Session 1 General Provisions

Session
1: General Provisions

Subrogation Doctrine

Pan Malayan Insurance Corp v. CA ● Pan Malayan Insurance Company (Panmalay) filed a complaint
(184 SCRA 54) for damages with the RTC of Manila against private respondents
Fabie and her driver
● Panmalay averred:
○ It insured a Mitsubishi Colt Lancer car registered in
the name of Canlubang Automotive Resources
Corporation (Canlubang)
○ The insured car was hit and suffered damages in the
amount of P42,052 due to the “carelessness,
recklessness and imprudence” of the unknown driver
of a pickup
○ Panmalay defrayed the cost of repair of the insured car
and was subrogated to the rights of Canlubang against
the driver of the pickup and his employer, Fabie
○ Despite repeated demands, Fabie and driver failed and
refused to pay the claim of Panmalay
● Panmalay clarified that the damage caused to the insured car was
settled under the “own damage” coverage of the insurance policy
and that driver of the insured car was, at the time of the accident,
an authorized driver duly licensed to drive the vehicle
● Private respondents filed a Motion to Dismiss alleging that
Panmalay had no cause of action against them
○ Argued that the payment under the “own damage”
clause of the insurance policy precluded subrogation
under Art. 2207 of the Civil Code since
indemnification thereunder was made on the
assumption that there was no wrongdoer or no third
party at fault.
● RTC dismissed Panmalay’s complaint for having no cause of
action. MR was also denied. CA affirmed.
● Panmalay contends that its cause of action against respondents
was anchored upon Art. 2207 of the Civil Code
○ “If the plaintiffs property has been insured, and he has
received indemnity from the insurance company for
the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall
be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract.
. . .”

Can Panmalay 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 cause
to the insured vehicle? YES.
Session 1: General Provisions
3A Insurance (J. Hofilena)
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● Art. 2207 is founded on the wellsettled 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 insurer to assured operates as an equitable
assignment 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/wrongful act caused the loss
● Right of subrogation accrues simply upon payment of the
insurance claim by the insurer
● Few recognized exceptions to right of subrogation (none of which
are present in this case):
○ If assured (by his own act) releases the
wrongdoer/third party from liability, insurer’s right of
subrogation is defeated
○ When insurer pays the assured the value of the lost
goods without notifying the carrier who had in good
faith settled the assured’s claim for loss, the settlement
is binding on both assured and insurer
■ Insurer cannot bring an action against carrier
on his right to subrogation
○ Where insurer pays the assured for a loss which is not
a risk covered by the policy (effecting “voluntary
payment”), insurer has no right of subrogation against
third party liable for loss.
● The fact that payment by Panmalay of Canlubang’s claim was
under the “own damage” clause of the insurance policy does not
affect Panmalay’s subrogation right.
○ “Own damage” was used by Panmalay to mean that it
had assumed to reimburse the cost of repairing the
damage to the insured vehicle.
● Even if Panmalay could not be deemed subrogated to the rights of
the assured under Art. 2207 of the Civil Code, it would still have a
cause of action against private respondents
○ Sveriges Angfartygs Assurans Forening v. Que Chee
Gan: 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 Art. 1236, Civil Code
Federal Express Corp. v. American ● On Jan 26, 1994 SMITHKLINE of Nebraska, USA delivered a
Home Ass. Co. (437 SCRA 50) shipment of 109 cartons of veterinary biologicals to Federal
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Express Corp through Federal’s agent Burlington Air Express
○ Biologicals were for delivery to consignee
SMITHKLINE and French Overseas Company in
Makati
● Airway Bill carried instructions “refrigerate when not in transit”
and “perishable” stamp marked on its face
● On the same day, Burlington insured the cargoes in the amount of
$39,339 with American Home Ass. Co. (AHAC)
● Following day, Burlington turned over the custody of said cargoes
to Federal Express which transported it to Manila
● On shipments were stored in Cargohaus’s warehouses upon arrival
to Manila
● 12 days after the cargoes’ arrival, Dioneda (nonlicensed customs
broker assigned by GETC to facilitate the release of the cargoes)
found out that the same were stored in a room with 2 air
conditioners (instead of in a refrigerator)
○ Employee of Cargohaus said this was because the
cartons specifically indicated that it should not be
subjected to hot or cold temperature
● Upon instruction of GETC, Dioneda did not proceed with the
withdrawal of the vaccines.
○ Instead, samples were brought to the Bureau of Animal
Industry of the Department of Agriculture by
SMITHKLINE for examination
○ Discovered that the ELISA reading of vaccinates sera
are below the positive reference serum
● As a result, SMITHKLINE abandoned the shipment and declared
a total loss of the inusable shipment
○ Filed a claim with AHAC through its representative in
the Philippines, Philam Insurance
● Philam recompensated SMITHKLINE for the whole insured
amount of $39,339
● AHAC and Philam filed damages against Federal Express
imputing negligence on either or both of them in handling of the
cargo
● Trial Court found Federal Express solidarily liable with
Cargohaus for the loss
● CA reversed the decision.
○ Shipping receipts were prima facie proof that the
goods had been delivered to the carrier in good
condition
○ Presumption: damage occured through the
fault/negligence of the carrier. Carrier has burden to
show that the goods were not in good condition.

Is Federal Express liable for damage to or loss of the insured goods?
YES.

● Federal Express contends that respondents have no personality to
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sue (thus, no cause of action against it) because the payment made
to SmithKline was erroneous
● Central to the issue is the Certificate of Insurance
○ Specifies that loss of or damage to cargo is “payable to
order upon surrender of this Certificate”
■ Wording conveys right of collecting on any
such damage, as if the property were covered
by a special policy, in the name of the holder
itself
■ Indorsed in blank and is deemed a bearer
instrument
● Since Certificate was in the possession of SMITHKLINE, it had
the right of collecting or being indemnified for loss of or damage
of the shipment
● Upon receipt of the insurance proceeds, the consignee
(SMITHKLINE) executed a subrogation Receipt in favor of
AHAC and Philam
○ AHAC and Philam were thus authorized to file claims
and being suit against any carrier, vessel, person, etc
● Undeniably, consignee has a legal right to receive goods in the
same condition it was delivered for transport to petitioner
○ If that right was violated, the consignee would have a
cause of action against the person responsible therefor
● Upon payment to consignee of an indemnity for the loss of or
damage of the insured goods, insurer's entitlement to subrogation
pro tanto (being of the highest equity) equips it with a cause of
action in case of a contractual breach or of negligence
● In exercise of its subrogatory right, an insurer may proceed against
an erring carrier
○ To all intents and purposes, it stands in the place and in
substitution of the consignee
○ Both insurer and consignee are bound by the
contractual stipulations under the bill of lading
Fireman’s Fund Insurance Co et al v. ● Jamila or the Veteran’s Philippine Scouts Security Agency
Jamila, Inc. (70 SCRA 23) contracted to supply security guards to Firestone Tire and Rubber
Co
● Jamila assumed responsibility for the acts of its security guards
● First Quezon City Insurance Co., Inc. executed a bond in the sum
of P20,000.00 to guarantee Jamila's obligations under that contract
● Properties of Firestone valued at P11,925.00 were lost allegedly
due to the acts of its employees who connived with Jamila's
security guard
● Fireman's Fund, as insurer, paid to Firestone the amount of the
loss
● Fireman's Fund was subrogated to Firestone's right to get
reimbursement from Jamila
● Jamila and its surety, First Quezon City Insurance Co, failed to
pay the amount of the loss in spite of repeated demands.
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● Fireman’s Fund and Firestone instituted a complaint for recovery
of sum of money.
● The Court of First Instance (CFI) granted the motion to dismiss
filed by Jamila on the ground that there was no allegation that
Jamila had consented to the subrogation and, therefore, Fireman's
Fund had no cause of action.

Does the complaint of Firestone and Fireman's Fund state a cause
of action against Jamila? YES.

● As to Firestone’s cause of action
○ Does not really have a cause of action because
Firestone is really a nominal party in this case. It had
already been indemnified. Firestone had tacitly
assigned to Fireman's Fund its cause of action against
Jamila for breach of contract.
● As to Fireman’s Fund’s cause of action
○ Fireman's Fund has cause of action against Jamila
squarely sanctioned by Art. 2207. As the insurer,
Fireman's Fund is entitled to go after the person or
entity that violated its contractual commitment to
answer for the loss insured against.
○ The CFI erred in applying rules of novation. The
plaintiffs in alleging in their complaint that Fireman's
Fund “became a party in interest in this case by virtue
of a subrogation right given in its favor by” Firestone,
were NOT relying on novation by change of creditors.
○ Subrogation has been referred to as the doctrine of
substitution. The right of subrogation is of the highest
equity. The loss in the first instance is that of the
insured but after reimbursement or compensation, it
becomes the loss of the insurer. The insurer is entitled
to be subrogated pro tanto to any right of action which
the insured may have against the third person whose.
negligence or wrongful act caused the loss.
● Note: Whether the plaintiffs would be able to prove their cause
of action against Jamila is another question.
FF Cruz & Co. v. CA (164 SCRA ● FF Cruz & Co. owned a furniture manufacturing shop in Caloocan
731) situated adjacent to the residence of the Mable family.
● In 1971, Gregorio Mable approached Eric Cruz, the plant
manager, to request that a firewall be constructed between the
shop and the residence.
○ The request was repeated several times to no avail.
● In 1974, fire broke out in the shop and spread to the Mable
residence.
● Both the shop and the house were razed to the ground.
● The cause was never discovered.
● Subsequently, the Mables collected P35,000 on the insurance on
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their house and its contents.
● In 1975, the Mables filed an action for damages against FF Cruz
& Co., praying for damages (P150k actual, P50k moral, P25k
exemplary, P20k attys. fees).
● The CFI ruled in favor of the Mable family.
● On appeal, the CA affirmed the decision of the trial court but
reduced the award
● Both the CFI and the CA were in agreement as to the value of the
the Mable family’s furniture and fixtures and personal effects lost
in the fire (ie P50,000).
● With regard to the house, the CA reduced the award to P70,000
from P80,000.
● Now, FF Cruz & Co contends that the CA erred in not deducting
the sum of P35,000, which the Mables recovered on the insurance
on their house, from the award of damages.

Did the CA err in not deducting P35,000 from the award of damages
YES, it should have been deduced.

● Since the Mables have been indemnified by their insurer for the
damage caused to their house and its contents, in accordance with
Article 2207 of the Civil Code, the amount of P35,000 should be
deducted from the amount awarded as damages.
● Art. 2207: If the plaintiff’s property has been insured, and he has
received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of,
the insurance company is subrogated to the rights of the insured
against the wrongdoer or the person who violated the contract. If
the amount paid by the insurance company does not fully cover
the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury.
● Having been indemnified by their insurer, the Mables as only
entitled to recover the deficiency from FF Cruz & Co.
● On the other hand, the insurer, if it is so minded, may seek
reimbursement of the amount it indemnified the Mables from FF
Cruz & Co.
● This is the essence of its right to be subrogated to the rights of the
insured, as expressly provided in Article 2207.
● Upon payment of the loss incurred by the insured, the insurer is
entitled to the subrogated pro tanto to any right of action which
the insured may have against the third person whose negligence or
wrongful act caused the loss.
● Under Art. 2207, the real party in interest with regard to the
indemnity received by the insured is the insurer.
● Whether or not the insurer should exercise the rights of the insured
to which it had been subrogated lies solely within the former’s
sound discretion.
● Since the insurer is not a party to the case, its identity is not of
record and no claim is made on its behalf, the Mables’ insurer has
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to claim his right to reimbursement of the P35,000 paid to the
insured.
Rizal Surety & Insurance Co. v. ● On November 1960, the vessel SS Flying Trader, loaded on board

Manila Railroad Co. (23 SCRA 205) in Italy for shipment to Manila, among other cargoes, 6 cases
OMH Press Machine, consigned to Suter Inc.
● The vessel arrived in Manila on or about January 1961 and
subsequently discharged complete and in good order the shipment
into the custody of Manila Port Service (MPS) as arrastre
operator.
● In the course of handling, one of the 6 cases containing the OMH
Press, while being lifted and loaded by the crane of the MPS into
the consignee’s truck, it was dropped by the crane and the
machine was heavily damaged.
● Rizal Surety and Insurance Co., as insurer, paid P16,500 to Suter
Inc (the consignee) as damages by way of costs of replacement
parts and repairs to put the machine in working condition.
● Clause 15 of the management contract which appeared in the
Delivery permit as was used in taking delivery of the shipment
from MPS & Manila Railroad Co. custody and control contained
“an important notice.”
○ The clause provides that the company’s liability would be
limited to P500.0 per package, unless the value of the goods
is otherwise, specified, declared or manifested and the
corresponding arrastre charges have been paid.
● Rizal Surety filed a suit for the recovery of the amount paid by it
to the consignee based on Art. 2207, which speak to the effect that
the Insurance Company shall be subrogated to the rights of the
insured.
● The lower court rendered the judgment ordering MPS and Manila
Railroad to pay Rizal Surety only P500.00 + interest in light of the
limited liability clause on the management contract.

Can Rizal Surety recover the amount in full? NO.

● In the event that the property has been insured and the Insurance
Company has paid the indemnity for the injury or loss sustained, it
shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract.
● Rizal Surety, therefore, cannot recover from MPS and Manila
Railroad an amount greater than that to which the consignee could
lawfully law claim.
● The management contract is clear: the amount is limited to P500.
● Rizal Surety & Insurance Co., having been subrogated merely to
the rights of the consignee, its recovery necessarily should be
limited to what was recoverable by the insured.
Pioneer Insurance & Surety Corp v. ● Jacob S. Lim (Lim) was engaged in the airline business as
CA (175 SCRA 668) owneroperator of Southern Air Lines (SAL) a single
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proprietorship.
● Japan Domestic Airlines (JDA) and Lim entered into and executed
a sales contract for the sale and purchase of two (2) aircrafts and
spare parts.
● Pioneer Insurance and Surety Corporation as surety executed and
issued its surety bond in favor of JDA, in behalf of its principal,
Lim, for the balance price of the aircrafts and spare parts.
● Border Machinery and Heavy Equipment Company, Inc.
(Bormaheco), the Cervanteses, and Maglana contributed some
funds used in the purchase of the aircrafts and spare parts. The
funds were supposed to be their contributions to a new corporation
proposed by Lim to expand his airline business.
● They executed two (2) separate indemnity agreements in favor of
Pioneer, one signed by Maglana and the other jointly signed by
Lim for SAL, Bormaheco and the Cervanteses. The indemnity
agreements stipulated that the indemnitors principally agree and
bind themselves jointly and severally to indemnify and hold and
save harmless Pioneer from and against any/all damages, losses,
costs,etc. which Pioneer may incur in consequence of having
become surety upon the bond and to pay Pioneer all sums and
amounts of money which it or its representatives should or may
pay or cause to be paid.
● Lim doing business under the name and style of SAL executed in
favor of Pioneer a deed of chattel mortgage as security for the
latter's suretyship in favor of the former. It was stipulated therein
that Lim transfer and convey to the surety the two aircrafts.
● Lim defaulted on his subsequent installment payments prompting
JDA to request payments from the surety. Pioneer paid. Pioneer
then filed a petition for the extrajudicial foreclosure of the said
chattel mortgage. The Cervanteses and Maglana, however, filed a
third party claim alleging that they are coowners of the aircrafts.
Pioneer filed an action for judicial foreclosure with an application
for a writ of preliminary attachment against Lim and respondents,
the Cervanteses, Bormaheco and Maglana. In their Answers,
Maglana, Bormaheco and the Cervanteses filed crossclaims
against Lim alleging that they were not privies to the contracts
signed by Lim.

Does Pioneer have a cause of action? NOPE.

● (CA Ruling upon which the SC agreed) Pioneer had reinsured its
risk of liability under the surety bond in favor of JDA and
subsequently collected the proceeds of such reinsurance in the
sum of P295K. Defendants' alleged obligation to Pioneer amounts
to P295K. Hence, plaintiffs instant action for the recovery of the
amount of P298,666.28 from defendants will no longer prosper.
Plaintiff Pioneer is not the real party in interest to institute the
instant action as it does not stand to be benefited or injured by the
judgment.
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● Pioneer's contention that it is representing the reinsurer to recover
the amount, hence, it instituted the action is utterly devoid of
merit. Plaintiff did not even present any evidence that it is the
attorneyinfact of the reinsurance company.To qualify a person to
be a real party in interest in whose name an action must be
prosecuted, he must appear to be the present real owner of the
right sought to be enforced. Pioneer cannot be considered as the
real party in interest as it has already been paid by the reinsurer
the sum of P295,000.00.
● The total amount paid by Pioneer to JDA is P299,666.29. Since
Pioneer has collected P295,000.00 from the reinsurers, the
uninsured portion of what it paid to JDA is the difference between
the two amounts, or P3,666.28. This is the amount for which
Pioneer may sue defendants, assuming that the indemnity
agreement is still valid and effective. But since the amount
realized from the sale of the mortgaged chattels are P35,000.00 for
one of the airplanes and P2,050.00 for a spare engine, or a total of
P37,050.00, Pioneer is still overpaid by P33,383.72. Therefore,
Pioneer has no more claim against defendants.
● (SC) The petitioner's argument that the respondents had no interest
in the reinsurance contract as this is strictly between the petitioner
as insured and the reinsuring company has no basis. In general, a
reinsurer on payment of a loss acquires the same rights by
subrogation as are acquired in similar cases where the original
insurer pays a loss.
● Hence the applicable law is Article 2207.Note that if a property is
insured and the owner receives the indemnity from the insurer, it
is provided in said article that the insurer is deemed subrogated to
the rights of the insured against the wrongdoer and if the amount
paid by the insurer does not fully cover the loss, then the
aggrieved party is the one entitled to recover the deficiency.
Evidently, under this legal provision, the real party in interest
with regard to the portion of the indemnity paid is the insurer and
not the insured.

Insurance Contract Interpretation Doctrines

CCC Insurance Corp. v. CA (31 ● On March 1, 1961, Carlos Robes took an insurance with CCC
SCRA 264) Insurance, on his Dodge Kingsway car against loss or damage
through an accident for an amount not exceeding 8K.
● On June 25, 1962, the vehicle became involved in a vehicular
collision along Malabon, while being driven by the owner’s driver.
● The estimated cost of the repair was 5.3K
● However, the insurance company refused to pay the repair or to
cause the restoration of the car to original condition.
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● Because of this, Robes filed a civil case in the CFI of Rizal to
recover, not only the amount for the repair, but also of actual and
moral damages and other fees.
● Insurance company argues that there has been a violation of the
insurance contract because the one driving the car was not an
“authorized driver”.
○ According to the insurance policy, an authorized driver
can be any person driving with the insured’s
permission/order, as long as that person is permitted in
accordance with licensing laws or regulations.
● Judgement of the CFI: in favor of Robes, the insurance company
was ordered to pay the cost of repair (5,031.28) and other fees
(actual damages (2K), attorneys’ fees (1K)).
● The company went to the CA which affirmed the ruling of the
lower court but removed the award for actual damages.
● As a result, the company filed this petition for review based on two
grounds:
○ The proceedings in the trial court were irregular and
invalid the decision of the court was based on
evidence presented to the clerk of court who acted as
commissioner. However, there was no court order
constituting him as such commissioner.
○ The damage to the insured car was not covered by the
insurance policy since it was driven by a person who
was not authorized. The driver, Domingo Reyes, does
not know how to read and write, that he was able to
secure his license without passing any examination and
that the Cavite agency of the Motor Vehicles Offices
certified of not having issued the driver’s license.

Is Reyes (Driver) an authorized driver within the purview of the
insurance policy? YES

● Reyes is an authorized driver according to the provisions of the law
(Revised Motor Vehicles Law) at that time.
○ Under said law, an examination or demonstration to
show the applicant’s ability to operate a vehicle may be
required, in the discretion of the Chief, Motor
Vehicles Office or his deputies.
○ If after examination, or without the same, the Chief or
any of his deputies, believes that the applicant possess
the necessary qualifications, they shall issue a license to
operate.
● It is clear that a driver's license can be issued without previous
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examination, and this does not make it invalid. The examination
could be dispensed with in the discretion of the officials.
● The issuance of the license is proof that the officials of the Motor
Vehicles Office considered Reyes as a qualified person to operate
motor vehicles.
● The weight of authority is in favor of the liberal interpretation
of the insurance policy for the benefit of the party insured, and
strictly against the insurer.

On the irregularity and invalidity of the trial court proceeding

● The SC held that there is no irregularity in the proceeding.
● There is nothing wrong with the practice of delegating to a
commissioner the reception of both parties and for him to submit a
report thereon to the court.
● The contentions are procedural points that can be waived by
consent of the parties, express or implied.
Assoc. Of Baptists for World ● Plaintiff (Association) is a religious corporation duly organized and

Evangelism, Inc. v. Fieldmen’s registered under the laws of the PH.
Insurance (124 SCRA 618) ● Defendant (Insurance Company) is also a domestic corporation
duly organized and existing under the laws of the PH.
● The association insured a Chevrolet CarryAll with Fieldmen’s
Insurance against loss or damage up to the amount of 5K.
● Sometime in 1961, the car was placed at the Jones Monument
Mobilgas Service Station (Service Station) under the care of the
station operator, Rene Te.
○ The purpose of this was to display the car for sale, with
the understanding that the operator or any of his station
boys would receive a 2% commission, should they sell
the vehicle.
● In 1962, Romeo Catiben, one of the station boys (and others), took
the car for a joy ride without prior permission, authority or consent
of the plaintiff or the station officer.
● On their way back, the vehicle, due to some mechanical defect,
accidentally bumped an electric post, causing actual damages
valued at P5,518.61.
● The contention of the association was that the policy covers loss or
damage to the vehicle by “burglary… or theft”.
● The company argues that there must be a prior criminal conviction
for theft before the insurance policy can be applied.

Must there be a prior criminal conviction for the damage to the
compensated under the policy? NO
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● The act of Catiben in taking the vehicle, without permission,
constitutes theft within the meaning of the insurance policy.
○ Such taking constitutes theft under the Revised Penal
Code: Who are liable for theft — Theft is committed by
any person who, with intent to gain but without violence
against or intimidation of persons not force upon things,
shall take personal property of another without the
latter’s consent.
● He is guilty of theft by the mere taking of possession of the car that
belongs to another. In this case, his intent to gain is derived from
utility, satisfaction, enjoyment and pleasure.
● There need not be prior conviction for the crime of theft to make
the insurer liable under the policy. There is no provision requiring
such prior conviction.
● The only requirement is a fair preponderance of evidence showing
the elements of taking.
Mayer Steel Pipe Corp. v. CA (273 ● Hongkong Government Supplies Department (Hongkong)
SCRA 432) contracted Mayer Steel Pipe Corporation (Mayer) to manufacture
and supply various steel pipes and fittings.
● Prior to the shipping, Mayer insured the pipes and fitting against
ALL RISKS with private respondent South Sea Surety and
Insurance Co. (South Sea) and Charter Insurance Corp. (Charter).
● Hongkong and Mayer also appointed an inspector to examine the
pipes and fittings before shipping.
○ Said inspector certified that all pipes and fittings were in
good order condition before they were loaded in the
vessel.
● However, when the goods reached Hongkong, a substantial portion
of the goods were damaged.
● Because of this, the petitioners filed a claim against the insurance
companies for indemnity.
● Charter paid HK$64,904.75. However, petitioners demanded the
payment of the cost of repair of the pipes amounting to
HK$299,345.30.
● The insurance companies refused to pay because the surveyor’s
report showed that the damage is a factory defect which are not
covered by the insurance policies.
● Petitioners filed an action to recover the amount asked
(HK$299,345.30).
● Trial court ruled in favor of the petitioners. It held that the damage
is not due to manufacturing defects.
○ That the insurance covers all risks which insure against
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ALL CAUSES of conceivable loss or damage. The only
exception being those expressly excluded or those
sustained through fraud or intentional misconduct on the
part of the insured.
● The case was elevated to the CA which affirmed the finding of the
trial court. HOWEVER, it dismissed the complaint on the ground
of prescription.
● It held that under the Carriage of Goods Sea Act, the case should
have been brought within one year after the delivery of goods or the
date when the goods should have been delivered.
● In this case, the action was filed more than two years from the time
the goods were unloaded from the vessel.

Did the action to recover already prescribe? NO

● The court erred in applying the Carriage of Goods Sea Act.
○ Section 3(6) of the Carriage of Goods by Sea Act states
that the carrier and the ship shall be discharged from all
liability for loss or damage to the goods if no suit is
filed within one year after delivery of the goods or the
date when they should have been delivered.
● Under the said provision, it is only the carrier’s liability that is
extinguished if no suit is brought within one year.
● This does not cover the liability of the insurer since such liability is
based not on the contract of carriage, but on the contract of
insurance. (Insurance Code).
● The court also reviewed the ruling on Filipino Merchants cited to
support the contention of the insurance companies.
○ Under the said case, it was the insurer which filed the
claim against the carrier for reimbursement of the
amount it paid (Insurer v. Carrier). That is why the
contract of carriage is applicable to this case.
○ In the case at bar, it was the shipper which filed the
claim against the insurer (Carrier v. Insurer).
● The court discussed that an insurance contract is a contract whereby
one party, for a consideration known as the premium, agrees to
indemnify another for loss or damages which he may suffer from a
specified peril. An all risk insurance policy, such as the one in this
case, covers all kinds of losses other than those due to willful and
fraudulent act of the insured. Such obligation prescribed only after
ten years (Art. 1144, Civil Code).
Great Pacific Life v. CA (316 SCRA ● Grepalife executed a contract of group life insurance with DBP,
677) wherein Grepalife agreed to insure the lives of eligible housing loan
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mortgagors of DBP.
● One such loan mortgagor is Dr. Wilfredo Leuterio.
● In an application form, Dr. Leuterio answered questions concerning
his test, attesting among others that he does not have any heart
conditions and that he is in good health to the best of his
knowledge.
● After about a year, Dr. Leuterio died due to “massive cerebral
hemorrhage.” When DBP submitted a death claim to Grepalife, the
latter denied the claim, alleging that Dr. Leuterio did not disclose
he had been suffering from hypertension, which caused his death.
Allegedly, such nondisclosure constituted concealment that
justified the denial of the claim.
● The widow of the late Dr. Leuterio filed a complaint against
Grepalife for “Specific Performance with Damages.” Both the trial
court and the Court of Appeals found in favor of the widow and
ordered Grepalife to pay DBP.

Was DBP a beneficiary (with insurable interest as creditor) in a group
life insurance contract that Grepalife can be held liable to pay it in a
complaint filed by the widow of the decedent/mortgagor? –YES

● The rationale of a group of 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.
● 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.
● In this type of policy insurance, the mortgagee is simply an
appointee of the insurance fund. Such losspayable clause does not
make the mortgagee a party to the contract. The 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,
such as a mortgagee. 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.
American Home Ass. v. Tantuco Ent. ● Tantuco Enterprises is a coconut oil milling and refining company. It
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(366 SCRA 740) owned two mills (the first oil mill and the “new oil mill”, both
located at its factory compound at Iyam, Lucena City.
● The two oil mills are separately covered by fire insurance policies
issued by American Home Assurance Co.
● On Sept. 30, 1991, a fire broke out and gutted and consumed the new
oil mill.
● American Home rejected the claim for the insurance proceeds on the
ground that no policy was issued by it covering the burned oil mill –
that the 2 policies was extended only to Building No. 5 (old oil mill)
and not to Bldg. 15 (the new oil mill) as stated.
● RTC and CA both ruled in favor of Tantuco and ordered American
Home Ass. to pay plaintiff.

Whether or not it really was the new oil mill that was covered by the
fire insurance policy. – YES.

● In construing the words used descriptive of a building insured, the
greatest liberality is shown by the courts in giving effect to the
insurance. In view of the custom of insurance agents to examine
buildings before writing policies upon them, and since a mistake as to
the identity and character of the building is extremely unlikely, the
courts are inclined to consider the policy of insurance covers any
building which the parties manifestly intended to insure, however
inaccurate the description may be.
● Notwithstanding, therefore, the misdescription in the policy, it is
beyond dispute, to our mind, that what the parties manifestly intended
to insure was the new oil mill.
● (it was found that in the 2nd policy, there was a reference to the “new
oil mill”) If the parties really intended to protect the first oil mill in
both policies, then there is no need to specify it as new. Indeed, it
would be absurd to assume that the respondent would protect its first
oil mill for different amounts and leave uncovered its second one.
● Prime Rule: in the event of doubt, the doubt is to be construed against
the insurer.
Rizal Surety v. CA (336 SCRA 12) • Rizal Surety issued a Php 1.5M (from Php 1M) fire insurance policy to

Transworld.
• The insurance policy covered a fourspan onestorey building owned
by Transworld.
• A fire broke out and gutted the said building and the adjacent
twostorey building owned by Transworld.
• Transworld claimed from Rizal Surety its insurance but the same was
denied.
• Hence, Transworld filed a suit in the CFI.
• However, Rizal Surety contended that the adjacent twostorey building
was not part of the insurance policy and it only covered the four span
building.
• CFI ruled in favor of Transworld and ordered Rizal Surety to pay
actual damages.
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• Rizal Surety appealed to the CA but it only modified the interest to be
paid.
• Should Rizal Surety be liable for the loss of the twostorey
building—YES
• It was stipulated in the insurance policy that: “what is contained and/or
stored during the currency of this Policy in the premises occupied by
them forming part of the building situate (sic) within own Compound,”
and “said properties must be contained and/or stored in the areas
occupied by Transworld, and said areas must form part of the building
described in the policy.”
• The said clauses in the Insurance Policy maintain that the coverage is
not limited to the fourspan building but also covers the adjacent
twostorey building.
• Both the CFI and CA concluded that the twostorey building was not
an annex but was an integral part of the fourspan building.
• The SC cited Art. 1377 of the Civil Code which states that, “the
interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity.”
• It stands to reason that the doubt/confusion should be resolved against
the one who made the contract, which in this case is Rizal Surety.
• The SC also cited the case of Landicho v. GSIS: “the terms in an
insurance policy, which are ambiguous, equivocal, or uncertain xxx are
to be construed strictly and most strongly against the insurer, and
liberally in favor of the insured so as to effect the dominant purpose of
indemnity or payment to the insured, especially where forfeiture is
involved.”
• Also, citing a US case, “the insured usually has no voice in the
selection or arrangement of the words employed and that the language of
the contract is selected with great care and deliberation by experts and
legal advisers employed by, and acting exclusively in the interest of the
insurance company.”
Perla Compania de Seguros Inc. v. • Milagros Cayas (Cayas) owned a Mazda bus that was insured by Perla.

CA (185 SCRA 741) • While using the Mazda bus, Cayas got into an accident, injuring 4 of
her passengers.
• 3 of the injured passengers agreed to settle for Php 4,000 each, but
Perea sued Cayas for damages. CFI ruled in favor of Perea, ordering
Cayas to compensate her with damages.
• While the case was pending, Cayas filed a complaint with the CFI
seeking reimbursement from Perla for all the amounts she paid to all the
injured passengers.
• Cayas contended that Perla refused to make such reimbursement
notwithstanding the fact that her claim was within its contractual
liability under the insurance policy.
• CFI ruled in favor of Cayas ordering Perla to pay Php 50,000 for
reimbursement, and for moral damages and attorney’s fees.
• Perla filed a motion contending the decision. Subsequently, the
decision was set aside.
• CFI still ruled in favor of Cayas but removed the moral damages. CA
JAIGEST | 16

affirmed.
• Is the amount of award of damages proper?—NO
• Perla seeks to limit its liability to only Php 4,000/person or Php 12,000
in total.
• The insurance policy clearly and categorically placed Perla’s liability
for all damages arising our of death or bodily injury sustained by one
person as a result of any one accident at Php 12,000.
• SC held in the case of Stokes v. Malayan Insurance Co. that the terms
of the contract constitute the measure of the insurer’s liability and
compliance therewith is a condition precedent to the insured’s right of
recovery from the insurer.
• Said amount was in compliance of Sec. 377 of PD. 612 (which was
retained by the Insurance Code), which provided that the liability of land
transportation vehicle operators for bodily injuries sustained by a
passenger arising out of the use of their vehicles shall not be less than
Php 12,000 per passenger.
• Since the amount was not less than the said amount, the same is upheld
as effective, valid, and binding as between the parties.
• The SC held that although Cayas was able to prove a total loss of only
P44,000.00, Perla was liable for the amount of P50,000.00, the
maximum liability per accident stipulated in the policy. This is unjust.
• An insurance indemnity, being merely an assistance/restitution in
nature and as can be fairly ascertained, cannot be availed of by any
accident victim or claimant as an instrument of enrichment by reason of
an accident.
• In other words, the insured cannot demand more than what was agreed
upon. He cannot profit from the insurance policy. No unjust enrichment
is allowed.
Zenith Insurance Corp. v. CA (185 ● Lawrence Fernandez insured his car for "own damage" with Zenith
SCRA 398) Insurance.
● The car figured in an accident and suffered actual damages of 3K
(P3,640).
● After being given a run around by Zenith for 2 months, Fernandez
filed a complaint with the RTC of Cebu for sum of money and
damages resulting from the refusal of Zenith to pay the amount
claimed.
● Fernandez prayed for the following: (1053)
a. Actual Damages: 3K
b. Moral Damages: 10K
c. Exemplary Damages: 5K
d. Attorney’s Fees: 3K
● The RTC ruled in favor of Fernandez and ordered: (20205)
a. Actual Damages: 3K
b. Moral Damages: 20K (2 times more than prayed for)
c. Exemplary Damages: 20K (4 times more)
d. Attorney’s Fees: 5K (2K more)

Is the increased amount of damages awarded to Fernandez by the
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RTC proper? NO.
● In case of unreasonable delay in the payment of insurance
claims, Sec. 244 of the Insurance Code provides that the
damages that may be awarded are:
○ Attorney’s fees
○ Other expenses incurred due to the delay
○ Interest at twice the ceiling prescribed by the Monetary
Board of the amount of the claim
○ Amount of the claim

On moral damages
● The purpose is essentially indemnity or reparation NOT
punishment or correction.
● It is awarded to alleviate the suffering he has undergone
● No proof of pecuniary loss is necessary for it to be awarded
● But, there must be a showing that the breach was wanton and
deliberately injurious OR the one responsible acted
fraudulently or in bad faith
○ In this case, the 2 month delay is not so malevolent as
to justify P20K in damages.
○ The reason for the failure to indemnify respondent was
that the parties couldn’t come to an agreement as
regards the amount of damage to the car

On Exemplary Damages
● These are imposed by way of example or correction for public
good
● In this case, since the insurance company had not acted in
wanton manner there is no need to award exemplary damages.

On Actual Damages
● Deduction of deductible franchise and 20% depreciation on
parts are not allowed in motor vehicle insurance claims as the
court found that the policy itself does NOT mention any
deductible franchise.
● Since the amount of P3,640 was established before the RTC and
affirmed by the CA, it stands.

Thus, the awards due to Fernandez are: (1005)
1. Actual Damages: 3K
2. Moral Damages: 10K
3. Exemplary Damages: DELETED
4. Attorney’s Fees: 5K (2K more than what he asked)

Doing Insurance Business

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White Gold Marine Services v. ● White Gold Marine Services, Inc. (White Gold) owns several
Pioneer Insurance (G.R. No. 154514, shipping vessels.
July 28, 2005) ● Steamship Mutual Underwriting Association, Ltd. (based in
Bermuda) is a protection and indemnity club
○ A P&I Club is an association composed of shipowners
who have come together to pool resources to provide
mutual protection to its members as against third parties.
● White Gold, through Pioneer Insurance (agent of Steamship
Mutual here in the PH), procured a protection and indemnity
coverage from Steamship Mutual.
○ Steamship Mutual does not have the license from the
Insurance Commission to conduct insurance business in
the Philippines but its collection agent here (Pioneer
Insurance) has been licensed to conduct insurance
business.
● Later, Steamship Mutual filed a case for collection of sum of
money against White Gold due to the latter’s failure to pay its
accounts.
○ White Gold averred that Steamship Mutual has no
license [hence it cannot collect].
○ Nor can it collect through Pioneer Insurance because,
though Pioneer Insurance is licensed as an insurance
company, it is not licensed to be an insurance
broker/agent.
● The Insurance Commission as well as the Court of Appeals ruled
in favor of Steamship Mutual.

Is Steamship Mutual engaged in the insurance business? YES, thus it
needs to obtain licenses and to secure proper authorization.

● Sec. 2(2) of the Insurance code enumerates what constitutes
“doing an insurance business”
● The test to determine if a contract is an insurance contract or not,
depends on:
○ the nature of the promise,
○ the act required to be performed, and
○ the exact nature of the agreement in the light of the
occurrence, contingency, or circumstances under which
the performance becomes requisite. It is not by what it is
called.
● If it is a contract of indemnity (where one undertakes for a
consideration to indemnify another against loss, damage or
liability), it must be a contract of insurance.
● In fact, a protection and indemnity club is a form of insurance
where the members are both the insurers and the insured. It is a
mutual insurance company.
○ The club indemnifies the member for whatever risks it
may incur against a third party where the third party is
other than the club and the members.
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● Hence, Steamship Mutual needs to procure a license from the
Insurance Commission in order to continue operating here.
● Pioneer Insurance also needs to secure ANOTHER license as an
insurance broker/agent of Steamship Mutual pursuant to
Section 299 of the Insurance Code.

JAIGEST | 20

Session 1 General Provisions

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Session 1 General Provisions

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Rizal Surety & Insurance Co. v. ● On November 1960, the vessel SS Flying Trader, loaded on board

Assoc. Of Baptists for World ● Plaintiff (Association) is a religious corporation duly organized and

American Home Ass. v. Tantuco Ent. ● Tantuco Enterprises is a coconut oil milling and refining company. It

Rizal Surety v. CA (336 SCRA 12) • Rizal Surety issued a Php 1.5M (from Php 1M) fire insurance policy to

Perla Compania de Seguros Inc. v. • Milagros Cayas (Cayas) owned a Mazda bus that was insured by Perla.

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