ASSIGNMENT NO.

8
Insurance to other insurance clause

1.Gulf resorts, Inc. v. Phil Charter Insurance Corp. G.R. No. 156167, May 16, 2005

CASE TITLE: GULF RESORTS, INC., petitioner, vs. PHILIPPINE CHARTER INSURANCE CORPORATION,
respondent.

DOCTRINE: It is basic that all the provisions of the insurance policy should be examined and interpreted in
consonance with each other. All its parts are reflective of the true intent of the parties. The policy cannot be
construed piecemeal. Certain stipulations cannot be segregated and then made to control; neither do
particular words or phrases necessarily determine its character.
FACTS: Gulf Resorts, Inc at Agoo, La Union was insured with American Home Assurance Company which
includes loss or damage to shock to any of the property insured by this Policy occasioned by or through or in
consequence of earthquake.

On July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiff’s properties covered
by Policy No. 31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort were
damaged.

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. 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,
rendered a preliminary report 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." On August 11, 1990, petitioner filed its formal demand 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. Petitioner and respondent failed to arrive at a settlement.

On January 24, 1991, petitioner filed a complaint with the RTC.

Respondent filed its Answer with Special and Affirmative Defenses with Compulsory Counterclaims.

On February 21, 1994, the lower court after trial ruled in favor of the respondent. The 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). From this
fact the Court must consequently agree with the position of defendant that the endorsement rider 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.

Petitioner filed an appeal with the Court of Appeals.

The appellate court affirmed the decision of the trial court.

ISSUE: W/N the policy covers only the 2 swimming pools.

HELD: YES.

It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance
with each other. All its parts are reflective of the true intent of the parties. The policy 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, taken and interpreted together,
indubitably show the intention of the parties to extend earthquake shock coverage to the two swimming pools
only.

A careful examination of the premium recapitulation will show that it is the clear intent of the parties to 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, an insurance contract
exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

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

5. In consideration of the insurer's promise, the insured pays a premium.

An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a
specified peril. In fire, casualty, and marine insurance, the premium payable becomes a debt as soon as the
risk attaches. In the subject policy, no premium payments were made with regard to earthquake shock
coverage, except on the two swimming pools. There is no mention of any premium payable for the other
resort properties with regard to earthquake shock. This is consistent with the history of petitioner’s previous
insurance policies from AHAC-AIU.

IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition for certiorari is dismissed.
No costs.

2.Philippine Health Care Providers, Inc. v. CIR, G.R. No. 167330, Sept. 18, 2009

CASE TITLE:PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, Respondent.

DOCTRINE: Principal object and purpose test: the contract is insurance if the principal object and purpose
is assumption of risk and indemnification of loss.

HMOs are not engaged in the business of insurance based on the assumption of risk and indemnification of
loss test: it should be determined if the assumption of risk and indemnification of loss (which are elements
of an insurance business) are the principal object and purpose of the organization or whether they are
merely incidental to its business. If these are the principal objectives, the business is that of insurance. But
if they are merely incidental and service is the principal purpose, then the business is not insurance. HMOs
are primarily engaged in rendering service.

FACTS: Petitioner is a domestic corporation whose primary purpose is "to establish, maintain, conduct and
operate a prepaid group practice health care delivery system or a health maintenance organization to take
care of the sick and disabled persons enrolled in the health care plan and to provide for the administrative,
legal, and financial responsibilities of the organization." Individuals enrolled in its health care programs pay
an annual membership fee and are entitled to various preventive, diagnostic and curative medical services
provided by its duly licensed physicians, specialists and other professional technical staff participating in
the group practice health delivery system at a hospital or clinic owned, operated or accredited by it.

CIR sent a demand letter for its tax deficiency. Docs stamp tax was imposed on petitioner’s health care
agreement with the members of its health care program. Petitioner protested up to the CTS seeking the
cancellation of VAT and DST assessments which were partially granted. Respondent appealed stating that
petitioner’s health care agreement was a contract of insurance subject to DST. CA held that petitioner’s
health care agreement was in the nature of a non-life insurance contract subject to DST. Petitioner contends
that it is a health maintenance organization (HMO), a service provider, and not an insurance company.

ISSUE: Whether or not as an HMO, petitioner is engaged in the business of insurance.

HELD: NO. Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what
constitutes "doing an insurance business" or "transacting an insurance business:"

a) making or proposing to make, as insurer, any insurance contract;

b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of the surety;

c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the
doing of an insurance business within the meaning of this Code;

d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.

In the application of the provisions of this Code, the fact that no profit is derived from the making of
insurance contracts, agreements or transactions or that no separate or direct consideration is received
therefore, shall not be deemed conclusive to show that the making thereof does not constitute the doing
or transacting of an insurance business. The assumption of risk and indemnification of loss test states that
it should be determined if the assumption of risk and indemnification of loss (which are elements of an
insurance business) are the principal object and purpose of the organization or whether they are merely
incidental to its business. If these are the principal objectives, the business is that of insurance. But if they
are merely incidental and service is the principal purpose, then the business is not insurance.

Insurance is primarily concerned with risk and the consequences of its descent, not with service, or its
extension in kind, quantity or distribution; with the unusual occurrence, not the daily routine of living.
Hazard is predominant. On the other hand, the HMO is concerned principally with getting service rendered
to its members and doing so at lower prices made possible by quantity purchasing and economies in
operation. Its primary purpose is to reduce the cost rather than the risk of medical care; to broaden the
service to the individual in kind and quantity; to enlarge the number receiving it; to regularize it as an
everyday incident of living, like purchasing food and clothing or oil and gas, rather than merely protecting
against the financial loss caused by extraordinary and unusual occurrences, such as death, disaster at sea,
fire and tornado. The element of risk distribution should not outweigh all the factors because it would make
the line between insurance and other economic functions faint.

If the primary purpose of the contract is to render service, it is not an insurance contract. Not all necessary
elements of a contract of insurance are present in the petitioner’s agreements. There is no loss, damage,
or liability on the part of the member that should be indemnified by the petitioner as an HMP. Although risk
is a primary element of an insurance contract, it is not necessarily true that risk alone is sufficient to
establish it. THere is a need to distinguish prepaid service contracts from the usual insurance contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health services: the
risk that it might fail to earn a reasonable return on its investment. But it is not the risk of the type peculiar
only to insurance companies. Insurance risk, also known as actuarial risk, is the risk that the cost of
insurance claims might be higher than the premiums paid. The amount of premium is calculated on the
basis of assumptions made relative to the insured. Health care agreements are clearly not within the ambit
of Section 185 of the NIRC and there was never any legislative intent to impose the same on HMOs like
petitioner.

3.Great Pacific Life Assurance corp. v. CA, 89 SCRA 543

CASE TITLE: GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,

vs.
HONORABLE COURT OF APPEALS, respondents.

G.R. No. L-31878, April 30, 1979

LAPULAPU D. MONDRAGON, petitioner,

vs.
HON. COURT OF APPEALS and NGO HING, respondents.

DOCTRINE: Upon this premise, the binding deposit receipt is, manifestly, merely conditional and does not
insure outright. As held by this Court, where an agreement is made between the applicant and the agent,
no liability shall attach until the principal approves the risk and a receipt is given by the agent. The
acceptance is merely conditional and is subordinated to the act of the company in approving or rejecting
the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself.

FACTS: Private respondent Ngo Hing filed an application with the Great Pacific Life Assurance Company
(Pacific Life) for a 20-year endownment policy in the amount of P50,000.00 on the life of his one-year
old daughter Helen Go. Said respondent supplied the essential data which petitioner Lapulapu D.
Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding form in his own
handwriting.

Mondragon finally type-wrote the data on the application form which was signed by private respondent
Ngo Hing. The latter paid the annual premuim the sum of P1,077.75 going over to the Company, but he
retained the amount of P1,317.00 as his commission for being a duly authorized agent of Pacific Life.
Upon the payment of the insurance premium, the binding deposit receipt (Exhibit E) was issued to private
respondent. Likewise, petitioner Mondragon handwrote at the bottom of the back page of the application
form his strong recommendation for the approval of the insurance application.

Then on April 30, 1957, Mondragon received a letter from Pacific Life disapproving the insurance
application (Exhibit 3-M). The letter stated that the said life insurance application for 20-year
endowment plan is not available for minors below seven years old, but Pacific Life can consider
the same under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile
Non-Medical Declaration be sent to the company.

The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by
petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote
back Pacific Life again strongly recommending the approval of the 20-year endowment insurance plan to
children, pointing out that since 1954 the customers, especially the Chinese, were asking for such
coverage.

1957 Helen Go died of influenza with complication of bronchopneumonia. Thereupon, private respondent
sought the payment of the proceeds of the insurance, but having failed in his effort, he filed the action
for the recovery of the same before the Court of First Instance of Cebu, which rendered the adverse
decision as earlier refered to against both petitioners.

ISSUE: (1) Whether the binding deposit receipt (Exhibit E) constituted a temporary contract of the life
insurance in question; and

(2) whether private respondent Ngo Hing concealed the state of health and physical condition of Helen
Go, which rendered void the aforesaid Exhibit E.

HELD:
FIRST ISSUE:

The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to be
merely a provisional or temporary insurance contract and only upon compliance of the following
conditions:

(1) that the company shall be satisfied that the applicant was insurable on standard rates;

(2) that if the company does not accept the application and offers to issue a policy for a different plan,
the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the
deposit shall be refunded; and

(3) that if the applicant is not insurable according to the standard rates, and the company disapproves
the application, the insurance applied for shall not be in force at any time, and the premium paid shall be
returned to the applicant.

Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an
acknowledgment, on behalf of the company, that the latter's branch office had received from the
applicant the insurance premium and had accepted the application subject for processing by the insurance
company; and that the latter will either approve or reject the same on the basis of whether or not the
applicant is "insurable on standard rates." Since petitioner Pacific Life disapproved the insurance
application of respondent Ngo Hing, the binding deposit receipt in question had never become
in force at any time.

SECOND ISSUE:

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

The contract of insurance is one of perfect good faith (uberrima fides meaning good faith; absolute and
perfect candor or openness and honesty; the absence of any concealment or deception, however slight
[Black's Law Dictionary, 2nd Edition], not for the insured alone but equally so for the insurer. Concealment
is a neglect to communicate that which a party knows and ought to communicate. Whether intentional or
unintentional the concealment entitles the insurer to rescind the contract of insurance. Private respondent
appears guilty thereof.

We are thus constrained to hold that no insurance contract was perfected between the parties with the
noncompliance of the conditions provided in the binding receipt, and concealment, as legally defined,
having been committed by herein private respondent.

4.Lalican v. The Insular Life Assurance Co., Ltd., G.R. No. 183526, Aug. 25, 2009

CASE TITLE: VIOLETA R. LALICAN, petitioner , vs. THE INSULAR LIFE ASSURANCE COMPANY LIMITED,
AS REPRESENTED BY THE PRESIDENT VICENTE R. AVILON, respondent.

DOCTRINE: An insurable interest is one of the most basic and essential requirements in an insurance
contract. In general, an insurable interest is that interest which a person is deemed to have in the subject
matter insured, where he has a relation or connection with or concern in it, such
that the person will derive pecuniary benefit or advantage from the preservation of the subject matter
insured and will suffer pecuniary loss or damage from its destruction, termination, or injury by the
happening of the event insured against. The existence of an insurable interest gives a
person the legal right to insure the subject matter of the policy of insurance. Section 10 of the Insurance
Code indeed provides that every person has an insurable interest in his own life. Section 19 of the same
code also states that an interest in the life or health of a person insured must exist when the insurance
takes effect, but need not exist thereafter or when the loss occurs.

FACTS: Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio). During his lifetime, Eulogio
applied for an insurance policy with Insular Life. On 24 April 1997, Insular Life, through Josephine Malaluan
(Malaluan), its agent in Gapan City, issued in favor of Eulogio Policy No. 9011992, which contained a 20-
Year Endowment Variable Income Package Flexi Plan worth P500,000.00, with two riders valued at P
500,000.00 each. Thus, the value of the policy amounted to P1,500,000.00. Violeta was named as the
primary beneficiary.

Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a quarterly basis
in the amount of 8,062.00, payable every 24 April, 24 July, 24 October and 24 January of each year, until
the end of the 20-year period of the policy. According to the Policy Contract, there was a grace period of
31 days for the payment of each premium subsequent to the first. If any premium was not paid on or
before the due date, the policy would be in default, and if the premium remained unpaid until the end of
the grace period, the policy would automatically lapse and become void. Eulogio paid the premiums due
on 24 July 1997 and 24 October 1997. However, he failed to pay the premium due on 24 January 1998,
even after the lapse of the grace period of 31 days. Policy No. 9011992, therefore, lapsed and became
void.

Eulogio submitted to the Cabanatuan District Office of Insular Life, through Malaluan, on 26 May
1998, an Application for Reinstatement of Policy No. 9011992, together with the amount of P 8,062.00 to
pay for the premium due on 24 January 1998. In a letter dated 17 July 1998, Insular Life notified Eulogio
that his Application for Reinstatement could not be fully processed because, although he already deposited
P8,062.00 as payment for the 24 January 1998 premium, he left unpaid the overdue interest thereon
amounting to P322.48. Thus, Insular Life instructed Eulogio to pay the amount of interest and to file
another application for reinstatement. Eulogio was likewise advised by Malaluan to pay the premiums that
subsequently became due on 24 April 1998 and 24 July 1998, plus interest. On 17 September 1998,
Eulogio went to Malaluans house and submitted a second Application for Reinstatement of Policy No.
9011992, including the amount of P17,500.00, representing payments for the overdue interest on the
premium for 24 January 1998, and the premiums which became due on 24 April 1998 and 24 July 1998.
As Malaluan was away on a business errand, her husband received Eulogios second Application for
Reinstatement and issued a receipt for the amount Eulogio deposited. A while later, on the same day, 17
September 1998, Eulogio died of cardio-respiratory arrest secondary to electrocution.

ISSUE:Whether or not Eulogio had an existing insurable interest in his own life until the day of his death
in order to have the insurance policy validly reinstated.

HELD:NO. An insurable interest is one of the most basic and essential requirements in an insurance
contract. In general, an insurable interest is that interest which a person is deemed to have in the subject
matter insured, where he has a relation or connection with or concern in it, such
that the person will derive pecuniary benefit or advantage from the preservation of the subject matter
insured and will suffer pecuniary loss or damage from its destruction, termination, or injury by the
happening of the event insured against. The existence of an insurable interest gives a
person the legal right to insure the subject matter of the policy of insurance. Section 10 of the Insurance
Code indeed provides that every person has an insurable interest in his own life. Section 19 of the same
code also states that an interest in the life or health of a person insured must exist when the insurance
takes effect, but need not exist thereafter or when the loss occurs.

Upon more extensive study of the Petition, it becomes evident that the matter of insurable interest is
entirely irrelevant in the case at bar. It is actually beyond question that while Eulogio was still alive, he
had an insurable interest in his own life, which he did insure under Policy No. 9011992. The real point of
contention herein is whether Eulogio was able to reinstate the lapsed insurance policy on his life before
his death on 17 September 1998.
Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30 August 2007
Decision that Policy No. 9011992 lapsed because of Eulogio's non-payment of the premiums which became
due on 24 April 1998 and 24 July 1998. Policy No. 9011992 had lapsed and become
void earlier, on 24 February 1998, upon the expiration of the 31-day grace period for payment of the
premium, which fell due on 24 January 1998, without any payment having been made.

That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogio's filing of his first Application
for Reinstatement with Insular Life, through Malaluan, on 26 May 1998, constitutes an admission that
Policy No. 9011992 had lapsed by then. Insular Life did not act on Eulogio's first Application for
Reinstatement, since the amount Eulogio simultaneously deposited was sufficient to cover only the
P8,062.00 overdue premium for 24 January 1998, but not the P322.48 overdue interests thereon. On 17
September 1998, Eulogio submitted a second Application for Reinstatement to Insular Life, again through
Malaluan, depositing at the same time P17,500.00, to cover payment for the overdue interest on the
premium for 24 January 1998, and the premiums that had also become due on 24 April 1998 and 24 July
1998. On the very same day, Eulogio passed away.

To reinstate a policy means to restore the same to premium-paying status after it has been permitted to
lapse. Both the Policy Contract and the Application for Reinstatement provide for specific conditions for
the reinstatement of a lapsed policy.

In the instant case, Eulogio's death rendered impossible full compliance with the conditions for
reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his Application for
Reinstatement and deposit the amount for payment of his overdue premiums and interests thereon with
Malaluan; but Policy No. 9011992 could only be considered reinstated after the Application for
Reinstatement had been processed and approved by Insular Life during Eulogio's lifetime and good health.

Malaluan did not have the authority to approve Eulogio's Application for Reinstatement. Malaluan still had
to turn over to Insular Life Eulogio's Application for Reinstatement and accompanying deposits, for
processing and approval by the latter. The Court agrees with the RTC that the conditions for reinstatement
under the Policy Contract and Application for Reinstatement were written in clear and simple language,
which could not admit of any meaning or interpretation other than those that they so obviously embody.
A construction in favor of the insured is not called for, as there is no ambiguity in the said provisions in
the first place. The words thereof are clear, unequivocal, and simple enough so as to preclude any mistake
in the appreciation of the same.

Eulogio's death, just hours after filing his Application for Reinstatement and depositing his payment for
overdue premiums and interests with Malaluan, does not constitute a special circumstance that can
persuade this Court to already consider Policy No. 9011992 reinstated. Said circumstance
cannot override the clear and express provisions of the Policy Contract and Application for Reinstatement,
and operate to remove the prerogative of Insular Life thereunder to approve or disapprove the Application
for Reinstatement. Even though the Court commiserates with Violeta, as the tragic and fateful turn of
events leaves her practically empty-handed, the Court cannot arbitrarily burden Insular Life with the
payment of proceeds on a lapsed insurance policy. Justice and fairness must equally apply to all parties
to a case. Courts are not permitted to make contracts for the parties. The function and duty of the courts
consist simply in enforcing and carrying
out the contracts actually made. Policy No. 9011992 remained lapsed and void, not having been
reinstated in accordance with the Policy Contract and Application for Reinstatement before Eulogio's death.
Violeta, therefore, cannot claim any death benefits from Insular Life on the basis of Policy No. 9011992;
but she is entitled to receive the full refund of the payments made by Eulogio
thereon.

5.Insular Life Assurance Co. v. Ebrado, 80 SCRA 181 {1977}.

CASE TITLE: THE INSULAR LIFE ASSURANCE COMPANY, LTD. , plaintiff-appellee, vs. CARPONIA T.
EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants .

DOCTRINE: A beneficiary is like a donee, because from the premiums of the policy which the insured pays
out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence,
the proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts.

FACTS: Buenaventura C. Ebrado designated Carponia T. Ebrado as the revocable beneficiary in his policy.
He referred to her as his wife. Upon Buenaventura C. Ebrado’s death, Carponia T. Ebrado filed with the
insurer a claim for the proceeds of the policy as the designated beneficiary therein, although she admits
that she and the insured Buenaventura C. Ebrado were merely living as husband and wife without the
benefit of marriage. Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured.
She asserts that she is the one entitled to the insurance proceeds, not the common-law wife, Carponia T.
Ebrado.

Insular Life Assurance Co., Ltd. commenced an action for Interpleader. The trial court rendered judgment
declaring, among others, Carponia T. Ebrado disqualified from becoming beneficiary of the insured
Buenaventura Cristor Ebrado and directing the payment of the insurance proceeds to the estate of the
deceased insured. Carponia T. Ebrado appealed to the Court of Appeals, but Appellate Court certified the
case to Supreme Court as involving only questions of law.

ISSUE: 1. Can a common-law wife named as beneficiary in the life insurance policy of a legally married
man claim the proceeds thereof in case of death of the latter?

2. Should conviction for adultery or concubinage be exacted before the disabilities mentioned in Article
739 may effectuate?

HELD: 1. NO. Common-law wife cannot claim the proceeds of a legally married man.

When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is
governed by the general rules of the civil law regulating contracts. And under Article 2012 of the same
Code, "any person who is forbidden from receiving any donation under Article 739 cannot be named
beneficiary of a life insurance policy by the person who cannot make a donation to him." Common-law
spouses are, definitely, barred from receiving donations from each other.

In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is
concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee,
because from the premiums of the policy which the insured pays out of liberality, the beneficiary will
receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the
new Civil Code should equally operate in life insurance contracts.

As above pointed out, a beneficiary in a life insurance policy is no different from a donee. Both the
recipients of pure beneficence. So long as marriage remains the threshold of family laws, reason and
morality dictate that the impediments imposed upon married couple should likewise be imposed upon
extra-marital relationship. If legitimate relationship is circumscribed by these legal disabilities, with more
reason should an illicit relationship be restricted by these disabilities.

2. No. Conviction for adultery or concubinage is not necessary.

More specifically, with regard to the disability on "persons who were guilty of adultery or concubinage at
the time of the donation," Article 739 itself provides that no criminal conviction for
the disqualifying offense is a condition precedent. In fact, it cannot even be gleaned from the aforequoted
provision that a criminal prosecution is needed.

On the contrary, the law plainly states that the guilt of the party may be proved "in the same action" for
declaration of nullity of donation. And, it would be sufficient if evidence preponderates upon the guilt of
the consort for the offense indicated. The quantum of proof in criminal cases is not demanded.

In the case before Us, the requisite proof of common-law relationship between the insured and the
beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial
conference of the case. These stipulations are nothing less than judicial admissions which, as a
consequence, no longer require proof and cannot be contradicted. A fortiori , on the basis of these
admissions, a judgment may be validly rendered without going through the rigors of a trial for the sole
purpose of proving the illicit liaison between the insured and the beneficiary.

6.Filipino Merchants Insurance Co., Inc. v CA, 179 SCRA 638).

CASE TITLE: Filipino Merchants Insurance Co., Inc vs CA

DOCTRINE: An "all risks policy" should be read literally as meaning all risks whatsoever and covering all
losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance
contracts, have not acquired any technical meaning. They are construed by the courts in their ordinary
and common acceptance. Thus, the terms have been taken to mean that which happens by chance or
fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An accident
is an event that takes place without one's foresight or expectation; an event that proceeds from an
unknown cause, or is an unusual effect of a known cause and, therefore, not expected.

FACTS:
In 1976, private respondent insured its shipment with petitioner insurance company for the sum of
P267,653.59 for the goods described as 60 metric tons of fishmeal in new gunny bags of 90 kilos each
from Thailand to Manila against all risks under warehouse to warehouse terms.

The fishmeal in 666 new gunny bags were unloaded from the ship at Manila unto the arrastre contractor
E. Razon, Inc. and defendant’s surveyor ascertained and certified that 227 bags were in bad order
condition as jointly surveyed by the ship’s agent and the arrastre contractor.

Consequently, the private respondent made a formal claim against the petitioner Filipino Merchants
Insurance Company for P51,568.62. A formal claim statement was also presented by the private
respondent against the vessel, but the petitioner Filipino Merchants Insurance Company refused to pay
the claim.

Later, the court rendered judgment in favor of the private respondent. On appeal, the respondent court
affirmed the decision of the lower court. A motion for reconsideration of the aforesaid decision was
denied, hence this petition.

ISSUE:Whether or not the insurer is liable under an “all risks” policy.

HELD: Yes. Petitioner contends that an “all risks” marine policy has a technical meaning in insurance in
that before a claim can be compensable it is essential that there must be “some fortuity, ” “casualty” or
“accidental cause” to which the alleged loss is attributable and the failure of herein private respondent,
upon whom lay the burden, to adduce evidence showing that the alleged loss to the cargo in question
was due to a fortuitous event precludes his right to recover from the insurance policy. However, the SC
ruled that the above contention is untenable.

A marine insurance policy providing that the insurance was to be “against all risks” must be construed
as creating a special insurance and extending to other risks than are usually contemplated, and covers
all losses except such as arise from the fraud of the insured. The burden of the insured, therefore, is to
prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the
burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the
insured the burden of proving the precise cause of the loss or damage would be inconsistent with the
broad protective purpose of “all risks” insurance.

In the present case, there being no showing that the loss was caused by any of the excepted perils, the
insurer is liable under the policy.

7. Amando Geogonia v. Court of Appeals (241 SCRA 152, 161 {1995}

CASE TITLE:

DOCTRINE: The rationale behind the incorporation of "other insurance" clause in fire policies is to prevent
overinsurance and thus avert the perpetration of fraud. When a property owner obtains insurance from
two or more insurers in a total amount that exceeds the property's value, the insured may have an
inducement to destroy the property for the purpose of collecting the insurance. The public as well as the
insurer is interested in preventing a situation in which a fire would be profitable to the insured.

FACTS: Petitioner obtained fire insurance for his stocks-in-trade with respondent for Ph 100,000 and
another with Mercantile Insurance Co. for Ph 50,000 covering the same stocks-in-trade with a total value
of Ph 392,130.50. The policy with respondent has a provision in Clause #3 that will avoid the policy if
another insurance is obtained for the same interest, but will not be effected if total insurance in force does
not exceed Ph 200,000.

Fire broke in May 1990 and all the stocks-in-trade were destroyed, which prompted him to file a claim
against the respondent insurer. Private respondent denied the claim because it found that at the time of
the loss the petitioner's stocks-in-trade were covered by fire insurance policies No. for P100,000.00 each,
issued by the Cebu Branch of the Philippines First Insurance Co., Inc. The basis of the private respondent's
denial was the petitioner's alleged violation of Condition 3 of the policy.
Petitioner then filed a complaint 5 against the private respondent with the Insurance Commission (Case
No. 3340) for the recovery of P100,000.00 under fire insurance policy. The Insurance Commission ruled
in favor of petitioner and ordered respondent to pay the claim plus Ph 10,000 attorney’s fees.

On appeal, the Court of Appeals reversed the decision of the Insurance Commission because it found that
the petitioner knew of the existence of the two other policies issued by the PFIC.

ISSUE: Whether there was double insurance that avoids the insurance policy.

HELD: No.

Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by law.
Its incorporation in the policy is allowed by Section 75 of the Insurance Code which provides that "[a]
policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of
an immaterial provision does not avoid the policy." Such a condition is a provision which invariably appears
in fire insurance policies and is intended to prevent an increase in the moral hazard. It is commonly known
as the additional or "other insurance" clause and has been upheld as valid and as a warranty that no other
insurance exists. Its violation would thus avoid the policy. However, in order to constitute a violation, the
other insurance must be upon the same subject matter, the same interest therein, and the same risk.

As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable
interest therein and both interests may be covered by one policy, or each may take out a separate policy
covering his interest, either at the same or at separate times. The mortgagor's insurable interest covers
the full value of the mortgaged property, even though the mortgage debt is equivalent to the full value
of the property. The mortgagee's insurable interest is to the extent of the debt, since the property is
relied upon as security thereof, and in insuring he is not insuring the property but his interest or lien
thereon. His insurable interest is prima facie the value mortgaged and extends only the amount of the
debt, not exceeding the value of the mortgaged property. Thus, separate insurances covering different
insurable interests may be obtained by the mortgagor and the mortgagee.

A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual
practice. The mortgagee may be made the beneficial payee in several ways. He may become the assignee
of the policy with the consent of the insurer; or the mere pledgee without such consent; or the original
policy may contain a mortgage clause; or a rider making the policy payable to the mortgagee "as his
interest may appear" may be attached; or a "standard mortgage clause," containing a collateral
independent contract between the mortgagee and insurer, may be attached; or the policy, though by its
terms payable absolutely to the mortgagor, may have been procured by a mortgagor under a contract
duty to insure for the mortgagee's benefit, in which case the mortgagee acquires an equitable lien upon
the proceeds.

The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a mortgage
clause which reads:cdasia "Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as
their interest may appear subject to the terms of the policy." This is clearly a simple loss payable clause,
not a standard mortgage clause.

Condition 3 of the subject policy leads us to the conclusion that (a) the prohibition applies only to double
insurance, and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of the total
 policies obtained.

8.Great Pacific Life Assurance corp. v Court of Appeals (316 SCRA 677)

CASE TITLE: GREAT PACIFIC LIFE ASSURANCE CORP., petitioner, vs. CA AND MEDARDA V.
LEUTERIO, respondents

DOCTRINES:
1. The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage
redemption insurance," is a device for the protection of both the mortgagee and the mortgagor. On
the part of the mortgagee, it has to enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds
from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs
of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the
mortgagor under such a concept so that in the event of death; the mortgage obligation will be
extinguished by the application of the insurance proceeds to the mortgage indebtedness.
Consequently, where the mortgagor pays the insurance premium under the group insurance policy,
making the loss payable to the mortgagee, the insurance is on the mortgagor's interest, and the
mortgagor continues to be a party to the contract. In this type of policy insurance, the mortgagee is
simply an appointee of the insurance fund, such loss-payable clause does not make the mortgagee a
party to the contract.
2. Insured may be regarded as the real party in interest, although he has assigned the policy for the
purpose of collection, or has assigned as collateral security any judgment he may obtain
3. The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind
the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense
and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer.

FACTS: A contract of group life insurance was executed between Great Pacific Life Assurance Corporation
and Development Bank of the Philippines. Grepalife agreed to insure the lives of eligible housing loan
mortgagors of DBP. Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership
in the group life insurance plan. In an application form, Dr. Leuterio answered questions concerning his
health condition as follows:

"7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer,
diabetes, lung, kidney or stomach disorder or any other physical impairment?
Answer: No. If so, give details ___________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No."

Grepalife issued Certificate No. B-18558, as insurance coverage of Dr. Leuterio, to the extent of his DBP
mortgage indebtedness amounting to 86,200.00 Php. Dr. Leuterio died due to "massive cerebral
hemorrhage." Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the claim alleging
that Dr. Leuterio was not physically healthy when he applied for insurance coverage. Grepalife insisted that
Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his death. Allegedly,
such non-disclosure constituted concealment that justified the denial of the claim.

The widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a complaint with the RTC against
Grepalife for "Specific Performance with Damages." During the trial, Dr. Hernando Mejia, who issued the
death certificate, was called to testify. Dr. Mejia's findings, based partly from the information given by the
respondent widow, stated that Dr. Leuterio complained of headaches presumably due to high blood pressure.
The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not
ruled out. The trial court ruled in favor of the respondent widow and against Grepalife. The CA sustained the
trial court's decision. Hence, the present petition.

ISSUES:
1. Whether the widow (not DBP) is the real party in interest and has legal standing to file the suit.
2. Whether the CA erred in not finding that Dr. Leuterio concealed that he had hypertension, which
would vitiate the insurance contract.

HELD:
1. YES. Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real
party in interest, hence the trial court acquired no jurisdiction over the case. It argues that when the
CA affirmed the trial court's judgment, Grepalife was held liable to pay the proceeds of insurance
contract in favor of DBP, the indispensable party who was not joined in the suit.

To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this
type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage
redemption insurance," is a device for the protection of both the mortgagee and the mortgagor. On the part
of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise
of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be
applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the
obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the
event of death; the mortgage obligation will be extinguished by the application of the insurance proceeds to
the mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium under the
group insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagor's
interest, and the mortgagor continues to be a party to the contract. In this type of policy insurance, the
mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the
mortgagee a party to the contract.

Section 8 of the Insurance Code provides:

"Unless the policy provides, where a mortgagor of property effects insurance in his own
name providing that the loss shall be payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor,
who does not cease to be a party to the original contract, and any act of his, prior to the
loss, which would otherwise avoid the insurance, will have the same effect, although the
property is in the hands of the mortgagee, but any act which, under the contract of
insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein
named, with the same effect as if it had been performed by the mortgagor."
The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the
policy stating that: "In the event of the debtor's death before his indebtedness with the Creditor [DBP] shall
have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and
the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the
debtor." When DBP submitted the insurance claim against petitioner, the latter denied payment thereof,
interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt from
the mortgagor and took the necessary action of foreclosure on the residential lot of the private respondent.
In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co. we held:
"Insured, being the person with whom the contract was made, is primarily the proper person
to bring suit thereon. . . . Subject to some exceptions, insured may thus sue, although the
policy is taken wholly or in part for the benefit of another person named or unnamed, and
although it is expressly made payable to another as his interest may appear or otherwise. .
. . Although a policy issued to a mortgagor is taken out for the benefit of the mortgagee and
is made payable to him, yet the mortgagor may sue thereon in his own name, especially
where the mortgagee's interest is less than the full amount recoverable under the policy, . .
. .'
And in volume 33, page 82, of the same work, we read the following:
``Insured may be regarded as the real party in interest, although he has assigned the policy
for the purpose of collection, or has assigned as collateral security any judgment he may
obtain."
And since a policy of insurance upon life or health may pass by transfer, will or succession to any person,
whether he has an insurable interest or not, and such person may recover it whatever the insured might
have recovered, the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

2. NO. The second assigned error refers to an alleged concealment that the petitioner interposed
as its defense to annul the insurance contract. Petitioner contends that Dr. Leuterio failed to disclose
that he had hypertension, which might have caused his death. Concealment exists where the assured
had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that
he should communicate it to the assured, but he designedly and intentionally withholds the same.

Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as supported by
the information given by the widow of the decedent. Grepalife asserts that Dr. Mejia's technical diagnosis of
the cause of death of Dr. Leuterio was a duly documented hospital record, and that the widow's declaration
that her husband had "possible hypertension several years ago" should not be considered as hearsay, but
as part of res gestae.
On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on
the body of the deceased. As the attending physician, Dr. Mejia stated that he had no knowledge of Dr.
Leuterio's previous hospital confinement. Dr. Leuterio's death certificate stated that hypertension was only
"the possible cause of death." The private respondent's statement, as to the medical history of her husband,
was due to her unreliable recollection of events. Hence, the statement of the physician was properly
considered by the trial court as hearsay.

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. In the case
at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay
the proceeds of the insurance.
Summarily stated, the SC found the petition not meritorious. Contrary to petitioner's allegations, there was
no sufficient proof that the insured had suffered from hypertension. Aside from the statement of the insured's
widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the petitioner
had not proven nor produced any witness who could attest to Dr. Leuterio's medical history. Clearly, it had
failed to establish that there was concealment made by the insured, hence it cannot refuse payment of the
claim.
 9.Cha v. CA, 277 SCRA 690 {1997}.

CASE TITLE: Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC. vs.
COURT OF APPEALS and CKS DEVELOPMENT CORPORATION,

DOCTRINE: (in Non-Life Insurance) Insurable interest in the property insured must exist at the
time the insurance takes effect and at the time the loss occurs.

Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some
person having an insurable interest in the property insured

FACTS: 1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with
private respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5 October 1988.

2. One of the stipulations of the one (1) year lease contract states:

18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and
effects placed at any stall or store or space in the leased premises without first obtaining the
written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without
the consent of the LESSOR then the policy is deemed assigned and transferred to the LESSOR for
its own benefit; . . .

3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by
fire the merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United
Insurance Co., Inc without the written consent of private respondent CKS.

4. On the day that the lease contract was to expire, fire broke out inside the leased premises.

5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote
the insurer (United) a demand letter asking that the proceeds of the insurance contract (between the Cha
spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses.

6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United.

7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision * ordering therein
defendant United to pay CKS the amount of P335,063.11 and defendant Cha spouses to pay P50,000.00
as exemplary damages, P20,000.00 as attorney's fees and costs of suit.

8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision ** dated 11

January 1996, affirming the trial court decision, deleting however the awards for exemplary damages and
attorney's fees. A motion for reconsideration by United was denied on 29 March 1996.

ISSUE: whether or not the aforequoted paragraph 18 of the lease contract entered into between CKS and
the Cha spouses is valid

HELD: NO. The reason is that CKS has no insurable interest in the goods and merchandise and such
stipulation for automatic assignment is void for being for being contrary to law and/or public policy
It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be
contrary to law, morals, good customs, public order or public policy.

Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of
some person having an insurable interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must
exist at the time the insurance takes effect and at the time the loss occurs.

The basis of such requirement of insurable interest in property insured is based on sound public policy:
to prevent a person from taking out an insurance policy on property upon which he has no insurable
interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the
contract of insurance is a mere wager which is void under Section 25 of the Insurance Code, which
provides:
Sec. 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured
has or has not any interest in the property insured, or that the policy shall be received as proof of
such interest, and every policy executed by way of gaming or wagering, is void.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and
merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code which
provide:
Sec. 17. The measure of an insurable interest in property is the extent to which the insured might be
damnified by loss of injury thereof.

Therefore, respondent CKS cannot, under the Insurance Code — a special law — be validly a beneficiary
of the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest
over said merchandise remains with the insured, the Cha spouses.

The automatic assignment of the policy to CKS under the provision of the lease contract
previously quoted is void for being contrary to law and/or public policy. The proceeds of the
fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein
co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the fire insurance
policy to a person (CKS) who has no insurable interest in the property insured.

The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses obtained
a fire insurance policy over their own merchandise, without the consent of CKS, is a separate and distinct
issue which we do not resolve in this case

10. UCPB General Insurance Co., Inc. v. Masagana Telemart, Inc. (308 SCRA 259)

CASE TITLE: UCPB General Insurance Co., Inc. v. Masagana Telemart, Inc.

DOCTRINE:

An insurance policy, other than life, issued originally or on renewal, is not valid and binding until actual
payment of the premium. Any agreement to the contrary is void. The parties may not agree expressly
or impliedly on the extension of credit or time to pay the premium and consider the policy binding before
actual payment.

FACTS:

On April 15, 1991, UCPB issued five (5) insurance policies covering Masagana's various properties
against fire.

On April 6, 1992, UCPB gave written notice to Masagana of the non-renewal of the policies.

On June 13, 1992, fire razed respondent's property covered by three of the insurance policies petitioner
issued.

On July 13, 1992 (one month later), respondent presented to petitioner's cashier five (5)
manager's checks representing premium for the renewal of the policies from May 22, 1992 to
May 22, 1993.

No notice of loss was filed by respondent under the policies prior to July 14, 1992.

On July 14, 1992, respondent filed with petitioner its claim for indemnification of the insured property
razed by fire. On the same day, petitioner returned to respondent the manager's checks it tendered and
at the same time rejected its claim.

Respondent thus filed a civil complaint against petitioner with the Regional Trial Court (RTC) for recovery
of the face value of the policies. The RTC rendered judgment in favor of the plaintiff. The Court of Appeals
affirmed the decision rendered by the RTC.

ISSUE:

Whether or not the fire insurance policies had expired and had been extended by an implied credit
agreement.
[though actual payment of premium was tendered on a latter date after the occurrence of the risk (fire)
insured against]

HELD:

The answer is easily found in the Insurance Code. No, an insurance policy, other than life, issued
originally or on renewal, is not valid and binding until actual payment of the premium. Any
agreement to the contrary is void. The parties may not agree expressly or impliedly on the extension of
credit or time to pay the premium and consider the policy binding before actual payment.

The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo, cited by the Court of Appeals, is not applicable.
In that case, payment of the premium was in fact actually made on December 24, 1981, and the fire
occurred on January 18, 1982. Here, the payment of the premium for renewal of the policies was
tendered on July 13, 1992, a month after the fire occurred on June 13, 1992. The assured did not
even give the insurer a notice of loss within a reasonable time after occurrence of the fire.
 11. Phil. Pryce Assurance Corp. v. CA, 230 SCRA 164 {1994}.

CASE TITLE: PHILIPPINE PRYCE ASSURANCE CORPORATION, Petitioner, -versus- COURT OF APPEALS,
et al, Respondent

DOCTRINE: The Insurance Code states that: "SECTION 177. The surety is entitled to payment of the premium
as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of
suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except
where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective
of whether or not the premium has been paid by the obligor to the surety. . . ." The above provision outrightly
negates the petitioner's first defense. In a desperate attempt to escape liability, petitioner further asserts that
the above provision is not applicable because the respondent allegedly had not accepted the surety bond,
hence could not have delivered the goods to Sagum Enterprises.

FACTS: Petitioner, Interworld Assurance Corporation (the company now carries the corporate name Philippine
Pryce Assurance Corporation), was the butt of the complaint for collection of sum of money, filed on May 13,
1988 by respondent, Gegroco, Inc. before the Makati Regional Trial Court, Branch 138. The complaint alleged
that petitioner issued two surety bonds (No. 0029, dated July 24, 1987 and No. 0037, dated October 7, 1987)
in behalf of its principal Sagum General Merchandise for FIVE HUNDRED THOUSAND (P500,000.00) PESOS
and ONE MILLION (1,000,000.00) PESOS, respectively. On June 16, 1988, summons, together with the copy
of the complaint, was served on petitioner. Within the reglementary period, two successive motions were filed
by petitioner praying for a total of thirty (30) days extension within which to file a responsive pleading. In its
Answer, dated July 29, 1988, but filed only on August 4, 1988, petitioner admitted having executed the said
bonds, but denied liability because allegedly 1) the checks which were to pay for the premiums bounced and
were dishonored hence there is no contract to speak of between petitioner and its supposed principal; and 2)
that the bonds were merely to guarantee payment of its principal’s obligation, thus, excussion is necessary.
After the issues had been joined, the case was set for pre-trial conference on September 29, 1988. The
petitioner received its notice on September 9, 1988, while the notice addressed to its counsel was returned
to the trial court with the notation "Return to Sender, Unclaimed." On the scheduled date for pre-trial
conference, only the counsel for petitioner appeared while both the representative of respondent and its
counsel were present. The counsel for petitioner manifested that he was unable to contract the Vice-President
for operations of petitioner, although his client intended to file a third party complaint against its principal.
Hence, the pre-trial was re-set to October 14, 1988. On October 14, 1988, petitioner filed a "Motion with
Leave to Admit Third-Party Complaint" with the Third-Party Complaint attached. On this same day, in the
presence of the representative for both petitioner and respondent and their respective counsel, the pre-trial
conference was re-set to December 1, 1988. Meanwhile on November 29, 1988, the court admitted the Third
Party Complaint and ordered service of summons on third party defendants. On scheduled conference in
December, petitioner and its counsel did not appear notwithstanding their notice in open court. 5 The pre-trial
was nevertheless re-set to February 1, 1989. However, when the case was called for pre-trial conference on
February 1, 1989, petitioner was again not represented by its officer or its counsel, despite being duly notified.
Hence, upon motion of respondent, petitioner was considered as in default and respondent was allowed to
present evidence ex-parte, which was calendared on February 24, 1989. Petitioner received a copy of the
Order of Default and a copy of the Order setting the reception of respondent’s evidence ex-parte, both dated
February 1, 1989, on February 15, 1989.

ISSUE: Whether or not Interworld Assurance Corp. should be liable for surety bond that is issued as payment
for the premium.

HELD: YES.
There is reason to believe that the petitioner does not really have a good defense. Petitioner hinges its defense
 on two arguments, namely: a) that the checks issued by its principal which were supposed to pay for the
premiums, bounced, hence there is no contract of surety to speak of; and 2) that as early as 1986 and
covering the time of the Surety Bond, Interworld Assurance Company (now Phil. Pryce) was not yet authorized
by the Insurance Commission to issue such bonds. The Insurance Code states that: "SECTION 177. The surety
is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered
to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium
therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes
valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety.
. . ." The above provision outrightly negates the petitioner's first defense. In a desperate attempt to escape
liability, petitioner further asserts that the above provision is not applicable because the respondent allegedly
had not accepted the surety bond, hence could not have delivered the goods to Sagum Enterprises. This
statement clearly intends to muddle the facts as found by the trial court and which are on record.

In the first place, Petitioner, in its answer, admitted to have issued the bonds subject matter of the original
action. Secondly, the testimony of Mr. Leonardo T. Guzman, witness for the respondent, reveals the following:
"Q. What are the conditions and terms of sales you extended to Sagum General Merchandise? A. First, we
required him to submit to us Surety Bond to guaranty payment of the spare parts to be purchased. Then we
sell to them on 90 days credit. Also, we required them to issue post-dated checks. Q. Did Sagum General
Merchandise comply with your surety bond requirement? A. Yes. They submitted to us and which we have
accepted two surety bonds. Q Will you please present to us the aforesaid surety bonds? A. Interworld
Assurance Corp. Surety Bond No. 0029 for P500,000 dated July 24, 1987 and Interworld Assurance Corp.
Surety Bond No. 0037 for P1,000.000 dated October 7, 1987." 20 Likewise attached to the record are exhibits
C to C-18 21 consisting of delivery invoices addressed to Sagum General Merchandise proving that parts were
purchased, delivered and received. On the other hand, petitioner’s defense that it did not have authority to
issue a Surety Bond when it did is an admission of fraud committed against Respondent. No person can claim
benefit from the wrong he himself committed. A representation made is rendered conclusive upon the person
making it and cannot be denied or disproved as against the person relying thereon.

12. Philamcare health systems, Inc. v. Court of appeals and Julita trinos, G.R.no. 125678,
March 18, 2002

CASE TITLE: Philamcare Health Systems, Inc. vs. Court of Appeals and Julita Trinos

DOCTRINE: The health care agreement was in the nature of non-life insurance, which is primarily a contract
of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or
other stipulated contingencies, the health care provider must pay for the same to the extent agreed upon
under the contract.

FACTS: Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with
petitioner Philamcare Health Systems, Inc. In the standard application form, he answered NO to the following
question: Have you or any of your family members ever consulted or been treated for high blood pressure,
heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details). The application
was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was issued
Health Care Agreement No. P010194. Under the agreement, respondents husband was entitled to avail of
hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of out-
patient benefits such as annual physical examinations, preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March
1, 1990, then from March 1, 1990 to June 1, 1990. During the period of his coverage, Ernani suffered a heart
attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While
her husband was in the hospital, respondent tried to claim the benefits under the health care agreement.
However, petitioner denied her claim saying that the Health Care Agreement was void. According to petitioner,
there was a concealment regarding Ernanis medical history. Doctors at the MMC allegedly discovered at the
time of Ernanis confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the
application form. Petitioner further argued that it was not an insurance company, which is governed by the
Insurance Commission, but a Health Maintenance Organization under the authority of the Department of
Health. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent was
constrained to bring him back to the Chinese General Hospital where he died on the same day. Consequently,
respondent instituted with the Regional Trial Court of Manila an action for damages against petitioner to ask
for reimbursement, which was granted and was affirmed by the Court of Appeals, hence, this petition.

ISSUE: (1) Whether the Health Care Agreement was an insurance contract;
(2) Whether the Health Care Agreement was void on the ground of concealment.

HELD:
(1) YES. 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. An insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
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
5. In consideration of the insurers promise, the insured pays a premium.

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which
may damnify a person having an insurable interest against him, may be insured against. Every person has an
insurable interest in the life and health of himself. Section 10 provides: Every person has an insurable interest
in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom he has
a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting property or
service, of which death or illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him depends.

In the case at bar, the insurable interest of respondents' husband in obtaining the health care agreement was
his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract
of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or
other stipulated contingencies, the health care provider must pay for the same to the extent agreed upon
under the contract.

(2) NO. The answer assailed by petitioner was in response to the question relating to the medical history of
the applicant. This largely depends on opinion rather than fact, especially coming from the respondent's
husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made
in good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus, although
false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will
not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at
a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the
statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon
such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and
one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief,
that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his
knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud.

The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider
or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under
the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same
to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is
hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits
which he has prepaid.

Under Section 27 of the Insurance Code, concealment entitles the injured party to rescind a contract
of insurance. The right to rescind should be exercised previous to the commencement of an action
on the contract. In this case, no rescission was made. Besides, the cancellation of health care agreements
as in insurance policies require the concurrence of the following conditions: 1. Prior notice of cancellation to
insured; 2. Notice must be based on the occurrence after effective date of the policy of one or more
of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address
shown in the policy; 4. Must state the grounds relied upon provided in Section 64 of the Insurance Code
and upon request of insured, to furnish facts on which cancellation is based.

None of the above pre-conditions was fulfilled in this case. When the terms of an insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from
noncompliance 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. This
is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts,
such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably
susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary
clauses of doubtful import should be strictly construed against the provider.

WHEREFORE, in view of the foregoing, the petition is DENIED.

13. Sunlife Assurance Company of Canada v. CA and Rolando and Bernarda bacani, 246 SCRA
268

CASE TITLE: SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner, vs. The Hon. COURT OF APPEALS
and Spouses ROLANDO and BERNARDA BACANI, respondents.

DOCTRINE:

FACTS:
● On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from petitioner.
It was valued P100,000.00, with double indemnity in case of accidental death. The designated
beneficiary was his mother, respondent Bernarda Bacani.
● On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim with
 petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner conducted an
investigation and its findings prompted it to reject the claim.
● In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclosed
material facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable.
A check representing the total premiums paid in the amount of P10,172.00 was attached to said letter.
● Petitioner claimed that the insured gave false statements in his application when he answered the
questions relating to his health.
● The deceased limited his answer to a consultation for cough and flu complications. Petitioner discovered
that two weeks prior to his application for insurance, the insured was examined and confined at the
Lung Center of the Philippines, where he was diagnosed for renal failure. During his confinement, the
deceased was subjected to urinalysis, ultra-sonography and hematology tests.
● On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando Bacani,
filed an action for specific performance against petitioner with the RTC.
● It ruled in favor of respondents. The trial court concluded that the facts concealed by the insured were
made in good faith and under the belief that they need not be disclosed. Moreover, it held that the
health history of the insured was immaterial since the insurance policy was "non-medical."
● Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The appellate
court ruled that petitioner cannot avoid its obligation by claiming concealment because the cause of
death was unrelated to the facts concealed by the insured. It also sustained the finding of the trial
court that the matters relating to the health history of the insured were irrelevant since the petitioner
waived the medical examination prior to the approval and issuance of the insurance policy. Moreover,
the appellate court agreed with the trial court that the policy was "non-medical."

ISSUE: Whether or not the CA is correct.

HELD: NO.
● The rule that factual findings of the lower court and the appellate court are binding on this Court is not
absolute and admits of exceptions, such as when the judgment is based on a misappreciation of the
facts (Geronimo v. Court of Appeals).
● Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has no means of ascertaining.
● Materiality is to be determined not by the event, but solely by the probable and reasonable influence
of the facts upon the party to whom communication is due, in forming his estimate of the disadvantages
of the proposed contract or in making his inquiries (The Insurance Code, Sec 31). The terms of the
contract are clear. The insured is specifically required to disclose to the insurer matters relating to his
health.
● The information which the insured failed to disclose were material and relevant to the
approval and the issuance of the insurance policy. The matters concealed would have definitely
affected petitioner's action on his application, either by approving it with the corresponding adjustment
for a higher premium or rejecting the same. Moreover, a disclosure may have warranted a medical
examination of the insured by petitioner in order for it to reasonably assess the risk involved in
accepting the application.
● Thus, "good faith" is no defense in concealment. The insured's failure to disclose the fact that he
was hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about
his bonafides. It appears that such concealment was deliberate on his part.
● The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v. Philippine
American Life Insurance Company (1963), that ". . . the waiver of a medical examination [in a
non-medical insurance contract] renders even more material the information required of the
 applicant concerning previous condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer takes into consideration in deciding
whether to issue the policy or not . . . ."
● Moreover, such argument of private respondents would make Section 27 of the Insurance Code, which
allows the injured party to rescind a contract of insurance where there is concealment, ineffective.
● Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is
well settled that the insured need not die of the disease he had failed to disclose to the insurer.
It is sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the
proposed insurance policy or in making inquiries (Henson v. The Philippine American Life Insurance
Co. [1960]).
● We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance by
reason of the concealment employed by the insured. It must be emphasized that rescission was
exercised within the two-year contestability period as recognized in Section 48 of The Insurance Code.

WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and SET
ASIDE.

14. General Insurance and Surety Corporation v. Ng, G.R. No. L-14373, Jan. 30, 1960

CASE TITLE:GENERAL INSURANCE AND SURETY CORPORATION, petitioner,

vs. NG HUA, respondent.

DOCTRINE: A violation of a statement deemed to be a warranty that the property was not insured by any
other policy entitles the insurer to rescind the contract of insurance. (Sec. 69, Insurance Act) Such
misrepresentation is fatal. The materiality of non-disclosure of other insurance policies is not open to doubt.

FACTS:
On April 15, 1952, the defendant General Insurance and Surety Corporation issued its insurance Policy No.
471, insuring against fire, for one year, the stock in trade of the Central Pomade Factory owned by Ng Hua.
The next day, the Pomade factory building burned, resulting in destruction by fire of the insured properties.
Ng Hua claimed indemnity from the insurer. The defendant insurer refused to pay for various reasons, namely
(a) action was not filed in time; (b) violation of warranty; (c) submission of fraudulent claim; and (f) failure
to pay the premium.

The aforesaid Policy No. 471 contains this stipulation on the back thereof:

3. The insured shall give notice to the company of any insurance or insurances already affected, or
which may subsequently be affected, covering any of the property hereby insured, and unless such
notice be given and the particulars of such insurance or insurances be stated in or endorsed
on this Policy by or on behalf of the Company before the occurrence of any loss or damage,
all benefits under the policy shall be forfeited.

The face of the policy bore the annotation: "Co-Insurance Declared — NIL"

Ng Hua had obtained fire insurance on the same goods, for the same period of time, in the amount of
P20,000.00 from General Indemnity Co.

The Court of Appeals held that there was no violation of the above clause, inasmuch as "co-insurance exists
when a condition of the policy requires the insured to bear ratable proportion of the loss when the value of
the insured property exceeds the face value of the policy," hence it is correct to say that there is no co-
insurance here.

ISSUES:
1. Is there co-insurance in this case?
2. Is the insurer (General Insurance) liable under the policy?

HELD:

1. Yes. The co-insurance referred to by the CA is not the only kind of co-insurance. Other insurers of the
same property against the same hazard are sometimes referred as co-insurers and the ensuing
combination as co-insurance.
2. No. Considering the terms of the policy which required the insured to declare other insurances, the
statement in question must be deemed to be a warranty binding on both insurer and insured, that
there were no other insurance on the property. The annotation must be deemed to be a warranty that
the property was not insured by any other policy. Violation thereof entitles the insurer to rescind. (Sec.
69. Insurance Act) Such misrepresentation is fatal. The materiality of non-disclosure of other insurance
policies is not open to doubt.

Furthermore, even if the annotations were overlooked, the defendant insurer would still be free from
liability because there is no question that the policy issued by General Indemnity had not been stated
in nor endorsed on Policy No. 471 of defendant. And as stipulated in the above-quoted provisions of
such policy "all benefits under this policy shall be forfeited."

Note:

To avoid the disastrous effect of the misrepresentation or concealment of the other insurance policy, Ng Hua
alleges "actual knowledge" on the part of General insurance of the fact that he had taken out additional
insurance with General Indemnity. He does not say when such knowledge was acquired or imparted. If
General Insurance knew before issuing its policy or before the fire, such knowledge might
overcome the insurer's defense. However, the Court of Appeals found no evidence of such knowledge.

Assignment #9

MARINE INSURANCE – INSURANCE COMMISSIONER

1. Choa Tiek Seng v. CA, 183 SCRA 223 {1990}.

CASE TITLE: [G.R. No. 84507. March 15, 1990.]

CHOA TIEK SENG, doing business under the name and style of SENG'S COMMERCIAL
ENTERPRISES, petitioner, vs. HON. COURT OF APPEALS, FILIPINO MERCHANTS' INSURANCE
COMPANY, INC., BEN LINES CONTAINER, LTD. AND E. RAZON, INC., respondents.

DOCTRINE: An "all risks" provision of a marine policy creates a special type of insurance which extends
coverage to risks not usually contemplated and avoids putting upon the insured the burden of establishing
that the loss was due to peril falling within the policy's coverage. The insurer can avoid coverage upon
demonstrating that a specific provision expressly excludes the loss from coverage. In this case, the damage
caused to the cargo has not been attributed to any of the exceptions provided for nor is there any pretension
to this effect. Thus, the liability of respondent insurance company is clear.

FACTS:

Petitioner imported some lactose crystals from Holland. The importation involved fifteen (15) metric tons
packed in 600 6-ply paper bags with polyethylene inner bags, each bag at 25 kilos net. The goods were
loaded at the port at Rotterdam in sea vans on board the vessel "MS Benalder' as the mother vessel, and
thereafter aboard the feeder vessel "Wesser Broker V-25" of respondent Ben Lines Container, Ltd. (Ben
Lines for short). The goods were insured by the respondent Filipino Merchants' Insurance Co.,
Inc. (insurance company for short) for the sum of P98,882.35, the equivalent of US$8,765.00 plus
50% mark-up or US $13,147.50, against all risks under the terms of the insurance cargo policy.

Upon arrival at the port of Manila, the cargo was discharged into the custody of the arrastre operator
respondent E. Razon, Inc. (broker for short), prior to the delivery to petitioner through his broker. Of the
600 bags delivered to petitioner, 403 were in bad order. The surveys showed that the bad order
bags suffered spillage and loss later valued at P33,117.63.

Petitioner filed a claim for said loss dated against respondent insurance company in the amount of
P33,117.63 as the insured value of the loss.

Respondent insurance company:

● rejected the claim alleging that assuming that spillage took place while the goods were in transit,
petitioner and his agent failed to avert or minimize the loss by failing to recover spillage from the
sea van, thus violating the terms of the insurance policy sued upon; and
● that assuming that the spillage did not occur while the cargo was in transit, the said 400 bags were
loaded in bad order, and that in any case, the van did not carry any evidence of spillage.

On February 24, 1978, respondent insurance company filed a third-party complaint against
respondents Ben Lines and broker.

Respondent broker:
- filed its answer to the third-party complaint denying liability and arguing, among others, that the
petitioner has no valid cause of action against it.

● Similarly, Ben Lines filed its answer denying any liability and a special defense arguing that
respondent insurance company was not the proper party in interest and has no connection
whatsoever with Ben Lines Containers, Ltd. and that the third-party complaint has prescribed under
 the applicable provisions of the Carriage of Goods by Sea Act.

Trial court deferred resolution of the aforesaid motion after trial on the ground that the defense of
prescription did not appear to be indubitable.

CA: affirmed trial court.

The appellate court observed that the cargo was discharged from the vessel and delivered to the custody
of the broker under the clean tally sheet, that the container van containing the cargo was found with both
its seal and lock intact; and that the cargo was delivered to the possession of the petitioner by the broker
in good order and condition as shown by the clean gate passes and delivery permit.

The clean tally sheet referred to by the appellate court covers the van container and not the cargo stuffed
therein. The appellate court clearly stated that the clean tally sheet issued by the broker covers the cargo
vans received by it in good order and condition with lock and seal intact. Said tally sheet is no evidence of
the condition of the cargo therein contained. Even the witness of the respondent insurance company, Sergio
Icasiano, stated that the clean gate passes do not reflect the actual condition of the cargo when released
by the broker as it was not physically examined by the broker. There is no question, therefore, that
there were 403 bags in damaged condition delivered and received by petitioner .

It has been held that damage to a cargo by high seas and other weather is not covered by an "all risk"
marine policy, since it is not fortuitous, particularly where the bad weather occurs at a place where it could
be expected at the time in question. In the present case, the entrance of the sea water into the ship's hold
through the defective pipe already described was not due to any accident which happened during the
voyage, but to the failure of the ship's owner properly to repair a defect of the existence of which he was
apprised. The loss was therefore more analogous to that which directly results from simple unseaworthiness
than to that whose results, from perils of the sea."

ISSUE: Whether the Filipino merchant's Insurance Co. is liable to indemnify the petitioner for the loss he
encountered due to the spillage of the goods?

HELD:
YES

MARINE INSURANCE; LIABILITY OF INSURER; "ALL RISK" INSURANCE POLICY; COVERAGE;

CASE AT BAR:

In Gloren Inc. vs. Filipinas Cia. de Seguros, it was held that an all risk insurance policy insures against all
causes of conceivable loss or damage, except as otherwise excluded in the policy or due to fraud or
intentional misconduct on the part of the insured. It covers all losses during the voyage whether arising
from a marine peril or not, including pilferage losses during the war.In the present case, the "all risks"
clause of the policy sued upon reads as follows: “.
This insurance is against all risks of loss or damage to the subject matter insured but shall in no case be
deemed to extend to cover loss, damage, or expense proximately caused by delay or inherent vice or
nature of the subject matter insured. Claims recoverable hereunder shall be payable irrespective of
percentage." The terms of the policy are so clear and require no interpretation. The insurance policy covers
all loss or damage to the cargo except those caused by delay or inherent vice or nature of the cargo insured.
It is the duty of the respondent insurance company to establish that said loss or damage falls within the
exceptions provided for by law, otherwise it is liable therefor. An "all risks" provision of a marine policy
creates a special type of insurance which extends coverage to risks not usually contemplated and avoids
putting upon the insured the burden of establishing that the loss was due to peril falling within the policy's
coverage. The insurer can avoid coverage upon demonstrating that a specific provision expressly excludes
the loss from coverage. In this case, the damage caused to the cargo has not been attributed to any of the
exceptions provided for nor is there any pretension to this effect. Thus, the liability of respondent insurance
company is clear.

WHEREFORE, the decision appealed from is hereby REVERSED AND SET ASIDE and another judgment is
hereby rendered ordering the respondent Filipinas Merchants Insurance Company, Inc. to pay the sum of
P33,117.63 as damages to petitioner with legal interest from the filing of the complaint, plus attorney's
fees and expenses of litigation in the amount of P10,000.00 as well as the costs of the suit.

2. Caltex {Phils.}, Inc. v. Sulpicio Lines, Inc., 315 SCRA 709 {1999}

CASE TITLE: CALTEX (PHILIPPINES), INC., petitioner, vs. SULPICIO LINES, INC., GO SIOC SO,
ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S. GO, VICTORIANO S. GO, DOMINADOR S. GO,
RICARDO S. GO, EDWARD S. GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO, FRANCISCO
SORIANO, VECTOR SHIPPING CORPORATION, TERESITA G. CAÑEZAL, AND SOTERA E.
CAÑEZAL, respondents.

DOCTRINE: A charter party is a contract by which an entire ship, or some principal part thereof, is let
by the owner to another person for a specified time or use; a contract of affreightment is one by which
the owner of a ship or other vessel lets the whole or part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the payment of freight.

FACTS: On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m., enroute
to Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner Caltex. MT Vector is a
tramping motor tanker owned and operated by Vector Shipping Corporation, engaged in the business of
transporting fuel products such as gasoline, kerosene, diesel and crude oil. During that particular voyage,
the MT Vector carried on board gasoline and other oil products owned by Caltex by virtue of a charter
contract between them. On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doña Paz left
the port of Tacloban headed for Manila with a complement of 59 crew members including the master and
his officers, and passengers totaling 1,493 as indicated in the Coast Guard Clearance. The MV Doña Paz
is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc.

At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within the vicinity of
Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers of MV Doña Paz died, while
the two survivors from MT Vector claimed that they were sleeping at the time of the incident. The MV
Doña Paz carried an estimated 4,000 passengers; many indeed, were not in the passenger manifest. Only
24 survived the tragedy after having been rescued from the burning waters by vessels that responded to
distress calls. Among those who perished were public school teacher Sebastian Cañezal and his daughter
Corazon Cañezal, both unmanifested passengers but proved to be on board the vessel. On March 22,
1988, the board of marine inquiry in BMI Case No. 653-87 after investigation found that the MT Vector,
its registered operator Francisco Soriano, and its owner and actual operator Vector Shipping Corporation,
were at fault and responsible for its collision with MV Doña Paz.

On February 13, 1989, Teresita Cañezal and Sotera E. Cañezal, Sebastian Cañezal’s wife and mother
respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for “Damages Arising from
Breach of Contract of Carriage” against Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a
third party complaint against Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc.
Sulpicio alleged that Caltex chartered MT Vector with gross and evident bad faith knowing fully well that
MT Vector was improperly manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a result,
it rammed against MV Doña Paz in the open sea setting MT Vector’s highly flammable cargo ablaze.

ISSUE: W/N the charterer/shipper is liable for breach of warranty of seaworthiness.

HELD: NO.

A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner
to another person for a specified time or use; a contract of affreightment is one by which the owner of a
ship or other vessel lets the whole or part of her to a merchant or other person for the conveyance of
goods, on a particular voyage, in consideration of the payment of freight.

A contract of affreightment may be either time charter, wherein the leased vessel is leased to the charterer
for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. In both cases,
the charter-party provides for the hire of the vessel only, either for a determinate period of time or for a
single or consecutive voyage, the ship owner to supply the ship’s store, pay for the wages of the master
of the crew, and defray the expenses for the maintenance of the ship.

Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own people
and becomes, in effect, the owner for the voyage or service stipulated, subject to liability for damages
caused by negligence.

If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as
owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is
free from liability to third persons in respect of the ship.

Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage
charter. Does a charter party agreement turn the common carrier into a private one? We need to answer
this question in order to shed light on the responsibilities of the parties.

In this case, the charter party agreement did not convert the common carrier into a private carrier. The
parties entered into a voyage charter, which retains the character of the vessel as a common carrier.

Under the Carriage of Goods by Sea Act:

SECTION 3. (1) The carrier shall be bound before and at the beginning of the voyage to exercise due
diligence to —

(a) Make the ship seaworthy;

(b) Properly man, equip, and supply the ship;

xxx xxx xxx

Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be
seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of
competent officers and crew. The failure of a common carrier to maintain in seaworthy condition the
vessel involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil
Code.

The provisions owed their conception to the nature of the business of common carriers. This business is
impressed with a special public duty. The public must of necessity rely on the care and skill of common
carriers in the vigilance over the goods and safety of the passengers, especially because with the modern
development of science and invention, transportation has become more rapid, more complicated and
somehow more hazardous. For these reasons, a passenger or a shipper of goods is under no obligation
to conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly warrant its
seaworthiness.

This aside, we now rule on whether Caltex is liable for damages under the Civil Code.

Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years before
the tragic incident occurred in 1987. Past services rendered showed no reason for Caltex to observe a
higher degree of diligence.

Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as even
the Philippine Coast Guard itself was convinced of its seaworthiness. All things considered, we find no
legal basis to hold petitioner liable for damages.

As Vector Shipping Corporation did not appeal from the Court of Appeals’ decision, we limit our ruling to
the liability of Caltex alone. However, we maintain the Court of Appeals’ ruling insofar as Vector is
concerned.

3. Malayan Insurance Company, Inc. v. PAP Co. Ltd., (Phil. Branch), August 7, 2013

CASE TITLE:MALAYAN INSURANCE COMPANY, INC., PETITIONER, vs. PAP CO., LTD. (PHIL. BRANCH),
RESPONDENT.

DOCTRINE: A neglect to communicate that which a party knows and ought to communicate including any
alteration in the use or condition of the thing insured, is called a concealment and a concealment entitles
the injured party to rescind a contract of insurance.

Insurance is an uberrimae fidae contracts where utmost good faith is expected from the parties. They are
required to disclose conditions affecting the risk of which he is aware or material fact which the applicant
knows and those which he ought to know.
FACTS: Malayan issued fire insurance for the machineries and equipment of PAP Co. for 15 million pesos
for a period of one year which was acquired for RCBC, the mortgagee of the said machineries and
equipment. Prior to the expiration, PAP renewed the policy on an “as is” basis. During the subsistence of
the renewal policy, the machineries and equipment were totally lost by fire. PAP filed an insurance claim
with Malayan which denied the claim on the ground that at the time of the loss, the equipment and
machineries were transferred to another location thus resulting to concealment, misrepresentation, and
breach of affirmative warranty under the renewal policy. The transfer allegedly affected the correct
estimation of the risk and Malayan’s ability to control the risk by guarding against the increase of the risk
brought about by the change in the conditions. Furthermore, PAP informed that there would be no changes
in the renewal policy. Contrary to its affirmation in the renewal policy, the insured properties were located
in Sanyo when they were already transferred to Pace. PAP argued that it cannot avoid liability as it was
informed of the transfer by RCBC.

ISSUE: Whether or not Malayan can avoid liability for the loss of the insured properties under the fire
insurance policy.

HELD: YES. It cannot be held liable for the loss of the insured properties. The transfer of the properties
without proper notification and consent of Malayan, constitutes concealment which entitles the injured
party to rescind a contract. The policy forbade the removal of the insured properties unless sanctioned by
Malayan. The respondent failed to notify and obtain the consent of Malayan regarding the removal. There
are no records showing that Malayan was notified of the transfer thereof. What PAP proved was that it
merely relayed the fact of transfer to RCBC (beneficiary). Malayan and RCBC might have been sister
companies but such fact did not make one an agent of the other. Considering that the original policy was
renewed on an "as is basis," it follows that the renewal policy carried with it the same stipulations and
limitations. The terms and conditions in the renewal policy provided, among others, that the location of
the risk insured against is at the Sanyo factory in PEZA. The subject insured properties, however, were
totally burned at the Pace Factory. Although it was also located in PEZA, Pace Factory was not the location
stipulated in the renewal policy. There being an unconsented removal, the transfer was at PAP’s own risk.
Consequently, it must suffer the consequences of the fire.

Insurance Code:

Section 26. A neglect to communicate that which a party knows and ought to communicate, is called a
concealment.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract
of insurance."

Section 68. An alteration in the use or condition of a thing insured from that to which it is limited by the
policy made without the consent of the insurer, by means within the control of the insured, and increasing
the risks, entitles an insurer to rescind a contract of fire insurance.

Accordingly, an insurer can exercise its right to rescind an insurance contract when the following
conditions are present, to wit:

1) the policy limits the use or condition of the thing insured;

2) there is an alteration in said use or condition;

3) the alteration is without the consent of the insurer;

 4) the alteration is made by means within the insured’s control; and

5) the alteration increases the risk of loss.

4. First Integrated Bonding and Ins. Co., Inc. v. Hernando, 199 SCRA 769 [1991

CASE TITLE: FIRST INTEGRATED BONDING & INSURANCE COMPANY, INC., petitioner,
vs.
HON. HAROLD M. HERNANDO, VICTORINO ADVINCULA, ROMANA ADVINCULA, SILVERIO
BLANCO & THE SHERIFF OF MANILA and his DEPUTY SHERIFFS, respondents.

DOCTRINE: It is settled that where the insurance contract provides for indemnity against liability to a third
party, such third party can directly sue the insurer. The liability of the insurer to such third person is based
on contract while the liability of the insured to the third party is based on tort.

The insurer's liability accrues immediately upon the occurrence of the injury or event upon which the liability
depends, and does not depend on the recovery of judgment by the injured party against the insured.

FACTS: Silverio Blanco was the owner of a passenger jeepney which he insured against liabilities for death
and injuries to third persons with First Integrated Bonding and Insurance Company, Inc. (First Insurance)
under Motor Vehicle Policy No. V-0563751 with the face value of P30,000.00.

1976, the said jeepney driven by Blanco himself bumped a five-year old child, Deogracias Advincula,
causing the latter's death.The Advincula spouses filed a complaint against Silverio Blanco. First Insurance
was also impleaded in the complaint as the insurer.

Summons were served on Silverio Blanco and First Insurance. However, only Blanco filed an answer. Upon
motion of the Advincula spouses, First Insurance was declared in default. Thereafter, a pre-trial conference
was conducted.

On the basis of the evidence presented by the Advincula spouses, judgment was rendered by the trial court
payment of moral damages to the plaintiffs P5,000.00; for the life of Deogracias Advincula P12,000.00, for
funeral expenses, P3,663.50 and for attorney's fees, P3,000.00. The satisfaction of these damages divulged
independently now upon the defendant insurance company and to pay the costs of the proceedings.

First Insurance received a copy of the decision on March 14, 1978. Upon motion of the Advincula spouses,
the decision was amended on March 27, 1978, which, in addition to the damages granted in the original
decision, awarded damages in the amount of P6,336.50 to Silverio Blanco. The defendant Insurance
Company to pay the costs of the proceedings.

It is the contention of the petitioner that the Advincula spouses have no cause of action against it. As
parents of the victim, they may proceed against the driver, Silverio Blanco on the basis of the provisions
of the New Civil Code. However, they have no cause of action against First Insurance, because they are
not parties to the insurance contract.
ISSUE: Whether the injured party for whom the contract of insurance is intended can sue the insurer
directly

HELD:It is settled that where the insurance contract provides for indemnity against liability to a third party,
such third party can directly sue the insurer. The liability of the insurer to such third person is based on
contract while the liability of the insured to the third party is based on tort.

This rule was explained in the case of Shafer v. Judge, RTC of Olongapo City, Br. 75, G.R. No. 78848,
November 14, 1988:

The injured for whom the contract of insurance is intended can sue directly the insurer. The general
purpose of statutes enabling an injured person to proceed directly against the insurer is to protect
injured persons against the insolvency of the insured who causes such injury, and to give such
injured person a certain beneficial interest in the proceeds of the policy, and statutes are to be
liberally construed so that their intended purpose may be accomplished. It has even been held that
such a provision creates a contractual relation which inures to the benefit of any and every person
who may be negligently injured by the named insured as if such injured person were specifically
named in the policy.

In the event that the injured fails or refuses to include the insurer as party defendant in his claim
for indemnity against the insured, the latter is not prevented by law to avail of the procedural rules
intended to avoid multiplicity of suits. Not even a "no action" clause under the policy which requires
that a final judgment be first obtained against the insured and that only thereafter can the person
insured recover on the policy can prevail over the Rules of Court provisions aimed at avoiding
multiplicity of suits.

First Insurance cannot evade its liability as insurer by hiding under the cloak of the insured. Its liability is
primary and not dependent on the recovery of judgment from the insured.

Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to
provide compensation for the death or bodily injuries suffered by innocent third parties or
passengers as a result of a negligent operation and use of motor vehicles. The victims and/or their
dependents are assured of immediate financial assistance, regardless of the financial capacity of the
motor vehicle owners.

. . . the insurer's liability accrues immediately upon the occurrence of the injury or event upon which
the liability depends, and does not depend on the recovery of judgment by the injured party against
the insured (Shafer v. Judge, RTC of Olongapo, supra, p. 390).

5. Pan Malayan Insurance Corporation v. CA, 184 SCRA 54).

CASE TITLE:PAN MALAYAN INSURANCE CORPORATION, petitioner , vs. COURT OF APPEALS, ERLINDA
FABIE AND HER UNKNOWN DRIVER, respondents.
DOCTRINE: The terms "accident" or "accidental" as used in insurance contracts have not acquired a
technical meaning, the Court has on several occasions defined these terms to mean that which takes
place "without one's foresight or expectation, an event that proceeds from an unknown cause, or is an
unusual effect of a known cause and, therefore, not expected"

Certainly, it cannot be inferred from jurisprudence that these terms, without qualification,
exclude events resulting in damage or loss due to the fault, recklessness or negligence of third parties.
The concept "accident" is not necessarily synonymous with the concept of "no fault". It may be utilized
simply to distinguish intentional or malicious acts from negligent or careless acts of man.

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the
insured property is destroyed or damaged through the fault or negligence of a party other than the
assured, then the insurer, upon payment to the assured, will be subrogated to the rights of the assured
to recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the
insurer to the assured operates as an equitable assignment to the former of all remedies which the latter
may have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written
assignment of claim. It accrues simply upon payment of the insurance claim by the insurer

FACTS: On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of Makati against
private respondents Erlinda Fabie and her driver. PANMALAY averred the following: that it insured a
Mitsubishi Colt Lancer car with plate No. DDZ-431 and registered in the name of Canlubang Automotive
Resources Corporation [CANLUBANG]; that on May 26, 1985, due to the “carelessness, recklessness,
and imprudence” of the unknown driver of a pick-up with plate no. PCR-220, the insured car was hit and
suffered damages in the amount of P42,052.00; that PANMALAY defrayed the cost of repair of the insured
car and, therefore, was subrogated to the rights of CANLUBANG against the driver of the pick-up and
his employer, Erlinda Fabie; and that, despite repeated demands, defendants, failed and refused to pay
the claim of PANMALAY.

Private respondents, thereafter, filed a Motion for Bill of Particulars and a supplemental motion
thereto. In compliance therewith, PANMALAY clarified, among others, that the damage caused to the
insured car was settled under the “own damage” coverage of the insurance policy, and that the driver
of the insured car was, at the time of the accident, an authorized driver duly licensed to drive the vehicle.
PANMALAY also submitted a copy of the insurance policy and the Release of Claim and Subrogation
Receipt executed by CANLUBANG in favor of PANMALAY.

On February 12, 1986, private respondents filed a Motion to Dismiss alleging that PANMALAY had
no cause of action against them. They argued that payment under the “own damage” clause of the
insurance policy precluded subrogation under Article 2207 of the Civil Code, since indemnification
thereunder was made on the assumption that there was no wrongdoer or no third party at fault.

After hearings conducted on the motion, opposition thereto, reply and rejoinder, the RTC issued
an order dated June 16, 1986 dismissing PANMALAY’s complaint for no cause of action. On August 19,
1986, the RTC denied PANMALAY’s motion for reconsideration.

On appeal taken by PANMALAY, these orders were upheld by the Court of Appeals on November
27, 1987. Consequently, PANMALAY filed the present petition for review.

After private respondents filed its comment to the petition, and petitioner filed its reply, the Court
considered the issues joined and the case submitted for decision.
ISSUE:Whether or not the insurer PANMALAY may institute an action to recover the amount it had
paid its assured in settlement of an insurance claim against private respondents as the parties allegedly
responsible for the damage caused to the insured vehicle.

HELD: Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured
property is destroyed or damaged through the fault or negligence of a party other than the assured,
then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover
from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to
the assured operates as an equitable assignment to the former of all remedies which the latter may have
against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It
accrues simply upon payment of the insurance claim by the insurer

There are a few recognized exceptions to this rule. For instance, if the assured by his own act releases
the wrongdoer or third party liable for the loss or damage, from liability, the insurer's right of subrogation
is defeated.None of the exceptions are availing in the present case.

The lower court and Court of Appeals, however, were of the opinion that PANMALAY was not legally
subrogated under Article 2207 of the Civil Code to the rights of CANLUBANG, and therefore did not have
any cause of action against private respondents. On the one hand, the trial court held that payment by
PANMALAY of CANLUBANG's claim under the "own damage" clause of the insurance policy was an
admission by the insurer that the damage was caused by the assured and/or its representatives. On the
other hand, the Court of Appeals in applying the ejusdem generis rule held that Section III-1 of the
policy, which was the basis for settlement of CANLUBANG's claim, did not cover damage arising from
collision or overturning due to the negligence of third parties as one of the insurable risks. Both tribunals
concluded that PANMALAY could not now invoke Article 2207 and claim reimbursement from private
respondents as alleged wrongdoers or parties responsible for the damage.

It must be emphasized that the lower court's ruling that the "own damage"coverage under the policy
implies damage to the insured car caused by the assured itself , instead of third parties, proceeds from
an incorrect comprehension of the phrase "own damage" as used by the insurer. When PANMALAY
utilized the phrase "own damage" — a phrase which, incidentally, is not found in the insurance policy —
to define the basis for its settlement of CANLUBANG's claim under the policy, it simply meant that it had
assumed to reimburse the costs for repairing the damage to the insured vehicle It is in this sense that
the so-called "own damage" coverage under Section III of the insurance policy is differentiated from
Sections I and IV-1 which refer to "Third Party Liability" coverage (liabilities arising from the death of,
or bodily injuries suffered by, third parties) and from Section IV-2 which refer to "Property Damage"
coverage (liabilities arising from damage caused by the insured vehicle to the properties of third parties).

Neither is there merit in the Court of Appeals' ruling that the coverage of insured risks under Section
III-1 of the policy does not include damage to the insured vehicle arising from collision or overturning
due to the negligent acts of a third party. Not only does it stem from an erroneous interpretation of the
provisions of the section, but it also violates a fundamental rule on the interpretation of property
insurance contracts .

It is a basic rule in the interpretation of contracts that the terms of a contract are to be construed
according to the sense and meaning of the terms which the parties thereto have used. In the case of
property insurance policies, the evident intention of the contracting parties, i.e., the insurer and the
assured, determine the import of the various terms and provisions embodied in the policy. It is only
when the terms of the policy are ambiguous, equivocal or uncertain, such that the parties themselves
disagree about the meaning of particular provisions, that the courts will intervene. In such an event, the
policy will be construed by the courts liberally in favor of the assured and strictly
against the insurer.

Considering that the very parties to the policy were not shown to be in disagreement regarding the
meaning and coverage of Section III-1, specifically sub-paragraph (a) thereof, it was improper for the
appellate court to indulge in contract construction, to apply the ejusdem generis rule, and to ascribe
meaning contrary to the clear intention and understanding of these parties.

It cannot be said that the meaning given by PANMALAY and CANLUBANG to the phrase "by accidental
collision or overturning" found in the first part of subparagraph (a) is untenable. Although the terms
"accident" or "accidental" as used in insurance contracts have not acquired a technical meaning, the
Court has on several occasions defined these terms to mean that which takes place
"without one's foresight or expectation, an event that proceeds from an unknown cause, or is an unusual
effect of a known cause and, therefore, not expected"

Moreover, a perusal of the provisions of the insurance policy reveals that damage to, or loss of, the
insured vehicle due to negligent or careless acts of third parties is not listed under the general and
specific exceptions to the coverage of insured risks which are enumerated in detail in the insurance
policy itself

For even if under the above circumstances PANMALAY could not be deemed subrogated to the rights of
its assured under Article 2207 of the Civil Code, PANMALAY would still have a cause of action against
private respondents. In the pertinent case of Sveriges Angfartygs Assurans Forening v. Qua Chee Gan,
supra ., the Court ruled that the insurer who may have no rights of subrogation due to "voluntary"
payment may nevertheless recover from the third party responsible for the damage to the insured
property under Article 1236 of the Civil Code.

In conclusion, it must be reiterated that in this present case, the insurer PANMALAY as subrogee merely
prays that it be allowed to institute an action to recover from third parties who allegedly caused damage
to the insured vehicle, the amount which it had paid its assured under the insurance policy. Having thus
shown from the above discussion that PANMALAY has a cause of action against third parties whose
negligence may have caused damage to CANLUBANG's car, the Court holds that there is no legal obstacle
to the filing by PANMALAY of a complaint for damages against private respondents as the third parties
allegedly responsible for the damage. Respondent Court of Appeals
therefore committed reversible error in sustaining the lower court's order which dismissed PANMALAY's
complaint against private respondents for no cause of action. Hence, it is now for the trial court to
determine if in fact the damage caused to the insured vehicle was due to the "carelessness, recklessness
and imprudence" of the driver of private respondent Erlinda Fabie.

6. First Quezon City, Co., Inc. vs. CA, 218 SCRA 525

CASE TITLE: FIRST QUEZON CITY INSURANCE COMPANY, INC., petitioner, vs. THE HON. COURT OF
APPEALS and DE DIOS MARIKINA TRANSPORTATION CO., respondents.
G.R. No. 98414. February 8, 1993
DOCTRINE: The insurance policy clearly placed the maximum limit of the petitioner's liability for
damages arising from death or bodily injury at P12,000.00 per passenger and its maximum liability
per accident at P50,000.00.What does the limit of P50,000.00 per accident mean? It means that the
insurer's maximum liability for any single accident will not exceed P50,000.00 regardless of the
number of passengers killed or injured therein.

FACTS: Plaintiff Jose V. del Rosario was on the bus' running board with his hand on the bus door's
handle bar, the slowly moving bus sped forward at a high speed, as a result of which, the plaintiff
lost his balance and fell from the bus. Plaintiff was confined at the hospital for a total period of forty
(40) days and incurred medical expenses.

Plaintiff filed a complaint against De Dios Marikina Transportation Company (DMTC) and its driver,
Gil Agpalo. Defendant DMTC filed a third-party complaint against First Quezon City Insurance Co.
Inc. Trial court ordered third-party defendant First Quezon City Insurance Co., Inc. to indemnify
third-party plaintiff DMTC in the sum of P12,000. The Court of Appeals modified the dispositive part
of the decision of the trial court by increasing the sum to P50,000.

First Quezon City Insurance Company, Inc., filed a petition to SC seeking to limit to P12,000.00, the
amount specified in the insurance contract, its liability to indemnify the responden, DMTC.

ISSUE: Whether or not First Quezon City Insurance Company, Inc. is correct that their liability is
limited with the amount specified in the insurance contract

HELD: Yes. The insurance policy clearly placed the maximum limit of the petitioner's liability for
damages arising from death or bodily injury at P12,000.00 per passenger and its maximum liability
per accident at P50,000.00. Since only one passenger was injured in the accident, the insurer's
liability for the damages suffered by said passenger is pegged to the amount of P12,000.00 only.
What does the limit of P50,000.00 per accident mean? It means that the insurer's maximum liability
for any single accident will not exceed P50,000.00 regardless of the number of passengers killed or
injured therein. For example, if ten (10) passengers had been injured by the operation of the insured
bus, the insurer's liability for the accident would not be P120,000.00 (at the rate of P12,000.00 per
passenger) but would be limited to only P50,000.00 for the entire accident, as provided in the
insurance contract.

The bus company may not recover from the insurance company (herein petitioner) more than
P12,000.00 per passenger killed or injured, or fifty thousand (P50,000.00) pesos per accident even
if under the judgment of the court, the erring bus operator will have to pay more than P12,000.00
to each injured passenger. The trial court's interpretation of the insurance contract was the correct
interpretation.

7. Villacorta vs. I.C., 100 SCRA 467 {1980}

CASE TITLE: Villacorta vs Insurance Commission

DOCTRINE: The Court sustains as the better view that which holds that when a person, either with
the object of going to a certain place, or learning how to drive, or enjoying a free ride, takes
possession of a vehicle belonging to another, without the consent of its owner, he is guilty of theft
because by taking possession of the personal property belonging to another and using it, his intent
to gain is evident since he derives therefrom utility, satisfaction, enjoyment and pleasure.

FACTS: Villacorta had her Colt Lancer car insured with Empire Insurance Company against own
damage, theft and 3rd party liability. While the car was in the repair shop, one of the employees of
the said repair shop took it out for a joyride after which it figured in a vehicular accident. This
resulted in the death of the driver and some of the passengers as well as to extensive damage to
the car. Villacorta filed a claim for total loss with the said insurance company. However, it denied
the claim on the ground that the accident did not fall within the provisions of the policy either for
the Own Damage or Theft coverage, invoking the policy provision on “Authorized Driver Clause”.
This was upheld by the Insurance Commission further stating that the car was not stolen and
therefore not covered by the Theft Clause because it is not evident that the person who took the car
for a joyride intends to permanently deprive the insured of his/ her car.

ISSUE: Whether or not the insurer company should pay the said claim.

HELD: Yes. Where the insured’s car is wrongfully taken without the insured’s consent from the car
service and repair shop to whom it had been entrusted for check-up and repairs (assuming that
such taking was for a joy ride, in the course of which it was totally smashed in an accident),
respondent insurer is liable and must pay insured for the total loss of the insured vehicle under the
Theft Clause of the policy.

Assuming, despite the totally inadequate evidence, that the taking was “temporary” and for a “joy
ride”, the Court sustains as the better view that which holds that when a person, either with the
object of going to a certain place, or learning how to drive, or enjoying a free ride, takes possession
of a vehicle belonging to another, without the consent of its owner, he is guilty of theft because by
taking possession of the personal property belonging to another and using it, his intent to gain is
evident since he derived therefrom utility, satisfaction, enjoyment and pleasure.

ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered sentencing
private respondent to pay petitioner the sum of P35,000.00 with legal interest from the filing of the
complaint until full payment is made and to pay the costs of suit.