UNITED MERCHANTS CORPORATION v.

COUNTRY BANKERS
INSURANCE CORPORATION
G.R. No. 198588, July 11, 2012 Carpio, J.

FACTS:
United Merchants Corporation leased a warehouse where it assembled and
stored its products. UMC’s General Manager insured UMC’s stocks in trade of
Christmas lights against fire with Country Bankers Insurance Corporation. UMC
and CBIC executed Endorsement F/96-154 and Fire Invoice No. 16583A to form
part of the Insurance Policy. Endorsement F/96-154 provides that UMC’s stocks in
trade were insured against additional perils, to wit: "typhoon, flood, ext. cover, and
full earthquake." The sum insured was also increased. CBIC issued Endorsement
F/96-157 where the name of the assured was changed from Alfredo Tan to UMC.
Thereafter, a fire gutted the warehouse rented by UMC. CBIC designated CRM
Adjustment Corporation to investigate and evaluate UMC’s loss by reason of the
fire. CBIC’s reinsurer, Central Surety, likewise requested the NBI to conduct a
parallel investigation. UMC, through CRM, submitted to CBIC its Sworn Statement
of Formal Claim, with proofs of its loss. UMC demanded for at least fifty percent
payment of its claim from CBIC. UMC received CBIC’s letter rejecting UMC’s claim
due to breach of Condition No. 15 of the Insurance Policy. CBIC alleged that UMC’s
claim was fraudulent because UMC’s Statement of Inventory showed that it had no
stocks in trade and that UMC’s suspicious purchases for the year 1996 did not even
amount to ₱25,000,000.00. UMC’s GIS and Financial Reports further revealed
that it had insufficient capital, which meant UMC could not afford the alleged
₱50,000,000.00 worth of stocks in trade.

ISSUE: WHETHER OR NOT UMC IS ENTITLE TO CLAIM FROM CBIC

THE FULL COVERAGE OF ITS FIRE INSURANCE POLICY

RULING:
NO. In the present case, as proof of its loss of stocks in trade amounting to
₱50,000,000.00, UMC submitted its Sworn Statement of Formal Claim together
with the following documents: (1) letters of credit and invoices for raw materials,
Christmas lights and cartons purchased; (2) charges for assembling the Christmas
lights; and (3) delivery receipts of the raw materials. However, the charges for
assembling the Christmas lights and delivery receipts could not support its
insurance claim. The Insurance Policy provides that CBIC agreed to insure UMC’s
stocks in trade. UMC defined stock in trade as tangible personal property kept for
sale or traffic. Applying UMC’s definition, only the letters of credit and invoices for
raw materials, Christmas lights and cartons may be considered.
It has long been settled that a false and material statement made with an
intent to deceive or defraud voids an insurance policy. The most liberal human
judgment cannot attribute such difference to mere innocent error in estimating or
counting but to a deliberate intent to demand from insurance companies’ payment
for indemnity of goods not existing at the time of the fire. This constitutes the so-
called "fraudulent claim" which, by express agreement between the insurers and
the insured, is a ground for the exemption of insurers from civil liability.

KEY CONCEPT:
It has long been settled that a false and material statement made with an
intent to deceive or defraud voids an insurance policy. The most liberal human
judgment cannot attribute such difference to mere innocent error in estimating or
counting but to a deliberate intent to demand from insurance companies’ payment
for indemnity of goods not existing at the time of the fire. This constitutes the so-
called "fraudulent claim" which, by express agreement between the insurers and
the insured, is a ground for the exemption of insurers from civil liability.