Policy to the contrary, that this insurance covers loss or damage history of petitioner’s previous insurance policies from AHAC-AIU. As borne out by petitioner’s
(including loss or damage by fire) to any of the property insured by this Policy occasioned by witnesses:
or through or in consequence of Earthquake.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
Provided always that all the conditions of this Policy shall apply (except in so far as they may pp. 12-13
be hereby expressly varied) and that any reference therein to loss or damage by fire should
be deemed to apply also to loss or damage occasioned by or through or in consequence of
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policy during
Earthquake.24
the period from March 4, 1984 to March 4, 1985 the coverage on earthquake shock was limited
to the two swimming pools only?
Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the
earthquake shock coverage. Thus, the policy extended earthquake shock coverage to all of the insured
A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty, there
properties.
is a provision here that it was only for item 5.

It is basic that all the provisions of the insurance policy should be examined and interpreted in
Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two
consonance with each other.25 All its parts are reflective of the true intent of the parties. The policy
swimming pools only?
cannot be construed piecemeal. Certain stipulations cannot be segregated and then made to control;
neither do particular words or phrases necessarily determine its character. Petitioner cannot focus on
the earthquake shock endorsement to the exclusion of the other provisions. All the provisions and riders, A. Yes, sir.
taken and interpreted together, indubitably show the intention of the parties to extend earthquake
shock coverage to the two swimming pools only. CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

A careful examination of the premium recapitulation will show that it is the clear intent of the parties to pp. 23-26
extend earthquake shock coverage only to the two swimming pools. Section 2(1) of the Insurance Code
defines a contract of insurance as an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event. Thus, Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange for
an insurance contract exists where the following elements concur: the procurement of this policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your company?
A. No, sir. They are our insurance agency.
Q. And they are independent of your company insofar as operations are concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is concerned they are of course
subject to your instruction, is that not correct?
A. Yes, sir. The final action is still with us although they can recommend what insurance to
take.
Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14, 1989,
did you give written instruction to Forte Insurance Agency advising it that the earthquake
shock coverage must extend to all properties of Agoo Playa Resort in La Union?
A. No, sir. We did not make any written instruction, although we made an oral instruction to
that effect of extending the coverage on (sic) the other properties of the company.
Q. And that instruction, according to you, was very important because in April 1987 there was
an earthquake tremor in La Union?
A. Yes, sir.
Q. And you wanted to protect all your properties against similar tremors in the [future], is that
correct?
A. Yes, sir.
Q. Now, after this policy was delivered to you did you bother to check the provisions with
respect to your instructions that all properties must be covered again by earthquake shock
endorsement?
A. Are you referring to the insurance policy issued by American Home Assurance Company
marked Exhibit "G"?
Atty. Mejia: Yes.
Witness:
A. I examined the policy and seeing that the warranty on the earthquake shock endorsement
has no more limitation referring to the two swimming pools only, I was contented already that
the previous limitation pertaining to the two swimming pools was already removed.
Petitioner also cited and relies on the attachment of the phrase "Subject to: Other Insurance Clause,
Typhoon Endorsement, Earthquake Shock Endorsement, Extended Coverage Endorsement,
FEA Warranty & Annual Payment Agreement on Long Term Policies"29 to the insurance policy
as proof of the intent of the parties to extend the coverage for earthquake shock. However, this phrase
is merely an enumeration of the descriptive titles of the riders, clauses, warranties or endorsements to
which the policy is subject, as required under Section 50, paragraph 2 of the Insurance Code.
We also hold that no significance can be placed on the deletion of the qualification limiting the coverage
to the two swimming pools. The earthquake shock endorsement cannot stand alone. As explained by
the testimony of Juan Baranda III, underwriter for AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III30
TSN, August 11, 1992
pp. 9-12
Atty. Mejia:
We respectfully manifest that the same exhibits C to H inclusive have been previously
marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did you have occasion
to review of (sic) these six (6) policies issued by your company [in favor] of Agoo
Playa Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one point of time, sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H respectively
carries an earthquake shock endorsement[?] My question to you is, on the basis on (sic) the
wordings indicated in Exhibits C to H respectively what was the extent of the coverage [against]
the peril of earthquake shock as provided for in each of the six (6) policies?
xxx thing that comes to my mind is either insuring a swimming pool, foundations, they
are normally affected by earthquake but not by fire, sir.
WITNESS:
DIRECT EXAMINATION OF JUAN BARANDA III
TSN, August 11, 1992
The extent of the coverage is only up to the two (2) swimming pools, sir.
pp. 23-25

Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?
Q. Plaintiff’s witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E and F
inclusive [remained] its coverage against earthquake shock to two (2) swimming pools only
A. Yes, sir. but that Exhibits G and H respectively entend the coverage against earthquake shock to all the
properties indicated in the respective schedules attached to said policies, what can you say
ATTY. MEJIA: about that testimony of plaintiff’s witness?

What is your basis for stating that the coverage against earthquake shock as provided
for in each of the six (6) policies extend to the two (2) swimming pools only?
WITNESS:
Because it says here in the policies, in the enumeration "Earthquake Shock
Endorsement, in the Clauses and Warranties: Item 5 only (Earthquake Shock
Endorsement)," sir.
ATTY. MEJIA:
WITNESS:
As I have mentioned earlier, earthquake shock cannot stand alone without the other
half of it. I assure you that this one covers the two swimming pools with respect to
earthquake shock endorsement. Based on it, if we are going to look at the premium
there has been no change with respect to the rates. Everytime (sic) there is a renewal
if the intention of the insurer was to include the earthquake shock, I think there is a
substantial increase in the premium. We are not only going to consider the two (2)
swimming pools of the other as stated in the policy. As I see, there is no increase in
the amount of the premium. I must say that the coverage was not broaden (sic) to
include the other items.

Witness referring to Exhibit C-1, your Honor. COURT:

WITNESS: They are the same, the premium rates?

We do not normally cover earthquake shock endorsement on stand alone basis. For
swimming pools we do cover earthquake shock. For building we covered it for full
earthquake coverage which includes earthquake shock…
COURT:
WITNESS:
They are the same in the sence (sic), in the amount of the coverage. If you are going
to do some computation based on the rates you will arrive at the same premiums,
your Honor.

As far as earthquake shock endorsement you do not have a specific coverage for other CROSS-EXAMINATION OF JUAN BARANDA III
things other than swimming pool? You are covering building? They are covered by a TSN, September 7, 1992
general insurance? pp. 4-6

WITNESS: ATTY. ANDRES:

Earthquake shock coverage could not stand alone. If we are covering building or Would you as a matter of practice [insure] swimming pools for fire insurance?
another we can issue earthquake shock solely but that the moment I see this, the
 WITNESS: A. I told him that the insurance that they will have to get will have the same provisions as this
American Home Insurance Policy No. 206-4568061-9.
No, we don’t, sir.
Q. You are referring to Exhibit "H" of course?
Q. That is why the phrase "earthquake shock to the two (2) swimming pools only" was placed,
is it not? A. Yes, sir, to Exhibit "H".

A. Yes, sir. Q. So, all the provisions here will be the same except that of the premium rates?

ATTY. ANDRES: A. Yes, sir. He assured me that with regards to the insurance premium rates that they will be
charging will be limited to this one. I (sic) can even be lesser.
Will you not also agree with me that these exhibits, Exhibits G and H which you have
pointed to during your direct-examination, the phrase "Item no. 5 only" meaning to CROSS EXAMINATION OF LEOPOLDO MANTOHAC
(sic) the two (2) swimming pools was deleted from the policies issued by AIU, is it TSN, January 14, 1992
not? pp. 12-14

xxx Atty. Mejia:

ATTY. ANDRES:
As an insurance executive will you not attach any significance to the deletion of the
qualifying phrase for the policies?
WITNESS:
My answer to that would be, the deletion of that particular phrase is inadvertent.
Being a company underwriter, we do not cover. . it was inadvertent because of the
previous policies that we have issued with no specific attachments, premium rates
and so on. It was inadvertent, sir.
The Court also rejects petitioner’s contention that respondent’s contemporaneous and subsequent acts
to the issuance of the insurance policy falsely gave the petitioner assurance that the coverage of the
earthquake shock endorsement included all its properties in the resort. Respondent only insured the
properties as intended by the petitioner. Petitioner’s own witness testified to this agreement, viz:
Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the provisions and
scope of coverage of Exhibits "I" and "H" sometime in the third week of March, 1990 or
thereabout?
A. Yes, sir, about that time.
Q. And at that time did you notice any discrepancy or difference between the policy wordings
as well as scope of coverage of Exhibits "I" and "H" respectively?
A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that the
policy wordings and rates were copied from the insurance policy I sent them but it was only
when this case erupted that we discovered some discrepancies.
Q. With respect to the items declared for insurance coverage did you notice any discrepancy
at any time between those indicated in Exhibit "I" and those indicated in Exhibit "H"
respectively?

CROSS EXAMINATION OF LEOPOLDO MANTOHAC A. With regard to the wordings I did not notice any difference because it was exactly the
TSN, January 14, 1992 same P393,000.00 on the two (2) swimming pools only against the peril of earthquake shock
pp. 4-5 which I understood before that this provision will have to be placed here because this particular
provision under the peril of earthquake shock only is requested because this is an insurance
policy and therefore cannot be insured against fire, so this has to be placed.
Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did you tell
Atty. Omlas (sic) to copy from Exhibit "H" for purposes of procuring the policy from Philippine
Charter Insurance Corporation?
The verbal assurances allegedly given by respondent’s representative Atty. Umlas were not proved.
Atty. Umlas categorically denied having given such assurances.
Finally, petitioner puts much stress on the letter of respondent’s independent claims adjuster, Bayne
Adjusters and Surveyors, Inc. But as testified to by the representative of Bayne Adjusters and
Surveyors, Inc., respondent never meant to lead petitioner to believe that the endorsement for
earthquake shock covered properties other than the two swimming pools, viz:
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and Surveyors, Inc.)
TSN, January 26, 1993
pp. 22-26
The case law will show that this Court will only rule out blind adherence to terms where facts and
circumstances will show that they are basically one-sided.34 Thus, we have called on lower courts to
remain careful in scrutinizing the factual circumstances behind each case to determine the efficacy of
the claims of contending parties. In Development Bank of the Philippines v. National
Merchandising Corporation, et al.,35 the parties, who were acute businessmen of experience, were
presumed to have assented to the assailed documents with full knowledge.
We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot claim it
did not know the provisions of the policy. From the inception of the policy, petitioner had required the
respondent to copy verbatim the provisions and terms of its latest insurance policy from AHAC-AIU. The
testimony of Mr. Leopoldo Mantohac, a direct participant in securing the insurance policy of petitioner,
is reflective of petitioner’s knowledge, viz:

Q. Do you recall the circumstances that led to your discussion regarding the extent of coverage
DIRECT EXAMINATION OF LEOPOLDO MANTOHAC36
of the policy issued by Philippine Charter Insurance Corporation?
TSN, September 23, 1991
pp. 20-21
A. I remember that when I returned to the office after the inspection, I got a photocopy of the
insurance coverage policy and it was indicated under Item 3 specifically that the coverage is
Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those facilities
only for earthquake shock. Then, I remember I had a talk with Atty. Umlas (sic), and I relayed
in Agoo Playa?
to him what I had found out in the policy and he confirmed to me indeed only Item 3 which
were the two swimming pools have coverage for earthquake shock.
A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine Charter
Insurance Corporation as long as it will follow the same or exact provisions of the previous
xxx
insurance policy we had with American Home Assurance Corporation.

Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except for
Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in the
the swimming pools all affected items have no coverage for earthquake shock?
American Home Insurance policy are to be incorporated in the PCIC policy?

xxx
A. Yes, sir.

A. I based my statement on my findings, because upon my examination of the policy I found

out that under Item 3 it was specific on the wordings that on the two swimming pools only,
then enclosed in parenthesis (against the peril[s] of earthquake shock only), and secondly,
when I examined the summary of premium payment only Item 3 which refers to the swimming
pools have a computation for premium payment for earthquake shock and all the other items
have no computation for payment of premiums.
In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the
general rule that insurance contracts are contracts of adhesion which should be liberally construed in
favor of the insured and strictly against the insurer company which usually prepares it.31 A contract of
adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while
the other party merely affixes his signature or his "adhesion" thereto. Through the years, the courts
have held that in these type of contracts, the parties do not bargain on equal footing, the weaker party's
participation being reduced to the alternative to take it or leave it. Thus, these contracts are viewed as
traps for the weaker party whom the courts of justice must protect.32 Consequently, any ambiguity
therein is resolved against the insurer, or construed liberally in favor of the insured.33
Q. What steps did you take?
A. When I examined the policy of the Philippine Charter Insurance Corporation I specifically
told him that the policy and wordings shall be copied from the AIU Policy No. 206-4568061-9.
Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-4568061-
9 in drafting its Insurance Policy No. 31944. It is true that there was variance in some terms, specifically
in the replacement cost endorsement, but the principal provisions of the policy remained essentially
similar to AHAC-AIU’s policy. Consequently, we cannot apply the "fine print" or "contract of adhesion"
rule in this case as the parties’ intent to limit the coverage of the policy to the two swimming pools only
is not ambiguous.37
IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition for certiorari is
dismissed. No costs.
SO ORDERED. NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that it also owned
and operated. On its journey to Manila, however, ACX Ruby encountered typhoon Kadiang whose
captain filed a sea protest on arrival at the Manila South Harbor on October 5, 1993 respecting the loss
and damage that the goods on board his vessel suffered.

IV. Characteristics of Insurance Contracts

Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handling operator,
received the shipment on October 7, 1993. Upon inspection of the three container vans separately
carrying the generator sets, two vans bore signs of external damage while the third van appeared
G.R. No. 171468 August 24, 2011 unscathed. The shipment remained at Pier 3’s Container Yard under Marina’s care pending clearance
from the Bureau of Customs. Eventually, on October 20, 1993 customs authorities allowed petitioner’s
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner, customs broker, Serbros Carrier Corporation (Serbros), to withdraw the shipment and deliver the same
vs. to petitioner New World’s job site in Makati City.
NYK-FILJAPAN SHIPPING CORP., LEP PROFIT INTERNATIONAL, INC. (ORD), LEP
INTERNATIONAL PHILIPPINES, INC., DMT CORP., ADVATECH INDUSTRIES, INC., MARINA An examination of the three generator sets in the presence of petitioner New World’s representatives,
PORT SERVICES, INC., SERBROS CARRIER CORPORATION, and SEABOARD-EASTERN Federal Builders (the project contractor) and surveyors of petitioner New World’s insurer, Seaboard–
INSURANCE CO., INC., Respondents. Eastern Insurance Company (Seaboard), revealed that all three sets suffered extensive damage and
could no longer be repaired. For these reasons, New World demanded recompense for its loss from
x - - - - - - - - - - - - - - - - - - - - - - -x respondents NYK, DMT, Advatech, LEP Profit, LEP International Philippines, Inc. (LEP), Marina, and
Serbros. While LEP and NYK acknowledged receipt of the demand, both denied liability for the loss.

G.R. No. 174241

Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a formal
claim dated November 16, 1993. Replying on February 14, 1994, Seaboard required petitioner New
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner, World to submit to it an itemized list of the damaged units, parts, and accessories, with corresponding
vs. values, for the processing of the claim. But petitioner New World did not submit what was required of
SEABOARD-EASTERN INSURANCE CO., INC., Respondent. it, insisting that the insurance policy did not include the submission of such a list in connection with an
insurance claim. Reacting to this, Seaboard refused to process the claim.
DECISION
On October 11, 1994 petitioner New World filed an action for specific performance and damages against
ABAD, J.: all the respondents before the Regional Trial Court (RTC) of Makati City, Branch 62, in Civil Case 94-
2770.
These consolidated petitions involve a cargo owner’s right to recover damages from the loss of insured
goods under the Carriage of Goods by Sea Act and the Insurance Code. On August 16, 2001 the RTC rendered a decision absolving the various respondents from liability with
the exception of NYK. The RTC found that the generator sets were damaged during transit while in the
care of NYK’s vessel, ACX Ruby. The latter failed, according to the RTC, to exercise the degree of
The Facts and the Case
diligence required of it in the face of a foretold raging typhoon in its path.

Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT
The RTC ruled, however, that petitioner New World filed its claim against the vessel owner NYK beyond
Corporation (DMT) through its agent, Advatech Industries, Inc. (Advatech) three emergency generator
the one year provided under the Carriage of Goods by Sea Act (COGSA). New World filed its complaint
sets worth US$721,500.00.
on October 11, 1994 when the deadline for filing the action (on or before October 7, 1994) had already
lapsed. The RTC held that the one-year period should be counted from the date the goods were delivered
DMT shipped the generator sets by truck from Wisconsin, United States, to LEP Profit International, Inc. to the arrastre operator and not from the date they were delivered to petitioner’s job site.1
(LEP Profit) in Chicago, Illinois. From there, the shipment went by train to Oakland, California, where it
was loaded on S/S California Luna V59, owned and operated by NYK Fil-Japan Shipping Corporation
As regards petitioner New World’s claim against Seaboard, its insurer, the RTC held that the latter
(NYK) for delivery to petitioner New World in Manila. NYK issued a bill of lading, declaring that it received
cannot be faulted for denying the claim against it since New World refused to submit the itemized list
the goods in good condition.
that Seaboard needed for assessing the damage to the shipment. Likewise, the belated filing of the
complaint prejudiced Seaboard’s right to pursue a claim against NYK in the event of subrogation.
On appeal, the Court of Appeals (CA) rendered judgment on January 31, 2006,2 affirming the RTC’s
rulings except with respect to Seaboard’s liability. The CA held that petitioner New World can still recoup
its loss from Seaboard’s marine insurance policy, considering a) that the submission of the itemized
listing is an unreasonable imposition and b) that the one-year prescriptive period under the COGSA did
not affect New World’s right under the insurance policy since it was the Insurance Code that governed
the relation between the insurer and the insured.
Although petitioner New World promptly filed a petition for review of the CA decision before the Court
in G.R. 171468, Seaboard chose to file a motion for reconsideration of that decision. On August 17,
2006 the CA rendered an amended decision, reversing itself as regards the claim against Seaboard. The
CA held that the submission of the itemized listing was a reasonable requirement that Seaboard asked
of New World. Further, the CA held that the one-year prescriptive period for maritime claims applied to
Seaboard, as insurer and subrogee of New World’s right against the vessel owner. New World’s failure
to comply promptly with what was required of it prejudiced such right.
Instead of filing a motion for reconsideration, petitioner instituted a second petition for review before
the Court in G.R. 174241, assailing the CA’s amended decision.
The Issues Presented
The issues presented in this case are as follows:
a) In G.R. 171468, whether or not the CA erred in affirming the RTC’s release from liability of
respondents DMT, Advatech, LEP, LEP Profit, Marina, and Serbros who were at one time or
another involved in handling the shipment; and
b) In G.R. 174241, 1) whether or not the CA erred in ruling that Seaboard’s request from
petitioner New World for an itemized list is a reasonable imposition and did not violate the
insurance contract between them; and 2) whether or not the CA erred in failing to rule that
the one-year COGSA prescriptive period for marine claims does not apply to petitioner New
World’s prosecution of its claim against Seaboard, its insurer.
The Court’s Rulings
In G.R. 171468 --
Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP Profit, Marina and
Serbros in handling and transporting its shipment from Wisconsin to Manila collectively resulted in the
damage to the same, rendering such respondents solidarily liable with NYK, the vessel owner.
But the issue regarding which of the parties to a dispute incurred negligence is factual and is not a
proper subject of a petition for review on certiorari. And petitioner New World has been unable to make
out an exception to this rule.3 Consequently, the Court will not disturb the finding of the RTC, affirmed
by the CA, that the generator sets were totally damaged during the typhoon which beset the vessel’s
voyage from Hong Kong to Manila and that it was her negligence in continuing with that journey despite
the adverse condition which caused petitioner New World’s loss.
That the loss was occasioned by a typhoon, an exempting cause under Article 1734 of the Civil Code,
does not automatically relieve the common carrier of liability. The latter had the burden of proving that
the typhoon was the proximate and only cause of loss and that it exercised due diligence to prevent or
minimize such loss before, during, and after the disastrous typhoon.4 As found by the RTC and the CA,
NYK failed to discharge this burden.
In G.R. 174241 --
One. The Court does not regard as substantial the question of reasonableness of Seaboard’s additional
requirement of an itemized listing of the damage that the generator sets suffered. The record shows
that petitioner New World complied with the documentary requirements evidencing damage to its
generator sets.
The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy insured
against all causes of conceivable loss or damage except when otherwise excluded or when the loss or
damage was due to fraud or intentional misconduct committed by the insured. The policy covered all
losses during the voyage whether or not arising from a marine peril.5
Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in
voyage, or vessels unseaworthiness, among others.6 But Seaboard had been unable to show that
petitioner New World’s loss or damage fell within some or one of the enumerated exceptions.
What is more, Seaboard had been unable to explain how it could not verify the damage that New World’s
goods suffered going by the documents that it already submitted, namely, (1) copy of the Supplier’s
Invoice KL2504; (2) copy of the Packing List; (3) copy of the Bill of Lading 01130E93004458; (4) the
Delivery of Waybill Receipts 1135, 1222, and 1224; (5) original copy of Marine Insurance Policy MA-
HO-000266; (6) copies of Damage Report from Supplier and Insurance Adjusters; (7) Consumption
Report from the Customs Examiner; and (8) Copies of Received Formal Claim from the following: a)
LEP International Philippines, Inc.; b) Marina Port Services, Inc.; and c) Serbros Carrier
Corporation.7 Notably, Seaboard’s own marine surveyor attended the inspection of the generator sets.
Seaboard cannot pretend that the above documents are inadequate since they were precisely the
documents listed in its insurance policy.8 Being a contract of adhesion, an insurance policy is construed
strongly against the insurer who prepared it. The Court cannot read a requirement in the policy that
was not there.
Further, it appears from the exchanges of communications between Seaboard and Advatech that In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc.,10 the Court regarded as
submission of the requested itemized listing was incumbent on the latter as the seller DMT’s local agent. proper an award of 10% of the insurance proceeds as attorney’s fees. Such amount is fair considering
Petitioner New World should not be made to suffer for Advatech’s shortcomings. the length of time that has passed in prosecuting the claim.11 Pursuant to the Court’s ruling in Eastern
Shipping Lines, Inc. v. Court of Appeals,12 a 12% interest per annum from the finality of judgment until
full satisfaction of the claim should likewise be imposed, the interim period equivalent to a forbearance
Two. Regarding prescription of claims, Section 3(6) of the COGSA provides that the carrier and the ship
of credit.1avvphi1
shall be discharged from all liability in case of loss or damage unless the suit is brought within one year
after delivery of the goods or the date when the goods should have been delivered.
Petitioner New World is entitled to the value stated in the policy which is commensurate to the value of
the three emergency generator sets or US$721,500.00 with double interest plus attorney’s fees as
But whose fault was it that the suit against NYK, the common carrier, was not brought to court on time?
discussed above.
The last day for filing such a suit fell on October 7, 1994. The record shows that petitioner New World
filed its formal claim for its loss with Seaboard, its insurer, a remedy it had the right to take, as early
as November 16, 1993 or about 11 months before the suit against NYK would have fallen due. WHEREFORE, the Court DENIES the petition in G.R. 171468 and AFFIRMS the Court of Appeals decision
of January 31, 2006 insofar as petitioner New World International Development (Phils.), Inc. is not
allowed to recover against respondents DMT Corporation, Advatech Industries, Inc., LEP International
In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would have
Philippines, Inc., LEP Profit International, Inc., Marina Port Services, Inc. and Serbros Carrier
been subrogated to petitioner New World’s right to recover from NYK. And it could have then filed the
Corporation.
suit as a subrogee. But, as discussed above, Seaboard made an unreasonable demand on February 14,
1994 for an itemized list of the damaged units, parts, and accessories, with corresponding values when
it appeared settled that New World’s loss was total and when the insurance policy did not require the With respect to G.R. 174241, the Court GRANTS the petition and REVERSES and SETS ASIDE the Court
production of such a list in the event of a claim. of Appeals Amended Decision of August 17, 2006. The Court DIRECTS Seaboard-Eastern Insurance
Company, Inc. to pay petitioner New World International Development (Phils.), Inc. US$721,500.00
under Policy MA-HO-000266, with 24% interest per annum for the duration of delay in accordance with
Besides, when petitioner New World declined to comply with the demand for the list, Seaboard against
Sections 243 and 244 of the Insurance Code and attorney’s fees equivalent to 10% of the insurance
whom a formal claim was pending should not have remained obstinate in refusing to process that claim.
proceeds. Seaboard shall also pay, from finality of judgment, a 12% interest per annum on the total
It should have examined the same, found it unsubstantiated by documents if that were the case, and
amount due to petitioner until its full satisfaction.
formally rejected it. That would have at least given petitioner New World a clear signal that it needed
to promptly file its suit directly against NYK and the others. Ultimately, the fault for the delayed court
suit could be brought to Seaboard’s doorstep. SO ORDERED.

Section 241 of the Insurance Code provides that no insurance company doing business in the Philippines
shall refuse without just cause to pay or settle claims arising under coverages provided by its policies.
And, under Section 243, the insurer has 30 days after proof of loss is received and ascertainment of
the loss or damage within which to pay the claim. If such ascertainment is not had within 60 days from
receipt of evidence of loss, the insurer has 90 days to pay or settle the claim. And, in case the insurer
refuses or fails to pay within the prescribed time, the insured shall be entitled to interest on the proceeds
of the policy for the duration of delay at the rate of twice the ceiling prescribed by the Monetary Board.

Notably, Seaboard already incurred delay when it failed to settle petitioner New World’s claim as Section
243 required. Under Section 244, a prima facie evidence of unreasonable delay in payment of the claim
is created by the failure of the insurer to pay the claim within the time fixed in Section 243.

Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the delay
until the claim is fully satisfied at the rate of twice the ceiling prescribed by the Monetary Board. The
term "ceiling prescribed by the Monetary Board" means the legal rate of interest of 12% per annum
provided in Central Bank Circular 416, pursuant to Presidential Decree 116.9 Section 244 of the
Insurance Code also provides for an award of attorney’s fees and other expenses incurred by the
assured due to the unreasonable withholding of payment of his claim.